210514-AOF-Case-Competition-Round-2-Xiaomi-MA

MiniCase: XIAOMI: ENTERING VIETNAM MARKET Let GAP be your first career mentor 01 Background – Global Expansions Global Expansion Nationalism and protectionism are on the rise, and growth rates in emerging markets are diverging But international business is far from flatlining: globalization’s essential rules are being redefined—and its pace is accelerating Even as the world becomes more decentralized politically and physically, customers, devices, services, processes, and businesses continue to integrate digitally The simultaneous rise of economic nationalism and of digital integration is redefining the international business landscape that has shaped our understanding of globalization Companies adapt their products, approaches, and business models to the new global reality Companies must take a more nuanced approach to identifying and creating growth opportunities They must navigate an increasingly fragmented and volatile global economy Let GAP be your first career mentor Covid 19 Impacts on Global Expansion The COVID-19 pandemic has delivered perhaps the greatest shocks to international trade since the Great Depression Global trade in 2020 is projected to decline by 20% according to our baseline scenario for economic recovery, and it is not projected to regain its 2019 absolute level of $18 trillion until 2023 Regardless of when the top-line numbers fully recover, however, the global trade landscape will still look dramatically different as companies shift their focus from fighting the pandemic to winning the post-COVID-19 future As it destabilizes economies, intensifies geopolitical frictions, and exposes the risks of current global manufacturing and supply networks, the pandemic is also likely to redraw the map of world trade To visualize these shifts, take a look at two maps depicting major trade corridors One shows the actual change in trade volumes from 2015 through 2019; the other projects changes from 2019 through 2023 under BCG baseline economic scenario (see Slide & 6) Let GAP be your first career mentor Covid 19 Impacts on Global Expansion Let GAP be your first career mentor Covid 19 Impacts on Global Expansion Let GAP be your first career mentor Covid 19 Impacts on Global Expansion Among the sharpest shifts: • Two-way trade between the US and China in 2023 will have shrunk by around 15%, or about $128 billion, from 2019 levels Trade between the US and the EU will continue to grow, but at a sharply lower rate than the $135 billion surge from 2015 through 2019 • EU trade with China will have declined by about $30 billion from 2019 through 2023, after growing by $124 billion in the previous four-year period EU trade with India and South America will flatten • Southeast Asia will continue to be one of the strongest gainers, increasing two-way trade by around $22 billion with the EU, $26 billion with the US, and $41 billion with China by the end of 2023, but still at a slower pace than the earlier four-year period Companies will be compelled to revise their mix of products and the design of their global supply chains—and governments their trade and economic policies—to adapt to these and other shifts This will be particularly true in segments such as medical equipment, biopharmaceutical products, semiconductors, and consumer electronics, which are particularly exposed to geopolitical and macroeconomic pressures Let GAP be your first career mentor Global Expansion: strategies An export strategy is used when a company is primarily focused on its domestic operations It does not intend to expand globally but does export some products to take advantage of international opportunities It does not attempt to customize its products for international markets A standardization strategy is used when a company treats the whole world as one market with little meaningful variation The assumption is that one product can meet the needs of people everywhere Many business-to-business companies can use a standardization strategy A multidomestic strategy customizes products or processes to the specific conditions in each country For example, Lincoln Electric used a multidomestic strategy to customize its manufacturing methods to the conditions in each country where it built factories Retailers often use multidomestic strategies because they must meet local customer tastes 7-Eleven is another example of a company using a multidomestic strategy It tailors the product selection, payment methods, and marketing to the values and regulations in each country where it operates Let GAP be your first career mentor A transnational strategy combines a standardization strategy and a multidomestic strategy It is used when a company faces significant cost pressure from international competitors but must also offer products that meet local customer needs M&A as a Global Expansion strategy The use of mergers and acquisitions (M&A) to accelerate growth is a well-established business strategy, and offers a company the potential to enter new markets, access top talent and reduce costs By merging with or acquiring another firm, a business can often achieve these goals more quickly and easily than with a solo expansion The immediate benefits of expanding through an international acquisition include: • An existing team already in place in the new market with valuable experience • Established business infrastructure and facilities • Confirmed regulatory approvals • Developed relationships with customers and suppliers Meanwhile, the risks of M&A are: • Cultural Differences • Compliance – Legal Implications and Taxation • Communication with Employees Let GAP be your first career mentor M&A in 2020 2020 was a volatile year for M&A, with an almost complete halt in deal activity in the early months of the Covid-19 crisis and a rebound in the second half of the year, when deal value rose by more than 30% in the third and fourth quarters Bain & Company’s new survey of nearly 300 M&A practitioners shows that appetite for M&A remains robust, with about half of respondents expecting higher M&A activity in their industries in 2021 The survey also shows that M&A will continue to be a key strategic pillar for business, with practitioners expecting M&A to contribute to 45% of their growth over the next three years, compared to about 30% over the past three years Globally, median enterprise value to earnings before interest, taxes, depreciation, and amortization deal multiples increased to 14 times from 13 times in 2019, underpinned by fast-growing industries, such as technology, telecommunications, digital media and pharmaceuticals Bain identified an increase in the share of scope deals aimed at helping companies expand into fast-growing markets or gain new, mostly tech and digital, capabilities This trend continued in 2020, with scope deals further increasing volume share to 56% of all deals more than $1 billion, compared with 41% in 2015 Technology, consumer products and healthcare stand out with the highest share of scope deals The need for new critical capabilities was at the heart of many recent scope deals (Source: Bain & Company’s Global M&A Report 2021.) Let GAP be your first career mentor Xiaomi: Internationalization Practices Internationalization as Both a Dream and a Goal Xiaomi had captured as much of the market as it could Xiaomi’s total phone shipments in 2015 did not achieve the company’s target; only 70.8 million Xiaomi phones were sold in that year That was an increase of 22.8 per cent from 2014, but the year-on-year growth rate in 2014 was 227 per cent In addition, Xiaomi’s relatively low average price and extremely low profit margin had already put Xiaomi in a critical situation According to a survey completed by International Data Corporation (IDC), the average selling price of a Xiaomi phone in China was US$141 in 2015, while the average selling price of phones produced by Huawei, OPPO Electronics Corp., and Vivo Communication Technology Ltd was US$213, US$231, and US$208 respectively Considering that the market situation for Xiaomi was alarming and its profit insufficient to support the corporation itself, Lei intended to enter the international market rapidly to accelerate Xiaomi’s development and accomplish his dream of internationalization In order to enter the overseas markets, Xiaomi initially formed an international management team In addition to Xiaomi’s eight founders, Xiaomi welcomed seven team members with senior work experience in well-known international companies such as Google, Tencent, and Qualcomm The team had four foreigners and six people from China, returning from overseas work Let GAP be your first career mentor Xiaomi: International Team Founding Team Business Distribution Jun Lei Founder, chairman, and chief executive officer Bin Lin Co-founder and president Wanqiang Li Co-founder and senior vice-president, MIUI and Mi.com (resigned 2014) Guangping Zhou Cofounder and senior vice-president, hardware and firmware Kong-Kat Wong Co-founder and vice-president, Mi WiFi and Mi Cloud Feng Hong Co-founder and vice-president, MIUI Chuan Wang Co-founder and vice-president, Mi TV and Mi Box De Liu Co-founders and vice-president, industrial design and ecosystem development Senior Managers Shou Zi Chew Chief financial officer Xiang Wang Senior vice-president, supply chain and intellectual property Hugo Barra Vice-president, global division Tong Chen Vice-president, content investment and operation Mu Tang Ecological chain product development and Xiaomi explore lab Jain Manu Xiaomi India Donovan Sung International product development Let GAP be your first career mentor