Point 1 : A statement explaining the key goal/s of the entity and an assessment of the risk environment in which it operates and four key risks they face due to this. At least one of these risks must be positive (i.e. an opportunity). The inherent risk of each of them should be mapped on a risk matrix.
The entity I am applying to is called Xiaomi Corporation which is a Chinese electronic company. The company sells a variety of products like Phones, Laptops, TVs to products like shoes, bags and other accessories.
The company started out with mainly selling cell phones aimed to be the best in terms of specifications of the phone and only being 3rd the price of a top range product such as Samsung and Apple but keeping the standards.
Xiaomi (MI) is currently the world’s fourth largest smartphone brand. It is present in more than 80 countries and has established a leading foothold in many markets
MI is committed to continuous innovation and unwavering focus on quality and efficiency. The company aims to build its product with honest pricing to let everyone enjoy a better life through innovative technology. The main goal is making good but cheap things.
As of 2019 they are competing with the top of the league as well as low cost emerging competitors such as Oppo, OnePlus, Huawei, and many others. It’s mainly a retail company and the risk environment is competition from others, technical problems, software, finances and the dynamic political environment of its headquarters (China).
SWOT Analysis –
Strengths –
1. Affordable Pricing
2. High Quality Products
3. Sustainable Profit Margins
Weakness –
1. Weak brand perception
Opportunities –
1. New geographic markets
2. Brick and Mortar Stores
3. Green branding
Threats –
1. High competition
2. Poor customer service infrastructure
Strengths –
1. Mi offers smartphones and other electronic devices at extremely competitive prices. This is extremely important for two reasons. Firstly, Xiaomi’s budget-friendly pricing allows them to compete for the more budget-friendly consumers in developed regions. Secondly, it allows them to enter new, previously untapped markets in which smartphones were previously too expensive
2. Despite their affordable prices, Xiaomi has a reputation for building high-quality products. Consumers and tech critics alike are consistently impressed by how much bang you can get for your buck with their smartphones.
3. MI also claims that it makes no more than 5% profit margins, a statistic at which other high-end companies like Samsung and Apple would have a good laugh at as to what kind of business they are running. MI does not just depend on the internet, a piece of hardware or e-commerce but rather than a blend of all these elements.
Weakness –
1. MI has a weak brand perception overall. It’s viewed primarily as a budget option by consumers around the world, and not as a leader in build quality and performance. This perception leads Xiaomi devices to be dismissed by many consumers despite their budgetary constraints.
Opportunities –
1. As of now MI is investing heavily in Europe because their earlier risk was only in developing markets and entering the western market was a big step. In Spain, they went from nothing to #3 which was good but all of Europe is being invested in and yet there seems to be a less ROI. This is an opportunity risk.
2. As it started in 2010 it grew rapidly because of their low-cost strategy but in 2016 it faced challenges. Sales plunged and because of supply chain issues in the company it declined but due to an ecosystem and offline retail stores created in countries such as India the sales went back up. They also concentrated on selling online services which helped with their rapid expansion. This can also be treated as not an opportunity risk because if they don’t have controls in place for the supply chain, history will likely to repeat itself which makes it an inherent risk.
Threats –
2. The smartphone and electronics industries have a reputation for being cutthroat competitive. MI is a relatively new electronics manufacturer, so they’ll need to be extra careful they’re not pushed out of the market. It wouldn’t take a lot for a premium manufacturer such as Apple to offer a more budget-friendly device, and that could have devastating consequences. Xiaomi should definitely keep their guard up.
3. MI has seen extremely quick growth over recent years, selling many millions of smartphones. However, there have been reports that Xiaomi lacks the customer service infrastructure to adequately serve all of their recently acquired customers. If there were to be a model-wide issue with one of Xiaomi’s products, they may find themselves plenty of unhappy customers.
Plotting the above risks on the risk matrix below –
As we can see from the plotted data that the identified risks are mostly in the RED & ORANGE ZONE, therefore we can tolerate, treat, transfer and terminate depending on the likelihood and consequence of the risk.
W1 has high-likelihood and high consequence therefore we should aim to terminate it. Being a Chinese brand, it does have the implication that its perceived by others to be an inferior product. There is little we can do but completely terminate this as a risk.
T2 has high -likelihood and moderate consequence we can treat it. Getting low customer service satisfaction is not preferable for a phone company because even one-off balance glitch in the software will make MI receive more customer tickets than they can handle. We can treat this buy investing and training personnel and at the same time creating employment.
T1 has low-likelihood and high consequence we can transfer it. A smartphone industry is very competitive especially if we’re going global because it’s not only from world leading smartphone companies but also low budget domestic companies that give you a run for your money.
O2 has low-likelihood and high consequence therefore we should transfer it. If supply chain problems happen again then the consequence is losing out on the demand for the product and if demand is lost then basically everything gets damaged including the reputation and goodwill.
Other risks the company has highlighted include not being able to continue making hit mobile games, the continued investment in physical retail stores, and any potential geopolitical tension that could affect its business.
Point 2 : An explanation and assessment of its governance structure, organisational culture and risk management control system. This should explain how risk is managed. Accordingly, you should critically assess its use of Enterprise Risk Management (or not).
Governance Structure & Culture –
The governance and organisational structure of MI is very basic with the Board members consisting of the chairman MR. Lei Jun with 3 executive directors and 3 independent non-executive directors.
The shares in the Company are listed on the Main Board of the Stock Exchange of Hong Kong. The directors of Xiaomi recognise the need to conduct the business of the Group with integrity and in accordance with suitable governance practices. The requisite improvements to the Group’s corporate governance procedures and policies have either been implemented or are in the process of being made.
The culture of the team is between the clan and adhocracy. Where clan-oriented cultures are family-like, with a focus on mentoring, nurturing, and “doing things together.”, and adhocracy-oriented cultures are dynamic and entrepreneurial, with a focus on risk – taking, and “getting the job done”. The reason for the company to have a clan culture is due to the policy that they must take responsibility for their work as well as other’s work. They also don’t do much things to worry about because the only incentive they can have is to get more salaries. Therefore, the company can develop peaceful relationships between the employees. The reason for the company to have an adhocracy culture is because the company’s motto is “born for fancier”, therefore the company’s product is aiming for the customers who fancy electronics. Hence, Xiaomi also has an adhocracy culture.
Point 3 : An assessment of the risk appetite of the entity and make comment as to the reason for this risk appetite. Take the risk matrix at point 1 and identify the area within the entity’s risk appetite. Explain how the entity uses mitigations/controls to move each of the risks that you identified in point 1 from an (unacceptable) inherent level to a tolerable (residual) level.
The above would include somethings from point 2 for how they mitigate risk using the 3 levels of defence. For example the risk is foreign exchange currency –
Risk – Our Group’s subsidiaries primarily operate in the PRC and other regions such as India, and are exposed to foreign exchange risk arising from various currencies exposures, primarily with respect to the United States dollar. Therefore, foreign exchange risk primarily arose from recognized assets and liabilities in our subsidiaries when receiving or to receive foreign currencies from, or paying or to pay foreign currencies to overseas business partners.
Solution to risk – We will continue to monitor changes in currency exchange rates and will take necessary measures to mitigate exchange rate impact.
Draw risk matrix with green risk appetite
Point 4 : Your recommendation for better management of a key risk that you identified in 1. (For this part, please do not choose a risk directly related to Brexit, even if you did chose one in part 1). This section should include a cost-benefit analysis of at least your recommended option. You should also draw a bow-tie analysis to show the controls currently used, your recommendation, and the control types.
TIPS
- Begin a memo with your topic straight away (no ‘Dear xyz’)
- End a memo with your recommendation and action points (if any) and your signature (no Regards, or Yours faithfully)
- You can use headings/subheadings and insert figures/tables. (Tables and figures do not count in the word limit)
- Remember to get across your key ideas in a logical and readable way!
References –
- https://www.cnbc.com/2018/05/03/xiaomi-ipo-everything-you-need-to-know-about-the-chinese-giant.html
- https://en.wikipedia.org/wiki/Xiaomi
- http://www.ejinsight.com/20190522-will-xiaomi-benefit-from-huaweis-woes/
- http://www.theharbingerchina.com/blog/understanding-xiaomi-s-global-strategy-with-donovan-sung-xiaomi-global-s
- https://www.mi.com/global/about
- https://pestleanalysis.com/swot-analysis-of-xiaomi/
- https://company.mi.com/en-us/ir/corporateGovernance/
- https://leijunxiaomi.wordpress.com/organization-structure/
Solutions –
On the topic of branding, Xiaomi has another opportunity for growth. By pitching themselves as a “green brand” — i.e. an environmentally-friendly brand — Xiaomi may be able to set themselves apart from the crowd. There’s a growing environmental consciousness, especially in more developed countries, and Xiaomi may be able to profit from this while saving the planet! Naturally, this would be a two-step process. First, Xiaomi would need to ensure their manufacturing processes are as green as possible — by reducing and managing waste products and pollutants. Secondly, Xiaomi would need to go about promoting this message with some clever marketing tactics.
2019-12-9-1575903318