Domestic mobile phones have entered the wrong path of "cost-effectiveness"

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When it comes to domestic mobile phones, the term cost-effectiveness seems to be full of controversy:

Fans shouted that the cost-effectiveness made domestic mobile phones the savior of domestic products, allowing the poor to enjoy the experience of high-end phones, and that it was a conscientious product. The extremists among them were keen to equate the consumption of domestic mobile phones with patriotism, and shouted that anyone who belittled domestic mobile phones was a traitor to the country, which was touching.

Critics often hold iPhones in their hands and say that the price-performance ratio has led to a lack of innovation in domestic mobile phones, and that this is the culprit for the homogenization of smart phones. If this continues, these manufacturers will destroy themselves and the upstream industry chain. There is a sense of compassion in their words, and they hate their inaction and are angry at their lack of resistance.

However, in other industries, manufacturers who win by cost-effectiveness rarely cause such controversy. They are almost all praised as learning cases for enterprises, such as Toyota, which has established itself in the US market with cost-effectiveness, and Uniqlo, which became popular with its dressing room.

In my opinion, the reason why the "cost-effectiveness" strategy of domestic mobile phones is criticized is that the two giants, Apple and Samsung, have played a very obvious contrasting role. These two companies that make profits from hardware have invested a lot of money in innovation, and therefore have also reaped profits that exceed *** in the mobile phone market. This is a case that critics are very willing to bring up. They seem to want to prove that as long as domestic manufacturers can also make profits from hardware, they will have money to invest in research and development, and then they can be as awesome as Apple and Samsung. But they seem to have forgotten that before there is accumulation, why do domestic manufacturers make profits from hardware? Do they rely on sentiment like Hammer? The hypothetical *** loop is broken. This is actually a question of which came first, the chicken or the egg.

However, in this era of bubble flooding, with the influx of hot money, mobile phone companies seem to have the foundation for innovation, so why don’t they choose innovation? This is a question worth discussing.

If I were to draw an analogy, I think domestic mobile phone manufacturers and flower shops have a lot in common: the raw materials needed for the products can all be bought on the market, and what the operators need to do is to combine the raw materials in a suitable way, package them with appropriate means, and then push them to the market. Perhaps they can also rely on one or two artificial or traditional festivals to get a surge in sales.

Just as the innovation of the flower industry mainly comes from the improvement of flower cultivation technology, the upgrading of domestic mobile phones also comes from the technological improvement of the upstream industry chain. However, this technological improvement is fair to all manufacturers (you have fingerprint recognition, so can I), so even if there is innovation, everyone still looks the same. The reason why Apple and Samsung are strong is that they are involved in several key parts of the upstream industry chain, so they can monopolize and control some innovations.

Then why don’t domestic mobile phone manufacturers get involved in the upstream industrial chain?

Firstly, in a market economy, professional division of labor often represents higher economic efficiency, and it is not economically profitable for domestic mobile phone manufacturers to intervene in the upstream industrial chain halfway.

Secondly, domestic manufacturers missed the peak period of technological development, and it takes too long to start from scratch. Qualcomm was founded in 1985, and MediaTek was founded in 1997. Companies that were able to catch up with the UK and the US in a short period of time basically lived in the newspapers of the Great Leap Forward era. As for spending money to buy it? Qualcomm's market value is more than 100 billion US dollars, more than two Xiaomis. Even if you can afford it, they may not be willing to sell it because they are living a comfortable life.

Third, what if you finally come up with something in the upstream industry chain, but the market doesn’t recognize it? There are too many mobile operating systems to count, and only Android and iOS are popular. The WP system has the support of big manufacturers and loyal fans, but its market share can only be maintained at less than 5%, not to mention the various domestic and foreign OS. The investment is high, the risk is high, and there are tragic cases of failure as a warning, so these smart businessmen in China will not be foolish to rush up.

Fourth, in this era, product upgrades are getting faster and faster, and the possibility of entire categories being overturned also exists. MP3 and MP4 were once popular, and their bodies are still hot today. After decades of glory, personal computers are also beginning to decline. And tablet computers, which were born in 2010, have begun to decline in just five years. Although smartphones seem unstoppable today, no one can guarantee that they can maintain their leading status for a long time.

So we see that Apple, Samsung, Google and other first-tier technology companies are investing in cutting-edge technologies. Wearable devices, virtual reality, artificial intelligence, it seems that anyone has the potential to dominate the next era. The fact that Apple Watch sales fell short of expectations, causing its stock price to plummet, also fully demonstrates that the mobile phone business alone cannot support Apple's future.

In this context, domestic manufacturers focus on product design, packaging, and sales, which can make their size lighter and their transformation more flexible. In terms of future planning, wealthy manufacturers have adopted the most effective and stupid method: they invest money in any product that they think has development potential. To put it nicely, they are building a so-called ecosystem, but in fact, they are just putting money in multiple baskets. This is the most common method of capital risk avoidance. Other manufacturers that do not have much money mostly adopt the follow-up strategy. They do what the big manufacturers do. It is always right to keep up with the trend.

Having said so much, I actually want to make only one point. It is not that domestic manufacturers are unwilling to engage in innovation in the upstream of the industrial chain, but they cannot do so. The timing is not right and the resources do not allow it. Businessmen are for profit. Do you expect them to save China's manufacturing industry? It is better to expect pigs to fly to the sky.

Once we have a clear understanding of the market positioning of domestic manufacturers, it is easy to understand why they want to pursue cost-effectiveness.

From the perspective of the industry, there are basically no other barriers to entry for domestic mobile phone manufacturing except capital: the system is ready-made, the core components can be purchased, and the design and manufacturing can be outsourced. In today's era of hot money, capital is often the last thing that can become a barrier. So we see that whether it is software developers, video developers, or English teachers and crosstalk performers, they all want to get involved in this industry, and some people are doing quite well. In this way, this is an industry with relatively sufficient competition.

Anyone who knows a little bit about economics will know that a fully competitive industry will eventually reach equilibrium at zero economic profit. That is to say, the money you can earn in this industry is no different from the money you can earn if you put all your investment into other industries. At this time, companies in the industry have no motivation to exit, and companies outside the industry have no motivation to enter.

Of course, this is an ideal assumption. The real economic situation is undoubtedly much more complicated, but this principle illustrates the development trend of a fully competitive industry. The cost-effective strategy of domestic mobile phones is actually in line with the general trend of industry development. It allows the mobile phone industry to approach balance in advance, but it is only close, and the balance is far from being achieved. Because we see that there are still many people outside the industry who want to get involved in the mobile phone circle, which shows that this industry is still profitable. This kind of profit is not as obvious as direct profit. If you really believe in the saying that "the wool comes from the pig", I can only say that these pigs are the majority of retail investors in the capital market and investors who want to get some shares to deceive retail investors.

Next, let’s analyze it from the consumer’s perspective.

Chinese consumers are a group with serious ideological contradictions: on the one hand, consumers who have experienced the barbaric development of the manufacturing industry have the inertia of thinking that domestic products are of poor quality, and have a natural rejection of domestic products and a natural liking for foreign products. The phenomenon of tourists going to Japan to buy Japanese goods can well illustrate this "worshiping foreigners and fawning on foreigners" mentality; on the other hand, the collectivist thinking of Asians makes Chinese people have an irrational preference for domestic brands, that is, the so-called patriotic sentiment. In fact, I have always believed that those who criticize domestic mobile phones have a deeper nationalist complex. Just like those lovely fans who shouted "The national football team abused me thousands of times, and I treat the national football team like my first love", they actually have a helpless mentality of hating iron for not being able to make steel while criticizing.

Exclusion and favoritism, these two contradictory ideas may be stronger or weaker in individuals, but in today's society with diverse public opinions, the strength of these two contradictions is not as clear in the group as in the individual.

The inertia of human thinking often makes making choices an extremely difficult thing, and in this battle between exclusion and favoritism, price is undoubtedly the most effective and easiest tool to find to break the balance: since you don’t know whether to choose good products or patriotism, then choose the cheaper one.

In this regard, Korean consumers are a typical counter-example. In their consumption psychology, nationalism plays a leading role. Therefore, regardless of the price, they are more willing to support domestic products. They use Samsung mobile phones and Hyundai cars, and they are happy to use them no matter how poor the quality is. In terms of consumption, they have not developed the noble and inclusive sentiment of "everything is ours", which is really a pity for foreign manufacturers.

Another point is that compared with European and American countries, the average income level of Chinese consumers is much lower, and the lower the income group, the more sensitive they are to prices, and the more they value the marginal experience improvement brought by the unit price. Therefore, in my country, cost performance is a very effective strategy. In the European and American markets, which value experience more, even if the impact of patents is not considered, domestic mobile phones with the slogan of cost performance do not have much market. On the contrary, some domestic mobile phones with high selling prices and good experience are doing well. Therefore, it is more promising for domestic mobile phones to expand into low-income third world countries, such as India, Southeast Asia, and Africa. These countries can be explored, but of course the patent issue must be resolved first.

***To sum up. Domestic mobile phone manufacturers have captured a large market with their cost-effective strategy. They have no shortage of investment and are living a comfortable life. Investors hold shares and have no worries about no one taking over. They can cash out and leave at any time when there is another round of financing, or cheat the stupid retail investors after the listing.***There are also a large number of losers who can get a "high-end" experience with the money they used to buy low-end phones, which makes them extremely happy. Such a win-win situation has made a significant contribution to the harmony of our great country, and these companies that kill fools to help the poor can also be regarded as having a conscience.