Strategy behind the screen

Last week, this column discussed about the secret sauce behind the electrifying rise of Havells, a dynamic company that has managed to carve a unique space for itself in the global electrical goods business.

The focus of this week’s column is a much younger company, but one that could make the growth of Havells pale in comparison — albeit in a different industry — electronic gadgets. I am talking about Micromax — the brand that’s been giving the likes of Samsung and Nokia a run for the money, at least in India.

Micromax is the 12th largest handset manufacturer in the world with presence in 14 countries. In India, it is No. 3 in the mobile handsets space behind Nokia and Samsung, is eyeing the No. 2 slot in smart phones and is already No. 1 in tablets! What more, recently, the company announced its launch of LED TVs aiming to shake up that segment as well.

It is hard to imagine that Micromax has managed to achieve all this, considering that the company’s entry into mobile handsets space was only in January 2008.

Prior to that, Micromax — founded in 1991 — was involved in myriad businesses such as distributing IT peripherals and PCO devices amongst others, but none of them managed to attain great scale. However, the wireless PCO business did sow the seed for the idea of diversifying into mobile handsets for the company’s founders — Rajesh Agarwal, Sumeet Kumar, Rahul Sharma and Vikas Jain.

The first product, aimed at rural customers facing acute power shortage with a battery life of 30 days was a runaway success and as they say — there’s been no looking back since. From less than Rs 50 crore revenues just a few years back, Micromax expects to clock its highest revenues ever this financial year, in excess of Rs 2,500 crore.

Core mantra

Today, Micromax aspires to have a presence in every smart device with a screen, which is the strategy behind its expansion into tablets and TVs. A multitude of factors has helped Micromax achieve its current position, but product innovation at affordable price points has been the core mantra.

Be it the launch of dual SIM phones, QWERTY phones, water-resistant models, attractive designs for women or a tablet for less than Rs 10,000, Micromax has managed to understand the pulse of the local customer and quickly move to address gaps in the market, through innovation.

It took years for peers like Nokia to replicate the dual SIM idea and this is what helps Micromax thrive amidst global giants.

What more, after tasting success in India, Micromax is now focussed on replicating the same in other emerging economies in SAARC region, Africa, West Asia and Latin America.

Key ingredients

Here are few more noteworthy factors contributing to the success of the Micromax:

Asset light business model: While Micromax focuses on the core competencies of product development, design, marketing and branding by having in-house teams, most of the rest, including manufacturing and distribution, is outsourced. This has helped the company scale up fast.

Low working capital: By asking distributors to pay cash upfront before delivery, in return for larger discount margins compared to peers, and leveraging lucrative credit periods from OEM partners, the company is able to operate with minimum working capital, as a result boosting return on capital employed.

Agility and rapid execution: Time to market new products from concept to launch is about three months for Micromax compared to around 18 months for larger competitors

Branding and marketing: What’s the point in having a great product at an attractive price point if people do not know about it — that’s the logic behind the massive marketing budget in excess of Rs 100 core. By betting heavily on cricket and the youth segment, Micromax enjoys a superior marketing return on investment.

Optimum balance of durability, features and price: With product lifecycle of gadgets and especially mobiles shrinking to less than two years, most customers are not interested in paying for a mobile that’ll last forever — what they want is the latest design and attractive features at affordable price point. But a latest cookie cutter international product with a whole array of standard features may be too pricey and not necessarily relevant to the local customer. What Micromax has managed to do is offer the optimum balance of durability, features and price by keeping their eyes and ears close to the local customer pulse.

Extensive nationwide distribution network and after-sales support: Micromax has a three-tier distribution network in India, consisting of state-level distributors (60+) , local distributors (800+) and retail outlets (50,000+) covering almost all the States in the country, including Tier-2 and Tier-3 towns.

In addition, they have set up a large (400+) network of third-party-owned after-sales service centres that offer quick turnaround customer service as a key differentiator.

Despite the vast difference in scale, could Micromax become the Samsung of tomorrow in the electronics space? Only time will tell.

The bad news for investors is that Micromax is not yet listed and its attempt to go public in 2011 had to be aborted due to poor stock market conditions. But now that the financial markets seem to have turned a corner, who knows, the company could possibly hit the IPO market again — Better late than never.

(The author is a business consultant. Feedback can be mailed to >perspective@thehindu.co.in. The views are personal.)