Telecoms

A sour note

Samsung has galactic problems in China

Galaxy 7

Looks really good, till it explodes

Samsung Electronic’s exploding phones have been generating heat in more ways than one in China, where the company has been on the receiving end of a fierce backlash from consumers who feel they have been treated differently to the rest of the world. Local newspapers have seized on a torrent of negative social media comments towards the South Korean company, which has now fully recalled and ceased production on its faulty Galaxy Note 7 smartphone (at a cost of at least $5.3 billion to its operating profits over the coming two quarters).

The first recall, on September 2, covered 10 countries and 2.5 million smartphones, but excluded China. After being roundly criticised by netizens, Samsung released a statement on September 29 telling Chinese customers they had nothing to worry about: their phone batteries were the responsibility of a Hong Kong-based company called Aperex, and not Samsung SDI, which had been making the batteries for the 10 countries where phones had been catching fire.

“Samsung never has and never will apply a double standard to China,” it explained. But the statement failed to appease consumers and the company then added fuel to the metaphorical fire after attempting to show that many of the so-called Galaxy Note 7 meltdowns in mainland China were somehow the user’s fault. The state broadcaster CCTV was not impressed. “Samsung wants to be an enterprise that contributes to Chinese society, but that contribution requires sincerity not arrogance,” it commented.

On October 11 the government’s General Administration of Quality, Supply, Inspection and Quarantine stepped in and announced that all 190,984 of the Galaxy Note 7 phones sold in China were being recalled after reports of 20 fires.

In another embarassing revelation, the New York Times reported this week that Samsung’s employees had tried to pay a Chinese customer to kill a video of his Note 7 catching fire.

And the country, well-practiced at monitoring its citizens’ online activities, has also been using this skill to assess how much damage is likely to have been inflicted on Samsung’s brand. China Youth Daily’s Public Monitoring Office says as of last week there have been 57,000 negative news articles, 41,266 WeChat posts and 8,829 blogs on the subject.

One reason for the outpouring may be a kind of reverse snobbery or relief that – for once – it is not a Chinese company that’s producing shoddy or dangerous goods. Newspapers relate that many of the posts have overtly nationalist sentiments. “Huawei, it’s time for you to rise,” says one.

According to recent IDC figures Huawei already has. Samsung may still be the global leader by market share, but it has long been under threat from Apple at the high end and Chinese vendors at the low end. In 2015, Huawei’s shipments topped 100 million for the first time, and China Daily reported on Tuesday the handset maker had exceeded that same figure this year already.

At the end of the second quarter Huawei’s overall market share rose to 9.4% globally, behind Apple’s 13.9% and Samsung’s 21.3%.

Samsung has calculated the immediate financial damage from the Galaxy Note 7’s demise, but the less tangible brand impact has yet to come. China Youth Daily implies this might be considerable. After sampling 2,000 netizen comments, it notes that 40% condemn Samsung’s treatment of Chinese customers, with a majority planning to take their business elsewhere.

While social media often attracts a vocal and critical minority, the anger is not a good sign for future prospects in the country which accounted for 8% of Samsung’s sales in 2015, according to the Wall Street Journal. The company may have recalled its faulty phones, but it cannot recall consumers’ hearts, concludes China Youth Daily.

In an ironic twist, Samsung’s greatest competitor chose October 11 to announce plans to open a second Chinese R&D centre. On a visit to Shenzhen, Apple CEO Tim Cook said China’s ‘Silicon Delta’ is an apt choice given “the skill level of Shenzhen’s factories”.


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