XIOAMI Global- India Market Entry 2014


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XIOAMI Global- India Market Entry 2014

  1. 1. Madhur  Singhal   March  2014     The  next  genera6on  of  Xiaomi's  growth  story:   Capturing  the  Indian  Smartphone  Market  
  2. 2. 2 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....
  3. 3. 3 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
  4. 4. 4 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. 5. 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 1,284 420 355 303 233 117 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 66 3848 183 458 0 200 400 600 +130% +33% +52% +7% +34% +460% IndiaBrazilJapanUKUSAChina 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
  6. 6. 6 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 45-6434% Ages 35-4429% Ages 25-3419% Ages 16-2414% Female34% Male18% 100%50%0 51% 63% 75% 82% 57% 74% Featurephones Smartphones 100% 50% 0 80% Ages 16-2470% Ages 25-34 Ages 45-6487% Ages 35-4486% % 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
  7. 7. 7 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
  8. 8. 8 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 490 200 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 LavaIntex 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
  9. 9. 9 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
  10. 10. 10 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 JuiceXiaomi Hongmi
  11. 11. 11 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
  12. 12. 12 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
  13. 13. 13 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’!
  14. 14. 14 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
  15. 15. 15 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
  16. 16. 16 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
  17. 17. 17 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 1 2 3 4
  18. 18. 18 Appendices
  19. 19. 19 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 Recommended model
  20. 20. 20 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