Yesterday was that many Indian smartphone vendors such as Micromax, Spice Mobility, Lava and Xolo would remember.
It was yesterday that Lenovo proved that it’s low-priced 4G phone, the A6000, was no flash in the pan like Xiaomi Mi3, but that it intended to follow through and put up the capable A7000 as proof of its intention.
So, why is this important?
Firstly, the 4G-enabled Lenovo A6000 and A7000 are no ordinary phones. They’re a signal of Lenovo’s (and the broader Chinese brands’) intentions for the Indian market.
Unlike three or four years ago, when Indian brands like Micromax, Karbonn, Lava and Spice competed primarily with international MNCs like Nokia, Samsung and LG, this time, it’s going to be a three-cornered fight, and the stakes are high.
The traditional rivals of Indian brands – Nokia (Microsoft), Samsung, Sony and LG – continue to be there.
But Indian companies know how to win against them – by pricing high specification phones at half the price.
Despite the fact that several Indian smartphone models faced quality issues, especially when compared to the Samsungs and the LGs, these vendors survived and thrived because of the huge price difference between their offerings and those of the MNCs.
A NEW GAME
But the new rivals – aggressive Chinese brands like Huawei, Xiaomi and Lenovo, are not like the Japanese or the Koreans. They know how to play the price game equally well, if not better than, the Indian players.
The Indian players traditionally source their phones from Chinese OEM (wholesale) vendors.
While bigger Indian brands have a role in the design stage of these OEM phones as well (some even design the phones and contract out the manufacturing), most of the smaller vendors basically pick a readymade design from OEM vendors in China, slap on their branding and sell them on.
That said, the absence of one’s own manufacturing capability is not a questionable business model. For example, the most premium smartphone maker in the world, Apple, also designs its phones and then outsources their manufacture to Chinese contractors like Foxconn.
FACTOR 1 – QUALITY
But the issue with Indian manufacturers is that, unlike Apple, almost none of them have developed the kind of design capabilities that would sufficiently distinguish their phones from the models that OEMs themselves design and ship.
As a result, a smartphone sold by a ‘high-end’ Indian brand and that sourced by a new entrant from an OEM are not sufficiently distinct in terms of quality.
This is where players like Xiaomi, Lenovo and Huawei can play a part.
In addition to having access to the same kind of cheap manufacturing capability as the OEM suppliers of Indian brands, these Chinese brands also have large in-house research & development departments that helps them distinguish their phones from OEM phones.
In fact, Huawei even has its own range of processors, called Kirin. As a result, a Lenovo or Huawei phone is sufficiently distinguished from the run-of-the-mill Chinese OEM, or Hong Kong, model.
FACTOR 2 – PATENTS
The second factor that is increasingly becoming crucial is access to software and hardware patents. Of course, on the face of it, you don’t need to own patents when you can buy the finished product from others.
But as Ericsson’s lawsuit against Micromax showed, you need a certain number of patents to ensure that other vendors don’t file cases against you.
If you don’t have your own patents to counter-sue, it becomes more difficult to take advantage of the cheap hardware produced by suppliers like MediaTek.
While a Lenovo or Huawei can use cheaper solutions from alternate vendors, smaller brands run a higher risk of getting sued by patent holders. Even Xiaomi, which was started just five years ago, found this out in India recently at its own cost.
FACTOR 3 – COST
Unlike Korean and Japanese brands, whose prices are higher, the Chinese brands know how to work on wafer thin margins just like the Indian companies. They know how to keep volumes high and device prices low.
The Indian brands’ earlier strategy of keeping device prices low will not work against the Chinese.
This can be seen in the comparison of the Micromax Yu Yureka against the Lenovo A7000. Despite having a more powerful processor, the Lenovo model is actually priced at the exact same price – Rs 8,999.
FACTOR 4 – ACCESS
The final factor is less of a concern in the long term, but of crucial importance at present. Whenever new technology – for example the new ARM 64-bit architecture or LTE – is introduced, they cannot be produced in mass quantities initially.
This leads to a scarcity and a race among brands to secure the limited supplies.
While access to technology was not a limiting factor for Indian brands two years ago — when 3G was ruling the roost — access to 64-bit chips and 4G LTE are harder to come by for them right now.
The biggest Indian vendor has only one LTE model, and no other Indian vendor has even a single 4G-enabled handset in the market.
In contrast, Lenovo, Huawei and Xiaomi have had LTE handsets in the market for several months.
Traditionally, Indian vendors have relied on chips from Taiwan-based MediaTek to overcome technological disparities. This time, the latest MediaTek chips, based on the MT67xx series, are popping up in big brands’ models such as HTC Desire 820s (launched last month) and Lenovo A7000.
As yet, not a single Indian operator has been able to announce a model which will come with the MT67xx chipset.
In conclusion, it may be said that except in the extremely price sensitive category, where customers don’t insist even on a minimum level of quality, the Indian smartphone brands will face increasing level of competition going forward.
While the current lack of access to high-technology will ease in May, when OEM phones will also get the MT67xx series chips, the other key factor – price competition from Chinese brands – will make it very difficult for them to operate as they have in the past.