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Business trends

Chinese smartphone makers in all-out blitz for Southeast Asia

Market leader Samsung losing out to Vivo, Oppo and Huawei

Vivo's blue signs draw potential customers at this outpost selling handsets at a Manila mall.   © Reuters

BANGKOK/JAKARTA -- The combined sales of three Chinese mobile phone brands in Southeast Asia edged past Samsung Electronics' tally for the first time last year.

As Chinese makers move to counter their saturated home market and an increasingly disputatious U.S., they have gone on the offensive in the rest of Asia.

In India, the world's second largest smartphone market, after China, Xiaomi tweaked its pricing strategy, then over the past six months out-sold long-time market leader Samsung.

In Indonesia, Vivo Communication Technology on March 29 marked the release of its V9 mobile phone with a gala. The Borobudur Buddhist temple compound was transformed from a World Heritage site into a glitzy venue for a launch party, featuring a performance by Indonesian singer Agnez Mo. Twelve television stations broadcast the concert live.

The event also served as a victory lap of sorts, not only for Vivo but also its mainland peers Oppo and Huawei Technologies. The trio in 2017 sold 29.8 million phones in Southeast Asia's five main emerging markets, according to U.S. researcher IDC. That was more than the 29.3 million units that Samsung sold and 20 times their 2013 sales in the five countries.

Oppo signs festoon this underground rail station in Bangkok. (Photo by Takaki Kashiwabara)

The region is a bright spot as the U.S. ratchets up pressure on Chinese mobile device makers. Federal officials there are creating a blacklist that would undercut Huawei's ability to supply American carriers with telecommunications equipment. ZTE is weighing whether to sell off its smartphone business in the face of a U.S. ban on technology exports to the company.

In China, the smartphone market shrank nearly 12% last year. That pushed mainland manufacturers to focus more heavily on emerging markets.

Vivo and Oppo in particular have developed the 100 million-strong Southeast Asian market by tapping star power. Last May, Vivo struck a deal to become the official smartphone sponsor for the World Cup in 2018 and 2022. The FIFA contract is on a par with one the soccer federation sealed with the likes of McDonald's. Considering soccer's popularity in Southeast Asia, the sponsorship deal is expected to strengthen Vivo's brand.

Meanwhile, Oppo advertisements have virtually monopolized entryways around Bangkok's central business district, as well as the Sukhumvit underground rail station. At Jakarta's ITC Kuningan shopping mall, the section dedicated to mobile phones is blanketed with green Oppo signs, along with blue Vivo signs.

One shop in the mall displays about 50 handsets, all made by Vivo or Oppo. "They provide promotional materials for free, and they pay commissions on ads," the store manager said.

The Chinese makers spare no expense when it comes to sales promotion. "Vivo and Oppo's advertising spending is inexhaustible," said a source close to Samsung. "I can't believe they're private-sector companies."

Chinese manufacturers are also offering generous sales incentives, including a few dollars per device to individual sales staff. Chinese devices generate larger profit margins for retail shops than Samsung phones do, said Jensen Ooi, a senior market analyst for IDC.

The incentives are helping the mainland players add sales outlets in droves in Southeast Asia and expand their market share. One shop on the outskirts of Chiang Mai, in northern Thailand, started selling Oppo phones last year. By stocking 30,000 baht ($940) worth of Oppo devices, the location receives free promotional material.

That strategy lifted the number of Oppo retailers in Thailand from fewer than 2,000 in 2015 to over 10,000 as of last September.

The Chinese are also setting up shop in lesser-developed countries. One shop in Myanmar's Yangon reports that Vivo and Oppo provide exterior signs and promotional display material if the retailer stocks roughly 15 devices worth over a certain threshold. A female sales representative is also dispatched to the store as part of the package.

As the smartphone market becomes increasingly commoditized, it has become harder to gain market share through the devices alone. Apple sold 4.5 million units in Southeast Asia in 2017, a slight decrease from 2016. In Southeast Asia's emerging markets, mass-market phones were priced between $100 and $150 in 2017, according to Ooi. Even an old iPhone is out of reach for most consumers in those areas.

On the other hand, Chinese brands enjoy a price advantage. In Bangkok, Vivo's V9 costs around 11,000 baht, well below the 18,500 baht price of an iPhone 6, released in 2015. Yet the V9 sports a 6.4-inch screen, facial-recognition features and dual cameras.

"There is hardly any difference between the iPhone, Oppo or Vivo," said a 30-year-old woman looking at Oppo phones in a Bangkok shop.

However, Chinese companies and their volume-based strategy may soon hit a ceiling in Southeast Asia. The region sold 100 million units in 2017, flat from the previous year and in line with global trends. IDC predicts only a small bump to around 105 million units this year.

Ooi cannot say for certain whether Oppo and Vivo are generating any profit. If growth in the market has indeed stalled, the two may be forced to shift to a more profit-oriented strategy.

Nikkei staff writer Yuichi Nitta in Yangon contributed to this report.

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