The Latin American opportunity for smartphone vendors is not in the low-end or middle-end

In Latin America income mobility and, therefore, social mobility are virtually stagnant – the OECD reported Colombians born into low-income families will take 11 generations to approach the mean income. There is, though, a faster way to reach a higher social status: acquiring accessible and visible items typically linked to higher status individuals such as branded clothing and high spec smartphones. This is one reason why owning an iPhone can be aspirational for many people in Latin America. And one of the reasons Canalys' latest smartphone shipment forecast shows Apple's expected CAGR in LATAM will be 17.5% for the period of 2021 to 2025.

Some brands that were well-positioned in LATAM are being negatively impacted, as shown in the Canalys Q1 2021 top smartphone vendors report, leaving some room for new competitors. Huawei, which used to be the aspirational brand for Android users in Latin America, experienced a negative variation of 70%, keeping only 4% of its unit share in the region by Q1 2021. LG, which announced it was leaving, was also negatively impacted, however LG still holds an interesting unit share in protectionist markets, so could be a good opportunity for any brave vendor willing to make the investment to establish in countries like Brazil and Argentina.

Middle class, mid-market and SMBs are commonly used terms, though their meaning varies noticeably depending on the context. One of the methods to calculate the size of the middle class in a country is to include all individuals of working age with an income that represents 50% to 150% of the median income in that country. Considering this, about 40% to 50% of LATAM inhabitants are middle class, with monthly earnings ranging from US$122 to US$1,135 depending on the country. This is the reason most smartphone vendors are told by analysts that the opportunity is in middle range price devices. Is this still the case? The truth is middle range devices are saturating markets due to low entry barriers, especially in Mexico and Colombia. On the other hand, middle range devices shouldn't be attached to middle class because individuals in that salary range could opt for the price band under US$100 or even for high-end devices, especially now credit is more accessible. Last, but not least, the price band of middle range devices is very ample, so it is important to ponder the company value proposition – how much value is perceived by potential buyers and the brand position within the market. So, is there still room in the middle range? Possibly yes, but potentially not much in the range of US$100 to US$295 unless you can offer more value than established competitors and take some of their unit share.

Many analysts will cover their backs with a disclaimer stating their forecasts will depend on economic conditions, election results, and other factors. And it is right to say that, especially in LATAM markets which can be volatile and very politically dependent. However, there is an abiding element that remains more stable – culture. And culture has challenged many international companies. Burger King, for example, had to incorporate “Coxinha” in its Brazilian menu and Amazon had to allow Mexicans to pay with cash at nearby grocery stores for items purchased online. The cultural fact that can benefit Chinese vendors is Latins are early adopters and welcome innovation, as long as it is made accessible to them, and that is the role Chinese smartphone vendors can play in the LATAM markets by providing 'sexy'cutting-edge technology at an accessible cost, for a growing “middle class”.