China on Droids

Published on Author Mike

Yes, Apple launched the iPhone in China. The market, however, is droids: about 300 million are in use (and another 400 million have been exported). What are the implications for the domestic market, and for global markets?

First, there are gains from specialization and riding down the learning curve (a 1950s Boston Consulting Group discovery). The specialization in turn comes from standardization of core features. Prices help: $40-$100, with new model turnaround times under 3 months from launch to sale. There are China-specific feature sets, such as not having GPS [allowing a lower cost], while accepting dual SIMS [one for work, one for personal … and maybe another couple cards that can be swapped to avoid roaming charges if you visit another part of China].

So … will this huge base allow Chinese firms to eventually dominate global phone markets? In one sense they already do: while the iPhone may be engineered in the US and use imported screens and specialty chips, the assembly itself is all China. As pieces get localized, the ability to tweak or eliminate components for lower cost or different functionality will increase. With rapid life cycles, patents aren’t necessarily a barrier, either, as it may not make commercial sense to file when the technology will be obsolete before the approval process wends its course.

For more details see the Shenzhen Market Guide; thanks to an initial link, “Shenzhen Notes” by Tyler Cowen on his Marginal Revolution blog.

4 Responses to China on Droids

  1. 3 months in between model times! The turnaround time between the iPhone 5 and iPhone5S was almost a full year. With a turnaround time of only a few months, if these Chinese firms could pinpoint what American customers want and find a way to market to them, they could potentially dominate the market.

  2. Are you saying that patents have a rapid life cycle? Or just component/model-specific portions of the phones have rapid patent expiration? The largest patent war between private companies right now is in the U.S. between Samsung and Apple, eating up millions of dollars in legal fees and forcing some minor changes in each company’s technology.

  3. In some high tech areas, patents are obsolete before they are granted. So you can either try to keep key innovations secret, or simply keep coming out with new models at a rapid pace. But the advantage of Droids is that the operating system is not as closed as the alternatives – unlike iOS.

    However, where does the value-added lie? In hardware or in software? Even a modest royalty from each phone can add up to a nice sum … remember the Microsoft model.

  4. I imagine the Chinese firms do not engage in the patent wars that are a quintessential part of the American technology industry. This could increase the amount of money devoted to R&D and lowering the costs of phones. If Apple does want to be a major player in China, it seems obvious that they need to lower prices. I wonder if this could lead them to producing a sort of budget model for the Chinese market similar to the 5c.