Source: AI Finance and Economics
On January 13, the news that Former Baidu Senior Vice President Xiang Hailong joined TRANSSION Holdings and served as the president of mobile Internet has attracted a lot of attention. One is the core figure of Baidu's "cash cow" search business, and the other is a mobile phone company that does not have a strong sense of presence in China, but is known as the "king of African mobile phones".
Unlike the well-known domestic mobile phone brands such as "Huami OV", Transsion's popularity in China is very low, it is not sold in China, and the main position is the distant and poor African continent. Therefore, its mobile phone price is cheap, the average price of the feature phone is only a few tens of yuan, and the average price of the smart phone is only a few hundred yuan.
In September 2019, Transsion rang the bell on the science and technology innovation board, with the help of the imagination of the "king of African mobile phones", the market value was once close to the high point of 200 billion yuan, and then it oscillated all the way down, and the market value so far is only about half of the highest point.
Voices that became in Africa are now trapped in Africa. Transsion once wanted to expand from the African market to the Southeast Asian and South American markets, but it failed to achieve real success. In the African base camp, Transsion is also facing competitive pressure from other domestic brands.
In the fiercely competitive mobile phone market, no one can be safe for a long time. With only the first-mover advantage and the lack of product technical barriers, both offensive and defensive ends need to face the problem: is there the ability to face other domestic mobile phone giants?
Weak moat
Looking back at the history of the development of transistor, it presents a story similar to "flying up the branches and becoming a phoenix". A brand that was once regarded as a domestic cottage machine has become a machine emperor in Africa.
In 2006, Zhu Zhaojiang, executive deputy general manager of Bird Mobile Phone Sales Company, led a group of people to found Transsion. Relying on the deep cultivation of the African market and the ultra-low price strategy, TRANSSION mobile phones once swept the African continent and dominated nearly half of the African mobile phone market. In 2019, TRANSSION's market share in Africa reached a terrifying 52.5%, with an average of two mobile phones sold on the continent, one of which is TRANSSION. It was also this year that Transsion landed on the Science and Technology Innovation Board, and its market value doubled several times in half a year, once approaching 200 billion yuan.
Unlike other brands, Transsion's success has left Africa and opened up a blue ocean of mobile phone markets. Due to the limited economic level and backward infrastructure in many parts of Africa, coupled with the complex and chaotic operator system, the needs of local consumers are special. Even Samsung, an international manufacturer, has not been tailored and optimized for the special needs of Africa. But what Transsion did in the early days was this business - only sold for a few tens of yuan, durable after falling, able to last for more than half a month, and even four cards and four waiting mobile phones.
Such a strategy and product concept is related to the experience of Zhu Zhaojiang, the founder of TRANSSION, in Waveguide. In 2006, when Zhu Zhaojiang left Bird, Bird was riding on the east wind of the rapid growth of the overseas mobile phone market, and won the first place in overseas exports of domestic mobile phones for four consecutive years. At that time, quality was considered to be the winning magic weapon of waveguide mobile phones.
Relying on Shenzhen's strong industrial chain, and also relying on product quality, transsion has won the african shipment championship by constantly narrowing the relationship with the African people, and gained the first-mover advantage in the competition for the African market. TRANSSION's three major mobile phone product lines TECNO, itel and Infinix have also won the honor of "The Most Popular Brand of African Consumers" for consecutive years.
Africa has achieved sound, and sound is heavily dependent on Africa. As of the end of 2020, TRANSSION's main business revenue in Africa accounted for about 60%.
Transsion's experience in Africa is its core competitiveness. Localization and customized solutions are also a moat that Transsion often mentions. According to the explanation of a senior executive of Transsion on deep localization, "TRANSSION will deeply understand the needs of users in the target markets we are in, and deeply match product development and design, and launch deeply localized and differentiated products." In the end, TRANSSION has established a research and development system that is highly suitable for local needs, a sales system of deep and stable cooperation, and a large-scale African localization data resource, and multi-dimensional competition barriers.
However, the resulting moat is not very deep. In the view of a mobile phone industry person, Transsion does have a first-mover advantage in Africa, but it can only be used as a brand advantage, not a moat. "The real moat looks at the comprehensive strength of a brand, including technology, research and development, products, talents and so on."
When talking about transsion's success in Africa, an executive of another transsion supplier gave the following comment: Africa is very hard, transsion is very hard-working, down-to-earth, but its "competition is long board and shortcomings are obvious."
Transsion can beat Samsung, Apple, and Huawei in Africa, and the important factor is that Africa as a whole is still an ultra-low-end market, and these manufacturers have not taken this place as the focus of layout competition for a long time. To put it bluntly, most of the African market is not much meat bone, not much profit. The cheap mobile phone market with a price of less than 500 yuan is not in the scope of most head manufacturers. In particular, domestic mobile phones have collectively entered the competitive stage of enhancing brand image, and the release of cheap machines may not hurt the brand.
"The success of TRANSSION is more about taking advantage of information asymmetry." An African entrepreneur told Caijing Weekly that on this basis, the market is hit by low prices. In his view, TRANSSION does not have any advantages in the most cutting-edge capabilities of mobile phones. On the contrary, in the process of continuous transformation of functional machines to smart machines in the follow-up African market, it is more likely to be impacted by domestic brands such as Huawei, Xiaomi, OPPO, and vivo.
At present, in the revenue structure of transsion mobile phones, the revenue of smart phones has accounted for more than 80%. However, it is still dominated by 4G mobile phones, and 5G smart phones have not been launched soon, accounting for a small proportion. Although TRANSSION Africa has the first shipment, in terms of technology research and development product iteration, due to the relatively limited number of patents, less than a fraction of the number of patents of individual head manufacturers, and the lack of core patents, it may face more intellectual property infringement problems in the future. Before the listing in 2019, Transsion had encountered infringement lawsuits from Huawei.
In terms of technical capabilities, TRANSSION cannot be compared with other domestic mobile phone giants. In 2020, TRANSSION's annual R&D investment is only more than 1 billion yuan. Compared with millet, which has a relatively small scale of research and development investment, it also has a scale of 10 billion yuan, a difference of nearly ten times. At the same time, Transsion has no talent advantage. According to the disclosure, the size of its research and development team is about 2,000 people.
The African market surrounded by giants
Due to the relatively weak moat, TRANSSION's leading Share of Africa is also facing the impact of other manufacturers.
Africa is considered a market with great potential. As the youngest continent, the average age of the African population is only 19 years. Among the expectations of many market institutions, Africa is the last "billion-level blue ocean market" in the world. By 2030, Africa's population is expected to far exceed that of China and India. In the future, the demographic dividend will be further released.
Unlike when Transsion first went to Africa, this continent has been valued by more and more head brands. Huawei, Xiaomi, OPPO, vivo, these representative manufacturers, have been deployed in Africa.
These manufacturers seek breakthroughs in the African market by setting up local departments and actively seeking local cooperation. At the beginning of 2019, Xiaomi established the Africa Department and actively cooperated with local channels. Huawei entered Africa as early as 2017, and in the current situation of 5G chip supply, the African market has become a good channel, because only 4G mobile phones are sold there. OPPO and Vivo also launched plans to enter Africa in 2019, including OPPO's sub-brand realme, which also joined the Competition for the African market shortly after its establishment in 2018.
The background of the various manufacturers joining the African scramble is that Africa is under the general trend of switching from functional machines to smart machines. According to the GSMA, the penetration rate of smart machines in sub-Saharan Africa was 48% in 2020 and is expected to reach 64% by 2025. The overall smartphone penetration rate in Africa will reach 67% in 2025.
These manufacturers with the ability to deploy global supply chains have never paid as much attention to African consumers as they do today. At present, although these manufacturers are not as competitive in Africa as India, as their attention to Africa increases, they will further promote and increase investment. Transsion will undoubtedly face a head-on confrontation with these head brands.
A mobile phone analyst analyzed the weekly magazine "Finance and Economics" and said that competition with the head of domestic brands is the next norm for Transsion. At first, Transsion went to Africa, avoiding the fierce competition at home, but now when it meets Africa, collision is inevitable. However, it does not expect that the sense of short-term competition will be strong. The reason is that there are more than 50 countries in Africa, and the market is vast. Various manufacturers also have different development priorities and plans, and in terms of product positioning and specific price segments, it is expected that they will not soon be short-term.
"Transsion started from the larger population markets in East and West Africa, such as Nigeria, and gradually moved towards North Africa and South Africa." But some of the later brands started directly from the richer markets of Egypt and Morocco in North Africa, the analysts said. Xiaomi and OPPO have achieved improvement and results in these markets.
In his view, because African consumers are generally very sensitive to mobile phone prices, brands with different tones and positioning will be different in the development of the African market, but they will eventually meet together.
The above-mentioned African entrepreneurs observed that the number of African sales stores of Huawei and Xiaomi has a relatively rapid growth in physical sensation. "Most Chinese in Africa don't use a transphone." The entrepreneur told Caijing Tianxia Weekly that the mobile phones he gave to several local African employees were mostly second-hand machines of mainstream domestic brands such as Huawei or Xiaomi. In South Africa, North Africa, some countries with a large number of whites, "white people use apples more often"
"In the low-end machine market, Xiaomi's low price will pose a certain threat to TRANSSION." According to him, many low-level African people work monthly income is also in the 100-200 US dollars, the middle level talent income may reach 1000 US dollars, in the price range of 200-300 US dollars, Xiaomi OV as the representative of the manufacturer will increase market entry, by launching more models to take more market share, forming a further voice in the African market.
The brainwashing wall-brushing propaganda implemented by Transsion in Africa, combined with these practices of enveloping street mom-and-pop shops, in his view, is also the best at OPPO and Vivo. These two big factories will use their advantages to advance. In the African market, where online shopping is not developed enough, the huge offline network built by TRANSSION for more than ten years is also facing the poaching and erosion of other brands.
The mobile phone analysts mentioned above expect that with the expansion of the penetration rate of smart phones, the market is becoming more mature, the degree of globalization is higher, and the domestic mainstream brands with higher visibility will be more favored.
"Domestic consumers definitely use mobile phones that are not used to sound transmission." The above-mentioned entrepreneurs in Africa said that when they are used to a better experience, it is difficult to go back and accept a product with an inferior experience. "In recent years, the fierce competition of domestic mobile phone brands has promoted consumers' awareness of the quality of products."
The same is true of Africa. It just needs a longer-term process. Among them, Transsion can no longer be in a safe corner, and the competition with domestic mobile phone giants cannot be avoided.
Success that is difficult to replicate
Transsion once wanted to go out of the African continent. According to its official introduction, the sales network of TRANSSION mobile phones has covered more than 70 emerging market countries and regions such as Africa, South Asia, Southeast Asia, the Middle East and South America. Among them, TRANSSION hopes to replicate Africa's successful experience in emerging markets represented by India, the Middle East, Bangladesh and Indonesia.
At a performance briefing in 2020, Yang Hong, deputy general manager of TRANSSION Holdings, introduced that as of 2020, TRANSSION has performed well in the market share of smart phones in Pakistan and Bangladesh, ranking first.
As the world's second largest smartphone market, India is one of the core positions for many mobile phone brands to go global. Transsion also looked at the cake of the Indian market. Under the guidance of the experience of the African market, TRANSSION officially entered India in 2016. And based on its localization capabilities, TRANSSION also does in-depth product customization for Indian consumers. For example, Indians have the custom of eating with their hands, and it is difficult to avoid greasy fingers, so Transsion has developed an oil-proof fingerprint unlock for this purpose.
But compared to African consumers, Indian consumers don't seem to be too impressed. In 2020, TRANSSION's market share in India's smart phones through low-cost strategies was only 5.1%, ranking sixth.
The Indian market is still dominated by Samsung, Xiaomi, vivo, OPPO and other manufacturers. According to the IDC report, the total sales volume of the smartphone market in India in 2020 was 149.7 million units, and four of the top five manufacturers were from China, of which Xiaomi ranked first with a share of 27%. Samsung came in second with a 20% share. The three to five are vivo, realme and OPPO. The collective share of head brands exceeds 80%.
Although India has great potential, it is already a very concentrated market. At the same time, competition is far more intense than in Africa. Xiaomi seized the first place in the market in India, relying on cheap machines, and the suppression of sound transmission is more obvious. According to available data, TRANSSION has been in a state of loss in the first few years of going out of Africa to explore India. Since Transsion entered the Indian mobile phone market in the second half of 2016, in the three years of 2018, the net loss in the Indian market has exceeded 700 million yuan, and it has shown an enlarged trend year by year.
The industry believes that the fierce market competition has led to a sharp increase in the cost of sales, which has significantly lowered the gross profit margin and caused transsion losses in India. According to the data of the same period, the gross profit margin gap between Transsion in India and Africa is more than 10 points. According to the prospectus, transsion gross margin in Africa in the first half of 2019 was 30.8%, but in the highly competitive India, the gross margin was only 15.31%. Between 2016 and 2018, the average gross profit margin of TRANSSION's mobile phone products in the African market exceeded 24%, but the average gross profit margin of mobile phone products in India was only about 11%.
Whether in Africa or India, the cost of mobile phones is increasing under competition. A very important factor is that competition requires more marketing investment, which has led to a decline in overall gross margins. The gross profit margin of TRANSSION mobile phones in 2020 fell by more than 2 percentage points compared with 2019. In the first half of 2021, the downward trend of TRANSSION gross profit margin further increased, falling by nearly 4.5 percentage points year-on-year.
In addition to exploring emerging markets, TRANSSION is also tapping the potential beyond mobile phone hardware. Transsion Holdings said in the listing prospectus that it will no longer be satisfied with only doing mobile phones, but like Xiaomi, it will build a business ecological model of "mobile phones + mobile Internet services + home appliances and digital accessories".
The invitation to join The Sea Dragon is also to make up for the shortcomings of mobile Internet services, like domestic mobile phone manufacturers, to build a soft and hard ecology, which can make money both on hardware and advertising services. But until the first half of 2021, 95% of transsion holdings' revenue was brought by mobile phones, and the rest of the business was still small and pitiful, and the mobile Internet business revenue accounted for less than 1% of the total revenue.
If the African market is compared to a cake that has not yet been fully cooked, Transsion enters when it is still a lump of batter, participates in the making and sends it into the oven. When all this hard work was over and the cake was about to be served, I looked back to find that a group of predators had gathered outside the oven. With the deepening of the market, the head effect will become more and more obvious, and the living space of low-end brands will continue to be squeezed.
Most of the other representative markets are the battlefield of these opponents, and due to the more fierce competition, the ultra-low price strategy of transsion cannot bring it the same growth and profit imagination as Africa. Without the brand first-mover advantage, and without the right to speak in product technology, the growth myth of the voice is difficult to reproduce in these markets.