[email protected] Janette Chea

TD 8 : Mr. Alain de Rozaven

Bastien Bonneau : [email protected]

Janette Chea : [email protected]

Samy Abdou : [email protected]

Ruixuan Qu : [email protected]

Erdem Kiranoglu : [email protected] Introduction

The strategic analysis of a company is the application of theoretical and conceptual frameworks. Its methodology is to understand the success or failure of a company during its life. As future managers, our report will study how a small company, Wiko, with a low-cost strategy, conquered the Smartphone market where the giant constructors seemed unbeatable.

In early 2014, Wiko was ranked second on the French market for the sale of Smartphone without bundle subscription. They were just behind Samsung, with 10 to 15% of the market share.

Wiko was created in 2011 in Marseille by Laurent Dahan and it is Tinno’s subsidiary at 95%.

Tinno is a mobile technology limited company, and they supply products and services used to work on GSM cards as a first-class manufacturer. Tinno's strategy is to supply technology support for their European Corporate Clients, for a small investment with quick result and high economic benefits. Wiko has developed a special commercial partnership; the Chinese team is in charge of developing and producing mobile phones desired by Wiko depending of the market’s location (France, Europe, and USA). The French company is also responsible for the marketing and selling strategy.

How did a three year old company succeed as Wiko did?

This success intrigued us and we wanted to learn more about it and explain the key success.

The first Smartphone “IBM Simon” has been created in 1992 followed by the main mobile phones manufacturers as Nokia, LG, or Samsung and more recently the first Iphone signed

Apple in 2007. Through our analysis, we will discover that the mobile phone market is

fundamentally defined by high barrier of entry, on a tight market situation with a high

bargaining power of suppliers. In this industry, Wiko managed to make a lightning entrance

by using a cost strategy based on price sensitiveness. Through our report we will investigate

on how a small company as Wiko entered a market with huge barriers to entry and fierce

concurrency.

Since 2011, Wiko is grinding the ladder in the mobile phone market. During 2015, Wiko

earned more than €200 000 000 in revenues, they were dreaming of reaching the Top 5. In

this report, we will present the analysis that will be done by applying appropriate frameworks

on Wiko’s Micro-Environment (Porter’s 5 forces) and Macro-Environment (PESTEL).

Secondly, we will present the Internal Environment (Resources & Capabilities and VRIN

analysis). Thirdly, we will focus on the Business and Corporate strategy in order to

understand what the competitive advantages of the firm are and what its business scope is.

Finally we will add some recommendations for the future Wiko’s strategy, they will always

need to improve their technologies but the difficulty will be to stick on their personal identity.

I. External and Internal Analysis

In this part, we will study how external and internal analysis can lead to a strategy assessment

for a company, especially Wiko in our case. The external analysis is the study of opportunities

and threats in the mobile phone industry; while the internal analysis will be about the study of

strengths and weaknesses related to the company internally. Once both analyses are identified,

the company will be able to identify the problems raised and propose strategic options for

problem resolution.

1. The External environment a. The Macro-Environment

The Macro-Environment is what defines the first layer of analysis of a strategic assessment. It is here where we will be analysing the Pestel framework to get a deep understanding of the six main types of the environmental influences that could or will affect Wiko Company.

i. Political Factors

In terms of the general political environment, the world is now in a relatively peaceful stage, the French society is relatively stable, the level of consumption of the French people hadn’t been affected although experienced a terrorist attack, the French society's demand for smart phones has always been in the rising trend.

The French government started to attract foreign investors since 2012, and promulgated foreign investment promotion policies and incentives as following, including increased support for scientific research innovation, the development of "future employment contract", starting "Say oui to France" action, and the introduction of "talent passport". With 25 member states and 380 million total population of the European Union unified market is one of the biggest attractions to foreign investors. The high degree of integration of the EU, the strong purchasing power of the residents and the free flow of goods, services, funds and personnel within the Union. France is geographically located in the heart of the world's largest market, which means entering the French market is equivalent to entering the entire EU market.

As a French company invested by Chinese company, the potential of the French electronics market plus France government political support, so Wiko can become the N°3rd mobile phone after Apple and Samsung sold in France.

ii. Economic Factors

France is one of the world's economically developed countries, is the EU countries, with the implementation of the modern market economic system, the basic form of property rights is private ownership, the market is the main mechanism for the allocation of resources, the economy is relatively open to a high degree of freedom of trade policy . However, the financial crisis began in 2007; the French economy has been plunged into a state of distress, and in 2016, due to strikes, floods and terrorist attacks led to a further economic recovery in

France

During 2017，according to the statistic, the unemployment problem is even worse for young people: 24% of those between the age of 15 and 24 don't have a job, even worse for young people: Government debt, meanwhile, has ballooned to almost 90% of GDP, up from just

58% a decade ago. The emergence of WIKO happens to deal with this tense economic state,

Wiko’s main marketing strategy is its low prices, the high spec of its hardware, chic design and even the quality of its packaging. People can buy expensive, high-cost mobile phones without the expensive prices, and Wiko is an excellent choice for families which is in tension

5 in the economy or the office worker.，Wiko now has become the second-largest online

Smartphone vendor in France, with 14.2 percent market share as of this May.

iii. Socio-Cultural Factors

1. Smartphones Are Everywhere

For 2017, the number of Smartphone users in France is estimated to reach 43.35 million, with the number of Smartphone users worldwide forecast to exceed 2 billion users by that time.

From 2015 to 2022, the number of Smartphone users is expected to increase 17.68 million users. This is equivalent to 26.26% of user growth. The data was calculated in July 2017, covering all people with one or more Smartphone of all ages, and using at least one of these devices per month.

2. Smartphones Change Lifestyles

In the hustle and bustle of modern life, there are so many important elements. You might find yourself with a busy and hectic schedule. But Smartphone can help you, one of the most important things that make Smartphone so vital to our daily lives is their efficiency and it

6 make people’s life more easily. People can access Facebook and other social networking sites with ease to post their daily life. And there are things like Vibes, which acts as an international call service like Skype; it saves money on your phone call allowance. One of the most popular connectivity apps for Smartphone is the instant messaging app Whatsapp. This works over the internet connection and can make use of Wi-Fi to ensure it doesn’t cost into your data plan. And with Smartphone people can also enjoy music, statically, as much as 60.7 percent of polled users said they listen to music on their phones every day, while another 34.6 percent said they do so occasionally. In effect, more than 95 percent of people with

Smartphone use their phones as much as portable music players as anything else. Now, it is a international security, Smartphone play an very important role in the security, Wiko as a popular Smartphone, it has variety of functions and strong operation systems and still focus on technique development, so that Wiko has become top 3 of France Smartphone marketing.

iv. Technological Factors

1. Research Company and Operating System

Actually, Wiko Smartphone far from being 'made in France', it’s actually made in China.

Wiko is made by a Chinese company called “Tinno” which has spent several years on dual-

SIM phones’ development ，Tinno has put their best dual-SIM card technology into the phone, at the same time they also chose popular Andrews system as the operating system.

Android with a powerful operating function have some operating function which other operating system is the lack. For example like data transfer which is a lot of users’ metrics when they the purchase mobile. On IOS, if the user wants to transfer the phone data to the computer, they can only through iTunes or third-party management software to achieve, the operating steps is very inconvenient, and Android mobile phone only need to connect the data

7 line, then to be free to operate, convenience is better. And according to the analysis and statistic, the user of Android on their Smartphone has now over 27 million.

2. New Products Research

In 2016, Wiko has launching a number of captivating new releases including the expansion of the Ufeel range, fun accessories, protection and wireless audio devices, as well as the

WiMATE Smart band. These new technology not only provide a new product which can link their Smartphone to use but also can attractive young people.

v. Environmental Factors

1. Smartphones Update Fast Damage Environment

Smartphone technology is growing rapidly; it means that the use cycle of the mobile phone is reduced. Most people in France still buy their Smartphone with a two-year contract, yet they don’t worry too much about what happens to their old phones once they are exchanged with the new one offered with the next contract. Surely, some of these products get refurbished and they eventually can be used by the new customers. And there are growing efforts to recycle valuable metals such as gold from the circuits. But still, that’s not enough to balance out the

8 concerns about the sustainability of the mobile technology businesses, for example in the light of problems related to mining of rare metals used in circuits. The waste of the electronic material waste would consists make damage to the air, soil, and water resources. But in daily life, people do not usually think about the effects of our electronic waste that can cause pollution, but the environmental impact is indisputable. For example, The number of dead zones in the ocean increased 500 fold in the past 40 years, mainly due to poisonous chemicals used in various industries making their way into the ocean.

So, in the future, Wiko not only should focus on develop technology but also should to find a way to reduce the damage to the environment.

2. Ways To Reduce Pollution

Improving e-waste recycling efficiency is highly important for the sustainability of the

Smartphone business, and it would be a great achievement for humanity if we could create

“near-closed-market” conditions such that all the parts of a new generation Smartphone come from the recycled materials of previous generations. And according to the James Suckling who is a review's authors, he offered some ideas for reducing the waste and encouraging recycling: Service contracts could include "take-back" clauses that encourage people to send their old phones back to the manufacturer when they upgrade. Phones and their apps could also do more of their computing in the cloud, instead of on the device. If devices need to perform less processing, they'll require fewer precious metals to make; plus, they'll last longer. Whether service, phone, and app companies would be willing to make these changes without some benefit to them remains to be seen. So, in the future, Wiko not only should focus on develop technology but also should to find a way to reduce the damage to the environment.

vi. Legal Factors

1. Tax Legal Protect Foreign Investors

The French tax system is traditionally meant to facilitate business investment, regional development and international development. The principle of discriminatory treatment of different interest groups fully reflects the fairness of France in the tax system. France has signed tax treaties with more than 100 countries and protected foreign investors to avoid paying taxes repeatedly.

2. Culture Tax Law That Affects The Electric Industry

One of the main advantages of France market is the traditional industry and the emerging electronics technology industry, which has attracted foreign investors constantly, and the

French government charge 1% -2% of the tax to on the sale of electronic products, counting

1.7 Billion to 340 million Euros in revenue each year, which is also the main reason that

French government vigorously support and invest in the electronics industry. However, from

2013 onwards, in order to protect cultural property, the French government charges Google,

Apple and Amazon and other large Internet electronics company 1% of the sales of Internet- compatible tax, which is a negative impact for Wiko, it means Wiko, which has always been sold at a low price, must increasing the price to keep its earnings unchanged.

b. Sector and Industry

As noticeable, Wiko is working in two different countries: France and Belgium. The thing is that in both countries, Wiko is not a major brand in the mobile phone industry. What about the other brand? Even in other countries, and for other brands, they are not that known. So

Tinno’s strategy is logically to focus not depending on the brand’s demand but on the countries they are targeting, that is to say the biggest countries. Since France and Belgium don’t represent a big part of Tinno’s market, Wiko won’t be a priority for Tinno. Even if

Wiko need a lot of research and development to get to be known and more recognized between all the brands, Tinno will focus more on other brands like Blu.

i. The Extent of Rivalry between Competitors

The Smartphone market is divided through several brands with different business model:

Samsung, Wiko, Huawei. In 2015, Wiko reached the sixth place in the ranking of the most sold Smartphone brand and is planning to reach the fifth place before 2020. To achieve this goal, the brand has to deal with a high competition due to the presence of many companies which use the same business model as Wiko: Alcatel, Vivo, Huawei, and Xiaomi. This competition has to be managed through several points.

The first point that removes many companies from the competition is the French touch well appreciated by buyers, especially in France. Wiko has to compete with other French brands which base their marketing process in the same advantages as Wiko’s Smartphone: low cost, good technology and well designed. Among those are Alcatel, Archos, So far Wiko has managed to stay in the first place by taking advantages of the opportunity created by the enter of Free mobile in the Mobile plan industry. Indeed, when Free Mobile created their formula without including mobile phone, Wiko was the first mobile company to propose mobile phone without a mobile plan. This gave Wiko a huge advantage compared to its competitors and allowed the company to gain a lot of customers.

The second competition point that Wiko has to manage with is worldwide companies with the same business model as the company: Htc, Vivo, and ZTE. This competition is fiercer than the national one as the international companies have more resources and can also sell mobile at lower price. The fact that these companies have the same business model as Wiko make them the hardest companies to fight against, it put Wiko as an equal to these brand, because

Wiko won’t be able to convince people with its low cost and good quality products. Ways to

11 manage this competition is to put the stress on the marketing plan of the company and to improve the research and development of the mobiles. Since the resources are quite equal between Wiko and these kinds of companies, the idea is to improve the technology of the products as fast as possible and before the other competitors.

About the competition in the mobile industry, it is simple to think about the big companies like Apple and Samsung which are big famous brand of mobile phone, a implemented notoriety that allow them to have close customers that want to stick with these brands. These brands cannot be considered as Wiko’s direct competitors as they don’t target the same range of people as Wiko.

ii. The Threat Of Entry

Reports have shown that the Smartphone industry is slowly declining since many years now and that even small companies of mobile phone start to struggle with the evolution of the market. The case of Microsoft who spent several billions of dollars trying to enter the

Smartphone industry and failed at this mission is quite an illustration of the complexity of

Smartphone industry. Seeing such a big company failing does not attract new players to enter the market. Main reasons of this failure are reasons why companies don’t want to join the game:

 People who want a Smartphone already have one and there is no such a big increase

that could be made to make people want to change their Smartphone

 Established Smartphone brands are well implemented and it is hard to replace them. In

statistics, few brands arise frequently in France: Apple, Samsung, Huawei, Wiko.

 There is no new business model available yet.

 The Smartphone technologies are really advanced now and a new entrant would have

to develop those technologies before entering in the Smartphone industry.

The figure above shows that the growth rate of the Smartphone market is decreasing through years even if the worldwide shipments is still increasing what could be explained by the first and the second reasons previously mentioned. The barriers to entry in Smartphone industry are high for entrepreneurs.

Yet, another barrier to entry has to be considered by companies who want to join the

Smartphone industry, especially by those who are growing in another field. Few examples are

Google, Amazon and Razer, three big companies completely different from Smartphone companies, one is specialized in Internet services, the second one is an e-commerce company and the last one is specialized in computer hardware. This tight link with IT allows these three companies to think about entering in the Smartphone industry but one thing is still holding them off: mastering Smartphone development and market. For these kinds of companies, the ones who are already well-implemented in their field and have enough resources, it is easier to enter in a new market field. The resources that these three companies are able to put in

Research and Development could balance the high barriers of the Smartphone industry.

But event for these three big companies, with so many resources, the Research and

Development needed in Smartphone technologies take a lot of time: Google planned to enter in Smartphone industry 2 years ago and Amazon 3 years ago.

iii. The threat of substitutes

Few years ago, when mobile phones’ goal was communication, the main substitute of mobile industry would have been letter, a low cost way for people to daily communicate. Mail used to be an alternative of mobile phone as well as mobile phone used to be an alternative for mail; one for the price, the second one for the quick response. But since the development of mobile phone to Smartphone, and since Wiko is only focusing on Smartphone, letter can no longer be used as a substitute of Smartphone as it does not cover all the functions that a

Smartphone allows, such as camera, agenda, alarm.

One substitute that is still present and is still adopted by many people is simple the old fashion way life: no Smartphone, just a landline, a separate camera, an alarm clock, going to the library for researches. Statistics show that in 2017, 2.32 billions of people around the world have a Smartphone; a number that will constantly grows through the years but still does not reach half of the world population, estimated at 7.6 billion. For those who live without a

Smartphone by choice, the main reason will be freedom and to live disconnected.

The main form of substitute for the Smartphone industry is the computer. With the development of new communication software, such as Skype that allows to call or video conferencing, the former principal disadvantage of computer has been fixed. These kinds of software allow the communication part of Smartphone; the rest is largely completed by computer as well since it allows to do research, to take picture, and even to have an alarm clock. This substitute may be the one that Wiko has to take the most into account as computer has many significant advantages compared to Smartphone: the comfort of a big screen, the speed of the device, no additional cost for Internet as it usually uses the available Wi-Fi of the place where the computer is used.

The main disadvantages of computer could be the lack of mobility but this problem has been solved by the creation of tablet. The survey above, from 2014, shows that tablets have been widely used for business utilisation. The main disadvantage is still the mobility of the device

15 but it is clear that it is only about time for this problem to be solved. Hence, tablets can be considered as the future main substitute of Smartphone Industry.

For both computers and tablets, Wiko as a Smartphone brand still has a strong advantage: its price, which the brand tends to keep low and that is still one of the main reasons why someone would prefer a Wiko Smartphone rather than a computer or a tablet. To stay competitive against the other devices, Wiko has to work on the performance of its

Smartphone which should be as closed to computers and tablets’ performance as possible.

iv. The Bargaining Power of Buyers

The Smartphone industry’s customers can be divided into two parts. The first one put together people who are able to buy expensive and high technology Smartphone, who generally spend more than $400 in a Smartphone. In the second part are people who can’t afford or who don’t want to spend too much money on highly developed Smartphone. This is the segment of customers that Wiko is targeting with an average cost for a Wiko Smartphone of $300.

It is interesting to see how big the Wiko’s customers segment is. With an average price of

$300 for a Wiko Smartphone, the customers’ segment represents more than half of the worldwide Smartphone shipment which means that Wiko customers are concentrated, giving them more bargaining power. If Wiko disappoints by changing one of the reasons why they are Wiko’s customers (low prices, French touch), the company could lose a lot of customers.

This means that Wiko’s customers are concentrated enough to demand lower prices or better services.

Another point that is making buyers’ bargaining power high is the available switching costs in

Smartphone industry. Worldwide and especially in France where Wiko is the most known, buyers’ have many outside options as low-cost Smartphone with not so bad technology:

Arkos, Sony. It is understandable to say that Wiko has many outside options as well concerning their buyers, but it is not the case. Wiko can divide its customers’ segment into several parts which could be named as the reason why those customers are buying Wiko’s

Smartphone: price, design, and multi-sim. Wiko cannot fail at performing in these fields because if one of those parts drops off, the company could lose a lot of customers. So Wiko’s buyers have a strong bargaining power on the performance of the Smartphone since it there are a lot of outside options and since Wiko’s product does not have a value as a brand like big famous brand such as Apple or Samsung: the products can only rely on its performance in the three parts.

v. The Bargaining Power of Suppliers

The market share of Smartphone’s suppliers is widely dominated by China suppliers. Usually, the bargaining power of suppliers in the Smartphone industry is low because the suppliers are concentrated, allowing Smartphone companies to sell low cost Smartphone or to make a lot of profits. The case of Wiko is quite different as the company is owned by 95% by a big Chinese company called Shenzhen Tinno Mobile Technology (Tinno).

What is happening is that the 5% of Wiko based in France work on the market research, the marketing and on the improvement that the brand could add to its Smartphone. All the

Development and Research are made in China by Tinno and the whole process of production is made by Tinno itself. That is to say, Tinno wants the success of Wiko Smartphone and knows that one of the main reasons why customers buy Wiko Smartphone is because of its low price. So in the interest of Tinno, the production and the supply made by the company can’t be at high price.

The bargaining power of the supplier here will depend on two things: the importance of Tinno in the Smartphone market to understand if Tinno can manage to get low-cost components and the weight of Wiko between all the Tinno’s Smartphone brands.

1. Tinno in the Smartphone market

In 2012, Tinno has been ranked 14 in Shen Zhen Economic and Trade Department’s top 100 enterprises of SW business income. It shows how the company is important in the Chinese

Market. Since all the components and all the mobile phones from Tinno’s brands are product in China, it is understandable that the notoriety of Tinno give the company a strong bargaining power. This allows Tinno to be able to propose the mobile phones at low-cost to its retailers. But since Tinno has brands in many countries, and since the development of the technology depends on the country, Tinno is not able to satisfy all the needs of its brands. It means for example for two brands of Tinno based on two different countries, Tinno can’t satisfy the demand of both brands and have to satisfy the main one. That is to say now that the bargaining power of supplier will depend on the weight of Wiko between all Tinno’s brands.

2. Wiko as part of Tinno

As previously said, Tinno is divided into many brands through several countries:

United States Blu

Germany Mobistel

France Wiko

Belgium Wiko

India Intex, Micromax

Italy New Generation Mobile

Pakistani QMobile

Philippines MyPhone

Russia Fly

Tunisia Evertek

Vietnam QMobile, QSmart

Latin America Lanix Mobile

2. The Internal Environment

Now that we have studied the External Environment, we can focus on the Internal

Environment of Wiko. For that, we will analyse Wiko’s resources and capabilities and how the company is making these two components work together to create Organizational

Capability; which provides the foundation for competitive advantage among the industry.

From the book of Contemporary Strategy Analysis from Robert M. Grant we can have a better understanding of the links between resources, capabilities, and competitive advantage.

a. Resources & Capabilities

Since Wiko is still considered as a private company, its stocks are not traded on the secondary market. Also, they don’t share online their financial statements regularly. The next analysis of the internal environment will be based on Wiko’s 2015 Financial Statement, which is the only one we were able to buy online.

From that Financial Statement, we will analyse Wiko’s Tangible, Intangible and Human

Resources, to be able to connect the dots that will make Wiko have a competitive advantage.

i. Tangible Resources

Wiko’s tangible resources have grown up over the years, and continued to do so till today.

Their ability to “be at the right place at the right moment” helped them grow with time. Being able to understand the demand of the society, and to line itself with the client’s demand is what making them successful today.

Back to the tangible resources, by looking to their Balance Sheet, we can sort their assets into

2 categories, Financial & Physical Resources, which we can find in the figures below:

Fixed Assets: Tangible Resources (Physical)

In this section of the Financial Statement, we can see the Fixed Assets that the company has.

In this category, Fixed Tangible Resources, we find that the company has in total Net

€1,719,488 (€1,310,622 + €408,866), which are consisted of construction and other physical assets. These will probably generate profit to the company if they are being used correctly.

Current Assets: Tangible Resources

Then, in this next category, we can find the current assets, which are the assets or even the capital needed to run the business. Even if Inventories are not sound values to bias our

22 judgment about a firm, we can still see that Wiko’s inventories are worth (in Net)

€30,081,927 which is an important amount under assets. In France, probably this cash is used by Wiko to develop their marketing strategy and some will be reinvested to acquire new technologies and to expand to new markets.

Fixed Assets: Financial Resources

The amount of their fixed assets - financial resources are low, by the time of 2015. We can see in the figure above, that it is less than €200,000. Wiko is a kind of “subsidiary” of Tinno

(more than 90% ownership by Tinno). Wiko had leverage when Tinno did its joint venture/merger with Wiko, compared to the other mobile start-ups; because it had a big amount available to be able to finance and integrate the mobile industry.

Balance Sheet: Financial Resources

Indeed, we can see that Wiko’s net income is not the only indicator of Wiko’s strength, but if we have a look at their volumes of sale, we can have a clearer idea about their strong performance.

The figure above shows, respectively for France and International exportation, Wiko’s:

 Sales € 20,115,230 / €135,351,532

 Cost of goods sold (COGS based on the services only in France) €6,692,747

 Net Income €86,807,977 / €135,351,532

We can see that the profit margin is really high between the cost of building the product and the sale out of it; in France there is a difference of €13,422,483 (€80,115,230 - €6,692,747).

The cost of manufacturing the phones in China makes it really cheap to build, and this leads to a lower price of the phone too. Also we can see that Wiko’s net income is higher by exporting to the international market than selling inside France. There is a difference of

€48,543,555 (€135,351,532 - €86,807,977). International Market is also interested by Wiko’s innovative ideas.

So the total Net Income of €222,159,509 is the sum of the sale of millions of cheap phones that brings the net income to that high value. Through this, we understand that Wiko’s volume

(in terms of sales) is very high to be able to generate that much profit.

ii. Intangible Resources

Wiko has integrated the market just after Free Telecom decided to launch their firm. Wiko came as a complement to Free Mobile; when Free launched their cheap sim card, Wiko found an opportunity to sell low-cost mobiles to the same clients Free was targeting.

When Wiko Company started, its reputation was first built on the fact that Wiko manufactures low-cost phones. Recently, in July 2017, Wiko decided to combine Low-cost and Premium

Quality in the manufacture of its new phones. Since the barrier of entry in the mobile industry is hard due to different circumstances seen above (part 1), Wiko has integrated the market, and climbed the scale to find its place among the best in the industry with time.

By saying that, I want to express that Wiko’s reputation and goodwill, will keep on growing over the years if they continue launching products that are in line with the client’s demand. As for instance, Wiko’s launch of the dual sim card phones, that other strong French competitors

24 didn’t really put the effort to understand this opportunity in the market. In France, they might not be very common yet, but in other countries of the world, having a personal and a professional phone is sometimes a normal thing. So Wiko’s Intangible Resources are going to grow if it continues to target the international market too.

So we can see that the company has some investments going on, which is increasing the value of the firm, especially if they continue to do so on the long run. These assets will help them generate profit, which will make the net income increase, along with their share price.

iii. Human Resources

By 2015, Wiko reported paying €6,028,416 in salaries. Since 2015, the company grew, and the number of employees grew with it too.

Income statement : Employee Salaries

Since the inception of Wiko, employees have stayed steady and loyal to the firm, as the environment was intense and very beneficial to employees to work in. The fast growth of this firm exposed employees to fast changes in their jobs, which gave a certain passion to these employees that saw a small firm grow from scratch to a potential big competitor in the industry. This knowledge is something that Wiko has to keep hand on, because employee’s knowledge is an inexplicable strong asset to a firm. By keeping employees in the firm during long-term, employees will become more and more experts in their departments and in the industry too. Their value in the firm is really important as they are the reason for making the firm work on a daily basis. The internal shares distributed among employees have increased in value too throughout the years. In 2015, Wiko had 150 employees in their Headquarters in

Marseille, and more than 350 employees dispersed all over the world.

Finally, Wiko’s departments are comprised of:

 30% of total employees in Sales and Business Development

 30% of total employees in HR, Finance, Legal, IT, Customer Service combined

 15% of total employees in Marketing, Communication, Research & Development,

Product Conception and Design

 10% of total employees in Logistics and Distribution

Finally, these numbers have surely increased with the years, and will continue to increase with time. If Wiko keeps on overcoming all obstacles that it faces, it will be able to succeed and beat the industry to get a bigger part of the share among the industry of mobiles.

b. Competitive Advantage (VRIN Network)

 VALUE

Wiko’s strength is within it is price. From the start-up, the company’s aim was to create cheap and quality Smartphone compared to innovative, ground-breaking and expensive Smartphone like Apple’s Iphone or Samsung Smartphone. The company started with a small amount of

100.000€ investment and currently it has 8.3% shares in the market in terms of Smartphone sales. Considering the market, the rival Smartphone companies with their R&D and financial advantage, Wiko’s achievements should be considered highly. In fiscal year 2015 the company reported the total revenues at the end of the year of 222.159.500€. Considering the

26 company’s late entry to the market, the potential of the company is huge as it has the strengths to be one of the French Smartphone market leading companies. Wiko is majority owned by

Tinno, a Chinese mobile phone manufacturer.

 RARITY

Wiko mobile’s cheap mobile phones are not exactly rare in the market. So Wiko mobile does not have an advantage over its competitors. We can expect the company to have a profit amount that is not above normal. Wiko mobile is the only French mobile phone company in

France which makes the company rare in the market as Wiko is the only company that French people can trust in terms of country of origin but Wiko’s all production is done in China so we can say that even if a consumer wants to support a French mobile phone company, revenues will have to be shared with Chinese producers which could have a negative impact on the consumer who wants to support Wiko as a French company. Wiko’s rarity comes from being a

French company and having cheap products compared to competitors. In terms of innovation and technology Wiko is miles behind companies like Apple and Samsung.

 INIMITABILITY

In terms of inimitability, Wiko mobile’s resources and capabilities are both imitable. The company’s only current products are mobile phones and almost all of their products are non- innovative and cheap compared to entire mobile phone production market which leads to

Wiko’s products being imitable. Even though Wiko is majority owned by Tinno, compared to market leading firms like Samsung and Apple; they don’t have enough resources to compete against them in terms of technology, quality and price.

 NON-SUBSTITUTABILITY

Wiko’s non-substitutability is almost none. Currently in the French mobile market, there are too many manufacturers and too many substitutes for mobile phone consumers and too many alternative cheap budget phones produced by market leading companies like Samsung. As

27 stated before, the only advantage and non-substitutability we can talk about is Wiko being the only French company in the French market which leads to an advantage over its competitors as French consumers who prefers supporting French companies over foreign ones.

SWOT ANALYSIS

Competition between: Apple, Samsung, Archos, LG, Huawei

STRENGTHS WEAKNESSES

 Price and Quality Ratio  Innovations

 Made in France  Partly Made in France

 Tinno  Low Bargaining Power

 After Sales Services  Technologically Obese Scene

 Well Segmented Market

 Large Range of Customers

 Android System

 Design

 Unlocked Phones

OPPORTUNITIES THREATS

 Unlocked Smartphones  Chinese Smartphones

 Open Market  Rising of the cost of labor

 Emerging Markets  Tinno’s Power

 Manufactured in France  Subsidiaries

 Co-Branding  Limited Investments

II. Business and Corporate Strategy

In this part, we will be looking at Wiko Mobile’s strategic decisions and how they are able to stay relative in market against competitors like Apple and Samsung. We will look closely into the French mobile phone market in order to analyze Wiko’s position and sources of differentiation. Wiko mobile is also the only national mobile phone producer in the French market, which is also an advantage for the firm as many French consumers prefer national products rather than international ones. We are also going to discuss the firm’s cost position relative to the industry and analyze the sources of differentiation.

1. Business Strategy

Wiko Mobile’s entire strategy is based on having the lowest price in the market. From the start-up, their first and foremost goal was to produce low cost mobile phones for the consumers that are not willing to pay high amounts of money for a mobile phone. Even though Wiko Mobile is a French company, all of the production is done in China in order to decrease the costs and have a competitive advantage versus its rival companies like Apple and

Samsung, even though the quality of the Smartphone produced by Wiko Mobile is nowhere close to the level of its competitors. The company has been using cost leadership strategy as one of the few means to stay relative in the market.

Wiko Mobile has made a small market for itself in France, we can even say, it is a success considering they are going against Apple, Samsung and many other successful phone producers. Their current business strategy is to increase this market share in France and expanding to other countries and regions. In 2015 they made their first move in Africa by entering Nigerian market, they made a partnership with Jumia, a Nigerian online shopping platform, in order to get attention of young customers in Nigeria. Channel marketing manager

Mr. Adebayo Adams states “Wiko as a brand has emerged to become the game changer in

Nigeria's mobile phone market. Particularly, Wiko targets the youth segment of the market

29 and Jumia has as good reach to the younger generation, which is one reason why the partnership is strong and we are able to do a lot of things in common. Jumia stands out among other e-commerce platforms and it has done excellently well vis-à-vis its performance with mobile devices. Wiko has a projection of 10% volume market share in the first business year in Nigeria.” In 2017, Wiko mobile almost has no market share in Nigeria, so we could call this a failure in business Strategy. Even though Wiko Mobile brings forth affordable and quality Smartphone to the customers, it can’t compete versus companies like Huawei,

Samsung and Asus outside of the French market. a. Strategic Positioning

As stated before Wiko mobile’s entire strategy is based on low cost strategy, the company offers relatively low price to gain consumer attention and market share. After Tinno mobile acquired the majority of the shares of Wiko mobile, the company moved their production facilities to China in order to lower the costs more. After acquiring the seven percentage of the market share in France, Wiko mobile started to expand their business to several other countries in Europe and Africa. The company has been trying to find success in other countries but currently they have no market power in any country other than France. Wiko mobile low cost strategy is not affordable in other countries because Wiko Mobile’s competitors like Samsung, Huawei, and LG have high bargaining power in the market compared to Wiko. Technological advancements in other companies are high compared to

Wiko which only revolves around having lowest prices in the market and being affordable as possible. As stated before, after the acquisition made by Chinese power-house Tinno, Wiko moved their production facilities to China, which could be a letdown for French consumers.

Although Wiko had 7% of the market share few years ago, they failed to increase this market share and even managed it to lose 3% of the market share. Currently, Wiko has 2.49% of the

30 mobile phone manufacturing share in France. In our opinion expanding to other countries is too ambitious for the company with their current market position.

b. Relative Cost Positioning

Wiko’s competitive advantage is to apply a cost leadership strategy compared to its major competitors that are Apple, Samsung, Archos, LG, Huawei. In this part we will analyze the drivers of cost advantage that are presented in the document below. Our analysis will be focused on the Smartphone industry, where we will analyze each driver of Wiko’s cost advantage.

 Economies of Scale

Since Wiko has a direct supply of phones from China, with Tinno’s support, Wiko is able to manufacture their Smartphone at a very low price. Since their competitors are also big players in the market, they also have the capabilities to produce Smartphone at low price. Their technical input-output relationship is very limited and the economies of scale don’t have a big

31 impact in the Smartphone industry. The only variance existing is not about the fixed costs of producing the Smartphone, but actually big players in the industry increase their benefit cost to increase their net income.

 Economies of Learning, Production Techniques & Product Design

Economies of learning do not give Wiko any real cost advantage. Apple for instance, is using products that can only be applied on apple software. They increase in the development of their market but it doesn’t really give them an advantage compared to their competitors. Having a specific knowledge and investing in the development of it does not necessarily put you in advantage in terms of cost. Their production techniques and product design is quite similar among Wiko’s top competitors. They are all working on the same type of product, a

Smartphone that has a lot of similar applications that can be used by the customers; they look almost the same and have almost the same features. About their product designs, they are all quite similar, except for Apple that focused on its own unique design. All these do not affect the cost advantage of any competitor in the market; it can actually have a slight competitive advantage (like apple with their design) but not a cost advantage.

 Input Costs

Wiko, through Tinno has an “indirect ownership” of low cost inputs, because Tinno owns at least 95% of Wiko. So Wiko, compared to its competitors can have a cost advantage but since its competitors have a big amount of sales too, they are also producing at very low cost their phones. Wiko has a location advantage; the fact of being in France gives it a “French touch”.

But Wiko does not really have a bargaining power among its competitors. These don’t give

Wiko a cost advantage either.

 Capacity Utilization

Wiko has been adapting continuously, improving on a daily basis and trying to compete with the top leaders in the market. The fact that in France they only focus on the design and the marketing of their products, Wiko is able to quickly and with flexibility adjust capacity. This is due to the fact that all the manufacture process of producing the Smartphone is done in

China by low cost suppliers. This does not necessarily give Wiko a cost advantage, but it definitely helps them focus in France on their competitors and how to find a competitive advantage.

 Residual Efficiency

After taking account of all the cost drivers seen above, we can add that Wiko has been able to keep producing low cost Smartphone and compete with the biggest in the market. In fact, the demand was there but Wiko had the chance to be backed up at the right moment by the right company that, somehow “opened the door” for Wiko, they were able to focus on the design, the technology and the cost to be able to sell at low prices their high quality Smartphone.

c. Sources of differentiation

To be able to propose sources of differentiation to its customers, a company should have a clear competitive advantage first and should be able to assume a strong communication and advertising campaign to make sure its differentiation is known and can make a real difference in the market. It can allow a brand to set its business apart from the competitors and even allows the company to charge a premium for this difference.

In the mobile phone industry, there are not that much sources of differentiation as standards are already present, it will mainly be about the development of technology. As a differentiation strategy, it is easy to think the development of a new and exclusive mobile operating system such as the Apple’s IOS. The customer has to stay with this brand to enjoy the applications which are only available on this unique platform. This kind of source of

33 differentiation is hard to create and especially to take place in the market as some standards already exist: it is difficult to replace them. For example, Windows tried to integrate its own mobile operating system by working on the Windows phone technology but even if the technology has been well-developed, the brand failed to enter in the market. Why? The brand failed to show the difference between Windows Phone’s process and the other processes, unlike Apple with its IOS as it managed to propose exclusive applications, exclusive events and exclusive technology. Windows should have worked on what makes Windows Phone different from the already existing and already adopted process: IOS and Android.

That is to say that in the mobile phone industry, it is not complicated to work on a source of differentiation as long as the company has enough resource to develop its technology. The hardest part is to convince people to use this different technology. It is difficult because in this industry, what the customer wants from the Smartphone is that it simplifies the customer’s life and it must be a big improvement if the Smartphone’s brand wants the customer to change its habits. In the mobile phone industry, once the differentiation has been adopted by the customer, the second step is to maintain this differentiation different from others. In fact since the differentiation come from technology, it is not that hard to be copied.

Another way to differentiate a Smartphone company could be by a special development of the customer service. Here again, it is a hard part to be developed but not for the same reason.

Developing a customer service, especially one that could be really different from the standards one needs a lot of resources: financial resources and human resources. So far, no

Smartphone brand managed to develop such a good customer service that could be qualified as a source of differentiation and even if one manage to do it one day, it is hard to say if this would be a real competitive advantage or not. As we said, the main goal of a mobile phone is to make the user’s life easier.

Even if each brand would like to think to be different from the competitors, Wiko has no real source of differentiation apart from the other mobile phone companies. Wiko is working in partnership with Google so the brand didn’t work on its own mobile operating system.

Instead, the brand wants to be different by putting the emphasis on the fact that Wiko is a

French brand that work on low cost mobile phone. This is an interesting difference as not that many brands are doing the same; some examples would be Arkos and Alcatel. Wiko still managed to be the most famous brand in this segment so we can put these two characteristics as the brand’s sources of differentiation. It doesn’t make a big difference compared to the big differences that a company with a lot of resources could make but the French touch of the brand is starting to be an important point.

The low cost part cannot be considered as a source of differentiation because a lot of brands bet on this point to attract customers now. The French part can be considered as a nuanced source of differentiation as it was not such an important point of differentiation as it is today.

Few years ago, no one would have bought a mobile phone because of the origins of the brand, at least not that much people. Today, a spirit of patriotism is starting to appear more and more and especially in France. This spirit’s aim appears when a customer prefers to buy something in a national product instead of an international one. Wiko is not the only brand which saw this opportunity as other brands are targeting the patriotism spirit also so the French touch is not a big advantage for Wiko.

The point that really makes Wiko different from the others is the combination of both the

French touch and the low cost. It will reduce the number of competitors which managed to combine those two criteria. This combination will allow Wiko to be one of the best choices of someone who would look for a mobile phone from a French brand. Let’s imagine someone who is in front of many mobile phones and drop one segment by one segment of mobile phone depending on the buyer’s criteria. First drop the international brand mobile phone.

Then what is next? The next survey from Statista, 2012, shows the most important criteria when deciding to buy a mobile in the United States:

It is noticeable how important the aspect of money is important to the buyers: even if the survey is only about the United States, the huge difference between the first criteria and the second one can be representative of how important it is to everyone. So Wiko is taking advantages of people who are part of this segment and who are looking for a French brand.

It is hard to say how long this source of differentiation will be an asset for Wiko since more and more low-cost French brand are starting to appear in the mobile phone market. If Wiko manage to make it last as long as possible, the brand could be considered as a standard well- rooted when this market will be developed. If so, the combination of low cost and French touch could become a real competitive advantage for the brand.

2. Corporate Strategy a. Business Scope of the firm

Wiko was founded in February 2011 by French businessman Laurent Daung, whose headquarters, design and marketing department are in Marseille, France. The core of the business was in Europe, but the Chinese partners provided considerable support. "We have

European thinking and style, which is impossible if we put our headquarters in China" Daung said. "You have to be in Europe to understand the needs of Europeans.” Wiko wants to develop Europe marketing. Even so, Daung admits it is unrealistic to make mobile phones in

Europe, "you can design in Europe, but you have to make your phone somewhere else. Only in Chinese cost production can the competitiveness be maintained".

At the beginning Wiko launched its brand on the French market with low-cost mobile phones and step by step they conquered the market and the company started to think bigger.

First of all, at its creation the business scope of Wiko was to enter and conquer the

Smartphone market in France. The major problem was the barriers of entry, helped by free and its supplier Tinno he could succeed. His slogan based on simplicity, accessibility, diversity, proximity and a controlled marketing using the French touch “Cocowiko!” permitted to the company to improve its success on French customers and now on foreign markets.

Nowadays the recent changes in the Wiko business scope are:

- To widen their customers

- enter in Europeans and worldwide market

- Increase their hold on the French market

As a young and reckless company which desire to seduce all around the world and dethrone the giants Huawei and Xiaomi. With a marketing campaign focused on attracting younger customers and offering them equally low-priced devices. Wiko shipped 26 million devices overall in 2013, mostly dual-Sim Android Smartphone, and about 85 per cent of buyers were under 35 years old.

“We are best for the value, which was new for a European brand,” said Mr Garcia. Actually,

Wiko is present in all the Western Europe and pursue its development in Thailand, Indonesia and Japan. The African market is also a huge opportunity for Wiko."We want to become an international player," Wiko's spokeswoman said. "Our goal is not to select each country according to the sales potential, but to find the good local expert and spread the Wiko strategy to match with the market."

In 2016 Orange announced a partnership with Google to reinforce internet on mobile phone devices in Africa and Middle East and offer a very low-cost Smartphone for 40 dollars (the

Rise 31 special edition). The business scope for Wiko is to develop its network of suppliers to conquer a larger public in the world. Today the potential African market represents 20 countries and 110 million of customers.

Wiko has not taken the usual route into market, Wiko went to got cooperate with "bloggers and geeks" when it launched its first Android Smartphone in 2012 in order to infiltrate the

"closed market” of the established Smartphone players. The company used these 'geeks' to generate and spread interest in public, and found the strategy to be pretty effective.

At the same time Wiko try to reinforce its position on the French market by using a prescriber in the person of Soprano, a famous French singer who appears more often in all the French streets and Wiko advertisements.

The same singer made a song that speaks about his Smartphone and we can clearly see his mobile phone is represented by a Wiko mobile, at the same time the brand launched a limited

Smartphone edition of “mon précieux”.

Wiko has also a business scope for the future, an ambition to reach the top 5 in terms of

Smartphone sales by 2020.

b. Value Creation

How will the firm’s diversification contribute to value creation or destruction?

Wiko has penetrated the Smartphone market focusing on low-cost mobile phones since its creation; in 2017 they decided to diversify their positioning, upgrading their standards to provide cheap but qualitative Smartphone. They started with the Wiko WIM for 400€, full

HD 5.5 inches screen, 64Go of memories, almost the same technical sheet than the last Iphone and Galaxy. They also made a partnership with Swarovski to present a refined and girly mobile phone with diamonds.

Wiko is not only playing on the price they also play with their mobile phones design. Wiko has two lines, the first is called Android and the second called Swarovski, with mobiles presented as refined and girly and incorporating a diamond finish of the Austrian specialist.

Its best seller “the Rainbow” is now declined in seven flashy colours, they always try to play on different criteria, find a specification for example “the wax” that only weight 119 grams.

Wiko is also trying to diversify its partnerships, they started with the creation of their first 4G mobile phone, they created it with only one Sim space to convince the operators, they concluded a contract with Be & You also with Free mobile.

Wiko has different range of smart Smartphone; Wiko offers 19 different models of

Smartphone: From the simplest device, to the latest 4G model and from 99 Euros to 350

Euros, with a 4G model to 199 Euros. Wiko was also able to differentiate itself by being among the first to offer multi-sim devices, a standard feature from China, which extends to

France which has been very successful.

Wiko has a reputation "for using geeks" ,which comes from the fact that wiko do not have a constructor overlay. The geeks have contributed to the notoriety of Wiko, by creating a very active dedicated community, Wikonauts. Wiko now is trying to settle their customers group widely in 15-34 old. For this, Wiko work on understanding their consumers, by collecting data via communication operations, trade shows, or even offers of refund.

Wiko now has decided to change the target from establishing itself in supermarkets and among operators to the professional environment, Wiko wants to offer tailored business solution to support them in their digital transformation in a more complete way. The business market would provide more relaxed environment compared with the customer market.

In conclusion, we can say that Wiko has started to diversify its production by entering the high technology mobile phones market; always following its own motto, bringing qualitative products for a reasonable price. Also, they are diversifying their products in terms of design and of contractors and by changing their target to the professional environment. The purpose is clear, impact a larger public, improve the revenues and upgrade its brand image. As a young company that has just started to diversify, we can’t conclude if this strategy will create value or be the starting point of destruction.

Conclusion and recommendations

Wiko’s success is inseparable from French political and legal support for Smartphone industry and foreign investors. Its marketing targets population positioning is also very much

41 in line with the French economic situation. The company is developing itself in a hard industry as there are a lot of competitors in the Smartphone market and it is easy to enter the market. Its position as a small company from Tinno put the company in a difficult situation: the bargaining power of buyers is high and so is the bargaining power of suppliers. But it gives Wiko other advantages such as a financial advantage which make the tangible, intangible and human resources are well balanced.

The brand is now trying to increase their market share while expanding to other countries and currently they are failing as they are focusing on too many markets at once which led them to lose some of the market share they had in France. It is hard for the brand to differentiate itself from others as the resources are limited. They are now focusing on a small differentiation that is coming from the combination of two characteristics that Wiko’s mobile phones have: low- cost and its French touch. Today, Wiko has started to diversify its production by entering the high technology mobile phones market. They diversify their products in terms of design and by changing their target from normal population to professionals. The purpose of it is to impact a larger public, improve the revenues and upgrade its brand image.

The first recommendation that we can make to Wiko is to continue its progression on the mobile phone market abroad and on conquered market by repeating its motto “simplicity, accessibility, diversity, proximity” and using the French touch as a seduction weapon.

However it’s necessary that Wiko do not lose its identity a cheap brand with qualitative

Smartphone by trying to imitate giants as Apple and Samsung. The diversification could destruct the brand community and make them sink. Finally Wiko is creating its success by inserting new ways to use Smartphone and create innovation on styles or technologies so i recommend them to never cease innovation.

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