Chinese smartphone makers dial up innovation, growth

By Liang Saiyu, Li Jianmin, Guo Yujing and Liu Xinyong

In China’s booming smartphone market, which overtook the United States as the world’s largest last year, a host of domestic firms have innovation on the brain, especially as the industry is on pace for even greater growth.

Within minutes of going on sale online, Xiaomi Technology sold 2.5 million units of its M12 smartphone, which has specifications that, some say, exceed that of the iPhone and retails for less than half the price on the Chinese mainland.

Lei Jun, CEO of Xiaomi Technology Co., forecast that the company’s sales would double this year. In 2012, the turnover of the company founded less than three years ago amounted to 12 billion yuan (1.93 billion U.S. dollars).

Many industry insiders, like Lei, have faith in China’s mobile phone market. Big names like Huawei, ZTE and Lenovo have elbowed their way in, hoping to grab a piece of the market.

Statistics from IDC, an IT company and market researcher, show that China’s smartphone market could grow by as much as 44 percent this year, with total smartphone shipments approaching 300 million units.

A total of 67.21 million smartphones were sold in China in the fourth quarter of 2012, up 236.4 percent year on year, with domestic brands contributing to 77.9 percent of total sales, according to statistics from the China Academy of Telecommunication Research.

“Domestic makers made great strides in the smartphone market for their abundant manufacturing experience and the cheap prices favored by those using a smartphone for the first time,” the report said.

Lenovo, a leading PC firm, emerged as the second-biggest smartphone seller, with 13.2 percent of China’s market share last year, following the Republic of Korea’s Samsung Electronics, which took a 17.7 percent.

Apple came in third, with 11 percent, and domestic companies Huawei Technologies Co. and Coolpad rounded out the top five, with 9.9 and 9.7 percent of the market share, respectively.

Yang Yuanqing, chairman of the board of Lenovo Group, said the company started developing smartphones and tablet PCs to compete with Apple in both domestic and overseas markets.

The company’s star product, the Lephone, is a low-cost smartphone that industry insiders have hailed as a challenge to Apple’s iPhone.

At the Mobile World Congress in January in Barcelona, there were plenty of Chinese domestic devices on show, ranging from those costing less than 1,650 yuan to high-end products valued at more than 3,000 yuan.

“We are providing products that cater to each level, from beginners to high-end consumers,” Yang explained.

Lenovo’s flagship product, the 3,299-yuan K800, boasts a 1.6 GHz Intel processor and a 4.5-inch screen. But it is still based on Android, an open-sourced, Linux-based operating system controlled by Google.

A report issued on March 1 by the China Academy of Telecommunication Research warned that Chinese smartphone makers may face commercial discrimination, as most domestic smartphones are over-dependent on the Android system.

Lenovo’s Yang said Sunday that creating an operating system is not as difficult as providing an active platform on which people are encouraged to develop software.

“Developing a system that only offers tedious software development is useless,” Yang said.

Yang, who is also a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), said, “I am saying it is not impossible to develop a home-made operating system, as the future market is promising with China’s homemade brands expanding their global influence.”

Behind concerns about companies’ over-reliance on the Android system, among others, is a lack of innovation — the soft spot that has become apparent despite the country’s neck-breaking development over the past three decades.

But innovation is not restricted to an operating system, according to Lei Jun, the Xiaomi CEO and a member of the CPPCC National Committee, who says the ways his company develops and markets its products are also innovative.

“Innovations we made included differentiated functionalities in response to various consumers’ needs. This sort of innovation is not ground-breaking, but at least it is a breakthrough,” said Lei.

Yu Wenqing, an industry insider with China Mobile Research Institute, gives these companies credit for putting a twist on existing technology.

“There were so called micro-innovations in those brands,” Yu said, adding that China has to move step by step, as fundamental changes require great time and investment.

Chris Evdemon, a manager with Innovation Works, which invests in seed-stage companies to encourage innovation, called the “micro-innovations” a steppingstone for fundamental innovation.

These initiatives may inject fresh energy to the larger-scale, enterprise-driven innovation that the government is expecting. China has adopted a strategy of building itself up through the development of science and education and boosting the country’s core ability to sustain innovation-driven development.

“Everyone has his own dream to pursue,” Yang Yuanqing said.

Yang’s dream includes seeing all Chinese people living well-off lives and enjoying dignity on the world stage.

“Also, Chinese enterprises will embrace worldwide recognition, not only for scale or sales, but for their capacities for innovation,” he added.

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