Transsion’s lead in African phone market under threat from fellow Chinese rivals

In 2018, Transsion Holdings sold 124 million mobile phones, capturing 48.7% of Africa’s mobile phone market, and 7% worldwide. But the Shenzhen-based mobile phone maker is far from a household name in China, unlike its domestic peers Xiaomi and Huawei. In fact, Transsion has never sold a single mobile phone in China.

On April 1, Africa’s top mobile phone vendor filed an application to go public on Shanghai Stock Exchange’s new tech board, planning to raise RMB 3.3 billion (around $490 million) in its initial public offering (IPO).

Transsion Holdings, which owns three phone brands—Tecno, Itel, and Infinix—held a combined 48.7% share of Africa’s mobile phone market last year, according to its prospectus, citing data from research firm IDC.

But sluggish growth in China is pushing domestic smartphone companies to look elsewhere for growth, and as many are discovering, Africa holds promise. This puts Transsion in a vulnerable position, especially since its low-tech, low-cost phones will find it increasingly difficult to compete with the sleek-yet-affordable smartphones produced by the likes of Huawei and Xiaomi.

The company was founded in 2006 by former employees of Ningbo Bird Company, which was once one of the biggest mobile phone makers in China. Transsion’s co-founder and CEO, Zhu Zhaojiang, was formerly the director of Ningbo Bird’s overseas business unit. Zhu told Chinese media in 2016 that while visiting 90 countries and regions to promote Bird phones, he noticed relatively little mobile phone competition in Africa and saw that it could be a huge market.

In its prospectus, Transsion states that the company is “committed to providing overseas emerging market users with high-quality smart communications terminal devices.” In addition to its dominance in Africa, the company also has 6.7% of India’s mobile phone market.

A year after establishing itself in Africa, the company released the Tecno T780 in Nigeria, becoming the first phone maker to offer a mobile phone with dual SIM card slots. The company even released a phone with four SIM card slots, the Tecno 4Runner, in 2008.

Transsion’s chief marketing officer Liu Junjie attributed the company’s success to its localization strategy. “Most African users have more than one SIM card, but they can’t really afford more than one phone. Seeing this demand, we took the lead in providing dual-SIM card phones in Africa, and they were very popular,” Liu told the Southern Daily (in Chinese).

To avoid expensive call rates between different telecom networks, many African users carry two or more SIM cards and swap them as needed. According to a report by US-based mobile devices research firm ScientiaMobile, around 87% of Kenya’s users used multi-SIM smartphones in 2018, the highest percentage anywhere in the world. In other African countries such as Ghana, Nigeria, and Egypt, more than 70% of smartphone usage originates from devices with multi-SIM functionality.

The Africa opportunity is not lost on other Chinese phone brands.

In response to questions from Technode, Transsion said it continued to observe consumer needs in emerging markets to deliver differentiated products, adding:

“We are happy to see Chinese enterprises entering overseas markets. And we believe that Chinese brands should work together to expand influence worldwide.”

“The strategy of other players, such as Huawei, is to simply sell standard devices to the African market, and the devices are the same as what they sell elsewhere,” Sun Yanbiao, director of Shenzhen-based Mobile No.1 Research Institute, told TechNode. “But Transsion sells devices that are customized for the African market, and this is the company’s main advantage,” he said.

New player

Despite describing itself no less than five times as the “king of Africa’s mobile phone market” in its prospectus, the company cites the growing presence of rival phone makers on the continent as a risk to its business.

Transsion’s advantage derives from its strategy of delivering phones as cheap as $10 to emerging markets. The company’s dominance in these emerging markets comes from selling low-cost units in high volumes.

In 2018, Transsion earned RMB 22.5 billion by selling 124 million mobile phones. Of that total, 72.6% (90 million units) were feature phones—handsets with physical keyboards and limited functionality.

Its smartphone sales were more profitable, but pale in comparison to the revenue of companies such as Huawei, which earned RMB 348.9 billion by selling 206 million smartphones globally in the same year.

As of the end of 2018, Transsion only had 34.3% of Africa’s smartphone market, but that still puts the company ahead of Samsung (22.6%) and Huawei (9.9%), according to an IDC report.

Huawei entered the Africa market in 2011 by launching a smartphone priced from $100 in Nigeria, the continent’s most populous country. Since then, Huawei has been focused on providing affordable smartphones to the continent, hoping to seize market share from feature phone makers.

Huawei also sells its handsets via telecom carriers such as South Africa’s Vodacom and MTN and Nigeria’s Globacom. It is the biggest telecoms equipment supplier in Africa.

Now Transsion faces an additional competitor in the form of Chinese smartphone giant Xiaomi.

Xiaomi announced in January that it would set up a business unit to expand on the African continent, appointing Vice-President Wang Lingming to head up the new unit.

Xiaomi has been selling its handsets in Africa since 2015 by cooperating with local distributors, but this regional unit marks its official debut on the continent.

“In the past few years, China’s mobile phone market has become saturated, so Chinese phone makers are all looking for new markets to absorb their overcapacity,” said smartphone industry blogger Ye Long, who runs the technology blog Miao Telecoms. “The global mobile phone market is in a period of sluggish growth, but Africa is still on a rise.”

Just a few weeks before the announcement of its African unit, Xiaomi had announced that its line of mid-range smartphones, the Redmi, was being spun off as a separate sub-brand. Redmi, along with Xiaomi’s India-focused brand Poco, will continue selling affordable handsets to price-sensitive markets.

In February, Xiaomi signed a partnership agreement with Africa’s leading e-commerce platform, the Nigeria-based online marketplace Jumia, to open a Mi official store to access millions of customers across 14 countries, including Nigeria, Egypt, Kenya, Ivory Coast, Morocco, and Ghana.

Xiaomi’s first release in Africa will be the Redmi Go, which uses the Android Go, a stripped-down operating system developed by Google for lower-end devices.

The average selling price (ASP) of Xiaomi’s smartphones was around $143 in 2018, according to Xiaomi’s annual report from last year. Meanwhile, Transsion smartphones had an ASP of just under $69, with feature phones as low as $9.80 in 2018.

The moves hint that Xiaomi’s strategy in Africa may focus on selling affordable smartphones through e-commerce platforms. “The e-commerce model is part of Xiaomi’s DNA and we believe that working with Jumia will help us bring innovation for everyone across the continent,” Xiaomi vice-president Wang Xiang was quoted in state-run English-language newspaper China Daily.

When contacted by TechNode, Xiaomi’s African business unit declined to comment on its strategy for branching out into the African market.

Peace or war?

As compared with Xiaomi’s e-commerce strategy, Transsion relies more on its massive offline retail networks across the continent.

Transsion’s prospectus states that its sales model depends primarily on dealers and secondarily on network operators. “We have been selling products in over 70 countries and regions all over the world, and have established partnerships with over 2,000 dealers,” said the company.

Transsion seems unlikely to change that approach. According to their prospectus, the company plans to invest as much as RMB 333 million, accounting for 10% of its total funding amount, in building out the information management systems of its 6,000 retail shops across Africa in the next two years.

“Transsion and Xiaomi are eyeing different groups of customers because of the huge gap between their product prices,” said Sun. He added that there was barely any overlap between Transsion’s retail networks and Xiaomi’s e-commerce approach of cooperating with Jumia, whose network only covers relatively well-developed markets such as Nigeria and Kenya.

Sun sees the dynamic between Transsion and Xiaomi as more cooperative than competitive. “The two phone makers are working together to develop the huge African smartphone market,” he said of the current situation.

Still, though Transsion sidestepped the fierce competition in China by exploring emerging markets, it’s indisputable that domestic competitors are now making inroads into its home court.

In the short term, it may enjoy a kind of truce with Xiaomi due to differences in demographic targeting and marketing strategy, but the battle for emerging-market consumers between the two giants seems inevitable.

Ye, the blogger, said that, given Xiaomi’s success in India and its advantage in e-commerce, the company could easily erode Transsion’s current competitive advantage in offline retailing.

“It’s clear that Transsion’s easy days in Africa are coming to an end,” said Ye.