China is producing an alarming number of smartphone manufacturers. Not only is their number great but they are growing very fast and investing heavily in research and development (R&D). The recent surge of Chinese investment is posing a significant threat to manufacturers from countries with a well-established technology sector, particularly Taiwan, South Korea, Switzerland, the UK, and France. While companies based in the US, Japan, and Germany continue to easily account for the largest share of global R&D investment Chinese firms are making a significant effort to catch up. A report published by the EU’s Industrial Research and Innovation (IRI) initiative last December details the upswing of Chinese companies within the world’s top 2,500 investors in R&D.
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According to the IRI’s report the proportion of global R&D investment held by Chinese companies (3.7%) has surpassed Taiwan (1.8%), is slightly below South Korea (3.8%), and should quickly catch up to Switzerland (4.2%), the UK (4.4%), and France (5.5%). An interesting country for comparison is South Korea, who has long been associated with the manufacturing of electronics, and smartphones in particular. Although South Korean companies make up a slightly larger portion of the global R&D budget than their Chinese counterparts, the number of firms they have in the top 2,500 significantly lags behind China. In 2013, 198 Chinese companies made the list, whereas only 80 companies came from South Korea. In fact, next to Japan and the US, China has a greatest number of representatives in the world’s top 2,500 investors in R&D.
Smartphone manufacturer Huawei had the largest R&D budget of all Chinese companies, whose $3.9 billion worth of investment netted it a ranking of 26th in the world, significantly eclipsing LG’s $2.4 billion but falling short of second place Samsung‘s $11.4 billion. Another familiar face for smartphone users is ZTE, who splurged $1.12 billion on R&D, taking the 105th spot in the world ranking. Lenovo (191), TCL (700), and Coolpad (976) also made the cut; interestingly the young but wildly popular Xiaomi did not. Overall the investment of the top 79 Korean firms (excluding Samsung) totaled $10.79 billion, which was easily overtaken by China’s combined $22.68 billion. Essentially, if it were not for Samsung Chinese companies would more than double South Korean investment in R&D. This is quite a stark and unexpected statistic considering the Korean Institute of Science and Technology Evaluation and Planning reported that in 2010 Chinese firms were 2.5 years behind their Korean competitors in terms of technology development – in 2014, a mere four years later China has closed the technology gap to 1.4 years.
Chinese handset makers can thank Chinese citizens for their success. Unlike other well-known smartphone manufacturers, such as Samsung, LG, and HTC, who rely on foreign markets for sales, Chinese firms have been able to capture a significant portion of the global smartphone market by simply capitalizing on their massive domestic market. In the second quarter of 2014, Xiaomi usurped Samsung to become the dominant handset vendor in China. Since then they have maintained their top spot with 12.8% market share, according to market research firm Strategy Analytics. Other Chinese firms have also been growing since last year; Huawei now captures third place in China with 10.2% market share, knocking down Samsung to a lowly 4th place. The surge of Chinese manufacturer’s domestic market share is very significant because whether or not a firm can establish a strong presence in China will have a major impact on their long-term success.
Chinese companies are also making a splash in global markets; according to TrendForce six of the top ten smartphone brands based on shipments in 2014 came from China (Lenovo, Huawei, Xiaomi, Coolpad, ZTE, and TCL – listed in order of market share), which is more than any other country in the world. Of these six companies all made the IRI’s list of the top firms based on R&D investment, except for Xiaomi (as mentioned above). If Chinese companies continue to invest a significant amount of resources into R&D, as the IRI report details, then the rise of Chinese smartphone shipments will likely to continue long into the future. Given many of the top Chinese smartphone brands, such as ZTE, Xiaomi, Lenovo, and Huawei are increasing their efforts to expand their presence in foreign markets we may finally have some contenders that can battle with Apple and Samsung for dominance of the global market.