Samsung’s biggest problem is the one place it didn’t recall the Note 7

Samsung’s biggest problem may be in China, one of the few places where it wasn’t forced to recall the Note 7

South Korean electronics giant Samsung hasn’t been having a great month. It was forced to announce a nearly-global recall of its Galaxy Note 7 smartphones after exploding batteries proved the handsets unsafe. Now, it faces charges that its washing machines in the US can explode, too.

But paradoxically, Samsung’s biggest problem may be in China, one of the few places where it wasn’t forced to recall anything.

Sinking ship?

Back in 2013, Samsung was the clear king of the hill; a 17.3 percent market share put it well ahead of all competitors foreign and domestic. It was the clear choice for Android users at various price points in a market where more than 95 percent of smartphones sold were Androids.

But then Xiaomi happened.



Xiaomi’s first phone launched in late 2011, but it took several years for the company’s sales to catch up with the hype. When it did, it caught up in a big way. In 2013, Xiaomi had a 5 percent share of the smartphone market. By the end of 2014, it had jumped to 12.5 percent. And Xiaomi seemed to be stealing users directly from Samsung; while Xiaomi had gained about 7 percent market share, Samsung lost more than 6 percent. Over that same period (2013-2014), other major players like Lenovo, Huawei, and Coolpad didn’t see major changes in their market shares. The end result was that Xiaomi shot past Samsung, dropping it to the number two position in China, with a market share of just over 12 percent.

Things continued to go downhill for Samsung in China, where it found itself beset with bang-for-buck challengers like Xiaomi at the lower end of the market, and an ascendant Huawei at the higher end. Apple was also a problem, as rising iPhone sales pushed it into China’s top five. Samsung suddenly had a serious pricing problem: cheap-but-good domestic alternatives were pushing out its lower-cost models. But its flagship phones were expensive, and increasingly Chinese users willing to pay top dollar for a smartphone wanted the brand recognition and prestige of an iPhone. Even in the middle of the market, there was Huawei to contend with.

Samsung had been muscled out. Before Note 7s began exploding all over the globe, the South Korean vendor had already fallen out of China’s top five smartphone brands, behind four domestic brands (Huawei, Vivo, Oppo and Xiaomi) and Apple.

Insult to injury

Then, of course, came the Note 7 explosions. Samsung’s recall has badly damaged the brand’s global reputation, and it’s also going to cost the company dearly. The company hasn’t shared what it calls the “heartbreaking” sum it will have to pay to replace the 2.5 million Galaxy Note 7s it had already shipped, but independent estimates run as high as US$1 billion. Ouch.

PHOTO: AFP

For Samsung, the one silver lining in all of this could have been China. The company says its Note 7s there don’t have the problem that caused Note 7 explosions all over the globe; the Chinese models have batteries from Chinese supplier Amperex Technology that Samsung says aren’t defective.

Unfortunately for Samsung, China isn’t buying it. At all. Since the recall, online news reports in China have spread of several Chinese Note 7s exploding. Each story is accompanied with gruesome photos of a burned-out Note 7, and typically followed with hundreds or thousands of comments condemning Samsung for not recalling the phones in China.

The controversy, which flares up anew each time another Note 7 reportedly conflagrates, may be doing more damage to Samsung than a recall would have. Recalling a smartphone is expensive, but it’s difficult to put a price tag on the havoc that has been wreaked upon Samsung’s brand in China after a month where its name has barely left the headlines. The recall story may be old news in the rest of the world, but in China the lack of recall is a story that simply won’t die.

The long-term damage could be severe. Early surveys suggest that Chinese consumers have lost confidence in Samsung, and would replace Samsung handsets with Apple or Huawei phones if given the choice.



News of exploding Samsung washers in the US is unlikely to help, and Samsung’s pleas seem to be falling on deaf ears. The company has said repeatedly that its Chinese phones are safe and that it’s working with an independent investigator to assess the reports of explosions, but Chinese users still argue it’s better to be safe than sorry.

“What idiot would still use [a Note 7]?” one Tencent Tech commenter wondered. “It’s not like there aren’t plenty of other options out there. The only people still buying them are people who haven’t heard about the explosion cases.”

But at this point, there aren’t many people who haven’t heard about the reports. Another commenter wrote: “I just walked past a phone sales shop whose door was crowded with elderly folks clutching years-old Samsung handsets, saying they’d seen the stories on the news and wanted to return their phones.”

That’s the kind of serious brand damage that could make the US$1 billion Samsung’s spending on the recall look like small potatoes in the long run.

This article originally appeared on Tech in Asia.