Insight : How New Global Middle-Class Demographics In Growth Markets Impact The Mobile Device Industry.
In a recent Voice Gurus article, Software solutions take high quality features to emerging markets, we offered some insights into how device makers like Huawei, Lenovo, Xiaomi and ZTE are creating new price/performance benchmarks.
In this article Edwin Zuidema, Marketing Director Speech & Sensing at NXP Software, takes a look at some of the demographic changes which are driving that change, and how innovative device makers are taking advantage of the opportunities.
To put things quickly into perspective, let’s start by looking at how the world’s middle class spending power is projected to change over the next 15 years.
Asian Market Increases from 23% to 59% of Global Spending Power.
Chart: Percentage of global expenditure by middle class consumers.
Source: BlackRock Investments
“The big takeaway from this,” Zuidema says, “is that the US/EU figure goes from 64% down to 30%, while the Asia/Pacific figure raises from 23% to 59%. The rest of the world stays the same”
“… so it’s essentially a shift of spending power from the US/EU markets to the Pacific markets. The South America, Africa and Middle East figures remain largely static.”
Another set of figures, this time from Wikipedia, show the top ten countries by active mobile phones in use.
Table: Top Ten countries by active mobile phones.
Source : Wikipedia
|Country||Active mobile phones|
“What is fascinating here,” Zuidema says, “is that of the 6.8 billion mobile phones in active use around the world, the four BRIC countries (Brazil, Russia, India, China) account for almost 2.75 billion handsets … that’s around 40% of the global market. It also means the BRIC countries have over 8 times the phone population of the USA. And, as an aside, it’s interesting that not one European country makes it to the top ten list.” (Germany is number 11 on the Wikipedia list, just after Bangladesh.)
“With the exception of the US and Japan,” Zuidema continues, “all the countries in the top ten list will have a lower average per-capita middle-class income, which means that the bulk of their consumers will be price sensitive.”
An emerging middle class and new smartphone business models.
Zuidema says that a stark comparison in business models is shown by the difference between Apple and Xiaomi. “According to a Mashable article that I read recently,” Zuidema says, “Apple have something like a 69% profit margin on their entry-level iPhone 6, but separate sources say that companies like Xiaomi launch at much nearer to cost price.”
“How the math works is that Apple quickly makes a lot from their new model, and then spends a lot to try and create an exciting replacement model within a year. Xiaomi, on the other hand, aim for a two year product life and to profit from reduced build costs and a margin on mobile internet services over the life of the phone.”
Zuidema concedes that despite their premium price Apple have very large sales volume, but adds that: “innovators like Xiaomi are catching up fast and producing mobile devices which have the ideal price/performance point for the mass market of first time buyers and an aspiring, emerging middle class wanting more from their devices, including innovative services.” Xiaomi sold more than 61 million handsets during 2014, compared to almost 19 million in 2013.
“Your business models need to change to fit the exciting new pricing philosophy of customers like Huawei, Lenovo, Xiaomi and ZTE,” Zuidema says. “We also have a team of experts working locally in China, India and South Korea, to help our customers achieve their demanding price/performance goals.” NXP Software has ITU-compliant audio labs in China and South Korea to optimize individual device performance. “That’s important,” Zuidema says, “if you want a phone with a lower-tier chipset, low-cost speakers and a slim plastic body to sound as good as a flagship handset.”
Fine-tuning devices for the new middle class consumers.
NXP Software has been in a unique position to work with Asia/Pacific device makers on their pricing models. “Because we’re software-based rather than hardware-based,” Zuidema says,
“we have a lot of flexibility to adapt to the emerging revenue models.”
NXP Software can also support manufacturer goals of reducing development times. “Our ecosystem is large and diverse,” Zuidema says, “and that is one of our key strengths as a company. For example, we worked with Google from the outset of Android and contributed to nearly every major Android release, we were one of Qualcomm’s first Hexagon partners, and we work with leading network operators like AT&T to set voice quality standards for all mobile networks. The benefit of this active ecosystem for our device maker customers is that they get speech and sensing solutions that ‘simply work first time, every time’ … and bring flagship voice quality to affordable handsets.”
As the balance of spending shifts East, NXP Software is well placed to support its device maker customers in meeting the demands of a new generation of middle-class consumers.