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Chinese Shanzhai Phone Sales in India are Nose-Diving

Steven Millward

Indian consumers’ love affair with cheap and gimmick-packed Chinese phones seems to be over, as reports emerge that all ‘shanzhai’ phones are seeing sales figures drop to hundreds of thousands per month rather than the millions that were being bought in the recent past. About 10 million mobiles are sold in India each month.

To back that up, the most successful Chinese phone manufacturer in India, G’Five - an unknown brand in China itself - has seen its own sales plummet in 2011. The Shenzhen-based company - which makes about 300 handsets, and claims to launch a new phone every two weeks - caused a stir in 2010 when it soared to second place in terms of phone sales in India, claiming an astonishing 21 percent market share, surpassing Samsung (005930:KS) and threatening to usurp Nokia (NYSE:NOK - News). But G-Five’s 2011 sales were a sorry ebb from that zenith, down to 8 percent [1], with Samsung rising to second in its place.

If G’Five slips any further, it’ll fall back into the obscurity of hundreds of other struggling Chinese and Indian cottage-industry manufacturers. But it does plan a fight-back, expanding its feature-phone line-up - albeit some with very large screens - to encompass some proper 3G-enabled smartphones. These are expected to hit shelves sometime this spring.

If shanzhai phones do fail in India, they’ll be following the pattern set in China, where Shenzhen-based phone makers are shutting in huge numbers, forced out of business - or forced out of the city, perhaps - by a mixture of police clampdowns, quality concerns on the part of consumers, and fancier cheap phones from major brands.

The cause of the downfall of shanzhai in India is harder to pin down. A Sina Tech report speculates that although the Indian government brought in new security legislation in late 2009 to require all phones sold to have a legitimate IMEI number, that wasn’t the sole reason for the fall. Yes, that would’ve squeezed out some of the shadier operators, but that’s no explainer for why G’Five and some other legitimate manufacturers have fallen out of favour with Indian consumers. In April 2011, Nokia filed a lawsuit against G’Five [2] for allegedly copying certain Nokia hardware design elements, which might have put off some buyers.

A quick search of India’s leading e-commerce site, Flipkart, is very revealing of the future of phone brands in India. In the Flipkart category listings there are 509 feature-phones and smartphones, but not a single one from G’Five. Instead, the product line-up is dominated by Samsung and Nokia, with a good amount of telco-branded phones from Spice and Micromax as well. Not counting which telco phones might’ve been made by Chinese OEMs, there are only two Chinese-brand phones for sale on the site, both from ZTE (HKG:0763; SHE:000063).

But the rise and fall of shanzhai phones will not be decided on middle-class Flipkart, and will instead lie in the fate of the crush of punters who pack the Karol Bagh-area electronics markets, looking for bargains.

[Source: Sina Tech news - article in Chinese]

  1. Both 2010 and 2011 stats from ABI Research. Nokia holds 37.2 percent share in India in 2011, with Samsung rising to 14.9 percent. ↩

  2. It’s not clear what was the outcome of this suit. ↩