Worldwide, it’s common knowledge that a vast majority of available consumer electronics are made in China. A close eye on the rapidly-shifting smartphone market in the country reveals that home-grown companies more than just manufacture equipment for foreign brands. Today, domestic Chinese smartphone manufacturers have hugely impacted the local market, and poised for a big splash in international waters.
Chinese Smartphone Giants
Some of the biggest players in the Chinese smartphone market are familiar names to Western observers, like Lenovo and Alcatel (recently acquired by China’s TCL Corporation). Others are relatively unknown outside China’s borders, but these facts made foreigners sit up and take notice:
- Dramatic growth
- Captured market share
New smartphone providers in China include:
- Xiaomi (pronounced shee-ow-me)
Already the number 3 player in China’s domestic smartphone market, Xiaomi is just 5 years old
Secrets of Their Success
All these new companies have one thing in common – an aggressive expansion policy rooted in minimizing profits. These Chinese smartphone makers keep their retail prices closely pegged to costs they pay for materials and assembly as possible. This results in:
- Razor-thin profit margins on each unit they sell;
- Often in the 5% range.
Hoping to increase their margins later, they know that establishing a foothold and building brand awareness is more crucial right now. To this end, they’re concentrating on:
- Building high quality devices;
- Offering them at extremely competitive prices.
Will the Chinese Model Alter how Foreign Smartphone Companies Operate?
The low-profit, high-quality model is an ugly wakeup call to industry leaders like:
They’ve been reaping from their sterling reputations for years. Worse news, less prestigious brands have to compete directly for the attention of China’s budget-minded consumers. Domestic offerings from Xiaomi and Huawei are typically priced to match the smartphone market’s low end, between 100 and 200 dollars. Models are more:
- Capable than those offered by LG and HTC.
Long-Term Changes that May Come in the Future
A few factors hold these new Chinese manufacturers in check. While they run wild in their home markets, they frequently run into trouble when they attempt to expand in foreign markets.
- In late 2014, Xiaomi attempted to expand its business into India;
- But was stopped by Ericsson’s patent suit.
An operating principle these Chinese manufacturers have that may catch on with smartphone makers worldwide, is their practice of holding on to models longer. Ponder:
- Right now, the international standard life of a given smartphone model is about six months.
- Compare that to Xiaomi’s holding a single model on the market for 18 months.
This slower pace may benefit all manufacturers (and consumers as well) if it catches on.
China’s continuing advancement has worldwide implications in the smartphone market, where Chinese consumers are becoming more affluent and sophisticated. For China’s corporations, their aggressive and innovative operational methods are issues that foreign competitors will have to address in the global market.