Battle for cheaper smartphones heats up
Samsung targets India to fend off Chinese firms trying to dominate inexpensive phones
Samsung Electronics Co. is building the world’s largest phone factory in India in an effort to tap the industry’s next growth area: cheap smartphones.
After waging a decadelong battle with Apple Inc. for the world’s most affluent consumers, the South Korean electronics giant is now looking to fend off Chinese companies trying to dominate the market for inexpensive phones. That market is twice the size of the high-end market but offers lower profitability.
India is a critical battleground because it is still rapidly growing and the country’s demographics mirror other countries still primed for growth. Just over half of the global population has a smartphone, and that figure will rise to 77% by 2025, an addition of roughly two billion new smartphone users, according to GSMA Intelligence, a mobile industry researcher.
“This is the right place to have the manufacturing hub for the world,” said H.C. Hong, chief executive of Samsung Electronics in India, about the company’s new facility in India, which will be fully built in a New Delhi suburb by 2020. It will eventually make 120 million handsets in a year, or roughly one of every 13 phones in the world. Around 30% of those will be exported.
Samsung mobile executives believe the Indian market will be key to success—or failure—in other emerging markets. It needs to make a stand in India to show its hardware can ward off more budget-friendly Chinese alternatives made by the likes of Xiaomi Corp., Oppo Technologies Ltd. and Huawei Technologies Co.
Chinese brands accounted for the majority of the global smartphone market for the first time last year, according to TrendForce, which tracks device sales. That’s a jump from 32% in 2013. The Chinese phone makers have undercut the South Korean tech giant on price, while offering comparable or better features on their smartphones.
India is on pace to surpass the U.S. next year as the world’s second-largest smartphone market after China. Today, just 22% of Indians own a smartphone.
Xiaomi is manufacturing in four spots across India, with around 10,000 employees. It is trying to persuade its parts suppliers to come to India as well. China’s Vivo Electronics Corp. spent more than $300 million to sponsor India’s main cricket sports league through 2022. Meanwhile, Oppo makes around 15 million phones a year in its factory near New Delhi.
“We see India as a vibrant smartphone market, which is gaining constant traction,” said Will Yang, brand director of Oppo India.
Sarita, a 36-year-old family cook in New Delhi who goes by one name, is one of Oppo’s newest customers. She got her first smartphone two months ago and said the Oppo is a big upgrade from the Samsung feature phone she had been using for years. She can look up recipes on YouTube and video chat with family. The selfies and food photos she took on her old phone all seem blurry now that she has become used to a better screen and camera.
“In every way, my new phone is more beautiful than my last one,” she said.
None of her friends or family owns an iPhone or even really considered it because starting prices are so high. The $170 Oppo was already stretching her budget and an iPhone usually costs more than twice that price. The iPhone has just 1% market share in India in the quarter ended June 30, according to research firm Counterpoint Technology.
Samsung is spending around $700 million on the smartphone factory near New Delhi. The company’s de facto leader, Lee Jae-yong, flew into India this summer to cut the ribbon, flanked by Indian Prime Minister Narendra Modi and South Korean President Moon Jae-in.
Samsung’s Mr. Hong said its phones are fully India-made, unlike those of rivals which import some parts. For that reason, Mr. Modi has chosen to use a Galaxy handset.
To boost production in India, Samsung will shift handset production away from China, industry analysts said.
India is just one example of the competition over cheaper smartphones. According to Canalys, twice as many inexpensive phones, which are priced at $200 and below, were shipped in the first half of this year as expensive ones, priced at $500 and above. In 2013, both markets were about even.
“The global smartphone market has peaked, but emerging markets are growing,” said Tarun Pathak, analyst at research firm Counterpoint. “The battle for the next billion consumers is more important than the premium market.”