Market Saturation – China Mobile Phone Industry

China is the largest national market for mobile phones and is a great source of revenues for companies. But as China’s economic rise and growth, its mobile phone market has grown and gone extremely fast, as possessing a smartphone has become a part of what Chinese people need to show their success and their money and as technology quickly gets upgraded. What could a market saturation mean and imply for phone manufacturing companies? A saturation of the Chinese mobile phones market underlines that people won’t be buying as much products as they used to during the last few years, and that there are enough brands constituting the national offer.

And there are phones for all tastes, premiums (Samsung, Apple), low-cost (Xiaomi) or “improved” knock-offs. A new brand which would want to enter the Chinese market would have some difficulties to meet success, unless it benefits from a good reputation from the rest of the world –in the case of a foreign company. But the recent example of Xiaomi possibly shows that the best strategy to set is to rely on an effective differentiation. High screen resolution phones, customizable phones, “lifeproof” phones, “phablet” phones, game-oriented phones are some of the various potential differentiations for new brands that could succeed in the Chinese market. The last part of the article reads about the wants of China as far as mobile phones are concerned. It seems that most Chinese people now have higher expectations for their smartphones – China is not an under-developed country anymore and has to be considered as a market with elaborated and evolved needs. As their level of life increases and there are more and more rich people in China, the customers start to “Westernize” their expectations, and companies have to take that into account in order not to undergo too many problems facing the market saturation. Mobile phones now have to be cool, connected, fast, and multi-tasking – as the Western standards.

Here is a significant topic: the labor issues in China. Foreign companies tend to benefit from the very lax Chinese legislation on work conditions.

The articles even reads about deaths caused by overwork. Is the issue that serious in China? It is widely known that Chinese people are considered good workers and that China is very interesting for foreign companies that wants to reduce their costs by having a hardworking though cheap workforce to assemble their products. Many firms benefit from the Chinese labor conditions in China, which have even been part of the economic rise of the Asian country for 30 years. The first big reveal of such practice was the Nike case, the company being accused of using sweatshops with intolerable work conditions in China in the 1990’s. Nowadays, it is Apple which is under the observation of many organizations and Westerners – mainly because of its huge success in the whole world, I think; smaller companies with less cultural impact may have the same HR issues but they’re not important enough to be at the center of a controversy. Contrary to what many would think, there are labor laws in China, applicable to all companies, whether local or foreign, as the article emphasizes.

Workers at Apple factories are dedicated to their job: there are dorms, they work all day long, they are underpaid, whatever the law says. Apple do not respect legal work conditions, but what could anyone do? Who is to blame for? Apple is an American-based company and Foxconn is owned but a Taiwanese multinational – that is a major problem. Furthermore, both companies are extremely successful and prolific so why would they change their practices whereas it works extremely well like this? The many suicides and deaths that happened in Foxconn factories could be a red signal, but Apple always finds explanations to take the blames off itself. Such problem is then, to me, relatively difficult to overcome, whatever the efforts of the Chinese government or external organizations. Foreign capitalist companies have always seemed to be taking advantage of China and Chinese workers that way, it will be complicated to make them understand that they should act differently.

This article focuses on Chinese innovation concerning the mobile phone industry – which means phones as well as applications. Strong brands such as Xiaomi or WeChat participate in the apparent mobile innovation in China. But are all those brands really creative and original? Can we say that China is a major country in mobile innovation? Didi seems to be just a copy of Uber created in the US, WeChat a knock-off of WhatsApp and Weibo the Chinese Facebook and Twitter – both being forbidden in China. But looking deeper, it is easy to see that those smartphone applications stand out compared to their Western equivalents, as the article points out. As well, Xiaomi is a low cost mobile phone company that offers products much more evolved than the low cost brands the US or Europe have – and the success of the brand goes now even beyond the Chinese boundaries. In that sense, it could be said that Chinese companies really are innovative but even more we can say that they actually improve what Westerners do – that is where their innovation spirit stands.

Indeed, China uses what the rest of the world creates to adapt it to its local market and making it even better. That is how I see innovation in China: the Chinese do not really create from nothing, they are great observers as well as replicators and invent upgraded and evolved versions of Western ideas. Besides, I would add that this is a patriotic behavior, as I see it: China culturally rejects foreign brands and act against them and sometimes above them by “nationalizing” their ideas and making them even better – the well-known counterfeiting talent of China is one example. Therefore, I agree with the author’s opinion, calling China a new leader in the mobile phone market. As for the government helping and supporting innovation, it is something that I could easily believe, as China started a great innovation plan from 2006. This could enable more and more entrepreneurs-to-be (or foreign talents) to create their companies and start to innovate. Because of its History and culture, China has long been a non-innovating country – a consequence of Maoism and forced egalitarianism with all sign of capitalism and enrichment eliminated – and now it appears to change. I believe it will intensify in the future thanks to government policies and its will to fight IP thefts and to highlight innovation: this is just what China needs to support its economic growth and to be considered as a true leader – and to frighten the rest of the world.

The article sets an overview of what the mobile phone retail market looks like now and what it should be like in the future. Phone makers companies have to be aware of its evolution in order to best sell their products, in a very fragmented and coming-to-saturation market.

Given the facts in the article, what issues for mobile phones companies can be brought out? E-commerce is about to grow subsequently in the next few years. It is a logical evolution, as China has been used for a long time – earlier than the West, actually – to online shopping and delivery, for whatever type of products, with successful websites such as Taobao or Alibaba. E-commerce sites are big competitors and threats to phone stores, and local as well as foreign understood it and now manage to adapt to the Chinese’s wants: Apple is, for example, extremely present online in China. What I learn from this article is that the Chinese change their habits. While the mobile phone market is hitting saturation (see first article), not only manufacturer companies but also retailers have to innovate and differentiate from their competitors in order to stay relevant and effective. China is a fast-moving country and then trends are always moving and are pretty unpredictable – and this has been that way for 30 years.

Companies and retailers have to be aware of that. Local brands, as they know their market and are easily adaptable, would have less worries than foreign brands which have to build a strong understanding of China and its people – very hard job. Such polemic does not give a good image of Chinese products – if it could get even worse. Westerners (maybe only French people actually, but I think it is a general trend in the West) are paranoid concerning made-in-China products – and even more when they are from Chinese brands! They are always suspicious about that country and whatever comes from it – prejudice of bad quality, no security. So I can understand how the West has reacted when they heard that a Chinese brand could have been involved in political matters and spying activities against the US and Australia. China is the villain and a dangerous nation (eventhough the US themselves spied the whole world with their NSA, for different matters)!! Huawei has since then – whether the security issue and other suspicions have been actually proved or not – become a “threat to national security”. This is bad advertisement for the company that is already reputed for selling bad mobile phones and it could cause problems concerning their international expansion.

Following this affair, Huawei could lose market shares in the West, people’s trust in Chinese products – or even more in China in itself – getting even more damaged. After that security issue, Huawei has been blamed for many other things such as financing Iran or the Taliban from Afghanistan. I think – whether it is true or not – it is mainly a way to create bad feelings from the world against China, as it was the case against Japan during the protectionist times of the US Japan-bashing. An anti-Chinese sentiment would be good as the country becomes more and more powerful economically – partly thanks to the West – and could threaten other economies. This could also easily be seen as a form of xenophobia, a fear of China, in the sense that the Western world cannot really do anything to stop or prevent the expansion of China globally or in their own country. If it works, Chinese brands and especially Huawei could have a lot of trouble entering foreign markets. China is very well known in the Western world for being a big place in terms of counterfeited items and knock-offs of everything, from products to entire brands and services.

And, of course, mobile phones are no exception. Why do the Chinese counterfeit so much? What are the benefits of it for them? Counterfeiting seems to be an entire part of Chinese culture, which even has a name – Shanzhai. For the few weeks I have spent in Beijing, I have seen many knock-offs of brands such as Louis Vuitton, Apple or KFC. It is noticeable anywhere, thus Shanzhai appears to be a really well spread practice in China and something that seems to be accepted and natural. Concerning mobile phones, Apple and Samsung knock-offs can be found anywhere, in “fake” stores or in markets. What the article suggests is that it stands as a solution to employment and as a support of economic development. I can see the employment point – copying every possible brand multiply the job offer in China, whose unemployment rate appears to be 4.10% – but as far as economic development is concerned, I personally see the Shanzhai culture more as a threat than as a support.

Indeed, relationships with foreign companies and investment might be damaged by such practices and so much counterfeiting could be seen as a lack of Chinese innovation (or, on the contrary, as another form of innovation? Adapting foreign products to the wants of the Chinese market? I don’t really think so). It appears as a problem, as well as IP rights unrespect in the country show, and as an unfair competition for brands who sell the original products. Shanzhai hurts growth, in the sense that it reduces China’s competitiveness and this is not good for business in the country.

This practice thus has a big impact in the Chinese world. It seems to be really inherent to China, loyal to Asian and Confucian values (collectivism, “we” stronger than “I”, fear of failure, importance of money for success, rejection of Western brands and beliefs…). But can the Chinese change? Actually, the government is trying to make things change by reinforcing IP laws for example, and I think it is a good way to end the “copy and don’t innovate” state of mind that Chinese people have and have had for long. But there still isn’t a sign of change because the problem is now in people’s behaviors and beliefs, and that is not easy to modify. The government’s leap forward is a good thing to reassure foreign companies and investors.

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