Market Insights | Domestic High-end Smartphones Aim for Growth in Southeast Asia

Written by Jun

In earlier times this year, following Xiaomi's encounter with "slaughtering" practices in India, Chinese smartphone manufacturers faced further difficulties in the country. According to the Economic Times of India, the Indian government now requires Chinese smartphone brands such as Xiaomi, OPPO, Vivo, Realme, and others to appoint Indian executives for key positions, including CEO, COO, CFO, and CTO when operating in India.

At the same time, Chinese smartphone manufacturers are also facing increasingly fierce competition in the Southeast Asian market. In the first quarter of this year, smartphone shipments in Southeast Asia decreased by 21%, with Apple being the only brand to experience growth. The iPhone 13 and 14 series performed well, resulting in Apple doubling its market share. Nevertheless, Chinese smartphone manufacturers are actively adapting their strategies by diversifying beyond low-end models and introducing a broader range of high-end product lines to capture a wider user demographic.

Despite the growing number of middle and high-income consumers in Southeast Asia, the majority of smartphones in the region are priced below $200. Therefore, how much impact can domestic high-end smartphones have on the Southeast Asian market? Additionally, how can Chinese smartphone brands effectively retain users in this region?

Pursuing Big Brands while Seeking Cost-Effectiveness

It is understood that the average monthly income of Vietnamese residents in 2022 was VND 4.6 million (approximately $196), while the authorized distributor price of an Apple iPhone in Vietnam is around VND 19.7 million (approximately $834.7), which is four times the average monthly income.

"However, Vietnam is one of the markets with the highest penetration of Apple iPhones in the world," said Carol, who previously worked in the Vietnamese electronics consumer industry. The pursuit of a higher status among Vietnamese people is driving the increased sales of Apple iPhones. In addition, installment payment services make it easier for Apple products to be accepted by the local population. "Vietnam has a well-developed installment service, and many low-income groups are willing to buy Apple iPhones in installments."

Of course, most Vietnamese consumers still prioritize factors such as cost-effectiveness, features, and design. In the Vietnamese mobile phone market, the top two brands in terms of market share, Samsung and OPPO, offer more affordable models. The Samsung Galaxy A04 is a top model in the price range below $200, and the OPPO A17 series, priced below $200 since the fourth quarter of 2022, has been well received. Samsung's models in the $200-$400 price range are also popular among consumers. In the first quarter of 2023, Samsung occupied seven out of the top ten best-selling models in this price range.

Not only in the Vietnamese market, but Samsung and domestic smartphone brands such as OPPO, Xiaomi, Vivo, and Realme have been performing well in the entire Southeast Asian region. Samsung has a better product portfolio and more competitive models, while domestic smartphone brands attract users with their affordability. "In fact, in the global mobile phone landscape, these Chinese smartphone brands have shown outstanding performance and are just a few brands favored by Southeast Asian users," Carol stated.

According to her, Southeast Asian consumers exhibit regional differences in their smartphone preferences. For instance, consumers in Malaysia and Indonesia prioritize performance, while those in Vietnam and Thailand lean towards design and camera functions. Domestic smartphone brands excel in offering high cost-effectiveness, thanks to their investments in research and development that enable swift product iterations, particularly in optimizing camera functions and screen chips. As a result, these products not only benefit consumers but also enjoy natural popularity among Southeast Asian consumers due to their competitive prices.

Richard, an Indonesian of Chinese descent, also mentioned that he switched from Samsung to Xiaomi and has now used three Xiaomi smartphones. "Xiaomi and Samsung have similar accessories, but Xiaomi offers better smoothness and price." From his observation, it is apparent that cost-effectiveness remains a priority for most Indonesians when selecting a phone. They tend to favor purchasing low-priced models, while individuals with higher income levels are more inclined towards internationally recognized brands and value accessories.

Domestic Brands Competing in the High-end Market, Face Pricing Challenges

The growth of Apple in the Vietnamese market in the first quarter was largely driven by its price reduction strategy. The average price of the iPhone 14 Pro Max decreased by 12% compared to its launch price in the first quarter of this year. This attracted many consumers, resulting in smartphones priced above $600 capturing a 24% market share in the first quarter.

However, domestic smartphone brands are also seeking the high-end market by producing innovative designs and breaking price barriers. For example, realme introduced the high-end flagship GT2 Pro last year at an initial price of nearly $620. Vivo also launched the X90 Pro high-end model last year with a price exceedingly approximately $775. OPPO introduced the Find X6 and Find N2 Flip this year, while Xiaomi released the 13 Pro and 13 Ultra high-end models within the past six months. The prices of OPPO Find N2 Flip and Xiaomi 13 Ultra are both above $1,085.

Pheobe from Malaysia, a Xiaomi fan, is currently using a Xiaomi smartphone. "I would also like to try other Chinese brands, but if the price exceeds MYR 2,500 (approximately $600), I probably won't consider it at this stage." Additionally, according to feedback from Indonesian and Vietnamese internet users, OPPO and Xiaomi's high-end phones have attractive designs but their prices are considered too expensive. To cope with the increasingly intense pricing competition in the high-end market, OPPO reportedly offers up to $200 discounts for pre-ordering new models in Vietnam, while realme's first high-end phone, the GT2 Pro, also had its price reduced during a promotional period, attracting Filipino consumers with a combination of design, specifications, and discounted prices.

To what extent can high-end smartphones penetrate the Southeast Asian market? Carol believes it still requires observation. "After all, smartphones priced above $414 are considered high-end in Southeast Asia. And the number of people capable of buying phones in this price range is relatively small. Even for those pursuing the highest quality, they might just go straight for Apple."

However, Carol also believes that Chinese smartphone manufacturers launching high-end product lines in Southeast Asia are not necessarily targeting Apple or Samsung, but rather focusing on profitability. "Instead of saying that domestic high-end smartphones are aiming to challenge Apple and Samsung, it's more accurate to say that fundamentally, they are driven by the desire to make money... At this stage, there are probably fewer people who can afford high-end phones. They are more likely to prefer Apple and Samsung. Domestic high-end smartphones may be difficult to sell now, but once they are sold, the profit return is quite high."

Combining low-end and high-end, where 1+1 is greater than 2

This year, profitability in the smartphone industry is relatively challenging.

Rising inflation and macroeconomic concerns will persist, impacting consumer spending and causing a projected decline in the global smartphone market. Recovery is expected to be delayed until the end of this year. In the Southeast Asian market, smartphone shipments saw a significant decline of 21% in the first quarter of this year, and it is anticipated that a recovery may not be observed until next year. Xiaomi has reportedly emphasized the significance of preserving market share in the current year.

"When the situation improves by the end of 2023, the market may benefit from suppressed demand, especially in the low-priced segment," commented an analyst from Counterpoint Research on the Vietnamese market. Analysts from IDC also suggest that this year is cautious, and smartphone vendors may introduce more promotional activities to handle excess inventory. Additionally, smartphone manufacturers may find ways to stimulate device upgrades, especially by introducing high-end models to tap into more market opportunities.

Carol pointed out that in the long run, domestic brands' efforts in the high-end product line will be a major industry trend. The necessity of high-end devices for Chinese smartphone brands lies in enriching brand image and generating more revenue possibilities. Moreover, by gradually influencing Southeast Asian consumers with high-end devices, they become willing to pay higher prices. From an industry perspective, this will further deepen the manufacturing and innovation pattern of Chinese companies expanding abroad and enhance the overall influence of Chinese culture.

Furthermore, the number of middle-income and affluent households in Vietnam, Indonesia, the Philippines, and other countries is expected to grow at an annual rate of approximately 5% until 2030. The upgrading of electronic product consumption will force Chinese smartphone brands to consider customer retention.

Carol admitted that from the macro perspective of the growing affluent population in Southeast Asia, the reduced attractiveness of low-priced Chinese smartphones is foreseeable. While extremely low-priced products will still be the preferred choice for low-income consumer groups in the region, relying solely on low-priced models to retain users brings significant market pressure to Chinese smartphone brands. Therefore, in the Southeast Asian market, it is not a choice between low-end and high-end smartphones. Domestic brands need to solidify their market share in the mid-to-low-end segment by leveraging their cost-effectiveness advantages. Simultaneously, they should focus on technology research and development, product iteration, and the extension of high-end devices to bring greater advantages to the brand.

The high-end market is indeed lucrative.

According to market research firm Strategy Analytics, starting from 2022, high-end smartphones (wholesale price > $300) will surpass mid-range ($100-$190) devices to become the largest price segment in terms of smartphone sales volume. From 2022 to 2027, high-end devices are projected to capture 33% to 36% of the global smartphone sales volume and 73% to 75% of the global smartphone wholesale revenue share. Although the overall global smartphone sales volume in 2022 declined by 12% due to macroeconomic difficulties, high-end smartphones (wholesale price ≥ $600) experienced a 1% year-on-year growth. The high-end market accounted for over 50% of global smartphone revenue for the first time, reaching 55%. Currently, Apple remains dominant in the high-end market, capturing 75% of total sales in this segment.

Neil Shah, a partner at Counterpoint Research, previously stated to the media that Chinese brands face many challenges in the high-end market, and sustainable profitability might be the biggest hurdle. However, it is worth anticipating a greater market presence for domestic high-end smartphones in the Southeast Asian region. For instance, in Indonesia, the mid-to-high-end segment (from $200 to $600) led by OPPO experienced a 3.6% year-on-year growth. The introduction of new foldable devices by Chinese smartphone manufacturers in the high-end market can attract more consumers to try them out, and the rapid development of digital payments and installment plans will also drive the adoption of domestic high-end smartphones in the region.

Quoting realme's founder and CEO, Li Bingzhong, during last year's launch event for the high-end flagship GT2 Pro, "For realme, which has just gained a foothold, entering the high-end market is as challenging as starting a new business." Similarly, the launch of more high-end products by Chinese smartphone brands in the Southeast Asian market presents both risks and opportunities.