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Business

China smartphone market upended by new makers

Vivo promotes high-quality smartphones at physical stores, including this shop in Guangzhou.

SHENZHEN -- China's smartphone market is going through a major upheaval as established manufacturers lose sales to newcomers.

Samsung Electronics and Apple, the world's two largest smartphone makers, and popular Chinese manufacturer Xiaomi have lost ground to emerging local brands including Oppo, which took the second-largest market share in China in the April-June quarter of this year, and No. 3 Vivo. Huawei Technologies, a Chinese maker credited with steadily marketing new products, had the top share in the three months.

"You should buy Oppo or Vivo," a man in his 20s said at an Oppo store in Gangding Computer and Digital Shopping Circle, a popular computer shopping mall in Guangzhou. "I am fed up with Xiaomi, as it is too old. You should feel embarrassed if you have such a cheap device."

Next to Oppo's store is a shop operated by Vivo. "We are really happy as most visitors here buy our products to replace Xiaomi or Samsung," said a male sales clerk at the Vivo store.

China is the world's largest smartphone market, accounting for about 30% of global demand, so manufacturers across the world make all-out efforts to boost sales here. In May, U.S. market researcher IDC released data on smartphone sales by brand in the January-March period showing that Xiaomi, the biggest seller in 2015, had fallen to fifth place. Apple dropped to fourth, and Samsung failed to make the top five.

Data on April-June deliveries, released in mid-August, showed that sales by Xiaomi and Apple declined 38% and 32%, respectively, even as total sales in China grew 5%. Samsung once again failed to make the top five. Oppo and Vivo, meanwhile, boosted sales by 2.3 times and 75%, respectively, from a year earlier.

Sales strategy

Globally, Oppo and Vivo are now the world's fourth- and fifth-largest smartphone makers. The companies both originated from BBK Electronics, a manufacturer based in the southern Chinese city of Dongguan, Guangdong Province, long known as "the world's factory." Founded by engineers from BBK with strength in audio technology, Oppo and Vivo make smartphones that have been praised for their audio performance. The two companies have gradually drawn attention from consumers through word-of-mouth recommendations.

Oppo and Vivo have also learned from mistakes made by Xiaomi. In line with trends, Xiaomi promoted online sales. But when growth in online sales slowed, the company increased physical shops rapidly, resulting in many low-quality outlets that damaged its brand.

Oppo and Vivo have promoted sales at physical shops since entering the market. "They have rapidly reinforced their brands through a combination of customer-friendly service at stores and high-quality products," said Yasuhiro Yamane, a Hong Kong-based journalist who covers the mobile phone market.

The two companies sell their phones at relatively high prices, ranging from about $400 to $600, in a bid to differentiate themselves from Xiaomi and other "cheap" Chinese brands. The strategy has gotten off to a good start.

"This premium feel is irresistible," the young company worker in the Oppo store in the Gangding shopping mall said, touching a new phone.

Many Chinese consumers felt the same excitement when they held phones from Xiaomi or Apple for the first time. New smartphone makers have come and gone, and market leaders have changed rapidly amid cutthroat competition -- testifying to the difficulty of achieving brand loyalty among China's fickle consumers.

In contrast, the global market has been more stable, with Samsung and Apple ranking first and second, respectively. Will a real winner in the Chinese smartphone market emerge?

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