Desi handsets pushing MNCs out

Kunal Ahuja, CEO of Spice Mobiles is deeply miffed.
“Anybody and everybody is launching a mobile phone brand. This is not a short-term game, a lot of them are not going to survive tomorrow,” he warns.

Ahuja is worried because there is a ‘desi’ mobile brand popping up almost every other day, with names such as Lava, Karbonn, Pagaria, Intex, Olive, and, of course, Videocon.

Each of them is fighting Spice’s price-points with a phalanx of offerings.

Not surprisingly, margins are receding fast.

Spice Mobiles, which is a listed company, has an average selling price of Rs 2,034 per handset and purchase cost of Rs 1,484.
Marketing and other expenses cost Rs 513, and Spice is left with a pretax profit of Rs 232 per handset.

To its credit, Spice Mobiles saw this opportunity two years before others did: the huge market for desi brands, that is.

Today, these brands account for a fifth of India’s mobile handsets market, with Micromax and Spice alone totting up some 12-14% spoils.

It all began due to a revolution in the Taiwanese mobile market some years back.

The emergence of Mediatek, the first sizeable Asian chip company, spawned an ecosystem of device assemblers, some of whom have beaten all multinational brands in sales except Nokia and Samsung.

Mediatek started out a decade ago supplying chips for TVs and other appliances, but shifted attention to the mobile market five years ago.

However, it was 2009 which saw the company really hit an inflection point when it sold 300 million core chipsets for handsets — or around 22% of the global market.

And nearly all of those chipsets, which are the heart of a phone, went to unbranded or ‘white label’ Chinese manufacturers.
The success of Mediatek’s offering was simplicity itself. Unlike other chip makers, who expected their clients to have a large research & design team to put together phones, Mediatek aimed at small manufacturers who don’t have such luxuries.

And, unlike rivals, it offered the blueprint for a near-complete phone and tools to easily tweak or customise the basic design. It also provided its own software to run the phone, again with tweaking options.

“Of course, we owe a lot of our success to Mediatek,” says Vikas Jain, business director of Micromax, the most successful of the new breed of ‘Mediatek’ phone makers.

Jain’s two-year-old Micromax has become theNo. 3 brand in India, pushing back global giants LG, Sony Ericsson and Motorola.
The company hit 1 million unit sales in January this year, cornering nearly 10% of the market.

“There used to be a time when you would have had to get your chipsets from Infineon or Qualcomm. Now we have Mediatek and a large part of their success is because of the ease with which their basic designs can be altered. They give you about 60% of the design and you add another 40% of features, opening up the possibility of innovation at your level,” Jain says.

Today, there are anywhere between 20 and 50 Mediatek-based mobile brands in India, nearly all of them less than 18 months old.
Within the desi bunch are two groups — the ones that have a hand in designing the phone and those who purchase handsets manufactured by Chinese companies in bulk.

Core sales come from the so-called ‘B’ and ‘C’ class cities of India — the semi-urban towns where incomes frequently fail to keep apace with TV-fed aspirations.

Desi brands couldn’t have timed it better either.

Teledensity in urban areas have neared saturation and in the last year or two, rampant growth has come from the hinterland for all operators.

“People in semi-urban areas are more focused on value for money,” says Sudhir Kumar, head of marketing for mobiles at IT accessories brand Intex.

“They are looking for all the features. At the price they are willing to pay, we are able to offer many more features than global brands,” said Kumar, who claims to sell 150,000 handsets a month.
He adds that semi-urban consumers, the kind that is doing most of the spending these days, are more ‘price sensitive’ than their ‘brand conscious’ urban brethren.

Surprisingly, the average selling price of a Micromax set is only around Rs 300 lower than a Nokia, so cramming more features has certainly worked.

Almost none of the desi brands play in the entry-level segment because their starting prices are around 50% higher than the Rs 1,100 Nokia and LG sell at.

Ahuja of Spice agrees customers are won over with features.
“I accept that a majority of customers who end up buying our phone probably walked into the store thinking they will buy a multinational brand,” he says.

Then there is also higher commission for the retailer – they get 10% on desi brands compared to 2-3% on an established brand. Ahuja says weaning the customer away from a multinational brand to a local brand happens at the point of sales.

Troubles at the former No. 2 and No. 3 global brands — Motorola and Sony Ericsson — have also helped matters.

Nokia’s spoils have declined from around 65-70% to 50-55% over the last two years.

The three global brands together have lost close to 30% share, some of which has been grabbed by Samsung and LG.
The sharea of desi devices has roughly doubled over the last one year from around 10% to 20%.

There’s traction to gain much more, inspiring them to bigger goals.

Micromax is aiming to sustain a 10% market share for the full year despite a dip to around 7% in February “due to the Chinese new year”. Videocon, which entered the market late last year, aims for one-tenth of the arena backed by a vocal marketing campaign.
Spice, the second biggest Indian brand, wants to double its share next year from the current 4-5%, while Intex is aiming for 5%.

Besides features like pencil-cell support, TV reception and really ‘loud’ speakers, consumers can also look forward to finding some advanced features such as 3G and Android.

While Mediatek has already launched its 3G chipset after signing a deal with Qualcomm last year, its affiliates are expected to bring out their first Android phone in June this year at a price of around Rs 6,500, half of the current entry-level price.

Considering the variety at hand, Jain and Ahuja hope consumers will choose carefully. They said most of the current brands have been created by distributors.

“It is mainly the distributors of big brands like Nokia and Samsung who are launching their own brands. They believe that they own a certain part of the distribution channel and if they create their own brand, they can push it downwards,” Micromax’s Jain said.

“But if the consumers end up buying phones of very small players who may not have a good customer-care set-up or who may not even survive the next six months, then they will have nowhere to turn to if something goes wrong,” he warns. That comment has a familiar ring: it could have come from a Nokia official a year ago.