India’s Chinese Smartphone Market

So I went smartphone shopping a couple of months ago, looking to replace my 3-year old Sony Xperia E3 Dual, which though comfortably small and sturdy with its Nokia-levels of build quality, was giving me some problems, to put it mildly. I prefer small and sturdy smartphones easy for one-handed operation, but it looks like smartphones in India are now all the size of planks, so I had to do quite a bit of research into what to buy, as a part of which I once day 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. Oh 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 ask what a Vivo was or even react, 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 because you won’t get anything else at those specifications at this price, how the competition is irrelevant, how dedicated they are towards customer care, but which won’t be necessary at all since nothing will happen to the phone. And yes, he said he wouldn’t even bother showing me a Lenovo.

“Well, I will come back later then.”

“Ok, 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 within NINETY days!”

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. I don’t know how I managed to leave that shop without paying 11,995 for the Vivo V3. I would eventually buy the Sony Xperia X for 18,000 on an Amazon pre-GST sale. So dazzling was that display of selling prowess that I was left reeling from the experience which stayed with me for several days. It was obvious that the dealer was getting good commissions to push Vivo phones. But the repercussions of his “but why” do not end there.

If 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 now 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-me) 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. There were no branded Chinese phones in India in 2012, and in 2017, there are almost no phones other than Chinese ones! In a space of 5 years, Chinese phones have managed to not just capture the market, but to change the perception about Chinese phones and products in general. 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 come from being outcasts, seen as cheap, toxic unbranded throwaways to dominating the market? It is an inspiring and interesting story, which came from an unlikely source: Indian smartphone brands, especially Micromax.

What About Indian Brands?

Wrong question. It should be, “What Indian brands?” The Indian smartphone market at the beginning of the post-Nokia era was marked by expensive Samsung, Sony and HTC Androids in addition to Apple, when Micromax introduced the Canvas 2, the first dual-core smartphone that sold under Rs.10000, a psychological price point for Indians, changing the Indian smartphone market forever. In just a year had cornered 22% of the Indian smartphone market share through cost arbitrage and slick marketing. Micromax, unlike today’s leaders, manufactured nothing on their own. They bought large numbers of white-labelled smartphones from BBK and others in Shenzhen and resold them under the Micromax brand. Aided by savings in overheads, logistics and bulk-purchase could severely undercut Samsung and others in the pricing department, literally flooded the Indian market with budget smartphones of passable quality, drastically lowering prices and increasing smartphone penetration levels. Micromax also was the first brand to focus on online sales, which would save them even more. 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 we 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.

The success of Micromax 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 tried and tested strategies at home to capture the Indian market. Chinese OEMs then branded and started selling their phones themselves instead of selling to Micromax, double-undercutting Indian brands to obscurity. Utilising their already available component manufacturing and assembly facilities, Chinese brands, Lenovo, Moto, Huawei, Xiaomi, LeEco, CoolPad, ZTE, Honor, Oppo, Vivo, OnePlus etc. started flooding the Indian market. They also took the e-commerce route to sell their products with exclusive tie-ups with either Amazon or Flipkart, increasing their allure through exclusivity, helping them to corner a large share of the image-and quality conscious crowd while also doing away with a lot of overheads. In just two years, had all but taken over the Indian market, just like they took over the world. 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 suddenly 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. Samsung and the others had no choice but keep reducing their prices. The S5 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, none of these brands are as successful as the BBK brands. Oppo has taken over the student and the price-conscious customer segment, Vivo mostly the home and middle-class community and OnePlus the image, tech and quality conscious segment. 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, Sony is synonymous with Japanese quality, you can hardly ever see any reference to the Chinese heritage of the BBK brands. In fact, a lot of people wouldn’t believe me when I told them these brands were Chinese, as they didn’t exactly match the image of a “China phone”. However, 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. And, the phones are quite good!

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. I guess my retailer guy was one sale short of a Shanghai trip. With such salesmen, no other brand stands a chance, I thought. They literally brute-forced their way to the top, demolishing any competition. Even then, Indian brands never stood a chance because they were literally procuring their goods from the competition. For all intents and purposes, would only be a reseller for Oppo, selling the same phones at higher prices. In addition, they made a string of bad business calls and had a messy intra-company spat, but that is beyond the point.

The point is 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 of value that can be sold to an audience will you survive, else, if your business solely runs on gimmicks, repackaging, undercutting, support functions etc., you will be replaced or displaced sooner or later, just like Micromax got displaced by the OEMs whose phones they were reselling. China thrives in today’s world because they create everything and their components, and the only way Indian brands could’ve survived was by creating the entire supply chain industry to build smartphones, which was impossible. 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.

P.S.: Yes, BBK makes in India, but that hardly makes any difference. Overall, their “Make in India” comes across as a strategy to get around policy tangles and to position its products as “Indian”. They only assemble their phones in India, and the factories, processes, intellectual capital, profits etc are all fully owned by them. In fact, this only makes us only more dependent on the Chinese economy. We have nothing to gain from this unless we adopt the technology here and start producing things ourselves.

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  • Rex

    Great post as usual!

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