Analysis: Imitation or innovation: can China be a real force in tech?

Introduction and monster markets

Do you own a Chinese-made gadget? You almost certainly do; virtually all smartphones and tablets – and much more besides – are manufactured in China. The home of Foxconn and a whopping 162 of the world's top 500 companies, Shenzhen in the country's Pearl River delta is where most electronics originate, from smartphones and tablets to laptops, TVs, displays, scanners, portable batteries, printers, projectors, LED bulbs, digital cameras, Bluetooth speakers, DVD/Blu-ray players, home appliances and even e-cigarettes. China makes it all.

But can you name a Chinese electronics brand? The biggest global brands are largely from just three countries; Japan (Sony, Panasonic, Canon), South Korea (Samsung and LG) and the USA (Apple and Microsoft), all of whom use China to get their products made. China is full of expertise, not just in manufacturing products but in designing them, too – almost every stage of manufacturing is now outsourced to The Red Dragon.

They make everything for everyone else, so why don't Chinese companies step out of the shadows and take the tech world by storm?

Chinese tech brands

There are successful Chinese electronics brands that all of us have heard of. Really only one – Lenovo – is familiar to us all. Lenovo bought IBM's laptop business and now owns Motorola's smartphone business. The others are best described as 'emerging' – the likes of Huawei, ZTE and Xiaomi, which wants to be known internationally as Mi – are all beginning to issue consumer devices globally, or at least threatening to. Other names you may have heard in the tech press include internet firms such as search engine Baidu, Tencent and Alibaba.

"Chinese tech giants like Huawei and ZTE have been listed since 2007 amongst the top 10 companies worldwide in terms of PCT applications," says Simone Corsi at Lancaster University Management School, which runs the China Catalyst Programme to pair SMEs from the UK and China on R&D projects. "Huawei topped that ranking in 2008 and ZTE and Huawei were respectively second and third in 2013, before US companies Qualcomm and Intel, and just after Panasonic."

Monster markets

Emerging they might be, but all of those Chinese brands – and many more like them – are already massive at home. Take the display market. "The Chinese domestic TV market is 20% of the global market," says Jack Wetherill, Senior Market Analyst at FutureSource, "which gives brands such as TCL, Hisense and Skyworth economies of scale that they can leverage internationally … as domestic Chinese brands face a highly competitive local market they continue their push into other territories, and generally lead on price."

Hisense – the biggest TV brand in China – has become one of the fastest-growing electronics brands in Australia and the US, too, where it sponsors the Australian Open Grand Slam tennis and NASCAR Xfinity, respectively. It's a fast-changing market – Chinese brands have grown their share of the global TV market from just 12% in 2011.

The rise of the Chinese smartphone

China produces 2.5 billion phones each year, over half the global output. Often called 'the Apple of China', Xiaomi is China's biggest smartphone seller in just its fourth year. Its latest product, the Mi Note, is almost identical to an iPhone 6 Plus, though slightly larger and lighter, but it costs a fraction of the price.

Beyond Xiaomi there are dozens of other Chinese smartphone brands ready to pounce. As the world's largest telecoms equipment maker, Huawei is using its global leverage to push its Honor brand of smartphones in the USA and Europe, while another Chinese brand, ZTE, which sponsors the New York Knicks basketball team, aims to ship 60 million of its Nubia and Star 2 smartphones globally in 2015.

A brand new smartphone company called OnePlus is currently building an army of 'brand evangelists' across the globe while the likes of Oppo, Gionee, IUNI, Coolpad and Meizu are growing fast, too.

Phones have always been made in China, but until recently the country's electronics brands have lacked the desire and the marketing know-how to hit foreign markets. Xiaomi only sells its phones online, in limited quantities and in timed sales, under the motto 'just for fans'. Last year, Xiaomi's Redmi 1S smartphone sold exclusively on the Flipkart website in India sold out in a mere four seconds.

"The way they are marketed is simply revolutionary," says Li Ma, International Business Director for Honey LLP, a social creative agency that helps Chinese brands enter foreign markets. "In marketing terms, China now leads the way in innovation."

Xiaomi's decision to only sell online is unusual, but proving effective, and it's setting the tone for the brand's planned entry into emerging markets. "It saves Xiaomi from the high cost of partnerships with distributors, retailers, and network operators, but more importantly, this unconventional approach gives Xiaomi better control over the timing of market entry," says Ma.

Imitation stereotype

Innovation or imitation?

Chinese-made electronics remain cheap. Despite the new focus on innovative marketing, undercutting incumbent brands in foreign markets is the easiest 'in' route. That keeps the stereotype – that Chinese brands don't innovate, they imitate – going strong, but it's just not true.

"You only need to look at the number of patent applications – which has now exceeded the US – to see how fast China is moving, and with a vast home market to exploit they are able to gain huge experience and drive down costs," says Dr Peter Chadha, CEO of DrPete Technology Experts. "I'm in no doubt that over the next 24 months Xiaomi's innovation and a host of others will overtake Samsung and the other Android proponents."

The only barrier to that happening overnight is a lack of an established value chain in place in Europe and the US when it comes to service and support. That's not the case in emerging markets like Brazil, Turkey, Russia and Mexico, which is why Chinese brands are focused on them. "It started as an imitation but it is more and more innovation," says Corsi.

Why do Chinese brands struggle to match Korean and Japanese brands?

It's simply a matter of time. "When Japan began its economic development and Japanese firms started internationalising, they were the ones looked at as the imitators with their 'reverse engineering' process," says Corsi.

"The same applied for Korean companies … getting the recognition of global high-tech brands for Chinese companies is harder because of the wrong idea that has been diffused about China in the world by the media – low-cost labour, no IP protection, no creativity," says Corsi. "While this was true in the past, it is now more and more clear that China is shifting from the role of manufacturing superpower to the one of innovation superpower."

However, until the stereotype of Chinese companies changes in the minds of Westerners, the country won't produce many global brands. Do people know that Lenovo is a Chinese brand? Probably not, because the name doesn't give it away. On that logic, Huawei will struggle, hence why its branding of the Honor phones rarely mentions the manufacturer's name.

The rise of China: the losers

Chinese brands are on the rise, but at whose expense? "Samsung, the market leader in the Android space, is the big brand under greatest threat as its leadership is largely due to hardware – and maybe brand loyalty and distribution – but there is no software differentiation of any note," says Chadha. "As the Chinese brands improve, the Samsung business will get riskier and riskier because they will be unable to compete on volume and cheaper prices."

Apple is rather more protected, since it owns the software ecosystem that people are tied into. "It's essentially like buying a BMW Mercedes or even a Ferrari, but even the fuel that goes in the car is Apple's own fuel – i.e. apps – and so they make money throughout the ownership of the device." Samsung, nor any other maker of smartphones, has anything like as secure a business model to protect them from aggressive Chinese brands.

Dominating the conversation?

It may innovate more than any other country, but if Chinese electronics brands are to dominate globally, things need to change. Xiaomi doesn't even have an English language OS yet, and besides, there's little awareness or discussion of Chinese brands globally.

Social media mentions during January's Consumer Electronics Show provide a good barometer of a brand's success, especially since all the big Chinese brands had big exhibition stands in Las Vegas, many for the first time.

"We analysed the mentions of Chinese brands including Lenovo, ZTE, Xiaomi and Huawei during the CES and saw minimal mentions and visibility of them compared to others," says Dinah Alobeid, a spokesperson for analyst company Brandwatch. "The only brand out of the four that had a large volume of mentions was Lenovo."

Lenovo had over 13,000 mentions on social media during CES, which dwarfed figures for ZTE (1,300), Xiaomi (1,200) and Huawei (800+). To put it in perspective, Samsung received over 35,000 mentions and even Apple – which had no presence during CES and no product launches during that time – managed more than 19,000 mentions. However, LG got just 2,000 mentions, suggesting that Chinese companies could quite easily eclipse the Korean smartphone maker.

They may have a domestic market that dwarfs all others, but Chinese tech brands are going to have to work hard – and gradually – if any of them are to convince the world's media (and people in general) that they are innovators, and so join Lenovo in becoming respected global brands.

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