Is the Indian smartphone market ripe for a new leader?
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As the smartphone market in India starts consolidating in the face of intense competition as well as the launch of low-cost 4G feature phones, there is scope for new leadership.
Given how positions in the business have changed dramatically over the last seven years, leadership today may be no guarantee for the future. Till 2011, Nokia Corp. was the runaway market leader in India, ahead of companies such as Siemens AG and Motorola. That changed once Korean companies such as LG Electronics Inc. and Samsung Electronics Co. Ltd came in with lower-priced feature phones.
Though Samsung continues to be the Indian market leader, with a share of more than 25%, by 2014, its dominance had started coming under attack from a new set of home-grown price warriors like Micromax Informatics Ltd, Intex Technologies and Lava International Ltd. Crashing prices to unheard levels, these companies swiftly built large market shares such that by the end of 2015, the three of them accounted for almost 30% of the Indian market and were ranked among the top three vendors according to International Data Corp.
Yet, just over a year and a half later, all three find themselves out of that list, with their collective share falling to around 13% in the first quarter of 2017, down from 40% in the first quarter of 2016. Their nemeses were Chinese smartphone makers like Xiaomi Inc., Vivo and Oppo Electronics Corp., who collectively control over 50% of the world’s second largest market.
The factors responsible for the decline of the Indian phone makers are well documented. If the advent of Reliance Jio Infocomm Ltd sent rivals like Bharti Airtel Ltd and Vodafone India scrambling to protect their turf, it also exposed the weaknesses of the Indian handset suppliers, who were still making 3G phones at a time when the market had moved on to 4G. Vitally, on their way up, Indian smartphone makers adopted a simple, if ultimately ruinous strategy—buy cheap phones from Chinese manufacturers and sell them in India.
It wasn’t long before the same Chinese manufacturers came to India on their own and busted the party for the Indian vendors. Basking in the light of their instant stardom, the Indian companies had created few, if any, barriers to entry. It was a clear case of sitting back in defence when they had taken the lead, a tactical error all coaches of international field sports like football and hockey warn their players against.
Having grossly underestimated the growing sophistication of their potential user base, they also fell into the trap of subscribing to the myth that the Indian consumer goes for the cheapest option in the market. In reality, customers in India were interested in the best value-for-money phones. This was provided by the new set of smartphones from Chinese companies who read their needs better and came equipped with smartphones that incorporated high-powered cameras with high resolution and larger screens. So alarming has been the advance of the Chinese brigade that calls have gone out for some form of protection for domestic companies. The government has paid heed, although its help may be coming too late. Starting 1 July, India imposed a 10% basic customs duty on smartphones.
That will give global manufacturers like Wistron Corp. and Foxconn Technology Group, who have invested heavily in setting up manufacturing in the country, an edge against imports, but may not be enough to bail out Indian handset makers.
The Chinese brigade that supplanted home-grown makers is also seeing a fierce internecine battle, with new leaders emerging every few quarters. Their business model rests upon huge volumes and with more and more of them making a beeline for India to escape a stagnant home market, stability isn’t guaranteed even for the current leaders. Driven by the availability of cheap capital at home, they have a tendency of combusting when that spigot is turned off, as happened with once high-flying Dakele, which collapsed dramatically when its funding sources dried up.
In any case, forecasters say that in the future, mobile phones will look like nothing that we see right now. Advances in technology indicate that phones will soon be replaced by implanted or wearable augmented reality devices. Enter Facebook, whose boss Mark Zuckerberg has suggested that glasses or contact lenses embedded with augmented reality technology could replace today’s “primitive” smartphones. If that happens, who do you think will be driving the phone market in India?
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.