Chinese invasion in Indian mobile phone market: Is the end nearing?

The number of new entrants is decreasing since 2015, as Indian market matures

After reaching a high point in 2015, with 10 major handset brands from China setting their feet on the Indian soil, the number of new entrants has started to come down. While in 2017, seven new Chinese companies have entered the local market, in 2018 the number is expected to go down further.

As growing competition in the local mobile handsets market weeds out a few players with potential to capture significant share, it is sending a warning to Chinese firms. Once a dream destination for Chinese handset vendors, the market in India is now turning less attractive for many of them. While new players continue to enter the local market, data shows the trend is on the decline.

Since the beginning of the current decade, India has been a favourite destination for mobile handset manufacturers from China. While, Chinese firms had a strong presence in unbranded feature phones market since the mid-2000s, with the rise of Android smartphones that run on an open operating system, their influence grew fast in the branded market as well. Post the decline of Nokia, the share of Chinese players grew exponentially – from less than 10 percent in 2012 to well over 50 percent in 2017 – in the smartphones market here.

The advent of the 4G LTE technology and e-commerce boom only aided this growth as penetrating the market with the latest technology became easier than ever before. By late-2014, all the major players like Xiaomi, Vivo, Oppo and Gionee that now rule the local market had entered India. While in 2015, brands like Meizu, Coolpad and TCL started operations in India, in 2016, two globally known brands – Le Eco and iTel – came here.

However, the trend is now reversing. While in 2017, brands like Comio, I-Bhoomi and Voto set their feet on the local market, analysts say, the situation is no more the same. 
 

According to Counterpoint Research, 2015 was the right time to enter the market because of the growth of e-commerce channels and 4G ecosystem. Further, Chinese brands had the first-mover advantage due to their 4G ready portfolio in China and the fact that e-commerce made entry easier.

 

But as smartphones, like its predecessors is increasingly getting commoditized with less and less of differentiation in hardware and features among various brands, new companies are finding it more difficult to find a foothold. The first mover’s advantage with technologies like 4G LTE and superior cameras is now things of the past. And sustaining the cutthroat competition on the pricing front and finding visibility on retail market is becoming too costly.

According to Sanjay Karilona, chief executive and director, Comio India, the firm decided to enter the market after a year’s study and finding a sweet spot to target. However, over the past few years environment in the retail has turned more competitive as cost of retail expansion has gone up. While, currently Comio is sourcing from third party manufacturers, it plans to set up own unit this year.

All major Chinese brands that now hold significant market share and consumer recall have invested millions of rupees to set up manufacturing units, research centres and on promotion. Top player Xiaomi, which now holds a fourth of the market, has close tie-ups with the global leader in handset manufacturing Foxconn and procures over 95 percent of devices locally. It has invested in offline retail and has already opened branded stores. And its R&D centre in Bangaluru employs hundreds of researchers.

Vivo set up its first plant in Noida in late 2015 with an investment of over Rs 1 billion. And had to shell out Rs 22 billion to secure title sponsorship rights for Indian Premier League (IPL). Sister concern Oppo, apart from setting up own plant in the same region, is spending Rs 11 billion to buy sponsorship rights of the Indian cricket team. 

Another Chinese player Lenovo that features at the third spot in the smartphones market with six percent share, has spent millions of rupee in setting up a manufacturing facility in Chennai.

“Due to most of the leading smartphone brands being already present and expanding their presence in the market in both offline and online channels, leaving other players with a smaller market to target. Apart from this, smartphone users in India are now more mature as compared to a couple of years ago”, an analyst from Counterpoint said.

Going forward, says Tarun Pathak, associate director, Counterpoint, Chinese players would have to look for partnering local or existing players in the market, rather than trying to sail on their own. And with growing impetus on local manufacturing and sourcing norms, the entry ticket in the local market will only become dearer for the 3,000-odd small and large equipment manufacturers from the neighbouring country.