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Free trade agreements
China has signed numerous free trade agreements (FTA) with many countries which lower the cost of trading. This includes FTA with Australia, Korea, Pakistan and ASEAN (China FTA Network, n.d.). It is also currently under deep negotiation with countries like Japan, UAE and Norway for FTA.
Undervaluing Chinese Yuan
The Chinese government has been actively maintaining the valuation of the Chinese yuan so it remains low (Inman, 2015). This has increased the attractiveness of China’s exported goods as they are considered cheaper than goods manufactured in other countries due to the currency exchange rate.
Robust growth in Asia
In countries that Xiaomi is currently operating in, especially that of China, India and Southeast Asia region, economy is set to grow robustly over the next five years (Organisation for Economic Co-operation and Development, 2017). On average, it is forecasted to grow at 6.2% per annum with large increased in private consumption contributing to it.
Slow Growth in Europe and United States
Countries in the European Union (EU) continues its recovery and are set to grow at a slow rate of 1.6% in 2017 and 1.8% in 2018 (European Commission, 2017). Similarly, private consumption is set to contribute as the main growth driver. This is also reflected in Russia, where gross domestic product (GDP) is set to grow modestly at 1.7% in 2018. In United States, growth is forecasted to be slightly better, at around 2% for 2017 to 2019 (The World Bank, 2017).
Smart phones have increasingly become a socio-cultural norm in life as more people depended on it for work, communication and leisure (Lohr, 2009). Even in developing countries where disposable income is much lower, smartphones have incredibly high penetration rate (Beck, 2016).
People are also more willing to spend higher for a smartphone. Brazilians paid on average, USD74 more for their smartphone in 2014 as compared to 2013 and in China, average selling prices of smartphones have raised significantly (Millward, 2016)
Due to the increased in privacy fears and the reliant on the smartphone to do increasingly more things, many users are now demanding that their phone has security and privacy features (Lomas, 2016). It is therefore important for smartphone manufacturers to differentiate themselves through this.
Even though China, where Xiaomi is based in, has good Intellectual Property Rights (IPR) law, it did not strictly enforce it (Perkowski, 2012). As such, any new innovative design or models will be readily copied and sold.
Numerous countries, including Xiaomi’s existing markets, have all pledged to reduce carbon emission in the Paris Agreement (United Nations, 2016). The enactment of environmental laws has already began in many countries, and is set to affect how companies do their business.
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