Tucked away in the high-tech glitz and gloss of IFA 2014 — the leading trade show for consumer electronics and home appliances held recently in Berlin — was the world’s biggest curved 4K TV with 110-inch display. Interestingly, this first was not from the usual suspects — Japan’s Sony, Panasonic and Sharp, or South Korea’s Samsung and LG. Instead, sizing things up this time was the world’s third-largest manufacturer of flat-screen TVs — China’s TCL. But that was not all. TCL also followed up the breakthrough with details about a 55-inch TV using a quantum dot LCD panel, which is touted as the next big leap in TV tech. These screens will offer display quality similar to that of organic light-emitting diodes, at one-third the price.
Catching up
Business Korea quotes a “high-ranking official in the Korean electronics market” saying that only couple of years ago “technological skills of Chinese companies were almost a year behind the global market leaders. This gap was narrowed down to six months last year. But looking at IFA this year, I see no differences.”
In fact, the TCL example is representative of the Chinese consumer electronics hurricane that has emerged out of the local market and is spreading globally. The modus operandi is simple, yet potent — offer the latest in technology, with quality that cannot be sneered at and at prices that will make jaws drop. The plan is working across the spectrum, from TVs to washing machines, refrigerators, air conditioners and other products.
Taking over?
On the backfoot are behemoths such as Samsung and LG. Chinese brands are doing to them what the Koreans once did to the Japanese — pulling consumers away, emphatically and rapidly. Especially in the most lucrative market of all — smartphones. American global management consulting firm McKinsey & Company, in an August 2014 Insights report, states that low-cost smartphones designed in China are “flooding the market”. In fact, they already represent 50 per cent of the global market for Android phones. Leading the Chinese charge are small companies such as Meizu, Oppo and OnePlus, along with established names such as Lenovo and Huawei. And Xiaomi, previously known as a brash company, is being hailed as the Apple of China.
Xiaomi is ripping into Samsung’s playground with well-built and cheap Galaxy-killers such as the Mi3 and the Redmi 1S. Samsung may have a marketing war chest at its disposal, but Xiaomi is making a killing without spending on advertising — confident that the low price tag will talk louder than any ad possibly could. In fact, in one of Samsung’s key markets — India — Xiaomi has become a sensation. In an online flash sale, the company claims it sold the first batch of 40,000 Redmi 1S, priced at just Rs6,000 (about Dh359) each, in 4.2 seconds. A few days later, the second lot was apparently snapped up in 4.5 seconds.
Chinese ambitions also extend to emerging tech, including the wearables category — an area where Samsung has been active with more than six Gear watches. LG, too, has unveiled two Android Wear watches in a span of a few months. But as the McKinsey report warns, “Beijing and Shenzhen have become innovation hotbeds for wearable devices and other connected consumer electronics. Technology companies in these regions are not trailing others in this area of innovation; they are running neck and neck with other early entrants.” And as the “migration of design” continues, China could “soon influence up to
50 per cent of hardware designs globally including phones, wireless devices, and other consumer electronics”.
South Korean brands are already feeling the heat. In July, Samsung announced that its second quarter operating income had dropped 24 per cent from the previous year. Besides, it was the third quarter of declining profits. Apart from falling demand in Europe, Samsung blamed the slide on intense competition from China, along with the upcoming battle with Apple for supremacy in phablets. Incidentally, 20 per cent of Samsung’s revenue comes from China.
Hope remains
However, there are a few areas where the Koreans have the upper hand and will continue to be better at for years to come — global reach, deep pockets, wide distribution networks and evolved customer support. Or, as Samsung calls it, “customer delight”. The company has invested in massive one-stop shops for demoing, selling, servicing, repairing and addressing customer needs. It has launched Customer Service Plazas worldwide including more than a dozen in the GCC, apart from the flagship one in Al Barsha in Dubai. In August, Samsung opened a sprawling 26,000-square-foot plaza in India. It has the capacity to handle 30 one-on-one customer interactions at a time. B.D. Park, President and CEO, Samsung South West Asia, says, “At Samsung, our strengths lie in understanding our customers’ requirements and innovating to meet them continuously. With the launch of our flagship Customer Service Plaza, we hope to establish an industry benchmark for premium customer service.” Park believes that such innovative services will enable Samsung to deliver customer delight and drive brand loyalty.
Service matters
Samsung claims that in India it has the biggest service network in consumer electronics industry, with 2,800 service touch points, 50 parts warehouses and four world-class training academies. So it would appear Chinese companies have a long way to go before they can rival Samsung’s extensive support infrastructures in important markets around the world.
South Korean brands enjoy another subtle advantage — the belief that their hardware is more secure than stuff coming out of China. In August, Finland-based security firm F-Secure revealed that Xiaomi’s superhit Redmi 1S was collecting and sending private user data to a server in China. Xiaomi was quick to apologise and patch the data leak, but the suspicion lingers. On a larger scale, Huawei — whose founder Ren Zhengfei was an engineer in the Chinese army — has been regularly battling security concerns about the telecommunications equipment it manufactures.
Elsewhere, OnePlus was accused of using security flaws as a pretext to hide manufacturing problems and delays with the launch of its highly sought-after OnePlus One phone. While most of these charges are unfounded, Chinese companies will be fighting a perception problem for years to come.
