Micromax Case Study 352d14

Integral Review - A Journal of Management e-ISSN : 2278-6120, p-ISSN : 0974-8032,Volume 5, No. 2, Dec.-2012, pp 53-61 http://www.integraluniversity.ac.in/net/journalsAndPublications.aspx

SUPPLY CHAIN LESSONS FOR THE NEW MILLENIUM: A CASE OF MICROMAX INFORMATICS Salma Ahmed (Professor, Department of Business istration, Faculty of Management Studies & Research, Aligarh Muslim University, Aligarh, India)

Abstract Micromax, an Indian mobile handset manufacturer started operation in Gurgaon (Haryana) as an embedded software design firm. It moved to reselling PC hardware and finally entered the arena of handset manufacturing in 2008. In a short span of four years, it has made a name for itself and has secured the 3rd position in the highly competitive Indian mobile industry making a place for itself in an industry which was otherwise being reigned by MNCs. It was able to do so solely because of identification of consumers’ needs, customization of products, an agile supply chain and a relentless focus on what it called 360 degree branding-identifying store branding, merchandisers in key retail and channel marketing. This case details Micromax’s operation with a focus on need gap identification, customization of products, and channel relationship. Keywords: Need-gap identification, product customization, Triple-A Effect, agility, adaptability, alignment, 360 degree branding, channel marketing, channel relationship. 1. Introduction: 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. A company further needs to understand that supply chain excellence means more than just low cost 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 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 12th 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. Mobile Handset Industry: 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 s and it is expected that Integral Review - A Journal of Management, Vol.5 No.2, Dec.-2012

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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 LG to 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 12th 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, USA and Nepal to meet export market needs. 2.1 Micromax-The Indian Innovator: Micromax Informatics, the Gurgaon (Haryana) based handset mobile manufacturer, started operation as an embedded software design firm. Its owner was Rajesh Agarwal. He was ed 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 3rd 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 Micromax has Many Firsts: 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 Micromax Focus-Indian Rural 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 telecom companies 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. Integral Review - A Journal of Management, Vol.5 No.2, Dec.-2012

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2.4 Product Innovation at 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 therefore need of constant re-charging of a battery proved to be a constraint. The Xii, was an innovation, born from the realization that many Indian villages and towns did not get enough electricity to even re-charge a phone daily. The company identified a need gap and converted it into commercial product based solutions. Hence Micromax’s capacity to identifying a latent need led to the wide acceptance and success of the product. It can be said that Micromax therefore ‘created and owned a category’. It also introduced the dual SIM and though the dual SIM feature 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 low prices, 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 A and B cities. Micromax proved that even in a crowded market there could be features, niches and categories that could be carved out even by a new entrant. Micromax’ thrust was the rural areas and today 80% of the company’s market share is from rural areas. 2.5 Expansion in Global 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. Triple A Effect of Supply Chain: Handset manufacturing is an interplay between design house, component vendors and manufacturers. The value chain consists of handset design, four component categories (integrated circuits, ives, modular component, and plastic parts) and three manufacturing steps (PCB assembly, box build assembly and testing). To be successful in India where consumers are highly price sensitive, Micromax offered the products that were value for money (VFM). It also customized (adapted) every offering for the Indian market. To keep Integral Review - A Journal of Management, Vol.5 No.2, Dec.-2012

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the cost low all across the value chain, it focused on development of indigenous design and manufacturing capabilities to achieve higher 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. By responding faster to the market it is able to capture a large market. It fulfilled the criteria set by Hau Lee of ‘triple-A supply chain’ of agility, adaptability and alignment. 4. Distribution -Dealer Management/Service Centres - Customer Relationship: 4.1 Distribution Management: 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 Integral Review - A Journal of Management, Vol.5 No.2, Dec.-2012

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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 network 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 Service Centers-Customer Relationship to meet aftersale service needs: 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 the next version of the same brand. Also these are products wherein a need for repair and renewal (overhaul) may arise. 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 PCB replacement services. The service factory the modular (component) service centers and ASCs by supplying the necessary inventory and ing technical teams to reduce turnaround times. Micromax offers toll free telephone numbers for complaint registration. It also provides onsite service in most of the Indian cities and two hundred Micromax touch points exist which are product engineers and covering 150 Indian cities.At present the company operates through more than 400 service centers operational in about 250 cities and is looking at increasing the number to 700. 4.4 Faster Cycle Stock: 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. Integral Review - A Journal of Management, Vol.5 No.2, Dec.-2012

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5. Consumer Connect-Through Consumer 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 new product is fast lost because vendors have access to the same components and modules. Competitors therefore catch up very fast. They had to provide something more sustainable to retain the customer to itself. 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 them intended 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 themselves 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 Integral Review - A Journal of Management, Vol.5 No.2, Dec.-2012

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product launches. Further it ed its efforts with an efficient manufacturing system, agile and responsive supply chain, consumer branding and effective dealer and consumer management strategies. Learnings and Implication for the mobile handset manufacturers: Learning-1: As the world of handset manufacturing is gradually moving towards a higher degree of specialization and innovation; core technological 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 a responsive and agile supply chain. Focus should be on minimizing stock outs and at the same time reducing chances of obsolete stocks and markdowns. Therefore they should use modular designs and postpone manufacture to be more responsive to the market. 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 on complementary assetslike supply chain efficiency, brand equity, and relationship management with customers as well as dealers to emerge a winner. * Strategy Analytics tracks world’s thirty largest handset vendors on a quarterly basis. References: 1. Fisher L Marshall, (Mar-Apr 1997), “What is the Right Supply Chain for your product?” 2. Lee L Hau, (2004), “The Triple-A Supply Chain, Harvard Business Review” 3. Li Cai Feng, (2009), “Management Science and Engineering” vol.3, No. 2, Agile Supply Chains: Competing in Volatile Markets 4. Stalk Goerge (Jul-Aug.1998), Time Next Source of Competitive Advantage, HBR.. 5. The Indian Telecom Industry, (Oct.2010) “ Market and Competitive Scenerio, Marketing Mastermind” p-54-58 6. www.businessandeconomy.org/micromax’s_quest_for_the 2nd_spot 7. www.business_today/micromax_launces_dubai_operation

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8.

9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. · 22. 23. 24.

www.businessweek.com/supply_chain_excellence, AMR Research, supply_chain_transformation_is_becoming_a_critical_element_ for_driving_business_results_ insight_from_2006_SC_Executive_Summit_tly_hoisted_by IBM_and Stanford_Universitys www.electronicb2b.com/india_set_to_become_a_mobile_handset_manufacturing_hub/sept 20,2010 www.forbesindia.com/ www.knowledge.wharton.upenn.du/india’s_mobile_providers_competing_for_calls_at_the _bottom_of_the_pyramid/july 1,2010 www.knowledge.wharton.upenn.edu/india/article.cfm?articleid=4172, March 8, 2007, Marketing to Rural India: Making the Ends Meet”, www.livemint.com www.maxionline.wordpress.com/micromax_the_story/oct. 2,2010 www.micromaxinfo.com/media_kit.php/nothing_like_anuthing www.moneycontrol.com/news/business_on_edge_micromax_mobile_avantage/feb 27, 2010 www.rediff.com/money/2003/aug/21rural.htm, August 21, 2003“Corporates Turn to Rural India for Growth www.siliconindia.com/80%_of_indian_mkt_will_be_android’s_by_2015/feb.21,2012 www.theeconomictimes.com/Feb_20-2010/union_budget_2010_telecom-company_see_mass_ local-production www.themobileindian.com/micromaz_capitalising_on_innovation_and_pricing/mar14,2011 www.thisweekbangalore.com/p=6809/jan 2012/microma-imises itsquest for consumer involvement www.trak.in/tags/business/2011/06/27/Top_10_mobile_handset_manufacturer_by_revenue_in_ 2010_2011 www.voicedata.ciol.com/content/news/112050415.asp/micromax plans a 360 degree branding, May 04, 2012 www.voicedata.ciol.com/content/service_provider/leadership_in_the_making/jan.5,2010 www.wikipedia.or/baddi

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Table-1: Mobile Subscription (Expected Scenerio) Year

Penetration

Mobile Subscription

FY 2005

05.0%

054.00 (million)

FY 2006

07.5%

083.00

FY 2007

09.7%

109.00

FY 2008

11.7%

134.00

Mar 09

18.2%

148.77

Source: Morgan stanley,www.hclinfinit.com Table-2: Top 10 Mobile Handset Manufacturers by revenues in 2010-11

Table-3: Product Category S. No. Category

Company

Rupees(Crores)

1.

Gravity

Nokia

12,929

2.

Universal Remote

Samsung

5,720

3.

Gaming

Micromax

2,289

4.

3-G

RIM

1,950

5.

Marathon Battery

LG

1,210

6.

Multi-Media

G FIVE

1,326

7.

Querty

Karbonn

1,004

8.

Smart Phone

Spice

920

9.

Dual Sim

Maxx Mobile

745

10.

Utility

Sony Ericsson

690

11.

Android

12.

Touch Screen

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