In early 2008, there were only 6 to 8 brands operating in the Indian mobile devices market, and almost all of them were global. This number increased to over 180 by 2011. Young Indian handset vendors such as Micromax, Karbonn, Spice, Lava, Maxx, Olive, etc primarily account for this increase. Some of these Indian brands have had an excellent run in 2009 & 2010, with Micromax selling more than a million devices a month and almost displacing Samsung as the No. 2 player by mid-2010.
The success of Indian OEMs can be attributed to multiple factors:
- Many Indian handset brands were started by former national and regional distributors of global OEMs (such as Nokia, Motorola, Samsung, etc). These companies partnered with Mediatek (MTK), a fabless System-on-Chip (SoC) provider and ODMs based in Taiwan and China to source white-labeled devices (with basic Indian market hygiene requirements like long battery life and high audibility)
- These companies leveraging their strong distribution experience have incentivized the distribution channel with high margins and primarily selling white-labeled devices, were also able to garner high operating margins (in excess of 35%)
- Their strategy of offering feature phones at competitive prices, initially to rural and suburban markets and being the secondary devices to urban consumers helped them gain a foothold in the market
- The launch of multiple-SIM devices by Indian OEMs when none of the global OEMs had such devices in their product portfolio, coupled with the launch of new carriers offering low tariffs helped increase the demand for these devices, as consumers started owning multiple SIM cards. During their peak (in 2009-10) multiple SIM handsets formed over 28% of all the devices sold in India monthly
- Some of these companies such as Micromax, Lava, Karbonn, Spice and Olive have also managed to build nation-wide brands by 2010
The Chinese handset market has undergone a similar influx of local vendors in partnership with MTK in 2007. Tianyu(market facing brand of Chinese telecom player K-Touch) was the first Chinese vendor to launch mobile handsets based on MTK’s turnkey solution in early 2007. Tianyu’s key success factors include products with feature set that address local market needs, faster turn-around time, wide spread distribution and high channel margins to distributors. By end of 2008, a number of local vendors such as Bird, Amoi, ChangHong, Gionee, etc had entered the Chinese market using Tianyu’s business model. Increased competition among numerous vendors resulted in ASP (Average Selling Price) reduction, in turn affecting handset margins adversely.
By second half of 2011, the competition among Indian handset brands increased similar to the Chinese market (of late 2008/early 2009). Price wars (without any product differentiations) have significantly reduced sales and revenues of these players and the operating margins started to decline (and hover around mid-teen percentage points) under pressure. Poor quality issues (in some cases) and brand fatigue had resulted in channel and consumer retaliation.
With business growth stagnating in Indian market, a number of these vendors have started exporting their products into other emerging markets. While Spice focused on their I2I (Indonesia to Ivory Coast) strategy, Micromax entered the Middle-East, Africa and Latin American markets and Olive focused on Baltic countries.
However, going forward, to remain relevant and competitive, the Indian handset OEMs need to metamorphose from mere marketing and distribution houses into full-fledged product companies. The global smartphone revolution is slowly but surely catching up in emerging markets, especially India. While smartphones formed around 7% of total mobile devices sold in India in 2011, they are expected increase to around 12% to 15% in 2012. The launch of 3G services in India in late 2010/early 2011 and the proliferation of smartphones in 2011 raised consumer awareness and aspirational levels. And, the high ASP smartphones also provide higher margins as compared to featurephones (with wafer-thin margins). Although, few Indian brands such as Micromax and Spice launched Android-based smartphones in 2011, they were not able to replicate their featurephone success.
To grow on the value chain and become successful smartphone (and hence, portfolio) players, companies need to invest heavily in R&D and Product Marketing teams. Companies need expertise in building products with the right hardware, software, operating systems, applications & content and build the ability to position them appropriately to the consumer. This will be a long-drawn process, but the players who will manage this transition successfully will emerge as winners in the long-term.