23 Nov 2016 20:48 IST

Short-term fixes, long-term growth

Putting its house in order, keeping prices low and focussing on youth will be a win-win for Micromax

After a few years of spectacular growth that saw it becoming the market leader in India, Micromax now finds itself in a spot of bother. Micromax’s problem is one of a company pursuing long-term growth. The company is faced with some setbacks and forced to make changes in its strategy. Such fundamental changes are expected to be quite painful for some stakeholders, but necessary for the organisation to survive and prosper. Setting up a long-term action plan to gain a competitive edge over rivals and strong leadership are essential to overcome such situations.

With changes in the business environment, companies have to alter their business approach to remain competitive. Micromax faced a decline in sales as it faced strong competition from Chinese rivals from 2015 onwards. This clearly indicates that Micromax needs to rework its strategy.

Put the house in order

The first priority should be to put the house in order. Conflicts at the top can have a very disruptive influence on a company’s business activities by not only distracting and demoralising employees, but also affecting the company’s ability to attract funds. These funds are crucial for the company, considering that it has to invest heavily to remain abreast, or ahead of, of rivals in a hypercompetitive market.

The internal problems at Micromax have already cost the company a huge investment from Alibaba. The next logical step for Micromax is to go for an initial public offering (IPO) to fuel growth. Micromax has the potential of becoming India’s largest ever IPO among the new consumer tech companies, but not if it continues to be mired in leadership issues.

Attrition at the top indicates that Micromax is having trouble professionalising the company. Any business needs to sooner or later formalise its management processes. Micromax also has to formalise its business to avoid future conflicts. Such formalisation is important to ensure the desired outcomes through management activities. Setting up a strong board of directors is a must, and the responsibility of attracting and retaining top management talent should be one of the board’s top priorities.

Attracting top talent

While offering competitive packages and attractive stock options contributes towards attracting and retaining top management talent, it is more important that they are provided the freedom to work freely, without undue interference from the promoters. The board’s intervention by setting up good governance mechanisms will help outline who is accountable to whom, along with the organisational processes that determine how decisions are made.

The management should also work with the board and the HR department to develop the next line of middle managers at Micromax who have the ability to step up in case of departures at the top. All this will contribute towards giving potential investors the required confidence and a sense of predictability about the firm’s future.

Sustain competitive advantage

Micromax’s success so far has been the result of following a ‘low-price’ strategy, where the company focused on achieving a lower price than rivals such as Samsung, while trying to maintain similar perceived product or service benefits as those offered by its competitors. It is no wonder that a strategy like this was successful in a huge and largely price-sensitive market like India. However, the strategy was challenging as similar strategies were adopted by a number of rivals from India.

To add to its woes, Chinese companies undermined Micromax’s strongholds by taking the online-only distribution model. Matters were further complicated for the company with internal issues cropping up, leading to a confused positioning in the market.

Believe in young people

Nevertheless, persisting with the ‘low-price’ strategy seems the only credible option for Micromax even now, though it will be better for the company to retreat to a particular, well-defined segment (for instance, the burgeoning youth segment) in the short term. This is an attractive segment for almost all players, so Micromax has to sustain and win the price war, and this can be done if it focuses more on the relatively cash-strapped college students and their specific needs.

This sub-segment particularly values low price offerings with similar perceived product benefits. What’s more, this is not a risky segment to market to as it does not in any way deter any other price-sensitive segments to opt for the company’s offerings.

Implementing this strategy, however, has key implications for its marketing and operations. In addition to traditional media, Micromax will have to engage in below-the-line promotion in and around campuses, and through the online medium. Moreover, the company will have to drive down costs throughout the value chain. This is easier said than done while dealing with Chinese competitors, but not impossible. Micromax should focus on government initiatives such as ‘Make in India’ to develop a network of suppliers that can enable it to obtain raw materials at lower prices than competitors and/or manufacture more efficiently. Needless to say, in a hypercompetitive market, the company has to quickly match the features provided by its rivals.

Funding strategy

While following a low-price strategy can work for it in the global market, Micromax has a little more leverage in the Indian market, where it is one of the top players. Focusing on after-sales service could be hugely beneficial in negating some of the advantages of Chinese rivals. Assuming that company will be able to sort out its funding issues (either by roping in new investors or going for an early IPO), Micromax can selectively focus on establishing some degree of differentiation without any (substantial) increase in price.

Moreover, the company can use the money generated from an IPO to develop and expand a suite of web services that tie in to the smartphones it sells. It can leverage its knowledge about Indian customers to develop an ‘ecosystem’ around its phones, much in the way some successful tech companies have done in China. This can have long-term benefits for Micromax as being a first mover in this area will provide it an opportunity to ‘lock in’, helping it sustain competitive advantage.

The smartphone market in India is still in the early life-cycle stage, so Micromax should attempt to achieve a proprietary position in the Indian market through its suite of web services, in a way that its rivals have to conform to in order to appeal to Indian customers.