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Reading: Upwardly mobile: Nothing micro about Micromax

(Students are advised to go thru the chapter on Product Design understand the related concepts before attempting to answer questions given at the end. They may also refer to another reading on Micromax uploaded on Claroline) Although hes never driven a truck in his life, Rahul Sharmas past, present and future is memorably connected to a truck battery. In August 2007, in the powerless village of Behrampur in West Bengal, Mr Sharma saw an Airtel PCO being powered by a truck battery. Every night, the PCO owner would lug the battery 12 km to an adjoining village on his cycle, charge it there overnight, and lug it back to Behrampur in the morning. In late 2007, when Micromax decided to diversify from PCO devices into the business of mobile handsets, the PCO owner of Behrampur was the inspiration for its first product. The company designed a battery that could last 30 days on a single charge and give 17 hours of talk-time. Micromax asked vendors in China and Taiwan to manufacture 10,000 handsets with these battery specs. The X1i, priced at Rs 2,249, was an instant hit in rural India, and Micromaxs handset business was on its way In just 30 months, by staying with this philosophy of making handsets that address specific user needs and are also affordable, its come a long way. Says Rajesh Agarwal, one of the four promoters: We sell a million handsets a month now. With a market share of about 10%, we are a close second to Samsung. There are many views on that 10% figure. Citigroup put it at 10% in February, a top executive of a rival says its 8%, IDC India says it was 4.8% in 2009. According to IDC, Nokia had a market share of 54.1%, Samsung 9.7% and LG 6.4% Never mind the quibbling over numbers. Fact is, the company is mounting a serious challenge to the slippery No. 2 spot in the mobile handset business. In the past four years, the second spot has been lost by Motorola, Sony Ericsson and LG. Samsung has held it for the past 24 months, but Micromax is catching up. We will be No. 2 by the end of this fiscal, says co-promoter Vikas Jain Decided to be different Micromax, its promoters say, posted revenues of Rs 1,600 crore and a net profit of Rs 150 crore in 2009-10. Early on, they decided there was no point in aping the leaders. We had two options compete on price or be different, says Mr Jain. We decided to be different. In its case, different meant a longer battery life or a phone that had two SIMs. Before it found its centre, Micromax dabbled on the fringes, changing its identity repeatedly. Rajesh Agarwal started Micromax in 1991 to distribute IT peripherals. One of his neighbours in Pitampura, in West Delhi, was Rahul Sharma. In Delhis Jamia Millia University, Mr Sharma was friends with Sumeet Arora, a junior. And one of Mr Aroras friends was Vikas Jain. It would be eight years before they would come together to do business. After college, r Jain moved to the US and joined GE, Mr Arora joined Blue Star and Mr Sharma worked with an auto components company called Bundy Engineering. In 1999, all three quit their jobs to join Mr Agarwal. They set up Micromax Technologies, an IT education company dealing in e-commerce and embedded technologies. The four divided responsibilities on functional lines, which hasnt changed since. Mr Jain, 35, is the business director; Mr Agarwal, 45, managing director, handles finance; Mr Sharma, 34, executive

director, oversees marketing; and Mr Kumar, 35, is the chief technology officer. While they dont say how the equity is divided among the four, they do say theirs is an easy relationship. Their big break came in 1999, when Nokia signed them up as an all-India distributor for machineto-machine devices essentially landlines that were customised to run on a mobile network. They were used by call centres and PCOs. By 2004, Micromax had revenues of Rs 10 crore and employed about 80 people. It was installing about 10,000 Nokia 32s a year in India, making it the largest Nokia distributor worldwide for these products. But, overnight, it all threatened to come apart. The same year, Nokia decided to exit this segment. As much as we were shocked, we decided to turn this into an opportunity, says Mr Agarwal. So far, they had been customising a Nokia instrument. Now, they decided to build and sell the whole thing themselves that too 40% cheaper than the Nokia 32. Airtel was its first client. Against the 10,000 devices it sold for Nokia in a year, Micromax was selling 35,000 of its own within a year. Business peaked in 2007, with sales of 250,000 devices. Then, the mobile revolution took over. Overnight, again, Micromax faced extinction. Again, Micromax converted the threat into an opportunity. Six months on, it too hopped on to the mobile bandwagon. But it went about the business differently. It stressed on product innovation for the low-end, price-conscious user. So, it went rural. It worked. Says Mr Sharma: Customers were willing to pay a premium of Rs 200 for the X1i. Then, instead of manufacturing itself, Micromax sourced its handsets from 12 factories in China, South Korea and Taiwan. It was model-based sourcing: Micromax would come up with an idea and give it to the factory best placed to deliver it. This is different from, say, Nokia, which would be compelled to stay in-house or go to a vendor-partner, even if another vendor had better capabilities to execute a particular model. Micromax also looked at distribution in a new way, standing by its cash-only model. While rivals offered a 60-day credit line, Micromax refused to give credit. If the distributor does not buy your handsets, there is no pressure on him to sell them, explains Mr Agarwal. At the same time, Micromax offered to supply distributors regularly to keep inventories down. So, distributors didnt have to shell out large amounts upfront or have a lot of money locked in. If we give a distributor 1,000 handsets and ask him to sell them over a month, he will worry about his daily sales, says Mr Agarwal. But if we supply less, demand will be close to equal or more than supply. Micromax has 34 super-distributors across India. Unlike a Nokia or a Samsung, it doesnt interact with the 500-plus sub-distributors. Neither does it intervene in how the super-distributors sell or place the products. We offer our super-distributors a 15% margin, which is higher than the industry average of 6-10%, claims Mr Jain. Some of Micromaxs competitors, who do not want to be named, say the company fares poorly on after-sales. It addresses a segment that is comfortable with the use-and-throw philosophy. Also, the companys claim of 450 service/care centres are inflated, says an executive with a rival telecom firm. Nokia and Samsung have 900 and 800 service outlets, respectively. The Micromax promoters refute these charges. On product quality, Mr Agarwal says: The plants we are associated with also manufacture handsets for all global majors. They dont apply different

standards while manufacturing for us. He also points out that their phones sell well in rural Ind ia, where users demand longevity. Micromax has taken the utilitarian philosophy to the mid- and high-end also, with a reasonable degree of success. But heres where it gets tougher. Says Romal Shetty, national telecom head, KPMG: In the mid- and high-end, customers expect certain service quality. Micromaxs challenge will be to achieve such quality standards, and convey the same through branding and positioning. Asks Ajay Parmar, head (institutional research), Emkay Global Financial Services: Their biggest challenge will be brand stickiness. Will their existing customers buy Micromax again? Micromax is investing Rs 100 crore to set up a manufacturing plant in Baddi, Himachal Pradesh, to ensure its outsourcing model does not cause supply-side uncertainties. Production is being scaled up from 50,000 units per month to 500,000 units a month by March 2011. Micromax has already expanded to neighbouring countries such as Sri Lanka, Bangladesh and Nepal. The company now plans to expand to Middle East, Africa and Latin America. Over the next few months, Micromax plans to launch four handsets a month. Theres a mosquitorepellent phone, which is designed to emit frequencies to repel mosquitoes, a phone that doubles up as a computer mouse, and a waterproof one. The truck-battery philosophy still rules at Micromax. Questions for discussion: 1. Give a brief background note (including the competitive scenario) on the company. 2. Discuss the operations strategy used by Micromax. 3. Discuss the importance of product design and development process for an organization keeping in view the case of Micromax Mobile. References: 1. http://www.micromaxinfo.com/ 2. Business Week