As the demand for smartphones continues to grow, more and more entrepreneurs are popping up across China. What’s interesting is that they’re all from different backgrounds; musicians, technicians, concrete mixers--everybody wants to achieve success the way tech giant Xiaomi did.
Entrepreneurs face a dilemma, however, as the market shrank in the first quarter of 2015. Xiaomi's sales have also suffered. Because of the sudden shift in the market, the question now is whether companies such as Gree Electric Appliances Inc., SANY Group Co. Ltd., and even rock star Cui Jian have any chance of breaking into the market.
The first challenge is to convince consumers to abandon established phone brands in favor of newer ones, according to U.S.-based research firm Gartner.
"It's not that easy to go bankrupt making phones, but it's also not easy to be profitable," said CK Lu, a Gartner analyst based in Taiwan. "If you don't have good differentiation, you're putting yourself in a saturated market."
And saturated, it is. China has over 155 smartphone brands, an average of 1,000 handsets being bought by consumers per month, according to data provided by Neil Shah of Counterpoint Research. Even in India, Chinese smartphone brands have invaded their market.
Still, smaller entrants hope to become big like Xiaomi, billed as one of the world's most valuable startups.
Some experts believe that for entrants to achieve the fairy tale success similar to Xiaomi's, they have to explore other opportunities in smart appliances and wearables.
"I think no more than three new brands can be commercially successful in the short term, any others will only acquire a tiny portion of the market," said Nicole Peng, the China research director of Canalys. "But if they want to be profitable just selling phones, the chances are very, very low."