India witnessed a remarkable migration from feature phones to smartphones in 2013. Overall phone shipments in the country rose 18 per cent to about 257 million units in 2013 from 218 million units in the previous year. On its part, smartphone sales in the country grew almost three-fold to over 44 million in 2013, against 16.2 million in 2012.
Guess who were the biggest gainers of this shift? Homegrown brands, led by Micromax and Karbonn, with the likes of Lava and Intex bringing up the rear. Data from research firm IDC confirms the trend. A prepared note from the company says: "India was one of the fastest-growing countries in terms of smartphone adoption in 2013. This surge has been powered by homegrown vendors, which have shown consistent growth over the past four quarters of 2013."
"The combined share of all Indian brands could be around 50 per cent in Q4 2013 given that there are many small importers who sell under different labels in select cities/states in India. In terms of recognised Indian brands in our (IDC) database, the share would be a shy more than 40 per cent," adds Jaideep Mehta, vice-president & general manager, IDC South Asia.
These local players have fought the global heavyweights on price, and have also managed to outmanoeuvre them in the speed of new launches. Korean manufacturer Samsung still maintains its stranglehold over the Indian smartphone market with 38 per cent share in Q4 2013, according to IDC, but it is ably followed by local players Micromax (16 per cent) and Karbonn (10 per cent) at the second and third positions. Sony is placed at No 4 with 5 per cent, followed by made-in-India Lava (4.7 per cent).
What is interesting about the Indian challengers is that all of them have successfully leveraged China - either by sourcing components from the country or by assembling their devices in that country at some point. In that sense, their product or pricing strategy has not been very different. Where these players have differed markedly is in the way they have managed their marketing and after-sales. Micromax has sought to reinvent itself by sprucing up its image and overhauling its retail presence; distribution and communication have a key role in Lava's new scheme of things and Karbonn has held on to its position by setting a benchmark in customer relationship management.
Before we proceed, here is a caveat. Most handsets sold by these companies continue to be made in China, say analysts. If the handset is indeed assembled in India, a large chunk of the components are sourced from China. While none of these three players was willing to tell The Strategist the percentage of Chinese components that goes into their phones, according to an industry insider, not more that 10-12 per cent of the mobile components - that include the casing, handset chargers, and batteries - are currently produced in India. All other mobile phone parts, including chip sets and processors, are imported. "Most Indian vendors have their own design studios. At the most they can consider setting up their assembling units in the country. That is because Indian vendors operate on low cost and they do not have the R&D budgets or control over an ecosystem like, say, an Apple," says an executive with one of the firms mentioned above.
|Investment will be key: Jaideep Mehta|
What will drive the next stage of evolution for the local vendors in the Indian smartphone market?
The industry must begin to develop an international vision to conquer significant overseas markets. For this, a new and evolving set of capabilities are important and this encompasses almost every part of the company.
Continued investments in brand building is a must; the local players are fighting deep pocketed global companies such as Microsoft/Nokia, Gionee and Samsung. Karbonn’s association with the IPL and Micromax’s engagement with Hugh Jackman are two examples of high profile advertising campaigns.
From a product perspective, design and R&D capabilities must be built to enable the creation of differentiated devices. Build quality, including the materials used, needs to keep evolving too. Ranging from the simplistic to the fully loaded, they need multiple models to straddle all categories of the market.
Most of the local players are owner-driven, with thin management benches. As they continue to scale, developing a strong and professionally-oriented management bench is required. Preferably with people who have international experience in target markets.
Across different industries, from automotive to electronics and from shipbuilding to power equipment manufacturing, there are a plethora of companies that have emerged from developing markets to take on global giants and defeat them in the marketplace. The Indian handset makers have the opportunity to do exactly this.
Micromax knows that the game is as much about creating a presence in the market as about creating a strategic absence. To understand this, we need to step back a little. The game changer for Micromax, which entered the Indian mobile phone market in 2008, was the brand Canvas 2 A110 launched in 2012, priced around Rs 9,600. Packed with features, it quickly became a hot-seller.
Micromax followed up the good work with another winner - the Canvas HD A116, launched in early 2013. Whether by design or because the company wasn't able to anticipate the kind of demand it will generate, analysts say, the company introduced only 9,000 units of this model in the first phase. This Rs 13,990 phone sold out in 24 hours flat.
When it saw the brand pull it had managed to create, Micromax shifted tack and went for higher-value flagships. It launched Canvas 4 and Canvas Turbo with great fanfare in 2013. Since then, it has launched premium smartphones sporting tags of Rs 17,999 and Rs 19,999, handsets that have got good reviews for the kind of features they offer but have failed to recreate the buzz around the earlier Canvas 2 and Canvas HD phones. In fact, if you look closely, Micromax's smartphone shares have actually fallen between the first and the last quarter of 2013. If in Q1 2013, it stood at 18.8 per cent and rose to 22 per cent in Q2, the shares fell in Q3 to 17 per cent to rest at 16 per cent in Q4 (source: IDC report).
To give it credit, despite losing market share in 2013, Micromax has been able to register profits. Helped by growing sales of its affordable and entry-level smartphones, the handset maker expects to hit $1 billion (over Rs 6,100 crore) in revenues in 2013-14. The Gurgaon-headquartered company's revenues were Rs 3,168 crore for the financial year 2012-13. To make its intentions clear, Micromax has chosen Hollywood superstar Hugh Jackman over a Bollywood star as the brand ambassador.
Meanwhile, the company has increased the number of its partner-managed service centres from 430 in 2012 to roughly 1,250 in 2013 to oversee 6.5 lakh walk-ins every month at its retail stores. "We are focusing on inventory and spare parts management to cut complaint redressal time," says Shubhodip Pal, chief marketing officer, Micromax. To this end, Micromax has begun tracking sales of its phones at the retailer end on a daily basis (through a proprietary SMS-based app) instead of waiting for weeks for data to flow in from the distributor network.
At Lava, which currently has roughly 2,500 employees and will add another 1,000 in the next two months, the key challenge is putting the right product in the right market. That is one reason the company has worked overtime over the past few quarters to put in place a single-layer distribution system (exclusive distributors who are managed directly by Lava). So if Lava has 1,700 distributors, its Indian counterparts have nothing more than 50 to 60 each, says Hari Om Rai, chairman and managing director, Lava International. The reason: this model is tougher to implement.
The company's renewed focus on distribution strategy has given it better control over the retail experience. The five-year-old company also has an in-house R&D team of 300 experts not just in India but also in China.
Lava, which calls itself a communication company, says it has created platforms to capture "voices from the ground". Whether it is the consumer, the retailer or a team member, the company's digital platform 'Empower' captures the 'noise' and allows the company to 'bucketise' information and store data. This process helps Lava to identify the trouble spots in its products and service and helps in reducing the time taken to address complaints. There is also an "escalation matrix" in the company for distributors in particular.
Lava is slightly different from its Indian counterparts in its desire to keep a low profile. For Rai, "the fundamentals are important and image is the last thing that needs to be addressed". But now that Lava's product strategy is in place, it will get aggressive in brand communication. This year Lava will roll out a Rs 400-crore brand building exercise, including tie-ups with big ticket television shows, in-film branding et al.
Go for the kill
Karbonn, the second-largest Indian smartphone player, which sells 2.9 million devices every month to Indian consumers, doesn't believe in a slow, step by step approach. It says you need it all - great product, backed by impeccable marketing and above all a strong customer relationship management programme - at the same time.
"Distribution, after-sales, brand communication - we rolled out everything simultaneously," says Shashin Devsare, executive director, Karbonn Mobiles, who has nearly two decades of experience with various mobile phone companies. Displaying a huge appetite for risk, the company committed 20 per cent of its sales turnover on brand building in its first year of operations. The company also invested heavily in beefing up its customer relationship management and after-sales teams. "Today, we have a network with over 870-plus centres," says Devsare.
In 2012, when it launched its first smartphone device (within three years of the launch of the company), Karbonn went for an image overhaul and opted for a new logo and accompanying marketing collateral. "Our gamble paid off and we found that the consumers who invested in our brand (by buying a Karbonn feature phone) also became our smartphone consumer," says Devsare.
Karbonn's brand communication (conceptualised by ad agency Taproot) aimed to position Karbonn as a "quality brand for the masses". This meant it had to evolve from being the preferred brand of SEC B and C customers to include SEC A customers as well. "Our brand communication has never been influenced by what the international giants are doing. We communicate how our products can help the consumers," explains Devsare.
Granted, these brands are doing a great job, but just remember in 2014 competition will be tougher. A slew of new brands have made an entry in the Indian smartphone market last year alone. From Chinese companies such as Gionee and Oppo, to American PC major HP and Japan's consumer products giant Panasonic (which, incidentally, has given up on the smartphone market back home), everyone wants a piece of one of the fastest growing smartphone markets in the world. And we haven't even spoken of Nokia's X series and the low-cost Moto phones and other budget smartphones that have upped the ante.
How will Micromax, Lava and Karbonn fight back? Watch this space.