Local players compete with global majors in Southeast Asia-

Southeast Asia has become the key market for global smartphone makers as they look to tap the roughly 600 million people in the region who are yet to upgrade from basic cellphones. Ericsson estimates that smartphone penetration in the Southeast Asia and Oceania regions will increase dramatically during the coming years with smartphone subscriptions growing by almost five times between 2013 and 2019. By the end of this period, there will be about 700 million smartphone subscriptions in the region.

A major force behind this growth is demographic, as the younger population tends to adopt new technologies more readily than older age groups and Southeast Asia has among the largest youth populations in the world. Another factor facilitating the adoption of smartphones is the push by mobile operators to expand high speed networks like 4G/long term evolution (LTE) in the region. According to the Ericsson Mobility report (June 2014), GSM is currently the most widespread network technology in Southeast Asia/Oceania with 90 per cent coverage. However, WCDMA/HSPA is set to eclipse GSM by 2019 and 4G/LTE is on track to grow to 60 per cent coverage by the same year. In other words, the technologies supporting smartphones are spreading throughout the region, which helps to make smartphones themselves more viable and accessible to more people.

As a consequence, a number of home-grown and overseas phone companies are setting up manufacturing facilities in the region, while others are planning to do so. While Samsung’s smartphones are dominant throughout the region, the company has been losing market share over the past few years. This is on account of increased competition by Asian handset makers, such as the Lenovo Group, and other low-cost local brands, including Smartfren, Ninetology, Cherry Mobile, and Himax.

While Samsung’s high-end phones offer increasingly robust performance, they often cost much more than the domestically produced Android-based smartphones. Thus, the smartphones launched by these local vendors, although not as sophisticated as their global counterparts, are facilitating the switch from feature phones to smartphones in the region. The affordability factor associated with them has further pushed overall smartphone penetration in the Southeast Asian markets. Internatonal Data Corporation has estimated that domestic producers in Indonesia, the Philippines, Thailand, and Vietnam shipped a combined 6.4 million smartphones in the third quarter of 2014, triple the volume a year earlier.

A look at the key domestic vendors in the Southeast Asia region…

Smartfren: Indonesia-based Smartfren is the most popular telecom company in the region. Its competitively priced smartphones have allowed the company to garner 12.5 million subscribers. The cheapest product Smartfren provides is priced at $130, and its quality is reported to be better than that of the more expensive models. The company is also credited with carrying out Indonesia’s shift to Android owing to its competitively priced smartphones.

Himax: Another Indonesian brand that is garnering industry interest is Himax. The company has been compared to China-based Xiaomi, for it offers phones with high characteristics at affordable prices. Himax is at present in the midst of setting up its manufacturing facility in Tangerang. This facility is likely to be set up by 2016, and is set to have a production target of 100,000 smartphones per month.

Cherry Mobile: Philippines-based Cherry Mobile outsold South Korea-based Samsung continually in 2013 and 2014 in the Philippine smartphone market. According to IDC’s data, Cherry Mobile had a market share of 21.9 per cent in terms of volume of smartphones shipped in 2014, while Samsung’s share stood at 13.3 per cent. When compared to Samsung, Cherry Mobile’s handsets provide an array of entertaining features to the user. The company is now planning on venturing into China, India, and Thailand, after establishing itself in the Philippines.

I-Mobile: Thailand’s I-Mobile is slowly gaining market share in the country owing to technological and software improvements. When the company started producing smartphones in 2011, the devices were often error-prone and unstable. The company attributed this to the glitches in the basic version of Google’s Android operating system, which could not be customised by small producers owing to lack of resources. However, since 2012, as technology improved, the company was able to procure high performance, low-energy processors for lower prices, while Android’s basic platform had also been greatly improved. All this culminated in better performing I-Mobile handsets and boosted its prospects in the Thai smartphone market.

Ninetology: Malaysian smartphone vendor Ninetology entered the domestic market in 2013 when it was already flooded with low-cost, high quality Chinese brands. Thus, despite having a low price point and strong channel presence, the company failed to gain traction in the Malaysian smartphone market.  Industry experts, however, believe that Ninetology will be able to gain significant market share in the sub-$100 segment if it is able to leverage its channels successfully while keeping its prices low.

Axioo: Singapore’s Axioo has been producing smartphones since October 2013 through its two manufacturing facilities situated in Cakung and Sunter, Jakarta. The production capacity of these facilities is about 750,000 smartphones and tablets a year. While all Axioo phones are assembled in Indonesia, only 30 per cent of the components are Indonesian. The company is now working on increasing the share of domestic components in its products.

Conclusion

Apart from these, there are several other domestic vendors including Mito, Evercross, Advan Digital, and Polytron in Indonesia, Star Mobile in the Philippines, and FPT in Vietnam, which are looking to tap the Southeast Asian handset market. While they have made inroads into the smartphone market, they still have a long way to go in attaining a significant market share in the region, where Chinese handsets still dominate.

It is clear that while these domestic vendors face heavy competition in the handset industry in Southeast Asia, the region also provides them with plenty of opportunities. Smartphone use and the demand for new apps and services show no sign of slowing and in some markets the boom is only just beginning. Industry reports estimate that Indonesia will be the largest smartphone market in the region with 100 million active monthly users of smartphones by 2018. The Philippines is also quickly emerging as the third largest smartphone market in the region, after Indonesia and Thailand. IDC estimates that in 2015, smartphone shipments in the country are expected to increase by 20 per cent while feature phone shipments are expected to fall by 20 per cent as more brands shift their focus to smartphones. IDC also expects smartphone prices to fall with vendors targeting sales in the $50 level in the country. On the whole, the downward trend in the prices of smartphones is likely to continue in the Southeast Asian market with increased competition from domestic vendors who are racing to introduce new products at lower prices to gain market share.