Why do Indian mobile phone manufacturers not beat Chinese companies in their own countries?

Lead: Just two years ago, local manufacturers such as Micromax and Karbonn Mobiles also accounted for more than 54% of the total. Why do they lose to Chinese manufacturers in the local market?

Indian Bollywood star 荻皮卡帕都恭 endorsement OPPO smartphone

On September 15th, IDC data showed that the total share of Chinese mobile phone manufacturers in the Indian smartphone market has exceeded 50%. Just two years ago, local manufacturers such as Micromax and Karbonn Mobiles also accounted for more than 54% of the total. Why do they lose to Chinese manufacturers in the local market? Indian media Gadgets 360 recently wrote an in-depth interpretation.

The following is the main content of the article:

“The government should provide more support to its people,” Narendra Bansal, founder of Indian technology company Intex Technologies, pleaded earlier this year. Less than two years ago, the company was the second largest mobile phone maker in India by sales. In addition to Bansell, several executives from Indian smartphone makers are very angry that their market share has been lost to Chinese companies in the past two years.

Bansell – and CEOs of other Indian smartphone makers such as Micromax and Karbonn Mobiles – accused Chinese smartphone makers of dumping low-cost smartphones in India, making local companies more difficult to survive. Those CEOs pointed out that the government should implement "anti-dumping" tariffs on such mobile phones. “Every child needs to be cared for by their parents,” Bansell said at the time.

In the past two years, about 35% of Indian smartphone makers have lost market share to Chinese companies. Just two years ago, according to data from market research firm Counterpoint, Micromax, Karbonn Mobiles, Lava and other local vendors still accounted for more than 54% of the market. IDC's data shows that in the quarter ended June this year, Chinese companies' market share in this market exceeded the 50% mark, the first time since entering the Indian market.

To some extent, the strong protests of Indian smartphone companies are tantamount to publicly admitting that they are unable to counter Chinese brands – they are not comparable to China’s marketing efforts, mobile phone retail price cuts and embrace online sales strategies. Manufacturer. But to understand in depth why the market is changing, you must first understand the history of the Indian mobile phone market and the changes in the relationship between those companies.

Create an "India" brand

Ten years ago, just as Apple was preparing to release its first-generation iPhone, Indian mobile phone stores were still full of feature phones, and smartphones were a few years away from them. Jayanth Kolla, founder and partner of Converence Catalyst, points out that the growth of feature phones has slowed in the world's two largest electronics manufacturing centers in China and Taiwan. At the same time, he said, the equipment manufacturing business of the two places began to appear commoditized, resulting in the company's profit margins being minimal. “The business has become a home-based industry in those areas. Any small company can easily try to make a mobile phone,” he added.

While Apple co-founder Steve Jobs is trying to revolutionize the entire smartphone industry, the Indian mobile phone industry's home base is also exploring some revolutionary ideas. Over the years, these companies have been acting as distribution partners for companies such as Nokia, Motorola, Sony Ericsson, and LG.

Are they making their own feature phones now? Executives are confused. Kola said that Micromax, Spice, Lava and Jaina Group (later renamed Karbonn Mobiles) have entered the OEM (OEM) field, a milestone in the history of the Indian mobile phone industry. Several Indian brands have partnered with China's ODM (Original Design Manufacturer) to explore the “white label” deal, where one company designs and manufactures mobile phones, and another company puts its own brand on mobile phones.

These Chinese ODMs bring expertise in two areas: first, they can create feature phones at unprecedentedly low prices, bringing powerful weapons to Indian manufacturers to counterattack from Nokia, Motorola and several others with their own manufacturing. The products of the factory's international giants.

Second, Micromax and other Indian manufacturers are able to bring new products to market in a much shorter time. Nokia and other companies typically spend more than a year completing the cycle of conceptualizing, manufacturing, and bringing their phones to market. In contrast, according to Cora, China's ODM can complete the process in three months or less, handing over inventory to Indian smartphone makers.

As a result, the trend of “dumping” cheap feature phones in India and the rapid harvesting of market share has emerged. Micromax and other companies began to spend a lot of money on marketing, targeting the two things that Indians like best: cricket and Bollywood.

However, not long after, the shareholders and consumers of these companies began to complain. All of these feature phones look the same. Investors continue to advise companies to make significant investments in research and development to achieve differentiated competition.

No product talent

However, according to a local executive who worked for one of the companies, the problems they faced were much deeper. He pointed out that Micromax and other Indian companies do not have the right talent team to lead them. The top executives are businessmen, and no one has experience or expertise in product development.

Four co-founders of Micromax

“The problem is that none of the Micromax founder teams are product talents. They have expertise in marketing and distribution,” the executive said. But just as the action of the right product leader was launched, another thing entered the field of vision: smartphones.

By the end of 2010 and early 2011, market demand began to turn to smartphones. That changed everything. First, it puts most Indian companies in the same level of competition as the international giants of the time: they are all trying to find the secret to capturing smartphones. But at the same time, according to people familiar with the matter, investors from Micromax and other Indian companies are still calling for investment in research and development.

In the field of smart phones, Indian brands launched a feature that laid the tone for the industry in the next few years: dual card dual standby. At the time, traffic and telephone charges in India were much more expensive than they are now, and people often change SIM cards to save money. According to Counterpoint's data, by 2017, more than 90% of smartphones shipped in India are equipped with dual card dual standby.

Micromax and other Indian companies are further leveraging their relationship with China's ODM to start offering low-cost smartphones locally. These phones are quite popular, because many Indians want to get their first smartphone, but those devices still look different, hardware configuration and software features are very similar.

Demand for low-cost mobile phones is rising, and Indian smartphone makers can profit from it. From the end of 2010 to mid-2011, these companies' share of the smartphone market was less than 10%, and by 2015 this figure has climbed to over 50%. As a result, they have finally entered a good state of operation. After that, the turning point appeared.

After several years of continuous growth, China's smart phone market is becoming saturated, and Huawei, Gionee, Xiaomi and other local companies are difficult to maintain growth. As a result, many of these companies are beginning to focus on foreign markets: India, Indonesia and other regions have quickly become their focus markets.

India is a natural choice for many Chinese companies, especially vivo, OPPO and Gionee, as they were former ODM partners of Micromax and many other Indian companies. “They know very well which types of smartphones Indian consumers want. With years of experience in China’s largest smartphone market in the world, they already know which development strategy to implement,” said Corve of Converence Catalyst.

In the first few months, Indian smartphone makers did not show much concern about the intensified competition in the local market. In fact, at last year's Rise conference, Micromax co-founder Vikas Jain announced plans to enter China, intending to confront Chinese manufacturers.

However, not long after, as more smartphone manufacturers (such as Xiaomi) began to enter India and began to open up in the country, local manufacturers became very scared. They finally began to introduce professionals from other companies. For example, Micromax recruited Vineet Taneja, a former senior executive at Samsung and Airtel.

The business conditions of those companies should have improved, but they did not. There are not many executives like Tanega who can do it. According to several executives and insiders who asked for anonymity, the power of those executives was limited.

"The role of executives, or the direction of the company, or the way in which they are professionally managed, has never been justified," one source said. They said that after all, the founders had the final say, and even small things they all want to be the master. According to sources, the culture of India's largest mobile phone manufacturer was “deviant”. In order to succeed in the future, Micromax should change that culture.

Chinese brands offer original designs

"By 2015, smartphones began to be commoditized. Market competition has become a configuration competition." A former executive of an Indian smartphone maker pointed out that "Chinese companies have witnessed the development of the smartphone market in their own countries." Therefore, they are more experienced, smarter, and some are more financially powerful."

However, in the view of an anonymous person, the reason that really drives Chinese manufacturers to take the lead is that “the Chinese are very active in designing to achieve differentiated competition. It is wrong for Chinese to invest a lot of money in marketing. If you don't have a good product, you can't sell more ads. If you see a vivo phone with a specific shape and size, you can't find an OPPO phone with the same shape and size. I am Say, they are plagiarized, but they don't provide exactly the same features as others."

“That’s the fundamental difference. In India, we’re very good at scale. We copy other people’s things and make them cheaper. By sharing distribution and advertising, we’ll be able to scale a product soon. But look at the success of various Chinese companies, they are not actually selling cheap mobile phones, but selling differentiated high-priced smartphones. They have higher profit margins and will use the resulting lucrative benefits. Marketing and retail."

The executive added that among Indian companies, it’s normal to create almost identical feature phones in the past. “Indian companies have not shown their ability to design independently. This is one of the reasons why consumers like me are abandoning their products. They are not willing to make relevant investments and are not willing to focus on long-term development. They will say that this is Our previous practice, so we will still do this."

“Chinese companies have a clear strategy. We Indians have never had any strategy. We are good at strategy, we are constantly copying other people’s things. Therefore, when we fall, others will soon fall, it’s not surprising. Plagiarism can only make you go so far. You can earn two or three years by assembling things that are sourced from China and then selling them locally. But that model is destined to be subverted."

An insider at Micromax revealed that the company originally planned to invest heavily in the development of a series of unique software features in 2016, but eventually the founders canceled the plan to save on operating expenses.

From e-commerce to offline layout

India is still a huge market for smartphone manufacturers. Currently, about 350 million of India's 1.2 billion people have smartphones. According to IDC, last year, the country’s smartphone shipments exceeded 100 million units.

A particularly unique strategy for Chinese companies is to use e-commerce. Although most Indians still prefer to buy smartphones through offline retailing - according to Convergence Catalyst, nearly 80% of mobile phone sales are offline - but Chinese companies have entered Flipkart, Amazon, India since the beginning of India. Snapdeal and other e-commerce platforms. Chinese companies say the move will help them avoid logistics expenses. “What have we done? Our offline retail stores are everywhere, but we are starting to produce smartphones that are only sold online, such as Yu brand phones,” said a former Micromax executive.

Xiaomi's flagship store and vice president of the new "Millet Home" in Gurgaon, India, Manu Kumar Jain

However, as millet, vivo and OPPO began to make progress in India, they began to lay the foundation to expand their sales to offline stores. Xiaomi currently sells mobile phones through more than 600 retail stores in more than 10 cities in India. Last month, the company said it plans to reach 1,500 retail stores in 30 cities by the end of the year. The Chinese mobile phone maker is ensuring that its online retail stores offer pricing and support services like Flipkart, Amazon India or Mi.com, a home appliance business website. Mi.com has become one of India's leading online shopping portals.

OPPO and vivo's development strategy in India is going to be more radical. According to several retailers, in order to expand their reach into second- and third-tier cities (still a relatively undeveloped area in the country), the two brands persuaded merchants to rename their retail stores to OPPO stores or vivo stores. The monthly fee of 40,000 rupees (about 625 US dollars) is paid.

In addition, according to retailers, OPPO and vivo offer retailers a much higher profit margin than other vendors – in some cases up to 30%. The industry standard is only 5%. As a result, these incentives give retailers more reasons to stock their OPPO and vivo handsets instead of inventory of Indian branded handsets.

“This is just a money strategy,” said a former Micromax executive. “We estimate that the cost per customer per acquisition is 500 rupees (about $8). Our model is slightly different, with a customer acquisition cost of Rs. 200. (about $3.20) because we believe that our innovation quality is higher."

He added, "But these people (Chinese brands) come to India, the cost per customer is as high as 7,000 rupees (about 110 US dollars). Just sponsor the Indian Cricket Super League (hereinafter referred to as "IPL"), they are The annual expenditure is more than 4 billion rupees (about 62 million US dollars). 4 billion rupees is more than twice the marketing expenditure of Micromax for a whole year. You need to know that Micromax's marketing budget is more than Lava, Karbonn Mobiles and others. Indian company."

In addition, OPPO and vivo have also invested heavily in the recruitment of Bollywood and cricket stars – including Deepika Padukone, Ranbir Singh, and Alia Buhart ( Alia Bhatt), Hrithik Roshan and Virat Kohli – to endorse their smartphones and sponsor large cricket matches such as IPL. Vivo sponsored the IPL League for five years at a cost of Rs. 21.99 billion (US$342 million), which is even higher than Barclays Bank's sponsorship of the Premier League, the world's most popular sports league.

As a result of these efforts, Chinese companies have begun to dominate. IDC's data shows that in the quarter ended June, Xiaomi's market share in India reached 17%, vivo accounted for 13%, OPPO accounted for 8%, and Lenovo accounted for 7%. Samsung is still the leader in the market, with a share of 24%.

Market share of the top five smartphone companies in India (data from IDC)

Adapt to the Indian market

All Chinese companies operating in India have adjusted their logistics operations to be more in line with local policies. For example, they participate in the “Made in India” project, a project that the Indian government aims to encourage companies to manufacture or assemble products in India.

This has created more job opportunities for India. In order to encourage companies to manufacture products in India, the government has reduced several import tariffs. According to data from several market research institutions, nearly 70% of mobile phones sold in India are currently manufactured locally.

Stimulating market expectations is another outstanding place for Chinese smartphone makers. Last year, when Reliance Jio launched a free Internet service, the company attracted hundreds of thousands of people to retail stores.

Reliance Jio only provides 4G networks, so it is not compatible with smartphones that do not support LTE networks. At that time, many smartphones, especially those produced by Indian mobile phone manufacturers, did not have this feature. “The phones we sold at the time supported up to 3G networks,” said Micromax founder Rahul Sharma in an interview.

“But overnight, the market switched from 3G to 4G. At the time, people who had never bought a 3G phone wanted to get a 4G smartphone to use the 'free network',” he added.

For the rapid growth of Chinese mobile phone manufacturers in India, Gingli executive director Arvind Vohra has a much simpler explanation. “Indian companies have failed to make consumers feel that they have the mobile products they want,” he said. “From a consumer perspective, they feel that Chinese companies provide quality products of the highest quality. By insisting on controlling product quality, Chinese companies have won that reputation."

Can you get back on track?

Micromax Canvas Infinity is the company's first smartphone to be launched in India in the past six months, which is completely contrary to the company's previous "sea" strategy. In 2014, Micromax launched more than 30 smartphones. “We are reversing operations faster than any other company,” said Venit Tanega, CEO of the company, during an interview.

"You have to be careful about the Chinese," Micromax's Sharma said when he released Canvas Infinity last month.

“We reduced operations earlier this year, specializing in the strategy of Chinese companies and earning some time for ourselves.” Shama said in an interview that “Chinese companies (especially OPPO and vivo) have been burning money. Promotion, for us, it’s obviously meaningless to fight against them at that time,” he added. “But now, as you know, their funds are running out quickly (according to retailers, OPPO and vivo are past Both months have reduced the incentives offered to retailers), and we think it’s time to launch a counterattack."

Shama said that the company still believes in bringing high-end technology to the public. For example, the company's Canvas Infinity smartphone has an 18:9 ratio screen, similar to the Samsung Galaxy S8 and LG G6 flagships, although it is clearly not at the same level in performance. “We will once again prove to people that we are an aggressive and disruptive brand,” he added.

Shama also refutes the arguments from other industry sources that Micromax does not invest in research and development. “We have invested heavily in R&D. We are the only company with more than 10 companies and startups that have invested in this area. We are the only company with three plants in infrastructure construction. And those They are big factories. We have also set up a design center in Bangalore and Beijing respectively."

When asked about the latest developments in the company’s plan to sell smartphones in China, another founder of Micromax, Viccas Jayne, said that it will happen this year, and Shama said that “the company’s focus is currently on the Indian market. on."

A former Micromax executive talked about Shama’s move. “Considering the way some Chinese companies are investing heavily in India, waiting for the opportunity, it’s wise to wait and see. If your company can survive first, then you One of the products is red, then you can make a comeback."

Karbonn Mobiles declined to comment on this article. A Lava Internationals spokesperson also did not respond to requests for comment.

Counterpoint analysts expect Indian smartphone makers to continue to lose market share this year. Former executives of those companies and Vohra of Gionee are optimistic about their future prospects. "If they start to evolve in terms of products, then I don't see why they can't succeed," Vohra said.