The history of Micromax (2011-12 revenue: Rs 1,978 crore or Rs 19.78 billion), which ventured into the mobile phone market in 2008, is one of the most fascinating success stories in the Indian consumer electronics industry. In barely five years, the company has come to occupy the third position (by volume) in the mobile handset market in India and is at No. 12 globally. It leads the Indian tablet market with a share of 18.4 per cent, ahead of veterans Samsung and Apple. The Gurgaon-headquartered company owes its success not just to the ticket it puts on its products or the speed with which it puts new designs on the shelves but to how it has managed these two crucial product inputs by leveraging China. To be more specific, the labour cost advantage and the production flexibility that China offered. Big deal, you may say, given that almost every other handset brand in the world manufactures its products in China. Right from the Apples to the Samsungs to many of our home-grown brands like Karbonn, a whole host of players reaped China's arbitrage advantage. But here is the stumper: the strategy that offered Micromax its biggest advantage in its first five years is under threat and it will require a re-examination by the company - and a number of other multinationals with Chinese production - of their overall supply-chain strategies. The reason is simple. At Shenzhen, where some of China's largest electronics manufacturers are located, the minimum wage is set for a 13.3 per cent hike from this year - a move that could have a ripple effect across the world's major technology companies. According to some estimates, between 2005 and 2010, basic manufacturing wages in the country have soared roughly 70 per cent. "Eventually, Indian companies sourcing products and components from China need to develop local infrastructure. The reports of underage labourers and inhumane work conditions at some Chinese factories can have a cascading effect on the reputation of brands that source from China," says a telecom expert. What has made Micromax's life a little more complicated is its recent entry into categories like tablets and LED TVs. In short, if you were to add the increasing cost of monitoring suppliers and of compliance, that labour cost advantage Micromax enjoyed when it started out looks even more precarious. To understand what Micromax needs to do here on, we need to first understand how the company harnessed China to reach the Top 5 bracket in the Indian mobile phone market. In an earlier interview to The Strategist, Rahul Sharma, co-founder, Micromax, had said: "The strategy is simple: create high volumes, reach the customer base through effective distribution, give them products that are innovative and cost-effective. Finally, create a strong brand."
Micromax's strategy of associating with Bollywood and cricket has also helped. The company's advertising and marketing spend last year, according to experts, was to the tune of Rs 150 crore (Rs 1.5 billion), which would be roughly what Britannia or Heinz spent on their brand communication that year. What has also set Micromax apart is the speed at which it has been able to put products in the market and its tremendous reach. According to Mritunjay Kapur, country MD, Protiviti, the world's largest independent business and risk consulting firm, "Players like Micromax are constantly pushing the product profile - they have been able to identify their markets well and be where the customer is." 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. In effect, Micromax's growth strategy has followed three clear stages, explains an industry insider. 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...
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