Chinese smartphone manufacturers are intensifying competition in the Indian handset market by providing greater margins to retailers and distributors than their competitors, according to a report by the Economic Times. This comes amid increased government oversight in the industry, especially for Vivo, whose interim chief executive officer was recently arrested and released on bail under money laundering charges.
Higher margins to boost offline sales
Xiaomi and Realme increased their margins to 8-11 per cent in the recent quarter, doubling from the previous 4 per cent. They surpassed the margins offered by Apple and Samsung, ranging from 8-10 per cent. In contrast, Oppo and Vivo, as per sources cited in the report, retained festival season margins at 16-18 per cent.
The higher margins coincide with a slight decline in the combined market share of these firms. In Q3, the combined market share of the top Chinese handset manufacturers declined to 73 per cent, a marginal decrease from the 74 per cent recorded a year ago, as per data from Counterpoint Research.
However, industry experts suggest that this move might help Chinese brands sustain their position, despite increased government scrutiny on their business fundamentals.
Since last year, Chinese brands, especially Xiaomi and Realme, have been focusing on offline retail, which is more conducive for selling premium products and supporting their push towards expanding into appliances and other Internet of Things products.
“Higher margins will encourage retailers to take time educating customers about the brand and products,” said Tarun Pathak, research director at Counterpoint Research.
He said the online-heavy Chinese handset brands now want to tap into the retail segment to ensure customers get a feel of their products.
“These brands now want a 50:50 distribution of sales from online and offline, where earlier it was around 60:40, or even 70:30, in favour of online marketplaces, where it was easier to sell high-volume sub-Rs 10,000 products,” Pathak said.
“But as they increasingly go premium, they will have to earn the trust of the retailer.”
Pricing challenges ahead
With increasing pressure to turn profitable, pricing products competitively will be a challenge, Pathak said, adding that increasing margins and added costs of expanding into offline retail would have to be factored into pricing new products being launched this year.
According to a report by Business Insider India, four out of five smartphones sold in India were from Chinese companies in June 2022, up from 75 per cent last year.
Chinese smartphone brands have been able to offer innovative features at affordable prices, attracting millions of Indian consumers who are looking for value-for-money devices.
However, they also face challenges such as data privacy concerns, geopolitical tensions, supply chain disruptions and regulatory hurdles that could affect their growth prospects in the world’s second-largest smartphone market.