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HTC's Business Development in China to Pay Off Starting Next Year

2011/12/09
To better sustain its business development in the increasingly competitive smartphone market, Taiwan's HTC Corp., a globally known smartphone maker, has been working hard to establish footholds throughout China over the past year. This effort is expected to start paying dividends in 2012.

Formerly known as an ODM (original design manufacturer) of mobile phones, HTC decided to enter the OBM (original brand manufacturing) business in 2007. Many of its peers considered this a reckless decision at the time, but the company's first own-brand smartphone, the HTC Touch, proved a hit in numerous countries. Since then, the company has continued to gain success with new smartphone models and has gradually gained brand recognitions in the U.S. and western Europe.

During its early success HTC declined to enter the world's biggest market, China, choosing instead to promote its products there under the brand name of its local sales arm, Dopod. This situation began to change in mid-2010, when the HTC held its first product presentation there for four smartphone models, including the globally popular HTC Desire and HTC Wildfire.

A Fast-growing Market
“We are now ready [to explore the Chinese market],” said Peter Chou, HTC's CEO, at a new product presentation a few days ago. Chou went on to say that China is expected to serve as his company's third growth engine, following the U.S. and Europe, in the years to come.

Chou emphasized that over 900 million Chinese people now own cellphones, and that the demand for smartphones in that market is expected to record an annual growth of over 80% this year. Citing a Google survey of smartphone's market penetration in China, he said that over 35% of cellphones used in the seven largest Chinese cities are smart models.

The CEO noted that HTC has made significant progress in promoting its own brand in the market over the past year, and that local consumer familiarity with the brand name is constantly on rise. Surveys carried out by local market researchers indicate that over 60% of Chinese handset consumers are familiar with HTC, which ranks among the top three smartphone brands there in terms of consumer preference. Sina Weibo, one of China's largest microblogging sites, has also testified to the brand's popularity, reporting in September that around 50% of its registered users access its homepage using mobile phones, and that more than 30% of them use HTC's smartphones. That figure represents the highest platform usage ratio in the Sino Weibo report.

HTC shipped 13.16 million smartphones in the third quarter of this year, with the amount going to China skyrocketing more than 900% compared to a year ago. Buoyed by strong consumer demand in China, the company's overall smartphone shipments are expected to post a 30%-plus year-on-year increase in the fourth quarter.

Operational Deployment and Distribution
Successful operational deployment and distribution are among the main reasons behind HTC's meteoric emergence in the Chinese market.

Chou reported that his company has partnered with China's top three telecom companies--China Telecom, China Mobile, and China United Telecommunications—for joint promotions of its smartphones. Last year there was only one Chinese partner, China Mobile.

In addition to these enhanced partnerships, HTC is also aware of the importance of building a chain of directly operated stores in China, where consumers tend to buy smartphones at retail stores--in contrast to the U.S. and Europe, where they most often buy from telecoms service providers. Therefore, Chou said, his company aims to boost the number of its retail stores in China to 2,000 by the end of this year, up from 1,400 at the end of November. Next year, the figure will double to 4,000.

Asides from physical retail stores, HTC has also partnered with Chinese shopping websites, including 360buy.com and Taobao, reflecting the desire to expand the diversity of its distribution channels there.

Eyeing the Virtual Society
To better adapt to Chinese consumer habits, HTC has also cast its eyes on virtual social services and has entered into cooperation with local IT companies and Sino Weibo for the joint promotion of customized smartphones in that market.

For example, only in October the Taiwanese company launched its HTC ChaCha in cooperation with a Chinese social software developer, Tencent Holdings Ltd.

The HTC ChaCha is an Android-powered smartphone featuring a shortcut button that allows quick access QQ, China's most popular social networking website (developed by Tencent), along with related services. This feature is a vital key to the marketability of the smartphone in a country that has more than 500 million QQ users, constituting a huge target customer base.

Ray Yam, president of HTC's China division, said that cooperation with Tencent on joint promotion of the HTC ChaCha is part of his company's plan to explore the Chinese market for smartphones through enhanced partnerships with local telecoms firms and website service operators.

This joint promotion, market observers noted, is mutually beneficial to HTC and Tencent, enabling the former to take advantage of the large number of QQ service users to quickly secure a sustainable customer base and the latter to keep users on its social networking websites.

Cooperation between smartphone suppliers and social networking website operators is a growing trend in China, and to take advantage of that trend HTC has launched a customized smartphone model featuring easy access to Sina Weibo. Huawei Co., a China-based, world-caliber supplier of communications equipment and end-user devices, has also worked with Tencent to promote its phones.

Creating Lifestyles
Yam said that HTC plans to define its brand image more sharply by building distinct themes and mental elements into each of the smartphone models promoted in the Chinese market, instead of focusing on hardware improvements, in the hope of strengthening the emotional connection between the brand and local consumers.

Following Yam's statement, Chou emphasized that HTC's smartphones won't compete on the basis of hardware specifications and operating system performance, but on the lifestyles they create for consumers. This branding strategy, Chou continued, means that his company has no short-term plans to launch any smartphone models priced at less than RMB1,000 that might undersell its products in the low-end segment of the market.

With distinct branding appeal and steadily growing brand recognition, Chou forecast that HTC's sales in China will take off from 2012 through 2015 to become one of the company's biggest growth locomotives. At the end of October, China contributed less than 10% to the company's total sales; in the next two to three years, Chou predicted, that figure will surge to 30%.

HTC Smartphone Models Launched in China in Q4, 2011
ModelMonth LaunchedFeaturesSelling Price
HTC EVO 3DNov.Built-in access to 3D films and TV dramas streamed by XunleiUnannounced
HTC Sensation XEDec.Globally exclusive white modelUnannounced
HTC RhymeNov.Built-in digital content of Cosmopolitan MagazineRMB3,888
HTC ExplorerLate Nov.Built-in access to application services of Renren.comRMB2,099
HTC Z510dNov.First dual-mode, dual-standby higher-end Android phone retailed by China TelecomRMB4,880

(by Steve Chuang)
 
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