October 2013
Lawrence Lundy, Consultant, Information & Communication Technologies
“50 Years of Growth, Innovation & Leader...
This explosive
growth in China
has propelled
some firms to
the top of the
global market
share charts,
with Lenovo,
ZTE, an...
Yulong has made phones since 1993, and the Coolpad brand has its origins as a PDA device. With
only 3,000 employees, Yulon...
The wildcard and the most interesting company of the 3 is Xiaomi. Its unique business model is
certainly worth watching as...
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Frost & Sullivan: The Chinese Are Coming (ICT Telecom Beat)

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Frost & Sullivan ICT Beat: The Chinese Are Coming—What You Need To Know About Lenovo, Coolpad, and Xiaomi

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Transcript of "Frost & Sullivan: The Chinese Are Coming (ICT Telecom Beat)"

  1. 1. October 2013 Lawrence Lundy, Consultant, Information & Communication Technologies “50 Years of Growth, Innovation & Leadership” Mobile & Wireless Communication The Chinese Are Coming—What You Need To Know About Lenovo, Coolpad, and Xiaomi A Shortened ICT Beat
  2. 2. This explosive growth in China has propelled some firms to the top of the global market share charts, with Lenovo, ZTE, and Huawei all selling more smartphones than Blackberry and Nokia, it is time to pay attention. The Chinese Are Coming—What You Need To Know About Lenovo, Coolpad, and Xiaomi A Shortened ICT Beat © 2013 Frost & Sullivan Page 2 This is an edited version of a longer, more in-depth ICT Beat. To gain access to the full ICT Beat, and for more analysis of the Mobile & Wireless Communication Industry, contact Lawrence Lundy. More than a third of all smartphones sold globally in Q2 2013 were sold in China. In the past year, smartphone shipments from China increased by 103%. Led by Samsung, with a market share of 17.6%, the market is booming. However, while Samsung and Apple dominate the market globally, in China, Apple has struggled to gain traction, with a market share of just 4.8% it is the seventh most popular smartphone manufacturer, behind little known Chinese companies such as Lenovo, ZTE, Huawei, Yulong Coolpad, and Xiaomi. This explosive growth in China has propelled some firms to the top of the global market share charts, with Lenovo, ZTE, and Huawei all selling more smartphones than Blackberry and Nokia, it is time to pay attention. As Apple launches its 5C iPhone to compete in the Chinese market, Chinese companies are looking to the West to grow their businesses. The Chinese market has been driven by a demand for cheap devices that offer a unique range of services such a virtual goods, messaging apps, and photo-sharing capabilities.The dynamics in more mature Western markets are very different, with carrier relationships, strong brand equity, and innovative features crucial to success. With mature market experience and a focus on innovation, Lenovo can take its Chinese smartphone business international The first and most successful Chinese smartphone company is Lenovo, which has the largest smartphone market share of Chinese companies, second only to the Korean giant, Samsung. Lenovo is also one of the most diversified Chinese electronics companies, with a broad portfolio covering PCs, laptops, printers, televisions, and storage products. This company has already achieved success on the global stage with its PC business, now the world’s largest after overtaking HP in 2012. • A successful history with channel partners will help Lenovo deal with carriers • Lenovo has a culture of innovation, which will spill over into its smartphone business • A well-articulated PC+ strategy shows Lenovo understands the changing dynamics of the technology industry • The protect and attack strategy for global expansion yields benefits for smartphones Lenovo must reposition its brand from a cheap Chinese vendor to a trusted high-end vendor, which will require more than the $248 million they spent on global promotion, marketing, and branding in 2012. Lenovo’s experience in the PC market, focus on innovation, and clear PC+ vision suggest it has all of the attributes to challenge Samsung and Apple in Western markets. A focus on security and network technology propelled Coolpad, the Chinese Blackberry, into the limelight Yulong Computer Telecommunication Scientific Company is a telecommunications equipment company, and with its Coolpad brand, it is the third largest smartphone company in China.
  3. 3. Yulong has made phones since 1993, and the Coolpad brand has its origins as a PDA device. With only 3,000 employees, Yulong is much smaller than its main competitors: Lenovo, Huawei, and ZTE. • Coolpad is associated with high-quality devices • Innovators in network and radio technologies • Focus on security attracts enterprise and government customers • Entrance into the United States will focus on better quality, low-cost handsets Whether it is the Apple or Amazon of China, Xiaomi’s phenomenal success offers a new business model for smartphone companies Founded in 2010, Xiaomi started selling smartphones in September 2011. In 2012, it had sold 7.2 million units and aims to sell 13 million in 2013.Valued at $10 billion, it is already about twice the size of Blackberry. Despite selling smartphones only in China, Hong Kong, and Taiwan, the recent hire of Hugo Barra, who previously served as vice president of product development for Android at Google, has made the industry sit up and pay attention. Barra will take Xiaomi’s global vice president position; therefore, it is clear Xiaomi has plans to take its unique business model international. • High-end smartphones at low-end prices • A new approach to sales, marketing, and product development • New business model built around software and services Similarly to Lenovo and Coolpad, Xiaomi’s strategy of having a laser-focus on high quality devices at affordable prices is best suited to emerging markets. For mature Western markets, these companies will compete in a market that is less focused on price and with an abundance of high- quality devices. To monetize its Western customers, Xiaomi will have to compete with Apple, Google, Amazon, and a host of other service companies such as WhatsApp and Facebook that have a much larger presence and mindshare. Lenovo is best placed to succeed in Western markets, Coolpad may struggle, and Xiaomi is the wildcard that could disrupt the industry Lenovo is the most likely to break into Western markets in the short term.This company focuses on creating innovative products and has a strong innovation culture.This focus will filter down to the smartphone business and the IdeaPhone range. Lenovo already has brand equity from their PC business and cash from other successful businesses to invest in marketing to further develop brand equity. While making huge gains in China, Coolpad may struggle to expand overseas. Its innovation is focused on radios and network communication, which can be difficult to market. Its success in China has been based on enterprise and security, which will be very difficult to translate in the West. As a brand, Coolpad is almost unknown outside of China, and it will take a huge investment to build a brand from the ground up. The Chinese Are Coming—What You Need To Know About Lenovo, Coolpad, and Xiaomi A Shortened ICT Beat Founded in 2010, Xiaomi started selling smartphones in September 2011. In 2012, it had sold 7.2 million units and aims to sell 13 million in 2013. © 2013 Frost & Sullivan Page 3
  4. 4. The wildcard and the most interesting company of the 3 is Xiaomi. Its unique business model is certainly worth watching as the smartphone market matures globally. With the average selling price of devices falling and margins shrinking, many companies will look to adopt Xiaomi’s model of selling services to make money. Its priorities should be to first prove that this services model can be profitable in China and then move to other markets such as India, Indonesia, and Brazil where low-cost, unsubsidized smartphones are in demand. If this is the model for smartphone companies in the future, then services will be the market in which all technology firms will compete. When Xiaomi does expand into Western countries it may find that rather than just competing against Apple, Samsung, and other Chinese smartphone manufacturers, it will be battling it out with the giants of the Chinese Internet, Alibaba and Tencent, as well as the giants of the Western world, Google, Amazon, and Facebook. To gain access to the full ICT Beat, and more industry analysis contact: Lawrence Lundy Consultant, Information & Communication Technologies, Frost & Sullivan Telephone: +44 20 7343 8322, Email: lawrence.lundy@frost.com Twitter: @lawrencelundy LinkedIN: http://uk.linkedin.com/in/lawrencelundy The Chinese Are Coming—What You Need To Know About Lenovo, Coolpad, and Xiaomi A Shortened ICT Beat About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, we have been developing growth strategies for the Global 1000, emerging businesses, the public sector and the investment community. Is your organisation prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies? Contact Us: Start the discussion If this is the model for smartphone companies in the future, then services will be the market in which all technology firms will compete.

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