The problem facing Asia’s emerging smartphone makers is that they don’t make smartphones

The problem facing Asia’s emerging smartphone makers is that they don’t make smartphones

By Leo Mirani @lmirani

April 14, 2014

Micromax, an Indian company that emerged from nowhere to become the second-largest smartphone maker (after Samsung) by market share in India’s growing market, has a problem: It doesn’t make smartphones. Like most homegrown brand-name sellers of smartphones in Asia, it outsources production to manufacturers in China. Xiaomi, Micromax’s counterpart in China, has built a reputation for well-designed phones at prices few others can match. But it finds itself in the same boat.

This is not a life-and-death issue—yet. But it is certainly worrying. “We’re moving as fast as we can. We’re working around the clock with our supplier and manufacturing partners to meet demand,” Hugo Barra, who leads Xiaomi’s efforts to take the firm global, told Bloomberg. Micromax at least seems to have taken Xiaomi’s lessons to heart. The Indian firm is in talks to purchase a stake in Pantech, South Korea’s third largest smartphone maker, and one that actually manufactures devices, according to sources that spoke to Reuters. (A Micromax executive later denied the report to the Economic Times, though the company did not comment officially.)

The attraction is obvious: a stake in Pantech would allow Micromax to ensure a steady supply of phones, and would also give it the cachet of owning a high-end brand, in opposition to its low-end image.

Both Micromax and Xiaomi got their start selling cheap phones in their home markets. Now both are trying to go up-market while also expanding abroad. Xiaomi recently started selling its phones in Singapore and will soon take on Malaysia, other parts of South-East Asia, and Micromax’s home turf, India. Micromax for its part is focusing its efforts on India’s neighbors and on Eastern Europe and Russia.

But for either company to truly become global, they need to have enough phones to sell. That’s where the supply-chain bottleneck becomes a problem. In lieu of its own manufacturing, Xiaomi must convince its suppliers to shift capacity or to build new plants.

Micromax may be on slightly firmer territory, but not by much. Even if the company is, as it says, uninterested in Pantech, it has plans to start assembling its phones in India as of this year. That should give it some room to play with. But if they really want to take on the world, the first people both Micromax and Xiaomi will need to convince that they are serious about it are their suppliers.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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