(Chinese Version)

With the widely spread "Are you Ok" from Lei Jun, CEO of Xiaomi, Indian mobile market has once again ignited Chinese manufacturers' passion. The currently third-largest mobile market has a relatively lower entry standard and similar user demands, making it a good starting place for Chinese manufacturers to explore overseas markets. But to be honest, is the truth so simple? Is Indian market a chance or a trap for Chinese mobile phone manufacturers?

Let's take a step back and see why Chinese manufacturers are eyeing on the Indian market. There have been a lot of media coverage and comments on this topic. But as we can see, the fundamental reason is that the business model by simply selling more devices no longer works, on which Chinese mobile manufacturers solely rely to implement the 'low-price device with good functionality for high market share' strategy. It is now approaching the tipping point for certain manufacturers whether they will gain a profit or suffer a loss, though the exact time varies based on their business scale.

Certainly, we are not opposed to this strategy (which is known as 'high product volumes, thin profit margins'), since it might be the most applicable model for Chinese mobile phone manufacturers at present, but we doubt that most of the market players haven't reached a healthy market share so that they can keep a positive profit margin at least.

Firstly, as reported by HIS Technology, only Xiaomi and Huawei reached a double-digit market share in the first quarter, which indicates that the current Chinese mobile market remains highly fragmented. Actually, even Xiaomi and Huawei are suffering from thin profit margins as the majority of their sales came from the middle-to-low end devices, not to mention other manufacturers with even lower market shares. As for Xiaomi, its top spot in the first quarter is mainly attributed to the newly-launched Hongmi series smartphones, whose average price is lower than 1000 RMB.

Secondly, according to TrendForce, global shipment volume of smartphones declined a year-to-year 9.2% to 291 million units in the first quarter in 2015, which is primarily caused by weak demand in China. As the market gets more saturated, Chinese manufacturers has less room to improve their market shares without further lowering the price, which might be highly risky for those smaller players who stand the risk of seeing their thin profit margins turn into a loss.

In fact, two of the biggest Chinese mobile phone manufacturers, Lenovo and ZTE, have failed to retain their places among the Top 5 amid such a market transition, let alone the second tier brands. It is clear that the strategy to simply pursue high volumes while keeping a thin profit margin has come to an end, which forces the bigger manufacturers to expand to foreign markets (like India).

After recapping the business model of Chinese manufacturers and the market landscape in China, we can see that the key to the question we raised in the beginning is to find out the new tipping point in India for Chinese mobile phone manufactures, so that they can keep at least a positive profit, as well as the influencing factors of the tipping point. 

Let's do a simple math here: the biggest Indian mobile phone manufacturer, Micromax, has recently launched a new mobile phone model named yureka, powered by a Qualcomm Snapdragon 615 along with 2 Gigabyte memory, 16 Gigabyte storage, a 5.0 megapixel front camera and a 13 megapixel rear camera. The only weakness of yureka is its 720P 5.5-inch display, versus Xiaomi 4I with a 1080P 5-inch display. But yureka will be sold at around 882 RMB, which is significantly lower than Xiaomi 4I(1272 RMB), not to mention Huawei Honor 6plus(2649 RMB). It is obvious that the tipping point for Micromax is much lower than those of the Chinese manufacturers, as they can sell their devices at even lower prices.

Although Chinese mobile phone manufacturers have pushed each of their tipping points further enough in the highly competitive domestic market, they are faced with even severe situation in India. Only by reducing the price of their current products or developing new yet cheaper low-end smart phones, can they compete with Indian manufacturers and look for sales increase. Both ways will impose more pressure on their already thin profit as they are approaching a lower tipping point in this new market.

The Indian market has been crowded enough before Chinese mobile phone manufacturers entered. According to Counterpoint Research, the top brand in India for the first quarter in 2015 is Samsung, with a market share of 27.8%, followed by local manufacturers Micromax, Intex and Lava occupying 15.3%, 9.4% and 5.4% respectively, leaving the fifth spot to Chinese manufacturer Lenovo with a 5.2% market share. However, the newly-acquired Motorola contributed a majority of Lenovo's sale, as the Lenovo-branded smartphones only take up 1% market share.

Starting from scratch, Chinese mobile manufacturers is not only competing with the long-time rival Samsung, but also facing severe competition from India's local market players. What's more, Chinese manufacturers will need to invest heavily in promoting their brand, building sales channels and marketing networks all over again, which will put extra pressures on these companies.

Some might argue that Samsung was once dominant in the Chinese market before getting defeated by Chinese manufacturers. Victory is true, but also cruel. Three of the once-mighty alliance formed by the largest Chinese manufacturers - ZTE, Coolpad and Lenovo - all suffered revenue loss, as they fell out of the top 5 in shipments according to latest statistics. In such a highly fragmented market, Chinese manufacturers are forces to their tipping points at an early stage, which makes it harder to expand revenue and increase profit in the long term. Entering the Indian market, Chinese manufacturers will face even severe price war, as they are already outrun by local competitors in market share and brand awareness. 

Some will argue that the Indian market is big enough for Chinese manufacturers to promote their 'low-price device with good functionality' strategy. On the surface, the Indian smartphone market is still growing at a double-digit rate, but the truth is that most of the Indian users will only pay no more than $100, or even as low as $20 to $30 (about 125 to 187 RMB) to purchase a mobile phone, since the average salary in India stands at $295 per month (around 1620 RMB). In most cases, the smartphones are sold at 6700 in Indian Rupee there (around 688 RMB).

We can now see that the current 'low-price' approach will only make sense in China where the tipping point for Chinese manufacturers is high enough to keep at least profitable. But if they go to India, it will be a total different story.

To sum up, the tipping point for Chinese mobile phone manufacturers is more imminent in India, which makes it quite a diffucult task to keep profitable, let alone to increase the currently thin profit margin. Without handling the above questions properly, they will even suffer loss of money, which is a price they cannot afford. What's more, the approaching tipping point indicates that the Indian market is primarily driven more by low price than innovation and value itself, which has no good in helping improve Chinese manufacturers' creativity and innovation. So we can conclude that entering Indian market is more of a trap than a chance for Chinese mobile phone manufacturers.

[The article is published and edited with authorization from the author @Sun Yongjie, please note reference and hyperlink when reproduce.]

Translated by Chen Bin (Senior translator at Echo), working for TMTpost.