The new wave of Chinese smartphone brands, led by Huawei with Xiaomi and then OPPO and vivo not far behind, seem to be pushing across the whole global mobile phone industry. Where does this leave the regional phone players which had become such a prominent part of the industry?
Along with Kiranjeet Kaur, who looks after mobile phone research in Asia Pacific for IDC in Singapore, I have recently completed a study of ‘Local King’ phone brands across the world, looking at where they are on the defensive, where they are still prospering, and at what might give them continuing vigour, along with analysing how long they might last.
In many parts of the world these brands are in clear retreat. South East Asia is the clearest example of that, but the opposite is true in some other places.
India shows what is happening across Asia most graphically. The local companies Micromax, Karbonn, Lava and Intex took big shares of the phone market in the middle of the decide, with success in feature phones, where their composite market share was around 40% in 2014., closely followed by success in smartphones, where cumulative share reached a third of the market the following year.
Since then the composite share has dropped by three quarters as new players piled in. In smartphones together they now have around a quarter of the share they once had as Xiaomi, vivo and OPPO have become the big players.
A similar story may be seen across most of the big emerging markets of South East Asia, says my colleague Kiranjeet. There is a lot of variation in the positions of the big new Chinese brands, and in several markets they include Huawei, which is not strong in India. But the storyline is often the same one – a retreat by the local Local King. Advan in Indonesia, and Cherry Mobile in the Philippines, for example, are both feeling the heat from the increased competition from China.
A similar picture can be seen in many other markets which have been early targets for globalising Chinese brands. In Russia local brand Fly is dwindling, as is Allview in Romania.
But the opposite however is true in Africa. Transsion, which runs the brands Tecno, itel and Infinix, has grown to be so large that it now is number one in the smartphone as well as feature phone markets.
Transsion stands out as a company which succeeded in the business by doing everything in a different way. Most Local Kings are based on one country, and often have rather limited resources. Some of the most successful were launched by local distributors. Transsion on the other hand is not local but based in Shenzhen, and though it made its mark originally in West Africa quickly became a regional player.
The main reasons for its success appear to be that it had the scale to succeed, and at the same time went against what its bigger international competitors were doing, in that it chose a part of the world with many small and in smartphone terms not very large markets, which were often pretty much overlooked by its rivals. It focussed on the practicalities of distribution, did not ignore the big rural market, and made sure it went head to head against rival products (often from Samsung) with cheaper equivalents with the same set of tech specs and features.
There remain some individual markets where locally launched Local Kings remain very strong. A standout example has been Pakistan, though there local brand Q Mobile, which used to have more than half the market, is now in retreat following an investigation into its payment of customs duties.
In a number of these countries there may be reasons why the playing field has been tilted to help a local player. A lot of these reasons are related to lower duties on knock down kits which can be reassembled locally. A case in point is Algeria, where local player Condor is doing very well under such an import framework. In Algeria the import of other brands has been further curtailed by restrictions on allocation of hard currency to importers.
Local protection has long been in place in South America, where industrial policy has been aimed at encouraging import substitution. There the trend has been to relax tariffs aimed to encourage local production, for instance in Argentina. But in other parts of the world more restrictions are coming into place, notably in India.
India is such an important market that such moves are encouraging global brands, notably Samsung, to increase local production. This will not necessarily help the Indian Local Kings much at all, in fact probably to the contrary.
In smaller markets, however, import restrictions can be a big help to a favoured Local King, as they have to Condor in Algeria.
Most of the technology trends in the smartphone business are meanwhile against the Local Kings. One such shift is a global consumer move towards more powerful and just better quality smartphones. This tendency can be seen in emerging markets as well as developed ones – something that was largely unexpected just a few years ago.
This trend has put Local Kings at a disadvantage. For the most part they source from the assembly plants of Shenzhen. There are dozens of these assembly plants, and without them the Local Kings could not have grown or prospered. They are characterised by low overheads, very keen prices, and extensive catalogues but similar product lines. But they also tend to be one step behind the integrated manufacturers.
The Local Kings face an overall consolidation in the smartphone market, which is itself showing signs of weakness. The total sales of all Android vendors outside the top five international brands has fallen in five years from 555 million to 361 million. Some Local Kings face being locked into a niche of serving the very lowest price sections of the market, selling low priced low margin devices and without the profits to invest further in the brand.
The two remaining big Local Kings in developed countries with operator dominated retail, Wiko in Europe, and BLU in the Americas, both face avoiding that fate.
We are still seeing Local Kings emerge through mass market retailers, often general retailers not focussed on phones, who are leveraging their retail reach with entry level models – the PEPstores chain in South Africa is one such example.
As the phone business continues to mutate, this itself provides new opportunities.
If you would like Simon Baker to help with your understanding of the dynamics of phone markets in emerging countries against those in the developed world, head over to https://uk.idc.com/ and drop your details in the form on the top right.
Simon Baker will be appearing at IDC’s Pre-MWC Brunch on Sunday 24 February 2019. Register here if you are interested in attending.