In rapid onslaught, Chinese phone makers take control of 50 percent of Indian market

Champions of yesteryear Samsung and India's Micromax are reeling and may have to come up with something otherworldly in order to stage a comeback.

There's not been a whole lot of love lost between China and India in the past 50 years or so. The two countries fought a bitter border war in 1962 that still evokes bitter memories and Indians are especially enraged by China's frequent support of neighbour Pakistan.

Last year, this animosity was updated. There were nationwide calls to reject Chinese brands in April 2016 when China became instrumental in foiling India's attempts to brand Masood Azhar, chief of the Pakistani-based Jaish-e-Mohammed terror outfit, a terrorist.

A few months later, China once again raised Indian hackles when it was the most vocal critic of India's attempt to join the Nuclear Supply Group, insisting that if entry is granted to India, it must also be given to Pakistan. Indians were furious and took to social media in droves to vent their spleen.

For a country that has found a resurgence in nationalism amongst its citizens who now regularly form lynch mobs around citizens who refuse to stand for the national anthem in movie theatres amongst others things, you would imagine it would take far less for its citizens to patriotically shun Chinese goods, never mind incinerate them in a large bonfire.

THE SLAUGHTER

And yet, Chinese phones sold like gangbusters in 2016 -- roughly one in two phones sold in India was from its neighbor -- smashing local competition and making incursions into global giant Samsung. Patriotism, it seems, can apply to many things but not smartphones.

According to research outfit Counterpoint, Chinese brands like Oppo, Lenovo, OnePlus, Huawei, Gionee, LeEco, and Xiaomi grabbed over 50 percent of the $10 billion market compared to just 19 percent a year ago, a phenomenal accomplishment. (Research firm IDC puts that market share at 40 percent.) Other lesser-known brands such as Meizu, OnePlus, and Coolpad also did well.

Any phonemaker aspiring to claim their stake in the Indian market needs to be able to make an impact in the most important bracket -- the large, uber-competitive $120 to $440 smartphone category. It is here that Chinese vendors made hay, doubling market share to 68 percent.

HOW THE MIGHTY FELL

The big losers were homegrown Indian brands such as Micromax, Lava, and Karbonn, who were once high flyers. Micromax was an especially tough competitor, a resolute number two behind Samsung for years (consistently snagging between 15 to 20 percent market share), bolstered by global stars such as Hugh Jackman as brand ambassadors.

Yet, it too wilted along with its compatriots. These three Indian firms lost over 50 percent of their business -- from over 40 percent in 2015 to less than 20 percent in 2016, according to Counterpoint -- in what has been a devastating slide. Micromax must be especially frantic after being bumped to the third position at 7.5 percent.

The biggest and some would say the most impacting development was giant Samsung also ceding ground to the Chinese. Actually "ceding ground" is putting it politely since it was more of a bloodbath judging by the numbers. The Korean company lost a staggering 14 percentage points since November 2015, according to Counterpoint, who registered the company's market share to be 21 percent as of November last year.

Samsung denies this and has always disputed Counterpoint's numbers in the past. Nevertheless, fellow technology research outfit IDC pegs Samsung at 23 percent in November 2016 (and the Chinese collectively at over 40 percent) which makes the end result not that much different.

Nipping at Samsung's heels in India today is Lenovo in second place with a 9.6 percent share (which includes the Moto lineup) and the indefatigable Xiaomi, which grew two-and-a-half times to grab a 7.4 percent share. Its ability to flog a million phones in just 18 days, most of them the budget Redmi Note 3 and the more value-for-money Redmi 3S, no doubt gave the company a solid boost at the year-end.

PRODUCT INNOVATION

What explains such phenomenal success of a country's phonemakers who were not so long ago derided and avoided for their cheap, unreliable products?

Well, obviously, China is quite literally a factory to the world today and has moved rapidly away from being the purveyor of knock-off goods with no warranties to making global brands and products on par with the best the world has, most often for them. In phonemaking this is especially the case since Chinese phones often use the exact same processors and parts and are frequently put together on the exact same assembly lines.

In fact, Chinese phones today frequently offer more innovative features in areas that really matter to people in fast-growing markets -- such as super-batteries, quick charging, powerful cameras that fuel the selfie craze, and snazzy metal casings for cheaper devices that are hard to find in comparable devices belonging to upscale brands. Moreover, these companies are able to access ultra low-cost components which then translates into prices that make them superior value propositions to their name brand brethren.

This is why a company like Samsung has lost out, say Counterpoint researchers: global in reach but unable to compete on price with the Chinese in markets where it matters most, like India. When you factor in the 5 to 6 percentage point payment premium over mainstream brands paid to retailers for better display and branding, as well as robust marketing budgets that have roped in some of the most popular sports (read: cricket) icons, and Bollywood stars, it is not surprising that Chinese phones are now popular in almost every nook and cranny of the country.

Another potential reason that has swung the pendulum so decisively in favour of the Chinese: India-based manufacturing. It may seem ironic that every major Chinese brand now has production facilities in India that go beyond mere assembly (Vivo and Oppo in Greater Noida next door to Delhi, Gionee in Visakhapatnam, Huawei in Tamil Nadu, and Xiaomi in Andhra Pradesh). Apparently, 37 mobile manufacturers made investments in manufacturing in India last year, more than six of whom were Chinese. Labour costs in China have shot up and moving to India, despite its tatty infrastructure, is increasingly attractive, especially when you consider the efficiencies of manufacturing in a market that you ultimately sell your phone in. Consequently, handset production in the country has skyrocketed from 60 million units in 2014-15 to 110 million units in 2015-16.

THE ROAD AHEAD

Will this Chinese dominance last? Smartphone supremacy is a fickle crown. You may have it one quarter only to easily lose it in the next. As the fortunes of Samsung and Micromax have shown, who claws their way to the top of the heap several years from now and who falls by the wayside could be anybody's guess.

The fact is that hardware is less and less a differentiator, and localization, especially in such a diverse and complex market like India, is key. This includes building a complete ecosystem that offers vernacular text, keyboards, services, and support -- things that you would have imagined Indian firms to have a huge advantage in -- and integrating things like mobile payments.

Whether Indian firms claw themselves back due to strengths in this area is uncertain. What is clear is that so far, Indian phone makers' value propositions -- or their national origins -- haven't swayed their patriotic countryfolk and may not do so in the near future in order to stop the rampaging Chinese.

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