Ok this isn’t the most technical video in terms of its review of the Chinese smartphone eco-system and it doesn’t touch on the WeChat eco-system, but its a good introductory video for westerners by Winston Sterzel, a YouTuber living in Shenzhen. It focuses on only the top domestic Chinese smartphone brands.
If I was looking to explain Chinese smartphone dynamics to a western client, this video is as good an introduction as any to the hardware side of the business.
Here are the key points I’d highlight and additional comments that I would add to the film.
Mobility in the working population drove Chinese smartphone adoption
The transitory nature of the Chinese workforce following China’s opening up has mean’t that many people are migrants and many only return home once a year (for lunar new year) if they are lucky. Staying in touch is critical to keep families together. Secondly being migrants, having a ‘computer’ that you can carry makes more sense than a traditional PC. Finally, the price point of smartphones puts the internet in the hands of pretty much anyone who wants one. These three factors explain why smartphones took off so dramatically in China. This started in the urban areas, but then migrants brought them home to relatives and gave them away as Chinese new year gifts.
China Mobile had a government mandate to build out connectivity into even the most rural areas in China. Data packages and the applications that run on it like WeChat made telecommunications even cheaper and easier.
The smartphone is where the majority of Chinese online shopping takes place, how families keep in touch and are starting to be a tool for the delivery of government services.
The price-value balance of smartphones
The development of the iPhone had an unintended on the Chinese smartphone contract manufacturers. If we go back to the early Samsung Galaxy models from the S to the S4; the industrial design of these phones owed a lot to Nokia. They had replaceable storage with micro SD cards and a replaceable battery with a battery hatch in plastic. If you dropped the phone the hatch may pop off. This was by design as it got rid of the some of the energy from the fall and the frame had a degree of flex to protect the innards. This is one of the reasons why Nokia 3310 feature phones ran and ran. The face and back might pop off your phone if you dropped it; but they could easily be snapped back on.
Manufacturing phones of that nature also helps with scaling up manufacturing based on mouldings.
Apple didn’t bother with external batteries, which at the time sparked a huge controversy. Their battery life was awful and most working stiffs kept their phone charging from their office PC during the day. By comparison I had a desktop charger with previous Ericsson and Nokia phones, along with a few spare batteries and felt comfortable going on holiday for a few days with a spare charged battery in a zip loc bag and no phone charger. Up until the 6 plus, Apple’s battery has been a real pain.
So Apple differentiated by done what seemed like an insane idea of using a CNC (computer numeric controlled) machine to make the phone chassis. This is like a robot version of the machine tools that you would have used in shop class individually making each phone chassis.
Apple tried this out with the stainless steel ‘belly band’ of the 4 series phone and then perfected it with the 5 series. I suspect the reason why they moved from stainless steel to aluminium alloy for manufacturing was to balance durability with optimising manufacturing time.
Over time these machines move from the Apple production lines onto another product. Soon you can’t be the smartphone chassis manufacturing business unless you have this capability. Apple’s machines may have been sold on, but there was probably an increase in the CNC machine makers manufacturing capacity as well.
So all of the smartphones shown, whether it cost £80 or £800; none of them felt cheap or had a ‘China penalty’ in terms of case design. This has affected the market in the Chinese smartphone eco-system. They are more durable, but there is less incentive to go premium when a cheap or medium priced phone looks and feels this good.
The durability of modern Chinese smartphones might be one fo the reasons why sales in smartphones have declined year-on-year. I’d argue a second reason is WeChat; so long as you can use WeChat your smartphone is fine. WeChat has had a similar effect on Chinese smartphones to what the web had on western PC sales over the past two decades – computers had become about as useful as they were going to be and performance became less of an issue.
Chinese smartphone market consolidation
Winston kind of alluded to it in his video but Oppo, Vivo and OnePlus are all related to BBK Electronics; a longtime Chinese phone and consumer electronics manufacturer. When I first went to visit China I bought a BBK ‘keitai’ style clamshell feature phone. At that time BBK competed with international players like Nokia or Samsung and domestic brands like Ningbo Bird. (Ningbo Bird was the largest manufacturer in China from 2003 – 2005).
Now they make everything from cheap TVs and speakers under the Memorex brand, to smartphones and high end Blu-Ray players as Oppo.
In the smartphone sector, they operate under three main brands. OnePlus is aimed at international users and kind of similar to Xiaomi in terms of the balance that it strikes between technology, features and price. Oppo is more of a Samsung or Huawei analogue. Vivo was launched to have a lower price youthful brand.
Between BBK, Xiaomi and Huawei you now have most of the Chinese smartphone eco-system, by value and sales volume. Just a few years ago there would have been far more players that would have merited a review including the following the companies and their sub-brands:
These are still big businesses, and I am not denigrating these brands. The analyst reports show that the Chinese smartphone eco-system is undergoing rapid consolidation; in the same way as Sony and HTC have been dwarfed by Samsung and Huawei.