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.
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.