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Asia foreshadows rise of Chinese smartphones as iPhone X unveiled

In fastest growing market, Apple is unlikely to lure consumers looking for cheaper alternatives

Aggressive marketing has helped Chinese smartphone maker Oppo raise its profile in Thailand and elsewhere in Southeast Asia. (Photo by Hiroshi Kotani)

BANGKOK -- On Saturday morning the MBK Center, a regional electronic gadget Mecca in the heart of the Thai capital, was crowded with young technology buffs after the unveiling of the iPhone X, the latest smartphone model from Apple. Yet despite the worldwide buzz over the tech titan's latest handset, with a starting price tag of $1,000 it will struggle to find a broader audience here. 

While the iPhone and Samsung Electronics' Galaxy lead the global smartphone market by sales, Southeast Asia's consumer landscape looks different. In a region home to some 600 million people, Chinese vendors are gaining ground, with one in five smartphones shipped locally now Chinese brands.

In the MBK Center, small smartphone shops stand cheek by jowl, enticing young customers with latest products. One store owner, Suwimol Khongsiriphaiboon, began offering Oppo and Vivo smartphones three years ago after becoming acquainted with the brands in China.

Both are produced by the Guangdong province-based BBK Electronics, and both were almost totally unknown in Thailand until recently. Today, however, Suwimol said Oppo and Vivo were some of her best selling products. Chinese brands, including Oppo, Vivo and Huawei, account for about half of the 70 handset sales her shop makes every month, and the shift in customer demand to Chinese smartphones has been much swifter than Suwimol could have imagined. "Oppo and Vivo are now very popular brands, thanks to effective advertising using famous Thai actors and actresses," she said.

Chinese smartphones are priced at around $500 at the high end of the market, yet they are not outdated knock-offs of earlier generation Samsung and Apple models, with 20-megapixel cameras and high-resolution liquid crystal displays considered standard. At Suwimol's shop, Vivo's V5Plus model is available for 12,000 baht ($362), a little over half the price of the Galaxy S7.

The rise of Chinese smartphones is not a phenomenon confined to Thailand. In Vietnam, Oppo's market share has already surpassed 20%, second only to Samsung's. Consumers in emerging markets, where budgets for smartphones are limited, increasingly see Chinese brands as attractive choice.

Ngoc Lan, a senior student at a language university in Ho Chi Minh City, was looking for a smartphone that fit within her 3 million-dong ($150) budget. "The model, form, style and color of the affordable smartphone, such as the Oppo, are similar to iPhone and Samsung products. These products are suitable for teenagers and students," she said.

As a result of the rapid expansion of Chinese brands' presence, the competitive landscape of the Southeast Asian smartphone market has seen seismic shifts. According to research firm IDC, total smartphone shipments in six Southeast Asian emerging countries, including Thailand and Indonesia, increased 4.3% year on year to 101.3 million units in 2016. Samsung of South Korea, the world's largest smartphone maker, was also the top player in the Southeast Asian market with a 23% market share. But the second and fourth players were Oppo and Huawei, both Chinese companies. The combined market shares of Oppo, Huawei and another Chinese brand Vivo amounted to 21%, closing in fast on Samsung's market leadership.

Comparison with the 2012 data underscores the market's changes. Samsung was by far the biggest player, commanding 37% of the market, over 2.5 times larger than the share of second-ranked BlackBerry. Third-ranked Apple held an 11% share, a record high for the U.S. company in the Southeast Asian market. By 2016, according to data compiled by IDC Asia senior market analyst Jensen Ooi, Apple had fallen to sixth with a market share of 4.5%.

"All these [Chinese] brands are not inferior to Samsung or Apple anymore. They have succeeded in pushing their brands up in the market," said Ooi, noting that most fast-selling smartphones in Southeast Asian emerging markets had price tags from $200-$400. China's Xiaomi recently unveiled a razor-thin smartphone, the Mi Mix 2, which features a liquid crystal display panel that stretches to the device's edges and a high-resolution camera. The price of this new flagship model is 3,299 yuan ($500) still half that of the iPhone X.

These developments demonstrate the competitive edge of Chinese brands in a market where commoditization -- the narrowing of difference in function, quality and other factors between competing brands -- has progressed rapidly. In other sectors, such as home appliances and personal computers, the same phenomenon has knocked what were once highly lauded market leaders off their predominant positions. 

Competition growing

Chinese smartphone companies have developed marketing strategies focusing on Southeast Asian consumers in an effort to expand their clout. Mark Xing, chief executive of Thai Oppo, said his advertising strategy relied on touting the camera quality of Oppo products while targeting 15 to 30 year old women who snap away selfies wherever they go and post the photos on Facebook. "Their desire is to look more beautiful and charming (in their photos)," he said.

Xing's strategy has borne fruit, with women making up 60% of Oppo users in Thailand. By raising brand awareness among Thai people through advertising, Thai Oppo began seeing local smartphone shops approaching the firm for deals. When Xing became the head of Oppo's Thai business two years ago, the number of stores selling its smartphones was less than 2,000 around the country. Now the number exceeds 10,000.

Chinese smartphone companies are also known for their aggressive retailing tactics. At Suwimol's shop in Bangkok, a buyer of Vivo V5Plus can get wireless earphone, a car charger, a protective case and a sheet of film to protect screen as complimentary extras. In Malaysia, where Apple is still second on market share, Oppo and Vivo's marketing blitz is so aggressive that they are paying the salaries of salespersons on behalf of dealers.

Competition between Chinese companies is also intensifying. Xiaomi, which so far has been selling its products directly to end users through e-commerce in Malaysia, started pushing its products through dealers in May to compete with Oppo and Vivo. It opened its first retail experience store in Penang and is planning for another in Kuala Lumpur by the end of the year, allowing the brand's followers, known as Mi fans, to try out other home appliance products.

Indonesia, the biggest market in Southeast Asia, has called for raising the local production rate for domestic smartphone sales to 30%. Many foreign smartphone makers have already cleared the requirement by entrusting production to Indonesian manufacturers. Samsung meets the rule by newly installed smartphone assembly lines at a home appliance plant in West Java.

Apple has occasionally been forced to delay the release of new iPhone models in Indonesia because of its failure to clear the local content requirement. The iPhone 6s, which went on sale in September 2015 in the U.S., Japan and elsewhere, was not released in Indonesia until this year. In order not to repeat the blunder, the company plans to open a software research and development center in Indonesia, possibly in October.

In emerging Asia, a region which comprises seven countries including Indonesia, Thailand, Vietnam, Malaysia and India, overall smartphone demand will total 234 million units in 2017, an 11% increase year-on-year, according to market research firm GfK. The rise of Chinese brands is signaling a new era to match this demand.

It does not appear that the latest iPhone will lure back Indonesian and other Southeast Asian consumers who have already embraced Chinese brands. After new iPhone models were unveiled in California last week, it was clear that Apple has resolved to push ahead in its pursuit of greater technological sophistication for its smartphone line. The resulting price tag of the iPhone X will make it hard for the company to claw back ground across the region. 

A group of six young men hanging out at the MBK Center on Saturday all owned iPhone 6 handsets released three years ago. Students at the time, each of them asked their parents to buy them the model at the time. Now in the workforce, they will need to pay for their next smartphone. Asked whether they would buy the next generation Apple product when it hits the Thai market in the coming months, all six said it was far too expensive for their budgets. 

CK Tan in Kuala Lumpur, Kim Dung Tong in Ho Chi Minh City and Jun Suzuki in Jakarta contributed to this story.

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