Analyzing the Market Concentration of India’s Smartphone Industry

While the Canadian company Research in Motion (RIM) introduced smartphones to the market (with its Blackberry), it was only after Apple’s release of iPhone that smartphones became consumer devices. The iPhone transformed the smartphone industry by offering consumer-friendly features such as a touch screen interface, a virtual keyboard, and a fast-running processor. In contrast, the first Android smartphone was launched to the conventional consumer market around late 2008. The smartphone industry market size is continually evolving and growing, and there is a plethora of model and manufacturer options available to the everyday consumer. Globally, smartphone shipments are likely to cross 1.48 billion units by 2023. In addition, 38% of the overall world population owned a smart gadget in 2018, and the smartphone penetration rate has only continued climbing, reaching 46.5% in 2020. During Q1 2020, Apple regained the top spot as a smartphone seller and grabbed a 23.8% share in the global smartphone market, while Samsung noted a 19.1% of the total share. Nokia was a huge name and brand until the first half of 2011, with almost 25% of the worldwide smartphone market share. However, in recent years Samsung and Apple have captured the maximum share of the pie and are leading smartphone sellers worldwide among prominent vendors like Xiaomi, Huawei, and Vivo.

Smartphone manufacturers such as Apple, Samsung, Huawei, Lenovo, and LG are investing in developing and producing their own application processors (APs) to preserve market share and expand margins with product differentiation’s primary motive. With demand-driven from the working population, growing internet penetration, rising social media subscribers, and aggressive marketing strategies from sellers are some of the primary factors contributing to the constant development of the global smartphone industry.

The smartphone industry, specifically in India, has been proliferating, and estimates show that almost 820 million users will be using smartphones in the next few years, which can unlock 80% improvement in efficiency and eight times reduction in processing time for e-governance services. Moreover, currently, there are approximately 36% smartphone users in the Indian market, a penetration rate that the United States of America already reached in 2012. There are currently three billion smartphone users, and it is estimated to further increase by a hundred million in the next few years. Globally, India, China, and the United States note the highest number of smartphone users, each crossing the 100 million smartphone user mark. India witnessed a year-over-year (YoY) growth of 36% in 2018, and the share of smartphone users in the rural region has risen from 9% in 2015 to a whopping 25% in 2018. In India, Xiaomi is the leading smartphone brand in terms of market share, followed by Samsung in the second position, and together Xiaomi and Samsung hold more than 50% of the market share (significantly 52% in 2019-Q1 and 53% in 2019-Q2) and then tailed by Vivo, Oppo, and other smartphone brands.

Market Concentration and Herfindahl-Hirschman Index (HHI)

Market concentration is expressed as a concentration ratio that helps to quantify the distribution of a specific market amongst the competitors. Concentration and competition are inversely related. A highly concentrated market is less competitive, and a low concentrated market is highly competitive. It is highly competitive because prominent players do not dominate it. When a single business dominates a market, it is said to be a monopoly situation. When there are precisely two firms in a market, it is called duopoly. When more than two firms, then the situation is known as an oligopoly. Considering the case of numerous leading smartphone vendors in India and globally, we would define this industry as an Oligopoly.

The Herfindahl-Hirschman Index (HHI) is a standard measure of market concentration used to determine market competitiveness. This is calculated by squaring the market share values of all the firms operating in a particular industry and then summing the resulting squared numbers. The index would return a value between 0 to 1500 for absolute percentage values for a highly competitive market, thus depicting Monopolistic Competition. For values between 1500–2500, the market is considered moderately concentrated. Thus, a few firms have the market share divided amongst them, similar to an Oligopoly. For values above 2500, the market is considered highly concentrated, i.e., dominated by primarily one or two firms, thus showing a Monopolistic market.

To assess the firms’ concentration in the Indian smartphone industry, we have taken the last five years’ (2015–2020) annual market share data of the top firms operating in the industry. The data collected shows the market share of the top twelve firms in the industry, and all other firms are grouped under the term Others. The data has been retrieved from Statcounter GlobalStats. The data table can be accessed here –

The top five smartphone brands in India are Xiaomi, Samsung, Oppo, Apple, and Huawei. These five brands alone comprise 62.28% of the whole chunk. Although the overall Indian smartphone market declined by 4%, there has been a substantial 150 million shipment number for smartphones, although the world economy wound in the pandemic hit 2020. As per the data retrieved, we can observe that Xiaomi claims the largest market share from 2019 to 2020 with approximately 24%. This can be attributed to Redmi Note 9 and Redmi 9 series’ strong performance, resulting in 13% year-over-year (YoY) growth in the last quarter of 2020. In addition, the prevailing lockdown in the country led to an increase in demands for electronic gadgets like smartphones and laptops due to prevailing travel restrictions, online learning, and working from home.

During the period prior to 2020, we saw growth across all of the critical economic impact measures considered for the mobile industry: economic value-added, employment supported, and the contribution to the public sector’s funding. When the market concentration ratio was calculated using HHI for the Indian smartphone industry, its average value was around 2004.46. This indicates a moderately concentrated market. However, when the HHI was calculated for each year distinctively, the trend observed shows that the market concentration was significantly high during 2015-16 at the HHI value of 2250.02. The lowest one is observed during 2018-19 with 1885.82. Industry experts attributed this decline in the industry revenue to the increased participation of Chinese manufacturers. During this period, the combined share of the Chinese companies rose from around 18% to about 32%. As a result, the second-largest player in the handset market, Samsung saw a fall in their sales in the subsequent years.
It is also observed that Xiaomi, OPPO, and Vivo seem to have developed among the five leading smartphone manufacturing brands in the market from the very next year. However, Samsung’s leading firm seems to have retained its ground at the top with the largest market share. As a result, the market concentration fell after entering these Chinese companies into the market, before stabilizing in around 2017 and remaining years. However, we can again see that the market concentration rises during the fourth quarter of 2019-20. This can be attributed to the fact that two of the most prominent market players, Nokia and Lenovo, were rapidly losing out on their share in the market.

How Will the Future Unfold for the Indian Smartphone Market?

The Indian smartphone market is most likely to witness signs of recovery during the rest of 2021 as well as the following year on the back of improving consumer sentiment, which is more focused on buying low-end and mid-range smartphones. However, this primarily depends on brand marketing via multi or hybrid channel initiatives, supply constraints, and anticipated price levels with continued traction from 5G smartphone products. The majority of the indicators point towards the supply constraints fully easing out not before early 2022, along with demand normalizing as economic recovery starts. The mobile phone ecosystem addresses the vast 2G installed base’s migration inertia to smartphones. This is imperative to see organic growth for the market in the next 3 to 5 years. 2020 has been a year full of ups and downs involving supply chain and geopolitical challenges, but this year will hopefully see a gradual realignment of demand and supply in the right direction. Response, recovery, and resilience are the key features for any industry in the current pandemic situation.

– Aishwarya Lalchandani (Student of MA in Applied Economics at Christ University, Bengaluru)

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