Usage of earphones and headphones in India has been increasing at a rapid clip, in tandem with mobile phone and Internet penetration. And that should be music to the ears of importers of the product as production lags demand by a huge margin.The Dollar Business dives deep into the business to understand and analyse the dynamics of this lucrative market.
BY Niladri S. Nath | June Issue 2017 | The Dollar Business
The one thing that is ubiquitous when you are seated in a flight, riding on a train or taking a walk in the park, are earphones. Look around and you will see that most people, regardless of age (well, the young a little more than the middle aged people) have their earphones on and plugged to their mobile devices. Even the variety that is available boggles the mind. There are wired and wireless earphones – earphones that are available for as low as Rs.50 and acoustic noise cancelling headphones that can set you back a cool Rs.1,00,000 or more. The array of colours that they are available in, covers the entire spectrum of colours with some available in fluorescent colours too. And they are available everywhere. From online stores like Amazon and Flipkart to the snazzy upscale malls and even your friendly neighbourhood mobile store, everyone seems to have a wide range of earphones and headphones in stock.
By the looks of it this seems to be a huge market, and why not? In India, close to 18% of the population comprises of people between 15 and 24 years and 41% of the population is between the ages of 25 and 54 years. Apparently, they all form the target market for earphones and headphones. Well, we are talking about close to a billion customers!
This market of mobile sound accessories, especially headphones and earphones, surely seems humongous and worth a look for any businessman looking for a good opportunity.
MAMMOTH APPETITE
But let us not just go by demographics. It can be deceptive. Let us also look at the hard cold facts about the global mobile telephony and Internet market. In February 2016, India surpassed US to become the second largest mobile market in the world. And, for the record, there are already a billion mobile phone users in India. The Ericsson Mobility Report released in June 2016 also mentions that India will enjoy 1.37 billion mobile subscriptions by 2021, out of which 810 million users will have smartphones.
The report further states that India’s usage of Internet is catching up and those aged between 16 and 34 years have a high dependence on online content, and about 450 million users are expected to be accessing Internet through mobiles by June 2017. These users will increasingly consume YouTube videos, music, or movies online, all of which will require the user to plug in earphones. Add to this the number of people who use headphones for business and professional applications and the fact that the life of an earphone is less than a year and you truly have a huge market.
You would think that given such awesome numbers Indian manufacturers must be making hay in this business.Sadly that is not the case, and despite the government trying to push mobile and mobile accessories manufacturing in India through its Phased Manufacturing Programme (PMP), the fact remains that we do not produce enough earphones and headphones to be self-sufficient. In simple words, India does not have the bandwidth to satiate the domestic demand and depends on its imports.
In FY2017, till February 2017, India had already imported headphones and earphones worth $175.07 million – which is 27.03% more than what it imported in the entire FY2016. Even last fiscal had seen a y-o-y jump of 17.55% in imports of headphones and smartphones. Importers too agree that the demand has shot up in recent years. Komal Agarwal, Marketing Director of Pebble Mobile Accessories, shares, “Despite growing competition in the Indian market, we have been witnessing 100% year-on-year growth in terms of volume.”
Well, Agarwal isn’t the only entrepreneur who has anchored herself in this profitable business. There are thousands like her across the country. And many of them are first generation entrepreneurs, who have been in the business for not more than five years. And not surprisingly they are importing mostly from China, the global manufacturing hub.
The dragon rules
The mention of China is not surprising – especially when it comes to mobile accessories like headphones and earphones. China not only met 72.14% of India’s demand in FY2017 (till February 2017), but it is also the largest exporter of earphones in the world. In CY2016, China’s exports of headphones and earphones to the world was worth $3.60 billion, which is approximately 35.21% of the world’s total exports.
Other than China, Vietnam, Thailand and Mexico (in that order) are also major exporters of headphones and earphones to India – comprising 20.60% of India’s total imports of the product.
There is a valid reason as to why China has surpassed all these headphones and earphones exporting countries in the world – especially in the case of India. China-made products are pocket-friendly, the darling of the Indian consumers. Also, their products range is extensive and attractive, and their quality is consistent. Sagar Gulati, Director at AZ Infolink Pvt. Ltd., a Delhi-based importer, who supplies earphones and headphones to wholesalers under the brand name Link Plus, explains, “We always prefer China over other countries because they offer us a better price. Also, the look and feel of the products, and even the packaging are more attractive.”
Concurring, Yatin Shah, Director of Studio-Y, an Ahmedabad-based importer says that Chinese headphones and earphones are priced 30-40% cheaper than those from other countries.
Then there is more to choice of China as the preferred sourcing destination than price and quality. Importers feel Chinese manufacturers are open and accomodating about the importers requirements. “Based on my experience, I can say that the manufacturers in China are very open. They don’t hide anything from their clients. You can also visit their plants and observe each manufacturing process,” says Sneha Bharadwaj, Director, Nox Creative Gifts Pvt. Ltd., an importer based out of Delhi.
Weak signals
Importers whom The Dollar Business interacted with believe that sourcing from China is actually quite easy. But then the importers need to be cautious about the import duties and how they are levied back home in India. Bharadwaj explains, “The definition of headphones and earphones is extremely rigid and is not in tune with the evolving technological progress and design innovations happening in this product category.”
According to importers, the Customs officials often club wireless bluetooth headphones and earphones with different product categories – such as walkie-talkies. Importers feel that the Central Board of Excise and Customs (CBEC) has to be more careful and more in-tune with the times and make the process a hassle-free and an encouraging one – rather than imposing the incorrect duty.
The current total import duty on headphones and earphones is 24.46%, which importers have no complaints about. What matters is connecting to the right supplier. Bharadwaj says, “It’s a long process to connect with the right manufacturer, but it is worth going through. We made several trips to Shenzhen, visited factories, then finally decided on the unit.” While many importers rely on one manufacturer for their requirements, there are also some importers who would rather rely on Indian agents located in China instead of making the trip themselves. The reason? It’s easier to communicate and these agents already have an idea about trends and demand in India and the Customs of China – which allows for a quicker turnaround time.
MINTING MONEY
But, all said, what make this business an attractive one is the margins it can fetch. Profit margins can range between a satisfying 10% to an incredible 30%, depending upon the variety. The entry-level products that range between Rs.100 and Rs.600 is a volume game and can fetch around 10-15% profits. “Earphones and headphones in this price range come in a variety of colours and designs. This category attracts mostly the younger consumers because they are easy on their pocket,” reasons Bharadwaj.
As for mid-level headphones and earphones, the retail price ranges from Rs.600 to Rs.1,500. But, unlike the entry-level products, that are mostly popular among young people and tire II and III cities, mid-level products are popular amongst the working class. And though it isn’t a volume business, margins can be anywhere between 10% and 20%.
However, when it comes to high-end products that are priced over Rs.1,500, margins can touch as high as 30%. And this category, according to importers, is popular mostly amongst the professionals and people with specific interests.
Having said that, importers claim that there are other ways to increase the margin. “We enjoy margins in the range of 25-30% because we have managed to create a strong brand image for ourselves in the Indian market. It’s important to create trust for your products amongst customers,” reveals Bharadwaj.
The sound of music
And how does the future look for importers of this product? According to experts, the Indian mobile accessories market is likely to grow at 20-25%, y-o-y. And earphones will be consumed in volumes as penetration increases.
What is more appealing about this business is that it does not require huge investment. A few lakh rupees are enough to begin with a set-up. So, in absence of a major shift in manufacturing policies, importing earphones, especially from China, sounds like music to the ears. A high-end headphone with bluetooth, USB2.0, MP3, 32 GB Micro SD Card and FM, sourced from China, can garner a profit of 25%-plus in India’s wholesale market. No one would want to miss out on such an opportunity. Would you?
TDB: At a time when the business of earphones and headphones has become very competitive in India, what allured you to get into its imports?
Komal Agarwal (KA): In 2013, we started a wholesale business to sell mobile accessories like power banks, under our brand Pebble. But we soon realised the immense business opportunities in the audio mobile accessory segment, mainly in headphones and earphones. So, in 2015, we started importing earphones and headphones from China and selling them in the domestic market. And despite the huge competition in the market, we have been witnessing 100% year-on-year growth in terms of volume.
TDB: Can you share with us the process of importing the products from China?
KA: We have been importing earphones and headphones from a company in Shenzhen, which has been manufacturing them for the last 15 years. We have a technical team in Shenzhen that designs the product according to our specifications, in terms of features, textures, colours and then gets the products manufactured from this company. We don’t pick up random products.
However, there are importers who hire local agents in Shenzhen and Guangzhou – who help them connect with the manufacturers and exporters.
TDB: Why do you source from only one manufacturer?
KA: Sticking to one manufacturer helps us get a better rate and credit facility besides ensuring uniformity in quality. We also always keep ourselves abreast with the market, product and price – just in case a different manufacturer is offering the same product at a lower price. If such a situation arises we can always renegotiate the deal with our supplier, which I think is better than switching to other manufacturers. Our quality control benchmarks are very high – before and after importing – and keeps our rejection level under 1%. However, we have a clause in the agreement (with our partner-manufacturer) under which they offer us a discount, based on the value of the rejected items.
TDB: What makes import of headphones an attractive business?
Sneha Bharadwaj (SB): Technology and fashion are the main drivers, especially amongst the youth. They look at these items as a fashion or status statement. But, it must be remembered that price also plays an important role. Products that fall within Rs.200-500 sell well because they are pocket-friendly, which gives the youth the opportunity to experiment with these earphones. Frankly speaking, products within this price range have been witnessing 38-40% year-on-year growth in terms of volume.
TDB: Many importers rely on agents located in China. How do you select them and what role do they play?
SB: These agents are the key link in this business. But, before you select the agents, you should look at the comprehensiveness and efficiency of their services, their presence in Shenzhen and Guangzhou region and their command over the local language. Usually it starts with a skype call – and finally meeting them in China. And for obvious reasons, most of us prefer Indian agents because they have a better understanding of the domestic market.
The agents make our job easier by shortlisting the products that suit the Indian market. Once we select the products, they place the order with the manufacturers, check the quality, quantity and packaging, get all the paperwork in order, deal with the export officials in China and finally ship the products to India. However, their communication skills and ability to manage relationships with manufacturers is more important than their expertise in handling paperwork. And at the end, they charge around 3-5% commission on each consignment.
TDB: The government plans to promote domestic production of smartphones and its accessories. How do you see its impact on imports?
SB: Currently, it is difficult to say how the industry will be impacted. It all depends on whether the made-in-India products are cheaper and better than the imported products.
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