Chinese Treble India Smartphone Market Share; Squeeze Out Indian Players

Indian mobile phone makers’ business profile has been adversely impacted due to the rapidly increasing market share of Chinese players and fierce competition, says India Ratings and Research (Ind-Ra).

There is a complete change in the market position of the top five smartphone players in FY17, as Micromax Informatics, Lava International Ltd. and Karbonn Mobiles Pvt Ltd were replaced by Xiaomi Inc., Vivo Mobile India Pvt Ltd. and Oppo Mobiles India Pvt Ltd.

While the global vendor Samsung Electronics Co Ltd. remained the market leader with 28 percent share in Q1CY17, the share of Indian vendors downsized to a mere 14 percent. Lenovo also sustained its position due to the established brands and products in the diversified price segments. Oppo and Vivo India have recorded sales increases of seven to nine times over FY17 respectively.

Why China Has The Upper Hand

The recent success of Chinese players can be attributed to their strong brand through substantial advertising expenditure and sales channel building funded by the sponsors. Chinese smartphone makers enjoy a debt-light capital structure and healthy liquidity due to the long payable period extended by their suppliers. Better technological capabilities of the Chinese players leading to superior product offerings have also contributed to their success.

Furthermore, large investments by Chinese players towards brand building and manufacturing facilities in India depict their long term strategic intent. Ind-Ra opines that established Indian vendors will face difficulty in sustaining, despite the early mover advantage and a more diversified product profile. Thus, Indian players’ recent investments into mobile phone assembly lines will face an elevated stabilisation risk, while advertising spends and fierce price competition will directly hit the operating margins. Indian smartphone makers have been slow in reacting to ongoing product innovation in the market, and are further constrained by limited marketing budgets.

Reliance Jio Infocomm Ltd.’s free data and voice services during H2FY17 pushed up the 4G Volte enabled smartphone demand, despite headwinds of slowing feature-phone-to-smart phone migration rates and liquidity shock due to demonetisation.

Average data prices bottomed at around Rs 130/GB in Q1CY17 providing a stimulus to smartphone sales. The incumbent telcos are also offering differentiated data offerings for 4G smartphone users, hence pushing a higher smartphone replacement demand (to 4G from 3G) as well as a faster migration rate from feature phones to smartphones.

This big opportunity saw aggressive marketing and competitive pricing strategies from Chinese vendors primarily in the budget to mid-price segment leading to market share gains.

This article has been published in arrangement with India Ratings.