It was only a few years ago, that Indian mobile phones had begun dominating the domestic market. Home-grown brands, such as Micromax, Karbonn, Lava and Intex, held a 45 percent smartphone market share in 2015, giving a run to foreign players like Samsung, Motorola, LG, etc. However, demand for these brands was decimated once Chinese competitors like Xiaomi, Vivo and Oppo entered the Indian market. From a mere 9 percent market share in 2015, these brands reached 68 percent by the end of 2019, while that of Indian brands in the smartphone category was reduced to a mere 7.5 percent, approximately.
Notably, one can hardly point towards instances/practices of predatory pricing, or capital dumping, or adverse effects on consumer welfare from the Chinese brands to achieve such quick dominance. So, what made the tables turn to an extent that Indian brands lost their home turf despite having early movers’ advantages, in a short span of four years?
First, economies of scale: Chinese firms manufacture millions of smartphones annually, which reduces manufacturing costs, eventually enabling their brands to sell their products at lower prices. For instance, BBK Electronics owns brands such as OnePlus, Oppo, Vivo and Realme, making it the world’s third-largest smartphone manufacturer. Contrary to the same, Indian brands were never Original Equipment Manufacturers (OEMs), and largely adopted a trading business model. Any ‘manufacturing’ activity was limited to mere assembly since the Indian brands were importing Semi-Knocked Down (SKD) kits, instead of Completely Knocked Down (CKD) kits.
Second, continuous innovation: Being traders and not inventors, Indian brands underestimated the growth of 4G enabled products in the country. While they continued the push on 3G, Chinese competitors launched 4G enabled smartphones, which overshadowed their products. Jio’s aggressive 4G rollout in 2016 made this gap even more apparent. Even today, China’s Huawei is one of the leaders in the race to 5G, in which Indian brands are nowhere to be seen. Lack of investments in Research and Development (R&D) for innovation is to be blamed for India’s dismal performance in this regard.
Third, localisation: following the Make in India call by PM Modi, and the rise in tariffs imposed on imported mobile phones, many Chinese brands set up their manufacturing lines in the country. India’s mobile manufacturing industry has witnessed exponential growth under the Phased Manufacturing Plan (PMP). From having merely two manufacturing facilities in 2014, over 200 manufacturing units have come up so far. However, the major contributors to such growth are Chinese brands, which also help them decrease their tariffs and transportation costs.
Fourth, customisation for the local audience: The rapid acceptance of Chinese smartphones by consumers in India was also on account of the customisation and localisation offered by Chinese brands, to suit the preferences of local consumers. Relying on close consumer engagement, features appealing to target market segments were focussed upon. For instance, front camera for selfie addicts, beautify tool for photograph enhancement in line with Indian tastes, expandable memory slots coupled with dual sims for movie lovers, a special anti-heating coating on products to prevent overheating in Indian climate etc, helped them make quick inroads in India.
Fifth, distribution and channel management practices: Domestic players arguably relied LARGELY exclusively on their offline dealer network and failed to recognise the potential of online sales platforms. They could not make an impact or leverage on the gaining popularity of e-commerce, especially amongst millennials and Generation Z consumers. Notably, the online sales channel backed by multiple new launches, attractive offers and affordability schemes like EMIs and cash backs, grew by 12.4percent, as opposed to offline sales channel at 8.5percent in 2019.
Chinese competitors did well on this front, and also complimented their sales channel with aggressive marketing strategies through huge billboards, sponsoring cricket series and hiring celebrities as brand ambassadors. Xiaomi was the standout player, entering India with the loud splash of their “flash sales” model. They never looked back.
These factors taken together made consumers vote in favour of Chinese smartphone brands, considering their wallets and the value proposition being offered to them. With 5G around the corner, anti-China sentiments over Covid-19, and the government’s call of ‘Aatma Nirbhar Bharat’, the government and domestic industry must come together to regain the lost ground.
Notably, under the National Policy on Electronics 2019 which aims to make India as a global hub for Electronics System Design and Manufacturing (ESDM), the government has set a target of making 100 crore mobile handsets in the country by 2025, of which 60 crore units are envisaged to be exported at a value of INR 7 lakh crore. Furthermore, budget 2020 proposes to formulate a new scheme for promoting domestic mobile manufacturing.
In order to reap its benefits, the domestic industry needs to take urgent steps. Focussing on tier-2 cities, tier ¾ towns, and in a product segment of around INR 3,500 would be useful. They may target the 45 crore feature phone users in India, who are expected to transition soon to cheaper smartphones, in which options are currently limited.
However, this would also require them to focus on not only manufacturing but also on in-house product designing. Learning from their past experience, they must outgrow from being ‘middlemen’, to becoming OEMs. Offering vernacular support, and local consumer-oriented content and customisation would be a must in this regard, to achieve product differentiation, which would require investments in R&D.
For regaining the lost ground in the smartphone category byriding on the 5G wave by coming up with innovating India specific use cases in sectors such as education, agriculture, etc, would be imperative. Devising establishing robust omnichannel sales, distribution and after-sales networks, along with devising effective advertisement strategies would also be useful.
None of this will be possible without world-class talent. One of the big holes in their fabric was lack of depth in teams. This needs to change, and the domestic industry needs to professionalise to attract the best talent and create the deep management benches needed for scale businesses. Taken together, such efforts will help Indian brands rebuild the lost consumer trust and rise like the proverbial phoenix.
(With Inputs from SIDDHARTH NARAYAN, ASSISTANT POLICY ANALYST, CUTS International)