Chinese Smartphone Brands Find their Footing in Taiwan

Adroit marketing and retailing have helped China’s top handset makers boost sales in Taiwan, but concerns about data security are mounting.

Among smartphone brands, Taiwanese consumers have long favored Apple, which holds a little over one-quarter of the market. Samsung follows with almost 19%, according to data from German research firm GFK Global.

Subsidies from the mobile carriers make pricey phones somewhat more affordable here, but brand cachet is paramount. When Apple asks NT$41,500 (about US$1,350) for the iPhone XS – close to a month’s salary for many Taiwanese office workers – Apple loyalists don’t blink. After all, it’s Apple.

Yet there’s another big chunk of the market in which lower-priced Chinese-made smartphones have found an opening, overcoming any qualms about data security or political sensitivities.

In the past few years, China’s top three mobile phone makers have aggressively targeted the mid- and budget-range of the market with high-profile marketing campaigns and the rollout of brick-and-mortar stores. Leading the retail effort is Oppo, based in the southern city of Dongguan. The company has opened more than 50 branded stores throughout Taiwan and has offices in Taipei, Taichung, and Kaohsiung.

Other Chinese brands opening stores include Beijing-based Xiaomi and Shenzhen-based Huawei.

Those efforts have borne fruit. As of November, Oppo was the No. 4 smartphone brand in Taiwan with a 10.3% market share, according to GFK. Xiaomi and Huawei were virtually tied for the No. 7 spot with shares of 3.9% and 3.8% respectively.

Source: GFK Global

Taiwan has been integral to the global expansion strategies of Oppo, Huawei, and Xiaomi, analysts say. “Taiwan is a mature smartphone market where brand awareness is high,” says Eddie Han, a smartphone analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC). “If Chinese smartphone brands can be successful here, it shows that they are globally competitive.”

Geographic proximity and cultural similarities – especially language – also make Taiwan a natural market for Chinese handset makers, Han says.

In addition, “like in China, consumers in Taiwan pay great attention to the cost effectiveness of products,” says Boyce Fan, an analyst at Taipei-based market intelligence firm TrendForce. “Chinese brands tend to offer cost-effective models instead of focusing on premium segments, which is a key advantage for them.”

Interestingly, in the less than five years that they have been in the Taiwan market, Chinese brands have put local smartphone makers on the defensive. PC giant Acer has largely suspended smartphone production, citing difficulty competing with Chinese rivals. Many in the industry are speculating that HTC may soon follow suit in exiting the smartphone sector. The Taoyuan-based firm posted a loss of NT$2.6 billion (US$84.2 million) in the third quarter of 2018.

Meanwhile, Oppo is closing in on Taiwan’s Asus, which still holds 11.6% of the domestic market, according to GFK.

Chinese brands benefit from deeper pockets than their local counterparts, which allows them to spend heavily on marketing and physical store expansion. For example, Xiaomi has US$50 billion in market capitalization, compared to Asus’s US$7 billion. HTC has just $2.7 billion. Huawei has annual revenue of over US$100 billion, compared to Asus’s US$12.7 billion. It would be impossible for Asus or HTC to match Oppo, Xiaomi, or Huawei on marketing spend.

Marketing mavens

The Chinese firms also seem savvier about marketing because they all started out as brands, not contract electronics manufacturers like the Taiwanese. Having always sold to end users, Chinese smartphone makers seem to have a better understanding than their Taiwanese counterparts of what consumers want and how to communicate with them.

It was thanks in part to astute marketing that Xiaomi became one of the world’s biggest startups. In the company’s fledgling years, it courted controversy by borrowing ideas from Apple, whether in the design of its phones or the black turtleneck and jeans that founder Lei Jun wore when he introduced new products, similar to the outfit favored by late Apple founder Steve Jobs.

Despite being labeled a copycat by some analysts, Xiaomi generated a tremendous buzz by inviting comparisons to Apple. Meanwhile, it gradually has developed a youthful, tech-savvy image of its own, even if its flagship handsets still channel the iPhone.

Xiaomi rose to fame in China selling phones online. Yet it has adapted to the tastes of local consumers, who often buy their handsets in physical stores, by setting up sleek dedicated “Mi” stores that are destinations unto themselves. On a recent Friday evening, the Mi store in the Shinkong Mitsukoshi department store in Taipei’s trendy Xinyi district was just as busy as the nearby Apple store in the nearby Taipei 101 shopping mall.

A busy Mi store in Taipei’s Xinyi District.

Many consumers browsing in the store were iPhone users, prompting a sales representative to note that Xiaomi packs more features into its handsets than Apple does – at a more attractive price point. A 128-gigabyte Xiaomi Mix 3 phone with an AMOLED display, for instance, costs NT$14,999. An iPhone XR with the same amount of memory is priced closer to NT$28,000 and uses a less advanced LCD screen.

The Mi store sells a suite of connected devices in Xiaomi’s ecosystem, like Bluetooth headphones, fitness bands, and the Mi Sphere Panoramic Action Camera.

For its part, Huawei built its brand name on telecommunications equipment, which is used in more than 170 countries, before moving into mobile devices. In the second quarter of 2018, Huawei surpassed Apple to become the world’s No. 2 smartphone maker by shipments. To boost its brand name, the company has partnered with German optics maker Leica, best known for high-end photographic equipment, on its smartphone cameras.

“Huawei phones offer really good value for the money,” says Siam Hussain, a Taipei-based engineer who has been using a Huawei Y6II for two years. He says the handset has performed well and has given him no major troubles. Compared to a Samsung phone in the same class, the Huawei offers the same hardware specifications for a lower price, he adds.

Rick Cheng, the owner of a breakfast store in New Taipei City, has been using a Huawei Mate 20 Pro since November. The phone’s strong battery life – important for power-consuming mobile games Cheng likes to play – was a key selling point. A former iPhone user, Cheng was disappointed with the battery life of Apple phones. He also likes the Mate 20 Pro’s camera. “It’s about NT$15,000 cheaper than the equivalent iPhone but its camera takes better photos,” he says.

Oppo, founded in 2004, began as a maker of hi-fi CD and DVD players. Although Oppo shut down its hi-fi business in April 2018 – as streaming services hurt the sale of physical disc players – the company can leverage its vast experience selling branded consumer electronics as it concentrates resources on mobile devices.

In its first two years in Taiwan, Oppo focused on understanding the local market rather than pushing for immediate high sales, he said. One of the company’s challenges in Taiwan was to optimize its handsets to work with the messaging app Line that’s popular in Taiwan rather than WeChat, the preference of Chinese users. As it researched Taiwanese consumer tastes, Oppo found that local women liked bright colors and rose-gold phone bodies, so it introduced those color schemes specifically for the Taiwan market.

In Taiwan, “Oppo seems to focus more on female consumers who like to take selfies,” hence the importance of the phone’s camera, says MIC’s Han.

From 2016, Oppo ramped up its marketing in Taiwan, serving as a sponsor of the Taipei Spring Wave Music and Art Festival and signing on local singers Hebe Tien and Jam Hsiao to promote its smartphones.

A Chunghwa Telecom ad promotes one of the Oppo models.

Lisa Hsu, an English teacher based in the central city of Taichung, was attracted to Oppo by the company’s advertisements featuring Hebe Tien. “After I saw the ads, I went to a retail store and asked to see an Oppo phone,” she says. “I’m happy with the phone’s camera but not the video capability.”

Hsu believes that Oppo offers excellent value for the money. She formerly owned an HTC Sensation, but the phone did not impress her. “If I have the budget, I will consider an iPhone in the future, but if not, I will be happy with another Oppo for half the price,” she says.

Tightrope act 

Given the political tensions between China and Taiwan, Chinese smartphone brands have to tread carefully here. That they have steadily built market share amidst a nadir in cross-Strait relations is a testament to their adroit salesmanship as well as Taiwan consumers’ ability to decouple politics from business.

Among the three prominent Chinese smartphone brands in Taiwan, Huawei is most at risk because of its growing role in the Sino-U.S. trade war. The U.S. has accused the company of stealing industrial secrets, obstructing a criminal investigation and misleading the U.S. government about its business in Iran. Huawei says it’s innocent of the charges.

The United States is urging its allies to exclude Huawei from their 5G telecommunication networks to prevent possible spying by China. Intelligence analysts have long alleged that Huawei has links to China’s state security agencies, despite the company’s denial of such ties. Thus far, Australia, New Zealand and Japan have banned Huawei from their 5G rollouts. Germany is reportedly mulling banning the Chinese telecoms giant from its 5G network as well.

Taiwan is way ahead of them. Taiwan banned Huawei from its telecommunications network following publication of a Congressional report in 2012 that found unacceptable security risks in Huawei equipment. At the time, Huawei wasn’t selling smartphones in the Taiwan market. Now that it is the island’s No. 5 handset seller, the government is scrutinizing potential security risks its phones may pose.

MIC’s Han points out that Huawei in 2018 sent its P20 smartphone to be tested by the government’s Electronics & Security Services system. The P20 was one of five phones that passed the examination, in addition to Samsung’s Galaxy S6 edge, Nokia’s N7 Plus, Oppo’s R15 Pro, and the Infocus M7, he says.

Still, security concerns about Huawei handsets remain. In January, the semi-governmental Industrial Technology Research Institute announced that it would ban Huawei smartphones and computers from its internal network. In a statement, the research institute said it made that decision because “its research involves secret information” that had to be protected.

Beijing denounced the move in state-run media. “We are strongly against such an action that undermines regular economic and trade activities across the Taiwan Strait for the sake of politics,” Ma Xiaoguang, a spokesperson with China’s State Council Taiwan Affairs Office, was quoted as saying by the Xinhua News Agency in January. ITRI’s decision indicated the organization was “pandering to certain foreign forces,” Ma added.

Reportedly, other Chinese-made devices are also restricted from accessing Taiwan’s internal government websites. A January 16 report in the English-language Taipei Times suggested that the restriction includes mobile devices made by Oppo and Xiaomi, although the government has not explicitly named those companies.

Russman Jaimes, founder of the Taipei-based Vine Education Co., which offers language and corporate training services, says he is not concerned about data security on his Oppo R11s.

“I think a lot of spying by governments goes on, whether China or someone else, so I wouldn’t base my decision to buy a smartphone on that,” he says.

“My Oppo does everything I need it to for 1/8 the cost of an iPhone,” he says. “I’m never turning back.”