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The Next Samsung Will Come From China

The phones and drones and other products I saw during my week in China were no mere knockoffs.

DJI

Fifteen years ago, if you had asked Americans what they thought of Samsung, most would have said they had never heard of the Korean company, or would have associated it with inferior, budget products.

Today, of course, Samsung’s smartphones, TVs and other products are not only big sellers here, but are regarded as high-quality ones, worthy competitors to those from premium, highly trusted brands like Apple and Sony.

I predict that the next Samsung — the next little-known, or poorly regarded, foreign consumer electronics brand to earn respect and success in the West — will be from China. And I think this will begin to happen in the next few years.

After traveling in China for a week, meeting with a variety of tech companies large and small, it seems to me that Chinese consumer tech companies are at a tipping point. They are on the verge of emerging in a big way, as recognized, competitive brands in the wealthy, developed markets of the U.S. and Europe.

 Re/code’s Walt Mossberg tries out a drone from Chinese company DJI in Shenzhen, China.
Re/code’s Walt Mossberg tries out a drone from Chinese company DJI in Shenzhen, China.
Dawn Chmielewski

Right about now, some of you are saying: “Wait, there already is a Chinese-owned and branded tech company that’s done that: Lenovo.” And you would be right. Except Lenovo did it by buying a legendary U.S. company’s product line — IBM’s PC arm — including an already-established, much-respected brand: ThinkPad. In fact, under the terms of the 2005 deal, Lenovo was even able for years to keep using the IBM logo.

And Lenovo is now doing the same thing in smartphones, via the purchase of another venerable American company: Motorola.

But I’m talking about something different: A Chinese company developing its own consumer tech products in a major category, at a level that competes with successful brands in the West.

This would represent a major new step in the evolution of Chinese consumer tech. Many Americans know that their smartphones, tablets and laptops are assembled in giant factory complexes in China. But these products are U.S.-branded and designed. A lot fewer know that there are a bunch of Chinese-designed and branded smartphones, but that these are largely crafted for and sold into the massive Chinese domestic market.

And of course, China still produces outright knockoffs of U.S. tech products, like the $45 “Apple Watch” I saw during my visit.

But a high-quality Chinese tech product, designed, built and branded there, that showed up in the West to take on established names here, would be another thing altogether.

There are already promising candidates. For instance, the world leader in civilian drones is a Chinese company, DJI. Perhaps the most promising quality smartphone company globally is another China born-and-bred firm, Xiaomi, which also makes TVs, fitness bands and headphones. And another Chinese phone firm, OnePlus, makes highly customizable phones. Yet another, Cheetah Mobile, makes security and utility software for Android phones.

And based on my conversations, I think most of these companies’ ambitions go well beyond their current best-selling products. For instance, Xiaomi considers itself an Internet-and-software company, partly because it sells its phones only online and partly because it has worked hard to develop its own interface and ecosystem on top of Android.

Still, the emergence of these companies in the West will be a gradual process. For instance, Xiaomi — which many consider China’s best bet to invade the West — has publicly said it has no plans to sell its handsome but low-priced phones in the U.S., and is mainly focused on China and a few other countries, primarily in Asia.

OnePlus, which is eager to sell globally and to avoid being China-focused, does sell in the U.S., but sees India as a bigger opportunity — so big that one of its co-founders is temporarily moving there.

DJI already has substantial respect and market share in the U.S. and Europe, and has adopted a name and hired staff that aim to blend easily into the West. But drones are still a relatively small industry, and even a drone titan isn’t likely to become the next Samsung.

Huawei and ZTE sell phones here, but they are very minor players, whose phones are often offered by carriers as budget models.

In my meetings in China, three obstacles were cited for operating in the U.S. The first two, which apply mainly to smartphones, are the saturation of the market and the lingering carrier-subsidy system, which tends to hide the kind of price advantage the Chinese companies proudly cite, even for premium models.

The third is the cost of licensing patents and otherwise complying with intellectual property rules and laws. This came up again and again. One company said it had done an internal study which showed that IP costs in the U.S. could shave 30 percent off its revenues. The unstated implication of these conversations was that companies could avoid patent enforcement and litigation by selling mainly or solely in China, but not once they expanded to the U.S. and Europe.

Still, I repeat: We are at or near a tipping point. The Chinese phones and drones and other products I saw were no mere knockoffs. And I’m convinced that the money and prestige to be gained by becoming the next Samsung will tempt one or more of these companies soon.

This article originally appeared on Recode.net.

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