In today’s Finshots, we talk about the changing landscape of the smartphone industry in India and Micromax’s place in it.


The Story

Micromax is largely credited for revolutionizing the budget-friendly smartphone ecosystem in the country.

Wind back the clock and you’ll see there was a period when touch screen phones and wireless internet were all the rage. At the time these new “smartphones” were considered premium handsets and most Indians couldn’t afford them.

But then… Micromax changed it all. It started selling budget smartphones with some really cool features going head to head against its foreign counterparts like Samsung, Sony, LG. And it found its niche within the value-oriented Indian consumer base. In fact, within a few years, the Gurgaon-based company quickly built a reputation of being a reliable homegrown smartphone brand and grew rapidly on the back of economical smartphones.

Unfortunately, however, the company’s cost advantage was a by-product of Chinese intervention.

At the time, Micromax’s phones were all manufactured and designed in China. And Micromax bought very little to the table. Except for the brand value of course. However, once Micromax found success, a whole host of “Indian smartphone brands” including Intex and Lava started replicating this strategy.

And soon, the company realised the lower-end smartphone market had already been commoditized. It was a price contest considering everyone was producing phones with similar specs. The only way to get ahead in the segment then was through branding. So, they spent tonnes of money on marketing. They roped in Akshay Kumar as a brand ambassador. They sponsored cricket tournaments and music concerts. And Micromax became the largest smartphone seller in 2014. The company was even wealthy enough to hire Hollywood star Hugh Jackman to endorse the brand.

Micromax co-founder Rahul Sharma famously said —  “They have full HD, I have full HD… But, I have Hugh Jackman, they don’t have Hugh Jackman,” referring to how the only differentiation now was… well… Hugh Jackman.

But the smartphone landscape was quickly changing.

By the mid-2010s, Chinese companies like Oppo, Vivo, and Xiaomi had realised the potential of the Indian market and decided to cut the middlemen and introduce their products directly. The Chinese controlled all aspects of manufacturing allowing them to offer better after service. Micromax on the other hand was always found lacking in the customer service department. So that was a bit of a bummer. But Micromax had a large offline network to sell its phones. However, companies like Xiaomi took advantage of the e-commerce boom and sold directly to customers through online flash sales, saving on distribution costs. And “value-oriented customers” showed no loyalty and switched to Chinese companies almost immediately.

Hugh Jackman was…

Well… A passing thought at best.

Also, Micromax and its ilk never anticipated that 4G would take off so soon in India and stuck to selling 2G and 3G phones. But then…Jio started handing out free internet (4G). Almost overnight India made the transition and 3G phones became obsolete. Micromax incidentally also had a large outdated 3G inventory, but no buyers. They were desperately losing the plot. In November 2016, the company was slated to launch some 4G phones, but demonetization dashed those hopes as well since the company relied a lot on its offline distributors.

And before Micromax could regroup, the Chinese had overrun the market. By Q2 2018, the company had lost most of its market share. It even drifted away from its core expertise of selling phones and ventured into other territories trying to sell TVs and air conditioners. And all of this culminated rather spectacularly in eroding the company’s value.

In 2015, Micromax was valued at around Rs 21,000 crore.

In August 2019, its value had plummeted to Rs 1,500 crore.

But then the Chinese were in for a rude shock as Indians threw ‘Made in China’ TVs off balconies and smashed Chinese phones in protest. All in the wake of growing anti-China sentiment attributable to the conflict between the two countries in the Himalayas. For Micromax, this was another opportunity. Earlier this month, the company’s co-founder Rahul Sharma sounded the war bugle against the Chinese smartphone companies in India. In a video message, he announced the company’s plans for a comeback, launching the patriotic sounding ‘in’ brand.

But perhaps the biggest question still remains? What’s the difference this time around?

Micromax will tell you they are in line to receive benefits under the Production Linked Incentive (PLI) scheme. Meaning, the government will incentivize the company so long as they are making new phones and investing in manufacturing facilities. They will also tell you they are making in India this time around. And obviously, this will get some people excited. But what exactly are they making in India? That we don’t know yet. Are they still shipping most parts from China? That we don’t know either. Will they work on the after-sales support ecosystem and make better products this time around?

Don’t know. Is this another marketing stunt? Hopefully not.

But what we do know is that they are making a comeback. And although there’s a lot to consider here — longevity, product portfolio, Chinese competition, non-Chinese competition. We still hope that Micromax has a more long-lasting impact this time around

Until next time…

Share this Finshots on WhatsApp, Twitter, or LinkedIn.

Also don't forget to check our daily brief. In today's issue we talk about WeWork's latest bid to go public and a new election predictor for US presidential elections. Do read the full draft here.