How Does Chinese IDHs Mature Through Smartphone Production?

In the first three posts of the series, our TechDesign Team talk about the overview of Chinese IDHs and the electronics value chain. We hope you have gained some valuable knowledge about this booming sector. With some thorough introduction, we think it makes sense to provide some specific examples to tie all the theories with real world phenomena. One very prominent phenomenon is China’s fast-growing smartphone industry, which has been taking over the global smartphone market in record-breaking speed. China’s IDHs and ODMs play significant roles in this trend, so we figure it will be a good example to give you all more insights about the development of Chinese IDHs.

How it all starts? 

It all started in 2005, when a very niche ecosystem was formed among a group of manufacturers who wanted to start producing mobile phones but couldn’t due to strict government regulations. The ecosystem started manufacturing the so called black mobile phones, and sold them domestically or to developing countries . This practice severely threatened the existing mainstream mobile phone manufacturers. The restrictions were lifted altogether in 2007, which paves the way for an open market  for smartphones. However, one undeniable truth is these IDHs have laid a solid foundation for the overall Chinese smartphone market.

According to Wall Street Journal, some of these IDHs later become the ODMs of the fastest growing smartphone brands around the world. With the endless amount of production from these ODMs located in cities like Shenzhen, China now are catching up with the rest of the world in terms of popular smartphone brands. The maturation of these ODMs’ technological skills help local brands to quickly close the gap between them and traditional smartphone leaders, such as Samsung. On top of that, the cheaper price gives them more edge than ODMs in other countries.

Advantages and challenges 

With the transitioning from IDHs to ODMs, these companies also narrow down the number of partners they serve through the process. Some of them differentiate themselves from the typical contract manufacturers by boasting about their expertise in research design capability. For fast-rising smartphone brands, the price that these ODMs are able to offer makes them ideal partners.

However, challenges remain as more and more IDHs turn into ODMs that aim for the same lion’s share, so often, they need to fight for very small-margin earnings. As a result of that, many factors need to be taken into consideration before ODMs agree to take on a customized design. They need to make sure the product will become a success once it hits the market. From there, ODMs typically can reduce the component costs through large-scale manufacturing, and by doing so, indirectly expand their profit margins.

Those of us at TechDesign hope you can paint a more complete picture about Chinese IDHs and their roles in the current electronics value chain through the example above. The smartphone sector is only an example within the larger picture of the whole electronics value chain, but we think it is good enough to help you accumulate useful information and knowledge about Chinese IDHs. In the next post, we will bring the focus back to TechDesign and the role that we play in this big picture. Stay tuned and help to share this if you can.