Change In The Outlook Of Indian Smartphone Space
By: Souvik Das
Tags: Trade, Analysis, Smartphone, India, China

The highs and lows of India’s relationship with the Chinese manufacturers

India is one of the most popular destinations for smartphone companies with as many mobile users as the entire population of the United States. The number of smartphone users in India is estimated to increase to about 442 million in 2022. Being the second-largest market globally for smartphones after China, India is a very attractive market for foreign vendors. As tensions between India and China escalate, Chinese smartphone brands — which control over 80% of the market — are looking to bolster their Indian credentials. Domestic brands, on the other hand, see an opportunity to return to their halcyon days of 2014 when Micromax ruled the roost.

The Xiaomi Story — quest to become an ‘Indian’ Brand

On 21st May, in the wake of a series of Sino-Indian border skirmishes, Chinese electronics brand Xiaomi quietly added a new page to its Indian website, titled ‘Made in India’, it did it’s best to paint Xiaomi, India’s best-selling smartphone brand, as an Indian success story. It touted the scale of Xiaomi’s manufacturing in India, the number of Indian employees, and Indian investments, including social media platform ShareChat. Further highlighting the company’s philanthropic activities like donations to the families of martyred soldiers and PMCares fund set up to help fight Covid-19. Xiaomi also highlighted its inclusion of Hindu calendars with kundli (horoscope) compatibility and even its India-specific beard trimmers. As far as offline was concerned, Xiaomi stores across the country changed external branding replaced with large Made in India banners, while Xiaomi India’s MD, MR. Manu Kumar Jain went on to say the company is ‘global’ rather than Chinese.

Its festive season ads featuring former Indian Cricket captain and current BCCI president Mr. Sourav Ganguly is another proof of its strategy. The Boycott China movement affected the company’s social media presence adversely.

Over the past half-decade, other Chinese brands cast their shadow over the Indian smartphone space with their feature-packed yet inexpensive offerings. In India, the top four Chinese brands — Xiaomi, Vivo, Oppo, and Realme — sell close to 100 million smartphones, valued at $16 billion. Except for Xiaomi, the remaining three belong to China’s BBK group.

Rekindled hopes of Indian smartphone brands

For Indian smartphone companies like Lava and Micromax, who have been obliterated by their Chinese counterparts, there is finally a silver lining. In 2014, they controlled around 40% of the market which is now less than 1%. A lack of innovation and strategy saw them left behind.

OnePlus, Oppo, Xiaomi must push their launches mainly due to the pandemic and boycott China movement. This presents a rare window of opportunity for Indian companies who are hoping for a return to the days of 2014, when a young Micromax dethroned Samsung as the country’s top-selling brand. In 2015, Indian brands controlled 45% of the country’s smartphone market, whereas Chinese brands were at 9%, according to data from Counterpoint Research. Their failure to adapt to the advent of 4G, however, caused a stunning reversal in fortunes. Even as Chinese brands hesitate or struggle to launch new models, both Lava and Micromax are hoping to blitz the market. Noida-headquartered Lava’s promotion on social media has also leaned heavily on nationalist sentiments. Lava boasts a network of 120,000 retailers in India and the company announced a plan to shift its R&D, design, and manufacturing from China to India, in the process investing Rs 800 crore.

Current smartphone segment scenario

During the second quarter of 2020, all major companies like Apple, Samsung, OnePlus recorded substantial growth. Apple grew by 67% YoY to 800,000 units, whereas Samsung grew four times, and OnePlus recorded a growth of 104% YoY. According to IDC, the premium handset segment grew by 91%. Mid-segment handsets shrank and at entry-level, despite new launches sales couldn’t match the premium segment growth. The average selling price has decreased by 2%. Experts state that two major factors are responsible for this shift, economic slowdown due to the pandemic which in turn has reduced income of low and mid-income households, and e-learning, work from home forced everyone to shift to smartphones.

Current political scenario

India is slowly moving towards becoming a hub for manufacturing on which the government has launched various schemes like the ‘Make in India’ initiative & ‘Atmanirbhar Bharat’. One of the major schemes which will help the Indian smartphone market is a production-linked incentive for Large Scale Electronics Manufacturing launched in October 2019. If the companies coming under this scheme are meeting their target, then rewards are attractive. Top mobile phone makers like Foxconn, Wistron, Lava, etc. have committed investments worth Rs 11,000 crore under the PLI scheme and will surpass manufacturing estimates by 2 to 2.5 times.

With the Chinese brands moving up the value chain as they look to drive margins up, Indian brands could move into the wallet-friendly sub-Rs 15,000 segments. Micromax under the Atmanirbhar Bharat scheme has now decided to make a comeback with its new range of handsets which will be a direct competition to Chinese handsets. On 15th November 2020, 15 Asian nations signed a powerful free trade agreement which will help China regain its position after the pandemic, however, India opted out of this agreement in 2019 with concerns over low priced Chinese goods entering the country and remained absent for the virtual signing.

India’s overt dependence on China is clear from the fact that total imports declined by 48% in April-July YOY in which the Chinese component saw a decline of 29%. India’s trade deficit with China continues, where exports have risen by 31% in the first quarter with a value of $7.3 Billion which led to increase in China’s share in total Indian exports from 4.5% to 9.7%. Experts suggest that India’s dependence on China for items like active pharmaceutical ingredients for medicines and electrical equipment will continue in the near future, though India may be able to cut back on imports of non-essential items like toys and plastics.

Our Opinion

Since the COVID pandemic, we have seen the world shift from offline to a virtual space. Consumer durables especially smartphones are the need of the hour and the Indian smartphone market is growing at a rapid rate.

For India, being self-sufficient is an arduous but necessary step. With the help of newly launched schemes for both foreign and Indian companies, allowance of increased share in FDIs, India is likely to excel internationally along with a rise in per capita income of the country. A blanket ban in China would not serve India’s purpose, rather the Government should look to work closely with Taiwan or Vietnam and attract foreign companies to manufacture locally.

Co-author: Kirti Mahajan, MBA-IB IIFT’22

References:

1. https://www.statista.com/topics/4600/smartphone-market-in-india/

2. https://the-ken.com/story/smartphones-anti-china-wave/

3. https://www.business-standard.com/article/companies/mobile-handset-market-sees-a-widening-divide-as-mass-segment-suffers-120111400002_1.html

4. https://www.ndtv.com/world-news/15-asian-nations-sign-huge-china-backed-trade-pact-2325363

5. https://www.theindianwire.com/business/production-linked-incentive-scheme-attracts-major-mobile-manufacturers-to-india-per-capita-income-expected-to-rise-296779/

6. https://www.idc.com/getdoc.jsp?containerId=prAP46764220