Market Entry Proposal 4 - Essay Example

Market Entry Proposal 4 Table of Contents Brief Synopsis of the Issue 3 Recommendations 3 Background 4 Analysis of Market Opportunities in Brazil 4 PEST Analysis 5 Country Attractiveness 7 Company Situation Analysis 8 Readiness to Go Overseas and Global Sourcing and Production 10 Market Entry Strategy 10 Implementation of Market Entry Strategy 12 References 14 Brief Synopsis of the Issue It has been proposed that joint venture is an effective mode of entry strategy for Xiaomi in order to expand its business in Brazil and increase its global market presence. Joint venture has been recommended because initially it would be quite problematic for Xiaomi to enter into the Brazilian market as a single business entity. Joint venture would provide the required support to Xiaomi for entering Brazil as the company does not have any experience of operating its business outside of Asian region. Moreover, it would benefit Xiaomi to a huge extent as the risk for entering a new market would be reduced and joint venture would provide a platform for both the companies i.e. to Xiaomi and Telefonica SA share their resources and capabilities. Recommendations 1. Xiaomi must develop a marketing strategy that would initiate reliability of the brand among Brazilian customers. 2. In-depth analysis of the market must be done that would provide an idea about the top companies functioning in the Brazilian market. 3. Appropriate location for establishing its manufacturing unit must be given important consideration so that the materials of production for smartphones are supplied timely and the company can avail skilful labour to carry out its production process. Background Xiaomi Inc is a Chinese company that was founded in the year 2010 and is headquartered in Beijing. It is a privately owned company that is specialised in producing smartphones, software applications and consumer electronics. The present value of the company is 10 billion US Dollars and the total employees working in this company is more than 3000 individuals. The company has gained huge recognition in the Chinese market after introducing its first smartphone in the year 2011 due to which it has significantly increased its market share (SinoMedia Holdings, 2014). Presently, the company is planning to enter the global market and it has been decided that Brazil, a developing country can be a potential market for Xiaomi to enter due to which it is considered that Brazilian market must be appropriately analysed so as to ensure that the company can sustain in the market (Xiaomi, 2013). The report intends highlight the market entry proposal for Xiaomi in Brazil which has been done through analysing the market opportunities, risk, cost and advantageous factors in Brazil. Moreover, Xiaomi’s situational analysis has been done that provides an understanding regarding the strategy that has to be used by Xiaomi in penetrating the Brazilian market. Additionally, certain recommendations would be provided that would help the company in implementing these recommendations for successful market penetrating strategy. Analysis of Market Opportunities in Brazil In the recent years, Brazil has been an emerging market which has attracted a huge amount of foreign investments and industries. Brazil comprises almost half the population in South America and due to its prompt economic diversification the nation has become powerful in the continent with its modern system of economy. In the present day context, Brazil has tackled the problem of economic crisis better than any other country in South America. It has been further viewed that the nation has had a significant economic growth in the recent years (Slideshare, 2014). PEST Analysis Political Factors: From the past few years, the economic and political stability in relation to the growth of telecom market has been quite critical. Conversely, it has been viewed that the purchasing power of the poorer classes of Brazilian customers has increased to a certain extent due to which the consumption standards in Brazil has changed considerably both quantitatively and qualitatively which in turn has positively influenced the telecom industry in Brazil. Moreover, the National Broadband Plan initiated by the Mobile Virtual Network Operator (MVNO) regulation in Brazil has resulted in the introduction of new regimes that is more supportive to the telecom industry which has created certain opportunities of growth for the industry in the Brazilian market (PricewaterhouseCoopers LLP, 2011). Economic Factors: It has been witnessed that the economy in Brazil had certain changes in the past few years. Moreover, the economy had an annual average growth from 2.5% to 4.5% during the late 20th century. The new economic policy introduced in Brazil has created fresh opportunities for acceleration of growth in foreign investment. The GDP of Brazil had a growth of 7.5% in the year 2010 as compared to 2009. However, in the recent years, it has been witnessed that the economic growth in the nation is slowing down and there is inconsistency for the telecom industry in the Brazilian market (Casadei, 2012). Social Factors: Brazil’s income distribution is quite uneven wherein the wealthiest income groups cover almost half the GDP and most of these groups live in states of Sao Paulo and Rio De Janeiro. It has been viewed that almost all the manufacturing industries are located in Sao Paulo and there is a huge inequality of income between the lower class and upper class of people in the nation. Moreover, the crime rate in the country has been continuously increasing which poses a major threat to smartphone industry. On the other hand, demand for smartphones in Brazil has increased and the Brazilian population are inclined towards information society (Slideshare, 2014). Technological Factors: It has been viewed that presently Brazil has become oriented towards technology and the government has been spending more on information and technology sector which is still forecasted to increase. Thus, it can be asserted that the demand for smartphones in Brazilian market has significantly increased. It would be worth mentioning that in the year 2012 the mobile subscribers in Brazil were more as compared to the entire population (Casadei, 2012). Figure 1: Illustration of Growth in Demand for Smartphones in Brazil (Casadei, 2012) Country Attractiveness In the present day era, Brazil is one of the largest nations in South America for demand of smartphones therefore it is considered that Brazil is a prospective market for Xiaomi to enter. However, there are certain costs associated with the attractiveness of the market which include that the initial operating cost for Xiaomi would be quite expensive which would require a huge amount of investment. Likewise, there is a possibility that the industrial tax being implied on Xiaomi might be quite high. Moreover, the cost for selecting an appropriate location of manufacturing for Xiaomi might be quite high as the plant has to be set in such a location wherein the availability of labours, raw materials and equipment has to be adequate and as per the requirement (Slideshare, 2014). It is considered that Xiaomi should use a cost based view approach that would help it in providing competitive advantage. On the other hand, the risk associated for Xiaomi in entering Brazil includes that the company might be exposed to regulation restraints framed by the Brazilian government policies in relation to the telecommunication industry (GSMA, 2013). Similarly, the tax imposed by the government bodies on foreign industries is quite high which in turn might risk Xiaomi operation in Brazil (Slideshare, 2014). Moreover, there is a risk that the company might be exposed to corrupt or biased government regulation which in turn would be unsupportive for Xiaomi to carry put its business function. Shortage of required materials for production in Brazil can also pose a huge risk to the company. Additionally, Xiaomi will have to face a huge competition from the companies that are already functioning in the Brazilian market as they would not easily let the Chinese company to enter and sustain in the Brazilian market (Slideshare, 2014). Conversely, benefits associated with the attractiveness of Brazilian market include that the use of the internet has significantly increased which has also resulted in the increase in demand of tablets and smart phones. Brazil is considered as the largest market for smartphones in South America and the fifth largest in the entire world which provides a huge benefit to Xiaomi for increasing its market share. Furthermore, due to the technological advancement in Brazil since the past few years, it has been viewed that the Brazilian population have become more inclined towards using smartphones in their way to technological advancement. For instance, more than 13% of the Brazilian population use smartphones for online shopping through comparing the prices of different products (Geromel, 2013). Company Situation Analysis In this section, the company’s situation has been analysed using SWOT analysis which provides a perfect idea about its situation in the market. Strengths: Xiaomi in relation to the software produces high end smartphones with a dual core processor of 1.5 GHz and the phones are customised based on the latest operating system that is Android 2.3.5 and this feature has increased its frequency of demand in China. In relation to the hardware, it has been viewed that the screen that is used in these phones has a reflective structure due to which everything is visible clearly directly under the sun. Combining both software and hardware features, it is considered that the phone will have a strong demand in Brazil. Moreover, the human resources of the company comprise skilled personnel who have the expertise of bringing innovation and adding new features in the phone. These facts provide evidence that the company has abundant strengths which can be effectively used in Brazil (Weiner & Partner, 2013). Weaknesses: It has been revealed in case of Xiaomi the range of products developed is limited which is considered as a huge weakness as its competing companies are specialised in producing varied range of products to cater the changing requirements of customers. Moreover, Xiaomi depends on a single model due to which it might be quite difficult for the company to increase its market share because if a new product is launched into the market it would be quite difficult for the company to retain its market share. Moreover, the company is weak in its innovative aspects and it is considered that lack of innovation might make the company quite weak in the coming future and ineffective while expending its business in Brazil (Bloomberg L.P, 2014). Opportunities: The products developed by Xiaomi have a strong market demand which provides a good opportunity to the company to improve its market presence. The company with its marketing strategy has developed numerous potential customers which have provided brand recognition and support to its success in China. Similarly, the company has expanded its customer base which has opened up new opportunities for Xiaomi to increase its production and cater the requirements of customers in Brazil (Weiner & Partner, 2013). Threats: It has been viewed that there are certain threats posed to the existence of Xiaomi. These threats include that the government regulation for the company in its domestic country that is China might be subjected to frequent changes which would indirectly hamper the business activity of Xiaomi. As being mentioned above, it has been revealed that the government regulation in Brazil does not provide the required support to foreign companies which in turn pose a huge threat to Xiaomi in its business expansion. Moreover, the tax rate on foreign investment in Brazil is quite high due to which it would be difficult for the company to pay the continuously increasing tax rate (Weiner & Partner, 2013). Readiness to Go Overseas and Global Sourcing and Production In relation to readiness to go overseas, it is apparent from the provided scenario that Xiaomi is ready to expand its business in global overseas location apart Asian region particularly with the encouragement from Hugo Barra, the erstwhile vice president of Google’s Android. Besides, in relation to sourcing the required components for producing high quality smartphones, it is advisable for Xiaomi to engage its supply chain which is in China for sourcing its required raw materials for production to ensure cost effectiveness. Market Entry Strategy A) Xiaomi so as to enter into Brazil can use certain entry mode which can be either joint venture or strategic alliance. Joint venture is a process wherein two or more companies enter into a business agreement in order to form a new business entity to expand its business globally. Similarly, strategic alliance is a process wherein two companies agree to ally their functions with each other in order to meet the business objectives, remaining autonomous companies. Therefore, it is considered that both the entry mode strategies would turn out to be quite effective for Xiaomi to enter into the Brazilian market (Scottish Development International, 2014). B) It is recommended that Xiaomi should involve in a joint venture with Telefonica SA as it is one of the largest smartphone companies in Latin America. It has been revealed that Telefonica is a Spanish multinational company (MNC) which is specialised in providing telecommunications services across European regions, North and South American regions along with Asian regions. Moreover, Telefonica is the fifth largest provider of network services worldwide. It has been proposed that Xiaomi can enter into the competitive market of Brazil effectively by joint venturing with Telefonica as it has gained abundant market knowledge of Brazil and has been functioning efficiently in the nation for the past few years (Sciaudone, 2013). Moreover, Telefonica has increased the demand of its products within the Brazilian customers due to which it has been proposed that Xiaomi must joint venture with such a company that has already built its market presence. Additionally, it has been recommended that Telefonica would be the best fit for Xiaomi to involve in joint venture because the prevailing competition is intense in Brazil and it would be quite difficult for Xiaomi as a single business unit to successfully enter into the Brazilian market. Henceforth, this aspect provides a justification that joint venture would be the best option for Xiaomi to successfully enter into the Brazilian market and maintain its sustenance (Sciaudone, 2013). C) Subsequently, there are certain strengths and weaknesses of joint venture mode of entry strategy. Strengths involve that both the companies that include Xiaomi and Telefonica after getting allied can gain more expertise and enjoy greater market share in Brazil. The risk related to the allied business would be shared and more flexibility would be initiated in the business of joint venture. Both Xiaomi and Telefonica can diversify their range of products which would add up to the strength of proposed strategy. However, there are certain weaknesses associated with joint venture wherein at times the objectives would not be communicated clearly. Moreover, if there is any kind of imbalance in the level of expertise required to function between two companies then there is a possibility that the joint venture would not be effective in nature (VR Business Sales Edmonton, n.d.). Implementation of Market Entry Strategy As recommended, joint venture mode of strategy is the best approach that can be used by Xiaomi so as to enter into the Brazilian market. Therefore, it has been proposed that Telefonica must be opted by Xiaomi to joint venture with which would help it in successfully penetrating the market of Brazil. Thus, Xiaomi in order to implement joint venture effectively must follow a step by step process so as to meet its strategic objective of global market presence (Peace University, n.d.). Firstly, the desired goals and objectives must be decided by Xiaomi that would help it in deriving the desired outcomes as well. The second step for implementing joint venture is that the Brazilian market must be appropriately analysed which would help it in deriving the market potential and customer purchasing trends in Brazil. This step is considered to be very important as it would provide a better understanding to Xiaomi about the Brazilian market in which it is going to enter (Peace University, n.d.). The third step is to find out the potential partners who have already gained experience in performing its business activity in Brazil. This step would help Xiaomi in deriving certain alternatives for partners or companies that might be prospective to joint venture with in order to penetrate and sustain in the competitive market of Brazil. The fourth step would be determining the format for joint venture wherein it has to be decided that whether the joint venture is intending to share equal profits or whether a certain percentage of profit has to be shared with the company that Xiaomi is going to joint venture. It is considered that this decision must be systematically taken that would provide an understanding regarding the profit sharing arrangement. The next step is determining the share of investment to be made in the joint venture in an attempt to carry out the business activity in Brazil. The final step is to create a plan for action so as to implement the joint venture effectively with Telefonica and finally attain the strategic objective of Xiaomi regarding global market presence (Peace University, n.d.). References Bloomberg L.P (2014) Xiaomi’s Amazon Tack to IPhone Fight May Mean 3 Years of Losses [online] available from [30 March 2014] Casadei, M. V. (2012) ‘The Effects of Consumer Behaviour on the Virtualization of the Brazilian Supply Chain’. Wageningen University [online], 1-91. Available from [30 March 2014] Geromel, R. (2013) Internet in Brazil: Key Hard Facts You Must Know [online] available from [30 March 2014] GSMA (2013) Mobile Economy Latin America [online] available from [30 March 2014] Peace University (No Date) 1-2-3 Steps to a Successful Joint Venture [online] available from [30 March 2014] PricewaterhouseCoopers LLP (2011) ‘Communications Review Exploring telecom markets in Latin America’. A Journal for Telecom, Cable, Satellite and Internet Executives 16 (2), 1-52. Sciaudone, C. (2013) Telefonica Bets Smartphones Hotter Than Brazil’s Economy [online] available from [30 March 2014] Scottish Development International (2014) Strategic Alliances and Joint Ventures [online] available from [30 March 2014] SinoMedia Holdings (2014) Can Xiaomi Use Its Home-grown Strategy Abroad? [online] available from [30 March 2014] Slideshare (2014) Country Analysis Brazil [online] available from [30 March 2014] Slideshare (2014) Market Analysis Brazil [online] available from [30 March 2014] Slideshare (2014) A Strategic Analysis of Brazil [online] available from [30 March 2014] VR Business Sales Edmonton (No Date) Advantages and Disadvantages of Joint Venture [online] available from [30 March 2014] Weiner & Partner (2013) Xiaomi - SWOT analysis. Strength, Weaknesses, Opportunities, Threats for over 40,000+ companies and industries [online] available from [30 March 2014] Xiaomi (2013) Company Overview [online] available from < http://www.xiaomi.com/en/about > [30 March 2014] Read More