Monday, December 05, 2016

Oppo and Vivo surge ahead. Supply chain challenges!!

It is a great case to study how Oppo and Vivo after giving shock to Apple  iPhone, Xiaomi and Huawei are capturing the Chinese smartphone market. After going through a couple of articles, what surprised me of the four points listed below, was the fourth point.

Oppo and Vivo have captured the smartphone market in China by these  simple steps -

1. offer good commissions to the retailer,
2. indulge in massive publicity
3. reach the rural markets physically where Internet access is limited and
4. eschew e-commerce, go for physical commerce.

This case was discussed in the MBA class in Alliance University Bangalore this morning of December 2016. Students came up with very interesting points. Some of the interesting ones are being listed here.

The phenomenal growth of Oppo and Vivo from 3Q of 2015 has seen their share in China surging to 14 to 15 % each, while iphone sales have dropped by 50 % , from 14% to 7% market share. Why and how did this happen ? Apple is naturally interested in finding the reasons for this fall of favour of Apple products in China.

Looking at some basic economics, we need to understand the buying capacity of an ordinary Chinese citizen. We find that the per capita GDP of China is almost double at $12,000 compared to India's $5,700.

1. The population in China thus has a better buying power compared to Indian population.
2. Oppo and Vivo not being as heavily priced as iphone, but at about 60% of the costs of iphone and same or better technical features, adds to its popularity among the Chinese youth.
3. Another point we observe in the Oppo and Vivo case is that technology is no longer the winner in the smartphone arena, it is JUST a qualifier. Technology in terms of technology 3G or 4G, RAM, ROM, no of cores in the processor, size and high definition screen etc is a given for all high-end phones, the differentiating factor is, for the younger population, the high resolution camera or longer battery life. Oppo banks on its high resolution camera and Vivo on its long battery life.
4. The cost-to-performance ratio of these high end phones has been crashing over the past many months.

An interesting point worth noting here and which has baffled many e-commerce specialists is how does Oppo and Vivo shun new electronic markets, resort to old time tested physical channels and still have satisfied customers ? This observation gives credence to the point that the society is either not advanced enough to take the best benefits of e-commerce or it is a mix of modern electronic commerce and old physical commerce that is going to be successful in the long run.

Some other points highlighted were
       1. even though technology can be spread fast enough in the community, the level of acceptance does not happen that fast, with the result the performance is always sub-optimal.
       2. comfort and ease of shopping are not the only factors that influences people's inclination to go for electronic commerce
       3. the fear of security of future financial transactions being compromised in case of an unfriendly hack is a cause of concern
       4. the frequent performance outages in the system )Internet and communication infrastructure) is diminishing the industry confidence in the system
       5. the entry of an innovative and cheap payment collection system that can ensure confidentiality, ease of use, security and simplicity can topple the existing payment system adversely.

Even though the above points are helping Vivo and Oppo to survive in the Chinese markets, its success in the Indian market is very much doubtful, as Indian customers always judge products, high technology or not, on the basis of technology and costs, almost with equal weightages.

Costs play an equal, if not dominating effect over technology in matters of high value purchases among the Indian customers.

In the coming days the success or otherwise of Opo and Vivo in China is going to sculpt many changes in the high technology network of mobile phones in other countries too.

In my vast interactions with students i have seen only one student with the new Oppo phone in the class, though advertisements in newspapers galore these days.

Does success in China, world's #1 economy also guarantee success in India, the world's # 3 economy. It is very difficult to say at this stage.


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