China still has a large impact on the Indian mobile market.
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 Micromax’s office in Gurugram was at equality with the likes of Google. The multi-storeyed building had open spaces, rooms aplenty, and even balconies and terraces where parties could be thrown.

Today, the company operates out of a single floor in a common office complex in Gurugram. Apropos, in 2014, Counterpoint Research put Micromax at the helm of the flourishing Indian smartphone market. It even overshadowed Samsung and shipped more phones than any other brand in India. Home-grown smartphone brands such as Micromax, Lava, and Intex once cornered virtually 54% of the market share. The same brands have a less than 10% market share today. What happened?

 In the last few years shows home-grown smartphone brands relinquishing their preeminence to an incremental Chinese incursion. Today, the top player in India is Xiaomi, reckoning for 29.7% of all smartphone payloads (IDC data). The company—which inaugurated itself with competitively priced devices—has slowly built its base in the country over the past five years, and is now acquiring the benefits. 

According to data from IDC, four of the top five smartphone brands in India are from China—Xiaomi, Vivo, Oppo, and Transsion hold the 1st, 3rd, 4th and 5th positions, respectively. Samsung, which ousted Nokia from the Indian market, remains at number two but is feeling the heat as well

 Intex (which did not offer comment for this story) and Micromax have both been selling patron utensils. Micromax says it peddles nearly a million TVs every year, while Intex’s website proudly declares itself to be the number one Indian LED TV brand. Intex has also dabbled with air-conditioners and speakers.

2. The offline story

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Chinese brands have always devoted low prices, and they resume to do so. However, the call has also shifted. Now, the low pricing of equipment has pledged on the bar that others have to vie against.

In one of its liftoff circumstances in China, Lei Jun, CEO of Xiaomi, had said that if his company makes more than 5% net profit from its hardware enterprise, it would aim to pass that privilege on to its customers.

An industry quotation closely encompassed with smartphone sales, Oppo and Vivo sell phones in India at a margin of about 12%. These two companies have traditionally sold phones at higher prices than Xiaomi since they plied their trade in an offline-centric model in India.

Companies incur higher maintenances, which raises the across-the-board cost of the device, and hence, the final price too. According to a distributor who bade nowheresville, when Oppo and Vivo started dominating the offline segment, they were paying lots of money to retailers and distributors to keep their brands visible. Yet, that wouldn’t reflect on the prices of the actual products. “They would even pay for redecorating a retailer’s store," the source said.

OPPO and Vivo were not just reimbursing for Indian Premier League (IPL) promotions and endorsing the Indian cricket team, but also reimbursing a lot of money to merchandisers who would put up their boards; give their products prime positioning; or sell their devices exclusively. “Xiaomi, Vivo, and Oppo give targets to distributors that are based on volumes. Instead, a brand like Samsung gives targets based on value," said a distributor based in Gurgaon.

This means merchandisers could make easy money from Chinese brands by showing the number of devices sold, while a brand like Samsung demands that they sell phones worth a particular amount. In a market that mostly buys cheaper phones, achieving value targets, like that of Samsung’s, is more difficult.

Mudit Sethia, who runs smartphone distribution and retail channels in Kishanganj, Bihar, said that some Chinese brands offer ₹ 150 per unit sold as an incentive. This could go up to above ₹ 200 per unit, depending on how expensive the phone in question is.

Furthermore, another source in Gurgaon said some distributors are wholesaling Xiaomi, Vivo, and Oppo’s phones to grey markets at nearly zero margins. This allows them to fulfill the volume targets that these Chinese brands want, hence earning the incentive they offer on those sales.

Selling to the grey market doesn’t just allow them to fulfill volumes—it also gives them a much wider coverage than their current stores and networks can offer.

He also said that distributors who were doing business worth ₹ 20 lakh per month by selling Xiaomi’s phones earlier have suddenly seen a sharp increase in business transactions—up to₹ 4 crores per month just ahead of the festive season, thanks to this strategy. Another reason for this sharp increase is because of financing plans, which allow customers to get phones today and pay for them later.

3. How it happened

An important justification behind the fall from elegance for Indian brands is the blunder to appraise a fundamental transformation in the market—when India abruptly moved from 3G to 4G in a matter of months and Reliance Jio changed the game altogether. Vikas Jain, co-founder, Micromax Informatics Ltd, Micromax found itself with a huge stock of 3G smartphones across its fee chain, which it had to get alleviate at a time when the market was focusing on 4G devices. “The total addressable market (TAM) went down," he said.

His role, which was meant for 60-75 days, was tightened to 365 days. Singh concedes with this, saying that the Indian brands “had a lot of commitments" in China for 3G phones when Xiaomi and other brands were selling 4G devices.

Jain notes that this was something that whacks all Indian players, and since the market supervisors could not fulfill the consumers’ demand for 4G-enabled devices, a huge void was vacated to be injected. Their Chinese counterparts duly capitalized.

The Chinese corporations were coming from a 4G-dominant market and could bring their 4G-enabled phones to India. When Reliance Jio forced telecom players to adopt 4G connectivity and voice-over LTE (VoLTE) calling, Chinese phones were already ready for it.

While these brands also offered better pricing at times, Jain says that it alone cannot be the differentiator. “If I can do that (undercut somebody), then somebody should be able to do that to me too. Price is not the only mantra," he added.

An industry veteran who wished to remain anonymous further added that Chinese brands have been known to even cell phones at a loss, just to gain consumer interest.

Kapal Pansari, director of Rashi Peripherals, one of India’s top five IT distributors, also said that Chinese firms gamed the distribution ecosystem well, even while treating both offline and online channels on an equal footing. He said, “Indian players did not manage distribution hygiene properly and created discontent and mistrust among its distribution stakeholders. Chinese brands, on the other hand, continued to improve on the channel front with new experiments, and introduced innovative channel finance models to the involved partners."

S.N. Rai, the co-founder of Lava, further added that the Chinese brands also had control over the value-chain of the business – the design and manufacturing side. While Rai claims that Lava also had control over such aspects of the business in India, the Chinese were more evolved.

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