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Who’s The Smartest Of Them All?

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Rita Singh, a Delhi-based garment designer bought her first mobile phone in 1997 to keep pace with her fast expanding business. For Singh, who was 30 then, it was a simple decision. All she had to choose from were four international handset brands — Nokia, Motorola, Ericsson and Siemens — which together offered her around 20 different devices. These handsets offered only voice calling and SMS with small, green or blue display screens and text in black. They did not have a multi-colour screen, camera, voice recording, Internet capability and definitely no apps. Singh quickly settled for a then popular Nokia device for Rs 7,000.
 
Cut to the present. Singh’s college-going daughter Simran faces a dilemma. No feature phone for her. She will settle for nothing short of a fully loaded smartphone that is in sync with her peer group. Luckily for her, she is spoilt for choice. She can opt for a model from old favourite Nokia, market leader Samsung, or home-grown brands like Micromax, Karbonn and Lava. Between them, there are over 200 variants to choose from. Then again, she could pick one from the lesser known international handset makers, of which there is now a dizzying array in India. 
 


Over the past few months, at least 15 companies from around the world have launched close to a hundred variants of smartphones in India. The new brands include Xiaomi, Gionee and Oppo (all from China); ASUS and Oplus (Taiwan); Jolla (Finland); Obi (Singapore); Panasonic (Japan); and Philips. Also back in the game are China’s ZTE and Huawei, Motorola (now from the Lenovo stable) and Hong Kong-based TCL’s Alcatel range of devices. Canada-based BlackBerry too has come up with more devices that straddle the price band. Meanwhile, Viacom 18 Media, a leading entertainment network that is part of Reliance Industries, has tied up with Chinese smartphone maker Vivo to market its 4G handsets in India.
 


Thanks to these launches, there are now three clear categories of smartphone vendors in India. First are the pioneers that include Nokia, Samsung and Motorola. Then come the Indian challengers — Micromax, Karbonn and Lava — which have, over the past few years, built up a sizeable market share. Finally, there are the new kids on the block, named earlier. 
 
Result: The Indian consumer no longer has any loyalty to a particular brand, assaulted as he is by ever-newer offerings at ever-more-attractive prices. When the Indian brands came in a few years ago, they shook up the market by offering innovative devices that had features like dual SIM and batteries that reportedly lasted a month. The Samsungs and Nokias were taken by surprise. More importantly, the Indian brands lowered the price band to ensure that a much larger population could buy smartphones. 
 
But the balance has shifted once again, with the entry of a slew of international brands. They offer international appeal and design at prices that compete with Indian brands. If that is not enough, many of these brands adopt disruptive strategies like selling exclusively online, ensuring wider access across the country at a much lower entry cost. 
 


Magnet India
For many of these new entrants, India is among just a handful of countries they are present in. Obi Mobiles had its global launch in India, to be followed by West Asia. For Xiaomi, India is its seventh market, after China, Taiwan, Hong Kong, Singapore, Malaysia and the Philippines. Jolla is in India after a Europe and Hong Kong launch earlier this year. This sudden influx of brands has left the likes of Simran all the more confused.  
 
These companies are in India primarily because it is the world’s third largest smartphone market. During 2013, over a billion smartphones were sold globally. India notched up sales of 45 million devices, behind China (240 million) and the United States (125 million). 
 


Interestingly, India is the world’s fastest growing smartphone market. The 45 million smartphones that Indians bought in 2013 was a 178 per cent increase over the 16.2 million they bought in 2012. According to research firm International Data Corporation, smartphone sales were expected to almost double to 80 million in 2014. The share of smartphones has been rising sharply. In the third quarter of 2014, they accounted for 32 per cent of all mobile handsets sold in India, compared to 19 per cent during the same period in 2013. 
 
At an average price of $200, the Indian smartphone market was worth $9 billion (Rs 54,000 crore) in 2013. While smartphone prices are falling, their market size in 2014 was a neat $12 billion (Rs 72,000 crore) at an average device price of $150. That’s just the beginning. According to a study by Google and AT Kearney, 385 million people in India will have smartphones by 2017. It’s this huge opportunity that is making global smartphone makers salivate and leaving consumers like Simran scratching their heads. After all, there are more than 300 variants to choose from now, and this number is only set to increase over the next few months.
 
For global smartphone vendors, this is the best time to be in India. Says John Sculley, promoter, Obi Mobiles: “This is an excellent time to be in India. There are many young people in the teen to mid-20s age group who are looking for good smartphones.” That’s why Obi has started its global journey from India. Hemant Joshi, partner, Deloitte Haskins and Sells, echoes the thought. “This is a good time to be in India. There is space for everyone to compete and as processor costs fall, there will be cheaper devices offering more to customers,” he says. 
 
All this competition has seen major shifts in market share. The combined share of Samsung and Nokia has dropped from 64.6 per cent in 2012 to 36.3 per cent in 2014.  The four leading brands in India — Samsung, Micromax, Karbonn and Lava — between them accounted for 70 per cent (31.5 million) of the smartphones sold in the country in 2013. Another 12 per cent was accounted for by Nokia, Sony and Apple’s iPhone. The new players are looking to grab market share from the leaders. As India is on the cusp of faster economic growth after years of slowdown, the battle to capture the Indian consumer’s wallet is set to turn brutal. And, it is not just ‘cheap’ smartphones that are flying off the shelves. Some reports put the sales of iPhones at over a million in India last year. 
 
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The Price Is Right
In the face of all the attractions that the new devices offer, it is not going to be easy for the market leaders. While the competition is heating up, factors such as pricing and range on offer, operating systems, possibility of manufacturing locally and marketing, distribution and after-sales service will decide who the eventual winner will be. 
 
The critical factor to making it big in India is aggressive pricing. For this, the device maker must have a wide range of devices that cater to multiple price points simultaneously. As India is a value-for-money market, it is important to provide reasonably priced products for the mass market. While margins are low, sheer volumes give a brand heft. 
 


This is quite evident if one looks at the pricing strategies that have been adopted. More than 60 per cent of new global smartphone handsets that have been launched in India in recent times cater to the lower and middle end of the market. These devices are largely in the price band of Rs 6,000 to Rs 15,000. This puts a lot of pressure on established brands that have all along milked this segment. According to a telecom consultant, the sweet spot is to price a device in the Rs 6,000-Rs 10,000 range. That is the band where a majority of the devices are available (see The Price Curve).
 
For example, Micromax alone has close to 50 smartphones in the market in that range, while Samsung has 24. Even new entrants are eyeing this band. The ASUS ZenFone 4 and the Xiaomi RedMi both retail for Rs 5,999 while the Gionee Pioneer P25 is priced at Rs 6,499. 
 
Almost every new handset vendor is looking to grab anything between 5 and 10 per cent of the Indian mobile handsets market — over 20 million devices sold every month, of which smartphones account for six to seven million. Jerry Shen, president and CEO, ASUSTeK Computer, says: “We follow the three-three play strategy. This means being in the top three in three device (PCs, tablets, smartphones) categories in three years.” Two of the three handsets launched by ASUS are in the sub-Rs 10,000 range.
 
To ensure that they are present across the price band, handset vendors have adopted a dual pricing strategy. They cater to the low end of the market with the sub-Rs 10,000 devices while the jazzed up versions cost between Rs 15,000 and Rs 30,000. Gionee, for instance, has smartphones that start at just under Rs 5,000 and go all the way up to Rs 23,000. 
 
While the sub-Rs 10,000 devices pose a challenge to Karbonn, Lava and, to some extent, Micromax and Samsung, the mid-tier devices launched by HTC and Oppo, among others, are competition for higher-end devices brought out by Micromax and Samsung. The dual pricing strategy adopted by some new vendors has helped them create a buzz in the market. 
 
“People in India are realising that they need not buy the cheap devices,” says Jack Yang, president, South Asia, HTC. “They are going for international brands. That is what we are tapping into.” The same perception is shared by Steven Zhao, manager, India Business, of Hong Kong-based TCL, which launched the Alcatel One Touch range. “We have launched two sets of devices,” he says. “While one caters to the price-conscious Indian buyer, the other is targeted at those who seek the latest technology.”
 
Xiaomi has added a twist. Hugo Barra, VP, Xiaomi Global, says the company is empowering the consumer. “Our high-end devices retail at the price of mid-end devices and our mid-end devices, at low-end device prices.” 
 


Even as international brands bring in devices with all the bells and whistles, domestic brands are not sitting quiet. Three big Indian brands have opened up a new flank against global brands by bringing in Android One devices at $100. On the platform developed by Google, Micromax launched the Canvas A1 at Rs 6,499, Karbonn unveiled the Sparkle V at Rs 6,399 and Spice Mobiles, its Spice Dream Uno at Rs 6,299.
 
But by the time these devices were launched in September, Chinese brands had stolen their thunder. And, before that, the Moto range from Lenovo had also made a dent in the Indian smartphone market. What has happened in the wake of the many launches is that the market has got flooded with a host of products that look and feel the same. 
 
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To stand out, some of the smaller Indian brands have launched smartphones on the Firefox OS. Though there was talk that they would launch these devices at prices as low as $25, Delhi-based Intex and Spice Mobiles have come out with sub-$40 smartphones. Intex’s Cloud FX costs Rs 1,999 ($33) and Spice Mobiles’ Spice Fire One Mi FX1 Rs 2,299 ($37). Says Keshav Bansal, director, marketing, Intex Technologies (India): “We have provided a value-for-money proposition to the Indian smartphone customer. The device is already moving fast off the shelves.” 
 
While Android has become the most sought-after OS in the mobile space, some vendors are looking to add to that. XOLO India has added its own software overlay to Android called Hive. In a market where almost all devices look similar, software is the only differentiator. Meanwhile, Micromax has partnered with Cyanogen OS to launch Yu smartphones that will only be available online. This brand will focus on working with various companies to build a layer of services into the operating system. 
 


Not everyone is looking to be at the low end of the value chain. Some international brands are aiming to create their own OS. While that’s far from easy, Finland-based Jolla — which means a small boat in Finnish — has launched a device based on an independent operating system, Sailfish. It is already making waves in Europe and Hong Kong. Says Marc Dillon, co-founder and chief operating officer, Jolla: “We are the only independent, non-American OS.” 
 
Make In India? Not Yet
One of the factors going against India in the mobile handset business is the lack of manufacturing capacity. Despite being one of the biggest consumers of mobile phones, there are few large manufacturing plants here. While Samsung makes handsets at its Noida plant, LG has a manufacturing unit at Ranjangaon near Pune. Micromax has started manufacturing handsets at its plant at Rudraprayag in Uttarakhand. 
 
The country’s biggest handset manufacturing plant set up by Nokia at Sriperumbudur near Chennai has been shut down. But domestic handset company Lava is keen to acquire the facility to manufacture in India. This could be a shot in the arm for Lava to compete with other brands as that facility was Nokia’s largest plant globally. 
 
Vivo Mobile India is also looking to set up its own manufacturing plant here over the next three years. 
 
So what are the manufacturing plans of these handset vendors? None of the international brands that have entered India recently are looking to manufacture here initially. The Chinese and Taiwanese brands have a well established manufacturing ecosystem in place. “In China’s Shenzhen there is a well established ecosystem for ODMs (original design manufacturers),” says Chakrapani Gollapali, country general manager, Microsoft. “These 10-12 ODMs cater to the global original equipment manufacturers and 80 per cent of the core tooling is done in China.” 
However, the situation seems to be changing with rise in volumes. Xiaomi is considering the possibility of manufacturing phones in India. A decision on this could happen sometime in 2015. 
 
Marketing Models
As most smartphones look and feel the same, vendors are trying to market them differently. Till early last year, mobile phone companies set up large distributor and retailer networks that spanned the country. This included branded stores, shop-in-shops (in malls) and using the power of large retail chains such as The Mobile Store and Spice HotSpot. 
 
This strategy has changed already. According to a telecom consultant, there are now four distribution models being adopted by handset vendors: exclusively offline, exclusively online, multi-channel and no strategy. Old timers Samsung and Nokia have followed the exclusively offline model by building up a chain of distributors and retailers. Some of the older players such as Moto and new entrants like Xiaomi have opted for the purely online model. A bunch of handset companies use both means. The last category comprises vendors who want to enter India but are still unsure about which model to adopt. 
 
Xiaomi: Disruptor And Trendsetter
Most people can’t correctly pronounce Xiaomi yet, but the brand is already being tracked closely by boardrooms of all handset vendors in India. The Chinese handset maker shook up the market by launching the Mi3 device online. This meant no dealers, distributors or real estate acquisition. Flash sales that, at times, last less than a minute have ensured that Xiaomi has sold close to half a million handsets. Also, the devices are picked up by buyers across the country. More importantly, people look forward to catching the next sale. Hugo Barra, vice-president, Xiaomi Global, says this is the way the brand operates everywhere. It caters to the needs of urbane young people looking for a stylish, yet functional, device. The lean team en- sures the brand can price its devices aggressively and cater to the needs of its target customers. It could well set the trend for other vendors looking to tap into a vast market with minimum infrastructure.
 
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Online Rush
The online-only strategy was kicked off by Moto G, retailing exclusively on Flipkart. Then came Xiaomi with a similar strategy. Since then, almost all the new brands are retailing largely on online platforms. Xiaomi sold more than 5,00,000 handsets in eight online sales, some of which lasted under a minute. As a competitor admits grudgingly: “Xiaomi has managed to create an entirely new niche for itself in a very short period. It’s pretty smart marketing.”
 
The advantage of this model is that the vendor does not have to invest in a physical distribution model, appoint dealers or distributors, thus reducing costs substantially. The vendor also sells the inventory that it has imported in one shot. 
 
But not everyone agrees with this formula. Says an official of a handset company: “It is not that Xiaomi does not pay margins to Flipkart. The entire margin for a mobile device across distributors and retailers is still in the region of five per cent.” Says a telecom analyst: “While the response has been good initially, it seems unlikely that Xiaomi will be able to tap deeper into the Indian market by selling online only.”
 
While that may be true, handset vendors like Xiaomi do not need to invest on setting up a network and have employees monitoring sales daily. Xiaomi’s Barra defends the online-only strategy. “Our strategy is to focus on e-commerce. That’s what we have been doing in other markets too, quite successfully.”  
 
Indian challengers, too, have learnt the tricks of online retail. Micromax’s Yu Yureka organised a sale of 10,000 units on Amazon even as Xiaomi was selling its RedMi4 on Flipkart. Yu sold 10,000 units in just three seconds. While it did bring down the Amazon India site, it shows how Indian companies are now getting ready to meet the challenge of online sales from the new kids on the block. 
 
Selling a device is only part of the game; the real issue lies in after-sales service. Most of the original handset vendors have their own customer service centres. The same applies to the Indian handset companies. For the newer companies, it is a different game altogether. At least nine handset vendors, including Xiaomi, Jolla, Obi Mobiles and Lenovo have tied up with HCL Care. Says Sharad Talwar, senior vice-president, HCL Care: “For new brands, the customer experience is all the more important. We have set up 30 stores where customers can get their devices repaired on the spot.” While HCL Care covers many consumer durables, almost 50 per cent of its revenues come from smartphones service.
 


At the launch of the Micromax Canvas Nitro A310, CEO Vineet Taneja took a veiled swipe at Xiaomi. He claimed that while other brands talk about selling thousands of units, Micromax had already sold a million units of its Canvas Unite in India, selling one phone every four seconds. 
 
While global brands have begun to pose a challenge to established brands, none of the latter is overtly worried. After all, India is just one more market for them. Says Shen: “We have experience competing with Xiaomi in China, Taiwan, Malaysia and Singapore.” 
 
Why Worry?
Even the domestic handset makers are a confident lot in the face of the onslaught by multiple international handset brands. Their logic: in the early days when Nokia and Motorola controlled the domestic market, there was an influx of brands, including the likes of Bird and Haier, but most of them could do little damage. Many of them disappeared as they could not innovate and bring out new models at regular intervals. 
 
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While that may not be the case this time around, Asim Warsi, vice-president, Mobile and IT, of Samsung India is certain his brand will hold on to its lead. “We dominate the Indian smartphone market with a lead that is twice the sales of the nearest competitor. Our sales are growing robustly, thereby our market position remains at number one,” he says, adding that in the future, India would emerge as one of Samsung’s biggest markets globally.
 
Says Gollapali: “We are the little guy in the boxing ring. We can be more selective about our fights. We will throw a few punches that will surprise a lot of people. In the first half of 2015, you will see a lot more of our offerings.” The company recently launched the Microsoft Lumia 535 in India, soon after its global launch. Adds Raghuresh Sarup, sales director, Nokia India: “We have decided to focus on the affordable smartphone segment, which in itself is a huge section of the market.” It makes eminent sense because India is the fourth largest market for Lumia after the UK, the US and China. 
 
Over the past decade and a half, the Indian mobile handset market has been controlled by four to five brands. Says Taneja of Micromax: “The top four to five brands control 80 per cent of the handset market. That is not likely to change. At the most there could be one new entrant in the market.” He dismisses the competition saying launching devices is not the challenge. What really matters is sustainability in the face of cut-throat competition. 
 
He is not the only Indian handset vendor who is not worried about competition. Sunil Raina, business head, XOLO India, expresses a similar sentiment. “Competition is welcome. But what we are offering is a high-end product at a reasonable price. Also, once the international brands start moving from exclusively online to the traditional market, their prices will increase. There are many levels in regular marketing where margins have to be paid.” Pardeep Jain, managing director, Jaina Marketing & Associates, that markets Karbonn phones, is quite categorical. “The new entrants are not a threat to us. They will help us expand the market.” 
 
BlackBerry: Still The Most Secure
The original smartphone vendor, Canada based BlackBerry has gone through tough times in the past few years as the world embraced the Android operating system. But, as they say, there is always a silver lining to a dark cloud. During the recent hacking of Sony in December, BlackBerry came out trumps. When everything went under, Sony switched to its old BlackBerry devices to connect to the world securely. That’s a huge boost for the success of BlackBerry’s enterprise servers. Sony could do that simply because each user’s data is encrypted on their BlackBerry device and the company’s own servers secure data for clients. It remains to be seen whether this will lead to a revival for BlackBerry, but one thing is clear: in a world where security is critical, having the right tools is extremely important.

The problem for the established Indian brands is not restricted to the entry of a host of international brands; they also face intense competition from smaller Indian brands. While international brands are offering devices at more or less the same price points, smaller Indian brands are squeezing them at the lower end of the market. The new handset vendors have been able to gain significant mindspace among India’s youth. This could set the stage for them gaining a significant market share. 
 
But in the highly competitive market, they will also hinge on them launching newer variants, additional features and at lower prices. One thing is clear: As handset vendors fight to get a larger slice of the Indian mobile market, the options for Simran and her friends are only set to increase. 
 
Today, smartphones in India range from a mere Rs 1,999 all the way up to a steep Rs 60,000. There is one for every need and budget. With mobile operators like Bharti Airtel and Reliance Communications slashing data charges, it will further spur those on the fence to opt for smartphones. 
 
The no-holds-barred battle could see the reputations of many a handset brand getting dented as the value-conscious Indian consumer seeks and gets what he wants. After all Simran wants a handset with all the latest specs for the lowest possible price. For, today’s must-have device is tomorrow’s has-been.  
 
(This story was published in BW | Businessworld Issue Dated 09-02-2015)