Invasion of price warriors!

The Chinese gentlemen sit patiently in the lobby. Beyond the lobby, the office—in a blind alley in Gurgaon's Udyog Vihar—looks like that of a small company, hardly one that can give nightmares to Nokia, the largest multinational in India. But we have come to Micromax Technologies, which claims to have sold one million handsets in March 2010 alone! (Nokia sold around 50 million in India in 2009.)

Next stop: Karbonn. This handset brand claims to have sold 6,00,000 units. Not great, in a market estimated at 10-11 million handsets a month. But Micromax and Karbonn are among the 28-odd new players who now account for 20 per cent of the market. And Rahul Sharma, Executive Director of Micromax, doesn't bat an eyelid as he says: "For the past two months, we have been neck-and-neck with Samsung for the #2 slot."

MICROMAX MODELS: 25 PRICE RANGE Rs 1,500-13,000 SALES: 10,00,000 units/month MARKET SHARE: 10% FEATURES: Low-priced QWERTY keyboards, mobiles with remote-controls, mobiles with motionsensitive gaming. Figures for March 2010 as claimed by the company

According to technology consultancy IDC, Indian mobile handset sales in 2009 were at 100 million—same as in 2008. Naveen Mishra, IDC's Lead Analyst for Telecom, attributes this to the proliferation of handsets with two SIM card slots (dual-SIM), and 28 "new vendors" shared 12.3 per cent of the market. In the last quarter of 2009, these vendors, including Micromax, Karbonn, Lava and Olive, shared 17.5 per cent.

Features, Price—Then Brand
Back to the Chinese gentlemen in Micromax's lobby. Rivals and telecom watchers warn that scores of distributors and traders are taking advantage of China's low-cost manufacturing (aided by the yuan-rupee exchange rate) to import handsets in bulk complete with their logo. A senior executive at a multinational brand sneers that most of them are Johnny-come-latelys who are using borrowed money to build marketshare.

Micromax says it will close fiscal 2009-2010 with revenues of over Rs 1,500 crore. Karbonn expects revenues of over Rs 600 crore, and has spent over Rs 100 crore on marketing. Both say they are making profits. Karbonn has just forked out Rs 37 crore to the Indian Premier League (IPL) to become its 'Official Partner Phone', apart from subjecting viewers to 'Karbonn Kamaal Katch', which has raised its profile sharply.

Sharma founded Micromax in 1999 with three friends to design websites and offer technology solutions. After the dotcom bust, it moved into hardware, first to make microcontrollers and then fixed-wireless phones under its own brand and later for Airtel. Why mobile handsets? While driving through Behrampore in West Bengal in late 2006 on a business trip, he saw a roadside stall offering public calls on a mobile. "The problem was that my mobile could not pick up any signal ... but the shopkeeper was using an external antenna to catch a signal," he says.

KARBONN MODELS: 20 PRICE RANGE Rs 1,500-6,000 SALES: 6,00,000 units/month MARKET SHARE: 6% FEATURES: Long battery life, QWERTY keyboards, launching low-priced touch devices. Figures for March 2010 as claimed by the company

A few weeks later, in rural Bihar he saw a shop offering 'mobile recharging' for Rs 25. "The village had no electricity and the shopkeeper uses a truck battery to recharge handsets…. Every night, he or his sons used to cycle 11km to a town to recharge the battery!" he recalls. Sharma saw that mobile devices must meet two small needs—good signal connectivity and battery life.

He told his partners that they should explore the space. But they agonised over the decision for nearly nine months. After all, they were doing well in fixed wireless handsets and had hardly any competition.

"We did not know if we could take on multinationals. I'll be honest. Who were we? We had no brand, we had a distribution structure and we knew what the market wanted but even multinationals— Siemens, Haier, TCL, BenQ— had failed. We honestly did not know if we would succeed," he says.

Finally, Micromax brought in 10,000 handsets and sent them to its distributors. "I think they took the first set of devices as goodwill," he says. The devices were affordable and promised astounding battery life. Even so, with little brand recognition, Sharma did not expect the earth, but very soon their distributors started asking for more. Today, Micromax has over 25 handset models, Bollywood star Akshay Kumar as brand ambassador and sales of over a million units a month. (Sales have doubled in the past year.)

Over at Karbonn Mobile's office in New Delhi's Okhla Industrial Area, on a potholed road, Sashin Devsare, Executive Director, narrates a similar story. "We saw that multinationals did not meet all the needs of the Indian consumer," says Devsare, a veteran of several multinationals brought in by Karbonn's promoters Delhi-based Jaina Distributors and Bangalore-based UTL Technologies when it was formed in 1999.

Karbonn's bet: As mobile services penetrated deeper, affordability would matter more and brands less. (That also explains the name Karbonn: the promoters chose the word Carbon, because a diamond is carbon, but it was already registered. The closest option was Karbonn.)

As if to prove his theory, Devsare launched Karbonn in small district towns before coming to larger cities and then the metros. "We came to Delhi and Mumbai five months after we launched in the small towns," says Devsare. It was Shahjahanpur first, Lucknow second and Delhi third.

"We went out into the market and saw the proliferation of unregistered Chinese handsets with memory cards," he recalls. But the government was about to ban unregistered Chinese mobiles, and Karbonn saw the gap, telling its suppliers in China to make handsets with such secure digital (SD) memory cards.

OLIVE PRICE RANGE Rs 1,500 - 5,000 MODELS: 9 UNIT SALES: N.A. FEATURES: Mobile with AAA battery support, triple-SIM devices, low-priced touch and QWERTY devices.

Karbonn's package: Value at an affordable price. "Good cameras, music and video players at the right price," says Devsare. This strategy, backed by the IPL deal and cricket stars Virender Sehwag and Gautam Gambhir, has boosted the brand.

Micromax and Karbonn are two of the bigger brands now. Pankaj Mahindroo, President of the Indian Cellular Association, a body of mobile marketers, says there could be over a 100 Indian brands, including some present in just a couple of states. "I believe all these brands currently account for at least 20 per cent of sales," Mahindroo says.

Take Olive Telecom, once a distributor of Haier CDMA handsets to telecom service providers. Olive's Chairman Arun Khanna saw an opportunity in developing his own brand instead of selling foreign ones. "We think we can innovate better," he says. Khanna shows off Olive's first model (it has a dozen-odd in the market now): it has a slot for a standard AAA battery for backup! "Sometimes a person runs out of charge with no way to recharge," he explains.

At Lava Mobiles, founder S.N. Rai, a former LG Electronics executive, says, "Not only was there a market opportunity, but a demand for features. The multinationals were seeding the market with the wrong products."

The Crowd Gets Stifling
But it's not smooth sailing for upstarts like Micromax or Lava, what with household names in consumer electronics like Onida and Videocon joining the battle. Says Rahul Goel, Chief Operating Officer of Videocon Mobiles, "The Indian market is polarised between multinationals and the Indian suppliers. There was a need for an established, known and trusted Indian brand."

Videocon has launched 21 models in under six months, including devices running Windows Mobile 6.5, and expects to be among the Top 3 by 2011. "We are a brand with a few decades of legacy behind it, so we are leveraging our brand equity to bring a great value proposition," says Goel. Micromax's Sharma isn't scared of history. "True innovation comes when you give products that people want. We do proper market research," he says. "Just because a brand has done well in other products does not guarantee success here."

LAVA UNIT SALES: N.A. PRICE RANGE Rs 1,500 - 6,000 MODELS: 9 FEATURES: Multi-megapixel camera support, 'Good-looking' devices.

Last year, he says, Micromax figured there was a demand for QWERTY keyboards, not for email but for young people to chat. "Nobody had thought of that. Similarly, we also saw a huge youth market that wants Facebook applications out of the box," Sharma says.

What about the dependence on Chinese factories? Devsare counters: "Why shouldn't we take advantage of costs? Yes, we might manufacture devices soon, but if consumers get cheap devices there is no harm." Sharma adds, "Apple does the same thing with the iPhone. Besides, we also develop and design our devices in India."

Some, like Devsare, give their designs and specifications to original design manufacturers, or ODMs, in China, which come back with prototypes, incorporate changes if required, and are back with the first lot for the market in a few months. Two such suppliers feeding Indian brands are CK Telecom and Longcheer Telecom.

The Singapore-listed Longcheer, commenting on its results for the quarter ended December 2009, says, "Geographically, the Group saw an encouraging 67 per cent jump in revenue derived outside China, particularly from India." Longcheer's international revenues for quarter added up to 350 million yuan (Rs 227 crore). But others could be buying from wholesale electronics markets and not established ODMs. "In China, there are grades of manufacturing… Some Indian brands pick up low-quality devices," says Devsare.

No Upgrades
Mishra of IDC believes the biggest problems lie not in brand-building or in distribution but in how the brands develop. "They have limited intellectual property, no operating systems, with little work on user interfaces," he says. So while these brands win the price and features war, they will lose out at the top of the market, he says.

Devsare is not losing his top over this. "Almost 92 per cent of the market lies between Rs 2,000 and Rs 6,000, and that is where we want to play." But evolve they must, both Devsare and Sharma admit. The answer could be in smart-phone operating systems such as Google's Android and Microsoft's planned Windows Phone 7. Most of the new brands Business Today spoke to claim they could design such user interfaces and innovate in design. But then, none of them has more than 500 employees in total — fewer than Nokia's global design and interface team!

Right now, the next battlefield will be 3G telephony, since few local brands have smartphones in their portfolio to take advantage of the data services that will sprout. At the lower end, prices—and brands—will continue to fall.

But the Micromaxes, Karbonns, Lavas and Olives have transformed the handset market over the past year in unexpected ways, and who knows what lies ahead?