#3 – Chinese smartphone vendors are rising, not as fast as you would think, but don’t be fooled…

Many industry watchers are expecting a strong push into the Western markets from Chinese smartphone vendors like Huawei, Xiaomi, Lenovo and others, who collectively are almost equal the size of Samsung. However we believe that, in the short term, they will still focus on competing against, and marginalizing, the Samsungs and Apples in their domestic markets.

The Chinese vendors have already established a base in emerging markets. They are biding their time to flood-in once the infrastructure and economics are in place. Having built up their brands, capacity and competence, the next step will obviously be to move-in big time in Europe and the US, among other places. The current market leaders (and maybe Samsung in particular) should watch out, and perhaps revisit the reasons why another once-dominant market leader became complacent, missed out on market developments and eventually spiraled into non-existence.

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We are seeing huge growth in the Chinese smartphone vendor space. Xiaomi, Huawei and Lenovo account for almost 20% (2015Q2) of the worldwide smartphone market. Samsung, the number one smartphone vendor, had a 21% market share in the same quarter.

But beware when looking at worldwide shipping numbers. They logically include the Chinese market, and that skews perception. The footprint of these Chinese vendors outside China is still tiny when compared to Samsung or Apple. Xiaomi, for example, shipped an estimated 14.7 million devices worldwide in 2015Q1, but only 1.2 million were outside its own domestic market. At the same time, Samsung shipped 82.4 million devices worldwide, with 72.8 million devices outside the Chinese market.

The saturation in the Chinese market in itself will not stop the Chinese vendors from continuing focusing on the domestic market. In fact, the market has been stagnant (at least by Chinese standards) for the last two years, but it has not slowed the growth of these Chinese vendors – who are taking share from the global leaders. In particular, Samsung’s shipping of smartphones in China dropped by 53% 2014Q1-2015Q1 and there’s no sign of reversing this trend any time soon. Furthermore, smaller domestic brands (including a large amount of knockoff devices) still account for 40% of the market share – a huge pie and enticing enough to keep the major Chinese vendors focused within China.

Nevertheless, we still see these Chinese vendors begin to ramp up their efforts internationally. So far their efforts in pushing premium offerings in the West have been unsuccessful due to poor brand recognition and suspicion of direct connections with the Chinese government, despite their varied and creative marketing strategies. In contrast, the prospect in emerging markets like India are looking more promising, thanks to the increasing reach of mobile data access to its enormous customer base.

Northstream predicts that the Chinese vendors are not yet ready to challenge the dominant players in the West and they will continue to focus on growing/competing domestically in 2016. However, we do foresee that the Chinese vendors will be able to flood the emerging markets with their ”best bang for the buck” products, as soon as the ongoing developments of mobile infrastructure in these countries unlock the huge market potential. Then they will have built the brand, capacity and competence to move-in big time in Europe and the US, among other places. The current market leaders should watch out, and perhaps revisit the reasons why another once-dominant market leader failed to differentiate itself and eventually spiraled into non-existence.

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