China eyes hegemony in smartphone market

Chinese venders growing fast on big domestic market

By Kim Bo-eun

China has long been associated with white box products, which refer to cheap, unbranded consumer electronics. As a major supplier of parts to global IT giants, it has been able to assemble products with similar features and provide them at heavily discounted prices.

However, the tremendous growth of China-based IT companies is now changing the global industry landscape. The top five players in the global smartphone market have undergone a drastic change in the past few years. Once-market leaders such as Nokia and Blackberry have now virtually disappeared, replaced by newer Chinese players. Huawei and Lenovo now trail Samsung and Apple in market share. Data from market research firm International Data Corporation (IDC) show that Samsung had the highest market share in the fourth quarter of 2013 with 28.8 percent, followed by Apple with 17.9 percent, Huawei with 5.8 percent, Lenovo with 4.9 percent and LG with 4.5 percent. Other vendors accounted for the remaining 37.7 percent.

Chinese manufacturers used to focus mostly on low-end devices, but now they offer a much wider spectrum of products, including mid-range as well as premier smartphones. They are now competing not only with low prices, but with advanced technology and are quickly enlarging their share of the pie.

Booming Chinese smartphone market

Chinese smartphone manufacturers are backed by the quickly growing domestic market. The potential size of the market signals that success in China alone can lead to dominating the global market share. According to data from IDC, China was the number one country in terms of smartphone shipments in 2013 with 301.2 million units. Forecasts show that the nation will solidify its top market status with an estimated 457.9 million shipments in 2017.

The growing Chinese smartphone market is increasingly favoring local brands. While Samsung remains the most popular smartphone brand in China, data shows that its market share decreased to 19 percent in the fourth quarter of last year from 21 percent in the third quarter. Meanwhile, Huawei's share increased from 9 to 10 percent, according to IDC.

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The country's smartphone market is expected to get a further boost as it enters the fourth generation (4G) telecom market. China's major telecom operators obtained the time-division long-term evolution (TD-LTE) license to offer 4G cellular services in the mainland last year. Market research firm Strategy Analytics estimates that LTE smartphones in China will reach 135 million units this year, up 547 percent from 2013, presenting fresh opportunities for smartphone vendors.

Growing Chinese smartphone manufacturers

Huawei, the world's third-largest smartphone vendor as of last year, was established in 1987 and is better known as a networking and telecommunications equipment and systems provider. While its carrier network business constitutes 70 percent of its portfolio, its smartphone business has been growing fast and gaining recognition since it set foot in the market in 2011. In the second quarter of 2013, Huawei's Ascend became the fifth-most popular smartphone sub-brand, according to Strategy Analytics. The Ascend P6 was named European Consumer Smartphone in 2013 and 2014 at the European Imaging and Sound Association awards last year.

Lenovo is another notable smartphone manufacturer, which acquired Motorola Mobility from Google in January. It was established in 1988 and has been China's largest PC manufacturer since 1996. In 2005 it acquired IBM's PC division, which instantly made it the number three player in the global PC market. Last year, Lenovo overtook HP as the top PC vendor. The company introduced its first smartphone in 2010. With its acquisition of Motorola Mobility, its market share is expected to get a further boost.

ZTE's smartphone business is also growing fast. It started in 1985 as a telecommunications equipment and systems company. Telecom equipment remains a substantial part of its business, but ZTE has also established a presence in the mobile phone market. According to market research firm Gartner, the company was the fifth-largest mobile phone vendor in the third quarter of last year.

ZTE started its smartphone business in 2011 and has steadily been increasing its smartphone market share around the world, becoming one of the top five in the U.S. smartphone market last year. The company said earlier this year it aims to boost its U.S. market share to 10 percent by 2017 from 6 percent in 2013.

Korean smartphone makers face risk

In terms of global market share, there is a considerable gap between Samsung and the Chinese smartphone manufacturers in third to fifth place. However, LG, which trails Apple and Samsung has continually been fighting with Chinese vendors for greater market share.

In Korea, domestic manufacturers such as Samsung and LG continue to take up the lion's share of the smartphone market. However, this is not necessarily because the manufacturers' products are the most technologically advanced. Domestic vendors have an advantage in the Korean market not only because consumers have better access to after sales services, but because of the intertwined market structure of domestic mobile carriers and smartphone manufacturers. Korea's mobile carrier market, which has reached a saturation point because most of the population are already subscribers, increase share by snatching away customers from each other, enticing them with heavy subsidies when purchasing new phones. These subsidies come from the smartphone manufacturers, which rely on the mobile carriers to sell their products. Some analysts say these circumstances have left Korean smartphone makers rather complacent and perhaps somewhat vulnerable to new competition.

ZTE stepped into the domestic market in late 2012, and the two models that it launched saw moderate success. Huawei and Lenovo have yet to launch their smartphones in Korea but are showing interest in the market.