Porters five forces

Barriers to Entry (LOW): The US and Chinese markets have reached saturation point. This
has led to many Smartphone manufacturers to look towards India. India is one of the fastest
growing markets in Asia and World all around. There are three new companies entering the
market every month. The possible reasons for such low barriers to entry are
1. Government policies The government has provided high incentives terms of tax
benefits to manufacture Smartphone locally .It have also set up high penetration
broadband network to attract investors. Foxconn, contract manufacturer is about to
invest $5 billion to set up 12 manufacturing units in the country. The ambitious Make in
India campaign of the current government has helped reach a Smartphone
manufacturing base of 100 million units.

2. Online Retail penetration The emergence of online retail platform has enabled vendors
to have an asset light business model. There are huge savings in capital investment and
investment in sales channel now. These companies have to invest only in branding &
marketing their products

3. Brand Switching Cost The switching cost in India is low as low cost devices are
preferred over any brand. Indian consumers are known to keep a Smartphone for about
a year and switch to a new one, which offers disruptive technology. Also the low cost
phone segment is not highly differentiated which makes cost as the only valuable factor
in buying these Smartphone.

Power of Buyers (HIGH): As mentioned earlier the price difference is small in India. Rapid
technological changes, data capabilities and advancement in design development have brought
down the input costs for many devices There are over 100 small & big mobile manufacturers
plying their trade in Indian market and each of them is pricing their product aggressively. These
Smartphones offer same features more or less. Hence, buyers have a wide array of choices in a
competitive market like the Indian Smartphone industry. Very recently around 10 companies
chose to cut down the prices of their flagship Smartphone phone in this feature phone segment.
The advantage is passed on the buyer.
1. Backward Integration There is a low threat of backward integration from the buyers. One
of the cases is that of the mobile operators like Videocon that started manufacturing
phones under their own brand. These phones however have not been so popular among
customers

Power of Suppliers (MODERATE): The supplier power is moderate in case of components like
the microprocessors (Qualcomm and Intel), physical memory, NFC technology and special
screens (Corning) differentiate the final products and affect their selling price and margins.
These niche suppliers are mostly concentrated. In addition, there is large number of players in
the market, which gives them multiple opportunities and customers.
1. Switching costs However in case of software stack, operating system and design
requirements mobile manufacturers have a moderate switching cost. Example - Phones
running windows mobile operating system can switch to android easily.

2. Backward Integration This possibility is low for low-cost feature phones as the cost
incurred for vertical integration is very high. In addition, there would have to be a lot of
investment in the R&D as well as patent acquisitions for niche technologies. This would
take time and could affect the selling prices as the input costs go up.

Threat of substitution (Low): The threat of substitutes is low as alternate products like tablet,
laptops and Personal Digital assistants do not quite offer the same functionality as the phone.
The bulkiness of a tablet in addition to their non-calling functionality makes it difficult to replace
a phone even though it has been growing in popularity.
The phone offers a better price-performance ratio as compared to its substitutes. Mobile phones
are portable communication devices, which are indispensible. Its ubiquitous nature makes it
very difficult to substitute

Rivalry among competitors (HIGH):

1. Industry Growth Although there was a growth in the user base which reached 220 million
surpassing US , the Smartphone shipped to India grew by a figure of 15% annually in Q4
of 2015. During 2015, the total shipments amounted to 100 million units. This gives a
picture of the pace of the industry growth. More than 100 players from India, China,
United States & South Korea compete in the Indian market.

2. Intense Competition The retail volume breakdown chart below shows the number of
companies with their market share. This shows that there is very high competition
amongst the competitors to gain maximum market share (by volume) in the Indian
market.

Phone
Samsun
g
Microm
ax
Karbonn

2010

2011

2012

2013

2014

2015

17.7

19

13.8

23.8

22.1

21.5

4.2

7.1

6.6

11.8

15.8

16.1

2.9

5.5

7.7

9.3

Intex

0.2

1.5

2.6

8.2

Nokia

11.7

8.1

Lava

0.8

5.2

6.5

iBall

0.2

0.6

2.3

2.6

3.4

3.8

0.5

1.5

1.8

2.1

Gionee
LG

5.9

3.2

3.8

2.9

2.3

2.3

1.8

0.1

1.7

1.7

1.6

0.1

0.4

1.8

2.8

1.6

Xiaomi

0.5

1.6

Xolo

0.1

0.6

0.9

1.5

Videoco
n
Sony

0.1

1.4

2.3

1.8

1.4

3.7

1.2

1.2

1.1

iPhone

0.1

0.2

0.6

0.6

ZTE

1.9

1.4

1.3

0.9

0.9

0.9

HTC

0.1

0.2

0.1

0.1

0.1

0.2

0.5

0.1

1.5

0.7

0.2

0.1

0.1

0.1

0.1

0.1

0.7

0.2

0.1

0.1

0.1

0.1

50.3

40.9

21.8

16.7

0.8

1.1

0.5

0.6

0.4

4.8

4.1

0.3

0.6

0.1

Spice
Celkon
Maxx

Motorol
a
Huawei
Blackbe
rry
Kyocera
Nokia
Motorol
a
Blackbe
rry
Sony
Ericsson
Motorol
a
Pantech
Motorol
a

Exhibit Company shares historic retail volume breakdown (Euromonitor passport)

3. Low Margins The income is usually 5-6% of the sales revenue. This is very low in the
value chain.
Micromax : 6.11%
Lava : 5.60%
Only high end Smartphone like Apple has a higher profit margin (21.42%)

Conclusion
The overall Smartphone industry is not attractive for any existing company given :

Barriers to entry are low.

Power of buyers is high
Power of supplier though moderate ,there are concentrated suppliers for some high
performing and differentiating hardware systems like screens and microprocessors
Threat of substitution is low for now.
The rivalry among competitors is high as the margins are low. A lot of companies are
fighting for a share by volume in a similar but booming market. This has caused intense
competition in low cost feature phone segment.