Xiaomi is an internet company that deals with smartphones, smart hardware, and the internet. The mission of the Xiaomi is to ‘’relentlessly build amazing products with honest prices to let everyone in the world enjoy a better life through innovative technology. “For the past eight years, the Xiaomi company has been having a vision of being friends with their users and also t be the coolest company. The company has directed its resources towards customer satisfaction by innovating new technology that upholds high quality and efficacy.

Xiaomi was founded in 2010, and the founders then had one thing in mind: developing a cool smartphone that they would love. The founders were fans of technology as 6 were engineers, and 2 were designers. Xiaomi is focused on developing quality smartphones and selling them to final consumers for an honest price. The Xiaomi company’s management values its customers, and by creating quality products that surpass customer expectations, the company will win the hearts of its users.

Company Overview

Xiaomi Corporation is a China-based investment holding company concerned with the development and sales of smartphones, the provision of internet services, the internet of things, and other lifestyle products. Xiaomi was founded in 2010 as a result of Qualcomm and Temasek merging. The company engages in its businesses using four segments: smartphones, lifestyle products, the internet of things, and in-house product sales like smart televisions, laptops, and smart routers. The internet of things is used for advertising services and value-added internet services. Most of its products are shipped to overseas markets. Xiaomi Company deals with Redmi smartphones, including Redmi Note 8, Redmi 5, Redmi 7A, etc.

Review of Financial performance

Xiaomi has made a lot of revenues in its smartphone business as of 2018, the business segment for Redmi generated revenues of up to $25.4 billion. Xiaomi depends mostly on its mobile phone business as its smartphone sales account for 65% of Xiaomi’s annual revenues. From 2017 to 2018, the revenues for smartphones increased by a 41% margin. The sales for the Redmi phones have been 119 million units, where each smartphone unit goes for $2 each. The majority of Xiaomi’s smartphones are sold in China, while international sales have also been growing. The company wants to stop concentrating solely on the Chinese market, but it wants to increase its presence in the global market.

Due to the decrease in sales of Redmi smartphones in the local Chinese market, the company invests more in the international market. Recently the company invested $4 billion in its strategic Partner Ecosystem. They also invested $1 billion with several startups in India to increase its market share in China and the world market. Xiaomi has also ventured into other segments to improve their portfolios. The firm has been very strategic with its business models by encouraging horizontal movement by merging with other struggling companies to increase their productivity.

Return on Investment

ROE means the amount of money a company receives as revenue and what it has kept within the business premises. The ROE usually is for profits for 12 months; hence a company with a higher ROE makes more profits.

The Return on equity formula;

ROE=Net profit /shareholders’ equity

Xiaomi has a 14% return on equity, which is higher than the average 8.2% hence making it a profitable smartphone company.

Gross profit margin

Xiaomi smartphone company makes cost-effective smartphones. The CEO recently explained that Xiaomi’s profit margin was 8%, which makes the company’s products cost-effective. The CEO explained that the prices of devices would increase as the technology moved to a 5G network. The ratio of Redmi, when compared to the other companies, gives Xiaomi a better performance ratio compared to its competitors. Xiaomi plans to make use of their sales strategy as the company moves into the 5G era. The revenues for Q3 2019 were at $53 billion, representing a steady increase in the companies revenues by 5.5%. The main plan for keeping the prices low is by reducing the middle channels, hence decreasing the cost of transporting to the final consumer. Its users pay lesser for our devices as compared to other companies.

Disaggregating stock price

Redmi has been dealing with stagnation in its market share, and also the growth rates for 2019 were very slow. The company has made more revenues than in 2018, but its growth is not as strong back then. The profits generated by Xiaomi, but many were concerned about its stagnation in smartphone shipments. Many users chose to remain with their old handsets despite the 5G introduction. This factor has made the smartphone companies’ growth to remain stagnant for long.

Market segmentation

Xiaomi uses market segmentation to divide the population into various groups that share the same characteristics. The company has used mono-segment positioning, which is a very appealing segmentation that entails focusing on the needs of each customer segment. Xiaomi targets the customer segment that wants to use the smartphones and other technological products, but have a strict budget to make the purchase. The firms then use the imitative types of positioning by closely imitating the products of the market leader’s apple and Samsung. Such imitation has made Xiaomi to be known as the Apple of the east.

Management discussion and analysis

Global market conditions

Expanding into other countries has been a challenge for most companies, Xiaomi was not an exemption. When Xiaomi’s venture into the Indian and US market, it was hard to set up as the market share was already in possession of the companies competitors. The competitors had large patents as compared to Xiaomi. Hence the company had been exposed to numerous lawsuits in countries they wanted to venture into. The global market conditions have enabled the Xiaomi company to increase its market share and increase their profits and customer satisfaction levels.

Research and development

Xiaomi is keen on developing the best devices for their customers. The company has invested a lot of money in the research and development of new and quality devices that can meet customers’ needs. The international market has increased competition between the key smartphone companies; hence Xiaomi has to ensure they beat their competitors and create a competitive advantage. The company recently opened a research and development center in Bangalore so that they could research more about the users in the Indian market.

Barriers to success

The Xiaomi company has been able to overcome most challenges along the success journey; it still has various problems. The Chinese smartphone giant has been able to revive its smartphone business, but the Chinese market is still filled with other competitors’ products, which gives the company stiff competition. Thus, the company has to always be on toes to ensure that they offer the best smartphones in the market with lower prices and increase variety for users to choose from in China and the international market.

Competitor analysis

Xiaomi has many competitors for its Redmi smartphone brand as the market in China, and competitors’ smartphones saturate the international market. The following are some competitors of Redmi smartphones, Huawei, Motorola, Oppo, Apple, Lenovo, Samsung, etc. All these companies deal with smartphones. Xiaomi has to offer its products customized to fit all the customer requirements as the market share may be lost very quickly since there are many players in the market. Many of these companies give Redmi a lot of competition as some offer better quality than them hence making their sales decrease at times.

Business outlook

The Xiaomi company has been priding itself with the value for money segment. The company has been able to remain consistent in climbing on top of the value chain, despite the stiff competition from competitors. The company has renewed its focus on higher-end devices as the company introduced a new range of services like the Mi Credit. The new venture didn’t stall the pace for other portfolios in the Xiaomi company as the company was able to release 20 new devices.

Simulation Learning Outcomes

Logistics

The Xiaomi’s move of reducing the channel of distribution has promised the company a reduction in transportation costs. The reduction will see that users pay less for superior quality devices. The opening up of research centers in countries where the company wants to venture was an excellent way to analyze the market and ensure costs are reduced. The simulation enables the team to understand the aspect of logistics and how the companies engage in reducing logistics costs.

Competitor activities

Competitors’ actions may alter the market and even make some companies lose their market share. The simulation enabled us to understand the effect of competitors’ activities on other related businesses. Companies always have to remain ahead of their competitors to ensure their competitors’ actions are not affecting them. Xiaomi has been able to anticipate the moves of its competitors, and therefore it has managed to remain relevant and avoided losing its market share.

Final remarks

The global simulation provided the Fiery Terriers team with an excellent platform to experience Xiaomi’s organization’s operations and increase our managerial skills. By encouraging students to make decisions on the Xiaomi companies’ strategies in the very stiff smartphone market, the global simulation could do much more than the classwork would have done to educate the students on the business skills.

Redmi Global Simulation

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Letter to shareholders