CHINESE MOBILE COMPANIES HAVE SWAMPED THE GLOBAL MARKET. FOREIGN COMPANIES TOO ARE MAKING PHONES IN CHINA. HERE'S WHY.
China's sheer economic growth can be attributed partly to the immense production & trade (exports) Chinese industries execute on an annual basis. In recent years, China has become the world's mobile manufacturer. In fact in 2019, China manufactured over a billion smartphones, China has not only dominated manufacturing but its homegrown brands have considerable market share around the world. To learn why, lets dive in!
PART A : WHY CHINESE BRANDS SELLS SO MANY PHONES?
First things first, lets know the major brands:
Xiaomi or Mi
Oppo
Vivo
Oneplus
lenovo (arguably more successful in selling laptops)
ZTE
Now look at their performance in the Indian market:
As per my analysis, factors behind their success:
Brand ownership structure.
Yep you saw it right. The profits of Oppo, Vivo, Oneplus & Realme go to the same company called BBK Electronics. Similarly, Xiaomi also owns pocophone & redmi.. According to me, BBK has created illusionary competition to breakup the market & gain an overall larger share. And so far it has worked wonders. I feel if the unsuspecting consumer would be aware about this, the scenario would be different. The key focus here should be ownership & consumer misinformation.
Market strategy.
The Chinese companies have been smart enough to understand consumer trends in target countries & develop products accordingly. For instance in India, companies like Xiaomi & Oppo have focused on low budget phones having good design & flawless user experience, On the other hand in Europe, Oppo has created high end premium phones with quality features. The key focus here should be "adaptability".
Demography of China.
The fact that China has a huge domestic demand for smartphones is a great asset for these companies. It has various advantages like:
In case of foreign backlash (as in the case of Huawei recently), it can fallback on domestic sales to survive and sustain its growth. This reasoning of mine is supported by data below.
They also have the chance to try some innovative product first in the domestic market & gauge consumer reaction, For example, Vivo first introduced the inscreen finger print reader in china before launching it worldwide.
Another advantage (only to initial entrants) is that they could rack up impressive sales in China before venturing to foreign markets. This gives them a solid headstart in terms of generated revenue which can be reinvested to set up efficient distribution networks abroad
Support from the Government
The Chinese government has been rightly accused of giving preferential treatment to Chinese companies. if you notice the table below, you will notice how Apple is the only foreign company with a considerable market share. this is partly because of govt. policy which gives concessions & benefits to homegrown companies in the form of tax holidays. very high subsidies, expansion support (eg: setting up a factory by providing quick permit & even subsidizing cost of construction) & support from other state owned enterprise. These advantages are not available to companies of any other nation to such an extent.
I hope you understand why Chinese companies are so dominant in terms of sales and market share.
Now lets understand why so many phones are manufactured there.
PART B: WHY SO MANY PHONES ARE MADE IN CHINA?
There are 3 big manufacturers in China:
Foxconn. As a global manufacturer, Foxconn has more than 1.2 million employees worldwide and participates in the production of multiple brands of mobile phones. 70% of Apple’s mobile phones come from Foxconn. It is also a global top 500 company
Oppo. OPPO’s production scale ranks third in China. As one of the domestic mobile phone industry giants, OPPO’s production scale are very big. It is said that OPPO’s SMT workshop uses the world’s top manufacturing equipment, and its quality standard represents the industry benchmark.
Vivo At present, vivo has four production bases worldwide (of which 3 are in China) with a total of 122 modern production lines, it can produce more than 10 million mobile phones per month...
Now lets take a look at the reason behind their success:
Low cost of manufacturing.
China is no stranger to manufacturing goods. In fact, it is the world leader in manufacturing by sheer volume. So the cost is low due to;
abundance of (now not so cheap) labor
easy automation
presence of only one state controlled labor union
efficient supply chains
set up of "special economic zones"
large scale production = economics of scale
It's no wonder that many experts call China "the world's factory".
Top notch infrastructure.
Since the early 1960s, China has focused on developing infrastructure to facilitate the growth of domestic industries. At first, they marvelled at the industrial prowess of the soviets. But after a fallout in the mid 1960s, they have tread their own path. Since then, China has focused on;
building solid industrial base
upgrading transportation network to facilitate supply chains
building quality healthcare & education infra for a healthy & skilled workforce
developing special economic zones & spurring growth through foreign investment
developing a sound capital goods industries to provide basic machines /equipments for the manufacturing industry.
expenditure for research & development of latest technology.
Development of special economic zones.
Since the 1980s, China has focused on developing special economic zones. Their distinct characteristics are:
Special tax incentives for foreign investments in the SEZs.
Greater independence from the central government on international trade activities.
Economic characteristics are represented as "4 principles":
Construction primarily relies on attracting and utilizing foreign capital
Primary economic forms are Sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises
Products are primarily export-oriented
Economic activities are primarily driven by market forces.
As of today, Shenzhen has emerged as a major industrial powerhouse with the deployment of modern tech even in daily life.
Abundance of skilled/semi-skilled labor.
Recent rise of the middle class in China has raised the standard of living in PRC. However, it still has a dearth of labor with reasonable wages. This is because of the exodus of rural workforce to urban areas in search of industrial employment.
The wages of India & Indonesia are much lower than China. However they lack semi-skilled employees, proper infrastructure and have excessive red tapism in the government bureaucracy. thus China is a more viable option for foreign companies.
CONCLUSION
The recent anti-China political movement will definitely have a negative impact on China's phone hegemony. Foxconn has already decided to shift its operations abroad. Japan has offered incentive to its homegrown companies by shifting their production base from China to Japan by providing subsidies. Huawei's global sales too have dropped considerably.
However the Chinese companies still can be considered the world leaders for providing above average product at below average prices.
The direct as well as indirect support of the Chinese government will help these companies massively. For example, Chinese government has helped Huawei's 5G network to expand in Iran while it is being blocked by US administration. Chinese companies (including smartphone ones) have also benefited by China's debt trap policy in Africa. The usage of Chinese goods in Africa (including phones) has skyrocketed since Beijing has inked the One Belt One Road contracts (since 2013) with African governments. (On the other hand, it has imported primary goods from Africa on a massive scale).
THATS ALL. THANKS FOR READING!
Great work. Keep going👍