Chinese smartphone OEMs are dominating their home market. The top two handset manufacturers – Xiaomi and Huawei – had 15.4% and 14.2% market share respectively in 2015, edging out global leaders Apple and Samsung. Having firmly established themselves on the home front – and due to slower growth of this sector in China – vendors are increasingly looking abroad for sales opportunities, not only in developing countries but also in the mature North American and European markets. Despite this push abroad, key commercial decisions will still be made in-country, necessitating that foreign technology providers looking to conduct business with Chinese handset vendors have a strong local presence.
Market saturation in China somewhat explains this outward looking mentality. In 2015 China’s smartphone shipments grew by only 2.5% YoY, way down from 19.7% YoY in 2014 and 62.5% YoY in 2013. Many experts believe that growth will remain tepid over the next few years. While Chinese consumers regularly replace old handsets with newer, pricier models, this has not compensated for the drop in first time sales. A slowing economy and weak housing market have also contributed, reducing the willingness of Chinese consumers to splurge on expensive devices.
Untapped demand in developing countries also offers a compelling reason for Chinese firms to enlarge their global footprint. There are 5.4bn people (more than three-quarters of the global population) without a smartphone – mostly in developing countries – and Chinese OEMs with cheaper product lines are well positioned to serve this segment. India is a case-in-point – its smartphone user base was only 220m in 2015, or approximately 18% of the population. This sector, however, is expanding rapidly, and analysts expect smartphone sales to grow in double digits for years to come. Xiaomi, arguably China’s best known low-cost manufacturer, sold 3m units in India during the twelve months following its launch in that country. Other companies such as OPPO, Vivo, Meizu, and Coolpad are also fiercely vying for market share in developing and middle-income countries, especially Southeast Asia, Africa, and South America.
Chinese brands are not only targeting developing nations, but are also releasing premium models for sale in North America and Europe. Huawei P9 and P9 Plus, for instance, retail for $680 in Britain, France and Finland. This company’s global shipment volume reached 2.6m in the first six weeks since its release in April of this year, with much of this demand driven by European customers. Lenovo’s acquisition of Motorola in 2014 granted it better access to North American and Latin American markets, while at the same time expanding its product portfolio to include high-end handsets.
Restrictive government policy, sales tactics and a reputation for producing low-quality products all present challenges to Chinese handset firms’ global efforts. In 2012, the US government famously blocked Huawei from selling networking equipment to its wireless carriers due to fears of cyberespionage. While this measure did not directly affect its handset business, it still created reputational problems for the company in the US. Xiaomi’s disappointing sales figures in Brazil has prompted it to develop models that better conform to local customs. To break the association of “Made in China” with cheap materials and low technology, companies are aggressively establishing R&D centers and employing foreign celebrities to promote their products. Huawei, for example, has established over 16 research centers worldwide and hired the American actress Scarlett Johansson as part of its P9 marketing campaign.
Even as Chinese handset OEMs move overseas, crucial strategic and business decisions will still be made from the home country. Foreign companies seeking to integrate their technology into Chinese devices will need to make their value proposition and negotiate deals with manufacturers in China. Success will depend on a thorough understanding of the local industry, an appreciation of Chinese business practices, and access to key decision-makers at these firms.