How do Chinese Phones cost so little? The reasons why availbility is an issue, demand is high and prices are low


Xiaomi, and more recently ZTE and OnePlus have hit the mobile market with a slap in the face. Low prices and ludicrously high-specifications are what these brands are concentrating on, but how do Chinese phone makers keep their prices so low?

China has always been home of the cheap, but the past few years has seen in an increase in cheap, flagship phones which laugh in the face of international competition. The trend really hit the rest of the world with the launch of the Xiaomi Mi2, a phone which packed 2GB RAM, Snapdragon quad-core processor and impressive 8 mega-pixel camera all for just $320.

The Mi2 might have been the real start of the low-cost flagship trend, but it isn’t the only example. Xiaomi followed up the Mi2 with the Mi2S, then the Mi3. ZTE launched the Nubia Z5S with Snapdragon 800 processor earlier this year at an affordable price, then just this week OnePlus launched the OnePlus One starting from $299 (international price) with 3GB Ram, Snapdragon 801 and 13 mega-pixel Sony sensor.

Keeping Costs Low

When you look at a phone like the OnePlus One compared to say a Samsung Galaxy S5, or even the Google Nexus 5, it’s amazing to see a small brand offering so much for so little money, so how exactly do they do this?

E-Commerce

While ZTE/Nubia, and Xiaomi have opened experience stores recently, they only have very few and they are there for servicing, educating customers and accessories first and foremost. To actually buy a Xiaomi, Nubia or Oneplus phone customers will either have to use the official webstore for the brand or buy through a company like JD.com (Similar to Amazon).

jingdong

Costs of running an E-commerce site are much less than having hundreds of physical stores around the country/world and these savings are passed on to the customer.

Social Network Marketing

Imagine how many millions of dollars a company like Samsung, HTC or Apple spend in a year to keep their products fresh in the minds of customers. TV adverts, billboards, sponsorship and celebrity endorsement are hugely expensive and had a large percentage to the cost of hardware.

oneplus trolls xiaomi

Xiaomi, Nubia and OnePlus all use social network marketing to promote their companies. Using free social media services such as Facebook, Twitter, Google+ and Weibo, these brands have been able to use viral marketing to become hugely popular in a short time.

nubia april 23

Followers soon become fans and fans convert to forum members, the brands spreads by word of mouth and hype/sales boom. Even if a company was to pay for Facebook adverts, or to promote a tweet the cost is comparatively low.

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Low volume production

Xiaomi have been criticised for this on many occasions, but as annoying as manufacturing just a few units at a time is, it really does help reduce costs.

If a company manufactures just 10,000 phones at a time it can be sure to sell them out quickly. The company doesn’t need to sit on stock for months at a time, there is less risk of loss and it also has the benefit/annoyance of creating short supply for a huge demand and thus more free advertising.

xiaomi hongmi sell out hero

Another benefit of low production volumes is that the company can take advantage of savings as component costs reduce throughout the products life time. Believe it or not, but many of these Chinese companies sell their phones with very little profit (sometimes a small loss) for the first few months of production (this is why it is so hard to get them, numbers are kept low). As component costs start to fall profit begins to grow.

Accessories, Apps and Services

Xiaomi is a great example of this, and OnePlus seem to be doing something similar. Although there is very little profit to be made on the phones themselves, accessories such as covers, screen protectors, cables, batteries, and even lifestyle products and clothing are all mostly profit.

xiaomi shoes

For fans of these brands the phone is more than ‘just a phone’ and more of a lifestyle, and so are happy to walk around in Xiaomi branded shoes, or shower with Oneplus soap.

nubia accessories

 

Another method of making money are services built in to the ROM of the phone and even selling applications too. Xiaomi currently sells themes through MIUI, and you can sign up for a subscription for their video streaming service too. It is likely other phone makers will do this in the future to boost profits too.

How do Chinese phone makers keep their prices so low?

So there you have it, while many of these methods can be annoying or irritating it does mean we are able to get low-cost phones with the latest hardware.

What do you think of these methods? Are you happy to accept them so you can save money or would you happily pay more for better availability?

 

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44 Comments

  1. Jorrick Sleijster
    April 24, 2014

    I feel like with the oneplus one I rather had a large as production and pay 30 more then wait a year for an invite..

  2. Alex
    April 24, 2014

    Here’s my gripe…
    For at least several weeks I have been trying to make a wholesale purchase through antelife.com. I have Skyped with Sophia, Lowry, including several other people from different departments. I live in an opposite time zone and wind up staying up past midnight with unfruitful results. I have yet to successfully purchase 10 pieces of the star s1, miz z5, DK N8971 or anything similar. I have buyers who are interested and waiting, $1,000 in the bank and cannot seem to be able to put the final pieces together of this puzzle. =( To simplify this in the future, I recommend creating a wholesale section on said website where quantity buyers can register and login. Of course a live chat option (tab to click on) would be available if a buyer needed help. This would eliminate or reduce situations like this in the future… I would hope that my words do not fall on deaf ears… Nor do I feel that I am being too unreasonable in my simple request…

    • April 24, 2014

      Yes Alex, your idea is great, each chinese phone company must to set a wholesale website, direct from the manufacture. Like the dropship, there is many people in the world that want a share of this market, just is need the better support for software updates and repair parts, there is a lot of small business ready to take the another side of this business. in resume: chinesse to manufacture and global branding with wholesale, local small business to final sale and software support and repairs.

    • The Chosen One
      April 25, 2014

      Hey Alex try Pandawill

    • amirexpress.ir
      April 25, 2014

      email me to give you my seller/supplier from china
      I am also working out of china and selling things here

      amirbahalegharn365@gmail.com

    • Snelleboi
      January 1, 2017

      Try alibaba.com

  3. highwind
    April 24, 2014

    These “low costs” on “high end” phones are a myth…
    1. It is nearly impossible to buy these phones for the advertised prices
    2. All those prices never include any VAT while the ones they are compared to always come with VAT included

    Also, how can “low volume production” help to keep prices down? O_o
    That makes absolutely no sense at all, you get bigger Discounts the more you buy
    http://en.wikipedia.org/wiki/Mass_production

    Chinese Smartphones makers massively safe costs at the consumer- and service-end…
    The phones usually come with only 1 year (most “big brands” sell with 2 years, atleast in Europe) and the service is nonexisitant.
    If my Xiaomi devices is malfunctioning I have to sent it back to China (at my own cost) wait for weeks and then have to be lucky to get anything back.
    If my Samsung device is malfunctioning I can return it to the local service store and get a new or repaired phone on the same day.

  4. Allanitomwesh
    April 24, 2014

    Personally would rather pay upfront for the hardware and get all the services with it. But that’s just me. For instance ,the OPPO Find 5 costs more than the Mi2,but all the themes in ColorOS are free. All is well.

  5. $2548414
    April 24, 2014

    The thing is- the likes of Apple, Samsung, et. al had perfected the art of LOOTERY–manufacture a mobile for BOM and assembly price of $ 200 and sell for $ 750 = Super Normal Profits, as the market place becomes more competitive,BUT thanks to Xiaomi, 1+1 et. al. the days of these highway robbers Apple, Samsung et. al. might be numbered, all the better for the consumer, he might get a well specced phone for the right price.

    • chazmaywheaton
      April 25, 2014

      Great article that really hones in on that just because it’s not Samsung or another major brand, doesn’t mean low cost equals junk and it’s nice to see that resellers in the U.S. like the site, iProTablet are beginning to make many of these products available without having to deal with an international reseller

  6. Guest
    April 24, 2014

    I feel like with the oneplus one I rather had a large as production and pay 30 more then wait a year for an invite..

  7. Alex
    April 24, 2014

    Here’s my gripe…
    For at least several weeks I have been trying to make a wholesale purchase through antelife.com. I have Skyped with Sophia, Lowry, including several other people from different departments. I live in an opposite time zone and wind up staying up past midnight with unfruitful results. I have yet to successfully purchase 10 pieces of the star s1, miz z5, DK N8971 or anything similar. I have buyers who are interested and waiting, $1,000 in the bank and cannot seem to be able to put the final pieces together of this puzzle. =( To simplify this in the future, I recommend creating a wholesale section on said website where quantity buyers can register and login. Of course a live chat option (tab to click on) would be available if a buyer needed help. This would eliminate or reduce situations like this in the future… I would hope that my words do not fall on deaf ears… Nor do I feel that I am being too unreasonable in my simple request…

    • Elisha Bentzi
      April 24, 2014

      Yes Alex, your idea is great, each chinese phone company must to set a wholesale website, direct from the manufacture. Like the dropship, there is many people in the world that want a share of this market, just is need the better support for software updates and repair parts, there is a lot of small business ready to take the another side of this business. in resume: chinesse to manufacture and global branding with wholesale, local small business to final sale and software support and repairs.

    • The Chosen One
      April 25, 2014

      Hey Alex try Pandawill

    • Guest
      April 25, 2014

      email me to give you my seller/supplier from china
      I am also working out of china and selling things here

      amirbahalegharn365@gmail.com

    • Guest
      January 1, 2017

      Try

  8. provokanter Tabellenführer
    April 24, 2014

    These “low costs” on “high end” phones are a myth…
    1. It is nearly impossible to buy these phones for the advertised prices
    2. All those prices never include any VAT while the ones they are compared to always come with VAT included

    Also, how can “low volume production” help to keep prices down? O_o
    That makes absolutely no sense at all, you get bigger Discounts the more you buy
    http://en.wikipedia.org/wiki/Mass_production

    Chinese Smartphones makers massively safe costs at the consumer- and service-end…
    The phones usually come with only 1 year (most “big brands” sell with 2 years, atleast in Europe) and the service is nonexisitant.
    If my Xiaomi devices is malfunctioning I have to sent it back to China (at my own cost) wait for weeks and then have to be lucky to get anything back.
    If my Samsung device is malfunctioning I can return it to the local service store and get a new or repaired phone on the same day.

  9. Allanitomwesh
    April 24, 2014

    Personally would rather pay upfront for the hardware and get all the services with it. But that’s just me. For instance ,the OPPO Find 5 costs more than the Mi2,but all the themes in ColorOS are free. All is well.

    • Allan Mwenda
      June 29, 2018

      Not sure how to feel about my username and profile pic being boosted from Disqus.

  10. Faux-News
    April 24, 2014

    How long can they sustain this ? I remember reading a article from Huawei heads about how this low price phone war is non-sustainable and that in coming years many of the current phone manufacturers in China will be completely wiped off the scene if they don’t grab a huge percentage of the world market.

  11. Guest
    April 24, 2014

    The thing is- the likes of Apple, Samsung, et. al had perfected the art of LOOTERY–manufacture a mobile for BOM and assembly price of $ 200 and sell for $ 750 = Super Normal Profits, as the market place becomes more competitive,BUT thanks to Xiaomi, 1+1 et. al. the days of these highway robbers Apple, Samsung et. al. might be numbered, all the better for the consumer, he might get a well specced phone for the right price.

    • chazmaywheaton
      April 25, 2014

      Great article that really hones in on that just because it’s not Samsung or another major brand, doesn’t mean low cost equals junk and it’s nice to see that resellers in the U.S. like the site, iProTablet are beginning to make many of these products available without having to deal with an international reseller

  12. Faux-News
    April 24, 2014

    How long can they sustain this ? I remember reading a article from Huawei heads about how this low price phone war is non-sustainable and that in coming years many of the current phone manufacturers in China will be completely wiped off the scene if they don’t grab a huge percentage of the world market.

  13. WarriorPigify .
    April 24, 2014

    Very informative Andi!

  14. WarriorPigify .
    April 24, 2014

    Very informative Andi!

  15. Marco
    April 25, 2014

    Not mentioned underpaid workers and bad work conditions .

    • sjm
      April 26, 2014

      Thanks a lot…. Seriously guys how do you think this works?
      In the opposite every manufacturer abuses those conditions untill the end….
      I’m not even sure of I can complain about it, but I don’t want to forget.
      => I’m not critizising anyone at all guys, I was really just wondering. (I ain’t better)

    • desponent
      April 26, 2014

      Those apply to all phone or practically every electronic factory in China, regardless of price.

  16. dreamer0815
    April 25, 2014

    That all sound reasonable. But i miss one thing. None of these brands do have a official distribution in Europe. As soon as the will, they will have to face the cost of distribution, V.A.T., service, 2-years warranty a.s.o. We`re seeing tons of brands from china. But nearly all of them are not the manufacturers. That`s why we see so similar phones. And only a few of them will make it to the international market.

    • desponent
      April 26, 2014

      That’s part of the reason why it’s so cheap.

  17. Marco
    April 25, 2014

    Not mentioned underpaid workers and bad work conditions .

    • sjm
      April 26, 2014

      Thanks a lot…. Seriously guys how do you think this works?
      In the opposite every manufacturer abuses those conditions untill the end….
      I’m not even sure of I can complain about it, but I don’t want to forget.
      => I’m not critizising anyone at all guys, I was really just wondering. (I ain’t better)

    • desponent
      April 26, 2014

      Those apply to all phone or practically every electronic factory in China, regardless of price.

  18. Guest
    April 25, 2014

    That all sound reasonable. But i miss one thing. None of these brands do have a official distribution in Europe. As soon as the will, they will have to face the cost of distribution, V.A.T., service, 2-years warranty a.s.o. We`re seeing tons of brands from china. But nearly all of them are not the manufacturers. That`s why we see so similar phones. And only a few of them will make it to the international market.

    • desponent
      April 26, 2014

      That’s part of the reason why it’s so cheap.

  19. Disco Dancer
    April 28, 2014

    You forgot quality controll and service network. Samsung phone could be repaired anywhere, what about Chinese brands? Send them to China and wait two months to return.

  20. inkflow
    April 28, 2014

    The truth is simple: There is no competition in the cellular market in the US. In China there is a competition.

    As long as the cellular providers sell their services using “packages” at a ridiculously high prices which prevent from the customers to change providers they will continue to milk the American costumers. These ridiculous prices allow them to “subsidize” (this should be actually termed as “trapping”) purchases of new phones – if buy them from your cellular company.

    Think of it: Does it seem normal to you to buy your PC from your ISP? Do you buy your car at the gas station? Did you get your kitchen oven from the electricity company?

    Why do US costumers buy their phones from their cellular companies?
    Because there is a lack of competition and the main cellular manufacturers are playing along with them by demanding high prices for their devices (which can then be “subsidized”) and locking the devices for a specific cellular company.

    By the way, judging from other countries which have a cellular competition – a non limited voice and data plan (including international calls) costs about $10 to $20 a month!

    Note: If you didn’t get it from my English – I’m not from the US.

  21. Disco Dancer
    April 28, 2014

    You forgot quality controll and service network. Samsung phone could be repaired anywhere, what about Chinese brands? Send them to China and wait two months to return.

  22. inkflow
    April 28, 2014

    The truth is simple: There is no competition in the cellular market in the US. In China there is a competition.

    As long as the cellular providers sell their services using “packages” at a ridiculously high prices which prevent from the customers to change providers they will continue to milk the American costumers. These ridiculous prices allow them to “subsidize” (this should be actually termed as “trapping”) purchases of new phones – if buy them from your cellular company.

    Think of it: Does it seem normal to you to buy your PC from your ISP? Do you buy your car at the gas station? Did you get your kitchen oven from the electricity company?

    Why do US costumers buy their phones from their cellular companies?
    Because there is a lack of competition and the main cellular manufacturers are playing along with them by demanding high prices for their devices (which can then be “subsidized”) and locking the devices for a specific cellular company.

    By the way, judging from other countries which have a cellular competition – a non limited voice and data plan (including international calls) costs about $10 to $20 a month!

    Note: If you didn’t get it from my English – I’m not from the US.

  23. kalt kirk
    May 2, 2014

    Great but!!!
    When I checked how to buy the latest Lenovo Smartphone I discovered that it was not and probably not be on sale in the UK. So buy online?
    The Lenovo terms & conditions seem to state that there would be no support (no updates, servicing, repairs, warranty(?)) outside the country where the phone was supplied from.
    So buying from. say, China, shipped to UK means the phone is supplied as is – no support.
    I would be interested to see whether the level of support from One Plus, Oppo, Nubia, ZTE, etc. is as full in the UK as in their home country.
    Maybe this is why some phones are cheap. I know you refer to quality, and it is better to have a quality phone that never breaks down or malfunctions, than to have one that does but they have 900 local stores, but then this doesn’t help with updates, etc.
    How about an article this week on where the individual phone makers stand on these matters, because currently I am unsettled about buying, say, the One Plus One, via shipping form the internet?

  24. Guest
    May 2, 2014

    Great but!!!
    When I checked how to buy the latest Lenovo Smartphone I discovered that it was not and probably not be on sale in the UK. So buy online?
    The Lenovo terms & conditions seem to state that there would be no support (no updates, servicing, repairs, warranty(?)) outside the country where the phone was supplied from.
    So buying from. say, China, shipped to UK means the phone is supplied as is – no support.
    I would be interested to see whether the level of support from One Plus, Oppo, Nubia, ZTE, etc. is as full in the UK as in their home country.
    Maybe this is why some phones are cheap. I know you refer to quality, and it is better to have a quality phone that never breaks down or malfunctions, than to have one that does but they have 900 local stores, but then this doesn’t help with updates, etc.
    How about an article this week on where the individual phone makers stand on these matters, because currently I am unsettled about buying, say, the One Plus One, via shipping form the internet?

  25. Mateusz Mysiak
    September 23, 2016

    The single biggest reason for that are ridicolously lower taxes in China. Have the same taxes, regulation and prices will be very similiar anywhere in the world.

  26. Mateusz Mysiak
    September 23, 2016

    The single biggest reason for that are ridicolously lower taxes in China. Have the same taxes, regulation and prices will be very similiar anywhere in the world.

  27. Allan Mwenda
    June 12, 2018

    I’m not complaining