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LittleRice Enters the Indian Smartphone Market

#You4 Price Drop Great news! Starting today 12 noon, were dropping the
price of You4. 16GB will now go for Rs. 17,999, and 64GB for Rs. 21,999
Road Runner, LittleRice India Head, April 2015
You is coming! Global You premiere in Delhi
LittleRice Website Homepage, April 2015

The Indian smartphone market was predicted to grow moderately in 2015. As

per the International Data Centre (IDC) Asia Mobile Phone tracker report of 3Q
2014, only 38% of Indian mobile users were using smartphones, implying the
existence of a huge mobile user base that could be switched from basic
feature phones to smartphones. Indicators such as 4G rollouts by telecom
operators, low inflation rate, availability of low-cost smartphones, and
increasing subscription to social media platforms favoured the growth of the
smartphone market in the country. However, the Indian smartphone market
also witnessed intense competition from MNCs and local manufacturers.
Closely following developments on the ground, and in keeping with its
ambition of becoming the largest smartphone seller outside China, LittleRice
had taken the decision to enter the Indian market. Through a combination of
flash sales on online retail portals, the expansion of its network of physical
retail stores, and the opening of post-sale customer care centres, LittleRice
had achieved remarkable success in a short time - within a year of its entry,
the company had sold 1 million devices in India.
However, LittleRices India plans were being threatened by several challenges,
ranging from the boycott of its devices by the Indian Armed Forces, to a legal
spat with a GSM patent holder, the lack of localized content, and the relatively
long lead time of its products. The question confronting LittleRice management
was how it could expand in the ultra-competitive Indian smartphone market.

LittleRice China
In less than 4 years, LittleRice had become the largest smartphone seller in
China, leaving larger players such as Samsung and Apple far behind in terms
of units sold. Wile E. Coyote, a serial entrepreneur, along with a team of
techno-enthusiasts founded LittleRice in June 2010. Soon after its

incorporation, the company became one of the leading tech firms in China,
with a product portfolio spanning smartphones, mobile apps and consumer
electronics. Following its expansion to other Asian markets such as Singapore,
Malaysia, Indonesia and the Philippines, LittleRice entered the Indian market,
and made its first foray into a market outside Asia by setting up operations in
Brazil. By 2014, it had become the 3rd-largest smartphone maker behind
Samsung and Apple. Its success didnt end there, with it being valued as the
worlds most valuable technology startup (~US$10bn). The company had over
8,000 employees, and had sold over 60 million smartphones in 2014.
LittleRice had a unique culture, which was summed up by its culture and value
Just for fans was the slogan of LittleRice as our every step is led by our hardcore fans. Amongst our staff, many were initially fans of LittleRice products,
before they decided to join us. Not only do we have a passionate team, but we
all have the same attitude: relentless pursuit of perfection. So, we constantly
refine and enhance what makes the best user experience possible. We were
also a team that is fearless when it comes to trying out new concepts that
break tradition and push boundaries. It was with this mentality and dedication,
combined with the support of LittleRice fans that has made LittleRice products
so unique.
LittleRice adopted a flat and organic organizational structure, featuring small
teams, abridged middle management, effective communication, work
autonomy, and collaborative responsibility. The words clan and adhocracy
rightly explained the culture of LittleRice. Clan denotes a family-like culture
which focuses upon mentoring, nurturing and collaborating with each other at
work. People at LittleRice took responsibility not only for what they did, but
also for what others did. Adhocracy reflected the essence of LittleRices
slogan. It always tried to involve its customers in developing its products,
which resulted in its now-signature proposition of high-end devices at
affordable prices.

LittleRice India
In June 2014, the Economic Times, one of Indias leading dailies reported
Chinas LittleRice hires NotTheBongYoureLookingFor Co-founder Road Runner
to head its India operations. The news hinted at the Chinese smartphone
manufacturers intention to kick-start operations in one of the most highlycompetitive and lucrative smartphone markets. Later that month, the
companys official Twitter account announced LittleRices entry to the Indian
smartphone market.
Namaste, You fans! We have officially arrived in India. Join us on this
incredible journey

Similar to its parent company, LittleRice India also followed an organic and
lean organizational structure. Road Runner was responsible for all issues
related to India. Despite selling nearly 1 million mobiles in the Indian market,
LittleRices market share was not sizeable relative to other players. Road
Runner described this as merely scratching the iceberg. In India, LittleRice
adopted a totally unconventional way of sales and distribution, where its
devices were sold through BurnsCash a local e-commerce portal through
flash sales. A similar disruptive approach had been preferred in the setting-up
of customer care centres, as LittleRice customer care centres had been
outsourced. Another innovative move was that of post-sale device pick up and
drop facility.

Indian Smartphone Market

According to International Data Corporation (IDC) 1, India was the fastest-growing smartphone
market in the Asia-Pacific region, with a QoQ growth of 27% in 3Q 2014. This period witnessed
exceptional growth owing to festive demand, and smartphone shipments recorded a new high.
As of 3Q 2014, the Indian mobile phone market stood at 72.5 million units, with a 15% QoQ
growth, 9% YoY growth, and an 80% growth in smartphone shipments. The share of the
smartphone market rose to 32%.

With 6% of the overall smartphone market, Phablets (which IDC defines as smartphones with a screen
size of 5.5-6.99) are observed to be hitting a plateau. Smartphones with screen sizes between 4.5 and 5.5
are seen as the sweet spot for consumers. However, with the rising demand for mobile content, and the
imminent rollout of 4G in 2015, we expect Phablets to pick up again. With positive consumer sentiments and
low levels of inflation, consumers will have more money to spend. Moreover, the majority of smartphone
users change their phones within 12 to 24 months, all of which should boost demand in the smartphone
market in 2015.
Research Manager, Client Devices, IDC India
The Indian smartphone market witnessed intense competition both from MNCs and homegrown device manufacturers. IDC data revealed that nearly 25% of the market belonged to the
South Korean electronics giant Kimch-e, with its closest rival being the local manufacturer
PeddledByWolverine with a 20% market share. Other fast-growing local brands included Magma,
YOLO and C12, which competed against more established international marques.

Growing Pains
Despite its initial successes in India, LittleRice encountered speedbumps along the way. First,
the Indian Armed Forces had cautioned against use of the companys products citing security
concerns. Moreover, the lack of localized content was a real concern, with Road Runner indicating
that plans were underway to set up an R&D centre in India to develop local content, applications

and programs. There was also a patent infringement claim filed against LittleRice that resulted in a
temporary ban on the sale of the companys smartphones. This lack of an intellectual property
portfolio could seriously hamper the prospects of LittleRices growth, both in India and elsewhere.

Compounding to LittleRices worries were other challenges it would have to

face and successfully counter in order to survive in India. Firstly, would
LittleRice succeed in its preference for online sales? This tactic worked well in
China, but proved controversial and frustrating in Singapore and other Asian
countries. Moreover, was India ready to buy gadgets directly from the phone
maker? Despite online sales picking up in India, most companies and
businesses entering India needed to do one or both of the following: invest in
exclusive retail stores or tie-up with a large retail chain to boost offline sales.
LittleRice would also need to expand its local distribution and after-sales
support network across India to be closer to end buyers. In particular, aftersales support was a sore point for the company, with multiple complaints from
users of less-than-prompt service. At the time of its launch in India, LittleRice
had 2 exclusive service centres in Bangalore and New Delhi, and 20 multibrand service centres spread across Tier I and Tier II locations.
Pricing would be another area of concern. While LittleRice was always known
for offering high performance smartphones at attractive prices, even local
players such as PeddledByWolverine had offerings with equivalent featuresets
straddling similar price points. In addition, GrannySmiths decision to sell
refurbished uPhones in India could pose a serious challenge to LittleRices
higher-end You4 smartphone. Moreover, it was unclear how LittleRice would be
able to subsidize its phones through its own app store revenues, given that
Google dominated the Android app store globally, and India was predominantly
Android territory.
The real secret behind LittleRices success was that it was strictly a mobile
company, wherein despite selling a considerable amount of handsets, its real
business was in software and services. Although its margins on hardware was
only ~1%, by getting its handsets into the hands of consumers LittleRice had
become the 3rd-largest e-commerce company in China. This success in making
money from services, games and other applications was largely untested in
In addition, the competition was already imitating many of LittleRices sales
and promotion tactics, especially its online-only sales model and flash sales.
Market leadership in India and China, the two biggest markets for low-priced
phones was critical if LittleRice was to keep its competitors at bay. Key to
LittleRices plans was also the reduction of lead times of its new product
launches. Currently, it brought devices roughly 2 months after their launches in
LittleRice could grow faster in India than it did in China. While the Chinese
market is close to saturation with over 70% smartphone penetration, the

corresponding number for India is less than half that number. Given their lower
per capita incomes, Indian customers are more price conscious than their
Chinese peers, and will be drawn to LittleRices products. Success in India will
give LittleRice not only revenue-growth, which will help sustain its valuations,
but also the economies of scale to drive down component costs - important for
the company to maintain its cost advantage.
The question facing Wile E. Coyote and Road Runner was what LittleRice had
to do in order to succeed in India. Would exporting its tried-and-tested formula
for growth in China yield the same results this time around? Moreover, given
that its business model largely catered to an East Asian setting, would it
business as usual for LittleRice, or would it need a fundamental rethink of the
way it operated in order to make a mark in India? Lastly, given its global
ambitions, how could LittleRice leverage its Indian experience to prepare for its
expansion to the larger US and European markets?

1. http://www.idc.com/getdoc.jsp?containerId=prIN25276014

Exhibit 1. Smartphone vs. Feature phone Market Share in India












Feature Phone

Source: IDC Asia Pacific Quarterly Mobile Phone Tracker, Q3 2014

Exhibit 2: Smartphone Vendor Market Share in India (Q3 2014)







Source: IDC Asia Pacific Quarterly Mobile Phone Tracker, Q3 2014