In Consumer Tech, the World is Round

A friend recently returned from a trip with his wife to Seoul, South Korea, where she was traveling for business. During a sightseeing adventure, they visited an area heavily trafficked by tourists. He was astounded that nearly every person at this picturesque location was using a selfie stick. My friend decided it would be fun to take a picture with some young Chinese tourists using their selfie stick. Once they snapped the shot, he asked if they could send him the picture. He asked if they used Facebook. They said no. He asked if they used Instagram. They said no. He asked if they could email it to him. To that, they said yes. As he recounted this story, what stood out to him was not that these young Chinese tourists didn’t use Facebook or Instagram, but that they clearly had no idea what they were.

The World of Consumer Tech is Round

In 2005, New York Times columnist Thomas Friedman published an excellent thought-provoking book called “The World is Flat”. In the book, he articulated the new era of globalization, where technology had lowered the barrier to entry for not just companies but small and even individual businesses to go global. Many of his points are still relevant today, but I’d like to throw some recent global consumer tech observations into the picture.

One of the more clear global consumer tech market trends I’m observing is the reverse of globalization. In nearly every category I study, I see the regionalization of consumer tech, not its globalization. This view of the market is showing how regional technology players in many segments of consumer tech are becoming more entrenched by catering deeply to local market needs, making it difficult for global players to enter and succeed. This is happening in consumer tech hardware, software, and services.

Hardware

Using the smartphone industry as a case study, local smartphone manufacturers in China, the world’s largest smartphone market, combined for over 60% of total smartphone volume in Q1 of 2015. A similar story is happening in India, although not at the scale it is in China yet. In India, local smartphone brands made up over 35% of sales in the region during the first quarter of 2015. Local brand Micromax is continuing to battle with Samsung for the number one smartphone vendor by volume in the region.

China and India have the largest number of local smartphone brands but new ones in other countries keeping popping up all the time. Blu Mobile in Latin America, Cherry Mobile in the Philippines, Wiko in Europe, and Smartfren in Indonesia are a few examples of this locally branded smartphone trend.

This is all happening because the barrier to take a smartphone to market has lowered. Any upstart hardware brand can go to China, use their massive manufacturing scale to white label a smartphone and go to market selling online at very low cost. This is how Xiaomi started in hardware and many others have since followed suit. These brands are using local market insight to deliver solutions unique to the market. They have what I like to call a home field advantage and a competitive edge to deliver localized offerings better and faster than global players.

Software and Services

While we can point to a number of different application categories where local apps dominate the landscape, I’ll focus on one of the most glaring — messaging apps. There is a great deal of talk about WhatsApp, WeChat, LINE, Kakao Talk, and a host of other messaging apps in the marketplace. What is missing from this narrative is how these apps are largely regional and, more specifically, the dominant messaging apps in their region. WhatsApp is dominant in India, Africa, and some parts of Latin America. LINE dominates Japan. WeChat is dominant in China. Kakao Talk is dominant in Korea. Each dominates a region and has had trouble expanding into others.

Globally, the story is the same with e-commerce. In the US and parts of Europe, Amazon is the largest e-commerce service. In China, it is Alibaba and JD.com. In India it is Flipkart, in Japan, Rakuten and, in other parts of the Middle East and Africa, Rocket Internet is driving leading e-commerce services. Similar to hardware, in each case the local offering is capitalizing on the needs of local consumers. These companies understand the local market and develop unique solutions to solve regional pain points.

Overwhelmingly, the story of global consumer tech is becoming one driven by local not global players in every market I study. What is fascinating is how this is normal in the non-digital consumer tech world. Consumer markets for products like packaged goods are often highly tuned to local needs. Consumer packaged goods companies often have local brands, marketing, and solutions because they understand how drastically different each market is. Luxury/aspirational brands tend to rise above the localized trend, but few companies succeed with a true aspirational local brand.

With consumer tech becoming increasingly more regional due to the unique consumer segments in each region, it seems we may be observing the beginnings of a land grab. Some areas already have dominant local players but there are also green fields where no leader has yet established itself. Companies with global ambitions are likely to focus on these areas for growth and may do so by acquiring rising local players as to get to market quickly. Going global is more tricky then ever and it’s creating many fascinating competitive dynamics that give analysts like myself lots of work on the road ahead.

Friedman’s view that technology has lowered the barrier to entry is valid in many cases. However with consumer tech products, it is likely to be harder to globalize and more dominated by local solutions. For a company to succeed globally, they have to focus on local insight to drive their strategy. They have to know the customs and be highly cognizant of the needs of a local market and can’t assume a one-size-fits-all solution like many do today with Facebook and Twitter.

It is my convictions that, in this sense, the world of consumer tech may be more local than global. In this sense, the world of consumer tech is round.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

28 thoughts on “In Consumer Tech, the World is Round”

  1. “What is fascinating is how this is normal in the non-digital consumer tech world. Consumer markets for products like packaged goods are often highly tuned to local needs. Consumer packaged goods companies often have local brands, marketing, and solutions because they understand how drastically different each market is.”

    Seems reasonable that tech would follow this pattern, given that tech has only very recently become truly consumer-facing.

  2. I wouldn’t make too much of the local hardware / local messaging trends.
    I think the local hardware trend is a bit of a lie, and a bit of a fluke.
    A lie because, for example, Wiko France is a 95% subsidiary of China’s Tinno that provides only local marketing, sales and support; the hardware is designed and made in China.That’s not very “local”, and combing through reviews the one success criteria is the price/(perf+features) ratio, I’m not seeing any magic local sauce.
    And a fluke because those 2nd/3rd tier companies have rushed to fill the void that opened when midrange smartphones became good enough and vanishing subsidies + the widening of the market made handset price an issue, to which 1st-tier suppliers were slow to respond. Not all of them though, Huawei+Honor has been rising fast too.
    As for messaging, I’m still totally unsure about how stickier than MyPage this will all prove to be: network effects vs barrier to entry…

    1. We will see with hardware. Ill bet any company wishing to go global will have to do so with a local brand as a JV, similar to what Alibaba has done with an investment in Micromax..

      Right now, there is no denying that local apps and services companies are keeping global ones at bay. Whether it is message, commerce, on demand, economy, etc., local brands and localized offerings are ruling the day. The names may change, but it is my conviction they will stay localized.

      1. I think we need to define “local”. In France in particular and I think in W-Eu in general, it’s all FB What’s App Skype et al… For hardware, we’ve got Wiko but that’s Tinno, and Archos have pivoted to rebadging Chinese wares, so I’m not sure they’ll have much staying power.

  3. Interesting how this intersects with Jan Dawson’s “Amazon’s International Growth Challenge” article from a few days ago. I remember one of my economics professor’s comment on economies of scale and how they tend to level off at a certain point for a company. He said that the best anyone’s been able to hypothesize so far is that at a certain point in growth, the ability to manage effective and efficient communication throughout an organization limits the ability to manage efficient growth.

    How can a company like Amazon cater locally to a market like China? It could hire all local Chinese who understand the local dynamics to run its Chinese subsidiary, but the how does it maintain the ‘Amazon culture’ throughout that subsidiary? This would seem to be a rather difficult question to answer.

    Apple seems to somehow pull this off, but then they figured out how to fall into the ‘aspirational’ category which is noted as an exception to this observation. I wonder how much of Steve Jobs efforts to limit projects/internal orgs to no more than 100 people (so everyone would still know, and know the names of, everyone else that they worked with) has positively affected their abilities to maintain culture across their ‘local’ organizations.

    I don’t know. It still seems like a hard, perhaps almost impossible, thing to pull of successfully.

    1. Yes absolutely right. There is always a growth curve, sometimes that growth happens fast (easy growth) sometimes it is slower growth but it always levels off as you reach a customer saturation.

      I’m working on an analysis exploring how the easy growth is over for many big public companies using this frame work. There are a lot of fascinating dynamics about this. Amazon really has no chance in China since there is just no way they can compete with incumbents. Unless they acquire their way in and then again it may not be the brand that competes in the region which is what I’m hinting at as the new global strategy in this article.

    2. Managing very large enterprises is very very difficult. At some point management’s mental attention span is just not big enough to fully comprehend what is going on in the business, the complexity gets out of control, layers of hierarchy strangle profitability and there are simply no synergies between different activities.

      A quick look at the list of largest employers in the U.S. is quite instructive. http://en.m.wikipedia.org/wiki/List_of_largest_employers_in_the_United_States

      Retailers/restaurant chains can get very big (individual sites obviously follow a cookie cutter approach), banks get very big (the dreaded too big to fail phenomenon), operators of large networks can be big (UPS, Verizon), but that’s it. Other types of organisations top out at much lower employee numbers.

      Jan’s article was excellent. Amazon is really only successful in a few countries and it is questionable whether other markets will ever matter much to them. Worse yet, they already have close to 100,000 employees which suggest that they have about 5x growth left at best (and probably less). Also, the other large retailers on the list have a limited geographic spread, i.e. they do not have a dozen main markets, the bulk of their business is in a few countries.

    3. Well yes, the information revolution has probably made it easier to discover, define, and document your target market’s preferences. But there’s no explaining preferences. We usually make the assumption that preferences are based purely on product characteristics, both utilitarian and aesthetic. When in truth a big part of preferences is about signaling your high status to the rest of society. So what is a local company to do if he discovers that more than anything else, his home market likes products that are imported, expensive, and prestigious, i.e. aspirational? (Shades of ‘I don’t want to buy stuff from a company that would have me as their customer.’)

      1. Yea, I think this was one of Ben’s points: aspirational products have made the jump to the next level. So, a local company making the ‘same’ product as an aspirational product (say Xiaomi vs. Apple) would not compete directly with the aspirational product but would have to become the sub-aspirational product: the product that is cheaper than the aspirational product and that is more aspirational that all of the other cheaper products. This could still be a very compelling and profitable zone, and could potentially even provide the resources and launching point for eventually also becoming an aspirational product. Not easy, but perhaps doable.

        And, the local sub-aspirational product would likely outperform any non-aspirational global products.

  4. I am also intrigued by how different products have different localisation/globalisation balances, and what factors affect them. I think it is a topic that has broad implications on the economies of nations, and in particular, how an emerging nation can build its own.

    On the other hand, it is very complex. Just to throw a few spanners into the works, I’d like to outline how Japanese companies coped or failed to cope with strong global tech products.

    1. The smartphone
    Many Japanese thought that the Japanese telecom market would repel the onslaught of smartphones because our i-mode feature phones were very optimised for the local market. This turned out to be an amazingly wrong prediction.

    2. Facebook
    Prior to the Facebook making strong inroads into Japan (around 2008), Japan had a dominant SNS named Mixi. Many pundits assumed that Mixi was better suited to Japanese culture because, they thought, Japanese prefer anonymity which Mixi allowed but Facebook did not. Mixi allowed you to use any handle name you wished, and you did not have to reveal your true identity. The pundits thought that since the Japanese people tend to be shy and to not be outspoken, anonymity would be required for an SNS to have high engagement.
    This prediction also turned out to be very wrong. Mixi is no longer a relevant SNS, and Facebook dominates that niche now.

    3. Rakuten
    As mentioned in this article, Rakuten coexists with Amazon in Japan, with Rakuten having a higher total transaction value through its site. It has to be noted though that these two giants have different business models. Whereas Amazon is basically a single shop, Rakuten is a mall consisting of different shop sites owned and managed by different merchants. As a result, the effort that goes into promoting brands and into engaging customers are night and day.
    One could make the preliminary assumption that although these two companies are competing in e-commerce, they are actually occupying separate niches.

    From seeing how these examples played out, I’m not sure if we can make a sweeping conclusion that consumer tech will be more regionalised. Sometimes the regional player will win and sometimes the global player will win. Although the regional player may have some unique features that give it a perceived local advantage, it is very hard to predict whether that advantage will be strong enough to win the fight. It is also hard to predict whether the result will be co-existance or whether one will completely win over the other.

    1. This is my thesis as of now for a range of reasons. But one that you pointed out is how Rakuten is what we refer to now as a marketplace, vs a pure online shop. This is the norm for many many markets now. Pure play retail vs a market place approach is the real thing to watch. Plus there are online + offline trends we are seeing where a local player, like Walmart in Brazil for example, is doing interesting things in commerce for the combination of online vs offline. Other markets that take this approach of a marketplace giving local retailers a way to handle logistics, on demand and other things ill cause the pure play retailer challenges and in particular the pure play global retailer trying to enter a market where a digital online marketplace already exists.

      This is why the global entrant will likely need to buy their way into a market and may likely use a brand other than their own. Hence my CPG analogy that the parent company (Aliababa) may own or have a joint venture with players who are solving local problems. For a fascinating case study on one of the most interesting companies I’m looking at in this space look at Rocket Internet.

      Here is a chart I put together on them for when I talk through what they are doing to clients.

    2. The biggest mistake all three examples demonstrate is running with singular variables to draw deterministic conclusions. The smartphone in Japan turned out to be wrong because the new technology was superior and powerful enough to overcome the localization advantages of the old technology. The Mixit example assumed anonymity was a universal aspect of Japanese social behavior, when this behavior was probably always contextual, and ignored how a new medium tends to replicate an abstracted purpose of an old medium, but changes the particulars of interaction (over the long term this can feedback and then change the original purpose). The Mixit example demonstrates how important it is to account for processes that change behavior, not just how the behavior is defined. The Rakuten example (correct me if I’m wrong) seems to be a case of market fit, where the particulars of the supply chain, and consumer needs and habits dictated the appeal of the product. (Extrapolating from what I know about how Alibaba beat out Amazon in China, by addressing B2B needs first).

      1. I basically agree with your analyses in retrospect. However, I still maintain that predicting the outcomes before the fact would still have been very difficult.

        1. I’d say it depends on the fundamentals. Local solutions are the norm in consumer markets. Not much has changed in the fundamentals as as to why. I’m simply applying those same fundamentals that have existed in pure consumer markets for way longer than the tech industry has existed.

          I’ve always argued this point in relation to disruption theory. Most of the theory when applied to tech is looking only at the history of the tech industry which is short. Rarely did it ever look out to other markets where consumer products are post-mature to see what we can glean from them.

          This is why in many aspects the e-commrece, and on demand economy, seems poised to stay localized. This is also why a product like a “smart air purifier” from Xiaomi is an example of a solution that is for China only. Because how many areas need a connected air purifier because the air is so bad?

          Global players just simply don’t have the scale to solve every solution in every market. They may play a role, or even own a brand that does, but the product and brand may be more local than global. Again this is fundamental in consumer packaged goods and as Tech goes mainstream below $100, I believe very similar dynamics to consumer packaged goods will play out.

          1. Yes, I have also observed that in consumer markets, especially in countries that are strong in manufacturing which would include China and India, domestic manufacturers tend to be strong. This is the case in automobiles, home appliances, etc. Also, with the Shenzen ecosystem behind them, this can now happen as well in countries without a strong manufacturing sector. Hence I have no doubt that localisation will strengthen as an overall trend.

            I am however uncertain of two things;

            1.
            I fully understand that localisation has already been strong in Japan, Korea, China and India. These are all countries that are strong in manufacturing and are have big domestic markets. I am less certain of how localisation will play out in countries which are smaller and do not have strong manufacturing sectors, and which will rely on China for production. There are encouraging signs but the extreme outsourcing that China enables is a rather recent trend and I think the jury is still out on this one. One thing that I would definitely like to know is what brands dominate the home appliance markets in the Philippines, Spain, Brazil for example and also similar information for other consumer products like shampoo, bread, cereals, etc.

            2.
            There are definitely anomalies to this trend. Apple is an obvious case and so are the examples I gave in Japan (iPhone and Facebook). It is certainly possible that we will see new anomalies emerge. However, my understanding of how in particular Facebook succeeded against Mixi
            is still lacking (Apple can be explained by its brand power and superior products). I would ideally like to understand how they did it, and how we could apply our knowledge to other global companies.

            There are many global consumer companies in Japan that coexist with local brands and are very successful without piggybacking on local brands. Coca cola, Kellogg, Lux, 3M, IKEA, etc. In fact, looking at how many of these there are, I’m actually uncomfortable with saying localisation is a general trend. There are too many anomalies. The interesting thing is that local competitors either emerged or were already strong in the market, but the global companies still remain successful or even dominant in the case of Coca cola which is at its core a distribution logistics and marketing company. Although tech may be different, I struggle to understand why.

          2. I think there are some general principles at play here, but I struggled all day yesterday to narrow them down. What I’ve concluded is that there are two separate things happening with localization. The first is the the commoditization of hardware and its effects on the rise of local players, and the second is the localized advantages of network dependent businesses and how different networks come to dominate regions.

            With the first, I think what we’re seeing is how reduced barriers to entry have commoditized devices, which shifts differentiation towards brand identity and gives local players a marketing premium. Locality doesn’t matter intrinsically, but in terms of how it affects brand differentiation. At the end of the day though while we see global companies lose to local companies, it’s much more a reflection of global companies losing their dominance than local companies acquiring dominance. What’s happening isn’t so much re-consolidation around local brands as much as de-consolidation of global ones. Competition has increased as barriers decrease, but local brands are not guaranteed long term success, even as they diminish the success of global brands. The supply chain for hardware remains global, but local OEMs are beginning to share the pie more evenly with global OEMs. Hardware is, in a sense, becoming a lot like CPGs. What this actually means is that there is still a lot of room for dominant global brands, which explains Apple’s success. Apple in smartphones is a bit like Coca Cola in beverages. What we’re seeing with Samsung has less to do with the crowding out of global brands as much as Samsung’s own weak brand value in phones, and I think this is largely true of most hardware vendors.

            Services on the other hand have always been highly localized. It’s only the presumption that the internet can generalize services and needs through network effects that transcend and traverse geography that would suggest otherwise. However, it seems that that presumption overgeneralizes and forgets that there are still very specific conditions to that are sometimes locally defined, and it is those specific conditions that dictate initial traction for a network. What we see with the balkanization of domains like social networks and e-commerce seems to be a consequence of this, where local advantages can prevent global winner take alls, even as it enables local or regional winner take alls. It also seems that the more abstracted or new the domain of services, the weaker the pull of geography is. Geography is less deterministic about which messaging or social network app is dominant in which part of the world than it is about about e-commerce because messaging and social networks are native to digital and geographic barriers in that domain are more social and cultural, while e-commerce attempts to digitize a service that used to be analog, and where the barriers are more physical. Cultural and social barriers are less concrete and easier to overcome than physical ones, but locality gives greater sensitivity to differentiating factors that could matter. It’s easier for a foreign player to come in and either discovery or stumble upon these factors though. Physical barriers on the other hand are much more deterministic, so web services that depend on some form of physical infrastructure are much more geographically determined.

            While this localization and regionalization dynamic is definitely happening, I’m not sure that the advantages geography grants in consumer tech is absolute. I do think in fact that geography as a factor has been eroded, and that we are definitely living in a flatter world, but flatter is not the same as completely flat. It might be helpful to be wary of not just how tech is less global than we think, but how tech has flattened potential businesses that would have been hyperlocal in the past.

          3. Thanks. Great summary, and I think I agree with all the points. Having a bit of difficulty following the services discussion however.

            I agree that the key is commoditisation. However, I think it is a good idea to separate the idea of commoditisation as a result of large companies beating each other up, and small companies sprouting up. What I think is key is the amount of capital investment required to create a local company that can profit at the local scale. The local scale will differ by country, and will be huge in countries with large populations like Japan, Korea, China, India, Philippines. The amount of capital that a company can raise is probably quite high in Japan, Korea and China. A bit less in India and maybe much less in the Philippines (this is my guess). In the past, both requirements had to be met for a local tech company to succeed. Now, they need neither.

            What I think we are seeing is that the amount of capital required to start a local company has been greatly reduced by the Shenzhen ecosystem on the hardware side, and by AWS and similar cloud services on the Internet services side. Previously, only global players, Silicon Valley or companies in wealthy countries could provide the necessary capital. This has changed.

            So yes, as you argue, we are seeing much lower barriers to entry, which levels the playing field for local companies. Global companies cannot dominate anymore solely by virtue of the size of their resources.

            Which brings us back to the issue of which global companies might still succeed. If a market still requires huge amounts of capital to develop, then global companies and Silicon Valley startups will still have a huge advantage. The key appears to be in identifying such markets, and in more and more cases, these markets will no longer be purely tech.

          4. Sorry about the confusion with the services discussion. I’m having a hard time articulating my thoughts on it, but I think that’s because in part the nature of services is diverse. The point about how different regions use social networks differently gets to what I was saying about how being less dependent on physical factors enables social networks to break through geographies more easily, as well as how traction for social networks is defined by the social and cultural context. In that sense locality is a soft advantage rather than a hard one for more generalized and abstracted types of products.

            Reducing the significance of raw resource advantage to maintain competitiveness is precisely the point I was getting at with commoditization. I mostly agree about global players still holding an advantage over markets and industries that require a lot of capital, but I don’t think those advantages are completely concrete, and I think that capital advantage only matters in so much as the quantity, quality, and excludibility of physical assets matter. For entirely new kinds of markets and industries what matters most is how quickly one can accumulate capital, not just the quantity of capital one starts out with. Having intimate knowledge of local needs and conditions may grant a leg up on capitalizing quicker or more efficiently, which cuts into raw capital advantages. This caveat is important because of what we’re seeing in e-commerce, where the biggest players are not always succeeding in foreign markets because the lack of local knowledge means capital is wasted on efforts that don’t fit the needs or opportunities in those areas.

  5. My explanation is simpler. The cost of producing customized products, coupled with the cost of collecting and disseminating information, have just gone down so much that the one-size-fits-all approaches we used to see are no longer economically necessary or even viable. ( I’m not claiming some astounding discovery; this is a trend that a lot of other people have talked about.)

    The conventional belief that 14,000 cookie-cutter McDonald’s branches will easily smother any fast-food start up out there probably doesn’t hold true anymore. It costs less to gather the information that reveals the existence, size, and location of a particular narrow demographic, it costs less to produce something that caters to the preferences of that narrower demographic, and it costs less to inform that narrow demographic that you are offering something they might like.

    More than ever, market intelligence is king these days, and the locals tend to have a better grasp of local preferences. Though there are enough exceptions that tell us that ‘better’ doesn’t mean ‘infallible’.

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