micromax mobile advantage

8/8/2019 Micromax Mobile Advantage

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Micromax Mobile AdvantageIn two years, Micromax made its mark in the Indian mobile handset market dominated by Nokia.Now its ready to take on the leaderby RohinDharmakumar| Feb 27, 2010

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Image: Madhu Kapparat for Forbes India

AIMING HIGH: Micromax founders Rajesh Agarwal, Sumeet Arora, Rahul Sharma and VikasJain started making mobile phones in 2008

F our years after it was first recommended, mobile number portability still remains a paperconcept. Yet for over nine months, Saurabh Raina, a 43-year-old employee with a switchgearmanufacturer from Bhopal, is choosing the best monthly plans on offer across six different GSMoperators while he can be reached on the same number he has had for over seven years.

The key lies inside his mobile phone a full-keyboard (QWERTY) model called the Q3 thatsupports two active GSM SIM cards at the same time. One of these he keeps constant as hisincoming number to receive calls, while the other, he changes at will depending on whichoperator offers him the best tariffs.

This dual-SIM feature is today present in 20 to 30 percent of all mobile handsets sold inIndia, estimate experts. Yet market leader Nokia does not have a single dual-SIM handset in itsvast repertoire of phone models for India. And the company that made Rainas Q3 MicromaxMobiles offers this feature on 22 out of the 26 phone models it sells in India. The Q3 itself,though fancy looking, costs only Rs. 3,700.

Micromax is now Indias third-largest GSM mobile phone vendor with a market share of 6percent after Nokia (62 percent) and Samsung (8 percent), according to research firm IDC. Itsells anywhere from 700,000 to one million mobile phones every month. And by its ownestimates it is now selling nearly Rs.1,500 crore worth of phones annually.

We are not the poor cousins of Nokia, says Vikas Jain, one of the four friends who together

started and grew Micromax to its present position. Instead we will force Nokia to launch newerproducts to compete with us.

The guys at Micromax have two aces up their sleeve a keen eye for what the customer needs,and the ability to swing their supply chain.

Though the company started making mobile phones only in 2008, it was founded in 1991 byRajesh Agarwal as a distributor of computer hardware for brands like Dell, HP and Sony. In1999 three of his friends Sumeet Arora, Rahul Sharma and Vikas Jain joined him as equalpartners in the company.Agarwal, the eldest of the four, keeps a handle on the companys finances. The quieter Arora, a

class topper, is the companys chief technology officer. Jain manages Micromaxs alliancesand partnerships with other companies. And the tall and fashionable Sharma is the risk taker withthe big ideas.

It was Sharma who convinced the others, after nine years of selling computers, software coursesand fixed wireless public phones (PCOs), to enter the crowded mobile phone market. Thecompanys first phone, the X1i, was born from the realisation that many Indian villages andtowns didnt get enough electricity to even recharge a phone daily.


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Catering to a NeedBy increasing the size of the battery to 1800 mAh, Micromax was able to tout a standby time of30 days for the X1i. And at the rather affordable price of Rs. 2,150, the phone was a big successin rural India.

The unexpected success of Micromaxs first mobile phone taught the four friends two keylessons. One, If you give people something that helps them in their day to day lives, they willbuy it, says Sharma. Two, even though there were over 50 companies selling mobile phones inIndia, with Nokia alone dominating over 60 percent of the market, there were features, nichesand categories that could be carved out by a new entrant.

We knew that competing on price along with Nokia, Samsung or LG would not get usanywhere. Instead we wanted to create, and own, categories, says Agarwal.

The friends realised that intense competition among mobile operators for subscribers wouldinevitably lead to multiple connections per user. But carrying two phones around in your pocketswasnt something most people fancied.

Micromax Mobile AdvantageIn two years, Micromax made its mark in the Indian mobile handset market dominated by Nokia.Now its ready to take on the leaderby RohinDharmakumar| Feb 27, 2010

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The seemingly obvious solution handsets that accept two SIM cards simultaneously became Micromaxs second killer category.

Micromax neither had the brand awareness of a Nokia that would lead to customers asking for itsphones from retailers, nor the clout to force massive volumes through distributors. Yet it alsosaw that commissions given by phone manufacturers to their channel partners were often verylow, leading to a lot of dissatisfaction. This is what they decided to capitalise on. Nokia usually
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gives a channel margin of 2 percent, of which 1 percent is usually given away as discounts. Theremaining 1 percent cannot sustain any business, says Agarwal. Nokia could not respond toForbes Indias queries for this story within the stipulated deadline.

So Micromax decided to give a 5 percent commission to each of its distribution chain partners the 34 super-distributors, the 450 distributors and the 55,000 retailers. But there was a catch it would not offer any credit. Instead distributors are expected to complete an online banktransfer to Micromax before getting any of its phones to sell further on.

As a result we are not plagued with dead inventory, periodic schemes or issues aroundprice protection. The retailer only picks up what he sees demand for. And because their moneyis involved, partners tend to work harder, says Jain.

But having a lean, cash-based supply chain means Micromax has to be much more accurate andfaster in its forecasting as compared to its bigger competitors.

Naveen Wadhera, a director with the $16 billion private equity firm TA Associates, findsMicromaxs supply chain one of its real strengths. Their time-to-market from the design toproduction stage is around three months as compared to the 18 months taken by larger guys, hesays. TA Associates recently acquired an undisclosed stake (though less than 20 percent) inMicromax for $45 million, valuing it upwards of $225 million.Still there are more sceptics than believers in the company.

Disproving the Disbelievers

Its sceptics say Micromax rise has been fuelled to a large extent by the Indian governmentsdecision to bar illegally-imported Chinese phones that lacked an identifying IMEI number. Asconsumers rushed to replace their cheap Chinese phones, many opted for the relatively cheapMicromax ones.Others say without a strong consumer brand or control over its own distribution, it has nocompetitive advantage in the long term.

One way Micromax is responding is by committing to invest Rs.100 crore on marketing over thenext two years. It has also signed up Hindi movie star Akshay Kumar as its brand ambassador.There will be a new tagline Boring is out with advertising designed by ad agency Lowe.

And to the charge that Micromax is a maker of cheap phones, Jain replies, We are not evenpresent in the sub-$30 phone market, as our cheapest phone is Rs.1,400. That segment isdominated by Nokia with a market share of close to 80 percent.

But better responses can be found inside the buzzing Micromax office in Gurgaon. A 35-personresearch and development team churns out designs and prototype of new mobile phones someradically different, some only slightly so.

Theres a sleek and shiny white square studded with Swarovski crystals which slides open toreveal a QWERTY keypad. Another sports a small clip on the bottom which is really a wirelessBluetooth earpiece which can be unplugged and used. A third bills itself as a remote control foryour TV and DVD player, apart from its regular phone features.


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But the most exciting of the prototypes is one called the secret weapon. Slated for a highprofile launch during the upcoming IPL cricket tournament, it could define the next big categoryfor the upstart company.

An excited Sharma holds the new phone in his hand, before suddenly swinging it at the laptop infront. On screen a tennis player serves the ball to his opponent. It acts like a wireless, motion-sensing controller for computer games like tennis or golf, like the Nintendo Wii.

This phone can convert every PC and laptop from Hapur to Varanasi into a gaming device,especially for those who cant afford to spend Rs. 20,000 on the Wii. And even if he is not intogames, his kids will ask for his phone the moment he comes home in the evening, says Sharma

Micromax challenges Samsung, LG in mobilephone stakesRecent entrant surprises analysts; promoters say the firm will close the fiscal with sales ofRs1,500 cr

Mumbai: Indian mobile handset maker Micromax Informatics Ltd is challenging Samsung IndiaElectronics Pvt. Ltd and LG Electronics India Pvt. Ltd as one of the top three sellers of cellularphones in the country, overtaking rivals such as Motorola Inc. and Sony Ericsson MobileCommunications AB and prompting it to look overseas to expand sales.

The Gurgaon-based firm, which entered the business about two years ago, sold about 1 millionhandsets in January, up from 700,000 in December.

The surge would have vaulted the company up the rankings, said Vikas Jain, one of the fourfounders of the relatively little-known Micromax.

Market research firm IDCs numbers for the December quarter or January are not available yet,but according to our sales numbers its safe to assume that we are at the third spot, said Jain,who set up the company in 1990s along with three friends from engineering collegeRahulSharma, Rajesh Agarwal and Sumeet Kumar, all of whom are in their mid-30s to early 40s.

Game changer: A mobile phone shop inFaridabad. After capturing the rural market,Micromax is now focusing on the urban pie.

Citigroup Global Markets Inc. confirmed Jainsassertion in a 3 February report, in which analystsRahul Singh and Gaurav Malhotra said Micromaxhad a 10% market share, putting it at No. 3 behindNokia Oyj and Samsung, which had 12-13%. Theanalysts were prompted to write about the unlistedfirm after being surprised by the brands presenceacross rural markets, they said.


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The success of Micromax prompted US private equity group TA Associates to buy less than20% of the firm for around $45 million (Rs210 crore today) in December, valuing it above $225million and indicating confidence in its growth potential. Jain estimated that the firm will closethe fiscal with sales at around Rs1,500 crore.

Of the 100 million handsets sold in the year to June 2009, according to the latest IDC data, Nokia

was the market leader with a share of about 56%. Samsung and LG were at second and thirdrespectively, with 7.7% and 5.4%.

Indias mobile phone market has been dominated by overseas brands such as Nokia and the twoSouth Korean firms, making Micromax one of the first home-grown ventures to make a dent inthe handset market as well as the wider consumer electronics sector.

Micromax wants to move up a spot in the two months left in the fiscal. The No. 2 spot hasalways been a slippery one in India, Jain said. We have seen Sony Ericsson, Motorola, andnow Samsung, which is under threat.

The entry of new players is serving to fuel growth in the market, according to Samsung, whichwill depend on core strengths to defend its position.

As far as Samsung is concerned, we are relying on product innovation, superior product qualitybacked by the reassurance of Samsung service and an enhanced channel penetration to drive ourgrowth, Ranjit Yadav, director (mobile and IT) at Samsung India, said in an emailed note.

LGs spokesman was not available for comment.

Micromax, started operations in 1991 as an embedded software design firm, but wasincorporated as a company in 1998, when it branched out as a distributor of computer peripheralssuch as printers, monitors, scanners from manufacturers such as LG, Sony Inc., Dell Corp.

We hope to be present in at least one country each in Latin America, Middle East and Africabefore the end of the financial year, Jain said. The firm has identified Brazil, Nigeria and Dubaias target markets.

Micromax specialized in entry-level and mid-segment handsets priced between Rs1,800 andRs2,400 when it started selling the devices in 2008, confining itself to small towns and ruralareas in the first 12-18 months. Encouraged by its success, the firm expanded to larger cities andnow has a distribution network of 55,000 retailers, which it plans to scale up to 70,000 by theend of March as part of its strategy to raise sales to 1.5 million handsets a month.

Micromax is planning to expand its range in keeping with new market demands. It is readyingseveral high-end handsets, including phones that will run on Googles Android and MicrosoftsWindows Mobile operating systems. The handsets are expected to be available in April orMay, Jain said

Having gained traction, Micromax is also working on a strategy to create awareness in themetros, which includes tying up with MTV for co-branded phones.

Once you have established a good distributor network and sales are robust, the next logical stepis branding exercises to ensure consistent brand re-call among your target consumer base, saidRomal Shetty, executive director and head telecom practice at audit and consulting firm KPMGIndia.

Micromax has also tied up with a Bollywood celebrity who will be announced shortly as brandambassador, Jain said. Bollywood star Aamir Khan endorses Samsung phones.


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The Micromax phones are designed by the in-house research and development team, as is theembedded software. The on-board chips come from MediaTek Inc., Qualcomm Inc. and InfineonTechnologies AGthe last two also count Nokia as a client. Manufacturing is outsourced toabout 11 factories in Taiwan, South Korea and China.

Micromax has invested Rs100 crore to set up a plant in Baddi in Himachal Pradesh as it feels

outsourcing manufacturing completely leaves the door open for supply-side uncertainties.Production will be scaled up from an initial 50,000 per month.

If everything goes right, by the third phase in March 2011, the Baddi plant will be making about500,000 handsets, Jain said. If the plant isnt able to cope with the numbers, the fallback plan isto acquire a facility in South Korea, Taiwan or China, he added.

Nokia has a plant in Chennai, established in 2006 at a cost of around $150 million, from where italso exports.

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