FEATURES/BOARDROOM | Nov 25, 2013 | 94801 views

Can Micromax Become India's Leading

Smartphone Maker?
by Rohin Dharmakumar
By harnessing opportunities ignored by its bigger competitors, Micromax has emerged as a serious
challenger in the mobile phone market. But now that the gaps are disappearing, can it create newer
markets as well?


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Then there was the price: Rs 9,999 compared to the Note 2s
Rs 39,900 at the time of its formal launch in India in
November that year.

At 25 percent of the Note 2s cost, the devices seemed to make
sense to the Indian customerso much so that in another three
weeks, they would be all but sold out. This was the signal its
makers, the Gurgaon-headquartered Micromax, had been
hoping and waiting for.
Micromax has come a distance since making its first mobile
phones in 2008. According to research firms IDC and
CyberMedia Research (CMR), the company is the third largest
seller of mobile phones in India behind Samsung and Nokia.

The mobile phone market is currently going through a major
upheaval as hundreds of millions of users in India and around
the world upgrade from cheaper and less-capable feature
phones to smartphones. In the smartphone race, both these
research firms place Micromax firmly at the number two
position behind Samsung in market share22.7 percent versus
Samsungs 31.9 percent, according to CMR; and 22.2 percent
versus 25.7 percent, according to IDC.

Samsung India declined to speak with Forbes India for this
story. A spokesperson said the company did not believe the
IDC and CMR figures were accurate; they were more convinced
by the GfK-Nielsen numbers (a proprietary subscription
service, the specifics of which Samsung did not disclose). We do not consider Micromax a competitor, the spokesperson
added.

Sharma is amused when he hears that Samsung does not consider his company a competitor. I think Mahatma Gandhi
said it best: First they ignore you, then they ridicule you, then they fight you, and then you win! he says.

And winning they are.

According to Sharma, Micromax has already surpassed last years revenue of Rs 3,100 crore in the first six months of this
year. Were targeting one billion dollars by the end of 2013, he says.


Image: Amit Verma
Rahul Sharma: Were targeting one billion dollars by the end of
2013
Vikas Jain, another co-founder, says, In most countries where Samsung has a local subsidiary and has been in operation
for over 12 months, they are usually number one. If we defeat them in India, this might become the first country where
that stops being the rule.

With its coffers filling up with revenues from the sale of over 2.5 million handsets each month, Micromax is setting its
sights even higher. A stunning new global ad campaign featuring Australian actor Hugh Jackman was rolled out recently.
The company claims it is spending Rs 30 crore on the campaign alone.

Gone is the diffidence and scrappiness of before. In its place is a belief that it can vault itself up the global pecking order of
smartphones where the downslide of Nokia and RIM has left a vacuum. Though it accounts for less than 10 percent of our
revenue today, in three years we want our international revenue to be equal to our India revenueor $2 billion each, says
Sharma. As with most Micromax senior executives, the line between confidence and bombast is blurred.
The Smartphone Rider
When Micromax crashed into the mobile phone market in India with its low-cost feature phones which had innovative
attributes like dual-SIM and large batteries, it was dismissed as a one-trick pony. The arguments: They had no R&D; they
merely sold phones offered by contracted Chinese phone-makers in Shenzhen; they were only about cheaper prices.

Perhaps the biggest contention was that as dumb feature phones gave way to advanced smartphones, the likes of
Micromax wouldnt stand a chance. And yet, the company has not only made the transition, it has improved its ranking in
the process.

Meanwhile, with only around 18 percent of Indian phone users using a smartphone, the upside of the shift in preference is
still massive. In June, India pipped Japan to become the third largest smartphone market in the world after China and the
US. By next year, it is likely to be the second largest.

The rise of Googles free Android OS was easily the biggest factor that aided Micromaxs rise. In the pre-Android era,
phones were compared and bought based on their hardware and software features. But Android almost completely took
software differentiation off the table as both, a Rs 10,000 smartphone and a Rs 45,000 smartphone, carry nearly the same
operating system (OS) features.



When a Samsung invests billions of dollars in R&D, it has to recoup that money. So while it comes up with its [custom-
designed] Exynos processors, Micromax simply goes and buys Mediatek or Snapdragon processors. Buying what is
available in the market is always cheaper than custom-building it, says Katyayan Gupta, a technology analyst with
Forrester Research.

Adds Ajay Sharma, the head of Micromaxs smartphone business who formerly led HTC India: If I can make a
smartphone that has everything that a competitor offers at double the price, why will consumers not choose it? Our Canvas
4 smartphone costs Rs 18,000, not Rs 45,000.

This means that Micromax is riding on the slipstream of cutting-edge R&D being done by moneyed players such as
Samsung and Nokia; it is choosing to buy technology that is one generation oldand remember, a generation in the
smartphone space is often measured in just a few months.

The anxiety for larger companies is that if they build a new categorylike, say, a tablet or smart watchit gets
commoditised in three years after it has, maybe, spent four to five years to design and develop it, says Dediu. If the
market life of your product is shorter than its development life, then you have a problem. This is why Apple was so worried
when Android copied its user experience early onit happened so fast, before they had a pipeline of new [product] ideas.

While Nokia, RIM and Samsung are caught in the damned if you do, damned if you dont dilemma, Micromax continues
to claw at their marketshare by offering good enough options for a fraction of the price charged by the premium
products. Neither can Micromax afford to play the billion-dollar R&D game like its bigger competitors, nor does it feel the
need to follow the terms set by others.

How long can this continue?

Dediu believes that when a technology product reaches commodity status, functionality becomes less important as it
cannot be dramatically different across products. That is when marketing must change the message to other attributes like
convenience, price or style.

Yet, it is not impossible to differentiate your brand even within a commoditised space like smartphones.

Apples approach has been to disrupt the market through technology, and once commoditisation sets in, to preserve a
premium segment for itself. They did it with PCs and now they are doing it with smartphones, points out Dediu. There is
a reason why they recently hired the Burberry CEOclothing is the most commoditised category in the world, but even
there you can still capture value at the premium end. Everyone doesnt wear $3 T-shirts and even the Chinese, who make
those T-shirts, aspire for European brands.

The rationale for Micromaxs ballooning marketing and advertising spend is readily apparent now. Since features and
hardware specs cease to be differentiators, it needs to build a brand that can compete with a Samsung, one that consumers
can aspire to.

Even folks in Faridabad and Gorakhpur will know Hugh Jackman. Eventually they will think of us as a high-end brand.
We want to be a Zara or a Mango; not a Peter England, but not a Gucci or Prada either, says Rahul Sharma.
.

Micromaxs biggest weakness so far has been the perception that its phones arent very reliable, and getting one serviced is
a pain. Micromax phones are not bad in terms of quality. Even Samsung and Nokia phones have issues, but the
companies are able to resolve them quickly. On the other hand, Micromax has had challenges in responsiveness because
they didnt have enough service centres, says Babu.

To address this, the company is nearly tripling the number of its partner-managed service centres from 436 last year to
1,250 by March 2014 (currently they are at 745), says Bharat Malik, Micromaxs service head (who was hired from Nokia).
Across these centres, Maliks team of 200 claims to oversee 6,50,000 customer walk-ins every month.

It wants to reduce the turnaround time to less than seven days from the current 15. To do that we are transitioning to
holding spare part inventory instead of the earlier Just-In-Time ordering system, says Malik. A new CRM system will go
live before the end of the year.

Service is one area where we need lots of improvement, says Sharma. Senior executives have been reading case studies
about companies with impeccable service offerings, such as Dominos Pizza for instance, he adds. Like Dominos 45-
minute delivery guarantee, can we move towards, say, a 48-hour repair guarantee? We are piloting a home pick-up and
drop of our phones in Mumbai and Delhi. We would like to roll this out in a bigger way in six months, he says.

On the retail front, it is trying to formulate a bottom-up, direct-to-retailer approach supported by brand advertising
instead of trying to emulate the strong channel relationships nurtured by the deep-pocketed Nokia and Samsung.

Through its Elite Circle channel promotion initiative, it tracks the sales of its phones directly from retailers on a daily
basis (through a proprietary SMS-based app) instead of waiting up to weeks for that data to flow in via multiple
distributors levels. Depending on how they fare against the sales targets, incentives get wire-transferred directly to
retailers.

Then, of course, there is the product portfolio.



Everyone has to act like a CEO of their own domain and take quick decisions. Our culture is to be quick and nimble. Thus,
a wrong decision is often better than no decision at all, he says.



Running Android on lower-end phones appears to be a strategic priority for Google, given its work on the latest Kit Kat
version to ensure it can run smoothly on phones with just 512 MB of RAM. For 2014, our goal is [to figure out], how do
we reach the next billion people? Android head Sundar Pichai said at a company event on October 31 in San Francisco.

Micromax seems to be seeing an opportunity and executing its strategy well. I see local players like them having the
potential to disrupt Samsung. The problem for Samsung is that they need to constantly reinvent what they do. Take Nokia,
for instancefrom gaming and media phones to music and email as a service, it had strategic ideas for well over a decade,
and in all directions, says Dediu. Plus they had their own platform [unlike Samsung, which relies mostly on Android].
Very few companies historically have had the ability to self-disrupt and cannibalise their own business. Does Samsung
have what it takes when Nokia, HP and Sony didnt?

Chefs and Cooks

Most of its homegrown peers are primarily and, in some cases, entirely, founder-led. Micromax, on the other hand, has
used its scale and success as a trigger to induct senior industry leaders into executive positions in the company.

Deepak Mehrotra, an ex-Airtel executive, had been playing the role of CEO for the last two years. (While Forbes India was
still reporting on this story, Micromax informed us that Mehrotra had quit for personal reasons. It would later turn out
that he had joined global education services company Pearson as its India head.)

Ajay Sharma, the former head of HTC India, heads the smartphone business. Amit Mathur, the former head of sales at
RIM India, leads the international business. Bharat Malik took over the service vertical after joining them from Nokia.
Sony Ericsson executive Khaja Muzaffarullah came on board as the driver of the still significant feature phone business
while former entrepreneur Shubhodip Pal became the chief marketing officer.

Meanwhile, the founders have taken on more strategic roles in the company. Sharma is clearly the one making the biggest
bets. He says he decided to appoint Hollywood bigwig Jackman as brand ambassador even though a company dipstick
revealed that nearly eight out of 10 customers had not heard of him.

The standard approach would have been to pick someone who is popular among 80 percent of the customers. But I said
we need to influence the 20 percent who really matterthe opinion makers and influencers, he says.

Earlier this year, he also enrolled at Harvard Business School (HBS) for its owner/president management programme
which trains business owners and entrepreneurs over a three-year period to become better leaders. The trigger, he says,
was when the HBS academics had visited Micromax to compile a case study on it. As they asked us questions for the case
study, I had my own questions for them, including whether we should go global or continue expanding in India, he says.

Unfortunately, a week into the programme, he had to rush back after one of the co-founders, Rajesh Agarwal, was arrested
by the CBI for allegedly bribing officials for a real-estate transaction.

Agarwal has since resigned from the company.

From India, With Love
The walls of Amit Mathurs cabin at Micromaxs Gurgaon headquarters are plastered with maps and posters. Among them
are maps of Bangladesh and Sri Lanka, peppered with red, black and blue dots and stars, each representing a retail or
service presence. There is a smaller one of Moscow too. There are Sinhala (an ethnic Sri Lankan group with its own
language) posters as well, for two of its entry-level phones.

Mathur himself is in Sri Lanka, busy consolidating the
companys position. During a telephone conversation, he says:
In Bangladesh, Nepal and Sri Lanka, we are the number two
player; six to eight months ago, we werent even in the top five.

This is Micromaxs second attempt at going international. Its
first forays, two years back, ended mostly in failure when
consumers in Latin America, Africa and the Middle East didnt
quite take a fancy to its feature phones.
Feature phones often require customisation, which becomes a
hassle when they are being sold across multiple countries. We
were prudent enough to pull back and consolidate, says
Mathur. When I joined in January, we decided our gameplan
would be to strengthen our presence within the SAARC
countries. We could leverage our existing advertising because
most [television] media plays there too.

And its Bolt line of entry-level Android smartphones can be
targeted at newer markets far more efficiently than feature
phones. Android has removed customisation as a hurdle for
us, says Mathur.
Next up are Myanmar, Russia, Romania and Ukraine. Like
India, these markets too have low smartphone penetration and
are gradually shifting towards retail sales (as compared to the
operator-subsidised model in many western European countries
and the US). Micromax is assuming that as consumers are
forced to pay retail prices for their phones, they will tend to
place less of a premium on brand and more on value.

In Russia and its neighbouring countries, the biggest challenge,
often, is the language. Not in terms of phone customisation, but
as far as communications is concerned. Nokia used to have a
good presence but that is reducing so that is a plus, says
Mathur. But Samsung is trying to take over its share, so you
have to fight them. In some cases, there are strong Indian
brands like Fly too.

Dediu points out that there is nothing wrong with an Indian
company aspiring to become a global brand. After all, we have
seen companies from Japan and Korea do it earlier and, later,
China. The emergence of Asian brands is the big cultural
phenomenon of this century.

Only the Paranoid Survive
Till this point, Micromaxs strategy has been to spot significant
market opportunities left untapped by bigger competitors, for
instance, the dual-SIM market by Nokia or the 5-inch phablet
space by Samsung.

But those gaps are getting harder to find. Cheaper prices alone
will not be sustainable because other players are launching
inexpensive devices. Do you think Microsoft [which now owns
Nokia] will not aggressively price Lumia devices below Rs
10,000? says Forresters Gupta.

There is also the blind spot that comes from being a marketing-
driven innovator, when your customers cannot tell you what
they want because they cannot imagine what they want. How
will Micromax spot the next generation of technology that may
be portable or wearable? Maybe instead of a larger screen there
will be no screen at all. How will they compete? says Dediu.
Given the pace of innovation and competition in the smartphone
space, his questions ought to worry Micromax.

By way of answer, Sharma talks about two of his yet-unreleased
potential blockbusters, neither of which is a remainder of a


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