(Chinese Version)

Huawei and Xiaomi, two of the major Chinese smartphone makers, were negotiating with Verizon and AT&T over selling their flagship models in the U.S. in 2018, according to Bloomberg. If so, then Chinese smartphone makers would indeed take a second step (after dominating the Indian smartphone market) in their global expansion path: the American and European market.

Why is the American smartphone market the next stop?

In China, mobile carriers are important, but not central in the growth of smartphone makers, who are either good at online marketing or offline expansion. In the U.S., however, both online marketing and offline outlets don’t work, since smartphone sales are basically controlled by mobile carriers.

Statistics suggest that 80 to 90 per cent of smartphone shipment goes to mobile carriers and most American consumers buy smartphones via four major national mobile carriers: AT&T, Sprint, T-Mobile and Verizon. This may help explain why Huawei and Xiaomi turn to Verizon and AT&T for help before they actually entered the American smartphone market.

Still, why did Huawei and Xiaomi choose to enter the American smartphone market? Well, it certainly has to do with the saturated smartphone market back in China. As the pressure for growth increases, Chinese smartphone makers have got to find new room for expansion. Therefore, global expansion is a necessary step. Besides, to further improve brand value and grab the high-end market, Chinese smartphone makers also need recognition from the American market, known as the hub of global technological and economic development. Only by competing directly with Apple and Samsung in the global market can Chinese smartphone makers prove themselves, which is especially true for Xiaomi.

However, the problem is: although Huawei and Xiaomi are popular in mainland China, they are seldom known in the American market. In other words, they will have to start from the very beginning, from nothing. Take Huawei for an example, Huawei attempted to enter the American market for a long time, but it suffered from rounds of setbacks.

As early as 2012, the American government issued a report, tagging Huawei and ZTE with “safety threat” and thwarted Huawei’s entry for “national security” concerns. The report cited Huawei’s close relationship with the Chinese army force and warned that if mobile carriers accepted Huawei’s smartphone devices, it would pose a threat on U.S. national security.

Although Huawei explained repeatedly that the report was groundless, Huawei was still banned from selling telecom devices to American first-tier mobile carriers. As early as 2013, Yu Chengdong, founder and chairman of Huawei, already made it clear Huawei’s ambition in the U.S. market. However, he had to face the hard truth and give up the American market then.

At present, however, Huawei seems to have restarted its “American dream”. Being home to Apple, the center of global smartphone market. The American market is known to be the most difficult market to grab. For the past months, Xiaomi has been selling everything but smartphones in the U.S. However, are Huawei and Xiaomi really ready for the challenge?

Patent battle remains the biggest challenge

Although Chinese smartphone makers could cooperate with American mobile carriers and sell their products via retailers such as Amazon and Wall-Mart, they still have to face two major obstacles: patent battle and marketing channel.

Above all, Chinese smartphone makers have to get ready for any patent conflict. Without proper awareness of the risk, HTC failed the patent battle against Apple and was officially banned in the U.S. on April 19th 2012 for patent infringement charges. Samsung was once faced with the same challenge. In 2014, Apple sued Samsung of infringing five of its patents and claimed compensation of $2 billion. On December 7th, Samsung officially paid a compensation of RMB 548 million to Apple.

How come? Since almost base-level technology around smartphones originated from the U.S., such as processor, camera module, baseband, etc., some patent trolls would make profit through initiating lawsuits around these patents. Now that Huawei and Xiaomi have already been negotiating with American mobile carriers, they might have been properly prepared for such conflicts. However, nobody can tell for sure if they’d been 100 per cent prepared. Therefore, it is still likely that they would fall prey to patent trolls.

Some insiders even predicted that Xiaomi’s revenue in the American market might even be insufficient to cover the lawsuit fee to fight against patent trolls.

In addition, it is reasonable to believe that Apple would be pretty much on guard against Huawei and Xiaomi’s entry, and might have already been preparing for initiating lawsuits. No matter how well-prepared Huawei and Xiaomi are, a patent battle is inevitable.

Is high performance-price ratio still a leverage?

The good news is that as American mobile carriers gradually cut subsidies, more American consumers will be inclined to pay full price to buy smartphones. While iPhoneX’s price rises to a level that’s already quite unreasonable, Chinese smartphone makers’ products often feature high performance-price ratio. This may actually be the very reason why Huawei and Xiaomi chose to enter the American market right now. Although ordinary American consumers can certainly afford an iPhone X, they do attach certain importance to the price. This can be drawn from the steady sales of iPhoneX in the U.S.

However, we have to be aware that Chinese smartphone makers are in the upper hand as they competed with foreign brands in the Chinese smartphone market. In the American market, however, it’s the other way around. Their advantages might not be as obvious as they were back in the domestic market.

High brand awareness and wide marketing channel are key to success

Nevertheless, one’s got to maintain a good relationship with American mobile carriers to sell smartphones. However, both Huawei and Xiaomi are still in the negotiation process. Nobody can tell if they could make a deal, what stage they were at right now, and will there be any demanding requirements.

In general, owing to safety concerns, it’s no easy thing for Chinese smartphone makers to reach an agreement with American mobile carriers.  According to Wall Street Journal, American mobile carriers that accounted for 80 per cent of the market were unwilling to cooperate with Huawei.

The reason why Huawei could play a role in the European market is that they could buy networking and communication devices first and then sell the service along with their smartphones. However, this is something impossible in the U.S. Many years ago, Huawei was already banned from selling networking devices in the U.S. In this case, there’s no much difference between Xiaomi and Huawei, between Chinese smartphone brands and American ones.

Moreover, the American smartphone market is also quite saturated. With strong user retention, an enclosed hardware & software ecosystem and years of marketing and market education, it’s difficult for American consumers to get rid of iPhone and identify with products from seldom-known Chinese smartphone brands, no matter how inexpensive they are.

Market insiders point out that Huawei still play a peripheral role in the American smartphone market, and that its sales was even lower than that of Blu and OnePlus. It is difficult for Chinese smartphone makers to increase their brand value and publicity in the mature American smartphone market, and even more difficult to compete with Apple in the high-end market. Imagine that great challenge for Chinese smartphone makers.

To wrap up, despite the great challenge mentioned above, Chinese smartphone brands could still keep a good mentality in their global expansion. After all, the Chinese market remains their main battlefield and they could always rely on the huge Indian market. Therefore, it’s no big deal even if they failed. In other words, it’s already successful to survive in the American smartphone market. At least for now, it’s unpractical for Chinese smartphone makers to challenge Apple’s position in the American market.

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The article is published with authorization from the author @Wang Xinxi, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.