Program Director, Mobile Phones, EMEA
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Globally the smartphone market is no longer expanding. IDC forecasts an increase of just 1.8% in units to 2023, with volumes rising over the 1.5 billion unit threshold annually after a dip this year. Where does that leave emerging markets, which for many years were a motor of growth?
They were significant in the phone business largely because of their sheer size. China and India each have the population of all the traditional developed markets — North America, the European Union, Australia, New Zealand, and a few rich smaller states — combined.
A detailed look at current IDC forecasts shows that though emerging markets have lost much of their zest, they will still show larger smartphone volumes in 2023 than they do now.
Emerging Markets Will Slowly Elbow Out Developed Markets
In a flat total market, if they are still going upwards, something has to give — and the next five years will see a slow move away from developed markets in unit terms.
The chart here shows current IDC five-year forecasts for smartphone growth, linked to the 2018 smartphone ASP in each country market. No country is expected to hit a high of more than a 10% CAGR over this period — the big growth days are over everywhere.
Generally, the countries with the highest smartphone ASPs will see a contraction in unit sales, and those with the lowest ASPs will expand; there is a definite clustering in growth around countries with lower ASPs.
India Will Continue to Be a Motor of Global Growth
India will continue to be the motor of growth in emerging markets. At nearly 10%, its five-year unit CAGR is the highest for any country in the IDC Tracker. Indian smartphone shipments will rise to almost 85 million units between 2018 and 2023, equivalent to about two-thirds of the global increase over the period. India had a smartphone ASP before sales taxes of just $159 in 2018, so it figures well down the price scale.
Other major developing economies, including Indonesia, Vietnam, and Pakistan, will see more modest proportionate unit growth.
There are not many countries with ASPs above $300 that will exhibit the same sort of rise. The ones that do, such as Saudi Arabia and the UAE, will do so because they will show some recovery from recent steep reverses in the wake of the oil price crash. But none of the $500-plus ASP markets are expected to have much growth at all, and those at the very top of the ASP pyramid markets are in decline. There are also a couple of outliers, but they are special cases; the only low ASP market with a big expected drop is chaotic Venezuela.
Some Smartphone Markets Are Way Off Mature
With a maximum CAGR of just 10%, it seems wrong to call most of these lower-income countries emerging markets in smartphone terms. But there is still some logic in it — even at the end of the forecast period, most of these countries will not be mature smartphone markets. A number of big poorer markets will have feature phones accounting for a third or more of total mobile sales by units in 2023.
One of the reasons why the smartphone market will not grow more emphatically over the next five years is that the transition to smartphones has slowed in many poorer countries. In India, despite its continuing smartphone surge, IDC expects 35% of phone sales to still be feature phones in 2023, while in neighbouring Bangladesh the percentage will be as high as 60%. Across much of Africa, the proportion will also be a third or above.
Shine Off Emerging Markets
Emerging markets are losing their lustre in the business for other reasons. Most have an open retail sale of smartphones, and that means a big investment in channel marketing and support. In economic and investment terms, emerging markets have long been seen as prone to instability, and the current topical catchphrase for unstable currencies, the “fragile five” — Turkey, South Africa, Brazil, India, and Indonesia — are all major emerging markets. Turkey has recently shown just how fragile that may mean.
Another reason why emerging markets are not as hot as they used to be for the industry is the trend towards more expensive devices. IDC expects that trend to continue in our forecasts up to 2023. In terms of smartphone class, the upper-middle ($600–$1,000) of the market will grow in importance. Meanwhile, the entry-level, under $200, will not fare so well. Partly that is because nearly a quarter of the less-than-$100 band is composed of 3G devices, and they are expected to give way to 4G. Consumers everywhere are expecting more of their devices as they use them more.
5G Will Mainly Be for Rich Countries
The third reason for emerging markets losing their shine is that the Next Big Thing in the mobile world will be 5G — and, generally, 5G will be a rich country technology, at least in its early years. It will cost a lot to implement, and this can only be justified if there is a lot of traffic, and customers paying substantial tariffs. The phones will also be pricey, and it is no coincidence that the initial 5G markets are all those with the highest ASPs — Korea coming on strong first, then the US, Australia, Switzerland and other Western European countries.
The boost from 5G is shown in IDC’s market value forecasts. While developed markets may slow in units, total market value will not decline, as ASPs will rise.
Among emerging markets, the picture is more mixed. China will show greater value, also helped by 5G, but prices in India will remain almost flat as the market continues to be extremely competitive.
Most emerging markets will show value rises, but these will be propelled by larger volumes as much as by rising ASPs. In other words, the continuing if slow migration in volumes towards emerging markets will largely be cancelled out in value terms by higher ASPs in developed countries.
A More Complex World
Many emerging markets will be also-rans in 5G. But in this instance, we must be very careful what we mean by an emerging market. 5G will not uniformly be a rich country’s prerogative.
In terms of GDP per capita, China may be an emerging market still, but it is clearly no longer one in terms of how much of its phone market is feature phones (in 2023 it will be just 3.2%). And while India falls into the emerging market camp under both parameters of ASP and lack of maturity of the smartphone market, it may not be an also-ran in 5G either, due to its operator environment and the dynamism of Reliance Jio and its big push with 4G, which may follow on into 5G.
The old adages will no longer always do as emerging markets well, merge, into a more complex global picture.