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The

next genera6on of Xiaomi's growth story:


Capturing the Indian Smartphone Market

Madhur Singhal
March 2014

Executive summary
Xiaomi's India market entry strategy uncovered....
Xiaomi experiencing rapid growth due to success in Chinese market
>5 billion handset revenue in 2013; targeted to sell 40m units in 2014
International expansion imminent next step
India poised to be 2nd largest mobile market after China by 2017
India is fastest growing smartphone market globally with smartphone shipments projected to increase
to 156m units by 2017 (28m units shipped in 2013)
Feature phones still dominate Indian market share, as handset prices decline
Smartphone penetration < 20%
Xiaomi needs to focus on the conversion of featurephone users and building service capability
Competition in the Indian handset market is dominated by Samsung and Micromax
Driving brand awareness over domestic brands will be a challenge for Xiaomi
Xiaomi needs to address Micromax's weakness in after-sales service in its value proposition
Indian consumers are highly price conscious and heavily content-focused
Strong growth in the 'affordable' and 'mid-range' smartphone segment, priced between Rs 5-25k
Xiaomi's ability to customise content, form partnerships and understand user behaviour is critical
Xiaomi should partner with Flipkart and consider controlled retail and operator partnerships
Partnering with trusted e-commerce leader Flipkart, adopting cash and carry model is recommended
Distribute in 5 cities leveraging specialized retailer and single operator partnership to control supply
2

Positioning Xiaomi for future success


High-growth and increasing smartphone penetration make India an attractive market to enter
Objective

Context
Xiaomi experiencing rapid growth
Success in Chinese market
International expansion imminent next
step

Prioritize growth and entry opportunities


Understand Indian market dynamics
Evaluate market and best mode of entry
given competitive landscape

Sales growth driven by rapid adoption


>5 billion handset revenue in 2013
Targeted to sell 40m units in 2014

Focusing on identification and execution


Identify target segment, product and
channel strategy
Utilize Xiaomi forums and feedback
sources to identify consumer pulse

Indian mobile market opportunity is ripe


Poised to be 2nd largest mobile market
after China by 2017

Next Steps

Product and service proposition is prime


Xiaomi well positioned to capture market
share within 3 years with right mix of
product and distribution

Speed is critical for Xiaomi to penetrate the dynamic Indian market


3

Xiaomi to adopt 3 pillar strategy to guide Indian market entry


Target Indian consumer with multi-price handsets through e-commerce and selected channels
On what basis should Xiaomi enter the Indian mobile market?
1

Target Consumer

Product & Price

Understand Indian mobile landscape and


Serve & educate new generation of phone users
Learn from domestic players who have captured market share e.g. Micromax

Enter market with handsets Rs 5-25k, emphasizing importance of service-oriented


model
Partner with local content providers and developer communities to build service
model

Channel Strategy

Immediately adopt e-tailer channel and build service ecosystem


Consider specialized and controlled retail distribution across 5 key Indian metro cities
Explore opportunity to market Xiaomi with single operator in India

The Indian mobile market is primed for immense growth


Indian smartphone shipments projected to increase to156m in 2017 while overall usage grows
India is fastest growing smartphone
market globally...

... with 110m mobile internet users


expected by 2017

Growth in global smartphone shipments (M)

Growth in mobile internet users in India (M)

Unit Shipments (M)


600

Mobile Internet users (M)


1,500

+52%

1,284
China 33%
1,168

458
400

1,000

+34%
301

+130%

36 48

35 38 29

233
66

28

USA

UK

500

156

+7%

138

China

700

+460%

+33%
183

200

904

Japan Brazil

India

US 17%
Japan 6%
India:
110m users
by 2017

117

2013
2017

355
303

542
420

0
2006

2008

2010

2012

2014

2016

2018

Despite slower adoption of mobile internet, India is poised to be


2nd largest mobile market worldwide by 2017
Sources: "India's mobile Internet, Avendus September 2013; "Forecast Analysis: Mobile Devices, Worldwide,2009-2016, 1Q13 Update", Gartner September 2013

Feature phones still dominate market share in India


Driving smartphone conversion critical to success in the Indian market

Whilst China is a mature smartphone market, India's conversion to "smarter devices " is evident
Device usage by customer segments
Featurephones

Smartphones

18%
34%

China

Male
Female

14%

Ages 16-24

19%
29%
34%
100%

India

50%

82%
75%
63%
51%

Ages 25-34
Ages 35-44
Ages 45-64
0

76%
85%

Male
Female

70%
80%
86%
87%
% of 100%
segment

74%
57%

50%

50%

100%

13%
7%

Ages 16-24

14%

Ages 25-34
Ages 35-44
Ages 45-64

12%
9%
6%
0

50%

100%

Xiaomi has an opportunity to capture the next generation India's


smartphone users
Source: "The Mobile Consumer" A Global Snapshot, Nielsen February 2013

Competition in the Indian handset market is fierce


Market share dominated by Samsung and homegrown player Micromax

Top 5 players in Indian Smartphone market


Market Share %
50%
43%
40%
+305%
30%
20%

+1,683%
11%

10%
Karbonn, a local
entrant is
rapidly gaining
marketshare

23%

32%

30%
24%

13%
8%

5%

5%

2012

6%

2013

1%
Karbonn

Micromax
emerging as a
dominant player
with market share
>20%, growing
significantly

Sony

Nokia

Micromax

Others

Samsung

Xiaomi's success in India will largely depend on its ability


to differentiate itself in the same segment as Micromax
Source: "India's mobile Internet", Avendus September 2013

Lessons to learn from homegrown Micromax


Like Xiaomi in China, Micromax is a useful blueprint for success in the domestic market

Micromax emerging as strong player in mobile market


Revenue of leading Indian mobile brands
Revenue (Cr)

+113%

5,000

4000+

4,000

4,000

Micromax is expected
to emerge as market
leader with revenues >
4000 Cr in 2013 and
could threaten Xiaomi's
entry into Indian market

2,000
1,000

2,500

2,400

1,800
1,486

1,500

1,001

0
Intex

2011
2012
2013

490
200 425
Lava

Micromax Karbonn

Rural market focused


~72% of population is rural
30-40% tele-density in rural areas
Building connect with consumers
Focused on branding and long-lasting
relationships
Extensive distribution network
65 super distributors, 1500 micro-distributors,
100,000 retailers + chain exclusive outlets
Limited/No e-commerce channel use

3,168
3,000

Key Success Factors

30/106 models are


dual-SIM and range
from Rs 1k-14k

Supply chain
Agile, adaptable and aligned supply chain
India-wide
Value-for-money
Adapted offering for Indian market and
achieved higher localization

Xiaomi to address Micromax's poor after-sales service by


offering consumers extended warranty
Source: Supply chain lessons for the new millenium: A case for Micromax Informatics, Integral Review , December 2012

Indian consumers price conscious and value-driven


Critical for Xiaomi to understand and appeal to the Indian consumer's preferences

Mobile launches by price segment indicate


preference for affordable segment

Major Indian mobile players - Sales by price segment

Indian Mobile Launches by price segment


100%

5%

5%
80%
60%

21%

5%
38% Mid-range phones
(Rs 15-25k)

29%

40%
20%

6%

22%
40%

29%

0
2012

High-end phones
(> Rs25k)

2013

Affordable phones
(Rs 5-15k)
Feature phones
(Rs 2-5k)
Basic phones
(< Rs2k)

Samsung and Micromax are key players in


these growing segments...

100%
Mi3:
Rs 18-24k

19%
80%

42%
20%

60%
RedMi:
Rs 7,500-10k
40%
New Rs 3000
Xiaomi handsets
(Mid-2015
20%
onwards)

"Affordable" segment
represents the fastest
growing (80%+)
segment

6%

19%

46%

25%

20%

31%

33%

69%

> Rs 25k
Rs 15k-25k

15%

30%

Samsung Nokia

25%

Rs 5k-15k
< Rs 5k

Sony Micromax

Xiaomi positioned well to compete against other OEM's with superior


handsets across multiple price points
Source: www.91mobiles.com

Which phone would you buy?

Price (Rs)
Internal Storage
Processor
Dual-SIM
Camera Megapixel
Display Size
Resolution
Source: www.91mobiles.com

Micromax A77
Canvas Juice

Karbonn A111 Smart

Xiaomi Hongmi

6,950

7,999 (Target Price)

8,299

4GB

1GB

4GB

Dual core,1200 MHz, Scorpion

Quad Core, 1500 MHz, Cortex A7

Dual Core, 1300 MHz

Yes

Yes

Yes

5 MP, 2592 x 1944

8 MP, 3264 x 2448

5 MP, 2592 x 1944

5 Inch

4.7 Inch

5 Inch

480 x 800

720 x 1280 (312 ppi)

480 x 854 (196)


10

Smartphone battle shifting from hardware to services


As price of handsets decline, competitors are focusing on building software ecosystems
Major player

What is their software play?


Made no big breakthroughs on hardware but invested in boosting services
Siri (importance of virtual assistance)
Removing Google maps (wanted control over maps) risking alienating loyal
users at the expense of building own service platform
In the next five years, our software division will earn more than the
hardware. The future lies in the internetIm 200 percent convinced of that.
Made Rs 100cr (USD 17m) in 2013 through its app store
Built powerful services including Cloud, Skype, Xbox, Outlook
Range of service developers to create Windows 8 solutions
Building re-vamped Nokia music service and Navteq navigation in cars

MIUI store and weekly upgrades and available ROMS


Specialized apps and custom themes
Multiple consumer feedback forums

Xiaomi stands as the gadget capturing imaginations that are brilliant


software and service solutions wrapped in desirable hardware
Source: www.tech.fortune.cnn.com

11

Content is king in Indian market


Xiaomi success will be driven by ability to localize, form partnerships and understand user behaviour

Bollywood
Localized
Content
Category

World largest film industry


Part and parcel of the
Indian story postindependence
Over 1000 films produced
every year

Sports
Cricket most popular
sport in India followed
by over 1 billion people
Large revenues
generated through
sponsorships,
endorsements and TV

Music
Mainly Hindi music driven
by film industry
~720m Hindi-speakers in
India

Ideal
Partner/s
Revenue
Model

CONTENT PARTNER REVENUE SHARE + DEVELOPER REVENUE


+ SPECIALIZED APPS & CUSTOM THEME REVENUE

Partnering with local content providers and incorporating into the


Indian version of the MIUI is key
12

Superior after-sales support is key to winning customers


Forum and consumer feedback suggests that consumers are ready for Xiaomi in India

English Translation: Dear admin, do you not know when Xiaomi will
be coming to India?... They have even hired the VP of Google to
help grow their efforts internationallyPlease hurry and bring this
company to India so that they can kick everyone elses butt!
13

Xiaomi to partner with key Indian e-tailers and distributors


A phased approach is critical to drive customer adoption quickly at scale
Retail Distribution

E-Commerce

Retail Distribution

E-Commerce
State of the
Market

Recommendation

Benefits

Operator Leveraged

Operator Leveraged

Retail e-commerce closed to


foreign entrants
Target early adopters and the
emerging affluent

Open market sales most


prevalent in India (85%)
95% subscriptions are prepaid

High-priced handsets
generally tie-up with operators
Currently operators do not sell
sell bundles

Sell on Flipkart direct to


consumers

Partner with selected retail


channel covering 5 cities.
e.g. Croma Electronics

Single operator partnership


(e.g. Airtel) to explore ways to
leverage existing stores and
consider bundling options

Supply chain control


Fastest go-to-market
Easy setup
Logistics support
Identify early adopters and
access to target consumers
Trusted established partner

Supply chain control


Reach to mass market
Direct customer relationships
People can afford phones
but dont always have the
payment instrument to
purchase online (only 5%
credit card penetration)

Supply chain control


Network of stores
Direct customer relationships
Invest marketing dollars
behind MIUI and ability to
educate consumers

Further exploration and analysis on options required


14

Partnering with Flipkart is the ideal e-commerce entry


Despite Xiaomis successful online channel, adopting "cash and carry model" is recommended
Motorola sold
20,000 Moto G
devices in India
via Flipkart in 1
hour

Logistics Partner

3rd Party

In-House

Control of Product
Distribution

In-House

Trusted and
proven

Time to implementation

High

Low

E-Commerce Model*

Retail

Cash & Carry

Speed of execution and implementation make the Cash & Carry


model most attractive for Xiaomi entry into India
15

Competitive pressure from domestic players a key threat


Despite positive outlook, Xiaomi must address some key issues to succeed in India
Mitigating Actions

Threat
Domestic players in India
will undercut Xiaomis
business approach in
increasing price pressure

Xiaomi has the capability to compete head-to-head in the lower


priced handsets and can easily bring to market handsets that are in
the $50 range
Xiaomi is driving the sales of accessories, and has the capability to
expand to new devices such as tablets and wearable technology

Samsung is pushing into the


middle tier to attract
Xiaomis users

Xiaomi currently has a range of devices targeted at different market


segments
Xiaomi can leverage its track-record and success in China to
compete with Samsung in India

Potential loss of control over


supply chain

Consumer adoption of
e-commerce as a purchase
channel

Xiaomi to work with an established partner e.g. Flipkart and helping


them to build e-commerce channel by leveraging Xiaomi brand
potential

Xiaomi can localise content and software and services


Xiaomi to develop strong relationships with trusted partners in India
Xiaomi to develop longer-term on-ground capabilities
Be selective about partners in retail/open market

Xiaomi is well positioned to mitigate risks having faced similar issues


in Chinese domestic market
Source: "SWOT: Xiaomi, Mobile Devices, Worldwide", Gartner December 2013

16

Next Steps & Execution


1

Understand Indian Market Dynamics


Conduct detailed analysis on consumer behavior and validate target segment
Develop better understanding of key competitors
Determine long-term success factors specific to Indian market

Formulate Branding & Marketing Strategy

Craft message library and A/B test to prior to launch


Scale messages, build hype and listen consumers by engaging early adopters
Idea 1: Contest giveaway Xiaomi devices at university e.g. Bangalore to build hype
Idea 2: Run social media campaign to get feedback on what users want at launch

Build Traction in India


Develop network of partnerships with content providers e.g. Spuul, Eros, ESPN,
Saavn
Build local tribe of developer community
Hire on-ground personnel to roll-out in India 3 months post initial launch

Formulate Distribution Strategy


Determine most optimal retailer/s to partner with and most appropriate deal structure
Understand how to deal with network operators and structure deal
Deeper dive into channel logistics
17

Appendices

18

E-commerce Models in India


Comparative analysis of the alternatives

Parameters

Cash and Carry model

Retail Model

Logistics Model

Exchange control
implications

No approval required

Requirement to obtain an
approval from FIPB

No approval
required

Probability of the
challenge by
exchange control
regulatory
authorities

Low on the assumption


that there will be multiple
third party vendors
The risk assessment could
change to high in case the
third party vendors are
treated to be agents

Comparatively higher
the structure may be
viewed as e-commerce on
a B-to-C model in
absence of third party
vendors which is currently
not permissible

No since the third


party vendors will
purchase goods
directly

Time frame for


implementation

Can be implemented in a
time efficient manner
subject to identification of
the multiple third party
vendors

Relatively longer on a
account of need to obtain
an approval from FIPB
which could take about
6-8 months

Can be
implemented in a
time efficient
manner subject to
identification of the
third party vendors

Leakage of profit

To the extent of nominal


margin to be retained by
third party vendors

None as all the profits


reside within the group

To the extent of
margin to be
retained by third
party vendors

Recommended model

19

Xiaomi's business model analyzed


Strengths
1. Innovative marketing approach and online
business model
2. Innovative MIUI and ROM upgrades to
cater to sophisticated users
3. Xiaomi is building a growing tribe of fans
in India (Xiaomi Tribe)
4. User feedback leads to flexibility

Opportunities
1. Expansion in retail channels and achieve
mass-market coverage
2. Converting feature phone users to Xiaomi
and educating a new generation of
consumers
3. To build strong focus on user experience
i.e. unique brand + MIUI ecosystem leads
to value chain differentiation
4. To create a new differentiated value
proposition

Weaknesses
1. Quality and after sales services cited as
weak
2. Availability of Google Play in India
3. Low-cost hardware as a distribution
strategy that has been successful for
Xiaomi in Chinese market may not be as
effective in Indian market
4. The marketing model that they heavily
engage a core set of fans may not work
outside China

Threats
1. Domestic players in India will undercut
Xiaomis business approach in increasing
price pressure
2. Samsung is pushing into the middle tier to
attract Xiaomis users
3. Potential loss of control over supply chain
4. Relying on the adoption of e-commerce as
a purchase channel to sell Xiaomi products

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