India’s Chinese Smartphone Market

There is nothing like smartphone shopping to make you aware of how things are changing in the country. I was doing some heavy-duty research to find a replacement my 3-year old Sony Xperia E3 Dual which with its massive 4 GB internal memory (yes, not RAM) was giving me some problems, to put it mildly. I prefer small and sturdy smartphones for easy one-handed operation and really liked the Xperia’s comfortably small size and Nokia-levels of sturdiness and build quality. So I entered the biggest retail showroom in town to look at some Motos and Lenovos. Having lost touch with the Indian smartphone scene, I was still under the impression that Samsung and Micromax were ruling. And boy, was I mistaken!

“Sir, Moto? Lenovo?? But why sir? But why!?”

“What? Well, because, uh…”

“Sir, let me show you something. Here is the new Vivo V3. Now, let me explain why for your budget you can’t even dream of buying a better phone!”

Before I could react or ask what a Vivo was, he had launched into a tour-de-force on how the V3 was the cream of the current smartphone crop, how it would be absolute foolishness to buy anything else at all, how you won’t get anything else at those specifications at that price, how cutting-edge its quality is, how dedicated they are towards customer care (but which won’t be necessary at all since nothing will happen to the phone) and how how the competition is irrelevant. And yes, he said he wouldn’t even bother showing me a Lenovo.

“Well, I will come back later then.”

“I will give you another thousand rupees discount, and I will give you in writing that I will replace the phone in case something goes wrong in the first NINETY days!”

So absolutely dazzling was that display of selling prowess that I was left reeling from the experience. I hadn’t quite experienced anything like that before. At no point did he sound desperate or wanting to push the sale down my throat. He was composed, confident and absolutely sincere about what he was saying. It was only by sheer willpower that I managed to leave that shop without paying 11,000 (after discount) for the Vivo V3. It was obvious that the dealer was getting good commissions to push Vivo phones. But that alone did not explain the “but why sir”? The incident stayed with me for several days so I started digging.

iIf you have noticed, the Indian smartphone market is today dominated by Chinese brands. If you are about to say “Samsung”, better hold it in. As of today, September 2017, China’s BBK electronics is India’s largest smartphone manufacturer with 22% market share, pushing Samsung with 18.4% to the second place for the first time. Well, if you were to consider individual brands, Samsung still tops, though that might not last long as Xiaomi (shao-mei) is snapping at its heels with 16.8% market share. Most people will probably not have heard of BBK Electronics, but they would certainly have heard of the brands they own, the ubiquitous Oppo, Vivo and One Plus, which together own a quarter of Indian smartphone space. These brands were unheard of a couple of years ago and their meteoric rise alone can make a fine case study of Chinese aggression. In 2012, there were no branded Chinese phones in India and just five years later in 2017, there is almost nothing else! They have managed to not just capture the market, but to turn the perception about Chinese phones and products in general in their heads. It won’t be long before the Indian smartphone market will be reduced to Chinese brands battling each other for supremacy.

How did this happen? How did Chinese phones go from being outcasts, seen as cheap, toxic unbranded throwaways to dominating the market? It is an inspiring and interesting story, which starts from an unlikely source: Indian smartphone brands, especially Micromax.

What About Indian Brands?

Wrong question. It should be, “What Indian brands?” There is no such thing anymore. The Indian smartphone market at the beginning of the post-Nokia era meant expensive Samsung, Sony and HTC Androids in addition to imported iPhones. Then Micromax introduced the Canvas 2, the first dual-core smartphone that sold under Rs.10000, a psychological price point for Indians. This changed the Indian smartphone market forever. In just a year they had cornered 22% market share through cost arbitrage and slick marketing. Micromax, unlike today’s leaders, manufactured nothing on their own. They simply bulk-purchased large numbers of white-labelled smartphones from BBK and others in Shenzhen and resold them under the Micromax brand. It was a smart tactic. They didn’t have to manufacture anything, they had no overheads at all. Micromax also was the first brand to focus on online sales. This business model helped Micromax to severely undercut Samsung and others in the pricing department, literally flooding the Indian market with budget smartphones of passable quality, drastically lowering prices and increasing smartphone penetration levels. Inspired by Micromax, a number of other Indian brands like Lava, Karbonn, Intex etc., sprung up following the same business model. And this was where they faltered. Only 3 years ago, in 2014, Micromax was exactly where BBK is today, on the throne of the Indian smartphone market with 22% market share. Today, it is a measly 3.3%. Micromax’s story is a case study on corporate rise and fall.

Micromax’s success made Chinese manufacturers, who were looking for new markets in the wake of the saturation of their home and western markets, sit up and take notice. Recognising the untapped potential of the Indian smartphone market, they decided to replicate the same model to capture the Indian market. Chinese OEMs started utilising their already available component manufacturing and assembly facilities to sell their phones themselves. They created brands like Lenovo, Moto, Huawei, Xiaomi, LeEco, CoolPad, ZTE, Honor, Oppo, Vivo, OnePlus etc. and flooded the Indian market with them, double-undercutting Indian brands to obscurity. They also created high-quality e-commerce-only brands to sell their products with exclusive tie-ups with either Amazon or Flipkart, smartly cornering a large share of the image-and quality conscious crowd while doing away with a lot of overheads. In just two years, Chinese brands had all but taken over the Indian market, just like they took over the world. Indian brands never stood a chance because they were literally procuring their goods from the competition. For all intents and purposes, they were just resellers, selling the same Oppo phones at higher prices. In addition, Micromax made a string of bad business calls and had a messy intra-company spat, but that is beyond the point. They had taken’s Micromax’s game to its own doorstep, then beat it by taking it to the next level.

Back in 2013, I found a lot of my colleagues suddenly get excited about something called “One Plus One”. I was utterly confused why everyone was suddenly practising addition tables. Apparently, there was a pre-launch by invitation for a new smartphone brand featuring a mind-blowing configuration of 3 GB of RAM, 64GB ROM, the then-most powerful Snapdragon 801 quad-core processor, and an enormous full-HD display and 13MP camera for an unbelievable price of Rs.22,000! The Samsung Galaxy S5 which could be considered its direct Korean competitor at the time was selling for Rs.43,250 at the time, at double the price! (The S5 was launched for Rs.51,500 and now retails at a whimpering Rs.14,000). With its online-only strategy, One Plus had captured the image and feature conscious crowd who had more money to spend for high-level specifications. The success of OnePlus was that by going the online-only route, it could afford to sell its phones at rock-bottom prices.

However, no Chinese brands are as successful as the BBK brands. Oppo has taken over the student and the price-conscious customer segment, Vivo owns mostly the home and middle-class community and the image, tech and quality conscious segment swears by OnePlus. Oppo and Vivo have gone overboard with their marketing, plastering India’s towns and cities with their respective green or blue signage boards. The highlight of their strategy in India is that while Samsung and LG wear their Korean heritage on their sleeves and Sony is synonymous with Japanese quality, you can hardly ever see any reference to the Chinese heritage of the BBK brands. The success of these brands was that they read the Indian market better than anyone else. They delivered healthy looking phones with reasonable performance, good cameras, large displays and 4G, and above all, reliability and good service options at a price 20% lower than the established competition. The highlight, however, is that the phones are really of quite good quality, as they didn’t exactly match the image of a “China phone”. In fact, a lot of people wouldn’t believe me when I told them these brands were Chinese. Another thing that these brands achieve is to de-brand the smartphone market. For some reason nobody bothers anymore about brands (other than Apple). All phones look and feel the same, their brand names sound nonsensical and so only price and some features as the camera and RAM matter anymore.

To top it all off and to ensure that their products moved off the shelves, they presented retailers and distributors with heavy margins – up to 15% on occasions – to push their products, in addition to a variety of goodies from two-wheelers to foreign trips, which explains the insane push to sell these phones, like the retailer guy I encountered, who I guess was one sale short of a Shanghai trip. With such salesmen, no other brand stands a chance. They literally brute-forced their way to the top! However, this was only the icing on the cake. The base of this cake is still the point that economic power will always end up resting with those who can create or produce goods of intrinsic value. Only if you can make something that has standalone value by itself and can be sold to an audience will you survive, else, if your business solely runs on gimmicks, repackaging, arbitrage, undercutting, support etc., you will be replaced or displaced sooner or later, just like Micromax got displaced by the OEMs whose phones they were reselling.

Yes, BBK makes in India, but that hardly makes any difference. They only assemble their phones in India, and fully own all the factories, processes, intellectual capital, profits and everything else. Overall, their “Make in India” comes across as a strategy to get around policy tangles and to position its products as “Indian”. In fact, this only makes us only more dependent on the Chinese economy. In addition, it can be said that this could possibly pose a national security threat as God knows what these phones are sending back to their servers in China. We all know the clandestine practices various software companies undertake to mine our data, even putting our lives in danger. There is no reason to believe that Chinese companies aren’t doing the same. The recent Huawei scandals in US and Europe highlight this. But banning Chinese electronics imports to “protect” our domestic manufacturers won’t help either. In fact it will only hurt them, because they get all their components from China only. China thrives in today’s world because they create everything and its components. The only way Indian brands can survive is to adopt the technology and the entire supply chain industry to start producing all these things here ourselves. Which, as of today, seems to be a fairly long shot. The story of the smartphone industry is also a lesson for the Indian IT industry, which thrived only on cost arbitrage, or because we offer services at cheaper rates than others. It won’t last.

PS: I would eventually buy the Sony Xperia X for 18,000 (MRP 45,000) on an Amazon pre-GST sale. Made in China only.

PPS: Update: As of 2018 Q4: Xiaomi now leads the Indian smartphone market with 27% marketsahre. Samsung hangs on with 22%, Oppo and Vivo together are at 16% and a new Chinese player, RealMe has captured 8%. In all of 2018, Indian brands all put together had only 9% market share. Three out of every five smartphones sold in India today is Chinese.

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Great post as usual!


Thanks man!

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