Micromax to face strong competition in Russian smartphone market

Micromax will have to make efforts to make its gadgets popular in Russia. Source: Itar-Tass

Micromax will have to make efforts to make its gadgets popular in Russia. Source: Itar-Tass

Indian handset manufacturer eying the niche of low-cost smartphones in Russia will have to race against Chinese vendors not only in price and quality, but in overcoming the lack of brand awareness among consumers.

Micromax, which recently announced international expansion plans, looks to become the first Indian handset maker to enter the Russian market. Industry experts believe that the company will not only have to deal with establishing a new distribution network, logistics and consumer services infrastructure, but also with the negative perception that Russian consumers have towards Asian brands.

In its home market, Micromax is struggling to win over the top position in the smartphone segment from current leader Samsung. According to International Data Corporation’s (IDC) report for Q2 2013 for India, Micromax crossed the 2 million units mark in sales. 

Though the positions of global vendors like Samsung, Nokia, Blackberry and Apple are strong in India, their market shares have been steadily dropping due to intense competition from the local vendors including brands like Micromax and its competitors like Karbonn, Lava, Intex and Celkon.

The local vendors, as well as their Chinese counterparts, have understood the key success factors for a modern smartphone: a low-price, a large screen and a dual SIM slots. Micromax’s  latest Canvas series smartphone Canvas 4 not only suits these key requirements but offers such smart features as “blow to unlock” or “smart pause while watching video” just as Samsung Galaxy S4 does.

At the same time the Micromax devices are sold at half the price: Canvas 4 is priced in India at $287 while Samsung Galaxy S4 is retailing at around $529.  Will all these factors work for Russian market in the way as they do in India?

Platform for expansion

The overall sales of handsets (mobile phones and smartphones both) in Russia in 2012 amounted to 42 million units, according to “Euroset”, a pan-Russia mobile retail chain. The market grew 5.8 percent in size and 14.4 percent in value.

Just like in India, the Russian smartphone market showed a tremendous growth while the market share of mobiles and feature phones (not smartphones) is further declining. The sales of smartphones in Russia increased from 8.1 million units in 2011 to 12.3 million units in 2012, according to Moscow-based J’son & Partners Consulting.  The figure is expected to rise to 17.4 million devices in 2013, while the sales of mobile and feature phones is likely to drop almost 27 percent within this period.

According to IDC latest statistics for Russia, smartphones captured an increasing portion of the Russian handset market in the second quarter of 2013, accounting for 39 percent of total shipments.

“Smartphones now account for nearly two handsets sold in five in Russia,” says Simon Baker, program manager for mobile devices at IDC in Moscow.

Tough competition

Samsung is the vendor that maintains its leadership position in smartphone markets all over the world, and Russia of late is not an exception. Ismail Belov, Director, IT & Innovations at J’son & Partners Consulting, says one of the major outcomes of 2012 was the redistribution of market shares between Nokia and Samsung. “Last year marked a change of the leader of Russian mobile market, for the first time in many years Samsung got this title pushing Nokia to the second position. The distance of Samsung from other players will keep increasing further,” he adds. 

The growth of Android OS in Russia is another important trend as most of the low-cost smartphones sold in the country run on Android.

Ismail Belov says the top-five sold brands in Russia currently are Samsung, Nokia, Apple, HTC, FLY and LG. However, he adds, in past two years the market saw the growth of consumer’s trust for Chinese brands, the quality of which had improved and could comply with international standards.

The report on the Russian smartphone market for 2012-2013 by Russian telecom operator MTS, which has its own retail chain, confirms the trend. The market shares (in numbers) of such brands like Huawei and Fly increased  by  1.7 percent and 4.8 percent respectively within a year while the market share of leading brands decreased significantly. The market share of Samsung decreased from 40.4 percent in 2012 to 31.4 percent and Nokia from 27 percent to 14.3 percent.

Price matters

Consumers will always prefer spending less on a handset given that many vendors now offer devices with large screen and attractive design for $200 and less.  IDC estimates the share of sub-US$200 smartphones in India in Q2 2013 accounted for two-thirds of the total smartphone market. China is another market driven by low-cost smartphones. How about Russia?

“There are two major trends in the smart devices market in Russia determining growth,” a spokesperson of Svyaznoj, one of Russia’s largest retail chains, told RIR. “Firstly it is market expansion due to “medium-priced” segment and secondly, the average price of the devices is reducing.”

MTS estimates the average price of a smartphone in 1st half of 2013 was $322 which is 0.7 percent down from the same period of the previous year. Svyaznoj experts contend that the average cost of the smartphone reduced by 13 percent to $282 in the end of Q3 2013 and it dropped even more in October 2013.

“Smart devices priced below $100 today make up about 15 percent market share in terms of sales, a year ago it was a zero.  And 40 percent of devices sold in sub-$100-category are smartphones while a year ago it was not more than 1 percent”, he added.

Price will be one of the major factors for Micromax in competition with Chinese brands already established in the Russian market. Besides, there are other drawbacks that may stand in the way of Indian smartphone maker.

“None of J'son & Partners Consulting experts have heard about Micromax plans for Russia before,” Ismail Belov says. “Based on information sourced on the Internet we conclude that Indian brand will first of all compete with Chinese brands such as Texet, Prestigio, Fly. As the market is saturated and the level of competition is very high, the prospects for Indian company are not yet certain. Though if the Indian phone maker will find a unique business-model in Russia, why not?”

The analyst believes the retail sales of smartphones through branded stores won’t be effective in Russia as such experiments by Nokia and HTC were not very successful. The company could start distribution through retail chains, supported by a large marketing campaign. He also suggests Micromax could go for a brand-sharing agreement with any other brand, for example Fly, which is already known in Russia, or a telecom operator. The former model is not yet developed in Russia, he adds.

“While entering the Russian market Micromax may face same problems as other similar brands did: yet not many consumers aware about its products,” the Svyaznoj expert says. “Micromax will have to make efforts to make its gadgets popular. In case of sufficient branding and promotion the devices of the Indian manufacturer will advance.”

Micromax seems to be ready for heavy marketing investments. A month ago along with the launch of the latest Micromax Canvas Turbo smartphone, the Indian hand set maker announced appointing Hugh Jackman as its brand ambassador. Appointing the Hollywood star answers the need for Micromax to build an international image. Whether Jackman will be able to impress Russian consumers is another question.

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