It is hard to not talk about China in so many industry conversations today. China has emerged as one of the most significant markets for technology we have ever seen because of the sheer size of their consumer market but also because of their hunger for technology and the continued rise of economic power to spend on technology. For the better part of the last decade with PC OEMs, it was fairly easy to get into and compete in China. Global companies had stronger brands and therefore the Chinese market erred toward a known credible entity to spend their limited resources on vs. the risky white label brand. Fast forward to 2016 and the entire atmosphere has changed. China is so large and so lucrative, many former no-name brands established themselves as mainstream players in the Chinese market. Huawei, Xiaomi, Oppo, and Vivo are the main brands today whose financial and brand success has been entirely thanks to China and, in reality, still only in China.
In a number of recent technology studies that have come out of China, the brands I mentioned above have risen in popularity as well as provided a strong brand sentiment and aspiration in the region. It is no longer embarrassing to hold a local Chinese brand and several are beginning to rival Apple as far as aspirational purchases — but at more affordable prices. Recent evidence from local studies suggests even the younger demographic, who used to go to massive lengths to get an iPhone, are choosing a high quality, yet affordable brand like Oppo or Vivo and not aspiring to iPhones as much.
China’s local manufacturing boom is continuing to get better and better at producing quality consumer electronics and it is the fuel behind local brands starting to create massively appealing hardware designs at reasonable prices. This is clear in smartphones but is starting to bleed into all other categories of electronics in China. My conviction is, China’s consumer electronics scene will continue to be dominated by local brands. Part of this conviction comes from what we see and hear from foreign technology brands and the trouble they are having competing in China. The Chinese government is unquestionably starting to tighten the reins and control more of what happens in consumer electronics as well as who the key players are in the area. We have even heard rumblings they want their own state-controlled operating system to provide an alternative to iOS and Android. If there is any market where this could work, it would be in China and, if the state wills it, it is certainly a strong possibility.
It is this tightening of the nation state which is contributing to this great tech wall, making it increasingly difficult for foreign brands to enter China and compete. This wall may also be playing a key role in keeping Chinese companies from leaving China as well–at least for now.
China remains a market unto itself. It is big enough companies can have incredible fortunes and never leave the country. The unique environment that is providing success in China has yet to lead to any major Chinese OEM breaking out into a market outside of China or the surrounding SE Asia region. While a small percentage of Chinese OEM exports are making their way to India, it is the only other market with even a hint of success, but only in the extreme low-end. Chinese smartphone brand strategy here is to dramatically undercut the price of the locals and Samsung and hope for the best. This is a hard fought strategy and Chinese vendors fighting the razor thin margin game may find themselves out of business due to the lack of sustainability in this strategy. However, if they can succeed at establishing their brand, and this should be the ultimate goal, then it opens the door to other categories where, collectively, they hope to see better overall margins.
Chinese consumer tech companies are learning to scale in what is possibly the hardest market in the world to scale based on sheer size and costs. Chinese companies are not just perfecting their ability to scale in China but to also do so with small margins. This strategy is why they seem poised to meet the needs of a global population with aggressive price points. But we are still waiting for a Chinese brand, other than Huawei, to have any kind of significant volume outside of China and also at prices higher than $200 USD in volume.
My core thesis for Chinese consumer tech companies is they will follow a path like their predecessors from Asia — Japan and Korea. But the brand development and brand establishment strategies are still gaping holes in Chinese OEM strategies I’ve yet to see them take seriously enough. As I’ll share on my piece on Monday, these companies will live and die, not by the design of their technology products or the price at which they sell, but by how strong their brand becomes.