Advances in Economics, Business and Management Research, volume 182 Proceedings of the 2021 International Conference on Economic Development and Business Culture (ICEDBC 2021) Five Forces Analysis Based on Xiaomi, a Chinese Smartphone Company Wang, Jiaying1 1Xi'an Teiyi High School, Xi’an, 710054, China [email protected] ABSTRACT As the development of technology and the spread of information, people’s desire and needs of smartphone increases dramatically. Admittedly, smartphone plays a crucial role in human being’s daily life as people use it as communication tools, game device, and portable office device. This paper analyzes one of the most famous smartphone brand in China -- Xiaomi to fully understand how it stands out in the industry. This analysis is mainly based upon Five Forces methodology to fully explain how Xiaomi operates and behaves in the smartphone industry. Keywords: smartphone, five forces analysis, business strategy, IoT, AIoT. 1. INTRODUCTION 2. FIVE FORCES ANALYSIS This report mainly focuses on Xiaomi, a Chinese smartphone brand and the world’s third-largest 2.1. Competitive Rivalry smartphone marker. The below report will be analyzed using the Five Forces methodology, which is a famous With the popularity of the Internet, the size of the business strategy tool to analyze a company’s smartphone industry market has been enlarged with competence in its industry. Five Forces analysis includes more brands joining the fierce competition. Customers competitive rivalry, the threat of entry, the threat of have more options when it comes to picking the right substitutes, supplier power, and buyer power. phones for themselves. Even in China, Xiaomi has to face many other competitive rivals like Huawei, OPPO, Xiaomi’s mission is to produce high-quality products and Vivo, etc, let alone the brands outside the country at affordable prices [1]. Xiaomi’s core products are like Apple and Samsung. However, Xiaomi has its smartphone series. Other businesses like its ecological charm which is offering high-quality products at an chain including other products like rice cookers, honest price, helping it attract and retain a lot of loyal electronic toothbrushes, and suitcases, etc, and its IoT, customers all around the world. However, Xiaomi also the Internet of things, connecting to Xiaomi products and needs to face the challenges from its current competitive collecting relevant data to make people have an rivals since cost-effective strategy is easy to copy by affordable smart life. At the spring launch of Xiaomi in other companies. Huawei is known by its strong R & D 2021, CEO Lei Jun announced that Xiaomi would enter capability. While OPPO, and Vivo put more energy on the electric vehicle field. He had been interested in this designing their products, which helps them earn many field and invested in many projects in the past. Now it’s female customers. Outside of China, Huawei got time for Xiaomi to make its own electric vehicle products. sanction from U.S and its selling declined, giving Obviously, Lei did profound research on this industry. He Xiaomi a chance to enlarge its market share overseas. knew clearly how much money it cost and he was According to a report by Canalys, Xiaomi occupied third confident with Xiaomi’s ability and capital to make the place in the global smartphone market during the first idea work. Lei expressed that he would love to bet his quarter of 2021[3], which reflects that Xiaomi’s status reputation on his last start-up project. He will lead the and ability even though there are many competitive electric vehicle team by himself to fight for MI electric rivals in the industry. cars [2]. Threat of Entry Although there are many players in the smartphone industry, it is not easy for a newcomer to enter the Copyright © 2021 The Authors. Published by Atlantis Press International B.V. This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 31 Advances in Economics, Business and Management Research, volume 182 industry or even achieve good results immediately. The 2.3. Supplier Power smartphone industry requires the existing companies to invest lots of money on product research and Since Xiaomi doesn’t have its own-designed system development, letting alone a new company without any nor widely use its own-designed chips, Xiaomi has a base to support. Newcomers need to spend much more relatively weak supplier power. Especially during the energy and capital to catch up with the current technology pandemic, many smartphone companies faced a shortage that is being used by existing industry players. Except for of chips [4]. Therefore, the chip market becomes a the basic technology to enter the industry, the new seller's market. Chip manufactures who made limited companies are supposed to differentiate their products chips are being watched closely by smartphone buyers. from the existing products in the market. The right Other component suppliers not only offer components to strategy of product differentiation is very important for a Xiaomi but also other companies. They are driven by new player. Nowadays, Apple, Samsung take most of the money. Xiaomi advocates using the least of money to market share, making it a fierce competition for other buy relatively high-quality products, indicating that its smartphone brands. Apple is famous for its high-end component suppliers won’t earn much profit on a single products and product ecological chain. While Samsung is product. Xiaomi’s advantage is the large shipment, so the traditional brand in the smartphone industry with a component suppliers could still earn more money from high reputation and high quality of products. Other Xiaomi by producing more products. Due to the brands like Huawei, which is prestigious with its obstacles given by suppliers outside of China in early information and communication background; and time, and the growth of domestic suppliers, Xiaomi Xiaomi, which is easy to identify because it offers high- switched its strategy to work more with Chinese quality products with the extremely affordable price; suppliers. Inside of China, many component suppliers While OPPO and Vivo are designed for the young with wanted to cooperate with Xiaomi because it could fancy smartphone looking and other entertainment increase their reputation and quickly rank the top if they functions like music broadcast quality. All these take the big orders from Xiaomi. In addition, Xiaomi is successful brand settings are the barriers to the new a tech giant company in China with a good reputation entries. Therefore, it’s relatively difficult for a company and healthy cash flow. It is worthy for component to enter the market and gain a great market share shortly. suppliers to work with Xiaomi and get the money back quickly, which is important for manufactures. Therefore, 2.2. Threat of Substitutes in China, Xiaomi has relatively strong bargaining power with its suppliers. Xiaomi is facing a high threat of substitutes in the industry. As we all know, Xiaomi’s strategy is offering 2.4. Buyer Power relatively high-quality products at an extremely honest price, helping Xiaomi take over a large market share at Xiaomi has accumulated a lot of loyal customers. the beginning. However, with the brands like OPPO and The contributor to this is Xiaomi’s product strategy that Vivo, and Huawei getting popular with similar pricing only sells good quality products at an affordable price, positions, Xiaomi seems to have less advantage in front which helped Xiaomi got the very first customers in the of price competition. Except for form the price, Xiaomi market even now. Young people are the main buyer also faces technology challenges from its substitutes. power because they recognize the concept of Xiaomi Apple is famous for its own-designed system IOS, and products. Now with the good economic environment, the relevant products based on the systems like IPad, and more available money that can be used by people, Apple Watch, etc, to fit its laptop system macOS. Xiaomi’s price advantage isn’t that obvious, especially Moreover, its classic product design and high-end quality with the competition of Huawei, OPPO, and Vivo, which also make it an easy-identified brand. Samsung is the promote the fancy-looking product with similar price. pioneer brand in the smartphone industry for a long time The rivals’ competition put Xiaomi under pressure. with loyal customers who are convinced by its high- However, Xiaomi has already explored another field to quality products with rapid updating technology. As to gain more competition. That is Xiaomi’s IoT ecosystem, Huawei, the company also invests tons of capital on its which connecting other products like floor sweeping own-designed chips and has a strong background related robots, smart home door lock, and Internet washing and to information and communication. Above substitutes drying machine, etc, to Xiaomi’s platform to create a brands all have their core technology, making Xiaomi in smart life for customers at an affordable price[5]. a disadvantaged place when it comes to tech through Peripheral products that Xiaomi have are electric comparison. However, Xiaomi has its charm with its IoT, toothbrush, millet bracelet, electric rice cooker and so on. connecting products to the Xiaomi platform to attract Compared to Apple which has limited product lines, more customers. Xiaomi’s product lines can be called abundant, attracting many customers to want to enjoy smart life at an affordable price. Entering the electric vehicle field also increases the product variety. All these products are like 32 Advances in Economics, Business and Management Research, volume 182 platforms that collect customers’ data and information, connect other Xiaomi products without paying the helping Xiaomi understand customer usage preferences platform fees, at which time, Xiaomi would realize the more.