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Smartphone onslaught by Chinese brands

Recent months saw the preemptive publicity blitz of Chinese smart phone leaders, notably Oppo and Vivo. the IPL and ICC tournaments provided great opportunities and these were avidly grabbed by these. Indian mobile phone makers are impacted severely by the rapidly increasing market share of Chinese players in the Indian mobile phone market.

There is a complete change in the market position of the top five Smartphone players in FY17, as Indian brands such as Micromax, Lava and Karbonn Mobiles were replaced by Xiaomi, Vivo and Oppo. While Samsung remained the market leader with 28 per cent share in Q1 of 2017 (25 per cent in the year ago quarter), the share of Indian vendors reduced to a mere 14 per cent (40 per cent). Lenovo also sustained its position due to the established brands and products in the diversified price segments. Oppo and Vivo have recorded sales increases of 7-9 times over FY17 respectively, according to India Ratings’ analysis.

Chinese Smartphone makers enjoy a debt-light capital structure and healthy liquidity due to the long payable period extended by their suppliers. Better technological capabilities of the Chinese players leading to superior product offerings have also contributed to their success.

Furthermore, large investments by Chinese players towards brand building and manufacturing facilities in India depict their long term strategic intent. Thus, Indian players’ recent investments into mobile phone assembly lines will face an elevated stabilisation risk, while advertising spends and fierce price competition will directly hit the operating margins.

Indian Smartphone makers have been slow in reacting to ongoing product innovation in the market and are further constrained by limited marketing budgets.

Reliance Jio’s free data and voice services during 2HFY17 pushed up the 4G Smartphone demand, despite headwinds of slowing feature-phone-to-smart phone migration rates and liquidity shock due to demonetisation.

The incumbent telecom services providers are also offering differentiated data offerings for 4G Smartphone users, hence pushing a higher Smartphone replacement demand (to 4G from 3G) as well as a faster migration rate from feature phones to smart phones. This big opportunity saw aggressive marketing and competitive pricing strategies from Chinese vendors primarily in the budget to mid-price segment leading to market share gains.

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