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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.

-2012
53
SUPPLY CHAI NLESSONSFOR THE NEWMI LLENI UM:
A CASE OF MI CROMAX I NFORMATI CS
SalmaAhmed
(Professor, Department of Business Administration, Faculty of Management Studies & Research,
Aligarh Muslim University, Aligarh, India)
Abstract
Micromax, anIndianmobilehandsetmanufacturer startedoperationinGurgaon(Haryana) as
anembeddedsoftwaredesignfirm. It movedtoresellingPChardwareandfinallyenteredthearenaof
handset manufacturingin2008. Ina short spanof four years, it has madeanamefor itself andhas
securedthe3
rd
positioninthehighlycompetitiveIndianmobileindustrymakingaplacefor itself inan
industrywhichwasotherwisebeingreignedbyMNCs. Itwasabletodososolelybecauseofidentification
of consumers’ needs, customizationof products, anagilesupplychainandarelentlessfocusonwhatit
called360degreebranding-identifyingstorebranding, merchandisersinkeyretail andchannel mar-
keting. ThiscasedetailsMicromax’soperationwithafocusonneedgapidentification, customization
of products, andchannel relationship.
Keywords: Need-gap identification, product customization, Triple-A Effect, agility, adaptability,
alignment, 360degreebranding, channel marketing, channel relationship.
1. I ntroduction:
Achieving supply chain superiority or excellence is within the reach of any company. However,
it requires a vision, as well as the organizational imperative and willingness to invest in the right direction.
Acompany further needs to understand that supply chain excellence means more than just lowcost and
efficiency of operations-it requires an ability to identify demand and respond with innovative products
and services offerings within time. It also means initiating and driving change by collaborating not only
with channel members but also customers across the entire supply chain.
Micromax’s success in the handset industry in a short span of four years (it started operation in
2008) could be attributed to the efficient management of its supply chain. It is quoted to be 12
th
largest
manufacturer in the world and is in the list of top 25 companies in the global SCM. (AMR Research,
2009). It was able to do so solely because of identification of need gaps, converting these into innovative
product offerings, customization of products, manufacturing efficiency, and other dimensions of value
like customer branding, channel management and building an efficient supply chain.
2. MobileHandset I ndustry: A Background:
The handset market is the fastest growing market in the world and India is a burgeoning market
with 10-12 million subscribers being added every month. According to TRAI, market penetration for
wireless phones is at the rate of 49.6% with approximately 584 million users and it is expected that
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mobile density will reach 95% by 2014 (See Table-1). Like many other players Micromax too wanted a
share in the revenue pie. Micromax is India’s third largest mobile handset manufacturer after Nokia and
Samsung. It replaced LGto conquer the third position (Table-2).Currently it holds a market share of 4%
(in unit shipment sale). Micromax sells approximately seven lakh to one million phones every month
and is now selling nearly Rupees One Thousand Five Hundred Crore worth of phones annually.
Micromax is rated as the 12
th
largest handset manufacturer in the world with 1% share globally by a
report. It has set up 23 domestic offices to cater to the domestic markets needs and also international
offices in Hong Kong, Dubai, USAand Nepal to meet export market needs.
2.1Micromax-TheI ndian I nnovator:
Micromax Informatics, the Gurgaon (Haryana) based handset mobile manufacturer, started
operation as an embedded software design firm. Its owner was RajeshAgarwal. He was joined later
by Sumit Arora, Rahul Sharma and Vikas Jain and in 1991 Micromax focused on reselling PC
hardware to brands like Dell, HP and Sony. In 2000 they ventured into marketing of telecom
equipments. They entered the arena of mobile devices with manufacture of mobile handsets in
2008. Their first product Xii was born in 2008. In a short span of four years it has acquired 3
rd
position in the Indian mobile industry making a place for itself in an industry which was otherwise
being reigned by MNCs and big names like Nokia, Samsung and LG.
2.2 MicromaxhasManyFirsts:
Micromax has many firsts to its credit. It introduced the first handset with a thirty day battery, a
handset with dual SIM, handset switching networks (GSM-CDMA), an aspirational querty key pad
handset, to name a few. It became known for its ‘bling’ phone with Swarovski crystal and vanity
mirror. It has created a name for itself for the slew of innovative products and product features
based on consumer centric designs which was enabled as a result of an exhaustive R&D at its
helm. It set up an R&D facility in India because of availability of quality work force at low costs,
domestic market opportunity, available talent pool, and also a large vendor base.
2.3 MicromaxFocus-I ndianRural Market:
India is predominantly a rural economy consisting of 6,38,000 villages and it is estimated that
72.2% of the population resides in the rural areas. Therefore, there is a large market to be tapped.
Further, tele-density is close to 80% in metro cities, 70-75% in major urban centers, and only
30-40% in rural markets. Penetration level being low in rural areas, there is immense opportunity
for telecomcompanies to explore the rural markets. Gradually all the major MNCs are targeting the
potential rural markets in India. Micromax was no exception. However, unlike the MNCs who first
entered the urban market and went into the rural areas on saturation of the urban markets, Micromax
first entered the rural market.
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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.-2012 55
2.4 Product I nnovationat Micromax:
Micromax identified rural customers as a major customer and first focused on the rural markets.
Their first product, the Xii, was introduced for the rural market where electricity supply and there-
fore need of constant re-charging of a battery proved to be a constraint. The Xii, was an innovation,
born fromthe realization that many Indian villages and towns did not get enough electricity to even
re-charge a phone daily. Thecompany identified a need gap and converted it into commercial
product based solutions. HenceMicromax’s capacity to identifying a latent need led to thewide
acceptanceandsuccessof theproduct. It can be said that Micromax therefore ‘created and owned a
category’. It also introduced the dual SIMand though the dual SIMfeature is present in 20-30%of all
mobile handsets sold in India, the company offers this feature on 22 out of 26 phone models it sells in
India. All its products were designed to suit the domestic ‘pallete’ and majorly all designs focused on
‘utilitarian’ concept.
Micromax’s realization that the rural market is a large part of the Indian market made it evolve
a strategy for reaching the villages. It also offered products at very lowprices, which would suit the
rural pocket, thus providing value for money (VFM) products for the price sensitive rural customers.
It also focused on features that addressed the specific challenges facing those living in the rural
areas. Micromax calls its strategy ‘sell deep and sell more.’ And to sell deep and sell more, it
penetrated more in the rural areas in class-C and class-D cities and much later expanded further in
metro and class Aand B cities.
Micromax proved that even in a crowded market there could be features, niches and categories
that could be carved out even bya newentrant. Micromax’ thrust was the rural areas and today 80%
of the company’s market share is from rural areas.
2.5ExpansioninGlobal Markets:
Micromax also sells its products in Bangladesh, Nepal, Srilanka, Maldives, UAE, Kingdom of
Saudi Arabia, Kuwait, Qatar, Oman, Afghanistan, Brazil, and it also plans to enter the African
markets. This helps the company achieve economy of scale and keep operational costs low; thus
achieving its objective of providing essentially value for money (VFM) products.
3. TripleA Effect of SupplyChain:
Handset manufacturing is an interplay between design house, component vendors and manufacturers.
The value chain consists of handset design, four component categories (integrated circuits, passives,
modular component, and plastic parts) and three manufacturing steps (PCBassembly, box build assembly
and testing).
To be successful in India where consumers are highlyprice sensitive, Micromax offered the products
that were value for money(VFM). Italsocustomized(adapted)everyofferingfor theIndianmarket. To keep
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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.-2012 56
the cost low all across the value chain, it focusedondevelopment of indigenousdesignandmanufacturing
capabilitiestoachievehigher localization. Till now, it depended upon China and Taiwan to manufacture
their handsets because of better infrastructure, stronger supply chain and cost effective work force. Besides
these advantages, the zero import duty on mobile phones further enabled it to keep its costs low.
However, of late it has set up a plant in Baddi in district Solan in Himachal Pradesh to offer
Indian products to Indian consumers. The major attractions for setting up plant in Baddi were the slew
of tax incentives that the Government provided. These were a 100 per cent outright excise duty exemption
for a period of ten years from the date of commencement of commercial production, 100 per cent
income tax exemption for an initial period of five years and thereafter 30 per cent for companies for a
further period of five years, and capital investment subsidy of 15 per cent on plant and machinery
subject to a ceiling of Rs 30 lakhs. There were many tax incentives provided by the State Government
too, like including a single window clearance for projects.
The company realized that in the fast changing market the need of the hour is to provide new
offering every other day and being responsive to consumers needs was a key to success. It introduced
forty distinct handset models in a short span of four years. Its product portfolio is divided into twelve
product categories. (See Table-3). The factory at Baddi will enable local manufacturing (Indian designs
for the Indian customers), keep costs low, and also help increase (agility) speed to market.
The company has comes up with a range of innovative products. For the company the time to
market is as short as three (3) months (from design to production stage) as compared to eighteen (18)
months by larger players. Byrespondingfaster tothemarket it isabletocapturealargemarket.
It fulfilled the criteria set by Hau Lee of ‘triple-Asupply chain’ of agility, adaptabilityandalignment.
4. Distribution-Dealer Management/ServiceCentres- Customer Relationship:
4.1DistributionManagement:
Micromax’s distribution set up consists of super stockists, distributors and retailers.
Today Micromax has 34 super-stockists, 450 distributors, and 55,000 retailers and is selling
more than a million units in a month. It has also set up 150 exclusive stores called experience zones
for the urban market. Its products are also available in all leading mobile stores like Croma, Ezone,
Reliance Webworld, Next, Planet M, Reliance Digital, Tata Indicom, The Mobile Stores, to name a
few. To further increase penetration in India it is bundling with telecom operators like Aircel.
4.2 Dealer Management Strategy:
Micromax realized that for handsets, distribution is the most consequential variable in a
fiercely competitive market and therefore it decided to experiment here. Further, distribution in
rural markets of India has its own problems related to logistics and therefore is more challenging.
Also, in a consumer goods industry the success of a product in the market largely depends upon
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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.-2012 57
the dealers association with consumers. In other words, it depends upon the interest taken by dealers
to push the product. Therefore it becomes essential to appease the dealers.
Micromax studied the strategy of other handset players in managing their dealer net-
work and gathered that their margins to dealers were as low as 1-2%. Therefore, it offered a much
higher commission (of 5%) to those who were willing to stock Micromax’ products. This strategy
helped it create awareness and also garner a large share in the market in a short span of 3-4 years.
4.3 ServiceCenters-Customer Relationshiptomeet aftersaleserviceneeds:
Aftersale service requirement is an essential feature associated with a consumer product
and how successful a consumer good is in the market is also dependent upon the provision the
company has made for meeting the aftersale needs of its consumer. This is a very important strategy
for customer retention. Handsets in particular are products which consumers change and frequency
of upgradation is very high (they upgrade in a short span of time); therefore, it is essential to ensure
that the consumer does not deflect to a different player but upgrade to the next version of the same
brand. Also these are products whereina need for repair and renewal (overhaul) mayarise. Micromax
was conscious of this fact and therefore it provided a stable and convenient platform for meeting
the after sale and service needs of the consumers. It has set up 370 strategically located service
centers in India and one in Nepal and Srilanka. In addition, it has also tied up with five third party
owned, modular (component) service centers which are exclusive to Micromax and provide a full
range of after sale service excluding chip set and printed circuit board (PCB) replacement.
Micromax has also established a service factory in Delhi which provides a range of
services including chipset and PCBreplacement services. The service factory support the modular
(component) service centers and ASCs by supplying the necessary inventory and supporting
technical teams to reduce turnaround times.
Micromax offers toll free telephone numbers for complaint registration. It alsoprovides onsite
service in most of the Indian cities and two hundred Micromax touch points exist which are
product support engineers andcovering150Indiancities. At present the companyoperates throughmore
than 400 service centers operational in about 250 cities and is looking at increasing the number to 700.
4.4Faster CycleStock:
The company has an efficient and agile supply chain. It does not offer credit to its
channel partners. Instead the distributors have to complete an online bank transfer to Micromax.
Also it pays its distributors in every three days enabling inventory replenishment twice a week.
The company therefore is not faced with dead inventory (inventory that does not push off the
shelf), or resort to periodic schemes to push products, or even deal with issues of price protection.
The forecasts are also therefore more accurate.
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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.-2012 58
5. Consumer Connect-ThroughConsumer Branding:
Micromax realized in its early years itself that though it made a name in ‘inventing’ surprises’ it
is not a sustainable strategy in an industry which is a crowded market. The innovation in newproduct is
fast lost because vendors have access to the same components and modules. Competitors therefore
catch up very fast. Theyhadtoprovidesomethingmoresustainabletoretainthecustomer toitself. This
could be attained through connecting with customers and establishing a long lasting relationship with
them. The answer was consumer branding.
According to American Marketing Association, ‘brand is a name, term, sign, symbol or design,
or a combination of themintended to identify the goods and services of one seller or group of sellers and
to differentiate them from those of other sellers.’ The objective of a brand is to deliver a message,
confirm creditability, connect with target prospective customer, motivate the buyer to buy a product
‘differentiated’ from other products.
To connect with its customers, it identified three areas-sports, movies and music. It took up title
sponsorship of the entire cricketing season from May 2010; the title sponsorship of One Day Cricket
(ODI) series, which is a rage for all ages and all regions of India, the T-20 series, the Asia cup-2010 Test
Series. It made film star Akshay Kumar its brand ambassador, and for music it focused on GIMA and
MTV co-branded phone.
Connecting with consumers is not a one-time activity but an ongoing process. Micromax
undertakes a range of exercises and one such opportunity to connect with its customers and also learn
how they perceived their brand, it in association with Talenthouse India, organized a creative hunt
contest to revamp its brand logo in Bangalore this year in anuary (2012). The new logo design hunt was
based on its concept of ‘Nothing like Anything’.
6. Conclusion:
As markets develop mobile phone manufacturers will have to adapt their value chain approaches
and re-think the basis of future competitive advantage. Motorola, Ericson, Nokia and Seimens pushed
the frontiers of mobile handset performance and earlier resources required to enter the fledgling mobile
phone industry was beyond the means of small and medium sized players. But Micromax has broken
the norm and proved that even a small player can make a place for itself.
Therefore, one can conclude, that being big and strong with an impressive balance sheet is no
longer a guarantee of long term survival or a guarantee for entry into a highly competitive market space.
In the struggle for survival, the fittest win out at the expense of their rivals and make a place for them-
selves because they understand the environment and also adapt themselves best to their environment.
Micromax tasted success because it understood that India is predominantly a rural economy; and it used
its knowledge of India and business acumen to mine consumer insights and thereby create impactful
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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.-2012 59
product launches. Further it supported its efforts with an efficient manufacturing system, agile and
responsive supply chain, consumer branding and effective dealer and consumer management strategies.
LearningsandI mplicationfor themobilehandset manufacturers:
Learning-1:
As the world of handset manufacturing is gradually moving towards a higher degree of
specialization and innovation; coretechnological capability is a pre-requisite for competitive
advantage.
Learning-2:
Mobile handsets though functional products fulfilling a basic need should be treated
like innovative products, and therefore companies should build aresponsiveandagilesupplychain.
Focus should be on minimizing stock outs and at the same time reducing chances of obsolete stocks
and markdowns. Therefore they should usemodular designsandpostponemanufacturetobemore
responsivetothemarket.
Learning-3:
But in today’s fast paced world, where change takes place in nano seconds, it becomes
increasingly difficult to compete only on product functionality and innovative product features. The
first mover advantage is transient (very short lived). Therefore, only focusing on the product and
attaining manufacturing efficiency would not do. Organiations need to look for more sustainable
strategies. The players need to look beyond core product and focus oncomplementary assets-
like supplychainefficiency, brandequity, andrelationshipmanagement withcustomersaswell
asdealerstoemergeawinner.
* Strategy Analytics tracks world’s thirty largest handset vendors on a quarterly basis.
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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.-2012 60
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Integral Review- A J ournal of Management, Vol.5 No.2, Dec.-2012 61
Table-1: MobileSubscription(ExpectedScenerio)
Source: Morganstanley,www.hclinfinit.com
Year Penetration MobileSubscription
FY2005
FY2006
FY2007
FY2008
Mar 09
05.0%
07.5%
09.7%
11.7%
18.2%
054.00 (million)
083.00
109.00
134.00
148.77
Company Rupees(Crores)
Nokia
Samsung
Micromax
RIM
LG
G FIVE
Karbonn
Spice
Maxx Mobile
Sony Ericsson
12,929
5,720
2,289
1,950
1,210
1,326
1,004
920
745
690
Table-2: Top10MobileHandset Manufacturers
byrevenuesin2010-11
Table-3: Product Category
S. No. Category
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Gravity
Universal Remote
Gaming
3-G
Marathon Battery
Multi-Media
Querty
Smart Phone
Dual Sim
Utility
Android
Touch Screen
Supply Chain Lessons for NewMillenium: A Case of Micromax Informatics