(Chinese Version)

Lin Bin, president of Xiaomi, announced in an interview at the WSJD Live conference that Xiaomi had sold over three million phones after entering the Indian market in July, 2014, and that the company’s considering entering the American market currently.

CEO and founder of Xiaomi Lei Jun himself also reposted a piece of weibo asking for opinions on foreigners’ favorite merchandise from China. In the end, the conclusion was Xiaomi phone. Lei Jun stated that Xiaomi smart phones had become the new representative commodity of China, which makes people wonder if Xiaomi’s planning to expand to foreign markets other than India and Brazil.

As a matter of fact, besides Xiaomi, other Chinese brands, including Huawei, ZTE, Coolpad, Lenovo, Meizu, OPPO, VIVO, Gionee, and One Plus etc., are eyeing overseas markets and making moves as well. Huawei and Gionee in particular have already been building factories in India and Huawei has got the production license while Gionee will roll out its first phone model specially made for the Indian market.

Lenovo, Coolpad, Xiaomi, and OPPO etc. have filed proposition of building their own factories to the Indian government as well. As for ZTE and One Plus, they prefer to team up with Foxconn to build manufacturing bases. Surprisingly, LeTV had announced during the National Holiday the plan to enter the Indian market.

However, compared to the huge success in the eastern Asia market, Chinese phone makers are still having troubling cracking open the markets in the U.S. and Europe. In matured markets like the North America, Europe, Japan, and South Korea, where patent law is much more stricter and telecom operators are controlling the local market, Chinese phone makers have to be extra careful in order to achieve success.

Currently, ZTE is having an outstanding sales performance in the North American market. Through utilizing resources provided by overseas network operators and promoting cooperation with brands such as NBA, ZTE now is the fourth largest smart phone brand in the U.S in terms of market share, with Apple, Samsung, and LG as the top three. Meanwhile, Lenovo has already acquired Motorola’s mobile business and attained the entry into the markets in Europe and the U.S. Years before, Huawei was accused of posing threats to American telecom infrastructures for the company established a party branch within the company. Consequently, Huawei’s terminal business was deeply affected in the U.S. But luckily, thanks to the cooperation with Google on Nexus 6P, Huawei was able to bring its Honor series to the American market.

Anyhow, Chinese phone makers have been putting unprecedented energy on these two major markets: Gionee had announced officially to pour in 50 million dollars in building its manufacturing base; Xiaomi is considering acquiring Nokia’s factories in India; Lenovo acquired Motorola at 2.9 billion dollars; ZTE’s promotion means; Huawei is still using an indirect strategy; all these signify that the Indian and American markets are extremely important to Chinese brands.

Extending channels requires going overseas

The ceiling effect has plagued the Chinese phone market for a really long period. The market in China currently is longer a blue ocean but a crude and fierce battle, as Zhou Hongyi, CEO of Qihoo 360, described. The recent development of the Chinese smart phone industry is filled with trash-talking, price wars, and constant phone model updates. IDC and Gartner had already released statistics that indicated the shipment of the Chinese smart phone market had been going down.

Since the launch of LeTV phones, the average smartphone price mid and high-end phones’ price had gone straight down from above 2000 RMB to 1500 RMB, almost the same as those 1000-RMB phones, thanks to LeTV’s ecosystem. In the low-price phone models’ hardware war, these once mid and high-end phones slaughtered all those low-end phones and threatened the high-end market. For instance, Xiaomi’s Redmi Note 2, sold at 799 RMB, is equipped with Heli X10 processor. Qiku’s models even take one step further by popularizing metal phone body and fingerprint scanner on low-price smart phones.

It’s reported that Apple now accounts for 90% of the revenue in the mobile industry while Samsung accounts for most of the other 10%. In this case, Chinese phone makers are not really making much money at all.

Such a terrifying market not only puts much more pressure of shipment and inventory on Chinese phone makers, but also disrupts the whole terminal strategy.

In China, phone makers are making every effort to penetrate the market. Soon after LeTV’s phone model was launched, LeTV teamed up with offline channels like Dixintong and China Unicom to cover first and second-tier cities. As for third and forth-tier cities, the company is trying to use traditional sales methods to sell its products there.

Rumor has it that LeTV’s products and services will be first available in 1000 Dixintong stores and will later be available in the other 3000.

Xiaomi is actively paving ways for its Xiaomi’s Home, the brand’s brick-and-motor outlet. In May this year, Xiaomi Note for the very first time became to be sold with offline channels. In September this year, the 22th Xiaomi’s Home was opened to public at Zhongguancun. Unlike the previous Xiaomi’s Home, consumers can directly go to this outlet and buy Xiaomi’s products on spot. Lin Bin stated that they were considering to open more Xiaomi’s Homes in more cities in the country.

Of course, it’s not going to be easy to build offline stores. Aside from competition brought by traditional makers, Xiaomi also needs to come up with solution to managing the price on the online store and offline store.

The Indian market is pretty similar to the Chinese market. It has an enormous population and a more relaxed patent law system. Sales channels in India are also scattered. Additionally, only ten percent of the total population in India is using smart phones, meaning this is literally an uncharted place waiting for explorers to exploit. Therefore, whether it’s to achieve expansion in the market or improve the situation of the inventory, Chinese smart phones which are known for their cost-effectiveness, have a bright future in India.

Last year, the first phone model that Xiaomi started to sell in the Indian market was Xiaomi 3, a model that’ already been in the Chinese market for half a year. It only took 39 minutes for the whole inventory to become entirely empty on the e-commerce platform Flipkart. Besides Xiaomi and Huawei, Apple also cooperated with e-commerce retailers such as Amazon, Flipkart, and Snapdeal to reduce the pressure that the inventory of iPhone 6 was getting by selling iPhone 5s with a fairly attractive discount.

Brands like ZTE, Gionee, One Plus and Lenovo tend to focus on extending their brand strategies in the Indian market. For instance, Gioneerecently invested 50 million dollars to build its factories with Foxconn in hopes of maximizing its advantages in offline services. For example, the company aims to open more than 250 direct-sale outlets and 1000 service centers. An overseas director from Gionee stated that compared to Xiaomi, a brand that’s regarded one of those cheap brands from China by Indian consumers, Gionee’s actually trying to build a brand name in India, a company that’s able to manufacture, sell, and provide experiences.

ZTE’s director of the consuming terminals Zeng Xuezhong had also stated during the launch of AXON that ZTE’s strategy in India would be targeting the high-end market first as well.

In the American market, besides utilizing help from telecom operators and massive promotion cooperation with NBA, Huawei’s market strategy, which was designed for the low-end market, was the biggest contributor to the fact that the company could gain a 8% share of the market in the U.S.

The American market is still a hard nut

Although Xiaomi’s president is helping the company to gain attraction personally, to crack open the American market entirely now is still a mission impossible. In my opinion, such plan will be put off to another date. I am saying that Xiaomi doesn’t have the power to do so here. The American and European markers are just too matured to have new blood entering the system. Without core patents, it’s very easy for Chinese phone makers to fall in patent law suits in these highly developed markets.

Statistics show that American patent trolls are suing more companies than ever. These trolls use patents they acquired to make mad money without having do really run a relevant business. In this case, companies that don’t possess enough core patents might become their targets. Even when HTC was at its best was still sued by them as well.

The most important component of smart phones is the baseband, the medium of the cellular networks that we often refer to 2G(GSM), 3G(WCDMA/TD-CDMA/CDMA2000) and 4G(TDD-LTE/FDD-LTE). Related patents are in the hands of Ericsson, Huawei, Qualcomm, Alcatel-Lucent, Samsung, Nokia, ZTE, NEC and LG etc., and are the key patents for smart phones.

Besides patents about baseband, patents on processors are also essential, which are mostly authorized by ARM makers. As for patents on the camera module, they are owned by Kodak. Patents of technologies like Wifi, Bluetooth, and GPS etc. are controlled by companies like Broadcom, Nokia, and Motorola etc. As the NFC technology matures, similar things could happen in this field as well.

LeTV phone’ product manager An Zhizhong revealed that LeTV had garnered 260 patents and the company’s filing 2000 patent applications to the authority. However, thought impressive already, the company still needs to pay for CDM communication technology and buy the right to use Qualcomm’s technologies.

Besides companies such as ZTE, Huawei, and Coolpad etc. that have a certain degree of technological background, other Chinese phone makers are facing this similar obstacle. According to media report, even though One Plus is gaining momentum in the U.S., its sales volume is still limited to a couple hundred thousand. But thanks to that, One Plus still hasn’t encountered attacks from patent trolls like what Xiaomi and Gionee had got from the giant troll Ericsson.

Smart phone is a highly matured consumer electronic product with a large scale. However, fundamental technologies that power smart phones are basically all from the U.S. or Europe, and therefore if Chinese phone makers want to have a fair share of the market, they have to come up with solutions to deal with the patent trolls.

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

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