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Emerging markets continue to drive the global sales of smartphones as its citizens discover the internet for the first time.

Southeast Asia’s smartphone shipments grew by 6.5% last year, recording nearly 28 million devices. Its largest market, Indonesia, is projected to be the four largest market for smartphones by 2020, reaching almost $10 billion in sales.

One of the global household names eyeing the region is Apple.

The company has been attempting to grab market share from dominant Chinese brands selling at much cheaper prices such as Oppo and Huawei in the sector. Apple’s global sales took a slight drop in Q2 2017 and 400,000 less iPhones were sold compared to the same period last year.

Apple market share Indonesia

Apple and Samsung struggle to grab market share against Chinese brands. Source: Frontera

Apple recently opened its first official store, a “Town Square”, in Singapore last May.

Apple market share Indonesia

Singapore’s first official Apple Town Square. Source: 9to5mac

This followed a commitment to invest more than $44 million in R&D in Indonesia after the company couldn’t release the iPhone 6s and 7 in the country for failing to meet the requirement of having at least 30% local components.

Indonesia not breaking the bank

Recent data from International Data Corporation (IDC) shows only 1% of 7.9 million smartphones shipped in Indonesia during Q2 2017 cost more than $600 or fell into the “ultra high-end” category.

Apple market share Indonesia

Devices from the “low-end” category costing $100 – $200 are still the most popular among Indonesians as they prefer a more affordable option.

In nascent markets like Indonesia, Chinese and local players like Huawei, Oppo, and Advan will continue to occupy the top five smartphone brands in the country.

And given Apple’s newest price tags – the iPhone X initial pricing exceeding $1,000 – its share will unlikely exceed more than 1% of Indonesia’s total shipment anytime soon, unlike the US market where Apple has 31.3% market share.

But it’s not all doom and gloom for Apple. Indonesia’s consumer smartphone affinity is heading towards the higher end as purchasing power increases.

Mid-range devices costing between $200 – $400 grew to 28% from 13% in the same period last year and with the lowered iPhone SE price to the “midrange” category, it’s not impossible to see more iPhones in the hands of Indonesians.

THE BACKGROUND

Chinese brand Huawei started as a producer of phone switches in 1987 before becoming the Information and Communications Technology (ICT) giant it is today.

The company builds products along the entire wireless communications chain: chipsets, network connectors, and handsets.

As Fortune puts it, “it’s as if General Motors had paved the Interstate Highway System, then started selling cars.”

Huawei recorded more than $42 billion in revenue for the first half of 2017 across its three main business units: Carrier, Enterprise, and Consumer Business.

Under its Consumer Business division, Huawei entered the smartphone market in 2010 and quickly rose to No. 1 in homeland China until Oppo took the title in 2016.

Nonetheless, the brand shipped 139 million smartphones in 2016 and controls 9.8% of global smartphone market share and around the world, the brand trails only behind Samsung and Apple as the No. 3 mobile phone vendor.

huawei premium strategy

Global market share by phone vendor, 2016. Source: IDC

THE CHALLENGE

Huawei’s rise to the top three was achieved in a very short time — less than five years – but the brand is struggling to catch up to its biggest rivals, especially in overseas markets.

Despite being a household name in China, the brand isn’t well known in Europe and the US.

A few issues have plagued the brand’s reputation: a general consensus that Chinese companies produce ‘cheap and copycat products, allegations of national cybersecurity breaching, and a investigation from the US government.

These issues have hampered the brand’s efforts to gain footing in the world’s biggest premium consumer market — the United States.

Huawei’s US sales totaled $1.3 billion last year, only a fraction of its worldwide sales of $32.4 billion.

In addition, the company has also faced difficulties winning emerging markets like India and Indonesia as most consumers favored devices below Huawei’s price tag where its budget phone handsets start from $170.

The company does not have the equivalent of Apple’s die hard fans nor Samsung’s superior phone features – they have “better value for money” as its differentiator.  

Without a customer niche, Huawei will find it difficult to boost sales and stay competitive. Although revenue growth was impressive in the first half of this year, it was the company’s slowest in four years.  

THE INNOVATION

In October 2014, Huawei launched a new brand of mobile phones that they called Honor and was sold direct to consumer through online channels to keep prices in the mid-range and targeted digital natives – young hipsters.

Huawei premium strategy

Huawei’s Honor flagship store in Germany

Launching a sub-brand is also a part the company’s efforts to emphasize the brand’s focus on quality.

The company also spent a large portion of its marketing budget on overseas promotion, including plastering major cities in Europe with advertisements.

Huawei premium strategy

Billboard of Huawei phone in Poland. Credit: Wade Shepard

To further familiarize Europeans with its brand, Huawei drew on the popularity of major sports clubs like Arsenal and AC Milan and reached the masses with several sponsorships.

Huawei premium strategy

The brand became the official sponsor of English football Arsenal to raise its brand awareness.

In 2016, Huawei struck a partnership with German-company Leica to develop a dual-lens camera system that resulted in the Huawei P9 smartphone, touting an innovative camera as one of its selling points. Apple rolled out the same feature shortly after.

Andreas Kaufman, Chairman of the Supervisory Board of Leica Camera, saw the potential to become the second leg of digital revolution in the photography space where smartphones were the new amateur camera.

Huawei was also chosen by Google to build its flagship Android device Nexus in 2015. The partnership is strategically important for both companies as they are leveraging one another’s credentials for a leg up in an oligopoly market.

To crack the US market and simultaneously beat Apple for market share, Huawei is collaborating with Amazon and Google in the launch of its updated premium flagship device, the Mate.

The device is the first of Huawei’s smartphone to come with voice-interactive app, Amazon Alexa, and is available for purchase in US through Amazon. The Mate 9 is also the first Google Daydream-ready device for users to explore immersive virtual reality (VR) content and experience.

With so many enticing features jam-packed into one device, the soon-to-be launch Huawei Mate 10 is expected to surpass the performance of Apple’s highly anticipated iPhone 8.

THE STRATEGY

A few years ago, Red Zhengfei, founder of Huawei, laid out the company’s strategy: Huawei must make progress in the mid and high-end range with high quality products and turn a profit.

In order to do this, the Chinese company has continued to sacrifice margins to spend on R&D, investing $11 billion (76.4 billion yuan) to further its business.

Huawei further announced that it will focus on the mid-high segment for higher profits.

“We are giving up the very low-end devices because of the margin in this is extremely low, and it’s not making enough profit for us,” said Richard Yu, CEO of Huawei Consumer Business Group.

Huawei premium strategy

CEO of Huawei’s Consumer Business Group, Richard Yu

“The priority is Europe, China, and Japan, where the economy is healthy and people are able to consume them.”

THE FUTURE

The company continues to works towards becoming the No. 1 smartphone supplier in the world within four or five years and seizing  20%-25% global market share by introducing visionary innovation to its products in order to charge a premium.

“In the past for the smartphone you could see Apple leading innovation,” said Richard Yu. “But in the future, you will see innovation led not by them but by Huawei.”