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Chinese Phones Go from Adequate to Adored

Chinese_Indian_markets_lFlipkart started the pre-sales launch of Xiaomi’s Mi 3 smartphone earlier this week, and the Indian online retailer presented eager buyers with a countdown timer to create suspense and desire for the product. Such marketing theatrics aren’t unusual for key flagship smartphones from major global hardware manufacturers. It’s clear that Xiaomi is now included among them.

The Mi 3, launched in China in December 2013, has been such a successful product in other Asian markets that this aura of ordering urgency isn’t entirely unjustified. Lin Bin, Xiaomi’s co-founder, said yesterday that he’s so positive about the company’s prospects in India that he believes “Xiaomi could be bigger in India than in China”. This outlook is very optimistic, but the Mi 3 is expected to sell well despite its relatively high price of 14,000 rupees ($232) and lack of dual-SIM (a much demanded feature in India), and could be set to challenge high-end products from established brands like Samsung.

As CCS Insight discussed last month (see Smartphone Market Dynamics in a Shifting Landscape), Chinese manufacturers are now using the scale and success they have been enjoying locally in overseas markets. The new trend is a shift toward premium products, rather than offering price-competitive devices that are simply “good enough” for the lower-end price band of most markets. Chinese brands are rolling out innovative, well-designed, highly demanded Android smartphones that are being listed among the top flagship products in the industry.

The past few months have seen excitement build about new high-end Chinese phones such as the OnePlus One, Oppo’s Find 7 and Huawei’s Ascend P7. Industry dynamics have changed considerably and the momentum that these players are currently enjoying will present a growing challenge to Samsung as the dominant Android smartphone maker, altering the current near-duopoly in the market. The fact that relatively unknown brands such as Xiaomi and Oppo are producing premium-quality products on par with those of globally established consumer electronics companies is also of significant concern to Sony, HTC and LG.

Chinese companies have their eyes set on gaining market share in Europe and North America. CCS Insight believes that they will face challenges in establishing their brands in many Western countries (see Huawei Device Ambitions Exceed Market Reality outside China), but several of these manufacturers have made moves that should help to establish their names in new markets. Lenovo’s acquisition of Motorola Mobility from Google earlier this year is one example, and Xiaomi’s recruitment of former Google executive Hugo Barra last year is another. Xiaomi has wisely been establishing the Mi brand, owing to the general inability of many to pronounce Chinese names. This is a seemingly small gesture to the market, but it’s evident that the company understands the need to be flexible in addressing Western cultures.

This rather sudden rise to the premium end of the smartphone market is one of the more notable industry disruptions. Building a brand takes time, and Chinese competitors will have to fight current consumer perceptions. However, if India’s market in the first half of 2014 is any indication, established smartphone brands in Western Europe and North American will soon be competing against Mi too, among others.