The Rise of Chinese-based Consumer Tech Companies and How They Successfully Enter the U.S. Market

There’s been a lot written in the last few weeks about the rise of Chinese-based tech companies (see: CES coverage, showing up in major motion picture placements, and today’s coverage of Huawei in the FT).

In many ways, this is nothing more than Clay Christensen’s Innovator’s Dilemma at work.  Secondary brands in every segment of the economy are continuously attempting to move up the value creation chain.  Most of today’s top consumer tech brands were not long ago just like the Haiers, Hi-senses, Huwaweis of today. They were not globally diverse companies leading in a myriad of different segments.  They were fighting to move up the value chain within one given category. Within consumer tech, we’ve also seen the Innovator’s Dilemma play-out across countries as first Japanese and then South Korean domiciled companies successfully made inroads into the U.S. market.  Now Chinese-based companies are doing what has been done for 50+ years.

At the same time Chinese companies are looking to gain a foothold in the U.S. market, market dynamics are starting to change.  Currently, mobile connectivity perpetuates the telephone model.  Things like shared minutes and device subsidies show just how dominate the traditional way of thinking continues to influence business models. But the entire business model is becoming less beholden to telephony services. We’ve already seen changes in non-U.S. markets – places like Indonesia – where cellular subscriptions are morphing to data-only plans.  This way of thinking is also starting to influence the U.S. market. T-mobile has recently made pushes to offer “value” cellular subscriptions sans device subsidies and moving away from subscriptions tied to device subsidies was much of today’s talk around Verizon’s earnings announcement.

Anecdotally, I’m seeing how unsubsidized devices are influencing the choices teens are making in the U.S.  Recently, I’ve seen many teens who are granted permission from their parents to have a mobile device but they are subsequently required to pay for the device themselves along with the accompanying data plans. As opposed to buying subsidized devices and locking into a two-year contract many of the teens I’ve witnessed have purchased slightly higher priced unsubsidized devices like the Apple iPod Touch. These teens are then forgoing monthly data subscriptions in exchange for being reliant on WiFi networks. but since many teens are in constant WiFi networks – from their home to school to coffee shops to friend’s homes – WiFi only devices are nearly equivalent always-on devices.  This approach provides most of what teens want without a heavy monthly fee hitting the teen’s wallet.

I believe companies like Huawei and ZTE will successfully enter in the U.S. market by letting these shifting trends play to their advantage. Today Huawei and ZTE are working to serve a discerning customer within their domestic market.  They want to produce high-end smartphones but the domestic Chinese market is an unsubsidized market so they want to maintain costs as much as possible. These are exactly the trends that will influence the U.S. market in the years to come.  So while many point to the necessity of carrier agreements to bring new phone hardware to market in the U.S., I’m not convinced that will strictly be the case in the future.