How China’s two Unknown Local Smartphone Makers Edged out Apple in China

Oppo and Vivo has outrank everyone after elbowing Apple aside, thanks to people like Cheng Xiaoning now even while just two years ago, these companies couldn’t crack the top five in China’s smartphone market.

Tapping into her WeChat social media account to promote the brands that pay the biggest commission, Cheng runs a thriving electronics store in the rural town of Miaoxia. And for her that’s Oppo and Vivo.

Such payments escalate for more expensive handsets and reach almost 200 yuan for Oppo’s high-end smartphones while they start at about 40 yuan ($6).

“That’s why I like to introduce the Oppo R9 Plus to potential customers. Business has been perfect, actually never been better,” she said.

Oppo and Vivo came out of nowhere to upend the industry order and squeeze out former local darling Xiaomi Corp. working with the local stores that dominate sales in China’s far-flung provinces. While the iPhone’s market share at 7 percent stood at its lowest in almost three years, the labels of Oppso and Vivo graced one out of every three smartphones sold within China in the third quarter.

Oppo and Vivo employ strategies similar to and trace their origins to reclusive billionaire Duan Yong Ping. The strategy is to harnessing the spending power of rural customers away from top-tier cities such as Beijing and Shanghai.

And given the iPhone’s lofty price tag, it’s where Apple’s vulnerable. These companies courted the stores where three-quarters of smartphone sales take place and eschewed e-commerce. Sometimes retailers charge brands for in-store displays and posters and therefore Apple has been more reluctant to relinquish the retail experience to local free-agents.

“Oppo and Vivo are willing to share their profit with local sales. The reward was an extremely active and loyal nationwide sales network,” said Jin Di, an IDC analyst based in Beijing. She estimates the two were the top spenders in the past year while they declined to detail their subsidy program, she estimates the two were the top spenders in the past year. “They’re doing something different — they do local marketing.”

Apple’s and Samsung’s growth had been driven by China for years. Generating more than double the sale level just two years earlier, the U.S. company got almost $59 billion of sales from the region in fiscal 2015.

However China’s slowdown and regulatory tangles hindered growth of Apple. And a period of near-unimpeded growth in the country came to an end as authorities intervened and blocked iTunes Movies and iBooks. However, the ascendancy of cheaper but just-as-good local alternatives was perhaps most crucial. Oppo and Vivo climb further into the premium segment, the U.S. company will need an answer even as the Chinese brands’ gains have come mainly at the expense of lower-tier names thus far.

“Apple needs to offer something cutting-edge to appeal to maturing Chinese smartphone users,” Counterpoint Research director Neil Shah writes. Oppo and Vivo can use the time until then to cement their positions, he said.

According to IDC, about 34 percent of devices sold in the world’s biggest market were together shipped by Oppo and Vivo which was about 40 million smartphones in the third quarter. Their combined share was about 2.5 percent in 2012. During the same period iPhone shipments less than half of Vivo’s as it plunged more than a third to 8.2 million. According to Counterpoint, settling at roughly 5 percent is Samsung, which once led the market.

(Adapted from Bloomberg)


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