Why Chinese Aren't Boycotting Samsung

TheStreet.com

TAIPEI, Taiwan ( TheStreet) -- When I lived in China in 2005 and the country's youth declared a guerrilla boycott against Japanese products over unburied World War II issues, common Chinese people had to be careful about where they parked their Toyotas.

The boycott also forced Chinese locals to cloak their Nikon cameras as they photographed a series of anti-Japanese mass street protests. Eventually, Chinese authorities, though the most gushing opponents of Japan, asked the public to stop. We Chinese, you see, make and already own Japanese stuff, big brother told the littler ones.



One would have expected a similar response to Korean electronics giant Samsung after labor rights groups stung it in November with claims of exploiting some of its workers in China.

But even though many Chinese consumers feel jealous of South Korea for its clean, quick rise to prosperity, they were barely stirred (let alone outraged) by the reports of teenage workers, required overtime and blank contracts.

Normally they would be quick to vent, but this time they're unfazed because Samsung is making phones they want and can afford and that are better than homegrown alternatives.

Samsung has surpassed Nokia as the most "commonly used smartphone brand" in China since the third quarter of 2012, a division of global market research firm TrendForce said in a March 19 consumer research report. Samsung claims a 20.3% market share, leaving Nokia -- a long-standing favorite since presmartphone days -- with 14.3%.


So investors might buy a few Samsung shares if they haven't already, based on the Android OS overachiever's worldwide showing, hold shares of Nokia until it starts to make a comeback and take another bite into Apple shares (find out why later).

Whether or not workers were exploited, Samsung was calling out to China last year. It stepped up production in the country to make more handsets locally, which should mean lower prices for lack of shipping costs.

Samsung twinned increased production with an expansion of its sales network to more Chinese consumers. Chinese consumers are numerous, we all know, and if the government gets its way in retooling the economy, they will spend more of their hard-saved money and cut China's historic but increasingly squeamish reliance on industrial development.

Key components of that extension are mass marketing, the pro-China price range of Samsung smartphones and dependable after-sales service.

"If we talk about the qualities (of handsets) and after service, we can easily tell the difference from between China local brands and Samsung," says Wilson Miao, a smartphone analyst with TrendForce. "Samsung also spent a lot of money on China marketing. If you went to Beijing, you would see Samsung's advertisement everywhere."

Smartphones are priced to compete with notoriously cheap Chinese brands, Miao adds, noting quotes of 1,200 to 2,000 yuan (1 yuan=$0.16).

Samsung China, which covers not only electronics, reported operating revenue of $75.1 billion in 2012, up 25.6% over a year earlier, the online industry newspaper China Tech News said, citing a company corporate-social-responsibility report. And that's only the China side of the business. As Chinese authorities said after the anti-Japanese boycotts of 2005, foreign projects aren't just foreign anymore.

Does CSR mean workers are now putting in six-hour days and getting Galaxy models as bonuses? The simple answer is, it doesn't really matter. Chinese customers look down at their own mobile phones as poorly built and poorly serviced despite lower prices. Domestic mobile phone leaders such as Huawei (002502.SZ) and Xiaomi (XIAOMZ) failed to make their country's top three mobile phone brands despite steady growth, TrendForce says.

So if a foreign brand comes out with solid stuff sold for less than an iPhone, which TrendForce places at No. 3, it's probably a hit. That's Samsung's secret.

But part of its rise stems from Nokia's fall. Samsung has overtaken Nokia in much of the world because the Finnish company that first got settled in China as a major seller of not-so-smart cellphones has not caught up to the Korean rival's technology.

"Part of this is due to Nokia's slowness to adapt to the changes in smartphone technology and interfaces that came with the introduction of (Apple's) iOS and Android," says Mark Natkin, managing director with the Beijing-based market research firm Marbridge Consulting. "In partnering with Microsoft to make Windows Phone-based handsets, Nokia has finally taken this step, but only after losing major market share to Samsung and various other vendors."

Here's something that will make your pocket buzz: The winner in China's mobile phone market should eventually be Apple, not Samsung, if the Silicon Valley icon's prices come down and sales forecasts are any better than weather reports. Apple's market share in China slipped to 10% in the third quarter last year, TrendForce found.

"While Apple comes in third, with strong scores in the 'brand image' and 'intent to purchase' categories, a more affordably priced iPhone could very well put the manufacturer back on top in China," TrendForce says in its March 19 report.

Samsung's next gambit: more of that corporate-social-responsibility stuff. This year it plans to help protect the environment and work on "youth-oriented new welfare projects," China Tech News reports. Does that mean permanent holidays for those supposedly teenage workers?

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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