Mobile handset industry in Pakistan is going through a technology shift since people are relying more on smartphones than ever before. Considering the smaller size of the local market and less than required seriousness of the stakeholders, the shift in technology was never an easier task.
There are very few people in the industry today who witnessed the revolution happening being a part of it. Zeeshan Qureshi, the CEO of Haier Mobile is one such gentleman who earned the best marketer’s award earlier this year. In a recent conversation with MORE, he shared his views about future of the mobile industry, current challenges, and his company’s future plans.
Here is the complete text of this Q & A session.
Ever since Haier stepped into the mobile phones, what has been the philosophy?
The philosophy today is not different what it used to be when we started. We wanted to introduce a brand which would offer localized software and customized hardware. Our forthcoming assembly unit is the proof of our journey and apart from this, we have had many partnerships on the very same grounds. Our association with the government of Punjab for designing and delivering a completely customized lot of handsets based on their needs is another evidence of our theme.
Similarly, cellular operators were never seriously involved in the handset business, but Haier Mobiles was the one to have entered into the strategic partnerships with them, hence, tapping another area of mobile phone selling. The industry is evolving, and the 3G/4G phenomenon has made it mandatory for the operators to establish such alliances. These associations are the only way forward to sell more data to their consumers and generate a return on investment. At Haier Mobiles, I am foreseeing more such ventures, and we want to enjoy the first mover advantage.
The traditional open market retail selling was highly challenging for us. Being a newborn baby, we had to face the wrath of established brands. However, we kept our focus on our own selling channel and strategic alliances. As a part of the strategy, we didn’t go after a huge number of models, rather, confined ourselves to limited and quality handsets at competitive prices.
On the software level, we loaded our handsets with the Gameloft’s games which turned out to be a feature that others are following now. Xender App is another built-in tool inside our devices that let you transfer any size of data on a WiFi speed between smartphones.
It sounds promising for Haier Mobile, what market share you have grabbed so far?
According to 3rd party data, we have a market share of 4% in smartphones, which is not a bad performance keeping in view the two years age of our mobile phone division. I tell you, these figures are the results of our efforts against all the market odds and fierce competition in the handset market, particularly, between $70 to $100 price bracket where most of the brands are fighting for market share. Apart from the number, what we have achieved is the brand name which is now registered in the minds of Pakistani consumers. In both the categories, B2B and B2C, we have received the acceptance. The graph shows a total sell-through of nearly 1 million units during last 12 months.
I would take the liberty to mention here that market was very tough during past one year, and I saw many international brands popping up and then leaving the market due to less than desired results.
During your journey, what kind of handset market did you witness in Pakistan?
Since the start of my career in 2002, I have seen many ups and downs in the handset industry. Every four years, there is a paradigm shift and a new brand emerges in the market. Earlier there was no tradition of after-sales services in the industry. However, few distributors made it a vital part of their business. Today customer gives it a substantial importance.
Pakistani handset market is still under the influence of big wholesalers, but brands are in the process of establishing a relationship with retailers for this matter, they are investing in them such as branding their shops. International brands have created dedicated wings which are responsible for the interaction with the end customer and increasing sellout.
Merely four years back, a smartphone was just another device unless you entered into a Wifi zone. The penetration of 3G has unleashed its full potential. It has transformed into a necessity from the style statement. Laymen use various communication apps which are surfacing on play store every day. Despite this transformation, there is an enormous untapped market in the rural areas of likes Interior Sindh and Southern Punjab where data through cellular networks is not entirely available, and people lack English reading skill for understanding the mobile apps and even the operating system.
Early 3G rollout and local content is the way forward to realize the potential fully.
India and Bangladesh are making a serious progress for localizing the content, which is, of course, something in our ‘to do’ list as well. We can develop our own interface over Android and if we could do it successfully, coupled with 4G enabled devices and properly optimized network it would revolutionize this country. Certainly, high sales of smartphones will be a part of the whole economic activity.
You mentioned that many international brands failed to survive in Pakistan, was it because of wholesaler’s monopoly?
I won’t call it failure or success. There are two types of markets, Open (dealer based) and Operator based. Although the developed markets mostly follow operator based model, however, we are at least four years behind before any such model evolve here which requires customer’s financial history as a pre-requisite. In Europe, a customer gets a free mobile phone along with the voice and data plan.
Such a mechanism can not be adopted here since Pakistan went through biometric verification just recently and above all the postpaid customer base is merely 2%.
Failure of brands has a different dimension to explain. Developed markets are different in behavior than emerging ones. When international brands try to implement strategies which they usually practice in the developed markets, they don’t work in the emerging countries because latter ones are always different traditionally, culturally, financially, habit and usage wise, therefore, they don’t necessarily produce similar results. Furthermore, these brands tried to tap the retailers, a segment still not fully established.
Handset market in Pakistan run on massive credit exposure and any brand needs to invest heavily. Working on the cash basis is simply not the rule as of yet. Every brand is extending 30, 45, 60 days credit depending upon the brand authority and popularity in the local market. Due to these very dynamics, operator never wanted to jump into this area of business, and this is the reason for the failure of certain international handset brands.
During your career, you were a part of various brands, didn’t you put efforts for bringing a change?
The policy of international brands is to build a local partner who is tasked to develop a market for the brand. The partner is provided with the product, services, and components whereas, it is the obligation of the distributor (local partner) to reach the end consumer through mutual efforts. This model is applicable all over the world for open markets.
Earlier the handset market size was small. Therefore, no international brand tried to experiment anything new. However, over the years, the smartphone segment has grown exponentially. Global giants will need to invest in the local market by opening local manufacturing or assembly lineup.
Most of the handset brands in Pakistan are present through their distributors. If those brands actually want to penetrate these markets, the brands themselves have to set up local sales subsidiaries and invest in these markets for long-term results. The seriousness of brands is required if they actually intend to exploit the potential.
Isn’t Pakistan a lucrative market for international brands?
Traditionally, it was not. But now things are changing as developed markets are shrinking and getting saturated. Revenues are squeezing, and cost of sales is going higher. In such a situation, countries like Pakistan, Cambodia, Myanmar, Sri Lanka, etc. are the future targets of international brands. A very recent example is the 4G license which Telenor acquired for a hefty 390 million dollars.
There feels a significant improvement on the marketing side as well. Mobile phone companies spent PKR 5 billion last year only on the TV advertisement. Although, there is a dip in the current year’s spending on electronic and outdoor media but the same investment has been shifted to the retail channel.
There is also a question, why would a brand prefer to invest in Pakistan than in India? We lack skilled technical human resource; the taxation regime is defective, there is no concrete policy for the handset industry from the government.
Although we need to address these issues, there are some encouraging initiatives in the shape of knowledge park in Punjab and IT park in Islamabad. Another lucrative opportunity for any international brand is the real teledensity which stands around 50 to 60% against the reported figure of over 75% by PTA.
How mobile phone industry can fix these issues?
The biggest obstacle is the tax on cell phones and availability of same gadgets through smuggled channel which are much cheaper. I am very hopeful that PTA’s new EIR system will be able to address the problem since it will run in collaboration with customs department’s data.
For you understanding, I can tell you that nearly 60% of iPhones land in Pakistan are through smuggled channel. These phones are 15 to 20% cheaper than warranty phones and being a price sensitive market; consumers prefer a competitive deal; hence, it makes business viability impossible for an official distributor.
Don’t you think it is the failure and helplessness of the industry at the hands of smugglers?
I believe that it’s not a mature industry as of yet. As I said earlier that there is paradigm shift after every four years. There are distributors working today for major brands who were not in the business of telecom, and many old companies have either left the business or shifted their investment somewhere else. Due to this inconsistent nature of commitment with the industry, we (all the players) haven’t been able to establish a platform where we could speak to other government bodies or regulators for our core issues. We haven’t been able to have a concrete policy for the handset industry and it is one of the reasons that we don’t have an assembly line or SKD facility here.
What is the market size today?
It is 2.3 million phones a month including official and unofficial units. Out of them, 1.8 million units are officials import and rest are unofficial. Official import is consistent but smuggled fluctuates, and it depends on the launch of flagship models and demanding mobile phones, or when the prices are soaring in the international market, then an unsold stock flows into the countries that also pushes it higher in a particular time frame. So around 20 to 30 percent import is unofficial.
Can handset market grow further if all the industry issues are addressed?
Of course, the size will increase. If all the stakeholders play their respective role for the betterment of this industry things can get much better. Right now, there are taxes of nearly $40 on a device of $100. The only country I can think of which abnormally inflated the tax rate is Iran where they raised it to 60% and then revoked it later due to profoundly negative impact on the industry.
In my opinion, the number of import can go as high as 4 million undoubtedly because the real teledensity in Pakistan stands at 55%.