MICROMAX

                  2008=#20
                         2010=#3
                              2012=#_?

Two years back, Micromax was a name heard by few and seen by fewer. Exhibiting a rare example of brilliant innovation combined with common sense, today it rules the world of advertising and has climbed to the number 3 spot in the domestic handset market. What next? by Surbhi Chawla
Of late, the Indian handset market has been flooded with a plethora of indigenous handset brands, which bear the stamp of companies that would have dumbfounded most acclaimed au faits as recently as a year ago. But these so criticised infantile firms have taught the masters of the mobile handset game (read: Nokia, Samsung, Motorola) how to ride the stalking-horse in the face of hell-raising competition. They have been successful in bringing to life the dormant aspirational values of many in the country, offering them “value for money” look-alikes of the best of handsets that the Indian Daddy Warbucks could afford. Their secret — they understand the psyche of the Indian consumer and deliver by “keeping it real fake”.

But as it occurs in many a fairy tale, there are the suitors, but there is just one real prince who walks away with all the glory and honour... and most importantly, wins the hand of the princess! In this race too, there appears to be one real prince for the moment – Micromax. And it is loud about not being a follower of the "keeping it real fake" cult. At present, Micromax offers 34 handsets in the Indian market. According to reports by tech-watchers at IDC, it is the third-largest handset vendor behind Nokia and Samsung. Some rise for a brand in the ghastly cluttered Indian handset market. So far so good. But will this north-bound express train gather greater momentum in the times to come? Some would debate, but considering the pace at which the industry has progressed in the recent past, Micromax may well be on its way to finding its name amongst the top two vendors in the country. According to IDC India, the number of handsets sold in the country touched 100.9 million units during the 12-month period ended June 30, 2009, registering a yoy growth of 6.7%. As the per capita income rises by the day, and as educational reforms make the common Indian more privileged, aspiration levels will rise, thus it will rise the demand for more handsets. In short – Micromax is in for a great ride along with other newbies.
But there is a sharp turn ahead. There’s no denying that Micromax has been the trend-setter in innovations and is well within the range of being considered a contender to grab the silver, but the very economic reason — a high forecast demand leading to natural rise in competition – that apparently guarantees a track-burning growth for the company, may burn its tyres. Says Deepak Kumar, AVP, Research, IDC India: "The number of emerging mobile handset vendors in the Indian market has grown to 26 in Q2 CY2009 and their contribution to overall shipments in terms of units, for the 12-month period ended June 2009, stood at 6.3%. This is in contrast to the count of only 11 emerging vendors, representing a share of 1.2% of overall shipments during the previous twelve-month period (July 2007–June 2008)." Says Vikas Jain, Business Director, Micromax Informatics: “I think our portfolio is nowhere close to being similar to that of any other manufacturer in the market; not even similar to any tier-III manufacturer, forget any tier-I competitor. We have always looked at introducing utility-based elements into the market through our devices and I think the customers are smart enough to understand it. This strategy is the secret to our success.” Adding to the drama, Vishal Sehgal, Co-founder and Director, Lava Mobiles, says: “In a short span of time, our company has captured 6% market share in terms of shipments and has grown so quickly due to the innovation that our products display." Taking innovation one step ahead, Lava recently launched the world's first ABCDE keyboard mobile device (this comes at a time when everyone is hopping onto the QWERTY bandwagon). This clearly gives Lava that "differentiation" edge. Innovation, competition and most importantly, clutter!

Evidently, the market is simply getting over-crowded, especially in the lower and mid-market segments. At the same time, an accelerated evolution of the market is at work, as the rising competition is forcing vendors to offer newer, richer features at attractive price points. Given the situation, the changes we see at Micromax – in order to nullify competitive challenges and retain its spot in the industry – are worth a notable case study and are taken hook, line and sinker out of Igor Ansoff’s product-market expansion strategy matrix. The first is pretty straightforward – trying to sell more products in current markets, through the adoption of a big-bang advertising strategy to drive the brand message through. Micromax has earmarked an advertising budget of Rs.100 crores for 2010. This is humungous by any standards (“We are going to continue to be associated with sports and Bollywood in a big way,” divulges Pratik Seal, Head (Marketing), Micromax, to B&E). The second is to apparently continue to grow in numbers by making the most of the untapped potential of rural India [while strengthening its presence in urban India through the latest product offerings like Q5 Facebook phone, Q7 and even a Windows-based phone, as revealed by company insiders].

The third strategy for long-term dominance adopted by the company is expansion into international markets. In fact, Micromax has already set up shops in Nepal, Sri Lanka and Bangladesh, and is looking forward to launch operations in the Middle-East in August 2010. As company officials say, Africa and Latin America will then follow. Strangely, funding is an issue that is not bothering Micromax at the moment. The company had received funding through the PE route in early 2010, when TA Associates had picked up a little less than 20% stake in Micromax. Naveen Wadhera, Director, TA Associates Advisory, tells B&E: “As a fast-growing, profitable company in a growth industry, Micromax ideally fitted TA’s investment profile. The company’s emergence as a leading mobile handset brand in only 18 months is remarkable. Ours is one of the largest technology investments in India over the past year, and we will provide additional support to ensure the company’s growth." With big ticket overseas organic plans, the funding will sure help.

It is noteworthy that prior to Micromax, Videocon was the only other Indian handset player, which had dared to take a shot at making it big in the international market by bidding for Motorola’s handset division. Though the deal did not materialise, Videocon proved its worth of being called an Indian MNC? Will Micromax too be able to say the same five years down the line?

Going by its track record, this company sure has taken the market by surprise and been a real trendsetter. But then, winning on foreign turf can prove a different ball game altogether. “We had promised to make Micromax a global brand and we will continue to deliver on our promises in the international markets,” avers Rahul Sharma, Executive Director, Micromax.

Amidst tough competition, one aspect that needs attention is how Micromax grew so fast in such a short time. It was not a cake walk. Many are aware that Micromax entered the handset market only two years back, but many don't know that it had already ventured into the distribution business six years before it even thought of betting big on handsets. They already had a B2B business in place, which gave them an automatic exposure to market truths and psychology of the consumers. This helped them understand what the market would desire in their handset. Also, during the time when the four founders – Rajesh Agarwal, Sumeet Arora, Rahul Sharma and Vikas Jain – got together to light the Micromax lamp, there were only five players in the domestic market – Nokia, Motorla, Sony Ericsson, LG and Samsung. "We realised that the mobile market was going to be big and only five players would not be able to address the wants of the entire market," says Sharma of Micromax. Company insiders explain how during one of the meetings, the management was trying to ascertain the mobile eco-system in India. It then realised the chasm — what the consumers wanted and what they were being delivered. For instance, demand for handsets was high in the interior of the country, but lack of electricity supply did not allow the market to accept the product. One of the promoters, during one of his trips to Bihar, learnt that there were areas, which received only 13 hours of electricity supply in an entire month and that people there used LED acid batteries to charge their phones. Agrees Anuj Kumar, Executive Director (South Asia) at Affle: “People in rural India had made a business model out of electricity shortage and would charge people Rs 10 or Rs.20 to charge their handsets.” With these insights, Micromax launched its first device – the X1i, which offered a 30 day battery backup.

At Micromax, the idea, though seemingly clichéd, is to fulfil the unfulfilled by harnessing already available technologies and a little common sense — the remote control mobile device is an example. There was a commercial technology available for manufacturing the universal remote control. Micromax simply used it and integrated into a mobile device. Developing an edge on the distribution front is also what the top honchos at Micromax worked on to succeed in India. The prime reason for this was to reach out to the non-connected rural and smaller locations, which were still untouched by rivals. The company also paid great attention to keep their channel partners pleased, up and running. With the system in place, it was not long when the company entered in the urban market through phones like the Q2, which marked Micromax's entry into the QWERTY category. With an attractive price tag of just Rs.4,000, it became a runaway hit (as at that time Nokia’s QWERTY range started at a price point of Rs.12,000). By changing the rules of the game, Micromax has indeed developed a short term sustainable competitive advantage.

Micromax posted revenues to the tune of Rs.1,600 crores and a net profit of Rs 150 crores in FY2009-10. It plans to increase the sales volume of its handsets from 1 million to 2 million by FY2010-11. It is also working out a plan to increase its distribution presence in the country from 70,000 retail outlets to 100,000 by the end of 2010. Micromax has also set up a manufacturing plant in Baddi in Himachal Pradesh, and is therefore, ready to answer any rule change by the government, which may make manufacturing (by handset vendors) compulsory in India. If innovation and speed-to-market were the only two criteria ruling the industry, one doesn’t need to look far of who has a high probability to takeover the lead in the near future.