India is on its way to becoming the world’s second-largest smartphone market over the next two years. According to Strategy Analytics, smartphone sales in India are expected to increase from 118 million in 2015 to 174 million in 2017. The key growth drivers for the Indian smartphone market will be low smartphone penetration, increasing retail availability of devices, growing affordability among middle-class consumers, and the availability of high-end devices at competitive price points, manufactured by indi-genous brands such as Karbonn Mobiles, Lava International and Micromax.

Lava International has emerged as a strong contender for the top three positions in the Indian smartphone market. According to industry reports, the company is the second largest handset player among  domestic smartphone brands. Lava International was established in 2009 by entrepreneurs Hari Om Rai, Sunil Bhalla, Shailendra Nath Rai and Vishal Sehgal. The company reportedly posted revenues of $1 billion in 2014-15 and sold a total of 26 million handset units during this period. Its smartphone business reportedly registered a 300 per cent growth in volume terms in 2014-15 over 2013-14.

Like other home-grown handset brands, particularly Micromax, which is the leader in this space, Lava International too has been focusing on Tier I and Tier II cities to tap the growing demand for affordable smartphones with high-end features. The company has a wide product portfolio that includes tablets, feature phones and smartphones with various models in bar and touch form at multiple price points to appeal to buyers across age groups.  Its product portfolio comprises the IRIS series of Android-based smartphones, Discover series of internet experience touch phones, Spark series of pre-mium bar phones, and ARC and KKT series of feature-rich budget phones. The company’s entry-level smartphone is priced at Rs 4,444. It also offers feature phones at Rs 900 and upwards. Over the years, Lava International has expanded its product portfolio by launching over a dozen new products every year in both the smartphone and feature phone categories.

To introduce quality products at affordable price points, the company invests heavily in research and development (R&D). The handset manufacturer has an in-house product testing facility in China and an R&D set-up in India. In addition, Lava International has made significant investments in its sales and service distribution network, which comprises over 50 clearing and forwarding agents, 1,000 distributors, 50,000 retailers and 980 service centres. Moreover, through tie-ups with e-commerce players, the company’s products are available online.

One of the key factors responsible for the company’s success in the Indian handset market has been its ability to lead the product and service delivery space with innovations. For example, Lava International is the first player in the industry to adopt a multi-brand strategy like other FMCG companies. In 2012, it launched a parallel brand called Xolo to cater to consumers looking for affordable high-end smartphones. The move was aimed at positioning Lava International as a brand for the young and aspiring consumer looking for value for money. Further, the launch of Xolo provided the company an opportunity to expand its consumer base and tap the high-end smartphone market. The move also helped Lava International change its image as a brand targeting low-end consumers with basic feature phones. The strategy of creating sub-brands catering to distinct consumer groups appears to have worked well for the company. It has succeeded in establishing both Lava and Xolo as strong brands in the mobile devices segment. Further, the company has taken the lead in experimenting and offering users a distinct experience by making Xolo the first home-grown brand to use its own user interface platform, called Hive. Lava International launched the customised Android-based operating system (OS), Hive, in 2014 through its flagship smartphone, Xolo Play 8X-1000. The move appears to have been inspired by the success  of Chinese handset vendor Xiaomi , which is credited with using the Android-based MIUI OS in its smartphones. The company also offers its own application-based services and content through the OS. Following in the footsteps of Xiaomi, Lava International plans to develop a strong ecosystem through innovative applications and content for the Hive OS. Further, the company is looking to monetise the HIVE platform by licensing it to other smartphone vendors.

Growth plans and challenges

Having successfully launched Xolo as a sub-brand, Lava International is now focusing on its newly launched online-only smartphone range, Black. Black smartphones will not be sold through traditional retail channels; instead, they will be available on the e-commerce platform Flipkart. Black online-only smartphones will be manufactured in India and Lava International plans to launch one product every quarter with each device being available in the market for a period of nine months.

The Black smartphone range will feature Hive UI 1.5, an updated version of  the company’s in-house UI, which is now built on top of the Android Lollipop OS. These smartphones will be priced between Rs 8,000 and Rs 20,000 and will support 4G. Black is being positioned as “the premium end of Xolo”. Lava International is hopeful that the new brand will offer the best specifications at the right price to customers looking for the best value and not necessarily the cheapest product. In addition to introducing Black, Lava International is focusing on lever-aging the opportunities offered by the next technology wave, the internet of things. It is looking at the wearable devices segment as well. Over the next few months the company is expected to come up with a wide range of affordable smartphones that support long term evolution (LTE) technology. Lava International’s range of LTE smartphones will be priced between Rs 5,000 and Rs 15,000.

Meanwhile, the company is looking forward to leveraging the government’s Make in India initiative by making significant investments in setting up a manufacturing facility in the country. At present, Lava International is engaged in the augmentation of its manufacturing facility in India and is in talks with the Uttar Pradesh and Andhra Pradesh governments to set up another facility in either of the two states. For this, the company has earmarked a budget of Rs 12 billion spread over a period of three years. The company currently assembles devices using imported components; it also imports a few models as fully built units. However, over the next few years, it plans to shift its smartphone manufacturing base (both Lava and Xolo) from China to India. The move to shift base to India is expected to help the smartphone maker benefit from economies of scale and further lower its operating costs.

Besides having a strong foothold in India, Lava International commands a significant brand following in neighbouring countries as well. The company exports its products to Bangladesh, Nepal, Pakistan, Russia, Thailand and some West Asian countries. Going forward, it aims to introduce its new product lines in these markets as well and expand its footprint to other growing smartphone markets in Asia. Besides launching new products, Lava International is supporting its large product portfolio with strong advertising and marketing campaigns. During 2015, the company plans to spend around Rs 3 billion on advertising and branding. Lava International plans to go public over the next few years. However, in the short term, it is looking to raise funds from external sources, including private equity. In the first phase, the company plans to raise Rs 3 billion-Rs 4 billion. The founders of Lava International plan to eventually offload up to 20 per cent of their stake in the company.

Even as the company devises strategies to expand its footprint in the Indian and international markets, it faces several challenges. The dynamics of the Indian smartphone market are changing fast. Of late, the handset market has become more competitive, with the presence of an increasing number of domestic as well as international brands, mainly due to the entry of a host of Chinese phone makers, which has drastically decreased smartphone prices. Handsets with higher specifications are available at attractive price points. This puts further pressure on domestic brands like Lava International that have so far competed successfully with established brands such as Samsung, HTC and Nokia. However, the competitors are redefining the market with aggressive pricing. To counter this, the company needs to form exclusive partnerships with other industry stakeholders including operators and e-commerce players. It needs to offer exciting data-led packages and provide access to a host of applications along with the device.

Moreover, as it expands its product portfolio, Lava International needs to ensure that its products do not end up cannibalising each other. The company needs to identify and distinguish its customer base, and position relevant products accordingly. Having created a strong brand, Lava International is well placed to aim for the top spot by offering customers value-for-money products in the fast growing Indian smartphone market.