Madhur
Singhal
March
2014
The
next
genera6on
of
Xiaomi's
growth
story:
Capturing
the
Indian
Smartphone
Market

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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Appendices

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
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