India is slated to be one of the biggest smartphone market (by volume) in the world for the next few years. According to Convergence Catalyst research, at the end of Q1 2014, smartphones had penetrated over 70% of US population, and in China, the smart devices user base had reached 780 mn (~60% of population). Compared to that, in India the smart devices installed base accounts to ~8.5% of population (at the end of Q1 2014). As per our estimates, over 500 mn unique mobile device owners in India are currently using non-smartphones. That is a considerable upside, and is the primary driver for influx of a number of smartphone brands into the market in the last 3-4 quarters.Image may be NSFW.
Clik here to view.
The Indian mobile devices market has always had unique characteristics. In a retail market where the OEM sells the devices directly to the consumer, a robust distribution network (with adequate channel incentives), sustained brand building and marketing, availability of a number of products on the portfolio and competitive pricing have conventionally been the key factors of success in this market.
During the initial years of mobile revolution in India (leading till 2009), Nokia executed well on all these parameters and commanded a monopolistic market share. Other global players including Samsung, Motorola, Sony and LG have also tried to adapt to Indian market conditions, but it was the domestic brands such as Micromax, Karbonn, Lava, Spice, etc., (who were originally the distribution channel partners of global OEMs) who were successful in replicating these success factors effectively (see Evolution of Indian Handset OEMs).
However, currently as the focus shifts to smartphones (which contribute to over 75% of mobile devices value share), we are witnessing tectonic shifts in the market. The conventional success factors are becoming hygiene and are no more differentiators. Convergence Catalyst is observing some key trends emerging in this market, which could potentially change the playing field:
Chinese Players Are Here
Chinese smartphone OEMs are rapidly growing their sales and share in the Indian smartphone market. Players including Gionee, Huawei, Oppo, Lenovo, etc., cumulatively grew from less than 2% smartphone market share in Jan 2014 to ~12% by the end of June 2014. Their current rise is similar to that of Indian OEMs’ growth back in 2012.
Image may be NSFW.
Clik here to view.
Some of the Chinese players (such as Gionee, Oppo, Konka, etc) have historically been the ODM partners of Indian brands (Micromax, Karbonn, Spice, etc). They have understood the Indian market dynamics through their partnerships and have launched their own brands to capitalize on the emerging opportunity. Brands like Gionee, Oppo and Huawei are investing significantly in marketing and establishing the distribution network in India. These players have an inherent advantage of being product companies – with in-house software & hardware development, manufacturing and control over components ecosystem.
The entry of one Chinese player that needs to be taken seriously (by OEMs operating in India) is that of Xiaomi. Xiaomi has witnessed tremendous success in China (where it recently became the leading smartphone player) and other emerging markets it operates in. According to Convergence Catalyst, there are four key factors that contribute to Xiaomi’s success:
- In-house R&D and competitively priced devices
- Ability to monetize services
- Complete online distribution
- Wide and deep consumer engagement and cult following
If the company manages to replicate all or any of its success factors in India, it stands to disrupt the market and change the status quo.
E-Commerce Sites are Growing as Key Distribution and Marketing Channels
The no-frills operations, along with their lean supply chain, direct access to consumers and growing brand (of some of the leading players such as Flipkart, Amazon and Snapdeal), and most importantly competition among themselves make the Indian e-commerce players the preferred partners for many smartphone OEMs operating in India.
E-commerce sites have become the default (and only) channel for some OEMs such as Xiaomi, Obi and Motorola (which sold >1 mn devices in over 4 months) entering/re-entering the Indian smartphone market. As per our estimates, e-commerce players currently contribute to a double-digit share of smartphones sales in India (by volume), and have a potential to reach close to a quarter of incremental sales. The growth of these players is currently at the cost of large format retail, organized retail, exclusive brand and large multi-brand outlets in the urban areas. But, this channel has the potential to relegate a significant portion of the conventional smartphone brick-and-mortar retail distribution channel to rural areas.
Consumers Are Maturing
As per our estimates, over 90% of mobile devices in India are currently being purchased by existing handset users. Consumers (especially smartphone buyers) now understand their own needs and requirements from their next mobile device better. They are also being aided with the increased attention of various media outlets – newspapers, magazines, blogs, etc – on the smartphone industry and market in India. Apart from external sources, the influencers in the immediate circle of family and friends are also increasing. This is leading to a reduced dependency of the consumer on the retail outlet’s staff and OEMs’ incentivized/sponsored promoters for purchase decision-making.
We believe that these trends could potentially lead to a paradigm shift in the Indian smartphone space. And, of all the three types of players (global, Indian and Chinese device OEMs), the most impacted by these trends would be the domestic Indian brands. These players are limited due to lack of full-fledged product company operations, and are at least one layer abstracted from having any control over the components ecosystem… leading to them offering little in terms of differentiation.
Going forward, to continue to be relevant in the Indian smartphone space in the medium-to-long term, the OEMs operating in India need to grow out of “box pushing” mode and establish a direct connect and engagement with the consumer. And most importantly, look at offering product & experience based differentiation. While there are some tech-based platforms that enable the former, for the latter the OEMs need to start drawing up their software and services roadmap for India.
Convergence Catalyst offers Business, Product and Operations Strategy Consulting for companies keen on growing in the Indian smartphone space