Having firmly established their presence in the consumer electronics arena, South Korean business conglomerates Samsung and LG are now looking to increase their clout in the Indian telecom handset segment. With over 450 million wireless subscribers and counting, the Indian handset market is one of the most lucrative business opportunities in the country. In financial year 2008-09, the segment grew by 7.9 per cent from Rs 240 billion in 2007-08 to Rs 259.09 billion.
Nokia, with a 64 per cent market share, has so far enjoyed the largest piece of the mobile handset pie. The Finnish telecom equipment provider also clocked in the highest revenues of the business at Rs 165.67 billion in financial year 2008-09. Nokia’s significant lead may be partially attributed to the company’s early entry into the Indian market in 1995. Samsung entered this market a full five years later, in 2000, with Samsung Electronics India Information and Telecommunications, a subsidiary of Samsung Electronics, starting to sell mobile phones, etc. LG followed two years later.
While Nokia focuses solely on the telecom sector, Samsung and LG are essentially consumer electronics providers and have a stronghold in products like televisions, LCDs, refrigerators and air conditioners. However, the South Korean duo is bullish on the Indian mobile handset market and plan to expand their presence in this space. Both companies have come a long way and have built up a sizeable following among mobile users, which is likely to grow significantly in the coming years.
Current status
Samsung is the number two player in the country today, in both the GSM and CDMA segments. In the GSM business, it trails Nokia with a 14-16 per cent market share, while in the CDMA space it is behind LG with 23 per cent market share. LG, on the other hand, is lagging behind in the GSM segment with only about 6 per cent market share, but is the leading player in the CDMA segment with over 50 per cent market share. LG also has a solid presence in the urban market. According to analysts, Nokia ranks number one in the combined GSM/CDMA handset market with 54 per cent share of the urban installed base, followed by LG at 14 per cent.
Both Samsung and LG are looking to increase their share further. Samsung, which has witnessed the value of its mobile handset business double in the past six months, intends to maintain its present growth rate to edge closer to Nokia. Over the next two years, the company expects to add 5-6 per cent incremental market share annually in both its GSM and CDMA handset segments.
On the revenue front, Samsung estimates that it will rake in Rs 125 billion in 2009, up from Rs 85 billion in 2008. Highlighting the importance of the mobile division to the group’s overall profitability, Samsung India Electronics Limited has projected that its mobile handsets business will contribute 25-30 per cent to its total revenues in 2009.
LG has similar targets. According to Anil Arora, business group marketing head, mobile communications, LG Electronics India, “LG has been performing consistently for the past two years and has been witnessing close to 90 per cent growth.” The company is looking to sustain this growth rate and double its market share in the GSM segment to 11 per cent.
Company strategies
The South Korean chaebols are practising a simple growth strategy in India. Unlike Nokia which has been launching phones targeted at all categories of users, Samsung and LG are focusing mainly on the midto upper-end consumer segments. Their emphasis is on customers open to paying reasonably high prices for phones packed with state-of-the art features and not just on ultra-low-cost handsets. Says Dr Mahesh Uppal, director, ComFirst, “Samsung and LG market their products in a unique way in the upper and mid-segments. They offer new features and gimmicks to attract users. For instance, both vendors are aggressively going after the touchscreen handset market. Samsung already has 45 per cent market share in this segment and is looking to grow this further. The company recently launched a $210 touchscreen phone that it will ship to Europe in September. Nokia, in comparison, with only five touchscreen phones in its portfolio (two of which it launched only recently), has only 10.5 per cent share of the touchscreen market.
LG is also giving Nokia a run for its money in the segment, with an 8 per cent market share and three touchpad phones in its bag. The company is targeting a 10 per cent market share in the space within the next six months. Says Arora, “LG’s major achievements include the launch of the `Cookie’, which established LG as one of the major players in the touchscreen mobile phone market.”
The touchscreen business is likely to become a potential cash cow for South Korean vendors. According to a study by ABI Research, touchscreens will begin to account for nearly 40 per cent of the Indian market by 2012. According to wireless research and consulting firm ARCchart, “In the next five years, 38 per cent of all mobile phones in India will incorporate `control surfaces’ such as touchscreens and touch panels.” Around 1-2 million touchscreen mobile phones are expected to be sold in India in 2009.
Samsung is also experimenting with innovative new handsets. In August 2009, the company launched the world’s first open market CDMA handsets, which enable a CDMA consumer to buy a handset from the market and put in a SIM card to use the network (as is the case with GSM handsets). The handsets, which could at a later stage have a dual-SIM card facility compatible with GSM networks, are particularly relevant in the scenario of mobile number portability. Samsung plans to roll out five such handsets by March 2010. In spite of being priced higher than the typical CDMA handsets that are available at sub-Rs 2,000 prices, the handsets make good business sense.
The company has also recently launched a solar-powered mobile handset, Solar Guru, in the Indian market. The phone, which can be charged with direct sunlight anywhere, is ideal for rural consumers who have little access to regular on-grid power supply.
Meanwhile, LG is concerned with expanding its reach. According to Arora, “LG’s immediate concern is to increase its retailer base to far-flung areas and develop deep-rooted sales and distribution channels in the Indian market.” Consequently, the company is aggressively ramping up its sales and marketing efforts.
It has identified India as a strategic market and will double its investment in the country this year. The company will spend about Rs 4 billion on advertising alone. In addition, it will invest Rs 2 billion in research and development to study market dynamics and consumer behaviour. The company will also increase its headcount in the sales vertical by about 1,000 executives. This is in addition to adding about 1,000 more “shop-in-shops” in rural and tier II cities. The company intends to carry out India-specific product planning.
Issues and challenges
According to Uppal, the biggest challenge for the South Korean players is that their business model is somewhere in between that of Nokia and high-end device makers like RIM. “Nokia has a huge market share and product portfolio with the reputation of being simple to use. Hence, users tend to buy one Nokia handset after the other to maintain continuity in their user interface. Nokia also has a huge distribution network and has fine-tuned its selling strategy. On the other hand, the iPhone and the BlackBerry have a smaller number of phones, but they are hugely profitable and have a large chunk of handset revenues.”
The global slowdown has had minimal impact on Samsung and LG’s Indian handset divisions. According to industry estimates, sales figures fell by 3-4 per cent in January-June 2009 on a pan-Indian basis with the sales dip in urban areas being steeper at nearly 14 per cent. However, companies like Samsung did not witness any significant change in domestic sales or exports.”
There is, however, some sign of change in the industry’s consumer landscape. According to ABI Research, while demand from the entry-level segment has not been affected, the mid-end handset segment ?? handsets priced between Rs 4,000 and Rs 10,000 ?? has suffered. This may have a trickle-down effect on the South Korean vendors as well, which focus on this segment.
Future expectations
All in all, both Samsung and LG are betting big on the Indian telecom market. Samsung has crystallised plans to launch over 13 new handset models, while LG is looking at expanding its portfolio by 15 handsets by the end of the year. Both companies are banking on Google’s Androidbased phones with Samsung and LG launching at least one and three Android software-enabled handsets respectively by the end of 2009.
Both companies also have plans to ramp up their manufacturing capacities in the country. Samsung will initiate CDMA handset manufacturing in India, while LG intends to increase the production capacity of its manufacturing plant in Pune. Samsung is also mulling over launching an application store based on a music store model; however, this is still at the developmental stage.
Spurred by the rapid increase in subscriber numbers, the launch of new technologies and the Indian mobile user’s appetite for feature-rich phones, the South Korean duo intends to make the most of the big Indian opportunity.
