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MicromaxMicromaxPhenomenon:Phenomenon:Propaganda orPropaganda orReality?Reality?

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The last few years have witnessed emergence of several newcompanies in the cellphone industry which witnessed aparadigm shift from feature phones to smartphones.Although it was Apple which triggered the smartphonerevolution, the landscape of the industry changed drasticallyonly after the advent of Android due to it being an openplatform embraced by several players. The industry hasbecome so volatile that major players who were caughtnapping (Motorola, Nokia, Blackberry) were being swept away.

(http://guruprasad.net/wp-content/uploads/2014/02/steve_iphone.jpg)

This way, Apple & Google (Android) have destroyed some wellestablished players and also become the reason foremergence of new players to fill the gaps. At the internationalscale, companies like Lenovo, Huawei, Dell, Blu which wereunheard of in the cellphone industry had become prominentplayers within months and in India, home grown brands likeMicromax, Karbonn, Lava, Intex, Celkon, Zen and manyothers are becoming a threat to established brands like Nokia& Sony.

(http://guruprasad.net/wp-content/uploads/2014/02/2013_marketshare.jpg)

Among the several Indian companies which rose toprominence, one company which stands out is Micromax.This case study is an attempt to understand how these newplayers have been able to quickly adapt to market conditions,offer products at lower costs, thereby giving even the bestbrands a run for their money. The reason Micromax is used

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as the primary example in this study is because it is easier tounderstand the phenomenon by focussing on a particularexample and hence the title Micromax Phenomenon. Thesame analysis holds good for other companies like Karbonn,Lava, Celkon, iBall, Intex & Zen as well.

(http://guruprasad.net/wp-content/uploads/2014/02/indian_brands_chart.jpg)

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This is a multi-part study which analyzes some of theimportant aspects of the business model, pricingconsiderations, marketing, branding, inventory managementand other factors which have helped these companies sustain& become phenomenal.

To begin, lets take up this popular, frequently askedquestion:How do companies like Micromax & Karbonn offersmartphones which are similar to Samsung & HTC but atless than half the price?

One of the most common answers we would get is They areChinese junk phones and thats the reason they are cheap. ByChinese junk phones, one is trying to say that they areunreliable, have poor battery, conky and so on. But Micromax& Karbonn have been in market for several years now and areamong the top 5 phone companies in India and their reviewsare also pretty decent (considering their price). Also, it is awell known fact that even companies like Apple & Nokiamanufacture and assemble their phones in China. So, justbecause something is manufactured in China need not meanit is bad.

Now that brings us back to the original question as to howthey are being offered at such low prices?

In order to understand the business model they follow, letslook at Sivakasi (Tamil Nadu) which is popular for itsfirecracker industry. As we know, there is a thriving cottageindustry in Sivakasi working throughout the year to producefirecrackers. It is an unorganized sector which involvesentities ranging from as small as a single person sitting in aroom and preparing only one type of firecracker of inferiorquality to something as big as a factory with hundreds ofworkers churning out several variants of firecrackers of veryhigh quality. Hence, this cottage industry can cater to all priceranges depending on the quality.

for-indian-independence/)

(http://guruprasad.net/wp-content/uploads/2014/02/crackers_industry.jpg)

These firecracker workers work for agencies which in turnconsolidates their products & represent them to the outsideworld. Anybody who wants to create his own brand offirecrackers can get in touch with these agencies to place abulk order and upon delivery, pack them into their ownbranded boxes to sell it in market, thereby making someprofit in the process. Reputed brands like Standard &Chavi go a step further by identifying agencies whichproduce only high quality firecrackers and also enter into along term relationship during which the agencies themselveswill package them under the Standard brand-name & finallydeliver it to Standard which in turn will do the marketing &sales. Since Standard company has contract with agenciesproducing high quality firecrackers, their offerings also tendto be of superior quality which increases trust factor amongcustomers and hence the company can sell their offerings ata premium.

Now, lets come back to the topic in hand. Just like how athriving cottage industry of firecrackers exists in Sivakasi,there exists a thriving cottage industry in China whichmanufactures phones of all qualities. There are tiny shedswhich employ as few as 10 workers who assemble cheapparts (off the shelf) into inferior quality phones and there arelarge factories which employ thousands of workers whosolder components and assemble high quality parts intosophisticated phones.

(http://guruprasad.net/wp-content/uploads/2014/02/foxconn.jpg)

Any entitiy (factory, organization or garage) which assemblesparts into a final product (like a phone or a computer) whichcan in turn be sold to another company (which markets it) iscalled an Original Equipment Manufacturer (OEM) (Just likethe agents in Sivakasi who consolidate and package all thefirecrackers from several workers spread across the town).

OEMs must not be confused with dedicated centers whichfollow different approach. Companies like Apple, Sony, Nokiadesign their phones in their R&D centres and assemble themin China but they have a different approach because they setup their own manufacturing centres (or contract it to reputedcentres like Foxconn) and the wokers in such centres arehighly specialized in their respective phone models. i.e Aworker who assembles iPhone will never work on any otherphone during his contract. Since that worker indirectly worksfor Apple, it becomes Apples moral responsibility to ensurethat he has good working conditions, stipulated minimumwages etc because they are under constant internationalmedia scrutiny.

(http://guruprasad.net/wp-content/uploads/2014/02/wired_foxconn.jpg)

But the same cannot be said of OEMs even if they producehigh quality products. Since the OEMs are basically localcompanies, they are not answerable to any international bodyor media and hence, they usually impose extra workinghours, extract tremendous labour & pay them less. Havingsaid that, there are OEMs which utilize their workforce wellbecause they work on high quality products which requirespecialization & sophistication which comes at a cost.

This way, China has several OEMs working on several phonemodels & churning out millions of devices. In order to strike achord with customers, these OEMs generally resort toreplicating appearance of an already successful device (likethe iPhone, Galaxy S or Note series) and sell them at very lowcosts.

(http://guruprasad.net/wp-content/uploads/2014/02/fake-iphone.jpg)

Most of these OEMs have an online presence via wholesaleretailers like Alibaba which caters to global market:http://www.alibaba.com/ (http://www.alibaba.com/)

Each OEM showcases the phone models it offers, along withpricing, minimum order quantity, its supply ability per monthand other details. Here is a screenshot from one of the OEMswhich has registered with Alibaba for global trade:

(http://guruprasad.net/wp-content/uploads/2014/02/alibaba.jpg)

Anybody (Individuals or firms or resellers) interested inmarketing/selling such phones can get in touch with OEMs ordirectly place an order in bulk and upon delivery, stick theirown labels and sell it under their brand-name. Since the

OEMs sell handsets without any label (so that re-sellers canput their own labels), this business model is also referred toas White Box Handset Market.

At a high level, Sellers can be of 4 types:

1) Sellers who design & assemble their own phones and donot lend these designs to others. Most of the majorcompanies like Apple, Nokia, Samsung come under thiscategory.

2) Sellers who design & assemble their own phones and alsolend these designs to others. Examples being Lenovo, ZTE,Gionee, Asus.

3) Sellers who partner with OEMs. In this case, the seller canrequest for customizations. Companies like Dell, Panasonicfall under this category.

4) Sellers who just buy from OEMs, put their own labels &resell them. Most of the Indian companies like Micromax,Karbonn, Celkon belong to this category.

Lets look at a few examples of how Indian companies arerelying on OEMs to sustain.

(http://guruprasad.net/wp-content/uploads/2014/02/byond_note.jpg)

Links:http://www.alibaba.com/product-gs/865452988/MTK6589_quad_core_5_8_inch.html(http://www.alibaba.com/product-gs/865452988/MTK6589_quad_core_5_8_inch.html)http://gadgets.ndtv.com/mobiles/news/byond-launches-57-inch-dual-sim-phablet-pii-with-android-41-for-rs-

14999-329748(http://gadgets.ndtv.com/mobiles/news/byond-launches-57-inch-dual-sim-phablet-pii-with-android-41-for-rs-14999-329748)

(http://guruprasad.net/wp-content/uploads/2014/02/mtv_swipe.jpg)

Links:http://www.alibaba.com/product-gs/1294184784/6_inch_Smartphone_Star_N9776_Note.html(http://www.alibaba.com/product-gs/1294184784/6_inch_Smartphone_Star_N9776_Note.html)

http://trak.in/mobiles/mtv-volt-6-inch-phablet-swipe-1203/ (http://trak.in/mobiles/mtv-volt-6-inch-phablet-swipe-1203/)

(http://guruprasad.net/wp-content/uploads/2014/02/canvas_2.jpg)Links:http://www.gsmarena.com/micromax_a110_canvas_2-

pictures-5088.php(http://www.gsmarena.com/micromax_a110_canvas_2-pictures-5088.php)

http://www.mobistel.com/wordpress/index.php/portfolio/cynus-t2/(http://www.mobistel.com/wordpress/index.php/portfolio/cynus-t2/)

(http://guruprasad.net/wp-content/uploads/2014/02/canvas_hd.jpg)Links:http://www.tinno.com/html/2013/10/21/2013102111495962154032.html(http://www.tinno.com/html/2013/10/21/2013102111495962154032.html)http://www.gsmarena.com/micromax_a116_canvas_hd-pictures-5256.php(http://www.gsmarena.com/micromax_a116_canvas_hd-pictures-5256.php)

(http://guruprasad.net/wp-content/uploads/2014/02/canvas_4.jpg)

Links:http://www.amazon.com/BLU-Unlocked-5-0-inch-Quad-Core-Processor/dp/B00F9BFIMA/ref=sr_1_2(http://www.amazon.com/BLU-Unlocked-5-0-inch-Quad-Core-Processor/dp/B00F9BFIMA/ref=sr_1_2)

http://www.flipkart.com/micromax-canvas-4-a210/p/itmdmhjzarsb6gff?pid=MOBDMT9ZREEUCXGA&otracker=from-search&srno=t_2(http://www.flipkart.com/micromax-canvas-4-a210/p/itmdmhjzarsb6gff?pid=MOBDMT9ZREEUCXGA&otracker=from-search&srno=t_2)

As we can see from the above examples, Indian companieslike Micromax, Karbonn and others place bulk orders fromChinese OEMs and sell them under their own brands in India.It might come as a surprise to find that even companieswhich are no way related to cellphone industry, nor have theexperience have begun to buy from OEMs and sell themunder their own brands. Even a water heater & wet grindercompany like Kailash is selling Android phones under itsbrand. Television companies like Videocon & Onida also donot want to miss the race and have introduced several phonesunder their brand.

(http://guruprasad.net/wp-content/uploads/2014/02/indian_android_brands.jpg)

This is a multi-part case study and in the subsequent partswe shall find out more about how these phones are beingoffered at fractional costs compared to established players,and if companies like Micromax are really being innovativeand have the potential to compete at global levels or if theyare just middle-men trying to make hay while the sun isshining.

UPDATE:Part 2 is uploaded here:http://guruprasad.net/posts/part-2-micromax-phenomenon-propaganda-or-reality/(http://guruprasad.net/posts/part-2-micromax-phenomenon-propaganda-or-reality/)

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AnjanKumarPESITVerynicewriteupGp..Inparticular,Ilikedthewayyou1,havebroughtoutthemeaningofOEMs,2,Differenceinmarketingstrategiesbetweenvariousplayers,and(ofcourse)3,allthelinksandreferencestomakethearticlecomplete!Thanks!!ReplyLike FollowPostFebruary8,2014at9:14pm3

RahulPriyadarshi TopCommenter293followersthanksguru.verywellexplainedReplyLikeFollowPostFebruary8,2014at9:32pm

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KarthickPrabhu Mumbai,Maharashtra,Indianicearticle.....reallyexcitedtoreadyoursubsequentparts...ReplyLike FollowPostFebruary8,2014at10:02pm

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ShivanandSheshappanavarBangalore,IndiaSameexplanationofOEMsgivenfortheChinesehandsetsales..LooksliketheyimprovedthehandsetsandgavethembrandReplyLikeFollowPostFebruary8,2014at11:18pm

VaibhavKaushal TopCommenterTechLeadatHealtzenServicesPvt.Ltd.Niceone.Veryinformative:)

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Niceone.Veryinformative:)ReplyLikeFollowPostFebruary9,2014at8:45am

VishwanathaiyerSubramanianPSGArtsCollegeSurprisedtoknowhowmuchtheChinesehaveinvadedourlives?EvenifChinadoesnotgotowarwithus,canwesurvivewithoutChineseproducts?ReplyLikeFollowPostFebruary9,2014at11:54am

BalajiRajendran WorksatCenterforDevelopmentofAdvancedComputingWellresearchedarticle.Likedthe4typesofSellers!ReplyLikeFollowPostFebruary9,2014at7:49pm

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RajalakshmiParamasivamChennai,TamilNaduNicearticle.Eagertoreadsubsequentparts.ReplyLikeFollowPostFebruary9,2014at9:57pm

Liveblogsthanks,nicearticleReplyLikeFollowPostFebruary10,2014at4:53pm

NikhilShrivastava TopCommenterSt.Joseph'sInterCollege106followersTheconceptisEntertainingtousandprofitableforMicromax!!!:DReplyLikeFollowPostFebruary10,2014at6:10pm

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