Micromax bets on 4G, partners Vodafone to win over South Africa

Offering bundled products and targeting big retail will be the key planks of phone maker's growth strategy

Smartphone handset manufacturer Micromax, which announced its entry into South Africa last month, is positioning itself to capitalise on the mass migration of users from 2G and 3G to 4G networks in that country. To do that, the company is banking on its partner Vodafone Global to make compelling offers — combining attractive data tariff, latest smart phone handset features and affordable pricing — to the consumer. It will also leverage the telecom giant’s well groomed distribution network in the Rainbow nation, say its founders.

Micromax co-founder Vikas Jain says while the move is in line with Micromax’s global expansion strategy — that involves entering markets where its network partner Vodafone is already present — the launch was timed keeping in mind the fact that the South African market today is at the same stage where the Indian telecom market was a couple of years ago, when it was transitioning to the 4G bandwidth.

“4G’s successful adoption in India is one of the experiences we want to take to that market and use the lessons we learnt here such as offering handsets with bigger displays, more memory and better battery back-up which you need when you are browsing at a higher speed,” says Jain. He says the consumer will get a bundled offer — a Vodafone SIM card and “probably a consumer offer” will be thrown in with a Micromax handset.

“There is a keen intent of the operator to migrate users on 4G because the cost of servicing the customer on 4G is far lower than the cost incurred in 2G and 3G. So the operator achieves the migration, the user gets compelling 4G devices which is an extra incentive for migrating and for us it is customer acquisition and brand development,” says Jain.

He, however, adds that Micromax has a long-term strategy and is looking beyond the partnership to achieve its targets. “The devices will not be subsidised by Vodafone which is specifically the process Vodafone uses for their branded devices called Vodafone branded devices and also the SIMs won’t be locked to Vodafone. So, the go-to market for us will still be open,” he says.

In terms of the purchasing power, the South Africa market is similar to India but distribution is a little different. Offline sales are concerned, it is very concentrated and almost 80 per cent of the sales are made through big retail stores like we have Croma or Reliance Digital in India. But this is both an opportunity and a challenge, Jain said. 

“There is a small portion of the smaller mobile stores but a bulk of the market is controlled by power retail as we call it. That means we don’t have to establish a new relationship with 800 or 1,000 new shopkeepers in a region and can establish with four but then you have to also understand that the whims and fancies of these four and the fact that they are used to their own scale. Acceding to their requirements each time will also be difficult. But being a brand helps both as the seller would also like to sell a branded device,” says Jain.

The company will meet some familiar foes in the new market — the Chinese companies that have performed well in the mid-market segment in India. It is no secret that Mircomax has felt the heat at home in a big way with the entry of these companies – be it market leader in India Xiaomi or Vivo or Oppo and even from established Korean player Samsung. For Micromax, the revenues started falling after 2014-15, when it was an all-time high of Rs 10,450 crore. That in 2016-17 was 46 per cent lower, at Rs 5,610 crore.

For Jain, the main competitors in Micromax’s new market are many of these Chinese companies although Xiaomi does not have a strong presence in there. There would be other competitors too. In September last year — three months before Micromax’s announcement — global market intelligence firm International Data Corporation had reported that numerous new entrants to the South African market are now offering affordable smartphones that boast very similar features to the leading brands. Ajay Gupta, lead partner, communication media and technology practice, A T Kearney, doesn’t name Micromax but reckons it would be difficult for any Indian brand to make a mark in an overseas territory even if it has similarities with the Indian market.

“Few Indian players focused on research and development; many took advantage of a certain wave of growth which they are trying to do now in South Africa. When consumers are looking for value for money, if you give them the right mix of features and pricing, it will not be difficult to acquire. But remember whatever you are trying to do, the Chinese are willing to go deeper,” says Gupta.

Micromax’s Jain doesn’t agree with Gupta’s assertion that players such as Micromax are looking for markets abroad as expanding in Tier 2 and Tier 3 cities in India is becoming difficult. “Micromax has been in the international territory for the past eight years and I don’t see that as a recent phenomenon,” says Jain.

The company targets to take the share from sales abroad in its overall revenue to 20 per cent from the current 11 by the next fiscal. Observers say foreign markets would be key to arresting the fall it has been witnessing in the local market. For a larger global footprint, the company plans to go to Nigeria next, having already covered a large part of West Asia and countries such as Russia, Bangladesh and Sri Lanka.

While the offerings from Micromax will be both smart phones and feature phones, the focus for the company will be smart phones as that is where growth will come from. For now the company is looking to export the handsets manufactured in its units in Uttarakhand, Rajasthan, and in Telangana but does not rule out manufacturing them in South Africa at some point.

Jain did not give a number as to how many units the company plans to sell in the first year or the revenue goals but said that he was looking to get a significant share of the eight million odd devices sold in South Africa every month. For now, the company has shipped 100,000 units to the country in the ratio of one feature phones for every three smartphones.

“For the next six month, we are only looking to understand the customer. It will not be a transactional approach. Understanding the customer and preparing the ground for a long-term presence is what we will be looking at,” he said.