Horse before the cart: The arrival of modern handsets is paving the way for data

The mobile market in Indonesia is largely dependent on increased use of the right kind of handsets. Operators may be able to supply the bandwidth, but if users do not have devices to take advantage of it the demand will not be there. The country also needs to nurture a stronger data culture if growth is to be achieved. For the operators, without the phones it does not make sense to invest in base transceiver stations. Yet without the capacity, customers have been limited to talking and texting. However, the dilemma seems to be solving itself. In 2013 the phones started to get ahead of bandwidth as a result of two different trends. Low-end clones from China flooded in and acceptance of them increased, while perhaps more importantly Samsung made a big push in Indonesia that changed the landscape of the market and resulted in mass use of what had previously been a luxury item. The operators and the regulators are now playing catch up, working to meet the bandwidth demands of the smartphones and their users.

The Samsung Story

Samsung has been active in Indonesia for years in a wide range of product lines. It began operating in the country in 1991, making Indonesia its second export target in the region after Thailand. It set up its first factory in the country in 1992 and then another in 1993. Samsung started selling mobile phones in Indonesia in 1999, and reached the number two position for mobile sales within four years. Its operations in the country quickly moved from export-oriented to domestic demand-oriented. In 2004, local sales for the company were almost half of all sales for Samsung Indonesia, and the company decided to start increasing its local advertising spend. As other companies, such as Sony, were lowering their profile and commitment to Indonesia because of the slow recovery in the economy, Samsung was digging in. By 2011 Samsung Indonesia contributed 0.5% of the group’s total global revenue. The following year, the company set a sales goal of $1.5bn and 1% of global revenues. Mobile products are expected to provide most of that growth; Samsung also sells air conditioners, cameras, microwaves, air purifiers and a range of other products in the country.

Promotion

A key component of Samsung’s global mobile phone strategy is heavy promotion, and Indonesia is no exception. The company has been aggressively pushing its new products with advertising and generous campaigns. In Indonesia, mobile phone models are launched simultaneously in major cities – the Samsung Galaxy Pocket, for example, was premiered at 28 locations in Indonesia in May 2012 – and debuted with limited-time discount offers.

The tone of the advertisements is also significant. When the company entered the market the message was one of luxury. Its products were expensive (around $500) and were sold as status items. The campaigns of the past few years have been decidedly mass market: the theme now is that anyone can afford a smartphone. Samsung, both in Indonesia and globally, has ensured that even its cheapest offerings are feature-rich, although compromises are made in terms of lower specs on some of the features. The shift has been as important to the market as it has been to Samsung. The average person no longer views a smartphone as unobtainable, but as something that they should and can have.

New Offerings

One of Samsung’s recent offerings demonstrates its strategy at work. In December 2013 the company introduced the Samsung Galaxy Core Advance smartphone, with the new model replacing the Galaxy Core, which came out just a few months earlier. Samsung is peppering the consumer with release after release, keeping interest high and creating a wide range of options. At present, the company offers approximately 40 models in Indonesia, ranging in price from Rp1.2m ($120) to Rp9m ($900). While this is a global strategy, and most of the models offered are international, this approach is particularly effective in a country which has such a large range of incomes among its people.

Market Share

The numbers appear to indicate success. Samsung’s mobile market share went from 2% in 2010 to more than 50% in 2013, and according to government statistics the company imported $1.2bn of the $4.5bn of mobile phones brought into the country in 2012. In the Android smartphone category, Samsung claimed an 80% market share in early 2013, and four of the five top-selling handsets in Indonesia are from Samsung. In 2013, the company indicated that it may increase its commitment by building a mobile phone factory in the country.

Samsung has been helped by global trends that have had a local impact. The rise of Android as an operating system and the fall of BlackBerry meant Samsung was well placed to capture market share. In 2012 Android took the top spot for operating systems for smartphones with a 56% market share, up from 36% in 2011, according to International Data Corporation and Bloomberg. BlackBerry stood at 37%, down from 43% a year earlier. In that time, Symbian collapsed, from 19% of the market to 2%.

In an instant, Indonesia embraced open systems and dumped the operating systems that had previously dominated. Samsung is hedging its bets by offering phones on a number of platforms, including Windows 8. Some of the non-Android operating systems are clawing back share.

Windows, while still under-represented, is gaining interest following Nokia’s deal with Microsoft, going from 0% in 2011 to 2% in 2012, while iOS has ticked up from 1.2% of the market to 2.5%. Yet the Android phenomenon has played into the Samsung strategy of offering powerful phones at low prices.

A Rose By Any Other name

A parallel development that is also having an impact is the growing acceptance of no-name or lesser-name handsets. For a time, the market was sceptical about anything outside Samsung-Nokia-Apple, and people were willing to overpay for mobile devices that carried the right brand. Now Indonesian consumers seem to be becoming more price sensitive. For example, the iPhone 5c, Apple’s new low-end model, is expected to face a lukewarm response as it will cost over $500, more than five times the cheapest models. Meanwhile, the lower-end makers are putting up a fight. Chinese manufacturer ZTE is pushing for market share, and was targeting 200,000 units in 2013.

Consumers

Fuelling this trend is the willingness of operators and retailers to offer own-brand phones, putting their names on handsets. Some of the products have capabilities at or near the major brands. Smartfren, for example, started offering two phones in 2013 with quad-core processors. Local brands, such as Nexian, Blueberry, HT Mobile and Tiphone, are also putting out products that give users what they want at a discount to international brands.

Indeed, the market is becoming quite sophisticated and increasingly more interested in performance and reliability than brand. When the Samsung Core Advance came out, consumers immediately started to pick apart its features and performance, commenting on the low pixel density of the screen, on the design and on the many variations of the same phone with very little difference between them.

As of early 2014, it seemed Samsung fatigue had set in and the brand image had begun to weaken. The company was smart to be in the market at both the high and low ends, but the strategy may backfire as consumers become more educated. The risk is that the smartphone becomes commoditised and that brand no longer matters. Samsung may have noticed what is happening. While it remains committed to selling mobile phones in the market, it quietly dropped its plan to manufacture there. Yet the increased competition is good news in a way. Main brands dumping their phones to meet the challenge from imported clones is likely to help the market expand. The challenge is for operators to catch up and offer the necessary bandwidth for these devices.