indian market analysis
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Madhur Singhal March 2014
The next genera6on of Xiaomi's growth story: Capturing the Indian Smartphone Market
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Executive summary
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
Xiaomi's India market entry strategy uncovered....
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Positioning Xiaomi for future success High-growth and increasing smartphone penetration make India an attractive market to enter
Xiaomi experiencing rapid growth • Success in Chinese market • International expansion imminent next
step
Sales growth driven by rapid adoption • >5 billion handset revenue in 2013 • Targeted to sell 40m units in 2014
Indian mobile market opportunity is ripe
• Poised to be 2nd largest mobile market after China by 2017
Product and service proposition is prime • Xiaomi well positioned to capture market
share within 3 years with right mix of product and distribution
Prioritize growth and entry opportunities • Understand Indian market dynamics • Evaluate market and best mode of entry
given competitive landscape
Focusing on identification and execution • Identify target segment, product and
channel strategy • Utilize Xiaomi forums and feedback
sources to identify consumer ‘pulse’
Next Steps
Context Objective
Speed is critical for Xiaomi to penetrate the dynamic Indian market
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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?
Product & Price
• 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
Target Consumer
• Understand Indian mobile landscape and • Serve & educate new generation of phone users • Learn from domestic players who have captured market share e.g. Micromax
1
2
3
5
The Indian mobile market is primed for immense growth Indian smartphone shipments projected to increase to156m in 2017 while overall usage grows
Despite slower adoption of mobile internet, India is poised to be 2nd largest mobile market worldwide by 2017
India is fastest growing smartphone market globally...
... with 110m mobile internet users expected by 2017
1,284
420355303
233117
0
500
1,000
1,500
2006 2008 2010 2012 2014 2016 2018
India: 110m users by 2017
Japan 6% US 17%
China 33% 1,168
904
700
542
Growth in mobile internet users in India (M)
28293536
138
301
156
663848
183
458
0
200
400
600
+130%
+33%
+52%
+7%
+34%
+460%
India Brazil Japan UK USA China
2017 2013
Growth in global smartphone shipments (M)
Unit Shipments (M) Mobile Internet users (M)
Sources: "India's mobile Internet, Avendus September 2013; "Forecast Analysis: Mobile Devices, Worldwide,2009-2016, 1Q13 Update", Gartner September 2013
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Feature phones still dominate market share in India Driving smartphone conversion critical to success in the Indian market
Source: "The Mobile Consumer" – A Global Snapshot, Nielsen February 2013
Device usage by customer segments
100% 50% 0
Ages 45-64 34% Ages 35-44 29% Ages 25-34 19% Ages 16-24 14% Female 34% Male 18%
100% 50% 0
51% 63%
75% 82%
57% 74%
Featurephones Smartphones
100% 50% 0
80% Ages 16-24 70% Ages 25-34
Ages 45-64 87% Ages 35-44 86%
% of segment
76% 85%
Male Female
100% 50% 0
12% 14%
6% 9%
7% 13%
China
India
Xiaomi has an opportunity to capture the next generation India's smartphone users
Whilst China is a mature smartphone market, India's conversion to "smarter devices " is evident
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Competition in the Indian handset market is fierce Market share dominated by Samsung and homegrown player Micromax
Xiaomi's success in India will largely depend on its ability to differentiate itself in the same segment as Micromax
Micromax emerging as a
dominant player with market share
>20%, growing significantly
40%
10%
0
20%
30%
50% 43%
32%
Samsung
+1,683%
Market Share %
13%
Sony
5% 8%
Karbonn Micromax
23% 24% 30%
+305%
Others
1% 6%
Nokia
5%
11%
2013 2012
Source: "India's mobile Internet", Avendus September 2013
Karbonn, a local entrant is
rapidly gaining marketshare
Top 5 players in Indian Smartphone market
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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
Xiaomi to address Micromax's poor after-sales service by offering consumers extended warranty
490200
2,400
3,168
1,001
4,000
2,500
1,800
0
1,000
2,000
3,000
4,000
5,000
Karbonn
1,500
Micromax
4000+
1,486
Lava Intex
425
+113% Revenue (Cr)
2013 2012 2011
Micromax is expected to emerge as market
leader with revenues > 4000 Cr in 2013 and
could threaten Xiaomi's entry into Indian market
Revenue of leading Indian mobile brands
Key Success Factors
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 Supply chain • Agile, adaptable and aligned supply chain
India-wide Value-for-money • Adapted offering for Indian market and
achieved higher localization 30/106 models are dual-SIM and range
from Rs 1k-14k
Source: ”Supply chain lessons for the new millenium: A case for Micromax Informatics”, Integral Review , December 2012
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Indian consumers price conscious and value-driven Critical for Xiaomi to understand and appeal to the Indian consumer's preferences
Xiaomi positioned well to compete against other OEM's with superior handsets across multiple price points
Source: www.91mobiles.com
80%
60%
40%
20%
0
100%
22%
38%
6%
5%
2012
40%
29%
21%
5% 5%
Basic phones (< Rs2k)
Feature phones (Rs 2-5k)
Affordable phones (Rs 5-15k)
Mid-range phones (Rs 15-25k)
High-end phones (> Rs25k)
2013
29%
100%
80%
60%
40%
20%
0 Samsung
46%
19%
20%
19%
20%
30%
31%
Nokia
15%
Micromax
69%
25%
6%
25%
Sony
33%
42%
Rs 5k-15k
> Rs 25k Rs 15k-25k
< Rs 5k
RedMi: Rs 7,500-10k
Mi3: Rs 18-24k
Mobile launches by price segment indicate preference for affordable segment
Samsung and Micromax are key players in these growing segments...
"Affordable" segment represents the fastest
growing (80%+) segment
New Rs 3000 Xiaomi handsets
(Mid-2015 onwards)
Indian Mobile Launches by price segment
Major Indian mobile players - Sales by price segment
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Which phone would you buy?
Price (Rs) 6,950 7,999 (Target Price) 8,299 Internal Storage 4GB 1GB 4GB
Processor Dual core,1200 MHz, Scorpion Quad Core, 1500 MHz, Cortex A7 Dual Core, 1300 MHz
Dual-SIM Yes Yes Yes
Camera Megapixel 5 MP, 2592 x 1944 8 MP, 3264 x 2448 5 MP, 2592 x 1944
Display Size 5 Inch 4.7 Inch 5 Inch
Resolution 480 x 800 720 x 1280 (312 ppi) 480 x 854 (196)
Source: www.91mobiles.com
Karbonn A111 Smart Micromax A77 Canvas Juice Xiaomi Hongmi
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Smartphone battle shifting from hardware to services As price of handsets decline, competitors are focusing on building software ecosystems
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 internet—I’m 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
Major player
Source: www.tech.fortune.cnn.com
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Content is king in Indian market Xiaomi success will be driven by ability to localize, form partnerships and understand user behaviour
Bollywood Sports
• Cricket most popular sport in India followed by over 1 billion people
• Large revenues generated through sponsorships, endorsements and TV
Music
Localized Content Category Ideal Partner/s
Revenue Model
Partnering with local content providers and incorporating into the
Indian version of the MIUI is key
CONTENT PARTNER REVENUE SHARE + DEVELOPER REVENUE + SPECIALIZED APPS & CUSTOM THEME REVENUE
• World largest film industry
• Part and parcel of the Indian story post-independence
• Over 1000 films produced every year
• Mainly Hindi music driven by film industry
• ~720m Hindi-speakers in India
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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 internationally…Please hurry and bring this company to India so that they can ‘kick everyone else’s butt’!
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Xiaomi to partner with key Indian e-tailers and distributors A phased approach is critical to drive customer adoption quickly at scale
State of the Market
• 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 pre-paid
• High-priced handsets generally tie-up with operators
• Currently operators do not sell sell bundles
Recommendation
• 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
Benefits
• 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 don’t 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
E-Commerce Retail Distribution Operator Leveraged
Further exploration and analysis on options required
E-Commerce Retail Distribution Operator Leveraged
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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
Partnering with Flipkart is the ideal e-commerce entry Despite Xiaomi’s successful online channel, adopting "cash and carry model" is recommended
Motorola sold 20,000 Moto G devices in India via Flipkart in 1
hour
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Mitigating Actions
• 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
• 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 • 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 to work with an established partner e.g. Flipkart and helping them to build e-commerce channel by leveraging Xiaomi brand potential
Xiaomi is well positioned to mitigate risks having faced similar issues in Chinese domestic market
Threat
Competitive pressure from domestic players a key threat Despite positive outlook, Xiaomi must address some key issues to succeed in India
• Domestic players in India will undercut Xiaomi’s business approach in increasing price pressure
• Samsung is pushing into the middle tier to attract Xiaomi’s users
• Potential loss of control over
supply chain
• Consumer adoption of
e-commerce as a purchase channel
Source: "SWOT: Xiaomi, Mobile Devices, Worldwide", Gartner December 2013
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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
Next Steps & Execution
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
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 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
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Appendices
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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
E-commerce Models in India Comparative analysis of the alternatives
Changes: 1) reformatting – red box around cash and carry and stated this is best consistent with recommendation
Recommended model
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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
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
Xiaomi's business model analyzed Strengths Weaknesses
Threats
1. Domestic players in India will undercut Xiaomi’s business approach in increasing price pressure
2. Samsung is pushing into the middle tier to attract Xiaomi’s 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
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