September 9, 2014 / 6:16 AM / 3 years ago

China smartphones set to pick off global giants

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Ethan Bilby

Not everyone is able to spend $500 on a smartphone. For those lacking funds or wanting better value for money, China’s handset makers increasingly appeal. Today, most of their sales are domestic. Yet low costs are helping them dial in new emerging market customers.’

Chinese brands have quickly seized control of their home market. Just a few years ago, the likes of Nokia and HTC were major players. Now upstarts like Xiaomi dominate. In the three months to June, domestic manufacturers produced more than three out of every four handsets sold in the People’s Republic, according to Canalys analysts.

Assuming Lenovo completes its acquisition of Motorola, roughly 40 percent of phones shipped worldwide in the second quarter were Chinese-owned brands. Yet manufacturers like Coolpad and Huawei do much better at home than abroad. In the rest of the world, the market share for Chinese manufacturers is only 19 percent.

Tight control over manufacturing and low labour costs have enabled Chinese groups to offer powerful phones at lower prices than competitors like Samsung. That advantage gives Chinese brands an opportunity to find a following, particularly in growing markets. Consumers in Britain and Brazil are both expected to buy roughly 32 million phones this year. Yet the market in the South American country will expand by 76 percent, compared with 7 percent growth in the United Kingdom. Buying an existing brand can also provide a regional boost. Despite its woes, Motorola remains Brazil’s most popular smartphone brand, which should help Lenovo in Latin America.

Distribution remains a challenge, however. In China, domestic groups have benefitted from subsidies offered by network operators that encourage data-using customers to buy smartphones. Aside from TCL and Huawei, most Chinese manufacturers lack established relations with overseas telecom operators. In countries like India and Indonesia, they also face competition from local low-cost manufacturers.

Over time, however, it seems unlikely that Chinese manufacturers will only succeed at home. Their international rivals face a global fight.

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