The Regionalization of the Smartphone Market

on August 6, 2014

One of the more interesting things I have been observing for a few years is how the smartphone market has increasingly become extremely regionalized. It is fascinating to analyze the dynamics that have allowed the smartphone market to go global but, in doing so, open the door for local brands and local companies to be the prime beneficiaries.

This is somewhat contrary to what happened in past consumer tech segments. Usually markets were mostly made up of global brands and those same global brands dominated many markets even where they were foreign owned. The tide is now shifting with smartphones and increasingly it seems domestic brands are gaining the edge over foreign ones. I’ve been anticipating several domestic brands to pass the regional leader (Samsung) for a few quarters now and in some markets it has happened already.

One of the primary catalysts for this shift is an increase in quality combined with a decrease in cost associated with smartphones. Smartphones annually are getting faster, better, and cheaper. Local brands are able to seize opportunity with this wave. Companies will be challenged to be both global and regional simultaneously. But local vendors only need to focus on their market and adapt to the rapid changes in their local domain. By integrating more tightly with regionally specific services than foreign brands are, as well as doing more to uniquely address the needs of their market, local vendors are positioned well going forward.

Xaomi Owns China, For Now

Xiaomi has been on a tear gaining significant quarterly market share in China. Their own company reports and several analyst firms have confirmed Xiaomi is not only in the top five vendors by volume in Q2 2014 but they have also passed Samsung as the leading smartphone vendor by quarterly volume in China.

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China is still the wild wild west when it comes to the smartphone market. The order can easily change, and change quickly, but one thing I believe will remain is it will be local vendors from China who will own the region.

India is Wide Open

India is about to ramp up in smartphone volume. India will be the second largest smartphone market before too long — 2016 by most estimates. The estimates for smartphone shipments in India in 2013 are about 44m. Estimates for 2014 are about 70m. Not bad annual numbers but considering China shipped 100m smartphones for the first time in Q2 2014, the potential ramp for India is massive and is just getting started. India still ships quite a large number of featurephones. That is why a data point from Counterpoint Research’s latest market monitor stands out. Counterpoint states Micromax, a local Indian branded handset maker, has passed Samsung to be the leading handset vendor in Q2 2014. Note this includes total volume of both featurephones and smartphones. But since India is still a large featurephone market, this data point is significant. As you can see from the chart below, Samsung is still the leader in smartphones in India, but the trends suggest soon Micromax will pass Samsung in smartphones as well.

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It is worth pointing out again that relative volumes are key to remember. Where China has typically averaged in the 85-90m range of quarterly smartphone shipments, India averages 13m approximately per quarter. I make this point to show how large the ramp in India still has to go and how that ramp, and the opportunities enclosed within it, could alter the OEM landscape in India dramatically over the next few years.

Apple Owns the USA

It should come as no surprise Apple is the dominant OEM in the US. But it fits our theme of domestic OEMs ruling their region.

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Here comScore gives us insight into US OEM marketshare. I don’t need to say much on this chart, except that watch how much it will change when the new iPhones come out.

A Big Markets

A potential implication of this is that a vendor strategy could be to control the big markets. It is unclear how Xiaomi can succeed outside of China and if they can ultimately compete with regional brands like Micromax in India. However, Xiaomi could have a healthy and sustainable business just within its home market. The same is true of Micromax. Perhaps the same is true of Apple. But there are local brands in Russia, Philippines, Brazil, and even Africa. Could the smartphone world be made up of many different regional players, each competing uniquely in their region and holding off foreign brands from expanding into their territories? This is something I’m very interested to watch.