Robert Hah Benjamin Pan Marco Siu - Accenture
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Robert Hah Benjamin Pan Marco Siu
THE BREAKTHROUGH OF LOWER-TIER SMARTPHONE
MANUFACTURERS IN CHINA
The last 18 months have been an interesting period for the smartphone
market in China. Sales of mid-range models accelerated, while premium
smartphones faced a slowdown in growth. At the same time, tier-2 and
tier-3 OEM brands stepped up and continued to pose a challenge to
traditional tier-1 brands’ coveted status.
According to the latest industry analyses, 458 million smartphones were
sold in China in 2016 - approximately 1/3 of total sales globally. In the
Chinese market, tier-1 and tier-2 OEM brands claimed a market share of
34% and 31% respectively, compared with 32% and 25% respectively in
2015 - a competitive landscape between the two leagues is coming into
shape.
Tier-1 OEMs have led the The emergence of new consumer
technological advancement bases, the penetration of 4G
in smartphone development networks and 4G roaming, as
in the past decade. They have well as the significantly-changing
gained a competitive edge with consumer buying habits are driving
innovative features and functions factors behind the rapid expansion
and captured bottom-line growth in potential markets. This trend is
Market Share： through premium smartphone also evident in small and midsized
>5% >10% >1% offerings. However, as growth in towns and rural areas. These new
the premium smartphone segment developments, coupled with
slows and turnkey solutions the transformation of retail sales
become available, tier-1 OEMs face channels, global smartphone
ever-increasing competition from models and ecosystems, have
rising tier-2 and tier-3 OEMs. These opened new doors for tier-2 and
companies are looking to expand tier-3 OEMs to grow revenue and
their footprints in and outside of gain market share.
China, and boost their smartphone
market shares. The sudden rise
of tier-2 and tier-3 OEMs speaks
to the significant changes that
are taking place within the entire
mobile phone industry.
2
THREE FACTORS REDEFINING
THE MOBILE PHONE INDUSTRY
Since inception, the mobile phone market has been characterized by rapid change driven by
innovation and a continual drive to reduce Bill of Materials (BOM) costs. Today, three factors are
driving the continuous evolution of the global mobile phone landscape.
ACCELERATION OF 4G NETWORK COVERAGE
The growth of 4G network dramatic expansion in 4G LTE
coverage is gaining increased coverage has made networks
momentum. In 2015, global increasingly complex. This
4G LTE connections across 151 complexity will continue to grow to
countries grew to more than 1 2020, and beyond, as 5G networks
billion, representing a doubling are introduced and connected
up in numbers from the previous experiences driven by the Internet
year. Furthermore, developing of Things (IoT) dominate the
markets even managed to see mobile ecosystem.
triple growth in numbers. Such
GREATER SMARTPHONE AVAILABILITY
AND AFFORDABILITY
Smartphones are progressively from the number of units they
becoming more available and are shipping today. Developing
affordable. Increasing broadband markets are expected to account
connectivity, expanding network for 75% of all smartphones sales
coverage, and growing customer by 2018, and will be the engine for
data needs have jointly accelerated overall market segment growth. A
smartphone adoption. It is strong tier-2 and tier-3 OEM base
predicted that, in 2020, OEMs across the midrange smartphone
will be shipping 1.7 billion 4G market is needed to serve this
smartphones; a 70% increase booming demand.
3CHANGING CHANNEL DYNAMICS
The ways in which consumers buy require consumers to be tied to a
mobile devices are undergoing carrier contract. Rising tier-2 OEMs
dramatic change across the are leading the way with 130%
ecosystem. One significant year-on-year revenue growth from
aspect of this change is the rising the open channel. The shift to the
proportion of phones sold directly open channel has forced OEMs
to consumers. In China, over 60% to focus more on customers, who
of sales are now expected to come demand faster data speeds and
through open channels that do not more portability across carriers.
As an example, domestic mobile brands, OPPO and vivo, are
penetrating deeply into offline stores across various middle-sized
and small towns and are quickly winning users over. Moreover, OPPO
and vivo put a great deal of trust in their local distribution agents,
offering them incentives such as stock shares and rebates, which
has enabled the two brands to gain quick entry into tier-3, tier-4 or
even tier-5 markets. To cope with competition, premium brands are
also deploying their offline stores at the prefecture and county levels
in China. For example, Apple’s MONO stores are targeting such
markets with smaller storefronts and flexible product displays that
better conform to the habits of local consumers.
Meanwhile, carriers also have opportunities for OEMs -
recently changed how they sell particularly for tier-2 and tier-
smartphones. For more than 3 players trying to position
a decade they have offered themselves as tier-1.5 players. Last
substantial subsidies on phones in year, some tier-2 OEMs explored
exchange for long-term customer new markets by addressing the
contracts. However, the efficacy needs of new consumer groups
of the subsidy model is waning in East Europe, South America
in mature markets. Hence, in and Southeast Asia. To maintain
the Chinese market, carriers are sustainable growth, tier-2 and tier-3
promoting multiple purchase OEMs must focus on customer
models, such as a leasing or experience, learn from leading
installment-plan model. brands, understand the latest
industry trends and devise winning
These market changes create strategies.
challenges as well as significant
4LESS IS MORE
Faced with tough challenges from In today’s era of customer-centricity, marketers
competitors, tier-1 OEMs have begun to revise are at pains to create distinct versions of their
their product strategy. For example, they are products for each customer segment. However,
working on product portfolios of fewer models if seen from another angle, smartphone OEMs
that are universally acceptable around the could greatly ease off from this and even
globe. These global phone devices are able perform better by reducing the number of
to work in all network modes and frequency stock keeping units (SKU) across their product
bands, and are adaptable to various changes portfolio and considering making one device
in complex networks and dynamic markets. for all the target segments. Ideally, these
Tier-2 OEMs are also looking into integrating devices must meet customer demands and
models, striving to save cost and expand into be globally compatible. With the consolidation
new markets. In addition to technological of SKUs, each phone will incur slightly higher
advances, consumer demands are playing BOM costs, but the strategic benefits and total
a significant role in increasing overall device cost of ownership savings will far outweigh the
complexity. Unconvinced of the practical upfront costs.
benefits brought by enhancements to
devices, consumers tend to replace their
devices less frequently. This resulted in the
global smartphone market reaching its plateau
last year.
5Take Huawei as an example. In addition to continuous investment
in R&D and innovation, the company is also trying to simplify
product portfolios and develop globally compatible mobile phones,
to expand its mobile phone sales internationally. According to
statistics, Huawei mobile phones are currently sold in over 170
countries and regions. In Europe, Huawei has sold over 26 million
smartphones. In countries like Poland and Finland, its market share
once surpassed that of Samsung and Apple, ranking in the second
or even the first place.
Accenture research shows that focus from BOM cost to value
when the product portfolio of a generation. This is made possible
tier-2 OEM is made up of global by new technologies that address
devices and fewer SKUs, the device and network complexity.
company typically will experience In addition to generating top-line
a 2.5x return on investment (ROI). growth, a globally compatible
However, to unlock the potential phone will drive cost-savings
of this strategic opportunity, OEMs through reducing the number of
need to view competitiveness SKUs in an OEM’s portfolio.
differently by shifting their
UX (USER EXPERIENCE) IS KING
Which are the most critical features of smartphone devices that can enable an OEM to win
the competition of the future? Features such as branding, channels, costs and differentiation
(e.g. cameras and battery endurance) are all important here. However, these are not enough
to completely win customers over. What completes the customer-satisfaction spectrum is the
creation of a customer-centered experience and their engagement through effective R&D and
engaging sales pitches, all the way to worthwhile user services benefits.
6ALIGN FEATURES AND FUNCTIONS WITH CARRIER
AND CUSTOMER PREFERENCES
Our research has found that, if In the smartphone industry,
an OEM can better address the Apple’s iOS has established an
core needs of users, e.g. improved effective ecosystem and brought
battery life, IoT connectivity, and in sustainable profits for the Apple
cross-carrier compatibility, it will Store - hence many latecomers
help enhance the attractiveness of are trying to follow suit. Some
their devices from customers and Chinese smartphone OEMs have
carriers. This is especially effective also launched software stores and
in highly fragmented markets cloud platforms based on Internet
such as China, where both sales apps. For hardware, they have
volumes and average selling price tapped into wearable devices and
(ASP) are expected to increase. interconnectivity with other smart
devices. However, the indication
On the other hand, OEMs could is that most of these inventions
easily be replaced if they only are still merely at marketing demo
strengthen certain hardware levels, and lack real disruptive
functions of mobile phones. innovation. Nevertheless, one of
Instead, mobile OEMs should learn the key success factors for smart
from other platform enterprises to phone OEMs to win in the future
build software application-centric remains their ability to capture and
ecosystems to better increase maintain users in the ecosystem.
user loyalty. For example, Amazon
has launched Amazon Echo as an The breakthrough battle for tier-
access to its smart home platform. 2 and tier-3 mobile brands has
Through voice interaction, users started. In this constantly changing
can control the connected smart mobile industry, they are facing
devices through Echo, to adjust both tremendous opportunities
lights and temperatures, control as well as formidable challenges.
television, monitor devices, as well Success hinges on whether they
as to automatically place orders on can deploy the right strategies
the Amazon website. Meanwhile, that are centered upon customer
Echo is also an integrated platform experience and ride on the latest
where developers can familiarize technological trends of the mobile
themselves with the Echo system industry.
for developing smart hardware and
products.
The original byline article was published on The Economic Observer on
January 9, 2017.
7CONTACT THE AUTHORS ABOUT ACCENTURE
Robert Hah Accenture is a leading global professional services
company, providing a broad range of services and
Managing Director
solutions in strategy, consulting, digital, technology and
Accenture Strategy, Greater China
operations. Combining unmatched experience and
robert.y.hah@accenture.com
specialized skills across more than 40 industries and all
business functions – underpinned by the world’s largest
Benjamin Pan
delivery network – Accenture works at the intersection
Director of business and technology to help clients improve
Accenture Strategy, Greater China their performance and create sustainable value for
ben.w.pan@accenture.com their stakeholders. With approximately 459,000 people
serving clients in more than 120 countries, Accenture
Marco Siu drives innovation to improve the way the world works
Manager and lives.
Accenture Strategy, Greater China
The company has been operating in Greater China
marco.m.siu@accenture.com
for over 30 years. Today, it has around 15,000 people
servicing clients across the region with offices in the
cities including Beijing, Shanghai, Dalian, Chengdu,
Guangzhou, Shenzhen, Hong Kong and Taipei. As a
trusted Partner of Choice for digital transformation,
Accenture is bringing more innovation to the business
and technology ecosystems and helping Chinese
enterprises and the government to embrace digitization
and enhance global competitiveness to succeed in the
new era.
For more information about Accenture, please visit
its corporate homepagewww.accenture.com and its
Greater China homepage www.accenture.cn.
ABOUT ACCENTURE STRATEGY
Accenture Strategy operates at the intersection of
business and technology. We bring together our
capabilities in business, technology, operations and
function strategy to help our clients envision and
execute industry-specific strategies that support
enterprise wide transformation. Our focus on issues
related to digital disruption, competitiveness, global
operating models, talent and leadership help drive both
efficiencies and growth. For more information, follow
@AccentureStrat or visit www.accenture.com/strategy.
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