SHENZHEN, China – Chinese companies who are seeking to upgrade from ODMs manufacturing non-branded boxes to designers of branded products will write the next chapter in the story of China’s electronics industry — but only if they can make the leap.
The buds of such transformations are visible everywhere here, in a city that has come to be known as the factory of the world.
A growing number of traditional design houses and white box vendors –who design products according to customer specs – are now trying, on the side, a new “branded” strategy for their new smartphones and tablets.
While success is hard to come by (these initiatives could easily disappear in a matter of months), many are resilient enough to re-emerge again under different brands.
Xiaomi, a wildly successful smartphone brand here, may be an exception to the rule. Started by Lei Jun, a key investor in the early Internet scene in China, Xiaomi demonstrates how a no-name brand in China can quickly rise to one of the top brands – a la Apple –through the heavy use of the Internet, focused brand marketing and a charismatic leader.
Xiaomi’s success hasn’t escaped the notice of China’s telecom equipment behemoths like ZTE and Huawei, who had been content as handset leaders on the business-to-business market.
Next, enter Nubia, a sub-brand created by ZTE just a year ago.
Ninety percent owned by ZTE, Nubia is a brand still virtually unknown in the West. But Nubia-branded smartphones are expected to find their way into the U.S. market later this year.
For an exclusive interview with EE Times at its headquarters here on Tuesday (March 27), a young, tall, friendly Ni Fei, CEO of Nubia entered a conference room, suited up in Adidas gym gear, with a spring in his step. Fei is in every sense the polar opposite to the senior executive you’d expect to meet at a stodgy Chinese telecommunication company like ZTE.
Ni Fei, CEO of Nubia
Something of a celebrity in China, Fei is 37 years old. Nubia’s Z5, the company’s first smartphone, seems to have been designed exactly for someone like Fei. Nubia’s “target audience” is said to be young, rich, tall, urban, its individuals craving recognition as taste-makers and disdainful of the less hip buyers of iPhones or Galaxy handsets.
Permit me to regale you with a relevant joke. Two Russian businessmen meet and talk:
"Thanks, I got it in Paris for $2000"
"You fool, you could get the same tie in Moscow for $4000!"
The point of this story is that the 'tall and rich' young people seek products that confer status on the buyer and therefore high price is not an issue. I don't think it makes sense but I suspect that's the target audience of the Xiaomi smartphone.
Great coverage, Junko! It's rare to see any in-depth interviews with these sorts of folks.
It will be interesting to see whether ZTE will make any smartphone silicon like Huawei. And I wonder, what's so cool about the Xiomi phones.
Generic competitors are always forced to go to the lowest price; branded products have the potential to charge a premium for the benefits they offer. The Japanese saw this when they moved from selling "cheap" products to offering premium electronic and automotive products. It seems inevitable that the Chinese will try do do the same thing.
For companies like ZTE or Huawei who are trying to establish their own brands on business-to-consumer market, IP is the least of the tricky part. Because they have them. Trickier part is to learn how to do marketing effectively. Following Apple's playbook isn't it, because they are no Apple.
I think it should be predictable that the ODMs in China take the "next step." And become OEMs in their own right. If anything, I would ask, what took them so long?
The tricky part here is going to be using IP of someone else, in their own branded products. It's not so easy to divorce oneself from everything one learned yesterdy, as an ODM, even in the best of circumstances.
FYI I am from Asia. Born,raised, educated in Asia. Got all my 3 EE degrees from Asia. Worked in 3 major economies in Asia. and now working in Asia. Use a Samsung S3 phone. Talk about assumptions :)
I didn't say Asia don't have any talent. If I said so, I would be talking about myself :). You are putting words in my mouth.
Now to simplify matters, What I said was if any new company/market has to get established, it has to provide a product at a lower price+ higher quality or atleast as good as the existing product/market. Take the case of automobiles. When Japanese automobile makers disrupted the US market/GM/Ford it was the lower price+good quality did the magic. Or take the example of Samsung. Samsung disrupted Japanese Electronics vendors because they provided high quality products at a LOWER price than Sony/Sharp and other Japanese companies. Same is the case with Xiaomi ie they made a good quality phone much cheaper than Apple/Samsung.
If a newcomer wants to charge me the same price as Apple/Samsung then they better have something radical which in this case, they dont. So myself and people with common sense will continue choosing established smartphone vendors like Samsung/Apple/Sony instead of Nubia.
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