Samsung is being hammered by Apple and Vivo. Can it strike back?

New Delhi/Chennai: “After 13 years of service, I still earn ₹27,000 per month. Another worker with the same experience earns ₹36,000. There is no proper appraisal—favouritism is rampant,” said one worker. “For 17 years, we silently put up with all the problems. Enough is enough,” says another. The duo, whose names are not being revealed on request, are among hundreds of striking Samsung India workers huddled in an open field two kilometres from the company’s Sriperumbudur factory, all clad in their factory-wear: light blue shirts and dark blue trousers. Until 9 September, they had been busy churning out an air-conditioner, a refrigerator or a television every 10 seconds or so. Not anymore.

Fed up with low wages, the workers have joined hands with the Centre of Indian Trade Unions (CITU), a labour union affiliated with the Left parties, to fight for their rights. Talks between the management and the workers, facilitated by the Tamil Nadu government, haven’t progressed. The protest, now in its second week, shows no signs of abating. Consequently, production at the Sriperumbudur facility, which accounts for almost 30% of Samsung’s annual revenue, has been badly impacted. The tell-tale sign is the idle trucks in the yard.

“We want a quick end to this protest. We have three demands: recognize the Samsung India Workers Union (affiliated to CITU), to permit collective bargaining; increase wages; and improve working conditions,” says E. Muthukumar, president, Samsung India Workers Union and state secretary, CITU.

The Korean company has so far refrained from recognizing the politically affiliated union. “The company does not want to talk to us (directly),” Muthukumar said. “This is despite 1,550 of the 1,800 workers sitting in protest here and being part of the new union,” he added.

Samsung, like the workers, is in no mood to relent. It has filed a lawsuit at a district court in Chennai to restrict the union from agitating, sloganeering and making speeches around its factory. The company did not respond to a questionnaire sent by Mint but an executive, who didn’t want to be identified, denied there was any major loss of production at the factory.

“Production was hit in the first two days. Then the company hired contractual workers to minimize the hit,” the Samsung executive said.

The strike has come at a particularly bad time for the Korean electronics giant, which is one of the biggest consumer-facing companies in India. With the festive season around the corner (it accounts for 30-40% of annual sales), consumer durables factories typically work overtime this time of year to ensure retail stores are flush with products during Dussehra and Diwali.

The strike and resultant loss of production could dampen the festivities for the company. As it is, Samsung plays second fiddle to Korean rival LG in durables categories such as refrigerators and washing machines. It has a lead in smart televisions but is a relatively smaller player in air conditioners. In fiscal year 2023, LG’s revenue from durables, at over ₹14,000 crore, was higher than Samsung’s ₹11,844 crore, according to data from Tofler.

But Samsung’s troubles are not restricted to durables alone. It is facing multiple headwinds in the bigger smartphones category as well. While it ended 2023 as the top smartphone brand, the company’s sales have fallen for five consecutive years. Samsung’s performance this year is alarming—it lost the leadership position to Vivo in the first quarter and slid further behind in the second as its share fell to 12.9%, the lowest in more than a decade, data from IDC, a market research firm, shows.

Rivals with Chinese origins are raiding Samsung for talent as well as market share. Slowing demand globally has forced the company into restructuring mode, with around 30% of the workforce in some verticals likely to be culled. Some of that will happen in India, too, and already there are reports of severance packages being doled out to some mid-level employees. But the bulk of the action is likely to happen after the festive season.

Employees are restive, morale is not very high and executives are eager to preempt the cull by jumping ship. Ever since Kunal Agarwal, the company’s senior director and head of sales, operations and planning, left to join Xiaomi as its deputy sales head in February, more than two dozen executives have left the firm. In June, Mohandeep Singh, senior vice president and head of the visual display business, also quit after a 14-year stint.

“Very few senior executives have really left the firm. Some would, in the normal course, looking for more growth. But at the same time, others rejoin as well,” claimed the company executive cited above. One such example is Sumit Walia, who quit Samsung after a nine-year stint in 2019 to join Oppo but rejoined after just a year.

“We keep reading the reports of impending job cuts globally and our managers say there is nothing to worry about, but it sounds hollow,” said an employee from the company’s research and development (R&D) arm in Noida. He didn’t want to be identified.

All said, the otherwise sure-footed Korean giant is wobbly right now.

Growth pangs

Samsung was one of the four South Korean chaebols—family-owned business conglomerates—alongside arch-rival LG and automotive brands Hyundai and Daewoo to enter India at the fag-end of the 20th century. After jostling with LG for over a decade, it finally edged ahead in fiscal year 2010—Samsung reported revenues of ₹11,663 crore that year against LG’s ₹10,691 crore. The company has left its compatriot in its trail ever since. In fiscal year 2023, Samsung’s topline of ₹98,924 crore was nearly five times LG’s ₹20,112 crore.

The yawning gulf between the two is thanks to the success Samsung found in smartphones in India. While LG’s presence is negligible here, Samsung has always been one of the big guns and was the largest manufacturer in calendar year 2023, shipping 25 million units and accounting for 17% of the 146-million-unit annual market. Mobile phones account for over 70% of Samsung’s revenue in the country.

Yet, not everything is rosy. With the broadest portfolio in the market starting at ₹10,000 and going up to over ₹2 lakh, Samsung is fighting multiple battles across the spectrum and losing quite a few of them. As a result, growth is elusive.

In the entry-to-mid segment, comprising phones that cost between $100 to $400, it is being outsmarted by nimbler Chinese rivals Vivo, Xiaomi, Realme and Oneplus. In the second quarter, Samsung was the only brand among the top five to register a decline in sales.

“Last quarter was not great for Samsung. They had issues with the pricing of some of their products, which created an inventory problem. Their sales and channel distribution, which is otherwise their strength, were a bit unsettled,” said Navkender Singh, associate vice president, devices research, IDC India. “This year might not be great for them… growth will be tough. Even to match last year’s tally they have to really get their house in order, which will not happen but it won’t be as bad as Q2,” he added.

Even on an annual basis, Samsung’s outright volumes haven’t grown since 2018, when it had peaked at 31.9 million units. Last year, even when it was numero uno in the market, sales had dropped for the fifth consecutive year to 25 million units. Analysts expect volumes to drop this year as well, for the sixth year in a row.

“We expect the overall market to grow 3% this year, but for Samsung, it would be a decline of 4%,” said Tarun Pathak, research director, Counterpoint Research, another research outfit. “The loss of volumes can be explained as the company is moving away from the entry-level to a premium play. This will reflect on its average selling price, which would go up from $325 to $380.”

The Chinese onslaught

How did a company that outlasted mobile-focused brands such as Nokia and Blackberry and fellow consumer durables firms LG and Sony find itself in this conundrum? The story is one of complacency, lack of agility and aggression.

When the onslaught of the Chinese brands started after demonetization in 2016, it largely rode on the 3G to 4G transition. Samsung, however, misread the market.“They were late to read the extent of disruption the Chinese players would cause. There was a bit of complacency there,” said IDC’s Singh.

Four years later, when the same brands faced headwinds largely due to the fallout of geopolitical tensions between India and China, which saw some of the companies come under the radar of investigative agencies, the Korean company was complacent. “It is not an exaggeration to say they missed the bus. They could have been more aggressive. When Xiaomi and Realme started struggling, they could have pressed the accelerator but for some reason they didn’t,” Singh added.

Given its global scale, Samsung appears to have been tardy in its decision making in India. This is especially true in midrange smartphones, where the Chinese regularly outspec Samsung and are quicker to launch newer, snazzier variants to blindside them.

“The Chinese origin players outspec Samsung by a significant margin. Samsung, being a global brand, needs to manage multiple stock keeping units (SKUs) and not just from an Indian perspective. So, they have to strike a balance between specs and the overall brand experience that they need to offer,” added Pathak of Counterpoint Research.

Samsung is also facing resistance from its offline retailers, who are not happy with its differential pricing strategy for online channels. Retailers claim the difference can be as high as 10% in some cases.

The All India Mobile Retailers Association (AIMRA) has repeatedly written to the company seeking a level playing field in pricing between online and offline channels. “The downfall of Samsung’s business in India is alarming and clearly indicates that their strategies are in favour of Chinese companies. It’s time for Samsung to rethink their approach in the Indian market and focus on meeting the demands of retailers and consumers,” said Kailash Lakhyani, founder chairman, AIMRA.

“The additional discount is offered by the platforms—Amazon or Flipkart—who tie up with banks for cash backs. The company has no direct say in this,” said a second Samsung executive Mint spoke to.

The Korean company has also been accused of violating anti-trust laws by the Competition Commission of India (CCI). The watchdog has accused Samsung, along with Xiaomi, Motorola, Realme and OnePlus, of collaborating with e-commerce giants Amazon and Flipkart to launch products exclusively on their sites. That is one more wrinkle for it to iron out.

The battle with Apple

If the fight with the Chinese has been bruising, the battle with Apple is scalding. While Samsung has managed to stay in the game against its Chinese rivals in the middle and lower segments, it is getting roundly beaten by Apple at the top end. And this is starting to hurt in a market where premiumization is clearly the trend—the average selling price of a smartphone is set to cross $300 in India this year.

Unfortunately for Samsung, it is Apple that is benefiting the most from this trend. The American smartphone giant has solidified its position as a revenue leader in India’s smartphone market, surpassing Samsung in mobile phone revenue despite shipping less than half the number of devices. During the first half of 2024, Apple shipped 4.8 million iPhones in India, generating a staggering $4.56 billion in revenue. In contrast, Samsung shipped nearly double the volume at 9.8 million units but earned only $3.43 billion, trailing Apple by a substantial $1.13 billion.

Though the Cupertino-based Apple sells far fewer phones than Samsung—its overall volume share was 6.4% to Samsung’s 17% in 2023—they cost nearly three times more: $948 against $338. In the super premium category comprising phones that cost over $800, Apple had a dominant 68% share in 2023. Samsung was a distant second at 30%.

“The challenge is how to target the iPhone user. It’s a battle between two ecosystems and a very difficult prospect, but if there is one brand that can do it, it’s Samsung,” said Pathak of Counterpoint Research. “Apple is an aspirational brand. Even a person who cannot afford an iPhone dreams of owning it one day. That is not the case with Samsung. It is very difficult to replicate in the Android ecosystem. Samsung is trying with its smart devices but it’s not going to change even in the next decade.”

“People do not think twice about spending ₹1-1.25 lakh on an iPhone but they would be undecided about spending that much for a Samsung,” added IDC’s Singh.

The decision to exit from the feature phone business and not offer smartphones cheaper than $100 marks a shift by Samsung towards more premium segments with better margins. This could come at the cost of some volumes—in 2023, 15% of its sales came from phones priced less than ₹10,000.

Squeezed by the Chinese at the bottom and middle and hammered by Apple at the top, Samsung has little breathing space in the hyper-competitive smartphone market. The first thing it will have to do to claw its way back is win its workers over. But that may not happen immediately.

It is 1 pm and lunch arrives for the striking workers in Sriperumbudur. They pick up the colourful plates and help themselves to the food. Samsung, they say, had paid an additional ₹6,000 the previous week to those who continued to work. Others flashed pictures and said that company officials went to their homes with gift hampers and asked their womenfolk to counsel them to return to work, warning of consequences if they didn’t. The twin moves have angered rather than appeased the workers. For Samsung, that means this year’s Dussehra and Diwali festivals could be far from happy.