How Samsung and Apple got beat in China

Back in the beginning of 2014, Samsung was the top dog of smartphone sales in China, commanding 20% share in the world's largest phone market. Apple was just beginning its expansion there with 9%, which ballooned to the whopping 14% in 2015's holiday quarter. Fast forward a year, and Samsung is nowhere to be seen with meaningful numbers, while Apple's share of the all-important Chinese market slumped to 7%. 

Granted, Samsung's fall from grace in China was steeper, due to its much larger midrange and low-end portfolio that were easier to assault by local makers, yet Apple's slump there hurts way more in terms of forfeited profits, as the 50% slump year-on-year represents about $4 billion in operating income left on the table there.

So, what happened? Well, for Apple the reasons are more complex than simply local competition, but one trend is pretty visible when you look at the graph above - companies that made their first phones 5 years ago, are now occupying the largest market share chunk in China. You might not have heard about Oppo or Vivo, although we have followed them through the years, and made a few reviews of their devices, but these two went from barely visible just a year or two ago, to collectively commanding a third of the Chinese market now. What is more, while Apple circles almost all profits in the industry, next in line to make some meanigful money from phones last quarter were only Oppo, Vivo and Huawei.

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The reason, according to a Bloomberg investigation, is not only that they offer good value for money in the most popular $200-$500 segment - after all, most Chinese brands already did that. It's their push towards offline marketing that drove an immense amount of sales home, and they managed to beat not only Apple or Samsung, but also the local darling Xiaomi which seemed unassailable just last year.

Xiaomi, however, focuses on glitzy announcements, flash online sales, and targets big urban markets, whereas Oppo and Vivo focused on the rural hinterland, where a billion Chinese still live, and they aren't accustomed to ordering online. Nowadays, Oppo's phones are offered in 240,000 local electronics stores throughout China, and Vivo's handsets in half of that number. Beat that, a few hundred Xiaomi stores, or tens of Apple stores! Moreover, Oppo and Vivo offer incentives for the shop owners to sell their handsets, which range from $6-$30, plus locals have somewhere to physically turn up when there is a problem with their handset. 

All in all, it's not just the South China Sea conflict between the US and China, or the unbridled protectionism that brought Apple's slump there, but rather a good old direct and offline marketing strategy of Oppo and Vivo that's hard to replicate even for local brands.

source: Bloomberg & Statista

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