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The Chinese invasion

Written by Danish Khan
04 Dec 2012 at December 4, 2012

They might not garner as many headlines and grab as much ad space as the big brands, but Chinese manufacturers are making their presence felt in the mobile market. Danish Khan takes a closer look at what is driving this phenomenon.

The last two years have seen smartphones grow at a phenomenal rate, thanks to innovations and high-profile campaigns from companies like Samsung, Apple, HTC, Nokia and Motorola. Smartphones, once considered a niche product, has now reached masses. As a result, the smartphone industry is crowded with numerous manufacturers who are consistently bringing in the latest offerings. However, in spite of countless smartphone offerings in the market, there are only a few handset vendors who can be termed global leaders both in terms of volumes of their products and sales. And over the last year, Chinese smartphone companies have been acquiring a bigger market share with their quality offerings. This in itself is an interesting phenomenon when you consider the fact that Chinese phones were believed to be of poor quality that never lasted for long. Additionally, there were concerns related like absence of IMEI numbers, hacking and phishing. Fast forward to today, and the scenario is very different. Chinese telecom equipment makers like Huawei and ZTE are today bringing out quality products that are made in accordance with the highest international standards. They have also jolted the smartphone market in recent times with feature laden smartphones at affordable prices. And the consumers are responding. These companies have specifically been targeting emerging countries. India’s massive telecom market with a subscriber base of over 930 million users has been one of their prime targets.

India in their sights…why?

HuwaiAlong with market incumbents like Nokia, Samsung, HTC and Apple, the Indian smartphone market is crowded with several domestic companies that offer affordable smartphones to consumers, though these domestic players too import products from China. It might be large in size but the Indian smartphone market is also very price sensitive as most consumers do not have very high disposable incomes. Most Indian consumers therefore are looking for products that offer them a number of features at a relatively reasonable price. It is this nature of the Indian smartphone market that offers a huge business potential for Huawei and ZTE, due to their strong presence in the low-end smartphone market. Michael Morgan, senior analyst – Mobile Devices at ABI Research, says that Both Huawei and ZTE are doing a great job of only giving consumers what they will use, while not charging extra for features that are not valued by the cost conscious consumers. Consumers in China have accepted both of these companies as smartphone brands, and their acceptance (and recognition) continues to grow internationally, including India and other emerging nations. Sethumadhavan Srinivasan, director – Strategy & Marketing, Huawei India says, “Indian consumers have now realised that we focus on affordable products. We will never enter into a price war with local players. We want people to use Huawei devices and then do business with us again.” He adds: “The Indian phone market is similar to that of China and eventually customers would select quality over low prices.”

Huawei sold over 10.8 million mobile phones in the second quarter of 2012 with a global market share of 2.6 per cent. Huawei has now become the sixth largest mobile phone manufacturer of the world.

Expanding market shares

Both ZTE and Huawei are moving swiftly with aggressive product launches and consistent innovations in the smartphone sphere. According to market analysis firm Gartner, both these Chinese companies have raised their global handset market share significantly over the past two quarters.Huwai Gartner’s recent handset sales report revealed that ZTE sold over 17.9 million handsets in the second quarter of 2012. Presently, ZTE is the world’s fourth largest handset maker with a global market share of 4.3 per cent, and increase of 3 per cent from the year 2011. For the same quarter, ZTE sold more than 8 million smartphones worldwide and held over 5 per cent of the global market share While speaking on the smartphone business of ZTE, Yuan Kang, Director Terminals Business of ZTE India, said, “ZTE’s focus is to provide the best of smartphones at an unbeatable price for the users to enjoy seamless experience. ZTE understands the Indian telecom industry and with its global experience, it will focus on the needs of the Indian market. Its continuous innovation will carry on helping deliver best in class and quality products.” Yuan Kang added that ZTE aims to globally ship 30 million smartphones, which will comprise a considerable share of the Indian smartphone market. On the other hand, Huawei sold over 10.8 million mobile phones in the second quarter of 2012 with a global market share of 2.6 per cent. Huawei has now become the sixth largest mobile phone manufacturer of the world, ahead of the likes of HTC, BlackBerry and Motorola. According to another market research report by IDC, Huawei sold over 7 million smartphones in the second quarter (Jul-Sept) of 2012. “Huawei plans to capture at least 15 per cent share of the Indian smartphone market in the coming next year. Globally, Huawei wants to be among Top 3 OEM brands in mobile devices space over the next 4-5 years,” says Sethumadhavan Srinivasan, Director – Strategy & Marketing, Huawei India. And this is not mere marketing talk. Hauwei is striving hard to achieve this target. It recently launched its Ascend smartphone line in the market and in India is focusing on the affordable smartphone sector, which it aims to lead.

Changing gear

HuwaiBoth ZTE and Huawei have broad ranges of smart and feature phones. However, uptil now both companies have been exploring theb low-end handset market segment in India. They have several tie-ups with leading Indian telecom service providers for bundling and reverse-bundling of their mobile phones. Now both the companies have changed their strategies in recent times to go bullish in the Indian mobile handset market. In a bid to become bigger brands in the smartphone market, both companies are showing noteworthy developments. Huawei is developing its own proprietary Android operating system, which will be similar to Amazon’s Kindle Fire tablets to create its own space in the market. On the other hand, ZTE is working with Mozilla, maker of Firefox to launch its own Firefox operating system powered smartphone by the end of this year or early next year. In terms of operating systems, both ZTE and Huawei already have Android and Windows Phone portfolios. Interestingly, smartphones with fast quad-core processors were also launched by these companies in global markets.

Both ZTE and Huawei have broad ranges of smart and feature phones. However, uptil now both companies have been exploring the low-end handset market segment in India.

Indian market challenges

The Indian smartphone market is exceedingly vibrant with the presence of numerous international and domestic mobile handset vendors. For years, it has been dominated by Finnish handset maker Nokia and the Koreabased Samsung, although Indian players like Micromax, Lava and Spice have also emerged with a gamut of offerings to grab some market share. It is these brands who stand in ZTE and Huawei’s path to Indian market dominance. Not only do ZTE and Huawei need to establish a strong foothold in the Indian market with a broad range of mobile phone offerings, both these Chinese companies also need to generategreater brand awareness and also build up quality associations. Michael Morgan, senior analyst, ABI Research, says, “Both of these companies need to further strengthen their international brand recognition in the handset space (they are doing fine in the network equipment space). This will be a challenge when they continue to operate in the operator branded handset segment and seek to establish their brand over that of their customers.” Before the arrival of smartphones, the Indian market was flooded with unbranded Chinese phones that were cheap. There were some security concerns attached with these phones, including the absence of legitimate IMEI number and hacking and phishing issues. While stringent actions taken by the Indian Government restricted the mushrooming of these mobile phones, many customers still retain the same image of the Chinese phones in their minds – that of devices that are easy on the pocket but are not exactly reliable. So, the companies need to not only come up with good products but also work on changing mindsets. Neither of these companies will make it big in the Indian market through their high-end products, but their low-cost affordable smartphone portfolios will make them flourish in the industry, while the high-end devices reassure customers of their ability to churn out high quality products. It is not an easy road for the Chinese duo.Huwai Yuan Kang of ZTE India accepts that there are challenges that the company needs to overcome to establish a toehold in the Indian market, but is confident of overcoming them. “In a growing market like India most of the vendors face similar challenges of providing suitable products at reasonable price. However, ZTE continues to focus on providing cost-efficient products and services and will prevail to deliver with this excellence. ZTE’s determination to overcome challenges has helped in its growth in the Indian market and we are confident about our bright future in India,” he says.

Last, but not least…

And there is more to the Chinese manufacturer story than ZTE and Huawei. Another Chinese handset player—TCL Communication is also coming aggressively to the Indian handset market under the Alcatel brand through partnerships with the Indian service providers. The company has special partnership with Idea Cellular to bring smartphones, bundled with voice and data plans. Alcatel’s products have been shipped to more than 20 countries all over the world including China, America, Europe, Middle East and Asia Pacific markets. Players in the Indian handset market, therefore, need to gear up for a Chinese invasion. Just how far it will succeed depends on what they can offer. For the consumer, however, it is a boom time, as they have more brands and offerings to choose from than ever before.

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