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Shen argued that knowing what segment to target is key to the success or failure of handset makers in a market where around 80 per cent of sales are made independently of carrier-based contracts.

“It is a hugely competitive market so you really need to make your products stand out and target a segment where you can excel,” she told The Reg.

“Samsung and Apple are high end brands which position their devices as premium products so they can command premium prices while Huawei and ZTE are good at competing at the low end. There are many different segments to target but once you’ve decided then you need to put all your resources into things like marketing, branding and distribution.”

Not in my back yard

For those big name handset makers and platform providers rubbing their hands with glee at the prospect of an ever growing mobile user base of potential customers, however, Deloitte’s Chou had a word or two of warning.

He argued that, as in many other spheres of life, Chinese companies would eventually look to better and edge out their international rivals in the domestic market.

At the very low end of the smartphone market this will come in the form of “micro-innovation” in the shanzai industry, he said.

Now, shanzai are products deliberately designed to copycat more famous models at a fraction of the price, but Chou argued that shanzhai peddlers themselves will become increasingly innovative and mainstream in taking the best of well-known products like the iPhone and tailoring them to the domestic market.

Even established platform providers Apple and Google, which between them have most of the smartphone market, could see their mobile ecosystem empires challenged in time.

“No Chinese handset maker has a solid platform that can compete with Apple and Google yet but we are at a very early stage,” he said. “Vendors like Huawei and Lenovo are providing smartphones not because they want to earn a profit from the sales but because they eventually want to dominate the application market.”

Handset vendor Xiaomi already has its own OS while Lenovo is also working on a home grown platform, although the details of exactly how they plan to build their respective mobile ecosystems and eventually make money from different software and service offerings remain to be seen, Chou explained.

One way they could appeal to the domestic user, he suggested, was in offering pre-loaded services from home grown web companies which have the green light from government censors and are more popular Chinese equivalents of globally famous sites.

So, for Google read Baidu, for Twitter read Sina Weibo and instead of Facebook, Renren.

None of this is going to happen anytime soon, of course, but when it comes to China, things have a habit of moving faster than expected. ®

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