The western world has been the first mover on developing technology in the last century and has therefore harvested a lot of the economic growth. East Asia, especially Japan and South Korea, have been early adopters of the western world’s innovations and also outpaced the western world’s production methods.
Even though East Asia has outpaced the western world’s production methods, they have been producing technology for the markets of America and Europe. One of the best examples is computers, smartphones and tablets.
The interesting phenomenon that will be discussed in this blog is that the western countries has a linear technology adoption, because the growth has been following the development of technology. There has been a linear consumption starting with:
Computer > Cellphone > Laptop > Smartphone > Tablet > Wearable
In China, where the economic growth has been accelerating through the last 10 – 20 years, the tendencies right now are that the consumer’s adoption won’t follow the same pattern. It’s important to notice that some of the products are substituting each other. For example, it isn’t necessary to buy both a computer and a laptop or a cellphone and a smartphone.
When this is noticed it would be expectable that the consumption pattern would look roughly like this:
Labtop > Smartphone > Tablet
The reason why wearables isn’t mentioned is because they aren’t regarded as “must-have” products. The actual pattern is though that the Chinese only buys a smartphone.
The economic growth has caused an increase in the Chinese annual disposable income from $280 in 1980 to $3000 in 2010, which is a factor 10 increase. It isn’t comparable with European or American standards. China doesn’t have an actual middle class, but the thumb rule is when a third of a Chinese household’s income is discretionary spending, the household is considered middle class.
In 2009 902 million Chinese were living for under $5 dollars a day. 902 million Chinese constituted at that time 67% of the Chinese population which total ran up on 1,350 million people.
This is one of the reasons why the Chinese don’t follow the same consumption patterns as the western world, because the total population constitutes more than a billion people so the spending power of the middle class is only increasing slowly, so they can afford a laptop, a smartphone and a tablet.
They invest in smartphones instead of the other devices, because the smartphone is the device, that covers most of their needs and is most handy. Today it’s possible to write e-mails, watch youtube and conduct payments on the phone, which has made it a multitool compared to labtops and tablets, which are more specialized.
The demand has increased so much that the Chinese are buying more smartphones than the Americans, that traditionally has been the biggest market.
This happened already in 2013 and it must be assumed that this tendency will continue as long as the economic growth continues and that the Chinese population is 5 – 6 times larger than the American.
It has been obvious for many years that the Chinese and Indian marked will become drivers for economic growth in the future, but the fact that the Asian countries aren’t producing goods primarily for the western world’s markets anymore constitutes a paradigm shift, because the Asian manufacturer aren’t dependent on the western marked anymore.
This tendency is also illustrated in the case with the Chinese consumption of smartphones because the most sold smartphones in China isn’t smartphones that is known among westerners.
Brands as Huawei, Xiaomi and Coolpad are dominating the Chinese marked, because they produce cheap quality smartphones, which the Chinese can afford to buy. Huawei, Xiaomi and Coolpad are all Chinese brands who focus their activity on their home marked, because it’s the biggest marked in the world.
These tendencies are seen in almost all industries that the Chinese market is dominated by Chinese companies, because they know the demand of their home marked and has easier access than their foreign competitors.
Traditionally there are two strategies of competition. The low-cost strategy, where the company’s focus is to create a cheap product, which has an appeal to a broad marked. The differentiation strategy, where the company’s focus is to create a highly specialized and unique product, where they can take a premium price.
The western markets are dominated by the differentiation strategy and therefore the companies are slowly to move into markets, where they are forced to change their strategy to a low-cost. The Chinese competitors are taking advantage of this.
The fact that most Chinese invest their money in a smartphone have several consequences. First, Chinese people brows more from a mobile than a traditional browser. Second, this user behavior forces the companies to think “mobile first”, when they develop and maintain their services.
Many Chinese websites are therefore better developed for the mobile platform, which also is a tendency that is repeated in the developing countries.
In Kenya they have been really innovative with this trend. M-Pesa is a mobile phone-based money transfer, financing and microfinancing service, which were launched in 2007. M stands for mobile and pesa is Swahili for money.
This service enables the user to deposit money into an account stored on their cellphone. PIN-secured SMS text messages is anchor point of the interaction between the users. Every transaction costs a small fee.
The scarcity of the developing countries, forces them to be innovative and creative with their services to target a broad market, which can be a possible challenge for the supertanker companies in the west in the future. M-pesa started in Kenya and Tanzania, but has expanded to South Africa, Afghanistan, India and Eastern Europe.
The Chinese case with smartphone consumption and use can therefore function as a case for some worldwide tendencies in the developing countries, it raises some challenges for the company of the west and can maybe also predict how the catch-up in the developing countries will look like.