Robert Hah Benjamin Pan Marco Siu

Transcription

1 Robert Hah Benjamin Pan Marco Siu

2 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 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 a competitive landscape between the two leagues is coming into shape. Market Share: >5% >10% >1% Tier-1 OEMs have led the technological advancement in smartphone development in the past decade. They have gained a competitive edge with innovative features and functions and captured bottom-line growth through premium smartphone offerings. However, as growth in the premium smartphone segment slows and turnkey solutions become available, tier-1 OEMs face ever-increasing competition from rising tier-2 and tier-3 OEMs. These companies are looking to expand their footprints in and outside of 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. The emergence of new consumer bases, the penetration of 4G networks and 4G roaming, as well as the significantly-changing consumer buying habits are driving factors behind the rapid expansion in potential markets. This trend is also evident in small and midsized towns and rural areas. These new developments, coupled with the transformation of retail sales channels, global smartphone models and ecosystems, have opened new doors for tier-2 and tier-3 OEMs to grow revenue and gain market share. 2

3 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 coverage is gaining increased momentum. In 2015, global 4G LTE connections across 151 countries grew to more than 1 billion, representing a doubling up in numbers from the previous year. Furthermore, developing markets even managed to see triple growth in numbers. Such dramatic expansion in 4G LTE coverage has made networks increasingly complex. This complexity will continue to grow to 2020, and beyond, as 5G networks are introduced and connected experiences driven by the Internet of Things (IoT) dominate the mobile ecosystem. GREATER SMARTPHONE AVAILABILITY AND AFFORDABILITY Smartphones are progressively becoming more available and affordable. Increasing broadband connectivity, expanding network coverage, and growing customer data needs have jointly accelerated smartphone adoption. It is predicted that, in 2020, OEMs will be shipping 1.7 billion 4G smartphones; a 70% increase from the number of units they are shipping today. Developing markets are expected to account for 75% of all smartphones sales by 2018, and will be the engine for overall market segment growth. A strong tier-2 and tier-3 OEM base across the midrange smartphone market is needed to serve this booming demand. 3

4 CHANGING CHANNEL DYNAMICS The ways in which consumers buy mobile devices are undergoing dramatic change across the ecosystem. One significant aspect of this change is the rising proportion of phones sold directly to consumers. In China, over 60% of sales are now expected to come through open channels that do not require consumers to be tied to a carrier contract. Rising tier-2 OEMs are leading the way with 130% year-on-year revenue growth from the open channel. The shift to the open channel has forced OEMs to focus more on customers, who demand faster data speeds and 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 recently changed how they sell smartphones. For more than a decade they have offered substantial subsidies on phones in exchange for long-term customer contracts. However, the efficacy of the subsidy model is waning in mature markets. Hence, in the Chinese market, carriers are promoting multiple purchase models, such as a leasing or installment-plan model. These market changes create challenges as well as significant opportunities for OEMs - particularly for tier-2 and tier- 3 players trying to position themselves as tier-1.5 players. Last year, some tier-2 OEMs explored new markets by addressing the needs of new consumer groups in East Europe, South America and Southeast Asia. To maintain sustainable growth, tier-2 and tier-3 OEMs must focus on customer experience, learn from leading brands, understand the latest industry trends and devise winning strategies. 4

5 LESS IS MORE Faced with tough challenges from competitors, tier-1 OEMs have begun to revise their product strategy. For example, they are working on product portfolios of fewer models that are universally acceptable around the globe. These global phone devices are able to work in all network modes and frequency bands, and are adaptable to various changes in complex networks and dynamic markets. Tier-2 OEMs are also looking into integrating models, striving to save cost and expand into new markets. In addition to technological advances, consumer demands are playing a significant role in increasing overall device complexity. Unconvinced of the practical 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. In today s era of customer-centricity, marketers are at pains to create distinct versions of their products for each customer segment. However, if seen from another angle, smartphone OEMs could greatly ease off from this and even perform better by reducing the number of stock keeping units (SKU) across their product portfolio and considering making one device for all the target segments. Ideally, these devices must meet customer demands and be globally compatible. With the consolidation of SKUs, each phone will incur slightly higher BOM costs, but the strategic benefits and total cost of ownership savings will far outweigh the upfront costs. 5

6 Take 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 when the product portfolio of a tier-2 OEM is made up of global devices and fewer SKUs, the company typically will experience a 2.5x return on investment (ROI). However, to unlock the potential of this strategic opportunity, OEMs need to view competitiveness differently by shifting their focus from BOM cost to value generation. This is made possible by new technologies that address device and network complexity. In addition to generating top-line growth, a globally compatible phone will drive cost-savings through reducing the number of SKUs in an OEM s portfolio. 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. 6

7 ALIGN FEATURES AND FUNCTIONS WITH CARRIER AND CUSTOMER PREFERENCES Our research has found that, if an OEM can better address the core needs of users, e.g. improved battery life, IoT connectivity, and cross-carrier compatibility, it will help enhance the attractiveness of their devices from customers and carriers. This is especially effective in highly fragmented markets such as China, where both sales volumes and average selling price (ASP) are expected to increase. On the other hand, OEMs could easily be replaced if they only strengthen certain hardware functions of mobile phones. Instead, mobile OEMs should learn from other platform enterprises to build software application-centric ecosystems to better increase user loyalty. For example, Amazon has launched Amazon Echo as an access to its smart home platform. Through voice interaction, users can control the connected smart devices through Echo, to adjust lights and temperatures, control television, monitor devices, as well as to automatically place orders on the Amazon website. Meanwhile, Echo is also an integrated platform where developers can familiarize themselves with the Echo system for developing smart hardware and products. In the smartphone industry, Apple s ios has established an effective ecosystem and brought in sustainable profits for the Apple Store - hence many latecomers are trying to follow suit. Some Chinese smartphone OEMs have also launched software stores and cloud platforms based on Internet apps. For hardware, they have tapped into wearable devices and interconnectivity with other smart devices. However, the indication is that most of these inventions are still merely at marketing demo levels, and lack real disruptive innovation. Nevertheless, one of the key success factors for smart phone OEMs to win in the future remains their ability to capture and maintain users in the ecosystem. The breakthrough battle for tier- 2 and tier-3 mobile brands has started. In this constantly changing mobile industry, they are facing both tremendous opportunities as well as formidable challenges. Success hinges on whether they can deploy the right strategies that are centered upon customer experience and ride on the latest technological trends of the mobile industry. The original byline article was published on The Economic Observer on January 9,

8 CONTACT THE AUTHORS Robert Hah Managing Director Accenture Strategy, Greater China Benjamin Pan Director Accenture Strategy, Greater China Marco Siu Manager Accenture Strategy, Greater China ABOUT ACCENTURE Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions underpinned by the world s largest delivery network Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 459,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. The company has been operating in Greater China 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 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, or visit Copyright 2018 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 8