Market Insight

OPPO’s new non-China smartphone should avoid Xiaomi’s international mistakes

March 23, 2017

Ying Yang Ying Yang Sr Research Analyst, Smartphone

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On 23 March OPPO announced a new smartphone, F3 Plus, an extension of its F-series. Notable features include: 

  • Only launched outside of China
  • F3 Plus will be first available starting in early April in five countries, including India, Indonesia, Vietnam, Nepal and Sri Lanka.
  • Qualcomm Snapdragon 653, 4GB RAM/64GB storage; 6-inch full HD display, 4000 mAh battery capacity; Android 6.0.
  • Branded as the “Selfie Expert” with a dual-front camera of 16MP + 8MP supporting wide angle shooting, and a rear camera of 16 MP/ f1.7.
  • Retail prices in Indonesia and India are IDR 6,499,000 (USD 488) and INR 30,990 (USD 473) respectively. 

Our analysis  

2016 was a booming year for OPPO. The Chinese OEM leaped from the world’s seventh biggest smartphone maker in 2015 to the fourth in 2016 in shipment volume, with a year-on-year growth of 109%.  

In OPPO’s domestic market of China, it was number one and outperformed all other OEMs, including the global top three players: Samsung, Apple and Huawei.

The F3 Plus belong to the F-series, a new product line for OPPO aimed at non-China markets. The first F-series model was the F1, which only launched in January 2016. Like other F-series smartphones, the new F3 Plus will not be available in China, indicating the company’s ambition in overseas expansion.

IHS Markit believes it is a right decision for OPPO to seek growth beyond China, because overdependence on the Chinese market increases risk. We also believe OPPO is in a better shape to expand abroad compared with Xiaomi, which is also dependent on the China market and keen on non-China markets. The scale of today’s OPPO is greater than Xiaomi at its peak, hence OPPO will be more capable of covering the costs entailed by global expansion, such as marketing spend, purchase of patents, and development of channel relationships.

The success of OPPO is impressive, as it operates mainly in China where the competition is intense

While growing fast outside of China, OPPO still has a small international market reach compared with the global top three players. The company has been heavily relying on Chinese consumers: around 80% of its smartphone shipments were within China in 2016, while peer Huawei shipped only 55% domestically.

OPPO has benefited from the sheer size of the Chinese smartphone market. In 2016, China accounts for over one quarter of total global smartphone shipments according to IHS Markit. But the achievements of OPPO were remarkable, as the competition is fierce in China with many global players headquartered in China and keen for success in their domestic market: seven out of the world’s ten largest smartphone makers are headquartered in China.  

OPPO has learnt strategy lessons from Xiaomi’s overdependence on the China market

With 80% of its smartphone shipments concentrated in one single market, OPPO risks losing traction. If this single market matures or a stronger competitor emerges in China, the source of its growth will no longer exist unless it expands internationally.

OPPO’s domestic peer, Xiaomi, has fallen into this same trap. Prior to 2016, Xiaomi delivered strong growth, a similar story to today’s OPPO. Xiaomi also operates mainly within China, which accounted for over 90% of its total shipments in 2015. While the focus of OPPO has been through offline retail channels, Xiaomi put more emphasis on e-commerce.

Xiaomi’s growth halted in 2016, due to competition from other OEMs such as Huawei, whose sub-brand Honor also focused on online retails. Also, Xiaomi’s growth in other segments was hindered by its online retails and marketing strategy. It failed to capture the growing demand in secondary cities, where smartphone penetration was growing from a relatively low base and offline retails still prevails.

OPPO’s alternative go-to-market approach helped: OPPO used effective offline retail channel strategy, coupled with aggressive marketing, to seize the growth opportunities. Likewise, Vivo, the sister company of OPPO, has also posted a positive growth of 80.6% in smartphone shipments in 2016.  

OPPO is in a better shape to expand abroad than Xiaomi

Xiaomi too has been keen to expand beyond the China market. It currently sells smartphones in a few countries such as India, Singapore, Indonesia and Philippines, but its growth in the non-China markets has been slow. Most Xiaomi models sold internationally are lower tier Redmi models, and almost all models are also sold in China.

So far, Xiaomi has been unable to repeat its domestic success story abroad, which was achieved by online marketing and software innovations. Since Xiaomi started to ship smartphones abroad officially in 2013, its non-China share has failed to cross the 10% mark. For the non-China markets, Xiaomi also needs investment to address the patent licensing challenges.

We believe, despite both companies being largely dependent on the China market today, OPPO is in a better shape to compete abroad compared with Xiaomi, as in shipment volume the scale of today’s OPPO is greater than Xiaomi at its peak. Also, Unlike Xiaomi, which is known for setting a small profit margin to drive its smartphones sales, OPPO has been careful with pricing therefore has better margins than Xiaomi. OPPO will more be capable of covering the costs entailed by global expansion, which places the company in a better position. Already, OPPO is leading Xiaomi in the non-China markets: it shipped almost 20m smartphones overseas in 2016, more than three times greater than that of Xiaomi. 

Geography
China Global World
Organization
Xiaomi
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