Hurt at home, smartphone companies look abroad
Print Edition
Lenovo Group Ltd, Huawei Technologies, Xiaomi Corp and other Chinese smartphone vendors are accelerating overseas expansion in sales and integration with global industry chains and ecosystems.
The companies are looking at offshore opportunities amid a crowded and somewhat sluggish domestic market. The more aggressive stance has been reinforced by the recent surprise devaluation of the yuan, which raises the prices of imported electronics components and lowers prices for phone sold overseas.
“With strong research and manufacturing capabilities, it’s time for Chinese phone vendors to go outward,” said Xiang Ligang, chief executive of the professional telecommunications website Cctimes.
Even before the currency depreciation, Chinese makers were expanding in markets from India and the United States to Brazil. They have built overseas manufacture facilities and started offering mobile operating systems to overseas users, instead of relying only on development of traditional sales channels.
Lenovo, China’s flagship information technology firm for computers and smartphones, announced earlier this month that it is opening a factory in India, with annual capacity of 6 million phones branded under Lenovo and Motorola, which Lenovo acquired for US$290 million last year.
Lenovo is the latest Chinese company to manufacture its devices offshore. Earlier this year, Foxconn Technology Group began Indian production of Chinese smartphone brands, including Xiaomi and OnePlus.
The aim is to improve global awareness of Chinese mobile operating systems.
Zuk, a sub-brand under Lenovo, will start selling ZUK Z1 from September in the Asia-Pacific, Europe, North America and the Middle East, only one month after its domestic debut.
The Z1 phone, with a 5.5-inch screen and 13-mega-pixel camera, will feature mobile systems offered by third-party, Android-based mobile provider Cyanogen in the overseas markets.
“We aim to offer overseas users the best experience, both in hardware and software,” said Chang Cheng, ZUK’s CEO.
Startup firm OnePlus, which derives more than 60 percent of sales from the US, Europe and other offshore markets, has invested heavily in developing a mobile system targeting foreign users. The company has offices in Shenzhen and in San Francisco.
Huawei has opened a research lab in Paris to pursue integration between mobile technologies and modern lifestyles.
The sluggish domestic market is probably the main reason for the aggressive push overseas.
In the second quarter, Chinese smartphone sales dropped 10 percent from a year earlier, compared with 5 percent global growth and 24 percent growth in the emerging Asia-Pacific region, said research firm GFK. India has become a prime market.
By the end of second quarter, Chinese vendors had tripled sales in India from a year earlier. Lenovo, Xiaomi, Huawei and Gionee doubled their combined market share there to 12 percent, according to International Data Corp.
“As China started to slow down, most domestic vendors have targeted India as the next big growth market for smartphones,” IDC said in a recent research note.
In 2015, global smartphone revenue will hit US$400 billion, according to GFK. That would represent 5 percent year-on-year growth. The rate in North America is expected to hit 16 percent.
Shenzhen-listed ZTE has said it is aiming to sell 20 million smartphones in the US this year, accounting for one-third of total sales.
Still, the depreciation of the yuan is expected to have a mixed impact on Chinese smartphone vendors.
The People’s Bank of China unexpectedly allowed the yuan to depreciate on August 11, leading to a subsequent 4 percent devaluation against the US dollar.
Huawei, ZTE, Lenovo, OnePlus and other vendors with considerable overseas profiles should benefit from the change. It makes their overseas prices more affordable, analysts said.
Companies that mainly target the domestic market, such as Xiaomi and Meizu, are facing the higher costs of imported components.
That is forcing more of them to look at offshore markets or the higher-end of the phone market segment.
Xiaomi, which derives more than 90 percent of its sales from the domestic market, said it will release new models in Africa next month.
Such tactics have limited effects on the industry as a whole because many Chinese smartphone vendors have signed long-term contracts for components, said Wingtech Communications, a contract-maker for Xiaomi and Huawei.
Still, change is good for the industry, said the Mobile China Alliance, an industry group.
It forces firms to reconsider their strategies and perhaps come up with more innovative ways to make and market their products.
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