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Back in 2005, the Finnish giant Nokia had a 70% share of mobile market in India and Indian mobile brands held below 1% between them. These dynamics have changed over the last five years; now there are some 143 mobile phone companies in India, 40 of them are foreign companies and 103 are domestic brands. Leaving aside multinationals like Nokia, Samsung and LG, the remaining 140 brands share something in common; all of them get their handsets imported from outside of India. Shanzhai dynamics are working overtime for mobile brands in India.
Nokia’s admirable share plunged from 70% to 54% in 2009 and dropped further to 36% in the second quarter of 2010. These stats, courtesy of research firm IDC India, give credit to the cheap phones from Indian and Chinese vendors for Nokia’s fall, “Indian and Chinese players have focused on the market for low-priced phones, which is the largest. About 40.4 percent of phone shipments in the second quarter were of phones priced at less than US$50 while another 48.6 percent were of phones priced in the $50 to $100 price range.”
According to the Research and Markets report, the Indian mobile device market had 100 million unit shipments in 2009 and is expected to grow by 10-12% in 2010. IDC agrees, “Shipments of mobile handsets in India were 38.6 million in the second quarter, up by 60 percent from the same quarter last year.” Nokia has not made enough effort with cheap, feature-rich phones. The share of Indian and Chinese brands meanwhile has risen from 17.5 percent last year to 33.2 percent in the second quarter of 2010.
Although Nokia is questioning the reliability of the IDC findings, Anshul Gupta from Gartner is in agreement, “The established global manufacturers are losing ground in India." He added, “The local guys are coming into the market great guns. They've got very affordable handsets with locally tailored offerings like marathon battery life to help with power problems that make them appealing."
The rise of local brands is attributed to many factors. It all started in June 2005 when there was a major reduction in import duties from 26% to 1%. That cleared the way for importing mass amounts of handsets into India from local players who didn’t have, and didn’t need, the capital backing of multinationals. It was further strengthened by the momentous growth of MediaTek chips, an essential building block for feature-rich phones at dirt-cheap prices, a widely recognized pre-condition to the rapid evolution of the shanzhai ecosystem.
MediaTek not only provided chips, but a complete hardware-design combo. The manufacturers just have to assemble their own designs by picking up features and hardware fitting their choice and budget. Mediatek took the exclusivity of hardware and designs away from the big shots of mobile industry and the smaller local players have set themselves apart, often leading the innovation in mobile technology.
The growth of India’s gray phone market was given another boost when the government of India directive banned sales of Chinese phones with invalid IMEI numbers. This paved the way for the licit import of shanzhai phones into India. The handset market that was previously limited to a few multinationals saw a massive entry of handsets manufactured in China and Taiwan, and sold in India under a legal Indian local handset brand. The rapid increase in mobile subscribers in India also boosted the imports, and so did the telecom operators’ tariff war.
With so many factors supporting local (but imported) mobile handsets, Nokia’s demise may not be that surprising, especially when you consider that they have not catered for the Indian market specifically. “India is a market for low-cost innovators with cellphones selling for an average of 52 dollars. Eight-five percent of devices on offer cost less than 100 dollars.” says Gartner. Nokia being an over-distributed brand offers only a 2% margin on sales to distributors and retailers, compared to 10 to 20% sales margin offered by local brands.
Indian has a vast demand for handsets and Chinese and Taiwanese manufacturers have a dedicated infrastructure, and easy availability of technology, with a huge base of skilled and cheap labor. The high production costs of mobile handsets in India compared to China further makes sourcing handsets a viable model for local brands. Ramesh Srinivas, executive director, KPMG lists some extra gains, “This arrangement leaves Indian companies with more traction to focus strongly on other key aspects of advertising, marketing and distribution and keep their products low cost for the consumers.” In this way the marriage of Indian mobile handset brands with the Shanzhai infrastructure, has thus far proven to be very successful for both sides.
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