The Chinese are buying 60+ million handsets annually, and this has now gotten the attention of many domestic manufacturers. There are 36 companies making handsets, leading to prices falling by 30% per annum. The domestic brands are flourishing because of their strengths in distribution – a story that was repeated by Legend in the PC business earlier. Writes the Economist.com:
Besides their grasp of Chinese tastes, the main advantage of the locals, in both PCs and handsets, lies in distribution. Whereas the global brands can outspend the locals for billboard space in cosmopolitan Shanghai, the domestic vendors have networks that reach deep into the countryside. Almost every town, for instance, has a TCL branch selling TVs; these branches now offer handsets as well.
The handset-manufacturing industry looks likely to repeat a pattern that China has already experienced in white goods, refrigerators, television sets, and many other consumer goods. First, rising incomes make a gadget affordable to millions. Next, the market booms, and companies, irrespective of what industry they originally came from, rush in. Then, the market becomes crowded, and the consequent overcapacity and competition lead to price wars that wipe out profits.