When news first surfaced that handset maker Gionee was in financial trouble, Caixin Weekly reported speculation that company chairman and chief executive Liu Lirong had a gambling addiction. Others claimed Liu spent too much time golfing – another of his obsessions – and was neglecting business.
The reality had less to do with Liu’s alleged compulsions. Instead, the story of Gionee offers new insight into just how cutthroat the smartphone industry has become.
As growth in smartphone sales goes into reverse – data from IDC suggested that shipments in China fell almost 5% to 444.3 million units last year – handset makers have been forced to up their marketing budgets to entice consumers. Huawei, for instance, has tapped Gal Gadot, the Wonderwoman actress to endorse its smartphones. Vivo has hired superstar Lu Han to be its brand ambassador, while its sister company Oppo is lead sponsor for Chinese TV’s biggest reality singing competition Sing! China.
With the top five players – Huawei, Oppo, Vivo, Xiaomi and Apple – controlling as much as an 80% market share last year, smaller players like Gionee have less room for growth. So the mid-tier handset maker splashed out on glitzy ad campaigns of its own, signing up actress Liu Tao and famous filmmaker Feng Xiaogang to make its commercials, which were soon plastered on the walls of subway stations, and all over TV and online.
Liu was “spending money like water,” says Beijing Business Today.
The focus on marketing made little impact on sales, however. As of December last year, Gionee’s share had dropped to 3.3%, ranking it seventh (Huawei led the pack, with 19% of handset sales, according to Sino Market Research). And early this year a court in Dongguan froze Liu’s stake in the firm along with other personal assets after he was sued by suppliers for falling behind in payments.
Liu admits that the company overextended itself after spending a combined Rmb9 billion ($1.42 billion) on marketing and investment over the past three years. But he hopes to turn things around by becoming an “original design manufacturer” (ODM), selling finished phones to more established handset makers, who will sell them under their own brands.
While Gionee fights for survival, another lesser-known firm has thrived under a different strategy.
Shenzhen-based Transsion, which owns the Itel, Tecno and Infinix brands, hasn’t even bothered with sales in China, but it now accounts for nearly 40% of the African market and has moved smartly into India too. In fact, as of the end of last year, it was number four worldwide in terms of units sold after Samsung, Apple and Huawei, according to IDC, although low prices mean it falls down the rankings in sales value, the Financial Times has reported.
Just over half of Transsion’s sales (about 120 million phones were shipped last year) are so-called ‘feature phones’ with a limited range of built-in apps for popular sites like Facebook and YouTube. But by keeping prices down to $100 or less and working with resellers and after-sales service partners in smaller African cities and rural areas, Transsion is locking in customers who have been overlooked.
“Around 2006, Nokia and Samsung were the biggest mobile handset makers in Africa. But being multinational companies, they were more likely to release a global product instead of customising their handsets for African users,” Sun Yanxi, an industry insider, told ThePaper.cn. In contrast Transsion is offering phones with longer battery lives, dust-resistant screens and sound with more booming bass. Other features include multiple sim-card slots and cameras that capture the darker skin tones of many of the customers. “Even though these are small innovations, they are all very practical upgrades. So African users are very supportive of the brand,” Sun reckons.
With Transsion adding its Infinix smartphone to the menu, the company has also been in the news about a backdoor listing that could make it one of the largest publicly traded handset makers in China.
According to a stock exchange filing, Transsion plans to transfer a controlling stake to a local pump manufacturer via an asset and share-swap deal that would allow it to go public on the Shenzhen bourse.
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