Will domestic mobile phones lose their way after defeating Samsung and Apple?

Samsung released its second quarter 2014 financial report, showing that the operating profit of its mobile phone business, which accounts for more than half of Samsung's profits, fell 30% to 4.42 trillion won (about 26.52 billion yuan). This is the lowest profit for Samsung's mobile phone business since the second quarter of 2012 (4.13 trillion won, about 24.78 billion yuan). This also directly dragged down Samsung's overall profit by 25%.

At the same time, data provided by Strategy Analytics shows that in the second quarter of 2014, Samsung and Apple still ranked first and second in terms of shipments in the global mobile phone market, while China's Huawei, Lenovo and Xiaomi ranked third, fourth and fifth respectively. Compared with the first quarter, Samsung's market share dropped from 32.6% to 25.2%, Apple's share dropped from 13.4% to 11.9%, Huawei's share rose by 2 points, Lenovo's share rose by 0.6 points, and Xiaomi's share rose from 1.8% to 5.1%.

Obviously, Chinese mobile phone companies have begun to significantly erode the market share of Samsung and Apple. There are several points worth thinking about behind this set of data changes:

First, when low price does not mean low quality, does that mean the brand is dead?

At present, domestic mobile phones such as Huawei, ZTE, Lenovo, and Xiaomi are no longer just synonymous with low prices. This is completely different from the era of feature phones in 2004. At that time, domestic mobile phones were synonymous with low prices and low quality. Now, Huawei, Lenovo, ZTE, Meizu, OPPPO, Coolpad and other old mobile phone companies have begun to adopt the strategy of high-quality mobile phones. Even Xiaomi, which is positioned as an "enthusiast" and "no design is the best design", has begun to perform art with a piece of steel plate.

Moreover, the gap between the workmanship of these high-quality mobile phones and international brands such as Samsung has been greatly reduced, and the price of the same configuration is only half of that of Samsung. When low price no longer means low quality, Chinese consumers who have no brand loyalty begin to return to rationality, and the products begin to reveal their most essential use value, and the premium ability of brands becomes very fragile.

Second, e-commerce, flash shopping, and social marketing bring about efficiency improvements and cost reductions.

Driven by Xiaomi, mobile phone companies such as Huawei and ZTE have embarked on the road of e-commerce, rush buying, and social marketing, which has greatly improved the circulation efficiency of goods, accelerated the speed of payment collection, eliminated the middleman link, and significantly reduced the overall marketing cost, inventory cost, and logistics cost, allowing mobile phone companies to focus more on product research and development and marketing, while production, sales, logistics, and distribution are all handed over to professional companies. The "rush buying" model makes it possible for all companies to achieve the order-based production and zero inventory that they have always dreamed of.

However, multinational mobile phone giants such as Samsung and HTC still rely on operators and traditional channels to sell their products in China. This undoubtedly has no advantages in terms of cost control, product turnover efficiency, and capital flow efficiency. The direct result is that they are unable to participate in price wars and can only hand over the market to domestic mobile phone companies.

Third, after the monopoly advantage of the horizontally integrated supply chain disappears.

Samsung once had the most complete supply chain system in the world, including horizontally integrated supply chain advantages such as screens, CPUs, memory, and circuit design. This also allowed Samsung to compete with Apple in many patented technologies, but this manufacturing advantage is gradually disappearing.

As the technology of Taiwan and Japan screens, domestic integrated circuits, chip manufacturing, and Taiwan and mainland foundry companies mature and grow, the manufacturing advantage brought by Samsung's supply chain advantage is disappearing. Chinese companies are no longer constrained by Samsung's raw material supply and can quickly produce low-priced, high-quality mobile phones, which has directly led to the decline of Samsung mobile phones. In addition, in terms of software, Chinese companies' learning and micro-innovation capabilities are also stronger than those of Japan and South Korea. MIUI, emotionUI, Flyme and other systems optimized based on native Android all have excellent experience. At the same time, they are also working hard to create an ecosystem similar to iOS. Samsung is still limited to mobile phone hardware manufacturing, and its Tizen system mobile phone was also stillborn.

Another deeper reason behind this may be the Chinese government's subsidies and encouragement for integrated circuits, chip design, and software development, as well as China's accumulation of experience and talent base in software outsourcing, all of which allow Chinese companies to easily overtake others at the right time.

Fourth, does model innovation VS technological innovation indicate the arrival of a new turning point?

If Nokia's death is due to its failure to seize the opportunity of smartphones and its lack of rapid and thorough self-revolution and transformation, it does not mean that Nokia does not have impressive patented technologies. Nokia still relies on collecting patent fees to make profits, and Microsoft is also eyeing this point.

The death of Kodak was not because of its lack of technological innovation. Kodak was the inventor of the digital camera and had a large number of impressive patented technologies. However, Kodak did not grasp the inevitable trend that digital cameras must be low-priced because everyone wanted to own a digital camera, but Japanese companies saw this opportunity.

At present, the rapid rise of domestic mobile phones in the era of smart phones is not based on technological innovation, but on "model innovation". This includes product research and development models, management models, sales models, marketing models, pricing models, and even future profit models (from hardware profits to low profits on hardware, and profits from value-added services). These innovations have not been closely related to technological innovation, and their costs are far lower than those of technological innovation, but they have gained a huge market.

Therefore, we have always agreed that the argument that "technological innovation" determines the fate of enterprises is correct. Chinese enterprises are using the technologies of the world's most powerful technology companies such as Apple, Samsung, Microsoft, and Nokia to produce products, but they rely on extremely low-cost "model innovation" to subvert these giants. This should be worth thinking about by everyone, because it contains a "new turning point" in the development of enterprises, which is different from the "technological innovation" turning point when feature phones were replaced by smart phones.

However, there is a serious paradox. If there were no "technologically innovative" companies like Samsung, Apple, and Microsoft, how would Chinese companies design the next generation of products? How would they know the future product direction? If the leader dies, who will continue to lead the way? This is related to the future of the entire industry! This article is just a starting point for discussion on this topic. You are welcome to express your own views.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.