Argentina Sample Of Latin American Smartphone Market: Manufacturers Explore Localization Cooperation

As a natural extension of the maritime Silk Road in twenty-first Century, Latin America is an indispensable and important participant in the construction of "one belt and one road". Among them, Argentina is an important cooperation point. Although geographically, Argentina is one of the farthest countries in China. However, "one belt and one road" has made Argentina increasingly close to China. At present, China has become Argentina's second largest trading partner.

In Argentina, Chinese funded enterprises go forward and strive to build a firm foothold by investing and setting up factories, so as to tap the local market value. Among them, Chinese smart phone manufacturers are rooted, landed and bloomed in the Argentina market.

Chinese mobile phone manufacturers are crazy to seize the local market share in Argentina. - Song Wenhui photo

Mobile phone manufacturers gather on Fire Island

According to Countpoint released in 2018, Latin America smartphone shipments data show that Samsung mobile phone shipments accounted for 36.6% in 2018, ranking No. 1. Lenovo's Motorola is the second largest brand in Latin America's mobile phone market, with shipments increased from 11.6% in 2017 to 12.8% in 2018. HUAWEI's shipments in Latin America reached a new high in 2018, an increase of 51% over the same period last year, ranking third in 11.6% shipments.

A few years ago, Zhongxing, Lenovo and other Chinese enterprises began to enter the Argentina market. ZTE set up a branch in Argentina to choose the location of mobile phone manufacturing in Tierra del Fuego. Lenovo is no exception. "The company is closely following the needs of the Argentina market. Over the past twenty years, we have manufactured equipment and imported equipment at Tucum n (Tucuman) and Tierra del Fuego (Tierra del Fuego). Lenovo Group Motorola Argentina general manager Germ n Greco accepted the twenty-first Century economic report reporter interview.

One of the key strategic points is located in Tierra del Fuego. "Last year, almost 100% of Motorola's equipment sold in Argentina came from Tierra del Fuego (Germ)," Germ n Greco introduced. "Motorola is not only a local producer but also an importer."

Statistics show that the duty free zone in the province is located at the southernmost tip of South America and is close to the Antarctic continent. It is one of the most important industries in Argentina. At that time, the government of Argentina implemented a mandatory policy to protect its industries, so all the mobile phones sold in Afghanistan must be finished in the factory at futidao.

Setting up the duty free zone of the fire island is a consideration of the local government, in fact, to promote Argentina's industry. It is understood that Argentina's industrial foundation was weak before, and many products relied on imports. In order to revitalize local industries and feed industrial workers, the present Argentina government has set up such a threshold through the way of local production, the so-called import substitution strategy.

This means that China's smart phone must first fly in the form of spare parts for nearly twenty thousand kilometers. After customs clearance, it will then land through the Patagonia wasteland and finally reach the factory cluster on the island by the Strait. After the assembly of local workers, the finished products will be returned to large cities in the north of Argentina for sale. It is also the same level of transfer and application procedures. The new mobile phones that have just been listed in China usually appear in the Argentina market only after three to six months.

In the process, many obstacles have been added to smart phone manufacturers. The head of a smart phone manufacturer in China told the twenty-first Century business reporter that Argentina has a high cost of producing mobile phones, and that the funds of Argentina customers are often cut off. Therefore, a strong cash flow is needed to support them. Small and medium-sized mobile phone manufacturers do not have the will and strength to participate in such a "battlefield".

"Here we need to accept the special local dismantling scheme, accept the local production here, and we need financial capability to accept the repayment conditions here." The person in charge of the business said.

High threshold brings local production opportunities

Although there are many practical difficulties in the production and sale of mobile phones in Argentina, the high threshold is also a rare opportunity.

For example, at present, there are only about 10 mobile phone brands in Argentina market, and the US Apple phone has abandoned the Argentina market directly. Chinese mobile phone manufacturers are taking advantage of the local market share. In 2015, Samsung's mobile phone accounted for more than 60% of the country's market share, while Motorola's market share was about 10%, but its market share has soared to over 40%.

Despite its rapid growth in the Latin American market, HUAWEI has not yet entered the Brazil market and withdrew from the Argentina market in the third quarter of 2018. At present, HUAWEI has not been able to set up factories in Argentina for the time being.

Local production is an important reason for Motorola to achieve leaps and bounds in the region. Statistics show that as early as 2011, Lenovo Group signed an agreement with Argentina Newsan group to build a production base in futidao. Germ n Greco said that the initial investment of the project was about 14 million US dollars (about 89 million 470 thousand yuan), of which 85% of Lenovo contributed.

According to the introduction, Newsan group was founded in 1958, when it first started producing the first private brand TV set, then made the first two-way radio. "The emergence of mobile phone communication has spawned the first mobile phone market in Argentina market." Germ n Greco said.

After the acquisition of Motorola in 2014, Motorola's previous layout in the region was also under the command of Lenovo's revenue. According to Germ n Greco, the company is committed to and has invested in Argentina for many years, covering the development of 2G, CDMA, TDMA, 3G, iDEN technology and smart phone production.

Data show that as early as the beginning of 1980s, Motorola launched a project to develop Latin America's first cellular network, which was launched in 1989 and is based entirely on Motorola's infrastructure. In 2000, Motorola's technology promoted the introduction of Latin America's first mobile Internet service.

Motorola is also the leading mobile phone manufacturer in Argentina and has been developing related equipment since 2000. After joining the Lenovo embrace, through integration, Newsan group has undertaken Motorola's smartphone production orders in Argentina.

Today, Lenovo's activity in the Latin American mobile market is active. In November 7th, Lenovo released its second quarter 2019/20 fiscal year ending September 30, 2019. Earnings report shows that Lenovo Mobile Business Group achieved a profit of 58 million 100 thousand yuan before tax, and continued to gain 4 consecutive quarters. The pre tax profit increased by more than 400 million yuan over the same period, creating a new high since the merger and acquisition of Motorola business. Among Latin American markets, Lenovo's second quarter quarter revenue grew by 6.8% over the same period, with a 4% increase in turnover and 3.2% profit growth.

Germ n Greco introduced that since March 2010, the company has increased investment in Argentina to improve the production of equipment. "It is estimated that by virtue of several local production lines, 30% of Android's annual smart phones sold in Argentina are made by Motorola in Argentina, and Motorola occupies 95% of Argentina's equipment market share."

As mentioned before, the Argentina market is not an open market, it requires manufacturers to transport parts to the local assembly, production and transportation costs are high, and also involves a series of problems, such as capital chain. Therefore, it has a very high demand for the supply chain integration capability of mobile phone manufacturers.

Therefore, Lenovo chose to cooperate with the foundry factories to set up corresponding subsidiaries and establish exclusive factories. The establishment of this production base is quite different from that of PC manufacturers such as HP and Acer, which usually outsource their capacity to Foxconn, Ren Bao and Flextronics factories.

The manufacturing mode of establishing exclusive factories is called vertical integration by Lenovo Group. Lenovo's manufacturing strategy is different from other companies. We believe that vertical integration is one of the measures for the company to become a global leader. In an interview, Gerry Smith, executive vice president of Lenovo, said: "experience shows that vertical integration strategy enables us to do better in terms of cost, delivery and customer service than our competitors."

The reason why Lenovo has the ability to invest and buy is closely related to its integration capability. Lenovo's manufacturing experience and existing factories support large-scale production and vertical industry chain, so as to ensure spare parts supply and reduce production costs. "Our goal is to provide consumers with experience of quality, price advantage and good service." Germ n Greco said.

In addition, the 2019 Latin American version of the report on Chinese enterprises' overseas image, jointly conducted by the China reporting magazine and the contemporary China and World Research Institute and Kayu, was also officially released in December 3rd. The report investigates the performance of enterprises in four dimensions of responsibility, fairness, trustworthiness and success, and combined with the calculation of multidimensional factors, establishes the index model of Chinese enterprises' overseas image. The higher the index is, the better the Lenovo Group is, ranking second in the Chinese enterprises' overseas image ranking.