Competition & Strategy Project

Micromax Mobiles

By
Group 9
1501068 Aniket Phadnis
1501076 Dhvanil Zaveri
1501082 Kaushik Nath
1501090 Pradeep Meena
1501103 Saurabh Bose
1501107 Karan Singh

DECLARATION
We hereby certify that all of us have equally contributed our efforts to this
project. To the best of our knowledge, the project report does not contain any
uncredited sources other than the explicit reference made in the bibliography
Signed:1501068
1501076
1501082
1501090
1501103
1501107

Aniket Phadnis
Dhvanil Zaveri
Kaushik Nath
Pradeep Meena
Saurabh Bose
Karan Singh

Introduction
Micromax is currently the largest Indian Mobile phone company. It started off as a
software company called Micromax Informatics limited in the year 2000 by a
group of four friends. It initially operated as an IT Software Company operating in
the embedded devices domain. In 2008, Micromax entered the mobile phone
market. The company is currently headquartered in Gurgaon, Haryana with
presence in many other countries besides India. Micromax was able to gain a
0.59% market share during the first half of its existence. By 2010, it was one of
the largest domestic companies making handsets. Micromax focused on low
pricing to compete with established international brands such as Apple and
Samsung. The initial inspiration for the founders to enter the low cost feature
phone segment in India was the frequent power cuts in rural areas. Apparently
one of Micromaxs founders saw a public call office being powered by a truck
battery because of the power cuts. Thus an idea to introduce a low cost phone
with an extended battery life transformed into their first phone X1i, which had a
month long battery backup.
Micromax aspires to become the continuation of the Indian youths lifestyle and
personality. The company has a lot of firsts to its credit and has a history of
quirky products such as the aforementioned 30 day battery backup phones, Dual
SIM dual standby phones, QWERTY keypad phones, universal remote control
phones and the first quad core budget smart phone. The product portfolio of
Micromax today boasts of more than 60 models ranging from feature phones to
tablets to LED televisions and data cards.
Micromax is now the 10th largest smartphone vendor in the world. The production
Micromax mobile phones is carried out by Foxconn in China. Thus, Micromax is
able to take advantage of low labor cost in China and the economies of scale
achieved by Foxconn. Micromax sells these products at low costs in their target
markets. This is one of the main reasons for the success of Micromax in such a
short period.

Since the profit margins are low, Micromaxs strategy to achieve profit is through
increased volume of sales. They targeted the rural customers as their target
market. This segment had a lot of potential and was considerably unpenetrated.
Micromax also put adequate efforts into their advertising and market strategy.
Micromax adopted the slogan, Nothing like anything. They sponsored a variety
of sports and business events to gain visibility. Domestic as well as international
celebrities were brought on board as brand ambassadors for their publicity
campaign.

PEST ANALYSIS
Political
There has been a huge push by the government to increase the mobile
penetration in India. All major services such as irrigation and banking services
have been shifted to mobile platform. This has brought an urge in rural and
urban population to use phones for major reasons and thereby increasing the
sales of mobile phones in India.
Apart from this, several government initiatives have incentivized Indian
manufacturers to produce in India, amongst which is Make In India campaign.
Government has given a ten-year tax holiday for fresh investments in a block of
15 years in special economic zones, domestic tariff area, export oriented units
and Electronic Hardware Technology Park. Adding to that, import duty for
manufacturing parts and circuits has been completely removed. Whereas,
importing a finished product attracts an import duty of 12%.
So, these initiatives have given a boost to manufacture more phones
domestically. Micromax till now has been importing finished goods from China,
however seeing the changing scenario it has built 3 manufacturing plants in
India, one of which is at Baddi, Himachal Pradesh. This is also going to give
Micromax a substantial cost advantage. However, many Chinese manufacturer
are setting up plants in India including Intex, Lava, Karbonn and Xiaomi. Foxconn
and Flextronics have also set up plants in Chennai and Pune respectively.
Economic
Indias economy is booming, and it makes us the most aspiring market in the
world. With a GDP growth of 7.7% annually and rise in disposable income, India
has a huge demand of phones at this stage.
4,000,000.00
2,000,000.00
Consumer Expenditure (USD million)
0.00
2012

2013

Disposable Income (USD million)

2014

Exhibit- Euromonitor /http://www.euromonitor.com/india/country-factfile/

2015

2016

Over the past 4 years the average growth in disposable income and consumer
expenditure is increasing by more than 6.4%.The economic development of the
country both in the rural and urban market makes it a desirable destination for
mobile phone companies.
Social
After examining the demographic distribution in the country, we observe rapid
growth of youth population in Tier I and Tier II cities. This becomes favorable for
the Smartphone industry as 63% of smartphone users are under the age of 25.
This is one of the contributing factors to the increase in demand for feature
phones experienced in the recent past.Micromax has invested heavily in the
Feature phones segment and are currently themarket leader in this segment.
Social attitude towards smartphone usage has changed drastically over the
years. Now children as young as 10-12 years are getting access to smartphones.

Technological
The mobile phone industry is a very innovative segment within the ICT sector
and the smartphone has now become the standard configuration among the
different types of mobile devices. Technical change and new product proliferation
have made this industry extremely dynamic. There is either a product
differentiation in terms of dynamic design or vertical innovation with selected
features like weight, Wifi, Multitouch, secondary camera etc. Innovation and
product differentiation are important in this product segment to achieve long
term sustainability and hence cannot be overlooked.Micromax needs to stay
ahead of the technological and innovation curve. It has set up a Research and
Developement center in Beijing, Gurgaon and Bangalore. It has also filed for four
patents on hardware innovation designunder its subsidiary of Yu Televentures.

ConclusionFrom the PEST Analysis, mobile industry seems to be a very promising industry
with high growth opportunities. All the factors in the external environmental
factors support the production and sale of mobile phones. With government
taking several initiatives in this aspect along with the growing income and buying
behavior of India, PEST analysis gives a good foundational reasons for Micromax
to flourish.

Porters five forces

Barriers to Entry (LOW): The US and Chinese markets have reached saturation
point. This has led to many Smartphone manufacturers to look towards India.
India is one of the fastest growing markets in Asia and World all around. There
are three new companies entering the market every month. The possible reasons
for such low barriers to entry are
1. Government policies The government has provided high incentives terms
of tax benefits to manufacture Smartphone locally .It have also set up high
penetration broadband network to attract investors. Foxconn, contract
manufacturer is about to invest $5 billion to set up 12 manufacturing units
in the country. The ambitious Make in India campaign of the current
government has helped reach a Smartphone manufacturing base of 100
million units.
2. Online Retail penetration The emergence of online retail platform has
enabled vendors to have an asset light business model. There are huge
savings in capital investment and investment in sales channel now. These
companies have to invest only in branding & marketing their products
3. Brand Switching Cost The switching cost in India is low as low cost
devices are preferred over any brand. Indian consumers are known to keep
a Smartphone for about a year and switch to a new one, which offers
disruptive technology. Also the low cost phone segment is not highly
differentiated which makes cost as the only valuable factor in buying these
Smartphone.

Power of Buyers (HIGH): As mentioned earlier the price difference is small in

India. Rapid technological changes, data capabilities and advancement in design
development have brought down the input costs for many devices There are over
100 small & big mobile manufacturers plying their trade in Indian market and
each of them is pricing their product aggressively. These Smartphones offer
same features more or less. Hence, buyers have a wide array of choices in a
competitive market like the Indian Smartphone industry. Very recently around 10

companies chose to cut down the prices of their flagship Smartphone phone in
this feature phone segment. The advantage is passed on the buyer.
1. Backward Integration There is a low threat of backward integration from
the buyers. One of the cases is that of the mobile operators like Videocon
that started manufacturing phones under their own brand. These phones
however have not been so popular among customers

Power of Suppliers (MODERATE): The supplier power is moderate in case of

components like the microprocessors (Qualcomm and Intel), physical memory,
NFC technology and special screens (Corning) differentiate the final products and
affect their selling price and margins. These niche suppliers are mostly
concentrated. In addition, there is large number of players in the market, which
gives them multiple opportunities and customers.
1. Switching costs However in case of software stack, operating system and
design requirements mobile manufacturers have a moderate switching
cost. Example - Phones running windows mobile operating system can
switch to android easily.
2. Backward Integration This possibility is low for low-cost feature phones as
the cost incurred for vertical integration is very high. In addition, there
would have to be a lot of investment in the R&D as well as patent
acquisitions for niche technologies. This would take time and could affect
the selling prices as the input costs go up.

Threat of substitution (Low): The threat of substitutes is low as alternate

products like tablet, laptops and Personal Digital assistants do not quite offer the
same functionality as the phone. The bulkiness of a tablet in addition to their
non-calling functionality makes it difficult to replace a phone even though it has
been growing in popularity.
The phone offers a better price-performance ratio as compared to its substitutes.
Mobile phones are portable communication devices, which are indispensible. Its
ubiquitous nature makes it very difficult to substitute

Rivalry among competitors (HIGH):

1. Industry Growth Although there was a growth in the user base which
reached 220 million surpassing US , the Smartphone shipped to India grew
by a figure of 15% annually in Q4 of 2015. During 2015, the total
shipments amounted to 100 million units. This gives a picture of the pace
of the industry growth. More than 100 players from India, China, United
States & South Korea compete in the Indian market.

2. Intense Competition The retail volume breakdown chart below shows the
number of companies with their market share. This shows that there is
very high competition amongst the competitors to gain maximum market
share (by volume) in the Indian market.
Phone
Samsu
ng
Microm
ax
Karbon
n
Intex
Nokia
Lava
iBall
Gionee
LG
Spice
Celkon
Maxx
Xiaomi
Xolo
Videoc
on
Sony
iPhone
ZTE
HTC
Motorol
a
Huawei
Blackb
erry
Kyocer
a
Nokia
Motorol
a
Blackb
erry
Sony
Ericsso
n
Motorol
a
Pantec

2010
17.7

2011
19

2012
13.8

2013
23.8

2014
22.1

2015
21.5

4.2

7.1

6.6

11.8

15.8

16.1

2.9

5.5

9.3

2.6
6
2.6
1.8
5
2.3
1.7
2.8
0.6
2.3

5
11.7
6.5
3.4
2.1
3.2
2.3
1.7
2
0.5
0.9
1.8

8.2
8.1
7
3.8
2
2
1.8
1.6
1.6
1.6
1.5
1.4

0.8
0.2
6
3.8
0.1
-

0.2
4
0.6
0.5
5.9
3
0.1
0.4
0.1

7.7
1.5
5.2
2.3
1.5
6
2.9
1
1.8
0.1
1.4

0
1.9
0.1
-

0.1
1.4
0.2
-

3.7
0.2
1.3
0.1
-

1.2
0.6
0.9
0.1
-

1.2
0.6
0.9
0.1
0.5

1.1
1
0.9
0.2
0.1

1.5
-

1
-

0.7
-

0.2
0.1

0.1
0.1

0.1
0.1

0.7

0.2

0.1

0.1

0.1

0.1

50.3
-

40.9
-

21.8
0.8

16.7
1.1

0.5

0.6

0.4

4.8

4.1

0.3

0.6

h
Motorol
a

0.1

Exhibit Company shares historic retail volume breakdown

(Euromonitor passport)
3. Low Margins The income is usually 5-6% of the sales revenue. This is very
low in the value chain. Micromax : 6.11%, Lava : 5.60%. Only high end
Smartphone like Apple has a higher profit margin (21.42%)
Conclusion
The overall Smartphone industry is not attractive for any existing company given
:

Barriers to entry are low.

Power of buyers is high

Power of supplier though moderate ,there are concentrated suppliers for

some high performing and differentiating hardware systems like screens
and microprocessors

Threat of substitution is low for now.

The rivalry among competitors is high as the margins are low. A lot of
companies are fighting for a share by volume in a similar but booming
market. This has caused intense competition in low cost feature phone
segment.

Value Chain Analysis:

The value chain analysis of a company is an important tool to
understand how the different activities undertaken by the firm results in
creating value for the end customer. The efficiency of a firm in creating
value for its end customers reflects either in the increase in WTP by the
consumers, or in reduction in costs. Either way, the different value chain
activities determine the profitability of the firm. If the firm creates
significant value for its customers, it will lead to increase in the willingness
to pay (WTP) which in turn enables the firm to sell its products at a
premium. On the other hand, cost reduction in various value chain
activities by the firm enables it to keep the total production cost low, and
in turn help it sell its product at a low price. A frim may create a cost
advantage either by reducing the cost of the individual value chain
activities, or by reconfiguring the entire value chain. Once the value chain
is identified, a cost analysis can be performed by assigning cost to the

value chain activities. The major cost drivers related to the value chain
activities are: Economies of scale, learning, capacity utilization, linkages
among activities, interrelationships among business activities, degree of
vertical integration, timing of market entry, firms policy of cost leadership
or differentiation, geographical location and institutional factors
(regulation, union activity, tax etc). A firm creates cost advantage by
better controlling these cost drivers than do the competitors. While the
external industry and environment analysis helps us understand the
industry, of which the firm under consideration is a part of, the value chain
analysis helps us understand the source of profitability of the firm within
the industry relative to its competitors. It is to be noted that the total
profitability enjoyed by any firm in a given industry is a function of both
the industry it is part of, and the distinctive activities undertaken by the
firm which gives it an advantage - or disadvantage over its rivals and
competitors in the industry.
This is especially true for the smartphone industry in India which is
growing at a staggering 12% CAGR. While this rapidly growing smartphone
industry in India bodes well for all the players in the industry, it is the
unique value creating activities of the different players in the industry that
becomes the differentiating factor as far as profitability is concerned. It is
to be noted that only two players enjoy lions share of profit in the
industry Apple and Samsung. While Apple earns a staggering 90% of the
industrys profits, Samsung eats away most of what is left. As a result, the
other players are left competing intensely with one another trying to
increase their own market share. If we look at the lower priced segment of
the smartphone industry, we would find a lot of firms, both local and
global, competing with each other for market share. Smartphones,
especially those in the lower priced segment, are commoditized now. They
have gone from being technological devices to fast-moving consumer
products. As a result, players like Micromax and Intex are relying on high
volume sales at low margins to increase profitability and market share.
On the analyzing the core business activities of Micromax, we arrived at
the following major value chain activities for the company.

R&D

Inbound
Logistics

Outboun
d
Logistics

Marketin
g

After
sales
service

Research and Development:

R&D has traditionally been viewed as the core value creating
activity of any technology company. Industry heavyweights like Samsung

and Apple spend several billions of dollars in R&D annually. They pass on
these R&D costs to the customers by selling handsets at a premium while
keeping other input costs low. While it is possible for companies like Apple
and Samsung to invest so heavily in R&D on the account of their deep
pockets, the same may not be possible for new players entering into the
industry. Micromax initially entered into the smartphone industry in 2008
without a dedicated R&D center. The company adopted a non-traditional
business model, whereby they sourced finished goods from their Chinese
manufacturer Foxconn. Design specifications were provided to Foxconn
and even the pilot testing of the products was done at suppliers facility in
China. Under this strategy they did not require R&D, neither could they
start manufacturing in India until they achieved economies of scale
advantage in manufacturing.However, this strategy would not be able to
generate consistent profitability in the long run because any competitor
could imitate such a strategy. To ensure long term profitability Micromax
needed to develop in-house R&D and manufacturing capabilities in India.
With that view in mind, Micromax opened its first R&D center in Gurgaon,
Haryana in 2013. Since then it has announced plans of opening three
more R&D facilities in India, besides opening a R&D center in Beijing,
China. The basic strategy of Micromax has always been affordable
innovation. The R&D centers have in-house product development team to
emphasize rapid product development. These product development teams
work in conjunction with the chipset manufacturers to assess the technical
feasibility of the new products. What gave Micromax a competitive
advantage over its rivals like Intex is the speed at which it was able to
introduce new products to the market. Moreover, Yu Televentures, a
subsidiary of Micromax, has recently filed for four patents on hardware
innovation design. Micromax has recently focused its R&D activities on the
design of feature phones. It is the fastest growing segment in the mobile
handset market in India. The table below shows the market share of major
players in the feature phones segment till 2013.

All these R&D activity will ultimately lead to increase in WTP for Micromax
products, which will enable it to enjoy higher margins on its products in
the coming years.

Inbound Logistics:
When Micromax started its journey in 2008, the mobile phone
market in India was pretty much a sellers market. However, with
demands increasing consistently since then, the mobile phone market
underwent a radical change. Over the last few years several new players,
both local and global, have entered the industry. The competition is
intense, especially in the low and medium range smartphone segments.
The products offered in this segment are mostly undifferentiated, and the
competitors engage in fiercely contested price wars. The key to enjoying
healthy profitability in this industry is to keep the costs low. This is why
inbound logistics becomes such an important value chain activity for a
company like Micromax.
Micromax imports most of its products from its OEM supplier in
China. Cost of purchasing finished goods constitute 79% of the total
expense of Micromax. The real clincher for Micromax was to tie up
lucrative deals with Tier I rung manufacturers located in China who are
associated with global brands like Apple, Samsung, Nokia etc. Foxconn,
worlds largest contract manufacturer, for instance, has been associated
with Apple. Similarly, BYD, which works on some Micromax handsets, has
been associated with Nokia. Typically Micromax orders 500,000 mobile
handsets at the entry level from their manufacturers in China. The volume
growth ensures better cost efficiencies, and thus help Micromax get
volume discounts from its suppliers. Such exclusive contracts with
suppliers enabled Micromax to keep the overall procurement cost low. This

cost advantage of Micromax gave it a competitive edge over its rivals in

the fiercely contested low margin smartphone segment.
When Micromax started out in 2008 the mobile handset industry
was still growing in India. It was not possible for a newcomer like
Micromax to start its production in India because it would not get the
volume sales required to achieve economies of scale. So, through
exclusive contracts with suppliers Micromax would import finished goods
from China, while keeping the cost of procurement low. Several other
external factors also helped the cause of Micromax and similar other local
players like Intex. The low wage rate in China helped manufacturers like
Foxconn incur low manufacturing cost. As a result, Micromax could also
demand lesser prices from supplier. However the scenario changed in the
last couple of years. The minimum wage rate in China was hiked by
13.3%. This was major shock to all the manufacturers in China as it
resulted in increase in manufacturing costs, which they passed on to their
buyers like Micromax. Thus procurement of finished goods from China
became a lot costlier. On top of it Micromax had to incur significant
expense in import and excise duty which amounted to about 13%.
However, a recent change in the import tariff has made it cheaper for
Indian companies to manufacture in India. As part of the Make in India
campaign, the import duty of component imports(CKD-Completely
Knocked Down) has been reduced to just 1%, while that on import of
finished goods has remained unchanged at 12%. This means that it will be
lot cheaper for Indian companies to import raw materials from abroad and
manufacture in India. Taking advantage of this favorable tax policies,
Micromax opened its first assembly plant in Rudrapur in 2014. Since then
it has announced plans to build three more manufacturing facilities in
India by 2018. Micromax plans to ship its entire production line to India by
2018. Having now achieved the volume sales required to achieve
economies of scale advantage, by manufacturing in India Micromax will be
able to drive down the cost further which would enable it to enjoy higher
profitability in the future.

Outbound logistics:
The warehousing and distribution of finished goods constitute
outbound logistics. It includes various activities like transportation,
material handling, and packaging, communication, and information
systems. When Micromax started out it picked handsets from China,
rebadged them and sold them in India. During that period smartphone
industry in India was still in its infancy. While the rest of the world was
finally catching up with the smartphone craze, demand in India was still
driven by feature phones. Having started out without any manufacturing
facility in India of its own, Micromax could therefore focus all its efforts on
setting up an extensive distribution network throughout the country. A
significant aspect of Micromaxs success is its distribution network. This is
something the company inherited right at the time of inception. Micromax
was founded in 1991 by Rajesh Aggarwal who was a distributor of global
hardware brands like HP, Dell, Compaq. The company leverages its
already established distribution network to speed up the launch of new
products in the Indian market. So, where Micromax takes barely a month
or two to launch products, another big international brand requires
roughly 18 months for a similar product to go through the retail pipeline.
This gives them a significant advantage over its rivals like Intex. This is
because success in the low priced low margin smartphone segment
depends majorly on the number of new products launched by the players
and also the speed at which these products are brought to the customers
through the retail chain. Its already existing distribution network helped
Micromax to expand its presence throughout the country.
Another reason for Micromaxs success in distribution is that the
company specifically sought to target segments of the Indian smartphone
market which was still unpenetrated by the global players. Ever since its
inception, Micromaxs strategy has been to target the still untargeted
rural segment. Huge growth potential in this market segment meant that,
being the first mover, it could generate significant volume sales by
bringing out affordable smartphones with longer battery life. Electricity is
a major problem in rural India; therefore, Micromaxs offering of value for
money smartphones with longer battery life was a big hit among Indian
rural consumers.By increasing the size of the battery to 1800 mAh,
Micromax was able to tout a standby time of 30 days for the X1i. And at
the rather affordable price of Rs. 2,150, the phone was a big success in
rural India. The extensive presence of Micromax in Tier II and Tier III cities
have helped Micromax consistently increase its market share year-on-year
by selling huge volumes of low priced low margin smartphones.
In Tier I cities Micromax specifically targeted youth population by
bringing out new and innovative feature phones like selfie phone, camera
phone etc. Throughout the country it has set up extensive distribution
network and retail channel. Micromax has 34 super-stockists, 450

distributors and 55000 retailers spread across the country. Such an

extensive distribution channel has helped Micromax generate sales in
excess of one million units a month. It has also recently opened 150
exclusive stores, called Experience zones, for the urban population.
Micromax also sells its phones through leading mobile stores like Ezone,
Croma, Reliance Web World, Reliance Digital, Planet M, The mobile stores
etc. Players like Micromax also enter into lucrative contracts with these
retailers which enable them to reduce their inventory turnaround time,
while keeping the distribution costs lower than the competitors.For the
B2C model, higher margins up to 15 per cent were offered to the dealers,
which was higher than the industry average of 6 per cent to 10 per cent.
And distributors were offered higher margins than what Nokia offered. This
helped them penetrate the market deeper into the urban markets. In B2B
model, where corporate selling was involved, tie ups with major corporate
houses saved the margins of the distributors and Micromax could provide
the corporate houses a lesser price than the market. Thus, the target
market of professionals was reached. To further expand its reach in the
Indian market and penetrate the rural market, Micromax is also bundling
its products with telecom service providers like Aircel following in the
footsteps of other players in the industry.
Online channel is gradually becoming the most favored distribution
channel among global technology giants like Motorola, Samsung, Apple,
Xiaomi etc. Indian handset makers are increasingly selling their new
smartphones through online channels, hoping to mimic the robust sales
that Xiaomi and Motorola have reported in India by tapping the cost
advantage and direct consumer connect that the medium offersSelling
online only helps handset companies keep greater control on channel,
distribution and supply chain, while keeping marketing and pricing policies
separate. It also helps brands stay lean and at the same time target
millions in urban and suburban Indian markets. Having adopted the
online-only selling models, China's Xiaomi and US-based Motorola have
already managed to grab about 1% and 5% market shares, respectively,
within months of entering a complex geography like India where building a
solid offline distribution network takes time and is costly. Following this
online only distribution model, Micromax launched its Yureka brand of
smartphones through a subsidiary. 25000 devices were sold in seconds
over two flash sales in Amazon. Thus Micromax, through its knowledge of
the Indian market and its consumers, was able to leverage both the offline
and online channel of distribution to increase its sales and market share
over the years.

Marketing:
The biggest challenge for Micromax immediately after entering the
Indian market was to change the brand identity perception among
consumers. Perceived as a Chinese brand intitially, Micromax was a
preferred brand in the rural areas and for the same reasons was not
considered desirable in the urban areas. To penetrate the urban markets,
an image correction was required and a brand strategy needed to fade the
memories of Nokia from the minds of the consumers. With that view in
mind Micromax increased its advertising and marketing expenditures
manifold. Average marketing and advertising expenses of Micromax is
about 11% of the total expenses, compared to the industry average of 7%.
Micromax had a deep understanding of the Indian market which gave
them a significant advantage over any of their traditional competitors. It
targeted the rural market and came up with products that would be a big
hit among rural customers. Micromaxs USP of selling affordable, value for
money products with longer battery life was an instant success as it
appealed to the rural customers.
However, similar value proposition would not able to drive up the
demand for Micromax smartphones in the urban and semi-urban market.
So, they spent big on celebrity endorsements and cricket sponsorships to
increase visibility of the brand. At first they targeted the young urban
female population by bring out the bling series of handsets. Micromax
roped in a face that was considered elegant and niche, Twinkle Khanna.
Micromax grabbed the insight that GEN next girls are technologically
smart and stylish and that the mobile phones have become a new fashion
accessory, so girls love to flaunt them. Thus, on the occasion of Mothers
Day, Micromax announced the launch of its latest android phone Bling
that targeted fashionable and smart women. It had Swarovsky keys that
glamorized the phone for the girls to flaunt.The tagline it twinkles,
blended well with the brand ambassador and the whole campaign created
a stir in the audience. The print ads were designed keeping in mind that
the phone was considered to be a high profile fashion accessory by the
urban market.To increase visibility further, Micromax bombarded the
market by advertising through outdoor, online, radio, exchange schemes
and promotions via social causes. Sponsorship of international cricket
tournaments like Asia Cup further increased the brand visibility. On the
eve of Asia Cup 2012, Micromax changed its brand logo and adopted the
new tagline Nothing like Anything. In 2014, Micromax signed up Hugh
Jackman as its international brand ambassador. But it was not a significant
success as Hugh Jackman appeared in only a handful of commercials since
then. Furthermore, Hugh Jackman could not create the buzz required to
elevate Micromax brand among the elites in the industry. So, while these

aggressive marketing and advertising stunts did not give Micromax any
significant edge over its rivals, it did help the brand increase its visibility
in the Indian market.

After Sales Service:

After sales service constitute one of the most important value
creating activity for technology companies like Micromax because of high
involvement products sold in the markets. Typically in India, the sale of
high involvement technology-driven products like smartphones is driven
to some extent by the availability of service centers in the customers
vicinity. That is why, all the major players in the smartphone industry are
starting to invest heavily to revamp and improve the existing the after
sales service infrastructure in the country.
Micromax, like its competitors, have made huge investments in
after-sales service and have opened more than 370 service centers in
different parts of the country. Micromax have recently established a
service factory in New Delhi which provide a comprehensive range of
services, including chipset and PCB replacement service. The service
factory supports their modular (component) service centers and ASCs by
supplying necessary inventory and supporting their technical teams in
order to reduce turnaround time. Technical and process orientation
training is given to all the modular and ASC service centers, thus helping
to improve the level of service quality. This quick turnaround time has
been a key differentiating factor Micromax with respect to its competitors
like Intex, Lava, Karbonn etc. While percentage of calls to service centers
from overall installed base has come down by a factor of two, overall
complaints pending for more than 21 days has come down by a factor of
five. These have resulted in considerable servicing cost reduction for
Micromax. After sales service increase the WTP to pay for Micromax
products and strengthen relationship with existing customers, thus leading
to an increase in the brand equity.

Conclusion:
When Micromax started its journey in 2008, smartphone market in
India was still in its infancy. Consumers were adapting to what was being
offered. So it was pretty much a sellers market. Early entrants into the
industry like Samsung, Nokia and Apple sold smartphones at a premium
because of the associated brand identity. However, since then both the
market and the industry has undergone a radical change. The smartphone
industry is growing at a staggering 12% CAGR. Sensing the opportunity in
this rapidly growing smartphone market in India, many new players, both
local and global, entered the industry in the last 5-6 years. Production
arbitrage flexibilities provided by China and favorable import policies

further helped their cause. The market gradually transformed into a

buyers market with the gradual increase in demand. Especially the low
and medium priced segment of the smartphone industry is fiercely
competed by different players. Firms engage in price wars, and companies
are required to implement cost-competitive business model to ensure
consistent profitability.
From the very beginning Micromaxs strategy has been that of
affordable innovation. It targeted the rural and semi-urban segment of the
market, which was still unpenetrated at that time, and took advantage of
the rapidly growing smartphone market to increase its market share by
generating considerable volume sales in the rural market. It tailored its
products to the requirement of the rural people. Electricity being the
major issue in rural areas, Micromax came out with phones having very
long battery life. In the urban market it targeted the growing youth and
female population by launching feature phones. Feature phones is the
fastest growing segment in the smartphone industry, and Micromax
launched phones like selfie phone, camera phone etc, to appeal to the
young consumers in Tier I and Tier II cities. Recently Micromax has opened
up a R&D facility in Gurgaon, and has announced plans to start three more
by 2017. It has also invested heavily in recent years on the design and
development of feature phones. All these R&D activity will lead to increase
in WTP for Micromax products, which will allow the company to sell its
products at a premium thus enjoying higher margins and profitability.
The biggest advantage that Micromax enjoys over its competitors
like Intex has been its operational efficiency in inbound-outbound logistics
and after sales service. Exclusive contracts with suppliers like Foxconn
allows Micromax to enjoy volume discount on its import of finished goods
which results in considerable cost reduction. The contract also enables
Micromax to the get the advantage favourable credit policies with the
supplier. Micromax has also entered into exclusive contracts with the
retailers and distributors leading to faster inventory turnover and
operational cost reduction. Micromax offers its distributors higher margin
compared to other competitors which help Micromax strengthen
relationship with existing distributors and retailers. Micromax leverages
this relationship to bargain better prices with the distributors which gives
it competitive edge over its rivals. After sales service is another value
chain activity where Micromax has been able to achieve significant cost
reduction in the last 5 years. By incorporating modular service centers
throughout the country, Micromax has been able to bring down the
average number of pending complaints by a factor of five. This has
obviously contributed to servicing cost reduction for Micromax.
Furthermore, Micromax plans to ship its entire production line to India by

2018. Currently it has one manufacturing facility in Rudrapur, and is in the

process of setting up three more. In-house manufacturing capability will
drive down the costs further and improve profitability in the coming years.
Operating Performance Indicators Micromax
200
150
100 DSO

DIO

DPO

Cash Cycle

Operating cycle

50
0
2010
-50

2011

2012

2013

2014

Cash Cycle
70
60
50
40
30
20
10
0
2010
-10
-20

Micromax

2011

Intex

2012

2013

2014

Exclusive contracts with suppliers and distributors has helped

Micromax speed up its cash conversion cycle over the years. While five
years ago Micromaxs cash conversion cycle of 40-50 days was far greater
than the industry average, today Micromax has been able to reduce its
cash conversion cycle to a meagre 8 days. This is lower than that of Intex,
Micromaxs biggest competitor in the low range smartphone segment.
The cost reduction achieved in different value chain activities,
mainly inbound-outbound logistics and after sales support, has helped
Micromax enjoy higher profitability margins when compared to its
competitors like Intex. The graph below shows the various profit margins
of Intex and Micromax over the years.

P BDI TA as % of t ot al inc ome

Micromax

Intex

25
20
15
10
5
0

2011

2012

2013

2014

PAT at % of t ot al inc ome

Micromax

Intex

14
12
10
8
6
4
2
0

2011

2012

2013

2014

Micromax capitalized on a rapidly growing smartphone market and

targeted the rural segment of the market, which was still unpenetrated at
the time, to drive up volume sales of its product and increase the market
share. Having a deep understanding of the Indian consumers and the
enjoying the advantage of being the first mover enabled Micromax to
expand its presence in the Indian as well as global market. During the last
quarter of 2014, Micromax became the largest smartphone manufacturer
in India by volume. Although Samsung regained the top position in market
share in 2015, Micromax is still growing strong and is currently on 2 nd
position. However, a change of strategy is required if Micromax is to
survive in the industry and enjoy consistent long term profitability. Almost
all the value chain activities that either led to reduction in cost, or
increase in WTP for Micromax cannot give the company a sustained long
term advantage over its rivals. This is because most of the core value

chain activities of Micromax can be imitated by its competitors in the long

run. Besides, the cost of purchasing finished goods from China has also
gone up due to increase in labor wage rates and unfavorable dollar
fluctuation. To enjoy long term sustainable profitability in a dynamic
industry like consumer electronics, innovation is of utmost importance.
Increasing its R&D expenses in the future will enable Micromax to
compete even in the premium phone segment where it can enjoy higher
margins. It has also developed in-house manufacturing capability in India,
which will further bring the cost down and increase the profitability
margin.
Micromax's growth strategy has followed three clear stages. When it
started out, the company picked handsets from China, rebadged them and
sold them in the India market.In the second stage, it realised the need to
do extensive research in terms of Indian consumers' demands and product
development.Now it has crossed over into a new phase, where the
company has started following a mix-and-match strategy - getting some
products manufactured in China and other countries, sourcing
components from abroad and manufacturing some of the newer lines in
India. Only time will tell whether Micromax is able to leverage this
newfound strategy to enjoy long term profitability.
VRIN analysis

Resource
s

Valuab
le

Rar
e

Inimita
ble

Nonsubstituta
ble

R&D

Exclusive
contracts
with
suppliers

Y(short
run)

Asset
Light
Business
Model

Exclusive
stores
(experien
ce zones)

Service
bundling

Y(short
run)

Exclusive
Online
Selling
(Amazon)

After
Sales
Service

Research & Development: What gave Micromax a competitive advantage over

its rivals like Intex is the speed at which it was able to introduce new products to
the market. Moreover, Yu Televentures, a subsidiary of Micromax, has recently
filed for four patents on hardware innovation design. Hence this resource is
valuable to the company as it would dictate the market share in the coming
years as technology improves and the company needs to stay ahead in the
technological curve. It is not rare because almost all companies have an R&D
department.
Exclusive contract with supplier: . Exclusive contracts with suppliers like
Foxconn allows Micromax to enjoy volume discount on its import of finished
goods which results in considerable cost reduction. The contract also enables
Micromax to the get the advantage favourable credit policies with the supplier.
This resource has helped micromax to reduce the selling price and pass on the
advantage to the buyer. It is valuable to the company as it drives end sales.
However, it is not in imitable as company can run out of contracts anytime or
competitors can get into contracts with suppliers themselves. The resource is
non-substitutable
Asset Light Business Model: The online retail penetration has helped
Micromax to set up an asset light business model in its value chain. This has
helped the company to reduce spending excessively on capital expenditure like
production facilities and store outlets. This saving in investment could be used in
other activities like R&D and branding. The profits realized could be right away
utilized in marketing the products, thus expediting the value chain process.This
makes it a valuable resource to the firm. But it is neither rare or in-imitable
Exclusive stores (experience zones): Micromax has 150 experience zones
spread across the country. Here customer can get the look & feel of the devices.
These centers will provide customers with unique product experience, something
they miss when buying from online retail channels. This enhances brand identity
and credibility of the company. It establishes long term customer relationships &
saves cost of acquiring new customers which is more than retaining them.
However this is not the only marketing channel, hence it is substitutable

Service bundling: Micromax is also bundling its products with telecom service
providers like Aircel following in the footsteps of other players in the industry.
This gives them higher penetration in the Indian market. It also helps the
company to lock in customers for 1-2 years. This is in imitable in the short run as
it takes couple of years to get into contract with telecom companies.
Exclusive Online Selling: Online only distribution model, Micromax launched
its Yureka brand of smartphones through a subsidiary. 25000 devices were sold in
seconds over two flash sales in Amazon. Thus Micromax, through its knowledge
of the Indian market and its consumers, was able to leverage both the offline and
online channel of distribution to increase its sales and market share over the
years.
After Sales Service: Micromax, like its competitors, have made huge
investments in after-sales service and have opened more than 370 service
centers in different parts of the country. Micromax have recently established a
service factory in New Delhi which provide a comprehensive range of services,
including chipset and PCB replacement service. Quick turnaround time in
servicing has been a key differentiating factor Micromax with respect to its
competitors like Intex, Lava, Karbonn etc. This resource is valuable as it prevents
customers to switch brands. Also after sales service cannot be replaced. It is a
part of customer retention strategy.
Competitor dynamics
Competitor Analysis
All major companies in the industry have the same common resources and the
same set of suppliers. The hardware and the chipsets used in the phones are
almost similar. The primary resources used in the smartphones are CPU, Chipset,
Graphic processor and the Operating system.
So while we analyse the suppliers of the units, we see that mobile chipset is
supplied by 3 major companies Qualcomm, Mediatek and Intel in a few cases.
Similarly, the Graphic processor units (GPU) are supplied by Mali and Adreno
which constitute the majority smartphones. So, the resource similarity in these
phones is pretty high.
DRIVERS OF COMPETITIVE BEHAVIOR
AMC framework will be helpful to have a clearer understanding of the
intensity of competition present in the mobile industry,
Aware- The launches in the mobile phone industry are done on a huge scale to
gain maximum publicity and attention. Also, industry experts are closely
monitoring the action of each incumbent and entrants. Every firm in the industry
share the same objective of delivering best functioning phone with optimum
specification and minimum price. And every time micromax announces a new
product with price cuts, companies like One plus, Xiaomi and oppo announce
their devices in no time.

MotivationFrom a strategic point of view, there is no better market for mobile phones than
India. The huge potential market with 812 million potential users by 2019 is
hardly fought by all competitors. Mobile phone companies are likely to invest Rs
650 crore by March and production of handsets in value terms is expected to
cross Rs 40,000 crore by the end of current fiscal. This just describes the stakes
put by the industry on India.
Capability
Currently all the major competitors have the resource and talent capability to
compete in the market. Not a great level of expertise in needed by the
companies because the majority of production is outsourced to Chinese and
Taiwanese manufacturer. But the economic backing by the investors and parent
companies is substantially large. Micromax got $ 1.2 dollars investment from
Alibaba, Xiaomi (a Chinese competitor) is valued at $ 50 billion and it is investing
heavily on India. Intex mobiles also invested 1000 crore rupees in building plants
in Rajasthan.

Current Business Model

Inbound/Outbound
Logistics Exclusive
Contracts

Low Costs
Manufacturing in
China

Low Price

Low
Turnover
time
Flood market
with phones

Aggressive marketing and

Advertising Strategy

Market
Share

Targeting niche
Brand
segments such as
ruralpropagation using
Brand Ambassador and Asia
and female
Cup

Future Business Model

Low Price

Price

Inbound/
Outbound
Logistics

Profit
Low Cost
Market Share

WTP

R&D
Marketing and
Branding

In House
Manufacturing

OUTCOME
The outcome of such intense rivalry has been intense price wars. This has led to
wafer thin margins in the industry. Almost all the companies are suffering due to
this kind of low margin operation. Micromax net profit was just 6.1 % in the year
2013-14, while Lava and Karbonn had a profit margin of 5.6 % and 9.1 %
respectively. So any dip in prices or increase in costs can hurt these companies
financially. The mobile companies are leveraging the deep pockets of the
investors to gain maximum possible market share, however severely losing out
on profits.