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Buying phones from China part 1: why bother?

The advantage that Chinese wholesalers offer is that the big corporate expenses, the huge advertising budgets and the need to make 33% profit on each phone doesn't exist. The result is access to Android smartphones much nearer to their production costs.

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Published onApril 9, 2013

The traditional way to get hold of an Android phone was to sign a 2 year contract with your carrier and pick a phone to match your budget. However that method is changing with companies like Google offering the Nexus 4 unlocked and contract free, and T-Mobile moving to its Uncarrier business model. But the problem with this new approach is that you need to spend more money upfront to get hold of the phone or (as in T-Mobiles’ case) you need to buy it on credit and pay back the loan in installments.

The problem is that smartphones are expensive. And this is were China comes into the equation. So, why bother to buy an Android smartphone from China? Simple, the price. I have owned several Android devices which came directly from China and in almost every case when I showed a friend the 5.8 inch quad-core Mithril or the SmartQ U7, with its built-in DLP projector, they loved the device but asked, “that must have been expensive.” When I told them the true price, they could hardly believe me!

The truth is that the majority of Android devices are made in China under contract from companies like Samsung, LG, ASUS or Sony etc. So in one sense whenever you buy a big brand phone it is actually a Chinese phone! Plus companies like ZTE and HUAWEI, which are both native Chinese giants, are making big inroads into the branded Android smartphone market. There are also lesser known brands (in the West) like ThL, who have 341 stores across China. And of course we can’t forget Lenovo!

The reason the big brand companies choose China as a manufacturing base is mainly due to cost coupled with China’s rapidly growing tech infrastructure plus manufacturing capacity. These make the per unit costs of modern smartphones cheaper than if they were made in the West. But once you add on corporate costs, advertising budgets and obligations to share holders the price the end user pays for the phone is a lot higher than what it cost to make. And that is OK, that is the nature of business. Every business is the same. Some like Apple choose intentionally to add very big profit margins to their devices (33% or more) while others like Amazon are trying a different approach by selling its Kindle and Kindle Fire ranges at near cost price with an expectation of making money on the content. Between these two extremes there is a whole gamut of business practices and business models.

The advantage that Chinese wholesalers offer is that the big corporate expenses, the huge advertising budgets and the need to make 33% profit on each phone doesn’t exist. The result is access to Android smartphones much nearer to their production costs.

That isn’t to say that buying smartphones from China isn’t without its pitfalls. There are questions about where to buy, who to trust and what happens when something goes wrong. Plus there are questions of quality and design issues. This series of posts will look at the whole experience of buying smartphones from China, so stay tuned for more!