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The newcomer smartphones challenging Apple and Samsung

For most people, smartphones are synonymous with only a handful of companies. This is understandable given that the market leaders Samsung and Apple are responsible for 50% of global smartphone sales…

Apple and Samsung’s smart phone dominance is under threat from local brands, particularly in the world’s biggest smartphone market of China. AAP

For most people, smartphones are synonymous with only a handful of companies. This is understandable given that the market leaders Samsung and Apple are responsible for 50% of global smartphone sales. Apple’s role in particular as the initial innovator of the technology has been driven by its prominence in the US, until recently the world’s biggest market.

But outside of the US, Europe and Australia, the story is very different. In China, now the world’s largest smart phone market, as well as fast-growing markets of India and Brazil, a number of newcomer local brands represent a major challenge for both Apple and Samsung.

In 2012, China surpassed the US in terms of the number of smartphone users. Of the 800 million smartphones that will shipped in a year, around 27% of them will be sold in China, compared to 18% in the US. Of that market, Apple has a 5% share.

Although Samsung is the most popular smartphone brand in China, the next two manufacturers are Lenovo and Yulong Coolpad, brands hardly known outside China. Yulong in particular has seen a spectacular rise in fortunes in China mainly due to a “carpet bombing” approach to developing phones that will appeal to all sectors of the market. In 2012, they released 48 different models of phone including a model in the US.

After Yulong comes more Chinese companies, ZTE, Huawei and another newcomer Xiaomi. Xiaomi was in the news recently after hiring Google’s Android executive Hugo Barra. Barra has been brought on specifically to make Xiaomi a global brand.

The rise of the Chinese brands within China is not surprising. Even though consumers may aspire to buying an iPhone, price is more of an issue, especially without the heavy phone subsidies available in the US. This is a problem for Apple who have made it very clear with the pricing of what was supposed to be the “cheaper” iPhone 5C, that they don’t intend to compete in any other price category than high end.

The situation is repeated in what could be the world’s second largest market, India. Local brand Micromax is second there to Samsung. Another local brand Karbonn, make a smartphone costing as little as $50.

Local brands have a number of advantages that companies like Apple and now Microsoft/Nokia will find hard to compete against. They have access to Google’s Android operating system which they can localise to suit their local networks, language and culture. They usually bring out new models of phones much faster than Apple’s, and it is likely that they can be supported better and cheaper locally. The key here is that there is nothing inherent in the technologies being implemented by Apple or Samsung that can’t be matched by other companies willing to accept lower margins to compete on cost. In fact some companies like Chinese manufacturer Oppo who is making phones with hardware innovations like a “swivelling” camera.

In some local markets like Brazil where there isn’t necessarily a local smartphone company, import taxes severely disadvantage already expensive phones from Apple. Samsung has got around this problem by manufacturing phones locally, something that Apple is also trying to do with their Taiwanese manufacturing partner Foxconn. It is not clear however whether the local manufacturing has actually started yet and it has already been beset with spiralling costs.

On a side-note and on a very much smaller scale, is another sector of the smartphone market which is emerging and that is the “boutique” local phone. An example of this is the Netherland’s Fairphone) which has a limited production run of 50,000 phones and is designed on the principle of being “ethically” sound. Precious metals are sourced from suppliers where the money will not fund forces involved in armed conflict for example. It is interesting to note that Apple could have sold their entire planned production of 50,000 phones in 12 minutes at the rate the iPhone 5S and 5C sold over their first weekend.

It is unlikely that any of the local or boutique smartphone companies will usurp Apple and Samsung individually and certainly not on a global front. Their combined effect however will be an increasing drain on the profit margins of the high-end phones. Samsung in particular spends a spectacular amount of money on marketing and cost cutting to maintain its dominance in markets like China and India. For Apple, their main challenge will be to convince the market that they can grow their smartphone share despite a seemingly impossible task of taking on the locals in their own back yards. So far, this is a task that only Samsung seems to be winning.

Join the conversation

18 Comments sorted by

  1. Mike Stasse

    retired energy consultant

    I bought a Chinese smart phone that looks for all intents and purposes like a Blackberry. For $29! it's so good, my wife bought one too.......

    No idea how long it will last, but for the hundreds of dollars the alternatives cost, I can buy a lot of these....

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    1. Tim Seidenspinner

      PhD candidate at Queensland University of Technology

      In reply to Mike Stasse

      I absolutely agree with you and think that price does not necessarily mean quality. The cheap phone my mum had (Huawei) was just fine and worked perfectly until she dropped it several times on the ground and into water. I do not have a phone but my old cheap Chinese MP3 player is still going string after 9 years!
      But of course that would have killed any phone, including the iPhone as we know (see fake ad regarding the iPhone 5S being waterproof through the installation of iOS7).
      Of course, working conditions for the people who make those phones are likely to be terrible but that is the case with Apple, too, and virtually every other phone manufacturer.
      In economic times like the current one it is better if people have the money in their pocket rather than putting it in Apple's pocket for nothing more than image and supposed "coolness".

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  2. Andrew Franklin

    IT

    David,
    You might want to note that a major reason Apple's iPhone dropped to around 5% marketshare in China this last quarter is because the iPhone is not available on China Mobile, the largest carrier in the world with 740 million subscribers. That's three quarters of a billion people.

    With a deal rumoured to be imminent between Apple and China Mobile, the iPhone's Chinese market share is very likely to head upwards very rapidly.

    You should also consider the seasonal variance that 5% share…

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  3. Lee-Anne Walker

    logged in via Twitter

    It was heartening to read this article because competition is healthy and benefits the consumer, avoiding monopolies and duopolies which only benefit their shareholders.

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    1. Tim Seidenspinner

      PhD candidate at Queensland University of Technology

      In reply to Lee-Anne Walker

      Yes, the more competition the better. I just hope that more and more people choose to not buy into the Apple or Samsung hypes and buy phones made by other manufacturers as that certainly would lower the prices of the so-called high-end phones.
      Hopefully, there will be more competition in other areas, too so prices for the Australian public go down. For example, it would be great if the government would make it possible for individuals to buy cars overseas and then ship them back to OZ as they prices there are much better and even with the payment of 10% GST here people could still save a lot. Once that get going the loacl car dealers would also drop their prices in order to compete. The same goes for travel products, airline tickets etc.

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    2. Chris Harper

      Engineer

      In reply to Tim Seidenspinner

      Tim,

      It isn't just hype that leads people to purchase Samsung. I have no need for a tablet, but I need more than just a smart phone.

      I purchased a Samsung Note II because of its form factor, not because of its brand. I continue to find it unwieldy as a phone, but the only way I will let go is by someone prying it from my cold dead hands...

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    3. Andrew Brown

      M. Professional Accounting, B. Arts (Public Policy & Sociology)

      In reply to Tim Seidenspinner

      Tim

      I find amusing your 'Apple' bashing in particular. You talk about competition, but how is there competition when most phone manufacturers simply install free 'Android' or purchase Windows software while Apple develop their own? The only other manufacturer that I am aware of which carries that cost solely within their own product is Blackberry.

      One would argue that Android is only free because they are exploiting other advantages to their financial benefit; i.e. marketing and therefore profit…

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    4. Robert Molyneux

      Citizen at Drehmex Sales and Services

      In reply to Tim Seidenspinner

      The more standardisation the better.

      There are now TWO operating systems on mobile phones - Apple's and Android. Windows and Blackberry are never going to make it on mobile phones.

      As with the older computer OS, the fewer the OSs the better for the real purposes of computers / phones / gadgets - which is to run useful applications. This is where competition is good, but even here, standardisation of data formats and GUIs means the fewer the better.

      As to your idea that it would be great for individuals to buy cars overseas and ship them here, there are the tiny problems of logistics, warranties and service support to overcome.

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  4. bill parker

    observer

    Frankly there is nothing "Smart" about the Samsung. I stupidly signed up for one with Telstra and went quietly mad, then loudly then downright angry. Its crap. I sold it.

    iPhone4 is fine. Do not need 4G - it doesn't help coverage one bit where I live. But at least it has some things in common with the Mac computer in front of me.

    I really do not care about the other issues. I need a phone for emergency use and send text messages with ease. The old ZTE was hopeless at that.

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    1. Mike Swinbourne

      logged in via Facebook

      In reply to bill parker

      So the question must be asked Bill, if all you do is use your phones for emergencies and sending a few text messages, why do you even need a smart phone?

      I have a 10 year old motorola in a drawer at home that will do that better than any smart phone. I will let you have it for half the price of an iphone.

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  5. Robert Molyneux

    Citizen at Drehmex Sales and Services

    Sorry, but looking at various hardware gadgets and their prices is about as exciting as looking at lines of identical laptops in the local store. So the Chinese make lots of stuff cheap. Who would have thought that?

    The real reason that the Chinese are buying Chinese gear is (probably) that it supports Chinese writing, language and culture.

    An interesting article would be to look at how the OS support different languages / cultures. What about non-European character sets, right to left writing, different icon sets? Does a rubbish bin / trash can mean the same thing the world over? How does a QWERTY keyboard handle icons for Chinese / Japanese / Koreans? Can an American company with its US-centric view compete with Asia? If Asians can develop new ways of visualisation, can they be useful to the rest of the non-English world?

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    1. Andrew Franklin

      IT

      In reply to Robert Molyneux

      And yet the iPad had 80% market share in China in Q2 2013 according Chinese analytical firm Umeng.

      Looks like once the iPhone becomes available to China Mobile's three quarters of a billion subscribers, the Chinese will actually buy a lot more of Apple's iPhones than they are currently.

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    2. Robert Molyneux

      Citizen at Drehmex Sales and Services

      In reply to Andrew Franklin

      Is there an alternative to the iPad - apart from Microsoft's pathetic Slate?

      I think you need to distinguish between a phone (everyone needs one) and a Pad - alternative to laptop, not everyone needs one.

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    3. Andrew Franklin

      IT

      In reply to Robert Molyneux

      Robert, iPad sales have been growing at a faster rate than iPhone sales and PC sales have been falling at the same time as the iPad sucks customers away from the traditional PC.

      If you count the iPad as a PC, Apple is has been the largest PC manufacturer in the world, leaving HP, Dell and Lenovo in the dust.

      You can't brush off Apple's 7" and 9" slabs of glass and metal quite so flippantly.

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    4. Robert Molyneux

      Citizen at Drehmex Sales and Services

      In reply to Andrew Franklin

      Andrew, I was into portable / ok luggable computers in the days of the CP/M Osborne Executive in 1983 or so. I demonstrated Macintoshs to every Chinese mining executive I met. I believe in the WIMP!

      What I said (in my first post) is that counting the number of gadgets is boring. I would much rather see a learned article about how the various WIMP "human machine interfaces" are being adapted by various cultures.

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  6. Stephanus Cecil Barnard

    Town planner and freelance writer at Kalahariozzie

    Oh I so miss my Nokia 3310... It was tough, survived drops on the floor, in the loo but could not take a photo.....

    Noting the demise of Nokia, and now it seems Blackberry, Apple and Samsung must stay on their toes to remain in front. I have used several smart phongs in workplaces, and i prefer the Apple Os, and it is more expensive, but my iPhone 4 still goes strong.

    Will be interesting to look back in five yearstime to today and see how we have moved on

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