Samsung’s Big Dreams For India
The electronics giant is betting on its local R&D initiative ‘Make for India’ to hold its leadership in a competitive yet challenging market
As you drive through Gurugram’s Golf Course Road, it is hard to miss two shiny glass towers that house the headquarters of several top global companies in India — shimmering with the sun’s rays by the day, and glowing in fluorescent lights after the sun sets.
The biggest occupier in this new business district is Samsung Electronics, the world’s biggest smartphone and TV maker. Its LED nameplate right on top of Two Horizon Center reflects on India’s booming consumer market below, and stares at the luxurious apartments of some of the country’s biggest businessmen and CEOs around the sprawling DLF golf course greens in the far distance, across the road.
“This is the story of Samsung. When it came to India around 20 years ago, not many knew them,” says Abraham Koshy, professor of marketing at IIM Ahmedabad. “Today, Samsung is one of India’s biggest consumer product companies, which has worked on the confluence of technology and design rather seamlessly,” adds Koshy. For instance, Samsung is comparable in revenue terms only with car maker Maruti Suzuki. It is India’s biggest mobile and TV brand, and is the builder of Reliance Jio’s 4G LTE network — the biggest and busiest data network in the world.
It has been a hard fought battle to win this market. Perceptions, market wars, opportunities, competition — sometimes from their traditional foreign rivals, sometimes from local upstarts, and lately, the Chinese. But every single time Samsung has been able to stave off the threats and hold its ground. It has continued to be the market leader in the television segment for over 12 years and in the mobile business for six years, after it toppled Nokia in 2012. Since then, there has been no looking back. Or so it seemed till now.
Perhaps it is their Korean culture of doggedness to be No. 1, or their pursuit for product excellence as borne out in their bitter rivalry with the Japanese in each business — from electronics to automobiles, that keeps them going. Or is it something else?
“There is more to our story and central to that is our consumer-centric approach to whatever we do especially in India. We call it ‘Make for India’,” says Asim Warsi, Senior Vice President, Samsung India, with the exuberance of today’s millennials whom he is out to impress every day to encourage buying Samsung smartphones, TVs and home appliances.
Riding The Smartphone Wave
Warsi is perhaps facing his toughest challenge these days. According to some market research firms tracking smartphone shipments, Chinese firm Xiaomi is inching closer — or has even overtaken Samsung going by the results of the December 2017 quarter. While for the whole year 2017, Samsung was No. 1 in the smartphone space, IDC data showed Xiaomi led the last quarter with 26.8 per cent market share. Samsung was at 24.2 per cent. Other players such as Vivo, Lenovo, and Oppo remained at 6.5, 5.6, and 4.9 per cent, respectively.
But Warsi, who has been working with Samsung for the past 12 years and has recently been promoted as Global Vice President, is unfazed. “These challenges give us the opportunity to work harder for our consumers and with our partners. And consumers love brands that focus on them,” he says, as we relax in one of the many cool breakout areas of the swanky office. “Samsung is India’s No. 1 smartphone company across segments — premium, mid and affordable — according to GfK, which tracks data on what is really sold to end customers at retail stores. That is what matters.”
Market research firm GfK tracks offline sales of handsets — which makes up about 70 per cent of the market — in which Xiaomi is trying to make inroads. Samsung had a 42 per cent value market share in the overall smartphone market in the country in 2017 and 55 per cent in the premium segment according to GfK. An industry executive who did not want to be named says in terms of overall volumes (feature phones plus smartphones), India must be Samsung’s biggest market. The idea now is to grow the smartphones business which brings in more value.
According to reports, Samsung India revenues from mobile phone sales in 2016-17 stood at a whopping Rs 34,300 crore. That is over $5.5 billion and a growth of 27 per cent. Samsung’s closest rivals are speaking about revenues of $1 billion in India, going up to $2 billion. Clearly there is a fair bit of catching up to do in the value game, even if the battle has certainly toughened in the volume game.
Samsung is also facing a new challenger in the TV space, with Xiaomi launching Mi TVs with lower price tags. It is yet to be seen how they impact the market, with a low penetration in the offline trade, and considerably low import volumes. No Chinese TV brand has been able to make a mark in India, including Konka and TCL 15 years ago or, LeEco recently.
So, does the recent slip from leadership position in the smartphone category impact Samsung’s brand? “The domain of telecom is a topsy-turvy world. This is true for both telecom handset makers and telecom service providers,” says Harish Bijoor, brand strategy expert and founder of Harish Bijoor Consults Inc. “No one is really able to hold on to the leadership position for far too long at the top of the pole. The happy point for Samsung, however, is the fact that if it has slipped a quarter, it has an equal opportunity to make up and get back up there,” says Bijoor. “Apple is playing a savvy game at the top. It is time for Samsung to rediscover its India game plan. Knowing Samsung, I am sure it will,” adds Bijoor.
Consumer Is At The Centre
Samsung is a global innovation powerhouse that leads the trends. It is deeply invested in India — 20 years of relationships in the trade, and huge investments in local R&D. It has around 10,000 engineers working in research facilities in India and it is one of the biggest recruiters from the IITs. “Samsung has a strong brand image in India, as it has been present in multiple consumer electronic segment with quality products for a long time now. The brand is trusted due to its long history in the country, pan India presence and a robust after sales support for consumers,” says Shobhit Srivastava, research analyst at Counterpoint Research.
“Samsung is a clearly defined player. Think Samsung and you think quality. You think innovation as well. And that is its brand positioning,” says Bijoor. “Samsung across televisions, laptops, desktops, mobiles has this one common imagery.”
Even a product fail of the size of the Galaxy Note7 in September 2016 could not impact them. While the company was quick enough to call back all the units that had been sold and then discontinue the device completely (Note7 was not sold in India), their actions and subsequent successful launches of flagships like Galaxy S8, Note8 and the Galaxy S9 and S9+, which were launched in February, not only salvaged the damage, but also raised the profile of the brand as a responsible company. “They were quick to admit their mistake and that helped them connect with the discerning customers of today even better,” says Koshy.
Consumers in India voted Samsung the ‘Most Trusted Brand’ in two major trust surveys in 2016. In fact, in one of them, the rankings for Samsung Mobiles grew from 16 in the previous year to No. 2 in the overall list (only behind a toothpaste brand). “We have topped the charts this year too, showing the trust and love consumers have bestowed on us,” says Ranjivjit Singh, Chief Marketing Officer, Samsung India.
Singh’s challenge is not just to show Samsung as a warm, responsible brand, but also to connect with today’s millennial consumers, who are bold, restless and far less brand loyal than earlier consumers. They are more likely to be drawn to a brand which packs in more or equal number of features at a lesser price.
“That is why we really do what we need to do and that is focus on the consumer, consistently. As long as you do that, the results come in,” says Singh. “Our R&D centres focus on innovations for Indian consumers under our ‘Make for India’ initiative, which can be seen in our products. Our CSR campaigns also focus on the key needs — education, skilling and healthcare,” he adds.
Make For India
Samsung’s strategy ‘Make for India’, which resonates with the government’s ‘Make in India’ initiative, was born in the summer of 2015. Samsung India’s new President and CEO, H.C. Hong, had just moved in from Latin America, and was faced with the immediate uphill task of battling stiff competition from two local mobile companies Micromax and Intex. Samsung’s consumer electronics business comprising TVs, refrigerators, and other digital appliances were also facing competition from arch rivals Sony and LG.
Around the same time, the government of India launched its ‘Make in India’ initiative promoting local manufacturing. “So, Mr Hong told us we have been doing Make in India successfully for two decades. What we should focus on extensively to stay ahead of the curve is Make for India (MFI),” says Dipesh Shah, Managing Director of Samsung R&D Institute in Bengaluru, the biggest R&D centre for Samsung outside Korea. MFI focussed on developing innovations that fulfil specific needs of consumers in India, taking continuous feedback and insights from consumers on ground.
An early project under ‘Make for India’ was codenamed Project Dhobighat. Here, Samsung researchers spent countless hours across the country to get consumer insights on washing machine usage. They found that despite having a washing machine in the house, usually in the balcony, consumers first washed cuffs and collars separately in their bathrooms before bringing them to the machine. To make their lives easier, Samsung added a tub on the top of the top-loading machine, with a water inlet.
This washing machine called ActivWash became extremely popular in India and also went on to become a top seller in Samsung’s home market Korea. This was a local solution that Samsung developed in India and then took to the world.
There were several such innovations that helped Samsung gain market share in multiple categories. For instance, the S Bike mode and the Ultra Data Saving mode have helped Samsung’s Galaxy J Series smartphones garner a third of the smartphone market; or the Samsung 5-in-1 refrigerators, has helped consolidate its market share in the frost-free refrigerators segment; and Roti & Naan Smart Ovens has helped make Samsung the No. 1 player in the microwave segment in 2017.
In fact, the R&D centres in India also contribute heavily to the development of global products such as Samsung’s flagship smartphones, including the most recently launched Galaxy S9 and S9+. While other companies focussed on launching their global products in India, Samsung went about re-imagining products for the country at its R&D centres.
“Korean companies are already evincing a lot of interest in India. In fact, a host of them have already set up their R&D centres and manufacturing facilities in the country from where they source to the global market. That puts India on the world map as a manufacturing hub and gives global recognition to the Indian economy,” says Deepak Bagla, MD & CEO of Invest India, the official Investment Promotion and Facilitation Agency of the government of India.
India is important for Samsung, considering it is the second largest smartphone market in the world today, and it is potentially the biggest untapped market for many digital appliances. The penetration of refrigerators, washing machines, microwaves and air conditioners are abysmally low due to factors like availability of uninterrupted power, social behaviour and of course lifestyle and incomes.
But Samsung says it is anticipating a big growth in India in the near term. Samsung has recently said that it is aiming to become a $10 billion (revenues) company in India in 2018. Government officials with knowledge of their plans say it is aiming o double that revenue in the next 3-5 years, riding on exports.
In June 2017, Samsung announc-ed an investment of Rs 4,915 crore for mega expansion of its manufacturing facility in Noida. This investment is expected to double its production capacity for mobile phones and refrigerators, and prepare itself for major exports out of India. While investments have come in spurts from many companies, this is, by far, one of the biggest investments in the electronics manufacturing space in India.
“There is already a special platform within Invest India that helps facilitate Korean investments in India and has representatives of the government of India and that of Korea,” says Bagla. “There, we handhold and assist investors through their investment lifecycle — from pre-investment to after-care,” he adds.
India to Bharat to Gaon
In the last two years, Samsung has also begun investing on the ground. It has strengthened its offline retail network, made inroads into the online space, and reorganised business to focus on new business areas and growth. Like, new branches have been created to shore up business in specific markets, especially from tier-2, tier-3 and tier-4 markets.
However, experts tracking the company say it needs to further shore up its presence in the bottom of the market. “Samsung must not play the premium game alone. Volumes are important in a market like India, to be relevant. Samsung needs to invest in ubiquity. Ubiquity for and in every pocket of need, want, desire and aspiration,” says Bijoor.
Echoing the same sentiment, IIM’s Koshy says, “Even as one may say it is a deliberate choice, Samsung could perhaps get a little more aggressive in promoting itself in the rural market. That would help the brand connect with the lower end of the spectrum better.”
In the consumer electronic space such as refrigerators and washing machine, Samsung caters more to the urban customers, while in the handset segment, “the company has built a strong distribution network to reach even the tier-3 cities and rural areas in the country”, according to Counterpoint Research’s Srivastava.
“It also has a vast product portfolio with something for everyone in each of the price segments ranging from entry level to premium segment smartphones.” However, increasing competition from other brands like Xiaomi in the sub-$150 price segment and OnePlus in premium segment, that launch new products almost every quarter, has Samsung on the edge.
“To tackle the growing competition and regain its position, Samsung will have to be aggressive with its time-to-market in launching new products and trim down its portfolio to have a hero product in each of the price segment so that consumers make an easy choice. It will also need to concentrate on the online segment with specific SKU launches for the e-commerce platform and exclusive partnership with the players in the segment to increase online sales,” adds Srivastava.
While online business remains its biggest pain point, Samsung’s offline retail network of 150,000 is its biggest weapon. In fact, the company carefully treads the line between them owing to the sensitivity of the offline partners who will get affected by any growth in e-commerce.
Samsung has built this offline network over 22 years, says Warsi. “It is difficult to build a network like that. We have worked very closely with them, helped them, nurtured them, grown with them. We also learnt a lot from them as we grew in India,” he says. In fact, Warsi, has the additional job of growing the online business apart from mobile marketing strategy. “Whatever we do, we will take our offline partners along, ensuring we are wherever our consumers are,” he says.
The Other Samsung
The consumer electronics business isn’t the only interest for Samsung in India. Have you heard of Samsung C&T? It’s the construction arm of Samsung, which built the Burj Khalifa in Dubai. It was also one of the bidders for the contract to build the new Bandra-Versova sealink in Mumbai recently with a local partner. We hear it is building some high-profile real estate projects in the city, too.
The investment arm of Samsung, Samsung NEXT Ventures, recently made an investment in the startup HealthifyMe — fitness and nutrition tracking app — its first in India. Samsung’s hospitality arm Shilla Hotels & Resorts has quietly opened an office in India.
Samsung, however, did not talk to BW about these ventures.
One of the biggest partnerships for Samsung, however, is with Reliance Jio. Their relationship goes back to 2012, when the two companies signed a turnkey agreement covering the entire scope to build their greenfield 4G LTE network, ranging from equipment to establishment and maintenance services.
With Jio, Samsung is now looking at venturing into 5G in India. Samsung showcased its ultra-high speed 5G data service at the Pyeongchang Winter Olympics earlier this year.
At the Mobile World Congress in Barcelona in February, Samsung and Jio announced that the former will supply Jio with equipment to boost its LTE network coverage and capacity, and deploy a next-generation cellular Internet of Things (IoT) network across India. The plan is to bring LTE network coverage to 99 per cent of Indians.
This ties in with what Samsung is trying to do globally as well. At the 2018 Consumer Electronics Show (CES), Samsung outlined its vision and strategy for intelligent IoT experiences. They call it Intelligence of Things. The strategy demonstrated its unique ability to make seamlessly connected consumer experiences across Samsung devices at home, at the office and on-the-go.
Samsung is now pushing for accelerating IoT adoption and will make all Samsung products IoT ready by 2020. Samsung’s IoT philosophy is built on open innovation, which allows others to pitch in with their innovations too, personalising experiences and speeding up adoption.
“IoT is the next big thing for us. We are already expanding our depth of manufacturing and market reach,” says Singh. “Data networks are getting faster and better and we are playing a part in it, and India’s millennials are raring to go. We are probably the only company with an array of devices and home appliances, and 90 per cent of that are IoT-ready globally. Soon we will launch refrigerators, washing machines, microwaves, etc., which will talk to each other and your phone using our Bixby AI interface,” adds Singh.
“With all these investments in manufacturing, retail, customer service, R&D, design and new innovative devices, we are committing ourselves to transforming India once again — 22 years after we made our first promise to grow with India. We will now grow together with a New India,” he adds.