With over 870 million smartphone users* (which is still only 60% of the population) China continues to be a very attractive market for Western technology companies, from distribution to integrations. However, it is also one of the most competitive and dynamic smartphone markets. Western companies need to be realistic and adaptive to have a chance for success when working with a single China smartphone OEM or many at once.
We’ve worked on dozens of China smartphone OEM engagements for Western companies in China with our Sales Accelerator program. Having built strong relationships with nearly all smartphone OEMs in China, we wanted to share some advice on what your company should be prepared to offer to get them interested and eventually committed to your product or service:
You need to prove that you are worth the risk to be on millions of devices
Pricing power is straight forward if you understand your real value
In order to get the most out of your China opportunity, you need to make sure that both you and your OEM targets understand what you are bringing to the table. In general, most Western companies’ solutions fall into one of the following four categories:
Must haves — Very few products fit this world. Typically, these are solutions around batteries, screens and camera technologies. If your technology brings users to the China smartphone OEM, you can earn healthy revenues.
Marketing story — OEMs may use your solution to demonstrate innovation at their latest event or launch. You can earn some revenue, but only if your product can go beyond a few devices to mass market.
Nice to haves — A cool feature or alternative to something in the market. You need to be easy to work with and offer a very attractive price. Even so, in China it’s nearly impossible to build a profitable business around a “nice to have.”
Unique technology — Technology, by itself without a clear demand or use case, is a dime-a-dozen. China isn’t the right market for your solution unless you can invest the time and effort needed to develop it into something special that meets specific business needs.
Unless the China smartphone OEM CEO makes it happen (which is rare) you can expect consensus decision making
Above all, what you need to constantly remind yourself is that the best business cases and relationships usually win out in China. Along the way, you are going to need to convince a lot of people:
Everyone can be a champion or a blocker, so always be selling and tell the high level story to every participant along the way.
Everyone you meet will tell you they are the decision maker. It is often true but only for a very small aspect of the overall process.
Don’t let your product get stuck in endless technical reviews. Unless you generate support from executives, product managers, planning departments, and local markets, you’re likely to end up in a never-ending cycle of review and analysis.
Cross-department and multi-level lobbying & collaboration is necessary. This is due to the siloed nature of the China smartphone OEM organizations. Even your champions are unlikely to push above their bosses to bridge other decision makers and influencers. You need to do it yourself — and often for — the OEM teams.
OEMs are rarely experts and need lots of handholding — if they trust you, they will follow you
OEMs typically won’t have the same depth of experience that your team does, so help them get their overall product to the market — even for areas not directly related to you — and your efforts pay dividends in the future.
When they look to test your products, tell them exactly what to test, and how to test, being sure your strengths shine — many OEMs are truly trying to understand your solutions and their strengths, and many people want your product to pass these tests as much as you do.
Onsite support is required — but not like you think
The China smartphone sector is intensely competitive, and any bug, poor user experience or delay can cause major damage to the reputation of the China smartphone OEM. Local vendors (and successful global vendors) all provide local China support and you’ll be expected to do the same:
Offering support from outside of China often runs into problems with China’s Great Firewall: there may be slow or highly controlled access to the Internet; an inability to send / receive large files; blocked USB ports… you get the idea. So if you are supporting from abroad, expect everything to take longer than it normally would, with a lot of back and forth communications to even get started.
OEMs don’t need your best team onsite, and even so, they are only needed during critical times.
One of the key roles is to be there when something goes wrong. That said, your team doesn’t necessarily need to have the skills to solve the problem. They just need to be there as a representative to hear the issues and make sure it gets addressed.
Reliability is everything for a China smartphone OEM
When discussions become serious on real projects, you need to be straightforward on what is real and possible. Respond quickly and work with OEMs to solve problems. This is even more important than having a perfect product.
Don’t believe everything they tell you and don’t give up
Many times a “no” or news of losing to the competitor is just the beginning of the discussions:
At least 50% of ADG China’s wins started with finding out we lost. If you feel you should have won, you need to fight hard to explain your technology, get new evaluators and find out where are the real blockers to getting the deal done.
There can be games played in China, and complaining to higher-ups can sometimes bring them out and reverse poor decisions.
If you have the right relationship, people will generally be open and honest with you about you about what is really happening.
There is often time to change your position, pricing, tweak the technology, etc. If it results in a better outcome for them, they will work with you towards a win.
If you are persistent, then they know you’re the type of long-term partner they want to work with.
Ever since Qihoo 360 disrupted the China internet world in 2009 with their free mobile security app, the concept of distribution at all costs has become the primary model for China app developers. And guess what, if you know it or not, the model has already crossed the border into the USA and other Western markets.
It is not Alibaba or Tencent and their high profile overseas acquisitions that are going to shakeup Silicon Valley business models but the Chinese app developers. They are fast, understand consumer behavior and above all else see themselves not as product companies but as distribution platforms.
If you don’t believe us, just look at the most downloaded apps on Google Play and you will find names like Clean Master, GO, Apus, Shareit, TouchPal, WPS, and BeautyPlus; all in the top 20. So what is going on here and how are they doing it.
The quick answer is that when you combine a focus on the user with distribution as the first phase of development then you realize being the “killer app” or the “next big thing” is not the only way to be successful. The China app developers are going after areas that most people don’t even think of as important but yet in reality they are the most used areas of your smartphone — the utility apps. Products like launchers, keyboards, photo editors, power boosters, browsers, security apps and other products like flashlights, many of which are often used more than many of your favorite apps.
So why utilities? Utilities are the perfect vehicles for them to leverage their speed, experience and their teams of programmers.
Furthermore, the competition in the local China markets it so insane that going abroad may seem comparatively like childs’ play.
And of course localization is easy for utility apps as they are not tied into a local ecosystem. Another advantage of utilities is their stickiness. Unless they annoy you with inappropriate advertising you’re likely to leave them there without thinking twice.
Some examples of China app developers leading this movement include: Cheetah Mobile most known for their Clean Master App which has nearly 400 million users; or Apus with a launcher which acquired 80 million users outside of China in less than 6 months and now has a valuation of US$ 1 billion. And even more traditional companies like Lenovo have joined the game with their app called ShareIt which they developed internally and have now spun it off to let it develop more quickly. And if you want to know some of their tricks for gaining users at such a phenomenal pace that will be a story for another post. And for those who question the long term viability of the model and the path to monetization, just look to China again. In China there are already many proven and mature ways to monetize from freemium to advertising supported, to many others.
Last I checked there are a lot of companies getting very rich on “free”.
Maybe Silicon Valley has gotten lazy depending on Apple to lead the direction for the basic function of how a smart phone should work but in the world of Android it seems the Chinese are leading the way.
For most companies that are in the business of providing hardware for mobile devices or developing the software or services that run on them, dreams of working with Apple, Google, or Samsung may dominate your plans. It’s natural – not only because they are the names we are most familiar with, but also because of where they are headquartered. Yet, if it were suggested that you set your sights on the China smartphone market and Chinese mobile OEMs (original equipment manufacturers) first, you might hesitate. Unfortunately, this is a mistake that many large and small technology companies make – particularly if you are selling products that are OS-agnostic or targeting Android, which, according to Gartner, Inc., now accounts for more than 86 percent of all smartphones manufactured in the world.
The truth is that most all roads now run through China as the portal to global distribution, and it should be your key focus. Consider this: if you look at the top-branded smartphone manufacturers, eight of the top twelve, by global market share, are Chinese companies, including the traditional majors such as Huawei, Xiaomi, TCL Alcatel, Lenovo, and ZTE as well as fast growing players like Oppo, Vivo, Meizu, Gionee, and others. This means that even if you want to break into the US and European markets or other global markets such as Asia, India, or South America, China is your best way to reach many of these markets.
And the best news of all is that OEMs in the China smartphone market are anxious to find good partners to help them differentiate their products for global markets.
Before jumping on the plane to China, there are a couple tips to answering the question “Do I have a technology that China wants?” Let’s take a close look at each of these areas.
Technologies that capitalize on emerging trends or those that are able to create new ones are always appealing. Leveraging technologies like virtual reality, augmented reality, artificial intelligence, or anything else that expands the sensory bounds are attractive. Many analysts believe virtual reality will very soon be a billion-dollar market, and OEMs in the China smartphone market want in now. Every Chinese smartphone manufacturer has a team or division focused on virtual reality right now.
Anything that can merge cutting-edge technology and mobility will likely attract the attention of Chinese manufacturers looking to differentiate themselves in the area of user experience. But keep in mind that Chinese OEMs are pragmatic and demand focused, and your technology must be very special if you want them to pay attention to anything that can’t make it on the next planning cycle.
These days battery and camera technologies remain among the most sought-after products by Chinese mobile OEMs. Companies that have found ways to extend battery life and reduce battery size draw serious attention, considering that battery life is the biggest complaint among mobile phone users. Innovators in camera technology are equally attractive. If a company develops new camera technology or features that a mobile OEM can bake into its products giving end users more functionality, speed, features, or better images, then that will be highly welcomed.
It is no secret that the global smartphone market has been flattened as the competition has intensified. In the last eighteen months, each smartphone manufacturer has created, if it didn’t already exist, a group focused on monetizing its huge distribution base. Applications that pay the OEM for each user or subscriber or have a revenue sharing model have gained a great deal of interest. This could be anything from a data provider providing users with weather information to a music provider with functionality in markets all over the world to a solution providing virtual sim cards and global roaming services for travelers. And anything that a China mobile OEM can distribute to its existing user base through “over-the-air” updates will also be appreciated.
But keep in mind a few points. Firstly, OEMs learned from watching some of Samsung’s mistakes, and they shy away from hype, clutter, and much preloaded software or “bloat ware.” However, if you have an embedded solution or are willing to work with an OEM to integrate a customized experience into its devices, the OEM would like to explore cooperation with you. Secondly, if you have something that can be monetized by leveraging the OEM’s global distribution, then don’t expect them to pay you any NRE (non-recoverable engineering fees) or up-front monies. In fact, it is more likely that the OEM will expect you to pay in advance. But, fortunately, everything is negotiable, so the details can surely be worked out.
Technologies that provide cost savings are another area that has a high likelihood of succeeding in China. Software that eliminates the need for costly hardware is a great example of innovations that these mobile manufacturers are looking for. One example of a recent technology that has been successful is software that replaces the chip used to clean up and suppress background noise. Another is software that uses the existing camera to authenticate the user instead of relying on a fingerprint scanner. Relying on software instead of the hardware option, China manufacturers are able to reduce the build cost for the device.
Getting noticed in the China smartphone market
So, your technology is attractive and fits in one of the above categories. What now?
No matter how big or small your company is, you have a greater chance of breaking into the Chinese smartphone market than you do with Western companies. That is, if you approach it the right way.
A good option is to leverage a China based partner – a partner who knows the Chinese market and can help you get in front of the right people. A professional company can get you to market faster if it has years of experience navigating the tough China market, has a broad set of relationships, knows the people who are looking for what you have to offer and knows how to promote it. An effective local partner can also save you time, reduce your risks, and give you frank feedback on your solutions and strategies required to successfully engage the Chinese OEMs and market.
With Q3 ’15 smartphone numbers coming in, a remarkable 7 of the top 10 and 9 of the top 12 global OEMs are from China. The top 10 China OEM companies will ship almost 600 million smartphones in 2015.
So how to develop partnerships and reach the global majors including Huawei, Lenovo, Xiaomi; perennials ZTE, TCL/Alcatel, Coolpad; and the emerging ones like Oppo, Vivo, Meizu, and One Plus?
China is a key market for most of these device OEMS but they are aggressively growing globally especially in fast growing markets like India, Indonesia, Africa, and Latin America.
What do Chinese OEMs care about?
Having an attractive product that fits their current requirements and product plans is important. Timing is also key – they prefer a partner that has a product they can use on their next launch. China OEMs are looking for ways to differentiate, to monetize their increasingly global distribution, and to reduce costs. Their margins are razor thin and the crowd of competitors is growing.
In our daily dealings with the OEMs, recently we are seeing interest for differentiating solutions including consumer and enterprise apps, machine learning & artificial intelligence, screen force/haptics, virtual reality & augmented reality, fintech & payments, and solution around interface, sensor, image, and battery life.
How do you win a China OEM deal?
It’s critical to understand the China OEM organizations and the decision maker/influencer structure prior to significantly investing. It is very easy for the ill-prepared to spend 9 – 12 months of time, late night conference calls, expensive China trips, and plenty of jet lag only to find out that they are working with the wrong department or don’t have someone willing to champion the product internally. Fundamentally Chinese companies can be very complex and siloed and you need to have a good plan. A China OEM has a consensus decision making model and efforts often require a multi-department, multi-level approach. It’s not as top down as many people believe. Sure it can be helpful start at the top but the role of the senior executives is really to agree to allocate resources to the project. From their you need to find your champions among the working level teams including the product managers which often drive the per device strategy as well as others that could come from R&D, and strategy to marketing, international cooperation, and commercial. All can influence the decision and agreement.
Land and expand
Winning with one product family doesn’t mean your solution will be used across all smartphone families. Chinese OEMs are restructuring and building teams to drive a global strategy but today many of the product decisions are still made on a device-by-device basis led by the product managers. Getting onto the flagship line of a tier 1 or 2 OEM is a great start but that may mean only 5 or 10 million phones (out of the 40-60-80 million they are shipping). So working closely with the OEM to internally and externally market your products is key.
In addition you need to provide great support – fast, flexible, responsive. Regular local China engagement is imperative and helps push through the inevitable cultural and communication issues. It’s also needed to obtain the valuable internal insights and help you adapt quickly to ensure the program is on track with executive support.
The China device OEMs are becoming a major force but they are facing tremendous pressures. They need great technology partners and solutions to continue their global expansion objectives. With an attractive solution, engaging the right groups, and strong local support, a China OEM offers an excellent partnering and revenue opportunity.