Daybreak - Vivo is India's No.1 smartphone brand. But it can't celebrate the win just yet

Episode Date: October 31, 2023

Vivo, the Chinese smartphone maker, was in the news earlier this month for arrests of its associates after it faced ED raids last year.Despite this, Vivo became no.1  in India’s smartphone market, even ahead of Samsung and Xiaomi in the quarter ended June.What’s more, unlike Xiaomi, which saw a sharp decline in its market share after raids in 2021, Vivo is still going strong.But it can’t celebrate the victory just yet. Why?Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon, Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. After being in India for almost a decade, in 2021, things were finally starting to look up for the Chinese smartphone maker Vivo, especially after the 2020 border tensions between India and China. The company had turned a profit after four years and was steadily getting ahead of other Chinese

smartphone makers to capture India's smartphone market. And more importantly, it also came back as the title sponsor for one of the world's biggest sporting events, the Indian Premier League or the IPL, for which, by the way, it had paid over 2,000 crore rupees. But the good luck stint did not last very long. In January 2022, Vivo had to give up the IPL title sponsorship. And ever since, the firm has been under the regulatory radar of India's financial crime watchdog, the enforcement directorate or the ED. Earlier this month, the ED arrested four people, including a Chinese national in a money laundering case connected to Vivo. The agency had also rated Vivo's head office last year and frozen more than 100 bank accounts of the company

with a gross balance of nearly 500 crore rupees. The Chinese phone company was accused of money laundering and quote unquote financial terrorism. At this point, you might want to ask, could it get any worse for Vivo? But here comes the twist in the tale. Vivo has managed to achieve something quite extraordinary this year. In the quarter that ended in the year, In June, Vivo turned out to have the highest share in the Indian smartphone market for the first time ever. It even left Samsung behind and became the top-selling smartphone company in India. It's quite something, no?

So how did Vivo become the number one smartphone brand despite the insane competition in the sector and not to forget the financial crackdown from the Indian government? That too, when other Chinese phone makers like Xiaomi have only been. seen their market share decline after being rated. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time.

Today is Wednesday, the 1st of November. When the ED-rated Vivo's Gurgaon head office last year, a lot of employees were kind of caught off guard. they did not know what was happening or how it would end. A former employee told my colleague the Kenrapporter Anushka Jain that everyone was scared that the company might shut down. The immediate consequence of the raid was of course a fall in the market share to just a little over 14% in the quarter that ended after it.

Vivo could not even procure enough stocks of new phones with so many of its accounts frozen by DED. But once the accounts were made operational again, the company managed to recover its shareback. From a little over 14%, it went up to more than 17% of the market then. Vivo went back to being the number three smartphone company in India. So, first things first, how did Vivo manage to get its house in order after the ED crackdown? It did two things right.

First, it rushed to protect its employees. After all, they were the backbone of the company's operations in the country. So right after the raids ended, Vivo's India CEO Jerome Chen addressed the employees virtually and assured them that their salaries would be paid. The company soon began to promote its Indian employees to managerial positions. Before this, they would earlier report to bosses who were mainly of Chinese nationality. And with all this ED scrutiny, it also asked its Chinese employees to work remotely. So by keeping its employees happy, especially,

the Indian ones, Vivo managed to keep its attrition rate in check. Interestingly, this is something that its competitor, Xiaomi, failed to do after it got raided. Now, coming to the second thing that Vivo did right, Vivo knew it needed to cut down on its successes, you know, especially since so many of its accounts were frozen and funds were seized, and not to mention the financial guarantees that it had to give in court. The firm started conducting stricter financial audits at its state companies.

These are Vivo's secondary level companies that handle inventory, monitor sales and distribution. A former employee told Anushka that the audit staff almost doubled at some state companies. Vivo also changed things at the minutest of levels. For example, it stopped booking luxury hotels for the teams that went on work trips. Now, there is one thing to note. here. Yes, Vivo began to change a lot to get out of the regulatory scrutiny storm, but there was one thing that it did not change. And this is what gave it the edge over competitors like Samsung, Xiaomi and Real Me. Stay tuned to find out more. I'm sure you keep a tab on all the deals and

incentives that smartphone brands keep offering throughout the year to aggressively push their sales online, especially around this time of the year. Go to Amazon and FlipCart and you will see for yourselves. But here is what is interesting. Market researchers say that over 50% of smartphone sales in India will happen through offline channels this year. Last year two, offline purchases made up for more than half of the smartphone sales. And this is exactly where Vivo has found its sweet spot. Because over the years, Vivo has relied heavily on offline sales while its rivals have neglected it. To put this in perspective, Vivo makes more than 80% of its smartphone sales offline. In comparison, for its South Korean competitor, Samsung, offline makes up for 60% of its sales.

And for the likes of Xiaomi, the number is even lower. Also, Kealash Lakiani, the president of the All India Mobile Retailers Association, pointed out another important factor to the Ken. He mentioned how Vivo has had the same CEO in India, for quite a number of years. Opo, meanwhile, has had three different India heads in the last five years alone. And Jerome Chen, Vivo CEO, puts extra effort into keeping great relations with offline retailers. The company also conducts what it likes to call market-storming sessions every month to detect why sales have been hit in a particular market.

And if you know anything about Vivo, the brand's offline incentives game is pretty solid. An employee at a handset store in Delhi told Anushka that Vivo gives some of the highest incentives amongst all the other brands. For example, stores get an incentive of $700 on each piece they sell of Vivo's latest V-29 model. In comparison, Opo, RealMe or Xiaomi give incentives between 300 to 400 rupees and Samsung gives around 500. Another thing that works out for Vivo is that it really knows how to how to be able.

how to create buzz and anticipation. It launches about 30 to 35 phones in a year, and each model has at least a couple of variants. And these, dear listeners, are some of the reasons how Vivo has finally managed to take the crown jewel from smartphone giant Samsung, who has been India for almost two decades now. Also, let's not forget that Vivo's maiden performance at the top spot is even more significant because of its timing.

While the larger domestic and international market declined in size, Vivo managed to ship more smartphones this year compared to last year. But let me tell you that despite having all of this in its corner, Vivo cannot celebrate this win just yet. If you're wondering why, stay tuned. If you take a quick look at the market share of its rivals, you'll see how Vivo is ahead of them by actually a very thin margin. The International Data Corporations, PECS VIVO share at 16% currently. It is followed by Samsung, which holds 15.7% of the market. So the difference between the top two is actually less than 1%.

And even though many market analysts confirmed Vivo's lead, two prominent firms, Counterpoint and Canales, have still given Vivo the second position. In fact, Canales estimates that Samsung will dethrone Vivo in the quarter ending in September. Besides, we all know how fierce smartphone wars can be. One new product launch here, and a new incentive plan there, and the field becomes leveled again. Rivals are already taking cue from Vivo and are waking up to the power of offline sales. Lakiani of the mobile retailer's body told us how other brands have started offering better margins.

And even though the annual festive season usually used to be good news for Vivo, this year that might be. not be the case. Smartphone companies are known to clock record sales during the festive months. And if Vivo's rivals perform better, it will not be very hard for them to get ahead of the smartphone maker. Plus, competitors are just one part of the puzzle. The regulatory specter is still looming large over Vivo's head. And if more funds are frozen in the near future, it might get unsustainable for Vivo to maintain its high marketing and sales budgets. And remember, These budgets are what mainly helped Vivo win the race to the top. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news

platform. What you're listening to is just a small slice of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the Ken.com, that is t-he-k-en.com, and click on the red subscribe button on the top of the website. I am Snakeda Sharma your host. The script for today's episode was written by Dikshamunjal and the episode was edited by my colleague Rajiv Sien.