I wonder how they will promote them...

Forbes Asia 2/04/2015 @ 6:00PM 138 views

How Smartphone Brands You've Never Heard of Are Taking Over India and China

For the first time ever, an Indian company has taken over as the largest supplier of smartphones in India. Micromax unseated Samsung Electronics as the leading seller of smartphones for the fourth quarter, taking over 22 percent of the market compared to Samsung’s 20 percent, according to new research by Canalys.

Samsung disputed this finding, saying it is still the leader in India with 34.3 percent market share, according to data from GfK. Regardless of whether Samsung is No. 1 or not, it is certainly feeling the heat from domestic brands. Canalys tracking showed two other domestic Indian smartphone makers in the third and fourth spots, Karbonn and Lava.

Homegrown brands are also creeping up on the competition in China. Apple shipped the largest number of smartphones in China in the fourth quarter due to the popularity of the new iPhone 6 and iPhone 6 Plus, but it also felt the heat from domestic competitors. It was followed by Xiaomi, Samsung and then Huawei. In the third quarter, Xiaomi led the Chinese smartphone market with a 16 percent share, ahead of Samsung at 14 percent and Lenovo at 13 percent, according to Canalys.

Though Apple had a great quarter following the release of its new phone models, the figures are still signs of a shake-up underway in some of the world’s most important mobile phone markets. China has the world’s largest number of mobile subscribers, while India ranks second. Consumers in these massive markets are rapidly being won over by homegrown brands that incorporate much of the functionality of an Apple iPhone or Samsung Galaxy, but at a fraction of the price.

A quick comparison of the cost of different smartphones to yearly salaries in China and India illustrate the issue. Off-contract, an iPhone 6 costs upwards of $649. In the U.S., that cost is only about 1 percent of the average per capita income of $53,143 (according to World Bank 2013 figures). In China, however, it is almost 10 percent of the average per capita income, and in India it is about 43 percent. Obviously, the majority of Indians aren’t getting iPhones anytime soon.

Consumers in emerging markets do have some motivation to shell out a greater proportion of their income on a smartphone compared with their American counterparts. First, for many Chinese and Indians, their smartphone is their sole way of accessing the internet, what they use to keep in touch with family via social media, watch videos, even shop online and run businesses. These consumers have essentially “leapfrogged” desktops and laptops, and thus place an even higher priority on getting connected through smartphones.

In addition, the higher price tag can actually be an advantage among some consumers. In rapidly changing developing markets, wealthier consumers seem to be more intent on using products to display their higher economic status. The higher price tag of brands like Apple helps to reassure them that this is a unique, luxury product. That’s only true for a smaller group of the upper and upper-middle class, however. For a vast number of Indians and Chinese, the Apple iPhone is just out of reach.

In contrast, domestic brands like India’s Micromax and China’s Xiaomi have manufactured relatively good smartphones that retail for less than $200. In India, for example, Canalys estimated that nearly a quarter of the smartphones sold in the fourth quarter cost less than $100, while 41 percent were between $100-$200. Xiaomi’s latest Redmi Note 4G costs 999 yuan (about $160); its popular Redmi sells for only about $100 in India.

Part of the reason that these brands are able to retail so cheaply — in addition to the lowest cost of manufacturing and administration in their home countries — is that they take full advantage of cost-cutting measures offered by new technology. Xiaomi, for example, sells its phones online in small quantities in buzz-generating flash sales, and eschews the traditional distribution route of brick-and-mortar stores. In India, Micromax, Xiaomi, and many other low-cost brands are available via Flipkart, the country’s largest online retailer.

With cutting edge technologies and great products, Apple and Samsung are likely to remain very competitive. But they are facing an undeniable shift in trends in emerging markets. Samsung in particular shows signs of hurting – its sales are shrinking, and its market share has fallen to about 25 percent from above 30 percent.

One way that top global brands like Apple, Samsung, Ericsson and others are likely to respond is with more lawsuits. Xiaomi was recently hit with a lawsuit in the Delhi High Court, after Ericsson alleged that Xiaomi was infringing on eight of its patents.

The smartphone industry is hugely litigious in general – Apple and Samsung have been battling each other in court for years. In the past, these brands largely ignored homegrown emerging market brands. Now that these companies are threatening their market share, however, Samsung and co are likely to take on this risk a lot more aggressively.