Sam­sung strug­gles as com­pe­ti­tion mounts in China

Financial Mirror (Cyprus) - - FRONT PAGE -

The mar­kets might be trou­bled by the mas­sive nose­dive Ap­ple Inc. stock has taken in the past 6 months – a 10% plunge, to be ex­act – but as the say­ing goes, it could al­ways be worse. And for Sam­sung Elec­tron­ics Co., it most def­i­nitely is. In the cut­throat smart­phone arena, the com­pany’s Gal­axy prod­uct has not been de­liv­er­ing, to say the least, and wan­ing de­mand has led to a 16% fall in the share since 2015 com­menced. The com­pany’s stock lost $60 bln since this year’s peak and con­tin­ues to drop with each pass­ing week. The less-than-stel­lar per­for­mance of the Gal­axy S6 has led to a re­cent price cut, which is rather un­usual con­sid­er­ing it launched only four months ago. In the UK, the S6 now sells for GBP 499 with the hopes of over­com­ing dis­ap­point­ing, and quite un­ex­pected re­sults. De­but­ing to rave re­views, the S6 had a re­stricted sup­ply, which, in turn, led to un­sat­is­fac­tory sales.

So, who is chip­ping away at Sam­sung’s earn­ings? It started with Xiaomi and Huawei, who have since taken up a much larger slice of the smart­phone mar­ket and oc­cupy the top two po­si­tions in China’s mo­bile mar­ket for Q2 (with Ap­ple’s iPhone in third place and Sam­sung lag­ging fifth).With the re­cent an­nounce­ment that Xiaomi is plan­ning to build its own pro­ces­sors as early as next year, the Korean gi­ant will most likely con­tinue to lose mo­men­tum. How­ever, as of late, new, even smaller and more ob­scure play­ers have en­tered the ring, si­mul­ta­ne­ously dam­ag­ing Sam­sung’s al­ready sub­par per­for­mance, and rewrit­ing the rules of the in­dus­try. One such smart­phone brand is Vivo. If you were to ask about it out­side of China, you will most likely be met with a re­sound­ing si­lence, but this lit­tle en­gine that could is mak­ing a name for it­self on its home turf. Ac­cord­ing to Canalys re­search, Vivo’s mar­ket share took a gi­ant leap from 4% a year ago to 8% by the end of June 2015. Vivo took fourth place in the top five rank­ing men­tioned be­fore, and its in­cred­i­ble growth graph is some­thing to be­hold. Vivo’s model can also be seen with Oppo, another Chi­nese smart­phone maker that is stay­ing close to its roots and find­ing do­mes­tic suc­cess. What is the se­cret for­mula for these com­pa­nies’ growth and how have they been able to push Sam­sung so bru­tally out of the lime­light? Their sales have fo­cused ex­clu­sively on smaller cities in China, and have been com­pletely re­tail ori­ented, for­go­ing the ubiq­ui­tous ecom­merce.

Ni­cole Peng, re­search di­rec­tor at Canalys, ex­plained the rel­a­tively sim­ple, yet quite in­ge­nious method in a re­cent in­ter­view. “Oppo and Vivo have a [smaller] num­ber of dis­trib­u­tors, but these dis­trib­u­tors are ex­clu­sive to them.” In a world dom­i­nated by e-com­merce giants like China’s very own Alibaba, it seems al­most ar­chaic to rely on dis­trib­u­tors, but these up-and­com­ing brands are proof that good re­la­tion­ships (and a prom­ise of mar­gin level) goes a long way. Dis­trib­u­tors have an in­cen­tive to boost sales and of­fer bet­ter in­per­son ser­vice, el­e­ments that are cru­cial for the es­tab­lish­ment of a solid rep­u­ta­tion as a qual­ity brand. With Vivo and Oppo win­ning by a land­slide in third-tier and fourthtier cities, how im­mi­nent is their ar­rival at the real power cen­tres of China? With Sam­sung ex­pected to de­but it ph­ablet-sized Note 5 this month, the ques­tion re­mains: will the elec­tronic gi­ant be able to climb back or will it suc­cumb to its younger com­peti­tors? What­ever the an­swer, it will surely have a last­ing im­pact on the mo­bile and elec­tronic in­dus­try in China.

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