Friday, June 3, 2011

Rise of the upwardly mobile entrepreneur


It was an appetite for high risk and high rewards that prompted Sudhir Hasija to forsake a thriving business distributing mobile handsets to launch his own brand of phones.

This year, as the three-year-old company notches up turnover of Rs 1,200 crore, the benefit of listening to the customer is paying off handsomely for a brand that popularised the dual SIM concept amongst Indian mobilephone users.

Humble Start

For Hasija, this has been a meteoric rise. Son of a government clerk he left his home in Meerut, Uttarpradesh, after clearing Class 10 exams. Moving to Hyderabad, he spent three years in a machine tool company and saved around Rs 3,000.

He used that money to sell TV accessories such as antennas and trolleys in Chennai. "It was a difficult struggle. I remember climbing the building rooftops on bare feet to install antennas in scorching heat, washing my face at railway stations and staying in low-cost lodges," said Hasija, who built a thriving business that he expanded across other southern cities.

In 1996, when the pager and mobile phone revolution first started in Karnataka, Hasija bagged a lucrative contract to become the telecom hardware distributor for Alcatel-Lucent SA , France's largest telecommunications equipment maker.

Soon he ended up as a distributor for Nokia, the world's largest handset-maker. He remained their distributor till 2003.

As more global firms started to tap on India's booming telecom market, Hasija got another opportunity from Samsung Electronics Co , the world's biggest television maker to become their distributor for entire South India. The risk paid off for him, when Samsung made him distributor for the entire country within six months.

When three years back many Indian companies started to make their own handsets to tap the country's booming mobile handset market, Hasija too jumped in. He gave up Samsung in 2009 to start his own mobile phone brand Karbonn.

"I thought of building my own home, rather than living in a rented house. I had enough experience to take the risk and my children had also grown up," says the doughty entrepreneur.

Market Challenges

With India's mobile phone market expected to grow by nearly a fifth over the next five years low cost handset makers such as Karbonn, Micromax and others are expected to ride this wave of consumer demand.

"Players like Karbonn were able to grow fast, because they provided better price points, after sales service and visibility even in rural areas," said Abhishek Chauhan, senior consultant for information and communications technology at consulting firm Frost & Sullivan . For 55-year-old Hasija who now sells over six lakh phones in a month the challenge is to now stay afloat in a market where newer communication devices pop up with metronomic regularity. To hedge his bets the feisty first-generation entrepreneur is now casting his net wider: he is planning to acquire a South Korean firm to help make low-cost 3G phones.

Later in the year the company will release a line of low-cost tablets that Hasija expects will compete with Apple's iconic iPad and Samsung's Galaxy Tab but priced at half to one-fourth of what the global majors sell at. "A start-up challenging major manufacturers was not possible 10-15 years ago," said Krishna Tanuku, executive director at Wadhwani Centre for Entrepreneurship Development, Indian School of Business. But now entrepreneurs with access to technology need to only understand customer need, manage the supply chain, identify good vendors and maintain quality.

But industry watchers caution that such growth comes with its own challenges. "As players like Karbonn and Micromax expand, any flaw in quality of service, distribution channel and post-sales service will mean a drop in growth," says Chauhan of Frost & Sullivan. "It doesn't matter if the brand is foreign or Indian, customers are now agnostic to brands," he added, citing the case of Nokia, which once held a 72% share of the Indian mobile handset market.

Big Leap

Hasija founded Karbonn as a joint venture between his Bangalore-based distributing firm United Telelinks and Delhi-based Jaina group run by his long-time friend Pradeep Jain, who was also a distributor of mobile phones.

From its 2009 beginnings in an old office block in Bangalore with Hasija's savings and a 100 crore capital from IDBI bank, Karbonn now has a market share of 4.5% in India. "I understood the psyche of Indian population such as value for money and attraction towards innovation," said Hasija. So Karbonn made its debut with phones, which could hold two SIM cards that allowed the use of two services without the need to carry two phones at the same time.

They were also designed to have a longer battery life. This innovation and low pricing clicked for Karbonn. They were not only able to crack the urban market but also penetrate the rural markets, which were untapped.

Opportunity

"Low-cost handsets, content, applications, innovation and the network will be the key factors that will drive India's extremely price-sensitive telecom market," said Ranjit Yadav , country head for mobile and IT at Samsung India . Samsung has started low-cost Guru series, which is aimed at the first-time mobile users. In the last quarter of calendar year 2010, 68 Indian and Chinese companies had a 40% market share. Encouraged by this flush of success, many domestic entrepreneurs like Hasija are looking to grow further and, in the process, transition from traders to manufacturers.

The mobile handset industry in the country was valued at Rs 3,200 crore in November 2010. According to consultancy firm KPMG , 120 million handsets (excluding grey market) were sold in India in 2010. The consultancy expects this to double in 2014 on the back of increasing rural subscribers and greater replacement demand.

Acquisitions

Hasija is in the process of making an overseas acquisition as a strategy to make low-cost third generation (3G) phones for emerging markets such as Latin America, Africa and South Asia. Karbonn said it is in final-stage talks to buy a South Korean cellphone design house in an all-cash deal of about $40 million. The deal will be financed with a portion of the $250 million that Karbonn expects to garner from private equity firms over the next three months. The Korean design house will be merged and its 150-member team will closely work with Karbonn's team of software developers in Bangalore to thrash out go-to-market timelines for multiple geographies. Handsets designed by the Korean firm will be tested at Karbonn's Bangalore software development facility before being shipped overseas.

And with the launch of a new line of tablets the company aims to compete on full terms with multinational majors. Yet, industry watchers say there are looming threats ahead. "The growth story of these manufacturing entrepreneurs is volatile, because they will be soon challenged by other new entrepreneurs," says Tanuku of ISB.

Courtesy: Economiuc

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