How India influences mobile handset innovation

Innovation in any Industry needs three crucial elements, buyers' support, Industry growth and competition. If buyers do not show interest in new products, innovation loses its spirit. Market growth is the necessary incentive for Industry to bring new products. Competition is the guiding force that shapes up the Innovation for the new products. 

From another perspective, Innovation takes the industry to future and future must be enticing enough so that players from present try their best to adopt innovation to move to future. Apple saw the future of it when it took up the job to innovate for a smartphone. The future where people crave to have an Apple smartphone was very enticing for Apple to invest in smartphone development back in 2003.

   Indian market at present brings certain crucial elements which are truly enticing for the handset innovators, looking at future growth.

First, Indian market brings world's second largest mobile user base. As per the recently published data, India has around 700 million active customers, more than double the US mobile user-base with a population penetration of around 6%.  The chart below from Mobithinking provides a good comparativee view of the top 5 mobile markets.

Table 1: The 100 million club: the top 10 mobile markets by number of subscriptions
Country	Mobile subscriptions in millions	Population in millions (source: World bank)	% of population	3G/4G subscriptn in millions	% of popu- lation	Sources (subs; 3G subs)	Last update
World	5,981	6,973.7	85.8%	1,593.9	23%	ITU Informa WCIS	End 2011 Dec 2012
China	1,091.9	1,344.1	81.2%	212	15.8%	China Mobile; China Unicom; China Telecom	Nov 2012
India	Active: 699; total: 906.6	1241	73.1%	70.6	6%	TRAI Informa WCIS	September 2012 Dec 2012
United States	321.7	311.6	103.3%	256.0	81%	CTIA Informa WCIS	June 2012 Dec 2012
Indonesia	260	242.3	107.3%	47.6	19%	BuddeComm Informa WCIS	May 2012 Dec 2012
Brazil	259.3	196.7	131.8%	65.5	33.3%	Anatel/Teleco Anatel/Teleco	Oct 2012

Mobithinking also tells us that globally smartphone and tablet shipment are expected to grow between 2012 and 2016 while sells for other types of mobile devices will decrease. Broad categories (of phones) that are being used here are are smartphones, tablets [top tier] and feature phones [tier 2].  As per their collated data, there were 1.7 billion mobile phones sold in 2012, which was similar to the number sold in 2011.  Most of the analysts pegged Year over-year growth at around 1.2-1.9%, which is construed to be flat-growth. However, segment-wise growth may vary considerably.

As per Mobithinking, around 59 percent of handsets sold in 2012 were feature-phones. In other words feature-phones took the top-spot in terms of number of units sold. 

Let us now look at data for Indian market, Cyber Media Research reports in CY 2012, March 2013 release that India registered 221.6 million mobile handset shipments for CY (January-December) 2012 which is around 20.8% Y-oY growth. Their chart below shows that feature-phones sold most. So Indian market is no exception to global trend.
Smartphones sold lot less compared to feature phones but the important part is that it is the fastest growing segment, with a whopping 36% Y-o-Y growth. Smartphone sells are projected to grow at the cost of featurephone segment in next few years.

Table 2. India Mobile Handsets Market: CY 2012 versus CY 2011 (in terms of unit shipments)

Form Factor	Shipments (CY 2011)	Shipments (CY 2012)	Year-on-Year Growth, CY 2012 over CY 2011 (%)	Half Year-on-Half Year Growth, 2H 2012 over 1H 2012 (%)
Mobile Handsets	183.4	221.6	20.8%	16.4%
Featurephones	172.2	206.4	19.9%	11.3%
Smartphones	11.2	15.2	35.7%	75.2%

Source: CMR’s India Mobile Handsets Market Review, CY 2012, March 2013 release

 

Top  3 Mobile Handset vendors

Top 3-5 players in most Industry define the trend. However in handset market the top -5 list is not a very stable list. Table -3 is a chart from Gartner and it illustrates some interesting points. It shows that except Apple and Samsung all vendors in fact lost their market share last year. It also shows that Blackberry/RIM and Sony did not figure in top-5 list. Another interesting point to note is that three out of top-5 spots are taken by Asian vendors [Samsung and LG are Korean vendors while ZTE is Chinese].

Table 3: Top Five Mobile Phone Vendors Globally, Shipments, and Market Share Calendar Year 2012 (Units in Millions)

Vendor	2012 Unit Shipments	2012 Market Share	2011 Unit Shipments	2011 Market Share	Year-over-Year Change
1. Samsung	406.0	23.4%	330.9	19.3%	22.7%
2. Nokia	335.6	19.3%	416.9	24.3%	-19.5%
3. Apple	135.9	7.8%	93.1	5.4%	46.0%
4. ZTE	65.0	3.7%	69.5	4.1%	-6.5%
5. LG	55.9	3.2%	88.1	5.1%	-36.5%
Others	737.5	42.6%	716.8	41.8%	2.9%
Total	1735.9	100.0%	1715.3	100.0%	1.2%

Source: IDC Worldwide Mobile Phone Tracker, January 24, 2013

  Now let's look at the Indian market. As per the Cyber Media Research, the top 3 vendors are:

Table 4. India Mobile Handsets Market: Leading Players, CY 2012 (% of unit shipments)

Player	Rank – Overall	Share – Overall (% of unit shipments)	Rank – Featurephones segment	Share – Featurephones segment (% of unit shipments of featurephones)
Nokia	#1	21.8%	#1	22.5%
Samsung	#2	13.7%	#2	11.5%
Micromax	#3	6.6%	#3	6.5%

Source: CMR’s India Mobile Handsets Market Review, CY 2012, March 2013 release

A curious addition to the above list is Micromax, an Indian vendor. I don't know why but they did not publish top-5 list but if they did, I suspect Karbonn, another Indian player would figure in the list. It is important to note that all the internationally well-known vendors like Apple, Sony, LG, HTC, Blackberry/RIM also operate in Indian market beside Nokia and Samsung but except Nokia, Samsung, Sony and LG, most have their participation limited in Smartphone category. As far as featurephones are concerned, Nokia traditionally had huge presence with almost 70-80% market share in India. They lost shares of the market to Samsung largely but also to Micromax, Karbonn and other small players in India.  This page provides a quite comprehensive list of Indian brands in the handset market.

Influence on handset innovations

Commenting on the results, Faisal Kawoosa, Lead Analyst, CMR Telecoms Practice said, “Although we see a huge market ‘hype’ around smartphones, the fact remains that the India Mobile

source: Business Today

Handsets market is still dominated by shipments of feature-phones. On the other hand smartphone shipments are growing fast. This indicates India is still a ‘new phone’ market, where feature-phones contribute to the bulk of shipments compared to replacements or upgrades.”

“This propensity on the part of Indian subscribers of mobile telephony services to purchase large numbers of feature-phones has paved the way for the establishment of Indian brands, which are largely focused on this segment.” Some interesting features that these phones provide but generally are not available in established brands are, support for multiple SIMs in single handset, powerful speakers and strong LED that can double up as torch in night.

One should not forget that none of the Indian vendors have manufacturing base in India. Here innovation to a large extent is about identifying the market segment, finding the right source of unbranded phones, packaging and creating a light-weight distribution network. One of the important USP of these handset vendors is cost-advantage. They provide similar set of features available in top-branded phones at almost 5 times cheaper price. Their margins are lower but they compensate that with high volume of sales. The fact that most of the Indian vendors source their phones from China, Taiwan or in Indonesia, is an indicator how thread-bare is their operational cost.

Buyer pressure, thus, has created a large innovation opportunity for low-cost feature phones and smartphones. Top vendors like Samsung and Nokia recognized the opportunity quite correctly and brought many low-cost feature-phones in the market in last two years. In other words they have decided to compete with small brands and unbranded mobile sets in India. 

This is a very important change in business strategy from what they follow in developed countries. They took this path because they very well know that these low-cost vendors once successful in feature-phones will eventually attack them in the higher-price smartphone segments. Unless they learn to compete at the low-cost segment, they stand to lose the entire segments.

The question is how does it influence global handset innovation. Innovation has primarily two enduring impacts: 1. it helps industry find technology alternatives that are more viable to the Industry and 2. it also pushes the overall cost of development for a product on a downward slope. 

Once the likes of Nokia and Samsung figure a way to bring down cost to remain competitive in Indian market, they will apply the learning to bring down their cost of development for higher-end products e.g. Smartphones too. First effect will be higher profit margin for higher-end products but in the long run it will bring down average cost of smartphones due to competition between themselves.
At present highest end smartphones like Blackberry Z10, Sony experia's latest model Z, Apple iPhone 5, Samsung Galaxy Note II, Nokia's most powerful Lumia model cost between Rs 34,000 - 44,000 [Blackberry Z10 costs Rs 43,000], in India. These price in absolute terms are way too high compared to US or European market. Undoubtedly this has created a space and an opportunity for innovation, for cheaper smartphones here.
Chinese manufacturers, recognizing the opportunity have formally created a consortium which will operate in the Indian market directly and help the Chinese manufacturers establish their brand-names in India. The Hindu on April 9, 2013 reports, "A consortium of Chinese mobile makers are planning a quiet entry into India with the help of a start-up, which would set up over 200 sales and service centres for nearly 50 different manufacturers. The start-up, a company called AndroidGuruz, plans to set up sales and experience zones, giving the Chinese companies a foothold into the Indian market." 
 After the Chinese consortium finds a foothold here, they will force all these players into a price-war. But I would argue that intense competition will eventually make Nokia and Samsung the winners globally since the feature-phone experience would have taught them the tricks of cost-leadership and with their larger scale of operation, they would make the last call, unless of course, Mr. Elop decides to be adventurous again!

Report Sources  for further digging

Cyber media research report [http://cmrindia.com/more-than-221-million-mobile-handsets-shipped-in-india-during-cy-2012-a-y-o-y-growth-of-20-8-nokia-retains-overall-leadership/]

IDC report [http://www.idc.com/getdoc.jsp?containerId=prUS23916413#.UWqx_6ODmSp]

Mobithinking Report [http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/a]

 Indian brands in handset market: [http://www.knowyourmobile.in/products/2315/top-10-desi-mobile-phones]

Business Today article: Top Indian handset makers changing tack to take on MNCs [http://businesstoday.intoday.in/story/top-indian-handset-makers-changing-tack-to-take-on-mncs/1/193224.html]