Program Director, Mobile Phones, EMEA
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The Chinese focus on the “World Island” is protecting the Americas — at least for the moment — as consolidation bites in the Android business. Recent quarters have seen a big squeeze in the Android smartphone business as Huawei grows, but mainly at the expense of smaller brands and less at the expense of market leader Samsung.
How the Android Brands are Performing
Globally the big five Android brands (Samsung, Huawei, Xiaomi, OPPO and Vivo) have tightened their hold on the Android market — by nearly seven percentage points, from just over two-thirds of the global market to just under three-quarters, over the past 12 months, according to the latest IDC mobile tracker data.
This consolidation is more intense in Europe than it is elsewhere. Samsung and Huawei now have more than three-quarters of the European Android market between them, up nine percentage points in a year. Taking the whole smartphone market, Samsung, Huawei and Apple in Western Europe have 84% of units and a totally dominant 91.7% of value.
Arguably the consolidation is slowing in Southeast Asia, largely because it has already taken place. But in the Americas there is not much consolidation and the New Wave Chinese brands aren’t there to any degree yet.
There is a geopolitical theory from the early 20th century, outlined in 1904 by Sir Halford Mackinder, which was very influential over the following decades. Known as the Geographical Pivot of History, the theory emphasised the role of the World Island — that is to say Eurasia and by extension Africa.
This and other similar theories are worth bearing in mind when we look at how Chinese vendors are spreading round the globe. China’s history is one mainly of a large and homogeneous state that unlike its Mongol neighbours to the north rarely strayed very far abroad in imperial expansion. About the farthest its overseas exploration went was the voyages of Admiral Zheng He and his giant junks, which may have ventured across the Indian Ocean in the early 15th century.
China is approaching the expansion of its influence at state level very much in that image. Its Belt and Road initiative is targeting transport and other infrastructure that radiates out across neighbouring countries.
How Chinese companies expand abroad also reflects that history. Though Huawei grew early to be present in dozens of countries through its infrastructure business, as did ZTE, the other New Wave brands have been more conservative, setting a near to home set of priorities; they all looked first at nearby markets in Southeast Asia, onshore in the World Island, or close offshore. They piled into India and then moved West overland through Russia and the Central Asian countries. They have now arrived in force in Europe, and that is where the market consolidation is now mostly taking place.
This Chinese approach differs from the earlier waves of Asian industrial expansion in the last half century. The first and second waves were those of Japan and South Korea respectively. The Japanese wave really happened before the mobile phone business took off, so the Japanese businesses that were involved were well set up in the West when it came about. America was a major aim of their international expansion — almost an obsession. They were welcome in the US, as were Korean companies, as both came from “our Asia” countries whose post-War political systems had been largely created by the United States, as had their rapid industrial recovery. Like Nokia and Finland, coming from a relatively small country, the Koreans were particularly keen to be everywhere, and they did just that, and Samsung and LG became global brands.
Now that process is being reversed, as many of those brands retreat in the World Island and its offshore islands under Chinese pressure. Some of these brands in retreat are finding places they became established a while back are now their main markets — Alcatel and Motorola in South America, a process akin to the formation of oxbow lakes, to take another parallel with geography, as the dynamism of a river ebbs away.
Motorola, TCL-Alcatel and LG are all now stronger in the Americas than in any other region, and each makes around four-fifths of its smartphones sales there. All are increasingly becoming Americas brands despite attempts to hold on in what were formerly much more widely dispersed operations.
Ironically Alcatel’s and Motorola’s phone operations are Chinese owned, but that only happened because their owners bought into existing businesses — it is difficult to think that they could have achieved such positions easily as market entrants.
All three brands should be glad of Chinese history, which is giving them breathing space from the relentless consolidation seen in the World Island.
Consolidation of the Market
This is the Pacific Century and the problem with the World Island theory is that it ignores the Americas, which lap the other side of the Pacific Ocean. The China-facing West Coast is home to much of the intellectual property of the phone business, its semiconductor expertise and in Apple most of the profit. But for the moment the US is relatively protected from the consolidation wave that is taking place across the global smartphone business.
This may only be a phase in the consolidation of the phone business. The Americas are primarily operator retail markets, which makes market entry difficult. Latin America could, however, follow within a couple of years. Huawei has made strides down the Andes in Colombia, Ecuador and Chile in the past year, in Mexico and in Central America, though it has not made a push in Brazil or Argentina yet.
But much more competition seems less likely in the US. ZTE was delivered a blow in 2018 with short-lived US sanctions from which it is finding it difficult to recover. Huawei is not welcome as a telecoms gear maker, and pressure has been put on the mobile operators to keep its phones out too. The New Wave Chinese brands have so far been wary of making more moves there, with only niche player OnePlus making much of an entry. That is all before the current crisis in US and China trade relations and its difficult to predict outcome.
Geopolitics, in a very modern form as well as one harking back to history, has a very real role to play in the mobile phone business as the US and China stand off against each other.