Global mobile brands find lines busy in China

Chinese firms see robust growth in world's biggest smartphone market

China has emerged as the world's biggest smartphone market, attracting mobile phone vendors from around the globe. The country is also the world's biggest mobile phone manufacturing base, with several domestic companies such as Lenovo, Huawei and ZTE rising quickly and threatening the position of more established cellphone makers.

Tougher competition

The Chinese smartphone market is changing rapidly and is fiercely competitive. Some international brands that have performed extremely well in developed countries have not achieved similar results in the Chinese market, Apple Inc being one such case.

Although Apple swept the North American and European markets as the leading smartphone brand, the company ranked seventh by market share in China during the first six months of this year, behind Samsung Electronics Co and many domestic mobile phone manufacturers.

Apple had shipped 5.2 million smartphones to China as of June, according to a report issued by information and analysis provider IHS. This accounted for a 7.5 percent share of the total smartphone market in China, and was only about one-third of the share held by market leader Samsung.

However, the figure does not mean many Chinese people dislike Apple devices. On Aug 10, nine people were put on trial in Central China's Hunan province on charges of illegal organ trade. A 17-year-old high school student voluntarily sold one of his kidneys for 22,000 yuan ($3,480) so he could buy an iPhone and an iPad.

From smuggling to selling kidneys, many Chinese are determined to get an iPhone by hook or by crook.

Apple has once again excluded the Chinese mainland from the list of first regions to roll out its latest product, the iPhone 5.

Apple pledged to open more brick-and-mortar stores in China years ago, targeting second-tier cities. However the number of Apple stores remains at five on the mainland: three in Shanghai and two in Beijing. The number is less than that of one state in the United States.

Besides having what some critics describe as an arrogant attitude, analysts explained other reasons for Apple's comparative lack of success in China. "Apple failed to make any noticeable achievement in the Chinese market because of its high pricing, simple product line and the company's reluctance to cooperate with China Mobile Ltd, the nation's biggest mobile carrier," said Kevin Wang, director of China electronics research at IHS.

"For Apple, this is a huge disadvantage," Wang said.

TD-SCDMA technology, the 3G wireless standard adopted by China Mobile, represents the fastest-growing standard for smartphones in China. Shipments of TD-SCDMA-compliant phones are expected to rise 10-fold from 2011 to 2016, he added.

Nokia Corp of Finland, another big-name international player, experienced a rough time in the Chinese market as it shifted its focus to the Windows Phone platform. The company's ranking slipped to fifth place in China, with a 9.1 percent share in the first half. Its decline has been dramatic, having been the top smartphone brand in China during the fourth quarter of 2011, the IHS report showed.

Other international brands, such as Motorola, Sony and LG Electronics, all delivered unsatisfactory results, gaining less than 5 percent in market share in China in the first six months of this year.

In contrast with foreign companies' weak performances, some Chinese manufacturers have experienced robust growth and grabbed significant market share.

Lenovo Group Ltd, the largest Chinese PC maker by market share and second-largest globally, is now the second largest smartphone provider in China based on sales in the first half of 2012.

The company's success is down to its founder, Liu Chuanzhi. In 2008, because of poor market performance, the company sold its mobile business to "concentrate on the PC sector", but Liu decided to buy it back in 2009.

Then the company established a mobile Internet division in 2011 and launched its first smartphone - LePhone. Lenovo presented its second-generation smartphones LePhoneS2 and K800 this year.

"Since Lenovo became the second-largest PC maker globally (in the second quarter of 2011), we have been putting greater emphasis on mobile Internet products and cloud-computing markets," said Yang Yuanqing, president and chief executive officer of Lenovo.

Lenovo reported its smartphone shipments exceeded that of its PCs for the first time in history in the second quarter of 2012. About 6.8 million handsets were sold during the quarter, the company said.

ZTE Corp, the world's fifth biggest telecom equipment maker, has made huge strides in the mobile phone sector in recent years as the company looks beyond the traditional telecom industry for new revenue drivers.

The company has developed into the world's fourth mobile phone vendor and aims to ship more than 30 million smartphones this year, doubling the figure of last year.

Huawei Technologies Co, expressed its ambition earlier this year to ship more than 100 million mobile phones in 2012. Huawei hopes to be among the world's top three mobile phone vendors in five years.

"The major advantage for Chinese handset manufacturers is that they usually adapt quickly to market demand. In addition, being homegrown, they understand the culture and nuances of their Chinese customers," Egidio Zarrella, a partner at KPMG China, said in an email to China Daily.

Unlike Apple, which probably takes a year to research and test a new model, Chinese mobile phone manufacturers have a much higher productivity rate.

"From the idea to the actual handset hitting the market, the fastest Shenzhen producers only need 20 days," said Sun Wenping, secretary-general of the Shenzhen Mobile Communications Association. Shenzhen is a mobile phone production hub with a complete supply chain in South China.

He Shiyou, executive vice-president of ZTE Corp, said the average lifespan for a smartphone in China has become much shorter now, probably between three and six months. "Therefore ZTE has to move fast in order to not lag behind," he said.

However, domestic rivals may not have the knowledge or skills to bring global ideas into the Chinese market to drive innovation - innovation from seeing all ideas and then adapting them to your own market, Zarrella said.

One of the key competition weapons that Chinese vendors resort to is price but price wars lead to lower profit margins and impose negative effects on branding, said Sabrina Ren, a research manager at Germany-based GfK Group.

"Apart from a few manufacturers, currently lots of Chinese brands rely on the turn-key solution from the chipset provider and do not have strong enough research and development capacity compared with global competitors," Ren told China Daily.