(Chinese Version)

Some phone makers in China like to say that they don’t make low-end phones, thinking that not making low-end products will mean success in the high-end market. However, it’s clearly a misperception.

Chinese phone makers have to start from the beginning, the low-end market

It’s only been less than 30 years since the reform and opening policy was launched in China and the real booming age of the Chinese manufacturing industry emerged in the late 1980s. In the early state of the reform and opening policy, China was a country of trade deficit, meaning China at that time didn’t possess the matching manufacturing capability to compete with other countries.

Since 1990s, China has been heavily relying on exporting cheap products to boost trade and economy. In consequence, China’s processing trade ratio stayed above 50% until 2007. Starting from 2007, China’s manufacturing industry then began to undergo transformation, with the processing trade ratio dropped to 34% in 2014.

The last generation of Chinese phone brands, such as TCL and BIRD, was crashed by phones from Europe, the U.S., and Japan in 2004. Thus, the Chinese phone industry had no other options but to turn to copying foreign brands. All these obstacles didn’t take the industry down. The Chinese phone industry never hesitated to spend efforts and energy in finding way out for Chinese brands and seeking new development opportunities. And thanks to the continuous efforts, we have influential and innovative Chinese phone brands such as Huawei and Xiaomi as well.

Up till now, Chinese brands, for instance, Xiaomi and Huawei, account for a rather large share of the global market. But still, these brands have China, a country with the largest population, relatively strong purchasing power and competitive advantages in trading and manufacturing, behind their back. A very large percentage of Chinese brands’ global market share (40%) is contributed by the Chinese market. In 2014, the total sales volume or a Chinese brand was 450 million, 350 million of which were purchased in China.

Most of the overseas market share of Chinese phones is from the sales of low-end models in Africa, South America and India. And the truth is that Chinese smart phone brands are conquering overseas markets using middle and low-end smart phones.

The Chinese phone industry is no doubt at the bottom of the industry chain. At present, Samsung and enterprises from Taiwan are having a fierce competition on developing and manufacturing semiconductors, with Samsung is about to mass-manufacture its 10nm products and TSMC is already producing16nm products. However, SMIC can only produce 28nm products. As for LC technology, China is also lagging behind Japan and South Korea. What’s more, in the field of DRAM American and Korean companies are still the leading force while China has only acquired CMOS technology by buying OV. Hisilicon is one of the very few companies that are world-class in terms of chip design.

Making low-end phones doesn’t mean the company is low-end as well

The once leading phone brand Nokia, which had dominated the sales of phones globally for 14 years, now sells phones at an average price of 60 euros. Even in the high-end line Nokia has also launched cheap phones that are about 100 euros. Surprisingly, users of high-end Nokia phones never feel any embarrassment from that. Samsung is still the top one phone brand in the world and it also has low-end phones. Samsung’s recent surge in market share in India was mainly attributed to the launch of its middle and low-end phones, one of which adopted Chinese chips and had a low price of about 500 RMB.

Low-end phones don’t mean low profit! Although Nokia phones’ pricings are low on average, they still have a net profit rate of 10%.

The biggest winner of the high-end market Apple is actually entering the middle and low-end market, launching iPhone 5C subsequently. Rumor has it that Apple is going to roll out cheap models once again this year. The reality is Apple is promoting low-price phone models in another way, that is, continue to sell old version iPhones at a lower price. Right now consumers can get an iPhone 4S at 1398 RMB on JD.com.

Making low-end phones can also lower the cost on components. In this case, whether it’s the former dominator of the industry Nokia of the current industry leader Samsung, they are all making low-end phones. It’s nothing to be embarrassed about. To be honest, claiming that “my company doesn't make low-end smart phones” will only make you appear weak, not a sign of confidence.

Chinese smart phones are all using Google’s Android operating system, which in a way determines that Chinese phone makers can only do something different on the hardware to appeal to consumers. Local brands have successfully entered the high-end market for the fact that Google exited this country and therefore local brands became able to pre-install apps of their own on smart phones. It’s only an advantage when competing with international heavyweight Samsung. Just as I have mentioned before in the first paragraph, Chinese brands’ performance in overseas regions is far behind that in the motherland.

If Chinese brands were to march into the international market, then they need to understand the real side of the industry chain of the Chinese phone industry. It’s also very crucial to have a solid foundation. With such foundation, it will be hard for them to make something in the high-end market. Making low-end phones is never a shame. The shame is that a lot of people fail to see their shortages and advantages and later become arrogant.

[The article is published and edited with authorization from the author @Bo Ming, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at ECHO), working for TMTpost.