Xiaomi Inc. is now a well known name in the market for smart phones in China and other parts of Asia. This week Xiaomi has officially launched its latest product Redmi 2 in Brazil. This is a bold and challenging step that has both its positive and negative sides considering the market structure and Brazil’s trade policies. In this article we are going to discuss the implications of this smart move by Xiaomi to put its first step outside the Asian region.
Xiaomi is based in Beijing and have earlier expanded its market to the Asian countries like India and Indonesia. Being a new company the way Xiaomi has captured the Asian markets is quite interesting. The smart phone market in China has an oligopolistic structure with Samsung and Apple being the leading brands . Competing with these to companies was quite a difficult task considering their high brand value. Xiaomi took a strategy of price undercutting to capture a sizeable portion of the market. Xiaomi offered the same features as the two leading brands of smartphones but at a much lower price which was near to the cost of manufacturing the phones. The lower price attracted the consumers and thus the brand found entry into the market and soon became a popular name.
The decision to expand its market outside Asia was a prudent one. The choice of Brazil as the first can be justified considering the rising demand for smartphones in this country. Presently, the smartphone market in Brazil is fourth largest in the world . If Xiaomi can successfully steer through the Brazilian market it can find entry into other Latin American countries and also to the North American countries. But Xiaomi’s strategy to gain market is through price cutting. This will be quite difficult in Brazil as the import duty on electronics goods in Brazil is quite high. Though there are exemptions for the companies which manufacture and assemble the component parts within Brazil. It is important to note in this respect that the cost of electricity and labor is higher in Brazil compared to China. This is the reason for higher smartphone prices in Brazil compared to other countries like USA. It will be difficult for Xiaomi to keep the price low as it will have to assemble the phones in Brazil using local resources. It seems that the company will have to go through losses at the initial stage to increase its market share. The higher import duties and the consequent higher prices of goods in Brazil points to the inefficiencies of trade restriction, which imposes a cost on the consumers who have to buy the product at a higher price than the free-trade price.
Another strategy of Xiaomi that raises question is that it intends to sell the phones online, whereas most of the buyers in Brazil prefer to buy it from the stores. So, it is doubtful how successful this sales strategy will be. Off course this will save the cost of marketing the product. Xiaomi should also follow the conventional lines of selling the product along with the online sales.
Finally, it should be emphasized that the low price route by which Xiaomi seized the Asian market may not be successful in Brazil. Brazil is an expanding market and offers immense opportunities for this company but Xiaomi has to follow a mix of strategies to gain a sizeable portion of this market. Sales promotion strategies and product innovation has to be followed to remain afloat in this competitive market. Xiaomi has taken a challenging path and has to live up to it.
Works Cited
Chao, Loretta. "Xiaomi Launches Its First Smartphone Outside Asia." Wall Street Journal 1 July 2015. English.
