Indonesian vendors make moves in Android smartphone market

Summary:Consumer computer vendor Axioo and home appliance manufacturer Polytron aim to grab a slice of the growing Indonesian smartphone market. Will their strategy of local manufacture and cost control pay dividends?

While feature phones currently outsell smart phones by around two to one in Indonesia, the growth in the Indonesia economy is set to change that.  Two local players, Axioo and Polytron, are gearing up to carve out a share of the emerging Indonesian smart phone market, according to Detik.com.

Axioo, long known as a computer and peripheral maker, started manufacturing smartphones in its Sunter and Cakung plants last month. The company’s traditional business was assembly of imported parts into consumer notebooks and PCs. It has built a strong foothold outside Java and Sumatra islands, winning a significant market share in provinces with a large rural population.

Polytron, a prominent home appliances manufacturer for two decades, has already designed and manufactured its own feature phone and is selling it across the country. Next year, it plans to start smartphone production, aiming to produce around 100,000 units a month in the initial stage.

Both local manufacturers will dream of emulating the performance of China’s Xiaomi smartphone, which shifted 4.4 million units in the second quarter of 2013. What must the local manufacturers do to replicate Xiaomi’s success?

Polytron Crystal 4
Polytron latest Android smartphone Crystal 4 (Credit: DetikINET)

 

Firstly, by setting up manufacturing plants to build devices locally they'll escape the growing tax and duties on imported goods, and create a cost advantage.

Second, opt for the Android eco-system. Nuff said.

Third, control labor costs. Labor strikes are expected to escalate in the lead up to the April 2014 general election.  Business owners will have to resist union demands for pay increases.  On the plus side (for manufacturers if not their employees), minimum wages in the capital Jakarta - the highest in Indonesia - are still lower than the average wage in China.

Fourth, cater for price-sensitive customers. Like other emerging countries, Indonesia has a large quantity of comparatively low-income workers, and manufacturers must win business in this sector to achieve scale.  

Managing supply chain costs is also essential. Indonesian logistics costs, amounting to 27 percent of GDP, are the highest in South East Asia. By comparison, logistics as a share of GDP in Singapore, Malaysia, Thailand and Vietnam are 8, 13, 20, and 25 percent respectively. It could be argued this is out of the manufacturers' control, an unavoidable constraint.  But savvy manufacturers can exert a measure of control by hiring logistics and supply chain expertise.

In the end, both vendors need a marketing strategy that delivers mid-to-high quality products at an affordable price. Ideally, they need to attract customers both from the high-volume poorer sector of the population and from the smaller high-income segment.

Topics: Smartphones, Android

About

Goutama is an advisor and consultant in the enterprise IT space focusing on technology management and investment. His pieces have been seen in numerous leading publications, both online and print, across the world.

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