When a business is started, and it starts to function, the factor that decides the success or failure could be environmental factor analysis. A strategic plan that considers and takes into account all the factors of environmental analysis will be able to create a successful business. The proper identification of business opportunities and threats helps integrate the efforts of the business where the focus is needed.
The process of identifying and assessing the factors, which have a significant impact on business from the outside, is known as the environmental analysis. These factors of business impact could be politics related, economy related, society related or even technology related. All of these components are individually recognized so as to assess their effect on the business success. One of the instances could be that if there are many hurdles for a place, the business could be negatively impacted.
A number of reasons justify the importance of environmental analysis for strategic plan success. The guiding of actions can be eased and achieved by indulging in strategic plan achievement. The strategic plan provides a set of precise steps following which a plan is prepared by the company so that it can become successful. The environmental factors that affect the outside of the business should be at the center of all strategic plan developments. An example could be that in cases where the economy is weak and the business needs to be launched; there may be higher spending on advertising and another form of sales promotion.
There are some particular factors that need to be considered when the strategic plan is inclusive of environmental analysis. The growth opportunities can thus be explored. Even in situations of discouraging environmental factors, there can still be scope for business growth and its opportunities. An instance may be that when the technological field as a whole develops, a firm or company is also able to enjoy its favorable results. Realigning the importance and management of energy costs with area improvements would mean higher benefits to the organization.
One of the tools that can be implemented to assess the ability of Xiaomi in using the environmental analysis scan in the strategic plan could be IFE and EFE matrices.
The strategies used by Xiaomi can be assessed using a number of techniques, one of them being the factor evaluation matrices.
Internal Factor Evaluation Matrix (IFE):
The value of the weighted score that calculated for Xiaomi strengths and weaknesses equals to 3.4. The highest possible score, in this case, can be 4, and the lowest can be 1. The competitiveness of the Company in utilizing its strengths and weaknesses is higher, as the score gets closer to 4. This result of Xiaomi score is proof that the utilization quotient of Company strengths and weaknesses is high.
External Factor Evaluation Matrix (EFE):
The calculated weighted score of Xiaomi opportunities and threats equals to 3.36. In this case too, 4 is the highest possible 1 is the lowest. The competitiveness of the Company in utilizing its strengths and weaknesses is higher, as the score gets closer to 4. This result of Xiaomi score is proof that the utilization quotient of Company strengths and weaknesses is high.
PESTLE Analysis for China
China has developed itself to be one of the most lucrative business markets in the global economy. It is on the way to becoming an economic superpower. The international business has thus increased, with simultaneous improvement in legal systems. There are three major reasons for investors to look for business prospects in China: market size, low labor costs, the growth potential of the economy.
Not just into the economy, there are many products that are made in China and are being circulated to different parts of the world. The opening of the Chinese economy to numerous cross-border transactions has helped strengthen this situation. The management of in and out businesses in China is quite hectic, which is interlinked with the political, economic, social, and technological conditions in the economy.
These conditions of society, economy, technology and politics can be assessed through PEST analysis. It is a management tool, which helps in the assessment of environmental factors at the macro level. Decision-making and supplementary processes of management are assisted by this analysis. The four main factors considered in the analysis are:
Political Factors
Economic Factors
Social Factors
Technological Factors
The analysis of these factors in China could be assessed based on the challenges that businesses would probably face in China. The first challenge is to achieve the cost reduction strategy of the organization; the second is being able to differentiate locally, and the final is the strengthening of main competencies in areas of business.
Political Factors
There are some political factors, which have an impact on the Chinese economy.
One of such factors is the Government regulation. There are informal and formal sets of rules that have a significant impact on the economy. Political force is supposed to be the most unsettling force that a country may have. The attention of the Government in the current times has shifted towards e-commerce development is firms at the national level.
The second factor is the legal issues that surround the functions in an organization. The e-commerce framework for law is still in early phase. There is no or little experience on the part of Chinese economy when it comes to e-commerce legislation issues. These issues may be related to intellectual property legislations or taxation systems. No regulations have been formulated that support the privacy, digital signature recognition or validity of consumer rights and contracts that exist electronically.
Economic Factors
There are many economic factors, which have an impact on the Chinese economy.
There has been a significant rise in the GDP growth rate of China if we take the data for the former five years. The suggestion of reports is that this rate of excellence of China will help it surpass the total GDP of US too. There are various factors, which help this process to speed up. These factors can be the high saving rates of the economy, high amount of skilled labor force, export business growth and increased rate of urbanization.
There can be a great effect of any form of economic developments on small and medium level businesses and their functions. The growing GDP rate of China is an indication that there is value addition from the side of citizens so that social value is enhanced. The purchasing power each of the consumers is thus being increased. The level of labor cost in China is quite low. This factor has led many multinational companies to hire working staff from China, even for their international products.
The world has been impressed with the growth rate shown by China; however, there can be a slow down because of certain challenges. The challenges could be in the form of high level of inflation and increased prices of property.
The interest rates of the People's Bank of China have also increased. The commercial banking requirement for the reserve is now almost higher by nine times. In the meantime, there is urging from the central bank to indulge in lesser lending and imposing home purchase limits.
Social Factors
There are many factors at a social level, which have an impact on the Chinese economy.
There is a great role of a cultural and social aspect of the Chinese economy as there is continuous change in the demographics. For instance, there is high fluctuation in population growth and distribution of age. These factors can easily affect the values of culture and the trends in society. The decision taking at the individual level is hugely affected by the size of the family and the social behavior. The additional social factors, which comprise the social periphery of China, are the lifestyle of consumers, education, immigration, and religion. As per Hofstede’s value analysis, China could be called a dominantly collectivist culture.
There is high literacy rate in China of up to 90%. The majority of the citizens are literate, and there are high emphases on education and literacy. The level of internet users is quite high. Online shopping is a growing trend. Taobao is the dominant e-commerce network, and there is a high flow of customers. There are predictions of even higher customer flow in future.
The perception of shopping in the young population has quite changed because of development in e-commerce. However, there is a certain percent of the Chinese population that is interested in shopping physically rather than being exposed to online.
Technological Factors
There are many technological factors, which have an impact on the Chinese economy. These factors may be summarized as the development of new products, intranet and extranet purchase mechanisms, technology for production, Internet-based distribution mechanisms, mobile telecommunication working methods.
One of the major problems in technology in China is the B2C industry development, which is risky regarding consumer safety for a good system of online payment. Given the uncertainty avoidance feature and orientation at the long term for Chinese buyers, this problem is further widened.
The penetration of credit card systems is very low in China, which is suggested by many pieces of research. There are low usage issues in the online credit card system as well. The lack of safety in the credit card payment system is also one of the primary reasons for low penetration and usage.
The remaining factors are legal and environmental factors. The level of environmental protection awareness is on the rise, which helps in the extension of e-commerce.
Porter’s Five Forces Analysis:
Porter’s Five Forces Analysis:
In Porter's five forces model, we try to analyze competition within the industry and the ways to develop business strategy. This model is a useful tool to find out attraction level of the market. The five forces of Xiaomi are described below:
Bargaining Power of Suppliers
Suppliers mean all sources for inputs necessary to make a product or provide service. Xiaomi has a centralized operation. It is more inclined to give quality products and service. In software companies like Xiaomi, the bargaining power of suppliers is low because there is low cost for switching suppliers.
Bargaining Power of Customers
In the case of Xiaomi, customers demand customized products. Then there is less chance of switching the product because they are dependent upon Xiaomi. Customers place a large importance on products. Time and again they have to change the software and application to update and adjust with market conditions. For this, the customers are highly dependent on Xiaomi. So Xiaomi seems to have low bargain from customer’s side.
Threat of New Entrants
For software and application based product-developing company there is a requirement of advanced technology and highly skilled manpower. Also, once customers use the products of a software company they will continue to involve same company again and again. It's like brand loyalty of customers. Economies of scale also play some role. As this is already established a company, its economies of scale are pretty high in compare to new entrants. Hence, we can say there is the low threat of new entrants for Xiaomi.
Threat of Substitutes
For Xiaomi, there is a moderate level of threat from its substitutes. The companies can take away some of the market shares from Xiaomi. To deal with this company have to come up with most innovative and engaging products in the market. Also, as there is a high barrier to new entrants, there is less growth in new substitutes. Xiaomi should focus on product development and innovation to keep its market intact.
Existing competition
Xiaomi seems able to grab the market. Currently, there is competition in the market. To deal with this situation Xiaomi should come up with innovative and more customized products for its customers. It also has to focus in CRM. In fact, there must be development in the competitive advantage of the company.
SWOT Analysis:
Strength:
Xiaomi is very lucky to have the strength of its brand, fund, and organizational cordial relationship. Xiaomi has a strong revenue-earning stream. In addition to that Xiaomi has a very strong brand recognition and name. The recognition strength of Xiaomi makes the various operation of Xiaomi smooth and efficient. An example could be like swiftness in the corporate organizations, quick response from suppliers and vendors, the credibility of purchase on loan and so on.
Another strength of Xiaomi is organizational coordination both inter-organizational and intra-organizational. Likewise, it supports its other intra-organizational bodies with its resources. This coordination has helped to make operations effective, lean and cost efficient. The inter-organization too has proved to be strengths many times. Collaboration with various other corporate and non-corporate partners has led Xiaomi to achieve its goals and objectives easily.
Weakness:
The major weakness of Xiaomi is its weak manpower. Due to cheap labor in China, some of the posts are filled with personnel who may not be efficient enough. Hence, there remains burden of works and delays the operations. The human resource deficit is thus one of the weaknesses.
Also, there is a limitation of resources in some of the areas. It is not always possible to ask for the resource assistance in minor things, which again delays the work. Xiaomi many times have suffered due to lack of its distribution loopholes.
The technical difficulties could be taken as the other weakness. The lack of vocational technicians makes the operations disturbed. It is required to hire the external technicians for proper activities of maintenance and repairing.
Opportunity:
Xiaomi has the high opportunity to maximize the benefit of stakeholders. It could be to the consumers at the domestic level or the consumers at the international level. Xiaomi holds the power of good brand presence around the globe, and especially in China. Xiaomi has an area to explore a lot in the area of product management. It has a resource, technical assistance from other organizations, as well fund. With all these, the opportunity to serve the consumers and sales and revenue inventory is very high.
Threats:
Also, the other threats could be a high vulnerability in the world of technology. One mistake in a technological aspect while doing the product development or while dealing with public and clients could create a huge adverse impact on the whole Xiaomi system in China as well as abroad.
Conclusion:
Summarizing the analysis, we can conclude that Xiaomi has much competition within the Chinese market. However, it has a moderate level of threat from its substitutes. These companies can take away some of the market shares from Xiaomi and to deal with this company have to come up with most innovative and engaging products in the market. The main theme in their success has been the finding and moving forward on new ideas.
