$100 million! What floats this boAt?

Note to readers: Hello world is a program developers run to check if a newly installed programming language is working alright. Startups and tech companies are continuously launching new software to run the real world. This column will attempt to be the "Hello World" for the real world. 

Indian hardware makers have usually found it hard to raise capital. That’s mostly because India has been a weaker hardware ecosystem as compared to China. And a few attempts to change that in the past have ended up in failures. Moreover, India has been open to doing business with China. This means Chinese hardware companies could easily sell to India and out-compete local players.

Those who have followed the smartphone business are familiar with the rise of Xiaomi and Chinese companies such as OnePlus, Oppo, and Vivo, and the fall of Indian brands like Micromax, Lava, and Karbonn. With the exception of Samsung, the top five selling brands in India now are Chinese.

The pecking order was upset because of Xiaomi’s ability to price high-quality products affordably, market efficiently, and use China’s hardware making prowess to launch products in quick succession. The rise of online commerce and the shift to 4G telecom networks in India also gave Xiaomi and other Chinese companies a leg up. It caught Indian brands off guard.

But are changes afoot? 

Earlier today, boAt, an Indian consumer electronics company that sells accessories made in China — headphones, speakers, charging cables, and power adapters — to India, announced that it raised $100 million from New York-based private equity firm Warburg Pincus at a post-money valuation of $300 million. It is an interesting bet, and possibly a marker of coming change, considering that a majority of hardware sold in India (even by Indian brands) is still made in China.

boAt started by selling charging cables. It has then moved upmarket into other devices such as smartwatches and speakers. In total, it sold goods worth over Rs 701 crore in the year ending March 2020. It is targeting Rs 1000 crore in revenue by 2024.

The company still manufactures most of its products in China. What then calls for this investor interest?

Firstly, it appears that the marketing playbook of Chinese companies is no longer unique. boAt’s co-founder Aman Gupta, is a marketer and seems to get how to sell in India, the world’s second-largest smartphone market. Second, the pandemic forced people indoors, and sales of hearing accessories have likely gone up. Third, boAt has also gotten its pricing right. Most of its accessories are competitively priced. Fourth, its products are well designed and appeal to India’s young demographic. And fifth — a long shot — is a likely change in global trade and supply chain, thanks to China’s trade war with the United States and growing tensions with India.

The story of Nike, the shoemaker, that started its life as an importer of shoes from Japanese manufacturer Onitsuka, has some insights to offer.

In the 70s, when the Japanese Yen was swinging like the yoyo against the dollar and labor prices in Japan were on the rise, the shoemaker reworked its supply chain that eventually sent manufacturing to New England, Taiwan, and other destinations.

The point is, that companies will hedge against global risks and meet demand one way or the other. If existing companies don’t do it, new companies will.

With the exception of Samsung, the top five selling brands in India now are Chinese

The Tata Group also has plans to enter electronics manufacturing. A local manufacturing ecosystem is budding. It is not too hard to see a future where increasingly, India’s electronics manufacturing sector caters to domestic demand.

If relations between India and China gets worse and the local manufacturing ecosystem matures, this bet will likely pay off in spades for companies that manage to localize manufacturing and have a local identity.