CURIOUS CASE OF MICROMAX

ORIGINS
Rajesh Agarwal, a first generation entrepreneur, had set up Micromax with his friends Rahul Sharma,
Vikas Jain and Sumeet Arora in 2000 as a software company. Headquartered at Gurugram, in the
northern Indian state of Haryana, Micromax initially focused on software development, but Agarwal
quickly found that there was huge potential in the largely unregulated but fast-growing mobile handset
market. Micromax entered this business in 2008, procuring handsets from contract manufacturers in
China and Taiwan. Agarwal was keenly aware that Indian consumers were very price conscious and
that there would be readily available demand at the low end of the market for value-for- money phones.
Further, he understood that much of this market was in rural and remote areas and that customers in
these areas were very different from urban customers. The penetration of consumer electronic products
was very low in rural areas, offering him a clear opportunity in that market.
Agarwal and his team invested time and effort in understanding the Indian mobile phone consumer,
particularly the rural consumer. With their in-depth knowledge of these consumers’ unique preferences,
they were able to procure mobile handsets from China and Taiwan containing many features that were
being offered for the first time in India. For example, the problem of power shortages in rural India led
Micromax to introduce a 30-day battery backup in their mobile phones. Further, many Indian mobile
phone users wanted more than one SIM card on each phone to take advantage of promotional offers
from different service providers. Micromax introduced dual SIM phones to exploit this need. The other
firsts for Micromax phones included the first quad-core budget smartphone and QWERTY keypads. By
December 2009, Micromax had emerged as a leading Indian handset brand and was selling 700,000
handsets monthly.
In 2010, Micromax entered the tablet market with its Funbook series. Of the 4.14 million tablets sold
in India in 2013, Micromax’s market share stood at 8.9%. By the second quarter of 2013,
Micromax’s market share increased to 22%, with Samsung Electronics holding the top slot with a 26%
share of the smartphone market in India.10 Micromax doubled its revenue from INR 31.68 billion11 in
fiscal year 2012-13 to about INR 60 billion by the end of fiscal 2013-14.
In 2012, the government of India, in a move to reduce the country's fiscal deficit, increased import duty
on complete build units (CBUs) of LED televisions, tablets and mobile phones to 1%. However, to
encourage indigenous manufacturing, there was no import duty imposed on parts and accessories, i.e.,
semi knocked-down (SKD) units, required for the assembly of these products. Agarwal recognized that
manufacturing products in India would certainly enhance their responsiveness to local market needs by
enabling Indian designs for Indian customers and that it would also be cheaper than procuring
readymade items. He knew that in an industry with fast-changing technology, the need of the hour was
to continuously innovate and provide new offerings in response to changing consumer tastes. This
would be feasible only through in-house manufacturing, and Agarwal seized upon this opportunity to
manufacture these products instead of importing them from China and Taiwan.
During this time, he became aware of the bouquet of tax benefits and incentives offered by the state of
Uttarakhand in a bid to attract industrialists and investors. Formed in 2000, the state was seeking to
accelerate its development. The Uttarakhand government had instituted the State Industrial
Development Corporation of Uttarakhand Limited (SIDCUL) to promote industrial development in the
state. SIDCUL initiated a policy to provide tax incentives to industries establishing manufacturing
plants in its industrial estates in three prominent cities, namely Haridwar, Pantnagar and Sitarganj.
However, these incentives applied to companies that had come into production before March 31, 2012.
Agarwal's greenfield company, which would start production after March 2012, was not eligible for
these tax incentives. Not easily dissuaded, Agarwal came up with the idea of taking over Bhagwati
Products Limited, a sick unit in Uttarakhand that had existed before March 2012, and turning it around

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to manufacture electronic goods. He discussed his proposal with SIDCUL authorities, who decided that
it was eligible for tax benefits under SIDCUL's policy and, further, that Agarwal would be eligible for
additional benefits for turning around a sick industry. Agarwal said:
The tax incentive and subsidies from the state government of Uttarakhand were a great
opportunity and helped us keep the cost of our products low as we passed on the benefits
accrued to consumers. This allowed us to be a cost leader in the mobile phone industry, and, at
the same time, we were able to compete with the cheap, low-quality Chinese sets flooding the
market.
In 2014, Micromax embarked on its global growth efforts with operations across Russia and the SAARC
markets with innovative products that challenged the status quo in those countries. As of April 2016,
10% of Micromax's sales came from four countries—Russia, Bangladesh, Nepal and Sri Lanka, and it
planned to grow its revenue from markets beyond India to about 50% by 2020. Micromax also planned
to grow its international presence in markets such as Africa, West Asia, Eastern Europe and the former
Soviet bloc countries, including Armenia and Kazakhstan. Speaking of Micromax's international sales,
Agarwal remarked:
We have aggressively entered Nepal, Bangladesh and Sri Lanka. SAARC region sales account
for over 150,000 handsets per month. In addition to Russia, where we are in the third place, we
also have a presence in Kuwait, Oman, Qatar and United Arab Emirates and we have just
launched our products in Afghanistan. In addition to this, we are looking at the South American
market and have carried out a soft launch in Brazil with three of our products and are eagerly
looking forward to a commercial launch very soon. Our export figures are looking good, and
we expect to increase our market share in these regions as we have reasonably good brand recall
among the local consumers.
By 2015, Micromax's product portfolio had increased to over 65 models, ranging from tablets, feature
phones and smartphones to LED televisions and data cards. In April 2016, as a part of its effort to keep
up with customer demands, Micromax launched two new smartphones supporting 12 Indian languages.
Shubhajit Sen, Micromax's Chief Marketing Officer, said:
Unlike the widely held perception of price being the primary barrier for upgrading from feature
phone to smartphone, our research pointed towards rural folks avoiding upgrades due to their
limited knowledge of English. We had the first mover advantage in coming out with
smartphones in local languages.
The sheer innovation and surprise element of the Indian-based manufacturer were on an all-time high.
Micromax surprised many by introducing Hugh Jackman, a known Hollywood actor, as the brand
ambassador of the company, making it the first Indian smartphone brand to come up with an
international brand ambassador. It introduced Canvas Turbo starring Hugh Jackman. Micromax also
brought actors like Akshay Kumar, Twinkle Khanna and Chitrangada Singh for its smartphone
launches. The company soon become the second largest smartphone seller in 2015 and it was just behind
Samsung with 16.22 per cent market share. The Indian smartphone company enjoyed its dominant
position in the budget segment and it was on Cloud 9. However, the bubble soon burst and it was back
to the harsh reality.
Micromax relied on the Chinese ODM including Oppo, Vivo, Gionee and more to manufacture its
smartphones in China. However, the company got a severe blow when the Chinese brands, which was
once its OEM, decided to enter the Indian market with their own brands. This was the turning point for
the Indian smartphone industry. The Chinese players did their homework and understood the point that
the offline market is the key to establish themselves in the Indian market, explains Navkendar Singh,
Research Director, IDC India. “Oppo and Vivo realised that the offline market, which accounts for

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around 60-65 per cent market, is important. That's why they started recruiting channel partners and
distributors in those territories. They started making lots of investments in the retail sector,” he said.
The Chinese brand took the offline market with a storm. Suddenly we started seeing the blue and green
across all the nooks and cranny of the country. Both the companies paid lots of incentives to the retailers,
which at the end resulted in getting more shelf space on the retail counter and Micromax suddenly found
itself in the backseat. “Micromax and other Indian smartphone players were not able to understand
where this money is coming from and how these guys can spend so much,” Singh added.
Micromax did not have the financial strength to fight the marketing, shelf space and retail exhibition of
Oppo, Vivo and Gionee. The Chinese brands were pumping money left, right and centre to create a
buzz in the market around their smartphones. On the other hand, Micromax and other Indian brands did
not have that much amount of money to tackle the Chinese competition. The company had to face the
brunt of the Chinese invasion as its change of retailers and distributors were going to the Chinese brands.
Micromax decided to lay low for some time and waited for the Chinese brand’s marketing investments
to go dry. Meantime, they pushed the government to sell smartphones through some of their initiatives.
The company did get some relief when they stuck a deal with the Chhattisgarh government for 45 lakh
smartphones to given to women and students in the state in 2018. This helped the company to make a
comeback, but there was no way it snatches the market share from its competition.
Micromax had a strong point of assembling products in India, while at that time none of the Chinese
players had its assembly line in India. Then came the Make in India initiative from the Indian
government and Micromax believes that it will help in curbing the Chinese invasion. However, it took
a different turn. “The Chinese players took this initiative seriously and started assembling in India and
now they are manufacturing their products in India,” Singh asserted. This left no ground for Micromax
to compete with the Chinese brands in the country.

Although it is believed that Micromax downfall was due to the Chinese invasion, however, it is not the
whole truth. The company’s fall was due to their own doing and it was caught on the wrong side of the
disruption. Micromax had around 40 products in the smartphone ranging from Rs 5,000 to Rs 10,000
and all of them were based on 2G and 3G network. “Micromax and other brands did not read the
transition of the whole smartphone ecosystem from 3G to 4G will happen so fast. By the time they
realised, they have so much inventory of 3G smartphones back in China that they were not well-
equipped and not financially fit to dump all the inventory and switch to 4G,” Singh explained. At a time
when the Chinese players stressed on bringing innovative products for the masses, Micromax was
complacent. The brand showed little interest in showing innovation to its smartphone range or adapt to
the 4G at that time. This was quite disappointing for many as a brand like Micromax always stressed
on innovation, especially in its early days. This also gave the lead to the Chinese brands as they were
introducing new technologies at an affordable price point. “Micromax was complacent in any
innovation, whether be it in terms of technology or bringing 4G or even new kinds of devices in the
market, which these Chinese guys were already giving,” Sing said.
For Micromax, it is a story about a brand that turned from no one to disruptor number one to the fallen
one. The company has long enjoyed the trust and love of Indian consumers. The brand was once a

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darling to the customers is now facing a crisis to survive in this industry. It is high time for the brand to
prove its mettle or else we might soon see another smartphone exiting the India business.
Source: The case is adapted from following sources:

1. “Bhagwati Products Limited—Making in India for Micromax” by Sunita Mehta, Surya Kant Sharma and
Arun Pereira.
2. Micromax: Can it regain the attention of consumers? By Rohan Pal (Retrieved from
https://www.themobileindian.com/news/micromax-can-it-regain-the-attention-of-consumers-26547)

Questions
1. Comment on the extent of strategic planning done by Micromax over the years?
2. Could Micromax have done a better job in anticipating the challenges faced post 2014-
15?
3. Do you believe Micromax at the present has any long-term competitive advantage?
Explain.