Chinese products, marketing savvy have pushed Indian brands to 9% market share, from 50% in 2014

Once among the go-to smartphone brands for Indian consumers, home-grown mobile phonemakers such as Micromax, Lava, Karbonn and Intex are now struggling to make a mark. These brands have been unable to challenge the flurry of quality products at affordable prices from China-based smartphone manufacturers over the past few years.

Indian brands, which together commanded almost 50% of the total smartphone market towards the end of 2014, now account for less than 9% of the market. Chinese brands, on the other hand, have been able to corner nearly 60% of the smartphone market at the end of fourth quarter of 2018, according Counterpoint Research.

“When they started out, local manufacturers had very good command of the Indian market,” Upasana Joshi, analyst at IDC India said. “For example, Indians wanted phones with good battery back-up, and Micromax capitalised on that. Second, their reach in terms of retail counters in the country was pretty good.”

Chinese quality

However, gradually, better quality products from Chinese makers helped tilt demand in their favour. In the fourth quarter of 2016, the Indian smartphone market saw some significant changes. Chinese brands accounted for a whopping 46% of the total smartphone market “riding on aggressive portfolio strategies and substantial marketing spends.” It was also the first time that no Indian brand figured among the top five smartphone rankings, as per data from Counterpoint.

Ms. Joshi said Xiaomi was the first brand which launched a flash sale in India and the concept became an instant hit, and Xiaomi grew as an online brand. On the other hand, brands like Oppo and Vivo, took the offline route “pumping a lot of money in retail channels and promotional activity”.

“These brands helped change the perception of Chinese brands, which were earlier perceived to be of inferior quality. Their product quality was good and they launched unmatched specifications at aggressive pricing,” Ms. Joshi said, adding that Indian consumers in India realised that the quality of Chinese products was far better than the ones they got locally.

Hanish Bhatia, senior analyst, devices & ecosystem, Counterpoint Research, said a key reason for the growth of Chinese brands “is their affordable offerings with stand-out features, including strong design language and their ability to leverage deeper access to the Shenzhen-based manufacturing and supply chain ecosystem.”

“Chinese suppliers are now experts in hardware design, software and user interface integration,” he said. “They have built a robust original design manufacturer and supplier network. They’ve also achieved a certain level of product expertise while they scaled in China,” he said, adding that these brands have also been aggressive with new device launches, clubbed with clever marketing.

As per data from Counterpoint, at the end of 2018, smartphone market share of Micromax stood at 5% (down from about 16% in 2015), Lava’s share was at 2.4% (from 6% in 2016) and Intex’s was at 0.6% (from about 10% in 2015). On the other hand, Xiaomi's share went up to 28% in 2018 from 6% in 2016, Vivo’s share went up to 9% from 5%, and for Oppo, the share increased to 8% from 5% during the period.

However, not all Chinese brands have tasted long-term success in India. Some such as LeEco had to exit the market, while others like Gionee are seen struggling.

“Some of them [Chinese firms] were not successful as they tried to implement their China model in India without understanding local market needs. At the same time, successful Chinese brands were very cautious in their moves,” Mr. Bhatia said. While it may be a tough climb back for Indian brands, analysts said Micromax and Lava may still be able to do well in the entry-level smartphone space. Besides, Reliance Jio is the local brand to keep an eye on.

Future bleak?

“If Indian OEMs want to survive, they need to capitalise on the opportunity that the sub-₹5,000 segment offers. Currently, no player dominates that segment and China-based sellers are also not focussing on this segment,” Ms. Joshi said.

She said a lot of consumers are yet to move from feature phones to smartphones. “These consumers need a device priced at ₹3,000… which is also of good quality.” Handset makers, she said, may look at bundling smartphones with operators such as Airtel and Reliance Jio, wherein there is an upfront subsidy on the device with a lock-in period of a year or two. But, the going may only get tougher for the Indian device manufacturers as more and more online Chinese player take to the offline market. The omni-channel presence for handset makers has become very important, Ms. Joshi said, adding that with the new e-commerce policy, it is expected that the exclusive online partnerships would go away, though some brands such as OnePlus have commented that it chose to go with exclusive tie-ups with online marketplaces and would continue to do so for the foreseeable future.

With the new FDI rules in e-commerce, “not much of discounting will happen — that is the mandate from the government, so that there is not much disparity in offline vs online. That is what we foresee right now.” The new rules may also spur more online-heavy players such as Realme and Honor to expand offline. “So, it will be all the more difficult for local players to catch up, as their strength was in offline retail.

However, if they launch products with good specs and aggressive pricing, clubbed with promotional activities, there may be room for growth,” Ms. Joshi said.

Despite being the second largest smartphone market in the world after China with more than 430 million users, India is under-penetrated compared to many other markets. Smartphone users account for just 45% of the potential total addressable market in the country.

“In the last quarter, feature phones and smartphones were divided 50-50… 43 million smartphones and 43 million feature phones. Currently, the feature phones segment is led by 4G Jio phones. The price gap between feature and smartphone is huge. Who ever bridges this gap can take the game away,” she said.

Most technology companies — both local brands and Chinese players — have also started diversifying into other electronic devices such as TV and air purifiers. Here too, Chinese players may be able to beat the local brands.

“It is all about establishing yourself as a lifestyle brand. That is what Xiaomi is doing or what Samsung has done… It may be easy for Xiaomi to sell smart TVs because people now know about it as a technology brand which is good on the pocket and has good specs. If people know phones of a particular company are not of good quality, how do you expect them to buy their TVs? So, perceived value of brand is important,” she said.