#119 Xiaomi, dancing Samba. Or not?
Western multinationals have dominated the global economy for the longest time, but the past decade has brought some change. So-called emerging market multinationals have stepped onto the global scene. Except for a few notable exceptions, they have still gone unnoticed in core Western markets, but have had considerable success and visibility in other emerging markets. One of those companies is Chinese electronics / smartphone company Xiaomi. The company, which was only founded in 2011, has around 10,000 employees globally, and is selling tens of millions of smartphones that are considerably cheaper than their competitors’. Often, new models, which are usually produced in batches of only 200,000 to 300,000 before a new iteration is launched, sell out within minutes, if not seconds. At a valuation of $46 billion, Xiaomi’s rise to success that is built on strong customer relations, innovativeness and agility has become a symbol of national pride, particularly among the younger population in China. In the last years, Xiaomi has proven that it can be successful in other emerging markets, including India and Malaysia, but there are questions whether its success can be replicated globally. Just one year ago, in July 2015, both Forbes and Bloomberg Technology hailed Xiaomi’s big splash in Brazil. A year later, things have changed for Xiaomi in Brazil, its first emerging market outside of Asia. Xiaomi is only selling around 10,000 units per month – in a market where a total of 47 million was sold in 2015. As a result, Foxconn’s production of Xiaomi phones is on hold (all phones will be imported), key employees (mostly in marketing and social media) will be returning to Beijing headquarters, the distribution strategy will be changed, and no new phones will be launched in Brazil. Only two models, the Redmi and the Redmi Pro will be available to Brazilian consumers for now.
So, what has happened? Why didn’t Xiaomi’s recipe for success transfer into the Brazilian market? Probably, because it was too much of a recipe – a recipe that didn’t respect the idiosyncrasies of the market. In Asia, Xiaomi was able to create huge buzz before phone launches and to build strong communities with their customers. Consumers were driven to Xiaomi’s own web platform where phones quickly sold out. In Brazil, Xiaomi not only failed to create the buzz, but also ignored the fact that Brazilian customers have different shopping preferences. In addition, differences in a – constantly shifting – regulatory environment also made it impossible for Xiaomi to sell certain accessories online. After having failed with their boilerplate strategy, Xiaomi is now moving away from online flash sales via its own platform, and moving towards sales through e-commerce partners and traditional retail. These also cater to Brazilian consumers’ preferences to pay for electronics via installment plans. Of course, the challenges in the general economic environment of Brazil in the recent past didn’t help either. Nor did the competitive environment as Samsung and Motorola have a very strong grip on the market.
What remains to hope is that Xiaomi doesn’t consider the Brazilian experience just a failure that they need to forget quickly. The experiences in Brazil could be a great learning experience for Xiaomi that will help them in other markets outside of Asia. If Xiaomi is as smart as their quick success suggests, they will understand that differences still exist, and that success doesn’t come easy in foreign lands.
December 7, 2016 @ 10:05 am
First of all, I would like to mention that a strategy can’t be transferred identically from one market to another. It is vital to adapt the strategy. As already pointed out in the article, customers in Brazil have a different shopping behavior. Some years ago people in Brazil didn’t shop online, because the internet was a privilege for the upper class.
Over the years, shopping behavior had changed. Now only 17% purchase their goods directly at the store. However, out of the remaining 83%, just 38% shop from the internet. The others buy from catalogs (53%), telemarketing (29%) and a few use their mobile phone for shopping (6%). The reasons why Brazilians do not like to shop online are the following:
• It is difficult to return the product
• They do not like to provide personal information as they fear a lack of safety
• They have concerns that the product will not be delivered
Therefore, it would have been better to sell the smartphones and electronics through trusted e-commerce platforms and/or traditional retail stores from the beginning on.
According to Hofstede Brazil has a quite high score of 78 in the dimension uncertainty avoidance. Brazilians need to feel secure before they buy anything and as they think that online shopping is not that secure. Therefore, it is clear that a strategy focusing on online shopping is condemned to failure. Moreover, for Brazilians status symbols are crucial; but the company Xiaomi is an unknown company in Brazil. Thus, Xiaomi is also no status symbol.
Furthermore, the institute IPEA (Institute of Applied Economics Research) found out that there are more online shoppers in the Southeast and urban areas of Brazil. This means that the target group – people that prefer to buy cheaper smartphones – is not reached through online shops as they probably live in other areas.
To summarize it can be said that a thorough market research of the shopping behavior and the market itself could have prevented Xiaomi from this failure. Although the company has had success in the Asian countries such as Malaysia and India, it should be mentioned that Brazil is a country, where the culture and behavior is completely different. Therefore, the adaptation of a strategy plays a significant role when entering new markets.
References:
Hofstede, Geert (n.d.): What about Brazil [online] https://geert-hofstede.com/brazil.html [07.12.2016]
The Brazil Business (2016): Purchasing Behavior in Brazil [online] http://thebrazilbusiness.com/article/purchasing-behavior-in-brazil [07.12.2016]
December 28, 2016 @ 8:35 am
Frankly speaking I am a little bit surprised how often companies, which already operate internationally, fall into the trap of thinking that marketing strategies can be transferred without major changes to other countries and markets.
If a company already has a proper product, the commitment and a well-functioning organisation, meaning that all parameters for going international exist, it is a pity that such mistakes can happen. From my point of view one of the first things a company should research when entering a foreign market is the culture of the people living there, because (and that is rule number 1 if you ask me) you need to know your customers. This phrase should also include the fact that cultural differences have to be analysed as well, especially when trying to enter a country with a completely different culture as mentioned in the article above. We cannot assume that all clients or smartphone users in this case think, act and behave the same way all over the word. Of course, one cannot analyse every subtle nuance of a certain culture, which would probably be a never ending story, but things like buying patterns can be found out in advance by carrying out a thorough market research.
Xiaomi should have taken a look at the online shopping behaviour of the Brazilians instead of adopting their strategy one to one. The reasons why the online selling strategy of Xiaomi did not work are clearly pointed out in the blog post above. Not to know that most of the people in Brazil prefer purchasing their goods on traditional shopping channels (like physical stores, catalogues or via teleshopping) is from my point of view an expensive mistake which would have been avoidable.
However, I am sure that Xiaomi will learn from this event in order to plan their future market entry strategies in a better way, which also includes the analysis of cultural differences. As I already mentioned before it would be regrettable to miss the chance of expanding your business only because of ignoring the fact that cultures are different.
December 31, 2016 @ 5:29 pm
It seems like Xiaomi didn´t do their homework on the cultural dimensions with their entry on the brazilian smartphone-market as described in this article. As a promising and new player in the competitive smartphone business, Xiaomi became very rapidly the market leader in China leaving Huawei, Apple and Samsung far behind them. The business model is simple: high-end components to an affordable price sold over the internet quickly became a success in China.
But this model didn´t work out quite that well in Brazil where the smartphone-producer is not a well known name and the brazilian population was not ready to buy a pig in the poke regarding their high level in uncertainty avoidance (78). Therefore Brazil would not serve as the springboard to enter the rest of South America for Xiaomi. But as a very agile operating company, Xiaomi learned their lessons and is now moving on to other markets wehere in my opinion they definitely have better chances in succeeding. In Europe Xiaomi smartphones are only available over dealers who import the phones to the customers but they are not officially been sold by the company itself. In summer Xiaomi announced that they will start to sell their phones in the US with e heavy focus on social media advertising and selling. Maybe if this market becomes a success, they will also move their business to Europe. As a very individualistic country (91) the US population might accept the chinese company with their affordable but also high-end smartphones and in the US the affinity to buy online is also much higher. But only future can tell if this launch will become a success and if Xiaomi is able to strengthen their position on the world market.
As already mentioned before, this example of entering a new market perfectly shows how important it is to study the behavior of a foreign culture as well as the consuming habits in order to become successful with a product. Therefore you are able, as a company, to learn your lessons and adapt your strategy when entering a new market as new and unknown player.
December 31, 2016 @ 7:58 pm
I totally agree with Sandra. It is important to consider where your target group in the country is located and to know which distribution channels they are using before entering the market. But considering the following points Xiaomi should think about staying and extending their share in the Brazilian market.
Firstly, research has shown that 72% of Brazilian consumers fear that someone in their household could lose a job in the next year and almost 50% claimed that they are living paycheck to paycheck. This leads to the fact that Brazilian consumers are searching for ways to save money.
Secondly, 60% of Brazilian consumers said that they do not intend to go back to the more expensive brands after trading down to cheaper brands. Especially the middle and high income class said that even if they prefer the more expensive brands they do not think that it is worth the money.
Finally, Brazilians are following the new trend to shift their spending to the cash-and-carry format which combines retail and wholesale. They are starting to make a difference between discount and ‘premium’ discount.
On the whole, even if Xiaomi made loses with the wrong choice of distribution channel at the beginning, there is a high chance for them to capture the Brazilian smartphone market when considering the Brazilian consumer behaviour. There is also the possibility to follow the new trend and to sell their smartphones within the new cash-and-carry format.
McKinsey and Company (2016): Meet the new Brazilian consumer [online] http://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/meet-the-new-brazilian-consumer [31.12.2016]
July 2, 2017 @ 11:52 am
The article talk about the entance of the Company “Xiaomi” from Beijing in the Brazilian market. Following the success in China, Malaysia and India. In 2015, with the entrance into the largest country of South America they wanted to try to open a new market in an emerging economy. Brazil looking to the future could be an important logistics point for the whole continent, copying of companies such as “Motorola” and “Google” that placed their factories in this country.
But the results of this entry in 2015 were negative, did not take into account new marketing strategies to enter the new market and applied the same as in Asia. They should have tried to better understand the new market culture and the behavior of new customers. As it can be a very clear example is that the Brazilian population whenever it makes a purchase needs to obtain a security on the quality and the arrival of the product in his hands.
In 2016 compared to 2015, their sales figures fell 12%, in the local market to the detriment of such companies as Huawei, Oppo and Vivo. These took market share to Xiaomi.
The latest news about the company is that it will open the first physical store in Europe and will be in Greece. With this new shop is intended that European buyers can receive products in less time. This new market that Xiaomi faces has experience gained from the Brazilian market and has conducted a thorough market research on the behavior of European consumer purchases.
July 6, 2017 @ 5:15 am
As Wang (2015) mentioned that Xiaomi was the second largest smart-phone brand in China and it had 13.7% of the market share, behind Apple Inc’s 14.7%. Even though this company did some decent businesses in Asian market, it still faced a big failure in Brazil. From my perspective, it was reasonable. I believe this brand ought to learn from this experience and remark its strategies.
First, the way of entering in Brazilian market was the huge issue which Xiaomi neglected. Because Xiaomi was unfamiliar with Brazilian market and customers’ buying behavior, it still entered into the Brazilian market without any assistance. In my opinion, joint ventures is the best entry model for Xiaomi to enter the Brazilian market because a local organization can be a role model for this brand to promote and sell its products. In this way, two companies can share the risks together and Xiaomi can absorb the local strategies and technologies in order to understand more Brazilian culture at the same time.
Second, Xiaomi did not make a thorough plan for entering the Brazilian market. Olson (2015) pointed out that Xiaomi was merely known in Brazil. It had only 15 employees in there and there were no marketing share for a local presence on Social medias, such as Facebook and Instagram. It is well- known that Brazilian citizens are more willing to use social media. However, in China, people cannot access in Facebook. Xiaomi did not utilize the largest social platform to do its promotion, thereby letting Brazilian people realize this brand. It was a big mistake.
Third, Country Watch (2017) introduced that Brazil has a quite dynamic government culture. Additionally, hierarchy and relationship are also important in Brazil. Therefore, if Xiaomi wants to create a successful business in Brazil, it should make a good relationship with Brazil government. In fact, this feature is the same as Chinese. Nonetheless, Xiaomi still ignore it.
In short, Xiaomi should understand the culture differences when this company enter into a different countries. Making a comprehensive plan, realizing the correct condition, and business model for an international market are extremely crucial for Xiaomi.
References
Country review. (2017). Brazil Etiquette. Retrieved
from http://www.countrywatch.com.ezproxy.callutheran.edu/Intelligence/CWTop ic?Type=text&CountryID=24&Topic=CLETQ
Olson, P. (2015). Xiaomi just made a huge splash in Brazil. Now to reshape the
market. Forbes. Retrieved from https://www.forbes.com/sites/parmyolson/2015/07/06/xiaomi-brazil-hugo-barra/# 32a62a14c08c
Wang,Y.(2015). With smart-phone launch in Brazil, China’s Xiaomi ventures outside
Asia. Forbes. Retrieved from https://www.forbes.com/sites/ywang/2015/06/30/with-smartphone-launch-in-braz il-chinas-xiaomi-ventures-outside-asia/#6949e5f961e3
July 24, 2017 @ 6:26 am
Xiaomi, a Chinese company, is one of the largest technology mobile phone manufacture companies in the world. With the Chinese mobile phone market gradually saturated, an increasing number of domestic brands began to aim at the international market. Thus, Xiaomi entered into Brazil market in July, 2015. However, it seemed Xiaomi faced problem when they expanded the market in Brazil. According to what the post mentioned, Xiaomi’s products are mostly cheaper than other similar products, and most products are sold through online platform, and partly sold through retail stores. But as a multinational company to operate in a foreign market, Xiaomi did not notice that they did not understand enough of the local market trend before they entered Brazil market, and they misunderstood the shopping preferences of the Brazil customers. Hence, after entering into the Brazilian market less than 1 year, Xiaomi announced change in the Brazilian market strategy, and no longer release the new phone in the short-term. Brazil is the first step that Xiaomi went international market, this failure is worth considering for Xiaomi. Luckily, Xiaomi did not completely exit the Brazil market, as this is the first failure since Xiaomi established in 2011, they changed their strategy later on and improved.
According to the Xiaomi Brazil VP, Hugo Barra, she mentioned that the most main issue that Xiaomi faced in Brazil is the product regulations and online sales tax policies (Millward, 2016). By searching the details of Brazil market, Brazil has adopted trade protection for its domestic electronic products, and the high rate of imports of electronic equipment has prompted manufacturers to achieve local production. Therefore, even the local labor and accessories will have a higher cost, the multinational companies who want to open the Brazilian market still have to set up factories in the local. There is no advantage for Xiaomi on the supply chain, from the legal and accounting issues to the import of spare parts, logistics, transportation, financial systems, etc., all need to be redesigned, which is undoubtedly a major challenge for Xiaomi. In addition, most of the customers in Brazil have a big difference than the Chinese customers. In Brazil, large-scale physical retail stores control the main channel of sales, only 15% of Brazilian local consumers will buy mobile phones through online platform. But Xiaomi is mostly relied on the online channel for the sales, thus, it was one of the main issue that Xiaomi had to deal with.
Here is the SWOT analysis for Xiaomi in Brazil.
Strength: 1)Brazil has vast area, rich resources, and its economic-scale and market size ranked top in the Latin America; 2) Brazil applies national treatment to all wholly foreign-owned or joint ventures in Pakistan; 3) Large population will have a huge demand for the products; 4) Brazilian can friendly accept foreigners; 5) Xiaomi Products are high configuration and cost- effective; 6) Xiaomi products win the other products which is the same price.
Weakness: 1)Brazil has complex various tax policies and the tax rate is high; 2) Corporate tax accounts can be about 38% of operating costs; 3) High production cost and low efficiency of transportation; 4) Inefficiency of work; 5) Various and complex of regulations; 6) Customs bureaucracy is serious and corruption occurred often; 7) Foreigners are hard to obtain a work visa in a short time;
Opportunity: 1) An increasing amount of people is using smart phone in Brazil; 2) People are tended to communicate with each other as the technology and society improved; 3) As smart phone has been universalness, smart phone users are more; 4) Android users is becoming more, even more than IOS( Apple) users; 5) Xiaomi can make good use of the tax reciprocal treaty with China and South America.
Threats: 1) Xiaomi, as a new entrant, other well-developed and well-funded companies could use their own advantages of production cost and price to make the similar products as Xiaomi’s; 2) Alternatives of other products; 3) Samsung, ZTE, etc., other Android smartphone companies have a large market share; 4) The Brazil domestic brand, Brazilian possibly trust local brand.
In my opinion, as I have been worked in a branch company under Xiaomi for several months, I think Xiaomi has a big possibility to go international, although it did face a failure in Brazil. Xiaomi is a young company which is built in 2011, however, as it is the second largest smartphone company in China, it has an enormous potential. Also, as I worked in the company for several months, I knew there are different kind talented people from all over the world working in the Xiaomi, and many of them are graduated from overseas university, which made me more convinced that the company is more easily to accept different cultures, different values. And I believed that Xiaomi has a big motivation to expand their market continuously. The motivation is pro-active, since the growth of revenue, the market share is being increasing, and expansions in different countries will make the company innovative, in order to adapt the new challenges. As mentioned in the SWOT analysis, for Xiaomi in Brazil, there are lots of chance and conflicts that Xiaomi need to improve. Xiaomi needs to have a proper business strategy to operate the business in Brazil, as the Brazil is a relatively closed market, the tax system is complex, the Chinese mobile phone manufacturers is difficult to get effective protection. If Xiaomi wants to be the local smartphone industry leader, it needs to build a large local team, in order to fit in the organizational culture in Brazil.
References
Harpaz, J. (2013, December 17). Brazil Ranked Most Time-Consuming Tax Regime In The World. Retrieved from https://www.forbes.com/sites/joeharpaz/2013/12/17/brazil-ranked-most-time-consuming-tax-regime-in-the-world/#62dd54754c2d
Millward, S. (2016, June 1). Xiaomi falls flat in world’s fourth-largest smartphone market. Retrieved from https://www.techinasia.com/xiaomi-brazil-backtracks
QQ.com. (2016, November 12). Brazil is not kind to Chinese tech companies. Retrieved from http://www.businessinsider.com/brazil-is-not-kind-to-chinese-tech-companies-2016-11
Singh, S. (2014, June 9). Smartphone Market Share and Usage by Country – Apr-May 2014. Retrieved from http://www.tech-thoughts.net/2014/06/smartphone-market-share-usage-by-country-apr-may-2014.html#.WXV6BIjyvb0
Vitre, P. (2016, May 28). Xiaomi shifts strategy in Brazil amid market challenges. Retrieved from https://www.androidpit.com/xiaomi-shifts-strategy-in-brazil-amid-market-challenges
June 21, 2018 @ 5:32 pm
I choose this topic because I’m user of Xiaomi and I think is a really good brand, but in this case they surprise me about the way that they try to enter in a market in another country, with another culture with don´t know anything and moreover they didn´t study the market before launch the strategy. Is clear that Brazilian people have another shopping preference, and also they have some difficulties in case of e-commerce because not all the people can use internet.
So I think is a big mistake, they should study the market, the target group, the shopping preferences and the culture. The principal problem with this product in Brazil was the high level in uncertainty avoidance.
June 21, 2018 @ 5:34 pm
I choose this topic because I’m user of Xiaomi and I think is a really good brand, but in this case they surprise me about the way that they try to enter in a market in another country, with another culture with don´t know anything and moreover they didn´t study the market before launch the strategy. Is clear that Brazilian people have another shopping preference, and also they have some difficulties in case of e-commerce because not all the people can use internet.
So I think is a big mistake, they should study the market, the target group, the shopping preferences and the culture. The principal problem with this product in Brazil was the high level in uncertainty avoidance.
July 14, 2018 @ 7:16 pm
There is no country or culture that is totally equal to another country or culture. This is because of so many dimensions and aspects that belong to that, for example education, material culture (especially when it comes to technology), beliefs, values etc. If a company wants to operate globally, it has to consider that, this is not a can-do or should-do, it is a must-do! If the uncertainty avoidance (UA) dimension of Hofstede in China and Brazil is being compared, it is clear that Xiaomi’s strategy was foredoomed to fail since China has an UA of 30 and Brazil of 76, meaning Brazil people are not really comfortable with the unknown, especially in case of Xiaomi, which is a rather non-famous manufacturer. They definitely should have researched the market better, however, it is not too late yet.
April 5, 2019 @ 8:34 am
Being successful in China, in one of the most important and fastest growing market for the smartphone industry, doesn’t indicate, that the same strategy can be applied to other markets as well. Xiaomi overtook the industry leader Samsung in 2014 and has climbed to the top position of the smartphone business in China.
I can call myself a Xiaomi-Enthusiast, what made me follow their strategy and path to other markets in the past years (2018 Market Entry to Austria). Even though Xiaomi was following an appropriate expansion strategy by entering Asia and Russia followed by Western Europe, they failed in Brazil, even though they’ve postponed their market entry at the early beginning.
This failure in Brazil indicates that a lack of preparation and understanding of the culture rapidly ends in a decrease of the sales and revenue. The entrance process was guided by the VP Hugo Barras and even though he is a Brazilian, he was not able to guide Xiaomi through the obstacles and challenges of entering a foreign market. Simple environmental obstacles hindered Xiaomi from being successful. I assume that the challenges and expected hurdles were not examined properly. Economic value? Cultural understanding? Are the preparations good enough? Are there any alternatives? Is the market beneficial? Those are just some questions, that should have been figured out prior to the market entry. As this blog post reveals, Xiaomi didn’t consider any hygiene factors or motivators which add value for the customers. Thus, Xiaomi apparently missed to identify some key elements such as manufactures, the payment methods or the shopping behavior, since their low price and buzz strategy were not accepted by Brazilians.
This example illustrates that, even if the organizations are in the position to enter other markets, they must carefully evaluate whether the market entry is beneficial or not. Recently at the end of March 2019, Xiaomi has announced to enter the Brazilian Market once again. Hopefully, they’re doing a better job and will succeed this time…
February 18, 2021 @ 10:14 pm
The story of Xiaomi in Brazil is one example of why systematic international market entry is very important. It tells us again that successful internationalization in one region would not immediately equate to success in another country. In my opinion, Xiaomi really started to have the big miss in the product readiness stage. An internal-external grid analysis using PEST and 4P marketing mix could have easily showed the difficulties they experienced in Brazil. Through it, different adaptation pressures can be identified and addressed. For instance, the promotion aspect of the new products and their relation to Brazilian society could have been checked. The technical issue on payments, the payment method itself, and shopping preferences of Brazilian could have been seen too. The economic aspect of Brazil could have been reviewed as well. The Porter 5 forces could have helped also to analyze the competition and buying power. Xiaomi’s motivation of increasing their global market share should have been matched with a careful target market entry selection. Complete risk assessment and opportunity analysis in Brazil is the key. I have read in one article that Xiaomi has returned to Brazil through a local distributor. I hope they make it this time!
July 12, 2021 @ 9:27 am
Xiaomi – quite a success story – isn´t it?
Even if this article is already 5 years ago now, I think it is still valid as example and getting again more important as Xiaomi is now getting known by the European customers as well. I had my first experience with Xiaomi directly in a shopping mall in China and I was stunned – not by the size o the store or look but how the store was performing and the amount of comparable high price products sold every minute was impressive. I think Xiaomi was doing everything right with their core customer base in China, Malaysia and India because they are all somehow similar in their purchasing habit. I still know very well that I told a Chinese colleague of mine I would like to buy some power bank while driving home from company and he replied we just simply order it online – I had some doubt about this as I was going home by plane next day – surprisingly the order was already delivered as we came to work the next morning – distribution at its best I would say. Same habit now is also strong in European purchasing – I think this is why Brazil was not working out pretty well but Europe will now continue the success story of Xiaomi.
March 8, 2023 @ 9:05 pm
How Xiaomi could have learned to dance the samba in Brazil.
There are several reasons for the failure, but they all fall into one simple category: a lack of understanding of the local market. Xiaomi used its e-commerce experiences in Brazil as the sole channel, which proved unsuitable for the local context.
As with learning a new dance, knowing the systematic steps (for example, Apfelthaler: corporate readiness > product readiness > target market selection > entry mode choice) leads to a much better performance.
Xiaomi could have used the CAGE framework for product readiness and a PESTL analysis before entering the Brazilian market to better evaluate the context for the new country where they want to create value and increase their market share. Xiaomi could have entered Brazil via an indirect export entry mode, working with local distributors to quickly open the international market while keeping costs and risks low.
Overall, Xiaomi’s internationalization process follows the Uppsala model – a gradual and logical pattern, beginning with the most basic (indirect export) and progressing to more advanced (direct export) once more foreign market-related knowledge was obtained through practice.
Everyone can learn to dance the samba because, like everything else, practice makes perfect!