Innovation barrier next hurdle for smartphone firms

Chinese smartphone makers have surged in their home market over the last year, coming from out of the blue to challenge big global names like Apple and Samsung. But their rise could be short-lived if they fail to innovate, paralleling a similar rapid rise and fall a decade ago for names like TCL and Ningbo Bird that are now just footnotes in the history of China's large but highly competitive mobile market.

The rapid rise of Chinese brands over the last year has been nothing short of remarkable, as China gets set to overtake the US as the world's largest smartphone market. At the end of last year, the market was still dominated by foreign names, with Samsung, Nokia and Apple occupying three of the top four slots to control more than half of the market collectively.

Fast forward to the third quarter of this year, when domestic players dominated the list with four of the top five slots. Samsung continued to top the list, but the South Korean giant lost major ground as its share slipped to 14 percent from a quarter of the market just a year earlier. Apple, maker of the popular iPhones, saw its share stay relatively stable at about 8 percent. But it was overtaken by rising domestic stars Lenovo, Huawei, ZTE and Chinese Wireless Technologies, makers of the Coolpad brand.

The Chinese names have risen largely on their ability to develop lower-cost models selling for as little as $100 or less. Such models have been one of the main drivers behind the broader market's explosive growth, attracting cost-sensitive consumers who might otherwise have to spend several months' salary for a new iPhone or Samsung Galaxy phone.

The Chinese names have succeeded largely on their ability to control costs by relying on foreign technology, including chips and Google's free Android operating system. But history has shown that this approach often results in cutthroat competition, as barriers to enter the market are lowered and many products are often hard to differentiate from one another.

Names like TCL, Ningbo Bird and Kejian all made a similar rapid rise nearly a decade ago, using their low-cost advantage and imported technology to quickly challenge global powerhouses like Nokia, Motorola and Samsung in their home market. But they disappeared almost as quickly as they rose due to their generic designs and inability to develop new models that catered to the latest trends in the rapidly changing market.

The rise of ZTE, Huawei, Lenovo and others could see history repeat itself, but it could also mark an important break with the past if the companies act shrewdly and invest heavily in new product development. Unlike TCL, Ningbo Bird and others from the earlier generation, the latest group of fast-risers are mostly very large companies with lots of money to invest in R&D. If they are smart, they will do just that. Otherwise, they could see their rapid rise quickly reverse and become an equally swift decline as they are overtaken by more innovative, big-spending foreign rivals.