Eight concerns for Chinese phonemakers entering foreign markets

Patents

Patents have always been the biggest risk for any Chinese handset manufacturer that wants to try its luck in foreign markets, especially in America. Taiwan's HTC suffered a complete decline after losing a patent infringement lawsuit from Apple that resulted in a ban on the sales of some of its products in America.

Currently, the biggest Chinese handset manufacturers in America are ZTE and TCL (Alcatel). ZTE, the fourth biggest phonemaker in America, recorded a market share of 7.6% in the third quarter and has built up a powerful arsenal of patents in the field of mobile telecommunications. And TCL, by acquiring Alcatel's handset business ten years ago, has owned or been licensed a lot of mobile patents.

Lenovo, which will finish acquiring Motorola Mobility by the end of the year, will become the fifth biggest phonemaker. It, too, has acquired or been licensed a lot of mobile patents.

According to Cheng Lixin, CEO of ZTE North America, his company receives patent lawsuits from American firms every month or even every week since 2012. On the one hand, Chinese handset manufacturers should increase investments in patent research and development as well as innovation. On the other hand, they should be ready to pay and negotiate when they should do. They should never enter a foreign market hoping to "just have a try". Should they lose a patent battle, its product would be banned from the market completely, and the whole company could be ruined by that.

Quality

Whereas in China, smartphone makers pay a lot of attention to online sales and retails, in America, 95% of the handset market is still led by telecoms carrier. In America, product testing and network access licensing is more rigorous than in China. Many Chinese phonemakers were turned down because of quality problems.

Localisation

Due to the fact that carriers lead handset customisation, and the needs and habits are different, there are less brands and models in America's handset shops. The popular products made by Chinese phonemakers in America, like ZTE's ZMAX and TCL's big-screen models, are greatly different from those for the Chinese market. Models that sell well in China might not fare well in America.

Weak interest in custom Android firmwares

Xiaomi has earned Chinese users' recognition in China with its MIUI, which is a custom version of Android and has its own ecosystem. Yet in America, most Android devices are running on the original version. The idea of "UI and ROM optimisation" has not yet been widely received by users.

Branding

Branding has always been the issue that plagues Chinese companies when they want to enter foreign markets. Originally, Chinese handset manufacturers started off by producing unbranded "white label" phones for carriers. Cheng Lixin said that when it first entered America in 1998, ZTE's strategy was to manufacture strictly according to carriers' requirements. Most of its production was unbranded white-label products.

As its brand gradually strengthened, especially after its partnership with Houston Rockets in 2013, ZTE's brand awareness increased quickly from 1% to 16%. After extending its contract with Rockets in November 2014, it also successfully entered into partnerships with New York Knicks and Golden State Warriors.

Cheng claimed that as the brand awareness booms, carriers would also want to add the brand's logo onto the products to expand the sales, so the development of a brand is a long and strenuous process.

Online sales in question

Unlike books and other electrical products, handsets in America has a online sales share of less than 5% and is growing slowly. Therefore, online sales models like Xiaomi's would find it hard to scale up in America.

Security

During its expansion into foreign markets, Xiaomi has encountered a lot of controversy in Taiwan, Hong Kong, Malaysia and India because of data security issues. How to tackle security concerns and to store users' data will affect Chinese phonemakers' oversea expansion.

Obedience of local laws and game rules

Low prices are the most frequently used weapon by Chinese firms in cracking markets abroad. Meanwhile, they are prone to ignore the quality and customer care. In regard to this, Cheng said that Chinese phonemakers should never exploit legal loopholes abroad. He added that one Chinese brand's bad records could affect the collective reputation of Chinese handsets.