Indian Handset Makers Face Tough Competition From China

by CXOtoday News Desk    Jun 20, 2016


Recent Chinese entrants Vivo, Oppo, LeEco and Gionee have increased the cost of business sharply for Indian handset makers who are forced to try and match, thus squeezing their already wafer-thin margins. 

Chinese entrants are focusing on the offline market more aggressively than online and are paying higher channel commissions for pushing their products, at times even doubling to as much as 10 per cent, industry insiders said. 

“Indian players, which usually operate on 2-3 per cent margins, are facing tough competition from Chinese players. Further, online-only Chinese players are willing to sacrifice margins, even go into negative margins,” said Counterpoint Research senior analyst Tarun Pathak. 

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In some cases, the brands are also paying anywhere between INR 30,000 and INR 31 lakh to mom-n-pop stores for redesigning their shop fronts and carrying the brand’s name. 

Vivo said ‘on-store’ branding can help immensely in prompting customers to make purchase decisions. “Tapping the retailers for a branding opportunity is a great idea which is proving to be effective for us,” said Vivek Zhang, chief marketing officer at Vivo India, which now has a presence across 10,000 retail outlets as per Economic Times.

Oppo and Gionee declined to comment on specific queries. LeEco, which just started selling offline, also didn’t comment. A senior executive aware of the media buying details of some smartphone makers said rates for key brand placements in popular programmes on televisions, for instance the Indian Premier League, had risen by as much as 40 per cent within a year, mainly due to the money flooding being done by Chinese smartphone brands.

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The developments come as a double whammy for players such as Micromax, Intex, Lava and Karbonn Mobiles, that are being forced to match up, amid slowing smartphone sales in January-March quarter. They however say that the strategy used by Chinese players is unsustainable. “We’ve always maintained that significantly high advertising spends and trade margins to gain shortterm market share is unsustainable — especially true in the current scenario where overall industry margins are under pressure,” said Shubhajit Sen, chief marketing officer at Micromax Informatics, the leading Indian handset maker, second to Samsung in the local market. 

As of the quarter ended March 31, Chinese players had a 22 per cent share of smartphone sales, which is expected to increase to 25 per cent, said analyst Pathak. Vivo, Oppo, Gionee and LeEco have doubled ad spending on-ground and on television, print and other media, this year, as they prepare to take a larger share of the world’s fastest growing smartphone market. 

“We have spent about US $10 million (about INR 67 crore) on marketing online and print in the first quarter this year, and we will spend similar amounts for quarters to come,” said LeEco’s COO Atul Jain. 

This category spending will also double for Gionee, to INR 500 crore this fiscal year, and 40 per cent of it will be spent on ground-level activities. 

Aggressive marketing by the Chinese companies have left their Indian counterparts with limited options — either match up and take a hit on margins or opt for selective and targeted marketing and advertising involving lower budgets. 

Some players are taking the latter route, more so as even smaller levels of investment from Indian brands help as they are far more established than Chinese players and will have a longer brand recall among consumers, say analysts.