1.  Introduction

Xiaomi Inc. was founded in 2010 and is headquartered in Beijing. It is a global technology company primarily engaged in smartphones, smart hardware, and internet services. Its founder, Lei Jun, proposed the brand philosophy of "born for enthusiasts." Leveraging extreme cost-performance and fan economy, Xiaomi has achieved rapid growth. The company has built an AIoT ecosystem centered on smartphones, expanding into smart homes, wearable devices, and lifestyle consumer products, forming a business model integrating "hardware + new retail + internet services."

By the end of 2023, Xiaomi ranked fourth globally in smartphone shipments, entered over 100 countries and regions, with MIUI monthly active users exceeding 680 million, and connected more than 860 million IoT devices, establishing one of the world’s largest consumer-grade smart ecosystems [1]. In operations, Xiaomi adopts a blend of online direct sales, offline stores, and community operations, creating an agile and efficient operational system.

Emerging technologies such as 5G, AI, cloud computing, and the Internet of Things are driving enterprises into the digital era. The Chinese government has introduced policies like the "14th Five-Year Plan for Digital Economy Development" and "Made in China 2025," promoting the integration of the digital industry with manufacturing, providing policy and financial support to tech companies [2,3].

Digitalization has become the core of corporate competition. Xiaomi achieves full-chain digitalization from product development to user service by building a unified operating system, intelligent manufacturing platforms, and AI-driven service systems. This creates a user-centered ecological closed loop, enhancing response speed and operational efficiency.

As a digital-native enterprise, Xiaomi demonstrates a high level of digital capability in strategy, product, and ecosystem development. Existing literature mostly focuses on the digital transformation of traditional companies, with limited research on “ecosystem-driven” tech firms like Xiaomi. Studying its competitive strategies can enrich digital economy theories and provide practical references for domestic enterprises [4,5].

Based on this, this paper aims to explore the external opportunities and challenges Xiaomi faces amid the global digital wave and policy support; how Xiaomi leverages its digital capabilities and ecosystem advantages to cope with internal and external industry competition; and how Xiaomi optimizes its strategic path to consolidate global competitiveness amid continuous technological evolution and market restructuring.

This study employs the PESTEL model and Porter’s Five Forces model to conduct an in-depth analysis and discussion of Xiaomi’s digital transformation.

2.  Pestel analysis

2.1.  Political factors

In recent years, the Chinese government has actively promoted the digital economy, intelligent manufacturing, and technological self-reliance, accelerating the establishment of a new development pattern centered on domestic circulation while promoting mutual reinforcement between domestic and international circulations. The national “14th Five-Year Plan for Digital Economy Development” proposes to "build internationally competitive digital industry clusters," providing companies like Xiaomi with financial support, technical standards, and talent guidance [3,6].

In areas such as 5G, intelligent manufacturing, and chip development, the government has introduced policies including tax incentives, innovation funds, and industry guidance investments to encourage independent innovation. As a key player in China’s smart terminal industry, Xiaomi has actively responded to national calls by building intelligent manufacturing demonstration factories, launching its self-developed “Surge” series chips, and participating in the 5G industry alliance, fully demonstrating its responsiveness to policies.

2.2.  Economic factors

Global economic recovery remains weak, with inflation and rising energy costs continuing to affect consumer spending and business operations. Market demand worldwide tends to be conservative. For smartphone and IoT consumer product companies, this means increased pressure on cost-performance and trends toward market segmentation.

Domestically, as consumption structure upgrades and users shift from “owning products” to “experiencing life,” Xiaomi aligns with diversified consumer demands by deploying smart homes, health wearables, and smart office scenarios. In 2024, the Chinese smart hardware market size exceeded 3.5 trillion RMB, with Xiaomi maintaining a top-three market position [7,8].

However, Xiaomi also faces dual risks from rising raw material prices and RMB exchange rate fluctuations. From 2021 to 2023, the global chip shortage once delayed the release of high-end models like the MIX Fold. The company responded by increasing inventory, deepening strategic cooperation with suppliers such as MediaTek and Qualcomm, and developing self-designed chips to mitigate supply fluctuations [9,10].

2.3.  Social factors

Xiaomi has built a strong user community culture, with “Mi Fans” becoming promoters of the company’s development. Its community-participatory R&D mechanism enables users to act not only as consumers but also as feedback providers, testers, and promoters. This strong interactive mechanism helps Xiaomi accurately grasp user needs and enhance product update speed and market adaptability [11].

Additionally, consumers increasingly value environmental awareness and corporate social responsibility. In its 2023 Sustainability Report, Xiaomi clearly set a medium-to-long-term environmental goal to achieve carbon-neutral operations by 2050 and participates in multiple domestic green supply chain standards initiatives [12].

However, social factors present more complex trends. For example, population aging brings new market opportunities and service challenges; the urban-rural digital divide creates barriers to product use; and cultural identity influences overseas brand promotion. These are key issues Xiaomi must address as it advances internationalization.

2.4.  Technological factors

Technology is the core driving force behind Xiaomi’s continuous innovation and product upgrades. Xiaomi invests heavily in promoting independent core technologies, with R&D expenditure reaching 20.8 billion RMB in 2024, accounting for over 6.5% of total revenue [10]. Its self-developed “Surge T2” chip is mainly used in smart home control terminals, reducing power consumption and improving device response speed through edge computing, reflecting Xiaomi’s effort to enhance its hardware core competitiveness [9].

Moreover, Xiaomi attaches great importance to building its AIoT platform. By integrating device usage habits, user preferences, and product feedback through data platforms, it forms personalized recommendations and intelligent services. In 2024, Xiaomi’s AIoT connected devices exceeded 860 million, far surpassing the industry’s second place [10].Technological barriers also bring industry consolidation trends. Xiaomi has launched “Xiaomi HyperOS,” a new-generation operating system that integrates systems across smartphones, tablets, car devices, and TVs to create a unified ecological experience. This software-hardware synergy model is expected to become Xiaomi’s next growth engine.

3.  Porter’s five forces analysis

3.1.  Intensity of rivalry among existing competitors

The smartphone and IoT industries where Xiaomi operates are highly competitive with a high market concentration. In the domestic market, Xiaomi faces local challengers such as Huawei, OPPO, vivo, and Honor; internationally, it competes with giants like Samsung and Apple for users and market share.

According to IDC 2024 data, Xiaomi ranks fourth globally in smartphone shipments with a 12.5% share. It leads in India and Southeast Asia and ranks among the top five in the European market [13]. Its main competitors, such as Apple and Samsung, hold absolute dominance in the high-end market, while OPPO and vivo compete fiercely in the mid-to-low-end segment. Facing "squeezing competition," Xiaomi implements a “dual-axis strategy”: stabilizing its online channels and Mi Fan ecosystem domestically while entering the high-end market by collaborating with Leica and launching the premium MIX Fold series, breaking through price ceilings [14].

Xiaomi enhances user stickiness by building an AIoT ecosystem. Users often use Xiaomi’s smartwatches, TVs, air conditioners, routers, and other devices alongside their phones, creating a multi-device collaborative experience. This ecosystem loop significantly raises the switching cost for users, effectively reducing customer churn caused by price wars [9,11].

Faced with intense industry competition, Xiaomi no longer relies solely on price advantages but shifts to an “innovation + ecosystem” dual-driven strategy to enhance brand value and profit margins.

3.2.  Threat of new entrants

Although the smart hardware market has huge potential, its high technological threshold, brand barriers, and capital requirements constitute significant entry obstacles. Xiaomi has built a moat by establishing its own supply chain system and user operation platform. For example, Xiaomi owns factories, stable component suppliers, and manages user life cycles through the Mi Home app and Xiaomi community, extending from hardware sales to service repurchase, content subscriptions, and advertising revenue [15].

In recent years, emerging brands like Honor (after its independence) and realme have attempted to enter the market, but due to incomplete ecosystem integration and user community building, they have not posed a substantial threat to Xiaomi in the short term.

Overall, industry entry barriers are high, especially regarding ecosystem and globalization capabilities, making the threat from new entrants relatively low [16,14].

3.3.  Threat of substitutes

With technological integration and changing consumer trends, the boundaries of substitutes are becoming blurred. On one hand, traditional phones are being functionally replaced by smart wearables; on the other hand, multi-form devices like tablets and foldable screens compete for user time [9,17].

To counter substitution threats, Xiaomi pursues “full-scenario coverage.” For example, Xiaomi launches smartwatches, smart glasses, home theater systems, and other devices, not only preventing users from switching to competitors but also achieving seamless collaboration between devices at the system level. Xiaomi’s HyperOS unified operating system connects phones, TVs, car devices, and IoT devices, enabling data and service flows that further compress the impact of substitutes [15].

3.4.  Bargaining power of suppliers

To reduce supplier dependency, Xiaomi continuously promotes its self-developed chip plans, with “Surge T2” and “Surge P1” chips applied to AIoT and power management systems respectively [7,15]. Meanwhile, it establishes strategic procurement agreements with multiple suppliers, such as long-term partnerships with BYD and LG Chem, ensuring diversified component sources.

Xiaomi strengthens digital management capabilities in supply chain collaboration. Its smart factories use MES systems and SCM to precisely control raw material costs, procurement cycles, and inventory levels. Since 2023, Xiaomi has also joined the RBA to enhance supply chain compliance and transparency [5,15].

Overall, suppliers maintain relatively strong bargaining power in the short term, but Xiaomi significantly mitigates costs and risks through vertical integration, self-developed alternatives, and intelligent management.

3.5.  Bargaining power of buyers

In the smartphone market, consumer information transparency is increasingly high. Through e-commerce platforms and social media, users can easily compare products, leading to higher price sensitivity and stronger bargaining power [11,15].

In response, Xiaomi treats “direct connection with consumers” as a key strategy, establishing direct transactional relationships via its official website, Mi Home stores, Douyin live streams, etc., reducing channel costs while enhancing brand communication.

More importantly, Xiaomi accumulates loyal users through long-term community operations, creating brand stickiness. Its MIUI system includes built-in user research systems and leverages big data for personalized recommendations, intelligent interactions, and content distribution. For example, AI algorithms analyze users’ device feature usage frequency, promoting automatic software interface adjustments and precise service delivery [9,14].

4.  Strategic optimization path analysis

4.1.  Strengthening the global expansion strategy

Xiaomi has already established a leading position in emerging Asian markets such as India, Indonesia, and Vietnam, and is gradually expanding into Europe, the Middle East, and Latin America. To further enhance its global influence, Xiaomi should deepen its localization strategy and strengthen its understanding of regional consumer cultures, regulations and policies, operating costs, and channel preferences. For example, in the Indian market, Xiaomi has set up manufacturing plants and cooperated on assembling supply chains. In the future, it can further expand its R&D and after-sales systems to improve brand trust and government relations [8].

In the European market, Xiaomi should increase penetration by cooperating with local carriers and retail channels. Meanwhile, investing in local talent and customizing services will help break the “cost-performance” label and gradually transition toward the mid-to-high-end market.

4.2.  Enhancing AIoT ecosystem advantages

AIoT is Xiaomi’s core strategic barrier that differentiates it from traditional smartphone manufacturers. As consumer acceptance of the “Internet of Everything” continues to rise, Xiaomi should continue deepening the product ecosystem under the “Mi Home” brand.

Firstly, Xiaomi should improve interconnectivity and interoperability among devices to enable data sharing and coordinated behaviors across multiple devices, thereby enhancing the convenience of whole-home intelligent control.

Secondly, Xiaomi should expand third-party ecosystem cooperation by incorporating more non-Xiaomi smart products into the “Mi Home” platform, increasing the platform’s openness and user stickiness [15].

4.3.  Brand upgrading and flagship breakthrough

Xiaomi has long been labeled as a “low-cost, high-spec” brand and has relatively weak recognition in the high-end market. In recent years, through the MIX Fold foldable screen, Xiaomi 14 flagship series, and deep cooperation with Leica, Xiaomi has demonstrated a strong intention to elevate its brand.

Next, Xiaomi should further invest in exclusive technologies, imaging systems, industrial design, and user experience to create truly sustainable product barriers. The Xiaomi 14 Ultra introduces professional photography features to enhance recognition among photography enthusiasts; partnerships with high-end fashion, automotive, and sports brands will help build a brand image with greater international aesthetics and cultural integration [14].

4.4.  Digital marketing and community operations

The Xiaomi Community and “Xiaomi Youpin” platform are unique digital marketing assets that distinguish Xiaomi from other hardware manufacturers. Going forward, Xiaomi should further strengthen data-driven content recommendation and community operation mechanisms. By leveraging refined user profiles, behavior prediction algorithms, and segmented community operation strategies, Xiaomi can improve conversion and repurchase rates.

Xiaomi should enhance brand personalization and interactive content marketing by inviting users to participate in product naming, public beta feedback, co-creation of accessories, and other activities to boost user engagement.

Live-streaming sales, short videos on e-commerce platforms, and collaborations with key opinion leaders (KOLs) should also be integrated into the strategic system to cater to younger user preferences [9,14].

5.  Conclusion

This paper takes Xiaomi Corporation as a case study and systematically analyzes its external environment and competitive industry landscape under the digitalization context using the PESTEL model and Porter’s Five Forces model. The study finds that driven by technology and supported by government policies; Xiaomi has established a strong digital competitive advantage by leveraging its AIoT ecosystem construction, independent R&D capabilities, and community-based operations. Especially in terms of technology and user operations, Xiaomi has achieved deep integration of products, services, and platforms.

However, the research also reveals several key challenges currently faced by Xiaomi: first, the high-end brand image remains unstable, mainly due to its early positioning as a cost-effective brand; second, global market expansion is affected by differences in culture, channels, and local policies, resulting in regional variations in brand recognition; third, in the face of substitutes and diversified user demands, the openness and interoperability of the ecosystem still need improvement.

Based on the above issues, this paper proposes four strategic recommendations: strengthening localized global operations, enhancing the collaborative experience of the AIoT ecosystem, advancing brand upgrading in the high-end segment, and building a data-driven community operation system. These recommendations aim to enhance Xiaomi’s brand value, user stickiness, and adaptability in international markets.

Theoretically, this study expands the strategic analysis framework for “digital-native enterprises” in complex competitive environments and supplements empirical research on the competitiveness-building paths of ecosystem-driven companies during digital transformation. Practically, it offers real-world insights for Chinese tech companies on how to integrate resources and address multidimensional challenges in the digital economy era.

Of course, this study has limitations, as it focuses on a single enterprise without horizontal industry comparisons. Future research could further combine multiple case studies or quantitative models to deeply explore the causal relationships and mechanism paths between digital capabilities and firm performance.