Samsung banks on 5G to solve China slump

4 min read
A Samsung outlet in Beijing China, February 23, 2016. (Image credit: zatletic/Bigstock)

While almost all major handset makers present in China are busy with landmark product launches as the 5G era fast approaches, for one major vendor, the new technology’s advent represents a defining moment in its struggle to return as a major player in the industry.

The South Korean giant may sell more smartphones than anyone else globally, but in China, Samsung is little more than a bit player. The company made up less than 1% of the country’s total handset shipments in the second quarter with only 800,000 devices sold, market research firm Counterpoint found.

This is in sharp contrast to its performance in the country just a few years ago. In its glory days of 2013, Samsung led. It controlled nearly one-fifth of the rapidly expanding market and the companies devices became synonymous with high-end handsets among Chinese users.

The company’s China market share has now hovered around 1% for seven consecutive quarters.

Samsung’s decline coincided with the emergence of native smartphone players such as Huawei and Xiaomi, bringing fierce competition to the market. Consumers’ preferences in the country are also increasingly affected by political agendas. The company has been unable to maintain its position in the Chinese market, and experts maintain that there exists only a small possibility that it can return to its former glory.

The Note 7 fires

“The mishandling of its Galaxy Note 7’s recall in China marked the beginning of Samsung’s demise in China,” said Will Wong, an analyst at market research firm IDC, referring to the numerous reports of devices catching fire in 2016.

First launched in late summer 2016, the 5.7-inch, stylus-toting high-end model was considered a strong competitor to Apple’s iPhone 7.

Within weeks of the device’s August launch, Samsung’s consumers around the world reported that phones were catching fire and some had even exploded. The incidents led to Samsung suspending sales on September 2 and commencing a global recall.

The recall involved 10 countries including the United States, South Korea, and Australia, but China, where the device went on sale on August 26, was not included. Samsung explained the decision stating at the time that Note 7 handsets sold in the country used different battery suppliers and did not pose any safety risks.

Samsung doubled down on this claim despite a claim (in Chinese) on September 18 that a Note 7 had “exploded” in a user’s hand. Samsung attributed the incident to “external heating.”

The statement didn’t include a recall for the country, and over the following weeks, there were more than 20 reports of Note 7 explosions in China in the coming weeks. Samsung finally announced a China recall on October 11.

In the minds of Chinese consumers, the eventual recall may have come too late. State broadcaster CCTV said in a documentary special (in Chinese) the next day that Samsung’s handling of the incident constituted “bullying” of Chinese consumers and a “violation” of their rights.

“It caused serious damage to its brand image in China, especially when it faced fierce challenges from other smartphone vendors,” Wong said.

Diplomatic dispute

The Note 7 recall incident also coincided with a wave of anti-South Korea sentiments felt across China in the second half of 2016 after the former agreed to deploy an American missile defense system despite claims from China that it could be used to spy on its territory.

In July 2016, South Korea and America announced plans to deploy the so-called Terminal High-Altitude Area Defense system, or Thaad, to better protect South Korea and US troops in the region.

The plan faced stiff opposition from the Chinese government. Apart from diplomatic protests, Chinese state media also urged a boycott of South Korean products.

While the main target of the boycott was Lotte, a South Korean supermarket chain that provided land for the Thaad deployment, it also spread to a wide range of products and services associated with the country including group tourism trips, kimchi, Korean barbecue, and Samsung phones.

The yearlong dispute between South Korea and China ended in October 2017 when the two nations agreed to cast aside tensions over Thaad and move on with economic cooperation. But the impact of the dispute among consumers didn’t fade away so quickly.

Samsung’s smartphone market share in China fell from 5.5% to around 1% in 2017, and it has not been able to recover its position since then. 

“When consumers are able to choose between domestic and foreign products, they often prefer domestic ones, and the tendency becomes more noticeable when their societies are perceived as under threat from the outside,” said Yu Jinmao, a professor at Jiangsu University.

“Samsung’s market performance in China was certainly affected by the dispute between China and South Korea, and this is in line with the downward demand trend for South Korean products such as cosmetics,” he said.

A gloomy future

Ever since the end of 2017, Samsung has repeatedly stated that it aims to return as a major player in China. And recently, the company has laid a bet on 5G.

“We are back!“ was the message from  Kwon Gyehyun, president of Samsung Electronics China, at the launch event for the A8s handset at the end of last year. However, Kwon’s enthusiasm has not translated into major growth in sales in the country and market share continued to stagnate in the first half.

The firm more recently has turned to 5G-ready devices. Last month, Samsung launched its first 5G-enabled smartphone, the Galaxy Note 10+ 5G, on the Chinese market.

“The Note10 + 5G is the beginning, our goal is to get more advantages in the Chinese 5G market,”said Kwon at the lastest product unveiling. “We have invested almost all of our resources in 5G, and we hope that will help us to regain our market position.”

The new handset, priced at RMB 7,999 (around $1,118), is RMB 1,800 more expensive than Huawei’s equivalent 5G model. “One of the advantages Samsung has is that Chinese consumers still regard it as a premium brand, and it has a long history of operating in China,” said Wong.

The efforts made to maintain Samsung’s high-end image appears a wise choice. The company has a share of around 6% in terms of phones priced above RMB 4,000, according to data from Sino-Market Research. 

“These efforts may leave Samsung with only a fraction of China’s smartphone market, but there still exists a small possibility that it could return to the top five vendors in the country,” he said.