Micromax Mobile Advantage

Though the company started making mobile phones only in 2008, it was founded in 1991 by Rajesh Agarwal as a distributor of computer hardware for brands like Dell, HP and Sony. In 1999 three of his friends — Sumeet Arora, Rahul Sharma and Vikas Jain — joined him as equal partners in the company.

Agarwal, the eldest of the four, keeps a handle on the company’s finances. The quieter Arora, a “class topper”, is the company’s chief technology officer. Jain manages Micromax’s alliances and partnerships with other companies. And the tall and fashionable Sharma is the risk taker with the big ideas.

It was Sharma who convinced the others, after nine years of selling computers, software courses and “fixed wireless” public phones (PCOs), to enter the crowded mobile phone market. The company’s first phone, the X1i, was born from the realisation that many Indian villages and towns didn’t get enough electricity to even recharge a phone daily.

Catering to a Need
By increasing the size of the battery to 1800 mAh, Micromax was able to tout a standby time of 30 days for the X1i. And at the rather affordable price of Rs. 2,150, the phone was a big success in rural India.

The unexpected success of Micromax’s first mobile phone taught the four friends two key lessons. One, “If you give people something that helps them in their day to day lives, they will buy it,” says Sharma. Two, even though there were over 50 companies selling mobile phones in India, with Nokia alone dominating over 60 percent of the market, there were features, niches and categories that could be carved out by a new entrant.

“We knew that competing on price along with Nokia, Samsung or LG would not get us anywhere. Instead we wanted to create, and own, categories,” says Agarwal.

The friends realised that intense competition among mobile operators for subscribers would inevitably lead to multiple connections per user. But carrying two phones around in your pockets wasn’t something most people fancied.

The seemingly obvious solution — handsets that accept two SIM cards simultaneously — became Micromax’s second killer category.

Micromax neither had the brand awareness of a Nokia that would lead to customers asking for its phones from retailers, nor the clout to force massive volumes through distributors. Yet it also saw that commissions given by phone manufacturers to their channel partners were often very low, leading to a lot of dissatisfaction. This is what they decided to capitalise on. “Nokia usually gives a channel margin of 2 percent, of which 1 percent is usually given away as discounts. The remaining 1 percent cannot sustain any business,” says Agarwal. Nokia could not respond to Forbes India’s queries for this story within the stipulated deadline.

So Micromax decided to give a 5 percent commission to each of its distribution chain partners — the 34 “super-distributors”, the 450 distributors and the 55,000 retailers. But there was a catch — it would not offer any credit. Instead distributors are expected to complete an online bank transfer to Micromax before getting any of its phones to sell further on.

“As a result we are not plagued with dead inventory, periodic schemes or issues around “price protection”. The retailer only picks up what he sees demand for. And because their money is involved, partners tend to work harder,” says Jain.

But having a lean, cash-based supply chain means Micromax has to be much more accurate and faster in its forecasting as compared to its bigger competitors.

Naveen Wadhera, a director with the $16 billion private equity firm TA Associates, finds Micromax’s supply chain one of its real strengths. “Their time-to-market from the design to production stage is around three months as compared to the 18 months taken by larger guys,” he says. TA Associates recently acquired an undisclosed stake (though less than 20 percent) in Micromax for $45 million, valuing it upwards of $225 million.
Still there are more sceptics than believers in the company.

Disproving the Disbelievers
Its sceptics say Micromax’ rise has been fuelled to a large extent by the Indian government’s decision to bar illegally-imported Chinese phones that lacked an identifying IMEI number. As consumers rushed to replace their cheap Chinese phones, many opted for the relatively cheap Micromax ones.
Others say without a strong consumer brand or control over its own distribution, it has no competitive advantage in the long term.