Chinese electronics primed for a global breakthrough

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Battle lines: Chinese consumer durable companies take aim at incumbents.
Battle lines: Chinese consumer durable companies take aim at incumbents.

Content creation and partnerships with foreign companies are helping Chinese brands raise their profile outside China

When the world’s first next generation quantum-dot television launched last year, the announcement made headlines for a different reason. The brand behind the product was not Samsung, LG or Sony but Chinese firm TCL.

This is just one example of how China’s show of strength in consumer durables is a force to be reckoned with, and one that is growing on a global scale. TCL says that in the first three quarters of 2014, it held the fourth-largest share in the global LCD TV market. Yuki Wei, TCL Corp.’s brand general counsel, says the brand aims to be in the world’s top three for sales of smart TVs within the next five years. Another Chinese TV brand, Hisense, has become the fourth-biggest seller of televisions worldwide, according to data from market-research firm DisplaySearch.

While the quality of existing products from local Chinese TV brands is not on par with those from other established Asian brands, there are two key factors driving their growth: value for money and shifts in technology.

"Products from Chinese brands are often priced lower than incumbent Japanese and Korean brands, while at the same time offering similar or sometimes even more product features and functionalities," says Wijaya Ng, head of consulting, Greater China, with Ipsos. "And the traditional need for televisions to last for between five to 10 years is reducing with the continuing advancement in viewing technologies, such as HD and 4K."

Smart technologies that the incumbents developed as key differentiators are also eroding fast, with the introduction of external content plug-ins, such as Google Play and Amazon Fire. In China’s case, there is increased investment in content creation and video streaming by brands such as LeTV and, more recently, Xiaomi, a smartphone manufacturer that is now offering entertainment and other internet services.

Darren Yao, managing director of Interbrand Shanghai, says that brands such as Xiaomi are also building a loyal fan base with their "co-creation" approach. They are inviting consumers to give their views on how products can be improved, to the point, says Yao, that consumers "believe they own the brand.

"In this industry, it is all about speed to market and listening to consumers," he says. "Brands like Xiaomi seldom invest in traditional media — they use social media for marketing and interacting heavily with consumers."

Having flooded the domestic market with low-cost products, it’s hardly surprising that TCL, Hisense and Letv are setting their sights further afield. Without added innovation or differentiation, the market would become even more price-driven, eating into profits.

"International markets outside of China are important to these Chinese brands because they represent an avenue for growth," says Paul Gagnon, senior manager at global information company IHS. "For several years, there has been little domestic demand growth, so the pressure to export more is strong in order to meet growth goals."

International expansion via partnerships with foreign companies or acquisitions, is helping Chinese brands improve their own technologies and operations, while allowing them to diversify into other categories. TCL, for example, acquired Palm earlier this year, with the aim of tapping into the North American high-end cell phone market.

Building brand awareness and gaining consumer trust is also key in this industry. By showcasing improving Chinese quality, and introducing new products abroad, these brands are looking to change the perception of China from being a low-cost, low-tech manufacturing location to more of an innovation hub.

Established consumer durables brands in the rest of Asia are squaring up to the challenge from these Chinese brands. A spokesperson for Samsung said: "We focus on driving our premium lineup, we will continue to seek new market opportunities." This includes enhancing competitiveness of entry- and mid-level series by expanding distribution and strengthening store management. "We are also differentiating ourselves through product innovation and brand engagement initiatives," the person added.

The key lesson for the bigger players in the market is that Chinese TV brands are no longer just offering "me too" versions of foreign brands. Their experience as OEMs (original equipment manufacturers) for established players has helped reduce their learning curve. They are increasingly adding their own innovations and touches to make their products more user-friendly and customised to local needs, whether at home or abroad.

Case study: Crossover businesses

LeTV is not well known outside its home country, but it has ambitious plans to change this in the near future. The company plans to release a smart-TV and Netflix-style service targeted at Chinese Americans.

"Users around the world are demanding localised, quality content and smart devices with superior values," says Tin Mok, chief executive, APAC, LeTV. currently offers more than 100,000 episodes of television dramas and more than 5,000 movie titles, and is on a mission to prove that content is king. The brand is also promoting ultra-high-definition 4K content, a move Mok says will take users’ viewing experience to the next level.

LeTV is also moving beyond content. The firm aims to transform itself into an integrated ‘eco-system’ through the development of crossover businesses in new areas ranging from ecommerce to smart cars.

The company has also made online investments in fresh food and high-end wine and is expanding into the electric vehicle industry.

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