Impact of smartphones on US-China tech rivalry

Vlad Savov:

Michael, you just wrote a piece for the Hinrich Foundation titled, "China Smartphone Producers Take on the World," and key to that is the way that smartphones have become a focal point of the US-China tech competition. So, maybe you can give us the impetus for writing this in the first place and why you see them as such an important part of the business world.

Michael Enright:

Well, part of the impetus is the very importance. I mean, smartphones are by far the largest export category out of China into the US and quite frankly, rest of [the] world. Smartphones are also in many ways at the cutting edge not only of mobile technologies, but also chip technologies and other advanced technologies that both China and the US wish to be the world leader in. And what we're seeing is basically a very interesting set of potential transitions where increasingly the international leaders, historically Apple and Samsung, are in danger of being displaced by indigenous Chinese brands. In fact, indigenous Chinese brands today have about 60% of the world share of unit shipments of smartphones. And the impetus of writing the piece was to explore the dynamic, how that happened, and then the role that smartphones play really almost like the canary in the coal mine when it comes to technology competition between the East and the West.

Vlad Savov:

Right. So, before we get to Apple and Samsung, who are the threatened parties today, there was HTC, LG, [and] Sony previously, who were big players in the Android operating system and ecosystem. How did the Chinese brands surpass those other international players?

Michael Enright:

Well, the Android operating system again, introduced in 2008, is an open system. So once you had an open operating system and you had the underlying semiconductors that were powering the smartphones freely available on the market from companies like NVIDIA, Qualcomm, Intel and Samsung, often manufactured by TSMC, basically, once you had the brains of the smartphone available on the marketplace and you had the operating system available on the marketplace, then, in the Android world, it fundamentally becomes a manufacturing game. And starting in the 1990s, China increasingly became the dominant location for electronics manufacturing. A lot of that was built through the efforts of companies like Samsung and then Apple working with Foxconn.

So, by the time smartphones were introduced and started getting popular - 2007, 2008, the introduction by 2010, 2011, you see the real ramp up. China was already extremely well situated on the manufacturing side. And then you have the supply chains in China, you have indigenous Chinese companies able to leverage the same supply chains and manufacturing capabilities originally built to serve the foreign firms. You take the operating system out of the game in terms of proprietary knowledge, you take the chips out of the game because they're freely available. And what you have in the Android world, with the exception of Samsung, which is still able to differentiate its products on features, etc., what you have is a manufacturing game that the Chinese have mastered.