What’s preventing Chinese phone manufacturers from breaking into Western markets?

February 2, 2014

    meizu-mx3-aa-9-2000px

    If you want cutting edge technology at a fraction of the usual price then you can find it in the Chinese market. We saw a range of impressive smartphones, phablets, and tablets from Chinese manufacturers like Lenovo, Huawei, ZTE, and Alcatel at CES this year. Apart from fast processors, big HD screens, and buckets of battery life, do you know what all these flagships had in common? No definite release details for the U.S. and most of Europe.

    What’s the problem here? Is the carrier oligopoly shutting them out? Are patent disputes a problem? Is it just down to a lack of effort and marketing muscle?

    Not for you

    Alcatel Onetouch Hero Hands on 2000px

    Casting an eye back to CES 2013 reveals a similar pattern; a wave of impressive Chinese smartphones that caused a few raised eyebrows in the tech press, but never landed in the West, or touched down late and in a very limited fashion.

    TCL-Alcatel was the perfect example this year unveiling the One Touch Idol X+ with a 2GHz MediaTek octa-core processor, 2GB of RAM, a 5-inch 1080p display, 16GB or 32GB of storage, a 13.1MP main camera, a 2MP front camera, and a 2,500 mAh rated battery. That’s impressive on paper by any standards and do you know what the R.R.P. on that phone is? $250.

    I’ll just let that sink in for a minute. Two hundred and fifty dollars.

    You may immediately think that build quality will be poor. Actually the design is pretty good; it’s only 7.9mm thick, exactly the same as the Galaxy S4. Check out our hands-on look to see for yourself.

    There was no news about a U.S. release for this phone; instead we heard that Alcatel’s last flagship, the Idol X would be landing on Bell and Virgin Mobile in Canada. Americans can buy it direct from Alcatel’s website. The first European market to get the new follow-up, the Idol X+, is going to be Russia.

    Those pesky carriers

    verizon-ces-2013

    In the U.S. and much of Europe it’s the norm to pay nothing, or a seriously reduced upfront fee, and be locked into a two-year contract to get a brand new smartphone. You’ll typically end up paying more over the length of the contract than you would for a SIM-free handset, but your service is mixed in and it means you can get expensive phones without having to save up. This system gives carriers a lot of power.

    If OEMs want U.S. carriers to stock their wares there’s often an expectation that they’ll give them some sort of exclusive deal, or that they’ll create a special version. Many manufacturers start out building carrier relationships by allowing the carrier to put their branding on the device, HTC did this with T-Mobile. Verizon built a strong Droid brand with Motorola and HTC. Samsung’s original Galaxy S was branded ten different ways in the U.S. to satisfy all the carriers and there were some subtle and some fairly major differences between the variations.

    When consumers want your device, as with the iPhone, and you’ve built some bridges with carriers, like Samsung and HTC did, then you can expect them to be less demanding. They’ll throw some marketing weight behind your flagship and give it shelf space, although they’re always going to want a decent markup.

    Are people asking U.S carriers where they can get the Lenovo Vibe Z, Alcatel One Touch Idol X+, or the Huawei Ascend Mate 2? Obviously not. You need to offer carriers something to sweeten the deal and work on marketing to build brand awareness. If a company like Sony is finding it hard to break onto the radar of U.S. carriers then you can imagine how tough it might be for lesser known Chinese OEMs. You may even wonder if it’s worth their time and effort.

    Where’s the market?

    Lenovo Vibe Z first look hands on

    There’s a reason that analysts keep going on about emerging markets. The smartphone market in the West is saturated. Take a look at this recent IDC report and you’ll see that Huawei came third and Lenovo came fifth in overall worldwide smartphone market share for 2013. TCL-Alcatel and ZTE will undoubtedly have made the top ten. Then there’s Xiaomi and Oppo.

    All these manufacturers are doing pretty well out of the Asia Pacific market and many of them have made inroads in Latin America and Eastern Europe. There have also been some moves into India and Africa. That’s where the customers are right now. So, why do they want to break into Western markets?

    Low prices and direct sales are commonplace in other markets and there is a big difference between market share and profit. Taking the two most extreme examples in Q3 of 2013 the average selling price for a TCL-Alcatel handset was $45, the ASP for the iPhone was $581 (the lowest it’s ever been, having since climbed back up to $637).

    The potential for profit is an obvious driving force, but even if Chinese manufacturers can build bridges with carriers, there are other obstacles to overcome.

    Deck stacked against them

    Huawei Ascend Mate 2 Phablet Hands on AA -2

    We don’t think the patent war is a major barrier here. All the big smartphone manufacturers are suing each other; most of the big Chinese players are engaged in lawsuits amongst themselves. Huawei just settled with the Apple and Microsoft backed Rockstar consortium. This might factor into the cost of doing business in the U.S. and Europe, but it’s not going to block entry.

    What have been far more damaging are the repeated spying allegations leveled at Huawei, ZTE, and Lenovo. It all seems pretty hypocritical in light of the torrent of revelations about how the American and British governments have been spying on everyone, but mud-slinging has an impact. Huawei has given up on the telecommunications equipment market in the U.S. and it was actually banned in Australia, the fact that’s separate from its smartphone business won’t register with a lot of people.

    All the Chinese manufacturers accused have been quick to deny the allegations, just as Apple and Google were quick to deny any involvement with PRISM. You still have to figure that the idea of Chinese government involvement with these companies is off-putting for many. It’s another hurdle to jump if they want to attract customers and it’s another disincentive for carriers to strike deals with them.

    Google opens the door

    Moto G Outdoor Portrait AA 1600px

    There’s been plenty of talk about Google’s influence on driving down smartphone prices with the Nexus range and through Motorola with phones like the Moto G. Google has definitely shown that direct sales to consumers are another way to go, if the price is right. If people are prepared to buy direct from them, then Chinese manufacturers can gain a foothold that way.

    Then there’s the news that Google will sell Motorola to Lenovo. This is going to be a really interesting test case. The first question is whether it will be allowed to pass. Lenovo was blocked from buying BlackBerry by the Canadian government, reportedly over national security concerns. Early indications are that the deal will go ahead, but not without some concessions.

    Will Lenovo inherit Motorola’s existing carrier relations? Can it buy its way into the U.S. market with this move and start selling its own hardware with the Motorola logo? Lenovo could be the first Chinese manufacturer to make a serious breakthrough in the U.S. smartphone market.

    The truth is that regardless of the branding on your smartphone, most, if not all, of it was probably manufactured in China. As Chinese manufacturers get better at producing premium hardware, cutting the middleman out of the equation could be inevitable, and it will mean cheaper smartphones all around. Some people may balk at that prospect, but voting with your hard-earned cash is what will count and who doesn’t love a bargain?

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    Comments

    • Jayfeather787

      I actually like Chinese phones. I just want a Snapdragon processor in them, and it would be perfect.

      • Ray

        Take a loook at the Mi3, its a steal and I LOVE the phone design. Imo, it looks like the most premium phone on the market, not saying it is, but just design of the hardware.

      • Leon

        Exactly. Mediatek, K3v2, K3v3 etc processors discourage me from buying any Chinese phone.
        App compatibility with Snapdragon processor are pretty good, that’s why I choose them.

        • Shubham Singh

          Exactly mediatek processors are to be blamed here they have issues and they do not age well.

          • AA :P

            “they do not age well”
            just curious , what do you mean by that ?

            i have a canvas, running fine, as it was from day 1, since past 8 months now.

            • Shubham Singh

              Performance of Mediatek processor is not comparable to the same frequency and issues like performance taking a hit when the phone starts to heat are some of the issues that where there. they are okay but not the my first choice

            • AA :P

              we shouldn’t be comparing frequencies per se but overall performance. why pit only frequency ? the overall performance seems to be nice. besides, I have installed every game available out there for mmx and pushed it to the max, it just handles it fine. I dont get it.

        • Rushan

          Try using them, you wont’t find any difference onless you teardown

        • AA :P

          mediatek isnt all that bad, except for game compatibility – some of the games dont run because the app developer did not chose to optimize it!
          there’s tegra optimized games, so if the developer really wants to reach out he could do it. unfortunately, we might not see significant inroads, because piracy is high around in asia. so :|

          but i do feel that mediatek simply has a bad name or thought of as a poor substitute. I root for mediatek and for choice. we dont want qualcomm to be another intel and dictate high prices down the line.

        • wurldfamuz

          Check out the Maxwest Z50 it has a 5″ disp with a qualcomm quadcore processor, not sure if its snapdragon.

      • AA :P

        quite frankly, mediatek SoCs are just okay. they run fine. the other components that go in are actually the problem – the screen is almost alwas poor, so is the build quality. other than that – the only other issue is that of updates, larger vendors tend to push it.

      • bakakun028

        Performance issues aside. They do not release source for their processors. So no development. …

        • Jayfeather787

          I was going to say something about that too. That is a major downside for me.

    • greeninja

      I really like the oppo brand. I bought a Find 5 and loved the quality. My only qualm with chinese phones is the lack of LTE and the usually small battery. I am waiting to see the Find 7, which sounds like a killer phone. Yes it may be 500-600, but considering note 3 off contract is 729, its really not that bad.

    • Groud Frank

      When they start pushing Nexus-level updates to their devices I’ll give them my money.

      • Ray

        Depending on the phone, for example the xiaomi line, you can get nexus-like updates. And depending on how well the phone sold+bootlockers,etc. there is great community support.

      • greeninja

        Yes, oppo encourages you to root and try new OS, plus they had monthly updates or you could be on their beta and get weekly updates. Plus you could recommend changes and if enough people agreed they would try to incorporate it. The N1 also comes preloaded with CM10.1 you could boot into or oppo’s color OS. Pretty much whatever you did to your phone they would still honor their warranty.

      • Arturo Raygoza

        no sir its racism *rolls eyes*

    • Patrick Smithopolis

      How good are mediatek processors?

      • Jayfeather787

        Not good.

      • Ray

        Good enough, not at the bleeding edge or the fastest or most powerful. However, its decent enough, most users will never see the difference in performance, but will notice the sharp drop in price.

        • zaikatanox

          I think 6589 has an acceptable performance, whereas 6592 probably has a performance somewhere in between the S4 Pro and Snapdragon 600 SoC.

          They’re getting better, but one always needs to keep in mind that they won’t ever beat Snapdragon. Flagship Qualcomm phones are easily twice as expensive as MediaTek ones. I guess you get what you pay for. If you stick with only those based on the Snapdragon chips, you can easily find some really nice and powerful phones coming from mainland China.

          Some Chinese brands (such as Xiaomi, OPPO, Vivo, ZTE, etc) are producing very powerful phones that are durable and acceptable in built quality, but I guess you never heard of them since they mostly won’t make it to the Western markets.

    • asdf

      how about racism?

      • AA :P

        i find there’s racism against mediatek SoC. people talk about it like its some kind of a disgusting leech. the phones pretty fine, okay – they are built to a spec. but pricewise they are great (except for nexus devices, with which it cannot compete, but nexus is cheap only in USA). but otherwise, these phones running mediatek SoCs run just fine

      • Arturo Raygoza

        who said anything about race? their phones suck and we don’t necessarily need them. we have our phones here with american brands even if they are made in other countries. but to say its because of race is stupid and holds no fact.

        • MasterMuffin

          someone got really mad because of one comment…

          • Arturo Raygoza

            nah bro, its that I always hear that crap, can’t critisize chinease poor quality products because then you are a racist lol

            • MasterMuffin

              Not all Chinese products are low quality (OPPO for example). And often those who “critisize” Chinese stuff don’t say any arguments other than “It’s Chinese” meanwhile 90% of the tech in your house is Chinese

      • MasterMuffin

        Yup. “Ermahgerrrd those communist Chinese eat babies and stuffz won’t buy that shet”

    • sammybm1

      Recent visits to local name brand storefronts is interesting. We’ve been to T Mobilre, AT&T, Verizon and Sprint owned stores. The one common denominator seems to be a lack of supply of phones unless you want an Iphone. They all seem to have plenty of Iphones in stock. Most of the sales reps were tripping over themselves to push the Iphones and appeared discouraged when you were inquisitive about androids. My wife ended up ordering an LG G2 (not in stock at the store or anywhere locally according to rep) that was never shipped by the shipping date due to supposed backorder. My wife contacted the carrier rep who encouraged her to pick a different phone but she insisted the carrier honor her purchase or else we would switch carriers. Within 3 minutes the rep found her one locally and my wife had it within an hour. Stores seem to have unlimited Iphones, limited Samsung and few choices otherwise. I think the ability of the Chinese to break into the US market will be poor unless they figure out whose hands to grease with $ along the way.

      • T.J.

        We went to Best Buy Mobile for new phones mainly because we were on the fence about whether or not to switch to Sprint from Verizon. I didn’t want any bias towards one or the other. My wife got the HTC One and I went with the Moto X through the Motomaker. They seemed to have a few colors of the One in stock and some LG G2s as well. Try there next time. Not to promote Best Buy or anything.

      • AA :P

        carriers are the curse – it’s pretty apparent. it’s nice for whom it works well. but the carriers win no matter what choice you make! it’s good that T mobile and others are breaking that model

      • Arturo Raygoza

        its racism!!! lol /sarcasm

      • Cakefiend

        > Most of the sales reps were tripping over themselves to push the Iphones
        and appeared discouraged when you were inquisitive about androids.

        Makes sense: mark-up on iphones is huge.

        • Jason Yuen

          That makes sense. But at least they’re trying to sell it to you. McDonald’s has a >1000% markup on their soft drinks. That’s not even an exagerated number. It’s actually closer to 1200%. Ever notice how they slyly assume you want a coke with your order if you forget to mention what drink you want?

      • Max_says

        And when it comes to android phones…they push samsung over other companies.

      • jakebarton1k

        One U.S. source for the new ALCATEL Idol+ Octacore Smartphone is — TabletMaxx – which also offers the new HiSense X1 – 6.8″ Mega Phone with HD screen and Snapdragon 800 CPU that also Premiered at CES 2014 — this site also offers some of the best priced, solid performance Android tablets currently on the market… worth checking out.

    • Guest123

      1. they generally don’t support the necessary frequencies/bands
      2. those that do accomplish #1 usually price their devices as has as LG, Moto, etc. . . too high.
      3. those devices that manage #1 & #2 usually produce poor quality products that fall apart quickly. . .
      4. none of them update their devices worth sh!t
      5. and they generally produce a poor skin on android that makes updates even more difficult
      6. then their is the SoC that aren’t dev friendly.

      So, why would I bother paying as much or more than a nexus?

      • Andrew White

        Up untill recently the hardware just didn’t cut it. 1GB of ram, 720p screens or less and skins that lacked any western influence or imagination.
        Connectivity….well no 4g was a given. Why would companies like Huawei even bother when their own market is huge.
        If all I could afford was another budget unlocked phone, then I would still buy on-line locally through a reputable supplier with warranties. Still buy an established brand that may be only slightly more expensive and is compatible with my 4g (LTE) pre or post payed network.

        • AA :P

          galaxy grand or others too did not have 720p. also, chinese OEMs had 1gb ram/ 720p for more than a year now.
          many of these oems did not bother skinning android – they just went for vanilla android
          4g is a good reason – mediatek based phones sold in asia because 4g connectivity is limited
          the US model of carrier subsidy is severely inhibiting for the OEMs / chinese companies

      • Arturo Raygoza

        no no no, get your facts out ta here. its due o raceism lol

        • Cakefiend

          I’ve noticed a bit of a theme to your comments.

          • On a Clear Day

            That’s funny!

    • trwb

      How about we start making cell phones and other products in America?

      • gommer strike

        Motorola already tried that(to a limited degree). And with the sale to Lenovo, I don’t expect the Moto X customization factories to remain around much longer.

        When you say “start making cell phones in America”, what you mean is a large portion of the assembly and so on. You are not going to be changing where you’re getting your source parts from – all the chip fabs(for the processor, memory and other crucial parts), will remain offshore, as well as the camera hardware and almost any part of the phone you can think of.

        Apple’s been talking about “wanting to” bring some of this stuff onshore. Maybe it’ll happen soon, but we don’t know.

        • AA :P

          apple should be able to be in a position to do easily (build/ assemble it in USA).
          they have tons of cash, But i presume they are used to easy money or easy to push third party assemblers in china for as cheap as possible.

          • trwb

            I prefer Android but if it’s going to be Apple than all power to them. I know it’s going to be challenging but America needs a mobile product built and assembled here.

            • Ray

              Because if its going to be built in the US its not going to be the revival of the dream factory job, nor is it suddenly going to be the return of “good old american” products. We (most people, and I think most consumers) want competitive goods, manufacturing in the US is just too expensive, even at minimum wage.

            • trwb

              I would pay hundreds of dollars more no problem for a phone totally made in the US to support my fellow Americans, rather than buy a device that directly supports a foreign govt

            • Ray

              /sigh…. globalization will people outside of the US as well. The US already has enough help as it is.

            • gommer strike

              That’s great of you, but would everyone else feel the same? If memory serves me Motorola did indeed showcase some form of ad where they said the phone is made in the USA. But somehow that didn’t ignite a huge following amongst North Americans to get the Moto X over say an iPhone(which everyone by then knew it was assembled in China).

    • apicin

      伤心啊,没想到G+上全说的是中国的有间谍程序~~

      • najiy91

        can u speak english?

        • Arturo Raygoza

          racist! how dare you ask a question !

          • najiy91

            no racism intention.but almost all readers speaks same language.

    • Arturo Raygoza

      most american phones might be made in China but there’s quality control and reputation as well as innovation from that american brand.

    • Android Developer

      Anyone knows how good are they in terms of OS updates?

      I also wonder if anyone here bought a Chinese phone and could tell his/her opinion about it…

      • http://webweenie.blogspot.ca/ Stephen A.

        Isn’t the CyanogenMod Phone made by Chinese manufacturer? I’m sure they’re very good quality as their factories do make the iphone and other phones for the Western Markets.

        • Android Developer

          you probably mean Oppo .
          What about other companies?

          • http://webweenie.blogspot.ca/ Stephen A.

            I don’t know if Hawei (sp?) is in America, but do believe they sell some hardware in Canada. Course in America they tend to mistrust their routers, don’t know if that carries through to their phones as well.

            • Android Developer

              I meant, do the other Chinese manufacturers update their phones’ OS ?

            • http://webweenie.blogspot.ca/ Stephen A.

              No idea

            • Ray

              Not many, so be careful, but you’ll be safe with Oppo or Xiaomi. Both have ready and steady updates. I have no idea about others. Lenovo,even though its chinese, will probably have as good as LG/HTC updates. Meizu, also will probably offer good updates. Essentially look for chinese phone companies that have a well developed custom OS, they’re more likely to actually update their OS since they’ve already invested quite a bit in it.

    • thartist

      Overall? no brand recognition nor marketing for starters, no Snapdragons, always just cheapo unknown-maker internals, huge screens with low specs, bizarre spec compromises like 2ghz octacore 5 inch 1080p but 2500mah battery, me-too ui designs everywhere, no product-brand identity to speak of… the list can be so long.
      Overall they are just bizarre and don’t have a clue what they are doing.

      • Ray

        1. “cheapo unknown-maker internals”, not sure what you’re basing this off of. MTK is a known maker of SoCs, they’re reliable but simply not the best. Its a compromise on cost-performance, which many of us are willing to make.
        2. “me-too ui designs everywhere”, to some degree I guess you’re right? A lot of the UIs we’re seeing now are iOS7 reminiscent, but isn’t that how design generally works? Looking at the FlyMe UI, its similar to apple’s, but still looks great. MiUi has a great style of its own. Compare that to the oh so outdated TouchWiz, or outdated Moto (w.e. it was).
        3. brand recognition, I think that’s entirely correct. No one knows about asian phones, and thus their prices, because the carriers don’t hear about them from customers, and customers don’t ask about them because their carriers don’t promote them… Kind of a catch-22. Alcatel/TCL has tried to break out of that with the Iron Man 3 promo, and Oppo is starting to get their PR together.
        Hope what I said made sense.

    • EMILY

      I think except for trying to enter in western market if the Chinese concentrate to explore the Asian eastern market like India, Pakistan , japan, Malaysia ,Bangladesh ,Nepal ,they will make more profit than ever .To be honest there is an indirect racism goes on in western society. No one can see it but once you are there you can actually feel it .We don’t need western market . The eastern side is much densely populated and if we can develop this section we can easily discard the western market . Market is built on population and Asia has a lot of it .

    • Dimitar Gospodinov

      Americans still think the iPhone is the master of all phones…so yeah…

      • Sebastian Nuñez Del Prado

        no need to generalize, I am American and a Proud owner of a Note 2. There’s just a lot of ignorance here.

    • Vishal

      Everyone is complaining about Mediatek and I am too. But what I’m complaining about them is their lack of openness! And even if some MTK processors’ sources do come out, the manufacturers refuse to /don’t bother to release blobs of other hardware.

    • chinadude

      lol,with one bzilion people you dont need to care about some tiny europe

    • Shark Bait

      I would just rather buy off a western brand, shame the only one left is apple!!

    • EvenInTheDarkestHour

      So…the major factors are greed/control on several levels, Korea, Apple, and patents. Then throw in build quality issues, perceived or otherwise.

    • koprty

      People need to stop buying from carriers. They say carriers subsidize phones, but if carriers actually subsidized phones then they’d make losses rather than profits. Obviously carriers dont subsidize phones. Just buy a Nexus (or an Alcatel, I suppose) outright and unlocked then shop around for the cheapest rates. I end up paying around $5 per month.

    • On a Clear Day

      Simon you have a typo …”There have also been some movies into…”

      Question for the fellows (and the one or two gals out there) who are reading these blogs.

      It is of course a known fact that most of the phones and computers and _____ (insert here whatever type of tech you wish to list) – is manufacturer in part or whole in China and if the sale of Motorola to Lenovo goes through, followed shortly thereafter by their closing down the plant in Texas, that part will be there too (Unless Lenovo and Google in deference to kissing the ass of the politically correct BS Bull agree to keep it there).

      The question I have is this. Do you really want your phone, or computer built by a company – which is subject utterly and completely to a totalitarian regime that has no respect for life, liberty or the pursuit of individual happiness because it is a totalitarian, collectivist society that thinks we should all be subject to its will – someday – do you want to help it in anyway more than we already are by choosing to take your support from brands and companies that operate in the free world?

      Looking the other way and ignoring the malevolent and repressive nature that exists in Communist China may enable us to enjoy cheap, high powered phones – but as always there is no such thing as a free lunch. There is a price to be paid that will come due when you deal with the human equivalent of the Borg in today’s world.

    • nishantsirohi123

      i hope t-mobile is able to get the un-career thing running. In india all phones are sold unlocked, people pay for the entire device , and careers have only the call and data plans to make money
      and actually this helps in stiffer competition

    • Hellz

      i live in EU and here chinese phones are sold. they are nice, they look good and work pretty well. only problem is they break. a lot. 3 prestigio phones 4 huawei phones and 1 gigabyte phone were broken(mostly mechanical issues). since they were sold unlocked, sim-free from different retailers repairs were done slowly or not at all. some of devices were more on repair then used until their warranty ended and people were left with broken phones. for now atleast, i still believe in brand name manufacturers and plan on buying just their phones. for now.

    • Data

      It’s all about reputation and marketing. Many people get a negative impression when they hear the name of a Chinese OEM.

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