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Growing Popularity: Chinese vendor strategies to increase their presence in the Indian market

March 14, 2016

Several Chinese vendors have emerged in India’s low-range and mid-range smartphone markets, and they are quickly gaining popularity among the growing user base. While these vendors have not attained a significant position in the market yet, the affordability of their handsets and the variety of features they offer has put the spotlight on them. They include Xiaomi, a company that has been dominating the Chinese smartphone market over the past year; OnePlus, whose product range is being compared to the likes of Apple; Oppo, China’s fourth most popular brand; and Gionee, which has been gaining industry attention due to its heavy advertising. With their unique marketing strategies and success in the Chinese smartphone market, industry analysts are keeping a close watch on these vendors’ moves.

The Indian smartphone market is often compared to its Chinese counterpart owing to the growing demand for low-cost quality smartphones as alternatives to brands that have been dominating the industry over the past five years. As a result, the importance of these brands has been increasing in the Indian smartphone landscape as the ecosystem for 3G and 4G services is developing rapidly and being made available by several operators across the country.

tele.net takes stock of these four Chinese vendors and their plans in the Indian market for the coming years… 

Xiaomi

After entering the Indian smartphone industry in June 2014, Xiaomi has been changing its marketing strategies over time. Globally, it is considered the fifth largest smartphone vendor, with its global shipments amounting to 70.8 million for the year ended December 2015, according to recent data released by the International Data Corporation. The company displayed a strong year-on-year growth of about 22.8 per cent in its global shipments over the past year. In India, Xiaomi is still in its early days and has not yet attained a market position among the top five vendors. However, during its tenure of about two years, it has gone from the popular “flash sales”, which featured only a limited number of phones, to domestically manufacturing handsets in the country.

Xiaomi’s operating system is based on Google’s Android and its handsets are known to offer high-end feature phones at competitive prices. Its successful flash sales during the latter half of 2014 led it to focus more on a strong online presence. Its Mi Store application, which allows customers to browse and buy Xiaomi devices, recorded over 1 million downloads in the first three months of its launch in July 2015. Even then, about 90 per cent of its products were sold through online retail partners like Flipkart, Amazon and Snapdeal.

Thereafter, Xiaomi began establishing a pan-Indian offline presence. It tied up with Reddington for sales through local unorganised retailers and organised retailers like The Mobile Store and Airtel, and conducted pilots for its offline distribution model in Kolkata, Bengaluru, Hyderabad and Chennai in August 2015. The company is targeting its offline sales to make up around 25-33 per cent of its total sales in 2016.

It is also considering a “just-in-time” distribution model for offline sales. Under this, the requirement for stock will be passed on from the retailer to the main distributor. This will help reduce the channel’s working capital requirements and improve profit margins. The company’s new focus on distribution has made it take up the domestic manufacturing of handsets. It has tied up with Foxconn and, since August 2015, its handsets are being manufactured in the latter’s facility in Sri City, Andhra Pradesh. Xiaomi has also reported that its 4G handsets are likely to be manufactured domestically. The easier availability of these handsets will boost uptake as data customers look to adopt 4G in 2016.

OnePlus

Among the recent entrants in the market is Chinese start-up OnePlus, which sold nearly a million handsets in 2015, its first year of operations. The company’s special feature is that it has been able to deliver premium phones at less than half the price of the top-end handsets of Apple and Samsung. Its penetration was initially on an invite-only basis, which helped create sufficient demand. As a result, when its flagship OnePlus 2 smartphone was launched in July 2015, 5 million registrations were received globally. Though the invite-only condition was withdrawn for this handset in December 2015, the company still follows the invite-only strategy for other handsets to remain exclusive.

The main reason OnePlus has not been able to attain a bigger share of the Indian smartphone market is supply chain issues. According to the company, in its initial two months of operations, the Indian team was unable to procure stock on time, due to which it lost almost six to eight weeks of sales. It has thus started venturing into domestic manufacturing. Like Xiaomi, it tied up with Foxconn in 2015 for producing its handsets in the latter’s facility at Sri City.

OPPO

OPPO has entered its third year of operations in India, with its popularity being primarily due to its heavy focus on research and development (R&D) to provide differentiated products. Till December 2015, it had sold about 400,000 handsets and established about 120 service centres across India. OPPO says that it develops smartphones on the basis of customer feedback in terms of both hardware and software. Among the latest features it has developed is the VOOC flash charge, which allows a battery to be charged to 75 per cent of its capacity in 30 minutes, and the screen flash, which delivers clear photos in low light. The company’s present handsets range from Rs 6,500 to Rs 42,999. It is also considering developing a budget smartphone to tap the growing rural user base.

Like other upcoming handset vendors, OPPO’s current focus is on achieving a nationwide presence and reducing the time of product delivery. It is retailing in 20 cities and also considering engaging with more countrywide channel partners. For its 4G segment, OPPO has reported that it is working with Airtel and Reliance Industries Limited for developing technical expertise. While OPPO’s current domestic production is in collaboration with Foxconn, it plans to invest about Rs 1 billion in setting up its own facility in India by August 2016.

Gionee

Gionee arrived in the Indian smartphone industry in February 2013, before Xiaomi, OPPO and OnePlus. It has now established a market presence of 4-5 per cent. It credits itself with having established an unconventional communication strategy with Indian smartphone users, thereby laying the groundwork for Chinese vendors to follow suit. Having sold about 5 million handsets in the country, the company believes that offering heavy discounts on handsets is not sustainable in the long run. It therefore focuses on offering innovative products and establishing brand value through a strong offline presence. Till April 2015, the company had about 25,000 points of sale. It is also trying to establish single-brand stores. Meanwhile, its focus on heavy advertising continued through 2015; its investment in this area grew from Rs 1.32 billion in 2014 to Rs 2.25 billion in 2015.

After achieving success in the Indian market, Gionee is now planning to develop a manufacturing hub in India to cater to the demand for its handsets in Africa, Pakistan, Bangladesh, Sri Lanka and Nepal. It has announced its intention of investing up to Rs 3 billion in the next two to three years for setting up a manufacturing facility in India. It is also looking to invest in an R&D centre and local servers to help customise its products for Indian customers.

The way forward

India’s smartphone industry has now become the second largest in the world after crossing the 1 billion mark in terms of subscribers in 2015. Moreover, the Chinese handset market is nearing saturation, which is why many vendors are increasing their efforts in the Indian market. While India provides growth opportunities for smartphone manufacturers, the strong competition presented by established brands and the large low-income audience are pushing new entrants to innovate on products and offer budget smartphones and devices to increase their market share. Apart from these four Chinese vendors, several other start-ups, both domestic and foreign, have ventured into the Indian market. The growth witnessed by these players will shape the strategy of new entrants.

Almost all vendors that are serious about the Indian market are now manufacturing handsets domestically to improve their reach. They are also realising that while unconventional marketing strategies like flash sales or invite-only sales improve popularity, they also limit market penetration. Thus, to compete with established brands like Micromax, Samsung, Lenovo and Intex, more products that appeal to budget consumers need to be launched. Going forward, there is immense value in having differentiated products, and factors like quality and pricing strategy will help start-ups improve their market position in the Indian industry.

 
 

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