Chinese Smartphone Vendors Must Focus on Innovation

As Apple launches its 5C iPhone to compete in the Chinese market, Chinese companies are looking to the West to grow their businesses.

However successful in their domestic market, Chinese firms should carefully consider their global expansion strategies.  The Chinese market has been driven by demand for cheap devices that offer a unique range of services such a virtual goods, messaging apps, and photo sharing. The dynamics in more mature Western markets are very different, with carrier relationships, strong brand equity, and innovative features crucial to success.

Along with Huawei and ZTE, there are three interesting Chinese companies with ambitions to take their smartphone businesses international: Lenovo, Yulong Coolpad, and Xiaomi. The first and most successful Chinese smartphone company is Lenovo, which has the largest smartphone market share of Chinese companies, second only to the Korean giant, Samsung, in China. Lenovo is also one of the most diversified Chinese electronics companies, with a broad portfolio. The company has already achieved success on the global stage with its PC business, now the world’s largest after overtaking HP in 2012.

Lenovo has a culture of innovation, which will spill over into its smartphone business. The company understands the next wave of innovation will not be a new product category; it will be the integration of all devices to create one harmonious user experience. It is investing in all product categories to make this ecosystem a reality. Therefore, Lenovo is well placed to take its smartphone proposition to the global market.  

Coolpad, which is associated with quality on the Chinese market, is a brand of Yulong Computer Telecommunication Scientific Company. In 2012, the first Coolpad device was released in the United States on the MetroPCS LTE network (the largest regional operator in the US, specializing in low-cost plans with no subsides). Coolpad’s strategy is to offer better quality budget devices in the United States compared to its competitors.

This strategy will enable the company to gain a foothold in the United States; however, by entering the market with low-cost handsets, it will be difficult to offer high-end smartphones at a later date. Coolpad will be associated with the low end of the market and this perception will be difficult to change without a huge marketing budget.

Xiaomi, the smallest of the Chinese smartphone vendors, has been described as the Apple of China. This parallel has been drawn because of the similarities between the CEO, Lei Jun, and the late Steve Jobs, however it is flawed on a business level.  Apple makes the majority of its revenues the traditional way, on hardware sales, whereas Xiaomi doesn’t make money on hardware, instead it focuses on monetizing its users with software and services, a model much more akin to web-based companies such as Amazon.

Similar to Lenovo and Coolpad, Xiaomi’s strategy of having a laser-focus on high quality devices at affordable prices is best suited to emerging markets. For mature Western markets, these companies will compete in a market that is less focused on price and with an abundance of high-quality devices.  To monetize its Western customers, Xiaomi will have to compete with Apple, Google, Amazon, and a host of other service companies such as WhatsApp and Facebook that have a much larger presence and mindshare.  

The key to success in Western markets in 2013 is to create innovative products and build brand equity. From the three Chinese adventurers, Lenovo is the most likely to break into Western markets in the short term, thanks to its innovation focus. Coolpad, while making huge gains in China, may struggle to expand overseas. As the brand is almost unknown outside of its country, it will need a huge investment in marketing and promotion.

The wildcard and the most interesting company of the three is Xiaomi. Its unique business model is certainly worth watching as the smartphone market matures globally. With the average selling price of devices falling and margins shrinking, many companies will look to adopt Xiaomi’s model of selling services to make money. Its priorities should be to first prove that this services model can be profitable in China and then move to other markets such as India, Indonesia, and Brazil where low-cost, unsubsidized smartphones are in demand.

Lawrence Lundy is a Consultant for Information & Communication Technologies at Frost & Sullivan.

 

MORE ARTICLES YOU MAY BE INTERESTED IN...


Sign-up to our weekly newsletter

Keep up-to-date with all the latest news, articles, event and product updates posted on Developing Telecoms.
Subscribe to our FREE weekly email newsletters for the latest telecom info in developing and emerging markets globally.
Sending occasional e-mail from 3rd parties about industry white papers, online and live events relevant to subscribers helps us fund this website and free weekly newsletter. We never sell your personal data. Click here to view our privacy policy.