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Mobile Communications

Will Chinese phone firms dominate at home?

The news from China is that Huawei leapfrogged local rival Xiaomi in the last quarter to reign supreme at the top of the pile for the first time. It’s been the culmination of a long journey for the Shenzhen tech giant but does this mean China’s huge domestic smartphone market is now basically a two-horse race, or are there still opportunities for foreign players? And how far and fast can we expect these local Dragons to expand into Western markets?

Huawei on top

The figures from market watcher Canalys were short on details and intended more as a teaser ahead of its official Q3 findings which will be released shortly. However, what we do know is that Huawei recorded year-on-year shipment growth of an impressive 81%, building on strong growth in the previous quarter. On the other side, Xiaomi’s shipments shrank from an admittedly high number. The Beijing-based smartphone player – often described as the “Apple of China” – is now under intense pressure to hit its target of 80 million worldwide sales, Canalys research analyst Jessica Ding claimed in a statement.

Still, let’s not take anything away from Huawei, which has been increasingly focusing its efforts on the mid and high-end of the smartphone market over the past few years. Handsets like the Ascend P2 – touted as the world’s fastest at the time – and the Ascend P6 – the “world’s slimmest” device – are a product of serious R&D dollars and some smart hires. It’s pretty telling that the firm established an R&D centre in Nokia’s backyard of Finland in 2012 at around the time the once-proud handset maker was faltering.

At a Huawei analyst event I attended in Shenzhen a couple of years ago, the firm’s CMO, Shao Yang, claimed he wanted the firm to become the “most loved consumer brand in the world” through continuous innovation. It might have sounded far-fetched at the time, especially since the firm had not long completed a transition from its role as an ODM, a process during which he claimed 90% of its telecoms partners dropped Huawei. But today its efforts appear to be working in China. The formula: sleek, stylish and powerful handsets, a strong online channel and a growing high-street presence thanks to the opening of high-end stores and franchised outlets all over the country.

Heading overseas

Outside China, Huawei has traditionally struggled to resonate with customers in mature markets, despite around half of its sales now coming from overseas – partly a result of its failing to attract the best marketing talent to compete with the likes of Apple and Samsung. Volume sales are still low in the US, but it has a great “stepping stone” to success ahead by being the chosen vendor for the Nexus 6, according to Canalys VP analysis, Rachel Lashford.

As for Xiaomi, it will need to enlist the help of big name distributors like Ingram Micro or Tech Data to help it make a mark overseas and bring its products to markets like the US, she told me by email.

“The focus has been away from smartphones recently, and perhaps attention has been distracted from smart phones as they build out the rest of the ecosystem,” she added.

“The question now in smart phones is will the focus be on volumes or profitability – it is a fine balancing act to do both if the emphasis is on cheaper and cheaper products.  Xiaomi may not be interested in headline ‘flashy numbers’ but they are likely to still need big numbers to build out the installed base of product for the success of a Mi ecosystem.”

So what does the future hold for foreign smartphone makers in China? Are we about to see the start of a new era of dominance by home-grown players? Not according to Lashford. Samsung’s might have slipped from top spot in the first half of 2014, with a 15% market share, to fourth (9%) a year later, but effective localised marketing and a reorganisation of its channels has put it in a stronger position, she argued. And write off Apple at your peril.

“Apple still has a very powerful brand in China and we expect to see the latest product launches to continue its popularity,” said Lashford.

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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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