During the Age of Exploration and Western capitalist expansion, Europe's great powers spread the fruits of their local industrial revolutions throughout Asia, Africa, and the Americas by means of extensive colonization. The first car in old China (used by Qing Dynasty's Empress Dowager Cixi), the first telegraph communications line, and the first electric light powered by a steam engine were all results of modern civilization taking root overseas.
Over 100 years later, in the era of globalization, the surge in overseas expansion, and a once-in-a-century shift in the global landscape, Chinese smart hardware enterprises are also facing a tremendous opportunity to utilize their technology to export the next generation of consumer electronics concepts to the European and American markets.
Recently, EqualOcean noted that, at the invitation of the German and French governments, Chinese Premier Li Qiang made an official visit to Germany and France from June 18th to 23rd. As a great power and an important force on the international stage, the China-Germany and China-France relationships have long since transcended bilateral boundaries and have had a profound impact on the political and economic relations of the entire European Union. According to analysts, this move is seen as an important step in actively breaking down the "decoupling theory" and "reducing risks" between China and Europe.
As an important part of the new manufacturing and new consumer retail industries, in the long run, a group of Chinese companies that have deeply penetrated the European market with their products in the field of smart hardware are expected to benefit from both policy and market conditions.
The purchasing power of European consumers for smart products
In terms of consumption power, there is a significant difference among European residents. EqualOcean has previously analyzed the per capita GDP of major European countries in depth in the article "Alibaba's New Venture in Spain: Can the Southern European Middle Class Support a High-End Version of AliExpress?" Wealthy countries are mostly located in Northern Europe, such as Ireland, Iceland, Norway, and Denmark, which are among the top-ranked countries. On the other hand, countries with relatively average income are mostly located in Southern and Eastern Europe, such as Spain, Portugal, Poland, Italy, and Hungary.
However, this does not affect the overall enthusiasm of Europeans for smart products. Taking the sub-sector of smart home as an example, Statista data shows that the total output value of smart home products in Europe was USD 28.58 billion in 2022, and the market is expected to reach USD 56.18 billion by 2027, with a compound annual growth rate of 12.15%. Although this growth rate is slightly lower than that in China, as a highly mature and developed consumer electronics market, it has already exerted a strong attraction for domestic brands to go global.
According to EqualOcean's analysis, due to the early start of industrialization, European households are generally equipped with a complete set of home appliances, such as vacuum cleaners, dishwashers, dryers, and built-in stoves, which have been widely used since the second half of the 20th century, but have a lower penetration rate in Chinese homes. The brands of these appliances are mainly traditional large-scale home appliance brands from their own countries or Japan and South Korea, such as Bosch, Siemens, Miele, Whirlpool, Samsung, Panasonic, and LG. With the advent of the smart home trend, these aging or already difficult-to-connect hardware devices face the fate of being upgraded. According to a research report by China Merchants Securities, vacuum cleaners have been widely used in developed countries such as the United States, Europe, and Japan, with a penetration rate of over 90%, but the degree of intelligence is still low, and most consumers are waiting and watching.
Therefore, the market potential for smart home appliances in Europe should not be underestimated. Statistics from Statista show that as of 2022, the penetration rate of smart home appliances in Europe is only 6.3%, and it is expected to reach 23.2% by 2027, with an active user base of 85.2 million households.
Competing smart hardware manufacturers in Europe
In the current race of smart hardware industry in China, home appliances are one of the major branches leading the globalization trend. We also believe that traditional white goods transformed into smart hardware manufacturers are an important sign of China's home appliance manufacturing industry entering a new stage of going global. Washing machines, refrigerators, air conditioners, smart kitchens, floor scrubbers, weeders, and window cleaners are becoming the main categories of smart home appliances favored by consumers in developed countries in Europe and America.
According to EqualOcean, Haier (海尔), Hisense (海信), TCL, Midea (美的), and Gree (格力) have all taken important positions in overseas revenue. Hisense has been focusing on the European market for many years and has established factory parks in countries such as the Czech Republic, Poland, Serbia, and Slovenia, as well as R&D institutions in countries such as Sweden, Germany, and the Netherlands, and has branch offices in more than ten European countries. According to data released by AVC, in 2022, the Hisense TV market share in Europe reached 15.8%, ranking first. In the TV product line, Hisense focuses on high-end large screens and launches a series of products such as 8K, large-sized ULED, ultra-thin quantum dots, and laser TVs, to output the concept of building a smart home IoT ecosystem to European consumers. It is worth mentioning that since 2016, Hisense has invested heavily in sponsoring the European Cup and the World Cup four times in a row, earning a lot of traffic and attention.
As early as 1997, Haier entered the overseas market and established the Brugherio R&D center in Italy in 2000. In 2019, it acquired the Italian brand Candy to enter Europe. Currently, the smart living solutions brought by Haier, Casarte, Candy, and Hoover under the Haier Smart Home have become one of the main factors that help Haier grow in Europe. The 2022 Haier financial report shows that the market share of its high-end multi-door refrigerators in Europe exceeds 40%. Especially in France, Haier refrigerators have become synonymous with mid-to-high-end refrigerators and have promoted the implementation of its "Smart Home Cloud" strategy after being connected to Amazon Alexa.
In addition, star companies such as Xiaomi (小米), Huawei (华为), DJI (大疆创新), Ecovacs (科沃斯), Xgimi (极米科技), Roborock (石头科技), Geek (极咖科技), and Bluetti (德兰明海), which focus on the smart home and smart wearable consumer fields, have also strategically laid out important markets in Europe, seeing Europe as a "treasure land" where smart devices have not been widely popularized yet.
It is worth mentioning here that the smart cleaning field of robot vacuums, which did not originally belong to Chinese companies, has been dominated by the American company iRobot in the research and development of the first to fifth generations of robot vacuums. The technology has gradually iterated from random cleaning, lighthouse positioning, planned cleaning (camera positioning), and laser positioning. However, as Chinese companies rapidly catch up in obstacle avoidance algorithms and user experience, and their cost-effectiveness advantages continue to emerge, iRobot's moat has repeatedly shrunk, eventually resulting in its acquisition by Amazon. According to the Chao Dian Think Tank's statistics, in January 2023, the top four brands of robot vacuums in the top ten in the European e-commerce market will be Roborock, Dreame (追觅), Xiaomi, and Ecovacs, all of which are domestic leading manufacturers.
Challenges and Risks from Developed Markets
For highly developed markets like Europe, breaking down the dimensional barriers and establishing consumer brand awareness are still the primary challenges for Chinese smart hardware brands looking to expand overseas.
Like almost all Chinese-manufactured products, the reason why Chinese smart hardware brands cause headaches for many foreign companies is that once they enter a certain industry, they can quickly achieve low cost and even have a differential advantage in intelligence due to their industrial chain and supply cost advantages. Taking the robot vacuum category as an example, EqualOcean found on Amazon UK that a robotic mop and vacuum cleaner with automatic water supply and drainage, the Roborock S7 Pro, is priced at EUR 1049 and is even included in Amazon's Choice recommendation list. However, the iRobot Roomba J7+, which is priced exactly the same, only has basic functions such as sweeping, obstacle avoidance, and self-cleaning, and its sales are only a quarter of the former.
Roborock Price (Source: Amazon UK)
However, if the emphasis is solely on "Made in China" and cost-effectiveness labels, Chinese brands may only be able to win over regions with average consumer purchasing power, such as Spain, Poland, and Russia, and cannot reach the markets of truly quality-conscious and user-experience-focused developed countries in Western Europe. According to EqualOcean's experience in Ireland, most young consumers no longer care about the origin of the brand, and high value, durability, and moderate pricing are enough to create popular products.
Regarding this phenomenon, Xu Tianshi, Investment Director of ZCapital (众麟资本), told EqualOcean that although the e-commerce penetration rate in Europe and America has increased significantly, the main force of high consumer purchasing power still prefers to purchase through offline channels, and once they identify a brand, they will have high loyalty. Therefore, Chinese smart hardware companies going overseas cannot neglect product quality control and user reputation, as they are crucial for long-term success.
On the other hand, downplaying Chinese identity, using a new English brand name, and focusing on e-commerce channels and social media marketing have become the choices of many new-generation overseas companies. Therefore, facing Chinese brands that have already occupied leading positions in online and offline markets and formed a certain scale, the challenges for new entrants are not small. However, in Xu Tianshi's view, consumer goods are not the internet and cannot achieve a monopoly. "In industries with high concentration, it is indeed difficult for newcomers to surpass existing leaders, but they can always find their own market and target customers. Chinese companies are just starting to explore overseas markets, and new brands are not incapable of standing on their own."
At the risk level, a sensitive topic that consumer-level hardware cannot bypass is personal privacy data. Whether at home or worn on the body, smart devices with sensors are always an invisible landmine. Even Tiktok at the software level is not immune to review risks, let alone robotic vacuums and AIoT smart devices that actively collect household data. "Chinese hardware companies generally do well in the software part, and quite a few use AI. If the distance between China and the United States continues to widen, it is not impossible to see stricter exclusion policies," Xu Tianshi said.