Enter The Dragon: Chinese Brands, Hyper-Competition Will Foster Innovation in India

I recently presented at the premier Device World 2016 event in New Delhi with the hot topic being the influx of Chinese brands in the high-growth and lucrative India market. To put into context, India is the second largest smartphone market in the world with more than 220 million smartphone users surpassing USA last year and behind China. India is also home to almost half a billion unique mobile phone users out of 1.25 billion odd population. This shows how under-penetrated the India market is and there is significant room to grow compared to other big economies in the world.

As the growth options in China market are almost maxed out for Chinese brands, India, thus presents them with the only sizeable opportunity for them to garner growth with scale. However, India also has been one of the tougher markets to grow and scale as you need greater marketing budget, well penetrated distribution network to scale. Though with the advent of e-commerce boom and rise of Flipkarts, Snapdeals of the world, the barriers to entry and expand have significantly reduced. These platforms have grown from serving a few tier-1/2 cities to even tier 3/4 towns now making it possible for the new brands to instantly sell their products to almost 40-50% of the population. In last two years, thus, we have seen Chinese brands flocking to Indian shores, leveraging the online channels to collectively sell millions of units per month. However, as this strategy becomes commonplace and like offline market, the online market is also getting crowded with hyper-price and eyeball competition, the need for fostering innovation beckons.

In light of this, we have mapped the entire smartphone market landscape into four quadrants which aptly summarizes which brands are climbing up the hill, which are on the cliff and in danger of being disrupted and so forth:


A: Hardware Players i.e. selling phones only based on price, specs and design created value by building better distribution and service network in offline channels. This has been a traditional approach and accounts to 65% of the market but quickly being encroached by B,C & D as value prop is shifting e.g. Samsung, Intex, Lava, Vivo, etc

B: Hardware Players i.e. selling phones only based on price, specs and design created value by selling “direct-to-consumer” mostly in online channels. This has been an innovative approach for new brands entering the market which lacks robust offline distribution n/w. This allows these brands to sell good-spec h/w at atleast 20% lower price than A players. B players now accounts to 30% of the market but is being challenged by vertically integrated ecosystem C players and “Hardware as a Distribution” HaaD model D players where the value prop is shifting e.g. Xiaomi, Lenovo, Asus, Coolpad, Huawei-Honor, etc

C: Ecosystem Players i.e. selling phones leveraging network effects thanks to a robust and broad ecosystem ensures higher value proposition, stickiness and lock-in. These players are vertically integrated and will grow organically but will capture maximum value. In long term, these will become more formidable with scale to challenge mostly A players. These players will have strong offline presence with high customer touch points. E.g.: Apple, Jio, etc

D: Ecosystem Players i.e. selling phones leveraging network effects and expand value proposition compared to A & B players by going very competitive on price (almost subsidizing) to build an ecosystem by using HaaD model either by bundling internet services, content or innovative software design and so forth. To achieve this, these brands will have to adopt lower cost online channels which highly suits their business model. These are disruptive with partner led or semi-vertically integrated model. E.g. Yu, LeEco, etc

Summarize, how this landscape is shifting

  • 2016 onwards we will see more shifts from B to A and vice-versa, classic channel expansion to gain scale
  • 2016 we will also see D getting bigger and players in A & B trying to build an ecosystem (hardware or software) to move to D
  • C will become more formidable as they start scaling leveraging their vertical ecosystem
  • D will have to continue to promote their ecosystem to build ecosystem awareness

This hyper-competition, will for sure lead to some brands being almost relegated but more importantly it will force Indian and International brands to invest more in innovation from business model to software to services and so forth. This is great for the industry and Indian economy with great synergies with Indian government’s initiatives to transform India into a manufacturing, innovation hub and connect the next half billions of potential users digitally.

The full report is available here