NABIL RASHEED

SACHIN GARG

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 statement:
Just for fans was the slogan of LittleRice as our every step is led by our hard-core 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) , 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.
1

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 5.56.99) 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 home-grown 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 C , which competed against more
established international marques.
12

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, after-sales 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 multi-brand
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 India.
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 China.
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?

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

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

81%

78%

72%

71%

68%

19%

22%

28%

29%

32%

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Smartphone

Feature Phone

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

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

24%
35%

Kimch-e
PeddledByWolverine
Magma
C12

5%
8% 8%

20%

RocknRola
Others

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