Micromax has been a great success story so far
The mobile handset brand Micromax has had an impressive growth story. In a matter of 8 years it moved up from being listed in the bottom-five mobile phone companies in India by market share to becoming India’s second-largest mobile phone firm by market share in 2014.
Its revenues saw an exponential rise over that 8 year period.
In early 2015, Micromax overthrew Samsung to become the number one smartphone company in India, with a market share of 22% compared to 20% of Samsung.
Some of the moves that worked for Micromax were: getting the price-value equation right, paying big bucks for cricket sponsorship, launching up to 50 phones a year, having an impressive distribution reach (~1.5 lac retail outlets in more than 600 districts across India).
This India Today article captures 7 reasons why Micromax has beaten Samsung in India to reach top position.
But, now the company seems to be struggling
In the final quarter of 2015, Micromax’s shipments fell by 12.1 percent, against growth of 15.4 percent for the sector, according to industry tracker IDC. Micromax’s share of the smartphone market fell to 13 percent in the fourth quarter from 22 percent at its peak in 2014, according to IDC.
Chinese brands, on the other hand, have doubled their market share to 18 percent, according to Counterpoint Research.
In fact, the same Chinese manufacturers that Indian brands such as Micromax outsourced production to, those same Chinese factories are now entering the Indian market with their own brands.
What the Indian brands did to the global brands two years ago, Chinese phone makers are doing the same to Indian brands now, and over the next year we see tremendous competition for Micromax and other Indian smartphone makers
[Tarun Pathak, analyst at Counterpoint Research in New Delhi]
A very big reason Chinese players are able to succeed in India is that now sales and distribution can be done by partnering with Indian e-commerce players.
This becomes a very important success factor for the Chinese players, because today online sales account for 30-40% of the total mobile phone sales in India. See this Business Today article for more information.
Micromax is hoping that when e-commerce discounts go down the channel will become less powerful
“In 2016, e-commerce might flatten out, as these platforms will cut back their cash burns. However, the reach will expand to newer towns and consumer segments and will be a key driver of technology adoption,”
CEO Vineet Taneja (he has now quite the company).
But I think this is delusional thinking.
E-commerce companies may stop discounts. A few of them may die as well. See my blog post: End-Game For Indian e-Commerce.
But, as a sales and distribution channel e-commerce will always remain a powerful channel.
This is because the online business model is fundamentally a very value-creating one. The key issue with e-commerce in India is competition, not the usefulness of the business model itself. SO, as consolidation happens, the remaining player(s) will end up still having a lot of retailing power!
The way out for Micromax is to have a Strategy
Technology is a Strategy-killer!
Technological innovations expand the pie, and create tremendous value.
In such scenarios Strategy is not strictly required — because the market is in an excess-demand situation, and the companies are rushing-in to cater to the demand.
Strategy is most needed when the market is in an excess-supply situation. In such a case, there are now several players in the market who are competing for the increased pie.
In mobile phone business, competition has increased a lot in India.
Micromax faces competition from 4 different types of players: Chinese players, Indian players, International diversified players such as Samsung, International premium player such as Apple.
A good strategy can help Micromax find a defensible position in the market.
My Strategy guru is Michael Porter. According to him, there are 3 generic strategies (or strategic positions) a company can choose from:
- Being a Low-Cost player
- Being a Differentiated player
- Being a Niche player
Apple is a great example of a simple and integrated strategy.
Apple’s strategy is: Differentiation. Its strategic position is that of being a premium product. Read more here.
Having a strategy is not enough. The strategy needs to also be integrated in all of your value chain choices (e.g. how to produce, how to market, how to price, how to sell and distribute, how to service, etc.) reflects this strategy.
It is due to Apple’s integrated strategy that it was able to cornered 92% of the profits in the industry, while shipping just 18% of smartphones in Q1 2015!
Strategy is something guys!
The trouble with Micromax is that it does not have a clear and integrated Strategy as of now
Micromax seems to be closest to a low-cost player. Right?
But, then how come it has so many models? In 2015 alone, it launched more than 40 new models!
The more models you have the higher go your costs — due to supply chain complexity, due to inventory problems, due to marketing expenses for different models.
It seems that some investors too are able to sense that Micromax lacks a growth strategy:
Last year (May 2015) Alibaba walked away from a mooted $1.2 billion purchase of a 20 percent stake, citing a lack of clarity on (Micromax’s) growth plans.
The only generic strategy that makes sense for Micromax is: Being a Niche player
Micromax will certainly not be able to sustain as a low-cost player against the Chinese players.
Micromax will also not be able to succeed as a differentiated brand against big international brands such as Apple and Samsung.
So, there are only 2 options left: either become a Niche player, or do not choose any of the 3 positions (which Porter calls as being ‘stuck in the middle’).
Today, Micromax is clearly stuck in the middle, as we have argued above.
Sticking to this option will not help in coming years. Chinese players (and also Samsung) will eat away share from the lower-end of the market, Apple and Samsung will not let it dominate the upper-end of the market. And even the middle-market customers will not go for Micromax, if they can easily get similar phones from Chinese players.
The only option is to find a suitable niche where the company can leverage its existing strengths.
Here is one such sample niche: Tier-II and Tier-III cities where online penetration is not that high.
Note: Please bear in mind that strategy building takes lot of analysis and time. An outside-in approach can only yield an initial hypothesis. So what follows should be considered only as a week-1 answer, which will be refined as the events unfold. I will keep this post live, and will keep on adding to it as we get more information! Keep checking in if this topic interests you!
Top 5 cities make up for around 60% of the online smartphone sales in India.
So, e-commerce does not seem to have that much penetration in Tier-II and Tier-III cities.
This is good news for Micromax. Because it has a unique strength in these cities: Distribution!
Micromax can target to be a niche player in these cities, leveraging the power of its physical distribution network. It can selectively deploy its funds in these cities and strengthen its footprint. It can selectively launch a few models appealing to the demographics of these cities. If it keeps on launching so many new models, it will end up unfocused.
This is my outside-in view on Micromax. Rest time will tell!0