Global Smartphone Market: Growing Dominance of Chinese Manufacturers

Zahedul Amin
May 6, 2015
Global Smartphone Market: Growing Dominance of Chinese Manufacturers

Since Steve Jobs unveiled the first iPhone in 2007, the global market for smartphones has been growing in leaps and bounds. Due to soaring demand, prices have been going down as manufacturers experienced the benefits of economies of scale. With declining prices, smartphones have become popular within emerging and developing economies. China and India are two growing markets and all major manufacturers are focusing attention on these flagship markets.

Although Apple was initially the market leader, since 2010, Samsung Electronics, a Korea-based conglomerate, had wrested control of the market offering better quality and economic prices.  Samsung’s market penetration was particularly strong in Asia with China leading the way. As consumers in emerging markets are price-sensitive, Samsung smartphones proved a better alternative than pricier iPhones.

Over the last year, the smartphone market has undergone rapid changes, especially in the Chinese market where local Xiaomi has established a strong foothold. In the first quarter of 2015, Xiaomi has for the first time taken the pole position in the Chinese market from Samsung. They’re also penetrating the markets in other emerging markets where consumers are keen on a bargain deal.

The figure below portrays the current market share of major smartphone players as of the last quarter of 2014.


Two major changes are causing ripple effects within the market:

Xiaomi: The New Apple of the East

The sudden arrival and unprecedented growth of Xiaomi are the first of these two major phenomena. Xiaomi, (literally meaning ‘little rice’), is a company that started as a lean start-up in 2010; yet in three years has evolved to account for 6% of the global 320 million smartphones sold between July and September 2014 (Source: IDC). In the fourth quarter of 2014, Xiaomi fell from third to fifth position. But despite this slight fall in volume from the previous quarter, it posted the largest year-on-year growth of 178.3% among all the leading vendors and currently boasts a $45 billion valuation – courtesy of a solid demand within its home country of China.

Factors behind Xiaomi’s phenomenal Growth

  1. Low price: The main reason behind Xiaomi’s swift proliferation is its competitive pricing which is half the price of its competitors for the same product range. While having a design aesthetic similar to Apple’s, these run on a modified version of the Android system, with an average cost per phone is $220- significantly less than that of not only Apple’s iPhone 6 at $687 but also of Android phones at $254.
  2. Online-only selling: In addition to selling its phones in China and India, its biggest markets, through online-only channels, Xiaomi also operates its own app store – like Google Play or Apple’s App Store – keeping users in its ecosystem.
  3. Fan Loyalty: While Samsung spends 8% of its revenue on sales and marketing expenses, Xiaomi spends only 3.2%.  Yet, its extraordinarily loyal fan base is deserving of the envy of any other company. They call themselves “Mi-fans”, organize fan clubs, regularly give feedback and suggestions, and even have their very own “Mi-fan Day” on April 6th, when Xiaomi announces new products and holds marketing campaigns. The customer participation encouraged by Xiaomi by active engagement with them through online platforms and the promotion of Xiaomi as a lifestyle rather than just as a product has bred almost a cult-like fervor among its consumers.
  4. Aggressive Marketing: Xiaomi has a contract with China Mobile, the country’s state-owned telecom giant. Having 745 million customers (465 million smartphones and growing), promoting its 3G network, is a huge advantage for Xiaomi.
  5. Premium Design: While lacking in originality, the design of Xiaomi phones has been praised for their aesthetic appeal. Besides, it offers the best-looking phones within the particular price range.

Factors impacting Global Market

  • Chinese Manufacturers: Formerly the market followers, the rising demand and popularity of rival Chinese makers like Huawei and Lenovo are opening up doors for China to become market leaders this time around- shaping global price, design, features, and development trends.
  • Consumers in Emerging Markets: This intensifying competition between manufacturers aiming to offer the best deal in the market means that consumers in developing countries now have a wide variety of competitive products with different specs, price ranges, and designs to choose from.
  • Korean and Japanese smartphone makers: such as LG, Samsung, and Sony will have to face many difficulties competing with their Chinese counterparts on price.
  • Consumers in Developed Markets: The impact of these developments on the developed country’s market remains to be seen. It could go in a variety of directions ranging from an overall fall in price to no impact at all on the premium markets.

Future Projections

Smartphone prices are expected to drop even further in the coming years, according to IDC (International Data Corporation). By 2018, smartphone shipments would hit 1.9 billion units, marking an annual growth rate of just 9.8-percent. Emerging markets, like China and Indonesia, drove the industry’s growth in 2014 and are expected to continue to do so in later years. Penetration by Chinese companies like Lenovo and Xiaomi is expected to increase, especially in developing countries where per capita income is lower and consumers are increasingly cost-conscious.  But it is expected that there will always be a market for premium products, so Apple can retain its market share somewhat. All in all, the smartphone industry is experiencing a revolution as newer players emerge with quality products at reasonable prices and formerly weak competitors catch up in sales and profit by launching superior new products.



WRITTEN BY: Zahedul Amin

Zahedul Amin is an entrepreneur and consultant with 14 years of experience working for development agencies, private enterprises and government entities. He co-founded LightCastle Partners—a consulting firm looking to foster inclusive economic growth for Bangladesh and beyond. He has extensive research experience and loves to solve development challenges adopting a systemic approach. He holds a Bachelor’s and Master’s degree from IBA (Institute of Business Administration), University of Dhaka. Zahed has extensive experience in private sector development, landscape studies, impact assessment, financial assessments, market entry studies, banking, non-profit, and private & development sector consulting across 20+ sectors in Bangladesh including the Apparel Sector. He has successfully led 120+ projects while working with top-tier clients like The Gates Foundation, WFP, IFC, H&M Foundation, The World Bank, UN Agencies, EKN, BRAC, SNV, Ashoka, WaterAid, among others. Zahed is an International Visitors' Leadership Program (IVLP) alum, an entrepreneurship Fellow at the State University of New York (SUNY) and an Acumen Fellow.

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