Famous for its Great Wall, giant pandas, terracotta warriors and one-child policy, there is now one more thing putting China on the map; its towering presence within the smartphone market. Accounting for 29 percent of global economic growth in 2013, it is little surprise that China is now responsible for over a third of global smartphone sales (to end users).
Whilst big brands such as Samsung and Apple continue to grow their business, the future of the market is questionable. Our data shows that smartphone market penetration reached 90 percent in the final quarter of last year, a clear signal to businesses that they need to start identifying new opportunities for growth.
Market leaders must diversify their future business growth strategies to maintain market position and increase market value. Amid fears of a saturated market for 2014, the introduction of 4G, the potential of ultra-low-end smartphones, and network transitions all play key roles in adapting to such challenges.
Areas of opportunity: beyond the cities
With over 90 percent of the Chinese population owning smartphones, we forecast that replacement rather than first-time sales will be the key smartphone driver this year. And with the Chinese government officially issuing 4G mobile licenses, much of this replacement demand will come upgrading to this latest standard.
The nation’s three operators – China Mobile, China Telecom and China Unicom – will be pushing 4G handset sales to meet their aggressive 4G sales targets for 2014. Such targets mean 4G handset demand is very likely to grow at the expense of 3G, although the average sale price of 4G smartphones is expected to reduce at a much faster pace than during the 3G launch period, enabling the 4G standard to quickly address a bigger market.
Meanwhile, looking to China’s perceived laggards may also prove fruitful for business leaders. Its three operators will need to upgrade the subscriptions of budget users in rural areas from 2G to 3G in order to complete the whole network transition. With over 50 percent of the Chinese population living in rural areas, upgrading networks could stimulate more subscriptions and demand. Furthermore, developing Chinese industry and expanding infrastructure will bring increasing access and awareness of technology to the rural population. And it is here that ultra-low-end smartphones will continue to remain popular, where budget and easy-to-use technology are deciding factors for purchase decisions.
Evolving smartphone market: changing price points
Low-end Android phones are likely to boost China’s rural market with strong demand for ultra-low-end smartphones (which are expected to replace demand for feature phones). Hardware upgrades and model refreshes will maintain steady demand within the mid-range price point.
There are fears that recovery in smartphone selling price will not last once 4G models are introduced to the mass market later in the year. The introduction of 4G is forecast to boost shares at high-end price points but this growth will soon slow when mid-range 4G handsets penetrate the market later in the year.
Early adopters will always crave latest hardware specs and branding which is forecast to drive share of price brands above CNY700. As such, we forecast a recovery in smartphone average selling price for the first half of the year, before the likely competition, market saturation and 4G price pressure drive another downward trend for the second half of the year.
Assessing potential: calculating the cost
Business leaders will need to continue to diversify for the future in order to cater for the demands of an increasingly tech-savvy Chinese population, ensuring that production capacities and labor can be expanded accordingly to cater for continued growth. As rural areas continue to be developed and industrial activity is moved out of urban areas, this will in turn create more opportunity for growth and expansion for China’s smartphone market. Development of such areas and improving accessibility to technology amongst the rural population may also enable 4G networks to penetrate these newly developed areas and expand when low-end rural markets become saturated in years to come.
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