India is attracting overseas smartphone manufacturers like never before with incentives to make locally as the US and Chinese markets reach saturation point. The influx has goaded domestic companies such as Micromax and Intex into redoubling efforts to garner market share as they seek to close the gap with market leader Samsung Electronics. Seven months into his job at the closest Indian challenger to Samsung, Sen has seen the smartphone market up close - at its competitive best and perhaps at its cluttered worst.
"The run-up to Diwali is a hugely busy time for the category and usually it settles down after that. We're not very sure if it will settle down this year," said Sen, former EVP marketing with GlaxoSmithKline Consumer Healthcare. He's not alone. Karbonn, another Indian smartphone vendor, has faced the brunt of competition and tumbled out of the top five after holding the No. 3 spot right up to the quarter ended June 2014.
"This is something that we haven't seen before. There has been a huge degree of price aggressiveness that the market has witnessed. It's happening because the brands that have recently entered looking at the smartphone market had decided to take that as the best route to make their presence felt," Karbonn executive director Shashin Devsare said. The number of smartphone brands that debuted in India this year has already touched 31, which is double from 15 counted in 2014, according to data procured by ET from sites tracking the entry of vendors in what industry insiders call 'the toughest market on the planet. "We expect another 23 to 24 new entrants to come into India by December," said Sitakanta Ray, cofounder of MySmartPrice. The inflow is set to continue next year, when another 30 to 35 are expected to come in.
India is one of the fastest-growing markets in the world and is set to outpace the US as the second-largest smartphone market by 2017. Worldwide smartphone sales recorded their slowest growth rate since 2013 in the April-June quarter, according to Gartner. With developed markets showing the initial signs of tapering demand, India has become the destination for handset makers, irrespective of their country of origin.
India had about 116 million Internet-enabled smartphones at the end of 2014, a number that's expected to more than triple to 369 million by 2018, according to a recent report by KPMG & IAMAI. Smartphone shipments to India surged 44% to 26.5 million in the second quarter of 2015, International Data Corporation said. "We view India as one of the most vibrant markets of the world and one of the very few to offer such positive growth rates in the smartphone segment," said Asim Warsi, Samsung India's vice president for IT and mobile. Gartner said smartphone sales in China fell for the first time on-year, recording a 4% decline - an indication that more Chinese companies could be heading to India.
"The Indian market still has a lot of room for new vendors to grow," said Tina Lu, a senior analyst at Counterpoint Technology Market Research. According to experts, more than seven new Chinese brands, including Coolpad's Dazen, Meizu, ZTE's Nubia and PHICOMM, entered India in the quarter ended June. Chinese brands have cornered the 4G smartphone category with a 45% share in the quarter, up from 39% from the previous three months."Every three years we see a change -- it's happening now with smartphones. When the market opportunity is big, everyone wants to come and take a piece of it," said Sudhin Mathur, director, smartphones, at Lenovo India. The Lenovo-Motorola combine has surged into the top 5 among smartphone vendors in India. Karbonn's Devsare said that another reason for the focus on India is because it is one of the few markets that is open and not driven by operators subsidising handsets.
With low entry barriers and China's smartphone market nearing saturation, Chinese phone makers are looking beyond regional boundaries to emerging nations like India, even with low minimum order quantities, Counterpoint Research's senior analyst Tarun Pathak said. Ceaseless vigilance is the norm for survival in such an intensely competitive market. "You can't be complacent in this business. The moment you are, you're gone," said Sanjay Kalirona, business head for mobile phones at Intex, which has become the No. 3 player since the January-March quarter.
India has become even more lucrative after the government provided large-scale incentives to manufacture mobile phones locally.
Foxconn, the world's largest contract manufacturer has pledged to invest over $5 billion in Maharashtra alone over five years, besides 10-12 plants elsewhere in the country. Its first plant making smartphones for Chinese No. 1 brand Xiaomi and its US-partnered firm InFocus has already taken wing. The going won't be so easy, especially for new entrants, because the Indian market can be very unforgiving.
Take the case of Obi Mobiles, relaunched globally by former Apple CEO John Sculley last month. Its original strategy was to package and push China-made smartphones. "It became clear that it wasn't going to work, so we pulled back," Sculley told ET, admitting there was no future in using a model that had no differentiation or upper hand in the face of heavy competition in one of the most heavily commoditised handset markets in the world. There's another downside lurking behind the lure of an open and fast-growing market: very few companies are able to generate scale. The top 20 smartphone brands captured 94% of the total market, leaving the remainder for the other 90 brands, according to Counterpoint Research data for January-June. Industry insiders and analysts say existing players see the hyper-competition as a welcome trend as it is likely to weed out weaker and non-serious companies and eventually reduce the clutter. "Only brands that can stay ahead of the technology curve can survive in the long term," said Lenovo's Mathur.
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