The Chinese market is starting to play an increasingly important role in global mobile phone sales. Characterized by a three-generation family, China has more than 70 licensed handset producers and many different brands. TCL, Bird, Soutec and Panda belong to the first generation; brands like Tianyu, Changhong and Gionee, which gained their licenses under an accreditation system, fall into the second generation. Follow-up handset makers form the third generation, which is made of computer distributors, suppliers of English education materials, mobile phone distributors, DVD manufacturers, and even electronic component producers. The third generation companies are characterized by their outstanding performance and ability to release new models quickly. A large sales volume is another notable attribute.
China is expected to have 600 million mobile phone subscribers in 2008, up from the current level of 400 million. These users will replace their phones every 21 months on average. Undoubtedly, all phone makers find the market prospects attractive. However, at the end of 2006, Japan-based NEC announced its plans to withdraw from China's 2G and 2.5G mobile phone market, claiming competition was too tough. Chinese manufacturers were, by contrast, delighted with their successes in 2006. As the head of a mobile phone manufacturer said, "this is a market where even a fool can make money."
But how can Chinese manufacturers achieve satisfactory results? "Chinese companies are good at fighting in groups, but multinationals won't be their equals," says the director of a mobile chip producer jokingly. Yet considering the maturity of the mobile phone industry, "fighting in groups" may be understood as the ability to assemble rapidly on the industrial chain. IC design company MediaTek, with its well-controlled chip sales, has extricated Chinese mobile phone manufacturers from multinational control in base-band chip supply. MediaTek provides chips as well as the software platform for mobile phone development, which allows applications to be added according to customer demands. To a large extent, it opens a new space for the Chinese mobile phone industry: mobile phone design studios, spare part suppliers, distributors and mobile phone brands each fulfill their roles on the industrial chain. Based on market opportunities and profits, synergy of the industrial chain brings faster mobile phone updates.
When launching its diamond mobile phone, China's leading household appliance manufacturer TCL Corporation created new marketing channels and managed to seize some market shares as a domestic manufacturer. However, multinationals proved to be quick learners and attacked Chinese manufacturers vehemently with channel reforms and technical innovations. The industry climate has since changed and phone makers - both from China and other nations - can no longer beat their competitors by tweaking channel control or offering alternative sales policies. Rapid assembly on the industrial chain and agile market feedback systems provide a competitive edge for Chinese manufacturers. Design, channel, and manufacturing are also starting to exert a noticeable influence after years of accumulation, and the domestic handset production chain is becoming more mature. Strong suppliers, headed by MedeaTek and Spreadtrum Communication, have helped solve the most complicated chip problem for domestic manufactures. Observers note that along the Guangzhou-Shenzhen Expressway in South China, chips, molds, batteries, and electronic components - all parts needed on the mobile phone production line - can be easily tracked down. In fact, the industrial chains controlled by powerful distributors may be even more integrated than those of the mobile phone brand operators. The TianAn Cyber Park on North Huaqiang Road in Shenzhen used to be a busy place for unlicensed handsets. But now thousands of mobile phone designers gather at TianAn, which has become an important landmark in Shenzhen.
Standing a cut above unlicensed mobile dealers, third generation phone makers are the most dynamic on the market due to their familiarity with the quickest operational models. After targeting a popular handset, they find an assembly plant or original equipment manufacturer (OEM) plant for big brands. The plant will then subcontract orders to peripheral enterprises, while chip and software deciphering, imitation of circuit boards, production of module diagrams and "high technology" work is completed by emerging handset design companies. With chips and components purchased from upstream enterprises, the assembly plant will deliver products similar to top brands in no time. They have few differences with genuine products in appearance or function, and are thus sold on the market at extremely low prices. These handsets have taken half of the market, and are considered the most "dynamic" and "destructive" force up for sale. This does, however, show how Chinese manufacturers can fight against their foreign rivals.
Within three months after the release of a popular foreign handset, a much cheaper China-made phone with a similar exterior design and features will enter the market. A distributor stated that the "China-made handsets are several hundred or even one thousand RMB cheaper than foreign models. Foreign brands may hope to make over RMB1,000 (US$131) in profit, but Chinese manufacturers will be satisfied with several hundred from one handset." At a mobile phone outlet in Chengdu in Southwest China, most products are Chinese brands, and if asked about a foreign brand, the sales people will try to talk the customer into buying a China-made mobile phone that's cheaper with similar features and design. At this outlet, China-made phones are the standouts, while foreign brands linger in the background.
But behind the booming phone businesses, concerns are arising. Chinese handset manufacturers are in an awkward situation: their fate is closely linked to MediaTek. With MediaTek and other upstream enterprises lowering the technological threshold, more unlicensed handset manufacturers can enter the market. Most have no desire to build their brands but are strong in channel control. They are determined to make a fortune and leave as quickly as possible, which is making the climate a great deal more competitive. Like indulged children, most of these enterprises are abusing their abundant market opportunities. Far-sighted enterprises are, naturally, thinking pf keeping their long-term goals in sight.
China's mobile phone market places foreign brands at the top, where prices are higher: with advantages in branding, technologies and operational scale, multinationals dominate the high-end market where the unit price for a handset is over RMB2,000 (US$262.4) and the ultra low-cost (ULC) market features mobiles available for less than RMB500 (US$65.6) per handset. Most Chinese brands fall in the mid-range area of the market, and include unlicensed handsets that sell for anywhere between RMB500 (US$65.6) and RMB2,000 (US$262.4). Tight pricing leads to more intense competition and reduced profits. NEC is not, in fact, the only business that finds it hard to support its mobile phone business: even Chinese manufacturers like Lenovo and Changhong have considered abandoning this seemly prosperous business and heading for a higher-end market.
NEC's exit from the 2G and 2.5G markets is also an indication that the company is looking towards the future. 3G is their specific target, but are Chinese phone makers prepared for the coming era? Are they having the last hurrah before doomsday? Or are they rehearsing before the arrival of new industrial opportunities?
We've interviewed a number of phone makers, distributors, and technology suppliers and received a clear answer. We'll examine three phone makers that made a big splash in 2006 while keeping our sights trained on the future of China's mobile phone industry.
1 comment:
This is great info to know.
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