Selling Chinese Smartphones in India

Chinese smartphone makers are seeing India as their second home, after demand at home has fallen to a record low.

Chinese smartphone vendors, such as Vivo, Lenovo Group Ltd, Xiaomi Corp, Meizu Telecom Equipment Co., Ltd. and others, are aggressively expanding in India since 2015.

T.Z. Wong, a Singapore-based smartphone analyst at research company Canalys, explains why. “Chinese brands see the Indian market as the biggest gold mine after China,” Wong said. “The two markets are very similar for the vendors. The only difference being that India was a few quarters behind China in terms of demand.”

On the third day of Diwali, India’s biggest festival in mid-November, the nerve-cracking sounds of firecrackers left the city’s narrow alleys sleepless all night long. However, for Sadiq Kumar, who runs a 10-square-meter electronics store in a 300-year-old bazaar in the densely populated Paharganj area of New Delhi, selling smartphones, power banks and memory cards from China, the “festival of brightness” spells fortune. “Business has been very good these days,” said Kumar, standing behind a counter full of mobile phones made in China. His booth is sandwiched between a store selling knock-off Adidas bags and a shop peddling 50-rupee slippers.

Inside the booth, where nothing filtered the street’s noise and firecracker fumes, Kumar, in his 40s, reached out to a glass display cabinet behind him and put a white smartphone case on the counter. “This is our star product. It is as good as the iPhone 6,” he said, pointing at a silver Vivo logo on the case.

The device Kumar was referring to was a vivo Y27L, a 4.7-inch, or 120 millimeters screen Android phone made by Guangdong-based Vivo Communication Technology Co Ltd.

The handset is selling at rupees 13,980 in Kumar’s store. It is compatible with the 4G communications network, which remains a new and expensive service for many in India.

Kumar introduces Vivo smartphones every time to buyers who are looking for a 4G device. But if the buyers think twice about taking the iPhone-quality device, the store also offers made-in-China smartphones priced as low as 4,000 rupees. That’s a price most people could accept.

A huge market

India’s emerging appetite for smartphones is spurred by the country’s gigantic population of more than one billion, second only to China. Increasing middle-class incomes have pushed online shopping to the forefront, with electronic devices being one of the best-selling items.

This is nearly a rerun of China’s situation five years ago when the trend of getting touch-screen phones kicked off. Starting in the early 2000s, China became the epicenter of global smartphone brands. It consumed the most devices, helping Apple and Samsung take a lion’s share of the market and profits.

Wang Ying, a smartphone market researcher at Beijing-based industry advisory company Analysis International, said that a slowdown in the Chinese market is inevitable as first-time smartphone buyers are dwindling rapidly.

“With fewer new buyers, vendors have to persuade existing users to buy updated products for replacement, something that is not so easy,” Wang said.

Sluggish smartphone demand in China is bringing down year-on-year worldwide shipment growth rate to 9.8 percent this year, the first single-digit performance on record, International Data Corp (IDC) warned earlier this year.

China, the world’s largest electronics market, is responsible for nearly 30 percent of the global handset shipments today, and the country’s share may shrink roughly by a one fourth by 2019 as shipments from India, Indonesia and other emerging markets grow, IDC said.

With a population that is predicted to surpass China’s, India looks ripe for a smartphone invasion. Indeed, the latest must-have handsets can be seen on the busy streets of the country’s major cities.

Unique user demands

But there still seems to be a place for cheap and cheerful feature mobiles, even though an entry-level smartphone can cost as low as 5,500 rupees ($82). To explain this, you only have to talk to people from the business community.

In India, some iPhone users still keep a trusty Nokia in their pockets. In Delhi, the highly decorative trucks are everywhere on the crowded roads where smells of freshly baked garlic naan are luring tourists. Also common are the charming ring tones from Nokia’s feature phones. Because of limited charging stations and erratic power supply, people switch between smartphones and feature phones to save battery time. This rather unique user demand is stunting the development of smartphones, leaving manufacturers in a dilemma.

Should they roll out small screen smartphones, which use less power, or concentrate on pamphlet-size mobiles, which are becoming increasingly popular? Part of the solution could be portable power packs. They will play a crucial role in the years to come, while more energy-saving smartphones will no doubt be launched by the main players.

But then, the battle for supremacy in India’’s mobile market is becoming distinctly competitive. Domestic brands such as Micro­max Mobile and Lava Inter­national Ltd are locked in a fight with Chinese rivals Xiaomi Corp, Meizu Technology Co Ltd and LeTV Holdings Co Ltd. They are slugging it out for dominance in the middle end of the sector, or mobiles that cost less than $200. Another Chinese giant in India, the Lenovo Group, is taking on global powerhouse Samsung Electronics Co Ltd in the mainstream market, where smartphones can cost up to $500. It is impossible to predict who will win the smartphone wars. Still, as long as Chinese companies continue to roll out competitive products, they will be in with a shout.

   Despite intensifying competition, the country remains the most tempting market in the world. A total of 28.3 million smartphones were shipped to India in the third quarter, a 21.4 percent surge compared to a year ago, according to IDC. Large-screen smartphones priced around rupees 10,000 are the best-selling devices in India, it added. The skill sets of Chinese manufacturers and local buying habits fit well. Quickly growing startups, with Vivo and Xiaomi leading the charge, are already busy in India, while traditional electronics giants such as Lenovo and ZTE Corp may use a different strategy.

Different strategies in marketing

A few kilometers south of Kumar’s shop, middle-class shoppers are buying Sony cameras and Hewlett-Packard laptops at an electronics store in Connaught Place, a major commerce and financial center in New Delhi. Lenovo devices are the only handset bearing a Chinese logo waiting for buyers at the Croma outlet, an electronics chain store under the Indian multinational conglomerate Tata Group.

Amar Babu is convinced that he has the recipe for success to make Lenovo a major player in India’s rapidly expanding smartphone market. As chairman of the group’s operation in India, he feels that the Chinese company has the edge when it comes to high-quality products, technological innovation and affordable prices.The numbers certainly look good for Lenovo, the world’s No. 1 PC manufacturer. In the third quarter of 2015, Lenovo shipped a record 2.7 million smartphones to India with a market share of close to 10 percent.

This made the Beijing-based giant the fourth biggest smartphone manufacturer in terms of shipment in the country behind Samsung Electronics Co Ltd, and domestic brands Micromax and Intex.

“The first milestone was crossed... we are expecting even faster growth here,” Babu, who is also vice-president and chief operating officer of Lenovo’s Asia Pacific division, said. Only hours earlier, he was poring over the latest shipment figures. Lenovo said it will expand its product roll out at Croma in 2016. The company will be directly taking on Samsung and other market leaders to become a top tree smartphone vendor in the country.

Today, only Samsung Elec­tronics Co’s Galaxy series, HTC Corp’s 60,000-rupee pamphlets and Microsoft Corp’s Windows phones with colorful cases are popular products at thousands of Croma stores in New Delhi, Mumbai, Goa, Bangalore and many smaller cities. Chinese brands are also rare in Mobiliti World, another brick-and-mortar consumer electronics store chain.

Beijing-based Xiaomi has a different strategy. It has been avoiding the brick-and-mortar route, relying instead on the online e-commerce retailer Flipkart.com. Xiaomi’s “everything goes online” strategy saves costs with the large rural population also being potential buyers. Karthik J, senior market analyst at IDC, said online sales are impressive in India. “Online retailers such as Flipkart, Snapdeal, and Amazon are driving shipments of the Chinese vendors, who have been aggressively trying to capture the 4G smartphone market in India,” Karthik said.

   The sector is incredibly competitive with a list as long as your arm vying for market share. Included in the mix are Chinese companies such as ZTE Cor­poration, Xiaomi Inc, Oppo Electronics Corp and Vivo Mobile Communication Technology Co Ltd. All of them have spent heavily on marketing. And Vivo Mobile Communication Technology Co Ltd is making the biggest waves.

The previously unknown smartphone maker created a splash by becoming a title sponsor for the high-profile Indian Premier League, a cricket tournament that is watched across the globe. Indians love cricket, so Vivo’s move looks pretty shrewd. As for how much the company spent on the deal, is difficult to say. Vivo’s predecessor, the soft drink giant PepsiCo, forked out a whopping 3.97 billion rupees back in 2013 to secure spon­sor­ship rights. It seems Vivo is making a very expensive point.

Lenovo’s early investment in “brand building” has helped the company stay ahead of most of its rivals. “We started to do brand building on phones about two and half years ago,” Babu said. “Nobody knew Lenovo made phones back then. The next step is to increase offline sales.”

More than half of the company’s smartphone sales are generated online. But that is changing as Lenovo has about 7,000 traditional outlets. The group is also in talks with Indian electronics store chain Croma to sell a wider range of devices across the country.

Local manufacturing - a key

In May, Xiaomi, partnering with Taiwan-based contract manufacturer Foxconn, opened its first overseas smartphone manufacturing plant near the southern Sri City in Andhra Pradesh. Lenovo quickly followed, kicking off handset production in the port city of Chennai. In October, another red hot maker, OnePlus, also opened an assembly facility in India.

Lenovo’s Babu was sitting in an empty dining room at a Four Seasons hotel in downtown Mumbai as he talked about his team’s outstanding performan­ce and the company’s online to offline marketing strategy. One goal was finally within reach after Chen Xudong, who heads Lenovo’s global smartphone operation, made double-digit market share in India a top priority during the summer as the company goes head-to-head with Samsung.

“Getting the latest technology, such as 4G, into the products will help to grow sales even more,” Babu said. Lenovo’s K3 Note, a 4G Android smartphone which costs 9,999 rupees ($150), was the best-selling mobile in its class in India during the third quarter of 2015, according to consultancy Counterpoint Technology Market Research. With a 5.5-inch (139 millimeters) screen, the stylish pamphlet-size device hit a sweet spot in terms of specifications and price, Counterpoint said. Part of the allure is its 4G capability after India’s major telecom carriers, such as Bharti Airtel Ltd, rolled out the service less than a year ago. Most of Lenovo’s brands target the mainstream market, which revolves around a price range between $150 and $250.

“It was a good call for Lenovo because 70 percent of India’s smartphone sales are generated by devices priced below $300,” Babu said.

Earlier this year, Lenovo opened a smartphone assembly plant near the port city of Chennai. It also makes PCs. By setting up a manufacturing base in India, the company has managed to keep costs low – a major advantage in a cut-throat business. “I am very, very positive about sales next year,” Babu said. “Even if we do not increase our market share, Lenovo will still produce 25 million phones in the next 12 months just to feed India’s growing demand. In the next three to four years, the market is expected to double from this year’s industry figure of 120 million,” he added.

In the third quarter of 2015, Lenovo reported worldwide smartphone shipments of 18.8 million units, putting the company in the global top five. “We are beating our numbers every time,” Babu said about the market in India.

Many Chinese vendors are also planning manufacturing projects in India. “All our handsets are made in China and then shipped to India. Making products locally will help reach our Indian customers faster and be more effective,” Pete Lau, chief executive of the Shenzhen-based Vivo said.

A “Make in India” campaign, launched by Prime Minister Narendra Modi in 2014, has also helped spur companies to take advantage of potential tax breaks and incentives. The campaign, which encourages both overseas and domestic companies to manufacture products in India, unlocking the country’s human power, opened a door for Chinese smartphone vendors to the upper streams of the Indian smartphone market.

Lau from Vivo said the company expected to sell one million smartphones in India by the end of 2015.

“Making devices in India will help the vendors lower expenses as labor costs in Chinese factories continue to rise,” Wong from Canalys said. In addition, Prime Minister Modi’s ambitious plan of lifting Indian cities from pre-colonial alleys into well-established smart cities also offer a new area for Chinese IT companies to explore.

The author is a business reporter of China Daily.

Published in the INAUGURAL ISSUE of CHINA-INDIA DIALOGUE