Around forty years after the beginning of reforming and opening, only a handful of Chinese companies – Lenovo, Huawei, Haier, Tsingtao – have made the leap to global leadership in their sectors. This invites a comparison with Japan, that around the same forty years after it was flattened by the U.S. Army had already produced dozens of leading consumer brands, like Sony, Panasonic, Toyota, Honda, Canon, Nikon, that were disrupting industries around the world. Today, many observers think we are on the cusp of a major change, one that will see a rash of Chinese companies go global, and in the process disrupt global markets much the same way the Japanese did in the 1980s.As Chinese workers’ wages rise, Chinese manufacturers are no longer content with their traditional role of making phones for foreign firms, possibly also in fear of a new outsourcing rush toward East Europe or South-east Asia. Instead, they are gearing up to take on the market leaders under their own name. The battle being carried on by Chinese smartphone producers to penetrate Western high-end markets for mobile devices is proving to be the state of the art in a much broader war. A war that so far has seen Chinese brands struggling to make their way into the West. But the past year saw people in the West buying their smartphones outside of contracts more than they used to, and this is the best opportunity for Chinese manufactures to get their foot in the door. Right now, Chinese companies like Huawei or Lenovo are sleeping giants, with no real marketing and poor local distribution outside of China. When they do start marketing their devices and improve their distribution worldwide though, by offering something different in the Western market, Chinese manufacturers could very well give the likes of Samsung some serious headaches.
Four of the ten largest global makers are now Chinese. Their names – Lenovo, Yulong, Huawei and ZTE – are not well known outside China, and they are still considerably smaller than Samsung and Apple. Nonetheless, these four companies already outsell Nokia and BlackBerry. In 2012, China overtook the United States to become the world’s largest global smartphone market in terms of shipment. In that year, smartphone shipments in China were estimated to have reached 208 million units, accounting for almost 21 percent of the entire global smartphone market share. By the end of 2012, the number of smartphone users in China had reached 380 million, smartphone sales to end users were also reaching new levels, with sales around 169 million units sold in total that year. During the fourth quarter of 2012, smartphones made up 74.5 percent of the total cell phone sales volume, 90 percent of which were 3G smartphones. Now, if market for smartphones is growing so fast at home, why these tech giants bother to enter much more brand conscious markets in the West? Because there’s only really one thing to do when you get big at home: expand. In order to strengthen their position in North America, Latin America, and Western Europe, Chinese companies are having a tough time at increasing their brand credibility, so Lenovo chose the path of spending some of their cash. While the company’s laptops can be found in most western department stores, 95% of its smartphones were still in China, where it was number two behind South Korea’s Samsung. However, as the PC market fades, Lenovo has made no secret of its desire to expand overseas. So on January 29, 2014 Lenovo bought Motorola Mobility smartphone business from Google, for approximately $2.91 billion. The move was a win-win deal: Google kept the vast majority of the Motorola Mobility patent portfolio [licensing it to Lenovo], and Lenovo got Motorola’s 85-year history brand, together with its strong relationships with U.S. carriers.
Huawei, the sixth largest smartphone seller worldwide, has made no secret of its international expansion plans. Better known as a maker of telecoms equipment, where contracts with mobile network EE and BT have helped it become the second largest vendor after Sweden’s Ericsson, phones comprise a small but growing part of its $35 billions a year in revenues. October 8, 2012 the U.S. government has rise suspects about the alleged security threat that the company’s telecoms equipment and business connections pose limiting its business opportunities. Huawei reacted in two ways: setting its sights on emerging markets, especially in Africa – Angola, Egypt, Ivory Coast, Kenya, Morocco, Nigeria, and South Africa; and adjusting by focusing on its mobile phone and tablet businesses. The company has demonstrated its innovative skills, having released the world’s thinnest (6.68 mm) smartphone in 2012 – the Ascend P1s, and the first smartphone with a 6.1-inch display, the Ascend Mate, in 2013. At the same time, Huawei has brought its own software innovations, including Magic Touch, Guiding Wizard, Smart Reading, and Floating Windows.
Yulong’s Coolpad is the Chinese equivalent of BlackBerry. Founded in 1993, some models of Coolpad phones also have settings for heightened privacy protection. As a result, Coolpad phones are favored by and are purchased as gifts for businessmen and government officials in China. Starting from 2009, however, Yulong has become more aggressive in expanding its market to include lower-to-middle end customers. Reflecting the general shift of the Chinese smart phone market to the cheaper end: market share of smartphones at the $60-$110 price range soared from 0% to 27% in 2012. Steps outside China have been tentative. Its first deal with a US network was secured in 2012, with a budget 4G smartphone running on Google’s Android software. Its sales topped out at 900,000 but sales revenue grew proportionally with selling and distribution expense due to Yulong’s increased efforts in product promotion. To achieve more sustainable growth in the future, Yulong will have to cut down costs by streamlining their operations.
In seventh position globally is ZTE that, like its larger rival Huawei, also majors on telecoms equipment and Internet devices such as household modems. Founded in 1985, it is part owned by the Chinese state. Its low-cost handsets are increasingly popular in the US, where it is now the fifth largest and fastest growing smartphone vendor. The brand, which has traditionally gained market share through low-priced handsets, is seeking to reposition itself as a high-end provider as 4G mobile technology spreads. I already wrote about how Chinese First Lady helped to improve ZTE brand value. ZTE also employed British rap star Professor Green to act as an ambassador for the brand in 2011 and 2012.
The most talked Chinese smartphone company is certainly Xiaomi, which only began R&D in 2010. Xiaomi has operated with a simple value proposition: sell phones better than domestic competitors at prices far below foreign competitors. And to achieve this result, they rely only on social networks for marketing and on e-commerce to deliver their product to consumers. Moreover, Xiaomi’s strategy in mobile phones market resembles that of Amazon selling Kindles, selling their phones below cost. Xiaomi’s founder Lei Jun wants to turn Xiaomi into a software company. Its internet platform, which includes games, an online marketplace and a social messaging app, bring in just over $3 millions a month and he thinks that number could be much higher. When Hugo Barra left Google and said goodbye to a high-ranking position on the Android team, to join Xiaomi he did so in order to drive their internationalization effort. He’s not been with the company long, but already Xiaomi has moved into Singapore and it’s said that India is next. If Xiaomi wins its bet and manage to get a share in the U.S and Western Europe markets for high-end mobile devices, Xiaomi could represent the key to a global empire, for a broader range or Chinese products.
Below there’s an interesting Hugo Barra’s speech on Chinese social apps and Internet companies.