As the Indian mobile base continued to swell, and the basic infrastructure
was in place, its impact on the equipment market dynamics was clearly evident
last year. Handset makers started replacing the infrastructure equipment vendors
at the top slots. If a Nokia-also helped by its carrier equipment sales-occupied
the top slot, the second slot has gone to LG Electronics-an almost pure-play
handset vendor.
India is a fascinating story for this Korean consumer electronics company. It
actually managed to achieve the unthinkable-dislodging Nokia from the top slot
in handsets. And do not forget, India is one of the fastest growing mobile
markets in the world.
LG Electronics achieved a total sales of Rs 2797 crore in FY 2003–04,
including Rs 40 crore sales achieved by LG Electronics India, which towards the
end of the year launched GSM handsets to tap the other big opportunity. Needless
to say, its lion's share came from CDMA mobile handsets that contributed Rs
2259 crore. The balance Rs 498 crore came from CDMA fixed wireless terminals (FWTs).
LG sold 4.5 million mobile handsets, and 0.7 million fixed wireless terminals to
account for two-thirds of the CDMA handset market. Its percentage share in the
combined GSM and CDMA handset sales was 33.5 percent, as compared to Nokia's
29.5. Its RD 2030, according to VOICE&DATA estimates, was the highest
selling handset.
However, unlike GSM vendors, where SIM-based technology allows the users to
purchase their mobile services and phones independently, in CDMA, it is usually
through the operator. So, the LG success story is actually a reflection of the
success of its biggest customer, Reliance. In fact, Reliance is its second
biggest customer globally, next only to Verizon Wireless in the US. However,
that also makes the company extremely dependent on one client, not a great
position to be in.
On the other hand, globally (and even in GSM), customization of handset to
the operator's specification is becoming the order of the day. In fact, this
is one area where companies like Nokia and Motorola have not been too
comfortable. Mass customization is a skill that would help LG as a company, now
that it has become equally aggressive in the GSM arena too.
In GSM, where it launched its handsets in India in October, LG is so far
confined only to high-end handsets. While that makes a good entry strategy, the
growth will be driven by the low-end phones. It remains to be seen what LG's
strategy would be for that end of the market. However, unlike in CDMA, here the
company will have to sell directly to the users and not through the operator.
With companies like Nokia, Samsung, and Motorola strongly in, LG's late entry
could be a challenge for the company.
To meet that challenge probably, LG has adopted a drastically different
distribution strategy. Instead of multi-tier national/regional distributors, LG
has decided to go directly to dealers. It plans to have 20,000 dealers by the
end of 2004, supported by 250-odd service centers.
Despite the high demand, LG does not have any immediate plans for
manufacturing in India. However, industry sources say that LG is exploring the
possibility of manufacturing in India, in partnership with Reliance. Other
indications are that it may go out for contract manufacturing. Though the
company has officially not confirmed anything on this front.
However, it has invested on its India Development Center in Bangalore to
develop software for its CDMA handsets. The center will also work on UMTS and
next-generation GSM technologies.
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