Ringing up profits
Chinese smartphone brands are going places as they amp up their appeal and capture market share from heavyweight global rivals. Zhou Mo reports.
Homegrown Chinese mainland smartphone producers Xiaomi and Huawei overtook global giants Apple and Samsung in the second quarter of 2015
to become the leading vendors in the domestic market, carving out respective shares of 15.9 percent and 15.7 percent, according to market research firm Canalys.
But the picture was rather different just a year ago, when Samsung ranked second with a 12 percent share. However, the second quarter of the current calendar year saw the South Korean giant post a 37.6 percent year-on-year decline in mobile service-related profits and thus slide to fourth position in the mainland market.
A similar fate befell Apple. While it took the lead in the first three months this year, the US behemoth was beaten to third place by local rivals in the second quarter.
Even as global giants falter, homegrown mainland smartphone producers are posting robust growth. The Canalys report shows that shipment of Huawei smartphones grew 48 percent sequentially in the second quarter, representing the strongest growth among its peers in the top 10.
According to statistics from the Ministry of Industry and Information Technology, homegrown smartphone makers now occupy more than 70 percent of the mainland market.
While competitive pricing continues to be seen as a core advantage of domestic vendors, many of them are also adopting other strategies to adapt to a rapidly changing market, a move that has contributed to the trend, industry insiders believe.
Bells and whistles
Jessie Ding, a research analyst at Canalys Shanghai, believes that greater attention to brand enhancement and marketing are factors that have boosted the sales graph.
“Xiaomi and Huawei are now putting more focus on the quality and design of flagship (models), which has significantly improved their brand recognition and the purchase willingness of consumers,” Ding said.
“On the marketing side, the two are also doing quite well. Both held a fan festival online on April 8 offering discounts to consumers.”
And it is not just market leaders Xiaomi and Huawei. Other Chinese vendors are also beefing up promotional campaigns. A case in point is Oppo, the Dongguan-based smartphone maker that has greatly increased its popularity by sponsoring influential media programs and inviting local celebrities to endorse its products.
Familiarity with the local market and customers also puts domestic producers in an advantageous position, notes James Yan, a senior analyst at market trackers International Data Corporation (IDC) China.
“Chinese smartphone makers have designed more easy-to-use functions and adopted a promotion and communication mode that is easy for Chinese customers to accept,” said Yan, adding that the sound industrial chain in the national smartphone sector has facilitated their rise.
As per capita income grows steadily on the mainland, an increasing number of consumers are willing to buy medium- and high-end devices.
The general view is that smartphones that cost under 1,000 yuan ($157) are low-end devices, while those between 1,000 yuan and 3,000 yuan are on the medium level. Smartphones with price tags of over 3,000 yuan are categorized as high-end.
In the past, only Apple and Samsung fell into the third group. Chinese vendors were known for their specialty of making cheap products. But many spotted the change in buying preferences and have taken action.
While Xiaomi continues to offer Redmi series handsets for below 1,000 yuan, it has also introduced a high-end version priced at around 3,000 yuan to appeal to a different category of customers.
Shenzhen-based ZTE Corp in July launched their flagship Axon smartphones, with the highest price reaching 3,888 yuan, but also sells a range of low-priced phones.
“Offering value-for-money devices that well meet the needs of price-sensitive Chinese consumers remains the great specialty of local vendors. Unlike Apple, which offers iPhones only at a high price point, many local brands offer products at a wide range of price points,” said Ding.
Lin Shujie, 29, used to be a loyal fan of Apple. But the Shenzhen-based web editor changed her view toward local brands after a trial use of her younger sister’s smartphone.
“I used to think that domestic-made smartphones were poor in appearance and quality. But when I tried out my sister’s handset, I totally changed my mind,” Lin said.
“It looks amazing and has all the functions I need and is easy to use. I can hardly find any drawbacks in user experience. More importantly, it is much, much cheaper than my iPhone 6.”
However, despite growing recognition from Chinese users, domestic brands still need to face up to challenges in building better brand equity and improving core technology, Yan warned.
“Although some brands have been making progress, prices of domestic smartphones have generally been kept at a relatively low level,” he said. “It would be a challenge for those producers to increase their brand value. Moreover, they need to improve their technology for core parts, like processing chip, camera chip, and so on.”
With its still-low mobile penetration and large price-conscious population, India is among emerging markets drawing the likes of Xiaomi, Meizu and Huawei.
World exploration starts close to home
On Aug 10, leading Chinese mainland smartphone producer Xiaomi announced it had started sales in India of its first handsets also manufactured in that country.
Days later on Aug 26, Xiaomi’s mainland peer Meizu launched its new handset in the South Asian nation. Meanwhile, smartphones from Shenzhen-based Huawei continue to enjoy rising popularity among Indian consumers.
At a time when smartphone sales on the mainland are showing signs of a slowdown, homegrown producers are turning their eyes overseas, with India becoming the latest battleground.
According to a recent report from market research organization International Data Corporation (IDC), smartphone shipments to India in the second quarter of 2015 soared 44 percent to 26.5 million units, from 18.4 million for the same period a year ago.
Chinese mainland vendors were a main contributor to the figure. Lenovo, Xiaomi, Huawei and Gionee took up 12 percent of India’s smartphone market in the second quarter, doubling their year-ago share.
“As the Chinese economy has started to slow down, most vendors from the country have targeted India as the next big growth market for smartphones,” said Kiranjeet Kaur, research manager with IDC’s Asia-Pacific mobile phone team.
Meizu is one of them. A rising star among Chinese smartphone makers, the Zhuhai-based company declared that it is targeting India as one of its most important markets to develop this year.
“With a population of nearly 1.3 billion, India has a large user base and huge potential for growth. Our main objective this year is to develop the Indian market and achieve localization,” said a Meizu executive in charge of the overseas market.
Shenzhen-headquartered ZTE Corp first tapped into Europe 10 years ago. But now, it is stepping up efforts to expand its Indian market share.
“Our goal is to become one of the five (top) smartphone brands in India within the next three years,” said Waiman Lam, global spokesperson for mobile products and technology at ZTE.
Young Indians jostle for handsets from Xiaomi, in a testament to the Chinese smartphone maker’s popularity in the South Asian country.
Smartphone penetration in India has remained low, with fewer than 120 million people owning the device. That contrasts greatly with China, where smartphone ownership reached 95 percent after years of high-speed growth and has now begun to slow down.
A separate IDC report shows that smartphone shipment on the Chinese market contracted 4 percent to 98.8 million units in the first quarter of 2015, compared with the same period a year ago, the first time in six years that this has happened.
However, India is only part of the overseas expansion plan of Chinese smartphone producers. A fierce scramble is under way over the broader international market as well.
And Southeast Asia, with its multiple developing countries and large population, has become the most popular target for Chinese smartphone producers.
In 2009, Dongguan-based Oppo brought its cellphones to Thailand, its first overseas market.
After five years of exploration, the company in 2014 became one of the top three best-selling brands in Indonesia, Vietnam, Malaysia and Thailand.
Shenzhen-based Vivo, which has set up 20 specialty stores and 15 after-sales service centers in Thailand, ranked fifth in terms of smartphone market share on the Chinese mainland in the second quarter of 2015, according to market research firm Canalys.
However, the ambition of these smartphone companies is not limited to Asia as they are determined to bring their products to consumers around the world.
ZTE says it is strengthening its global presence through several strategic engines, including markets in Europe, Japan, South Korea and India.
“Just exploring markets in developing countries is not enough for ZTE, which aims to become an internationally influential mobile phone producer. We need also to have a voice in high-end markets,” Lam said.
Meanwhile, Shenzhen mobile phone brand OnePlus, despite being a newcomer, has brought its products to 36 countries and regions around the world, including the US and Europe.
The company, founded in late 2013, launched its OnePlus2 handset in August in Paris. Reservation of the new smartphones reached more than 2 million globally within 72 hours of debut.
“We will continue to follow an international strategy. On the one hand, we will consolidate our existing mature and emerging markets overseas and seek further expansion, while on the other, we will conduct careful studies before entering a new one to avoid blind expansion,” said Pete Lau, chief executive officer of OnePlus.
Exploration of developed markets is believed to be tougher, compared with emerging ones.
“In developed countries, lack of intellectual property rights remains a challenge,” warned Jessie Ding, a research analyst from Canalys Shanghai. “In regions other than China, especially in developed regions like North America and Western Europe, Chinese vendors still have a very long way to go.”
In developing countries like India and Brazil, meanwhile, the ability to figure out the most effective marketing strategy and channels to be adopted will be their big concern, she pointed out.
Despite the obstacles, Ding still believes there is a lot of room for domestic mobile phone brands to develop globally. Emerging economies like India, Indonesia and Latin America are the most promising markets for Chinese smartphone producers to explore, she noted.
“Unlike the near-saturated and mature market in developed countries, smartphone markets in emerging regions are still fast-growing. Great opportunities and demand lie there,” she said.
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