International Journal of Electronic Business Management, Vol. 6, No. 2, pp. 93-98 (2008)
93
ANALYSIS OF STRATEGIES FOR THE MAINLAND CHINA
MOBILE PHONE INDUSTRY
Ching-Yi Chang* and Fang-Hua Wang
Department of Business Administration Antai College of Economics & Management,
Shanghai Jiaotong University, Shanghai, China
ABSTRACT
Since the liberalization of the telecommunications industry in Mainland China during the
early 1980’s, the mobile phone industry has seen significant development, registering huge
increases in the number of users & manufacturers, and in production capacity. However,
based on domestic market share statistics, international brands (IBs) continue to dominate
the mobile phone market, indicating that domestic brands (DBs) lag behind in the Chinese
market. This study analyzes the five leading DBs that have the ability to compete with
international brands in the Chinese market (Lenovo, Bird, AMOI, TCL and Konka), in
areas such as their R&D, manufacturing and marketing, and summarizes the issues of
industry competition as a whole. Company analysis will be followed by proposed
development strategies for the overall domestic mobile phone industry.
Keywords: Mobile Phone Industry, International Brands, Domestic Brands, Industry
Competition, Strategies
1. INTRODUCTION
Since
the
liberalization
of
the
telecommunications industry in Mainland China
during the early 1980’s, the mobile phone industry
has seen significant development, particularly with
government support of mobile communications
infrastructure laid out in 1999 by the State Council,
State-Affairs-Development File No. [1999]-5 [17].
After a few years of implementation, the number of
officially recognized domestic manufacturers has
grown rapidly, from nine in 1999 to 56 in October
2005 [17]; production capacity has also increased
from 22.6 million devices in 1999 to 226 million in
2004. It is expected to exceed 500 million in 2008
[19]. The number of mobile phone subscribers in
China has been growing significantly since 1998,
from 43.4 million in 1999 to 372.8 million in August
2005 [17], and it is expected to exceed 600 million in
2010 [18].
Brand
Market Share (%)
Table 1: Mobile phone market share in 2004 (%) [12]
Nokia Motorola Samsung Bird TCL Amoi Konka DBtel Sony Ericsson Philips
15.4
14.9
11.5
7.0
6.3 4.1
3.6
3.4
3.4
2.5
Brand
Market Share (%)
Table 2: Mobile phone market share ranking in Q2, 2006 (%) [3]
Nokia Motorola Samsung Lenovo Bird Sony Ericsson Amoi Philips TCL Konka
28.4
19.5
8.9
7.0
6.9
4.3
3.9
2.6
2.0
1.9
In terms of market share, in 2004 the top ten
brands in the Chinese mobile phone market
represented only 72% of the market (Table 1); the
combined market share of the top five domestic
brands (DBs) was 24.5%. The top five international
brands (IBs) represented 47.7%. By the Q2, 2006, the
top ten brands included five DBs and five IBs (Table
2), though the combined market share of the five DBs
decreased to 21.37%, while the IBs increased to
*
Corresponding author: steven@cidgroup.com
63.7%, an increase of about 16%. The DBs seem to
be hindered when competing with IBs for the Chinese
market.
It is paramount that DBs understand and
develop advantageous business strategies, to compete
with IBs in both domestic and foreign markets. This
study analyzes the five leading DBs that are able to
compete with IBs in the Chinese market, in aspects
including their R&D, manufacturing and marketing,
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International Journal of Electronic Business Management, Vol. 6, No. 2 (2008)
and then summarizes the industry competition as a
whole. This study also outlines some recommended
strategies for development of the domestic mobile
phone industry, so that better marketing strategies can
be formed.
2. LITERATURE REVIEW
In recent years, Chinese mobile phone industry
studies, conducted by local scholars, have mainly
focused on topics such as the strategies of individual
corporations as a subject in business administration
[9][22], industry development from the perspective of
a segmented market [25], fluctuations in market share
of foreign and DBs [13][29], competition in
marketing [28][31], international strategic alliances
formed by Chinese manufacturers [16], changes in
industry structure and operation strategies [10][21]
and business models [23].
Studies conducted by overseas scholars have
included industry reports focusing on mobile
information
services
[24]
and
mobile
communications technology development [8][30].
The only related research to the mobile phone
industry are primarily concerned with the research of
past, present and future of the Chinese mobile
industry [32]. Zhang and Prybutok [33] also
conducted a comparative analysis of the mobile
communications markets in China, the United States
and Europe. In fact, there has been little international
research on the mobile phone industry by the
Chinese, and within the above-mentioned literature,
there is no analytical discussion of competition in the
Chinese mobile phone industry. Consequently, this
study analyzed the strengths and weaknesses of the
top five DBs to propose development strategies for
their reference.
3. RESEARCH METHOD
The number of officially recognized domestic
manufacturers in China grew rapidly from nine in
1999 to 56 in October 2005. As more players entered
the field, the level of competition intensified. In the
second half of 2005 and the first half of 2006, five of
the top ten mobile phone brands in the Chinese
market, ranked by market share, were domestic
(Lenovo, Bird, Amoi, TCL & Konka). Thus far, only
these five have shown on ability to compete with IBs
in the Chinese market. This study analyzes the five
DBs in terms of operation strategy, level of market
integration, economic scale & economies of scale,
and product line features. This study also summarizes
the domestic market challenges faced by the entire
industry and proposes strategies for its development.
4. ANALYSIS OF THE TOP FIVE
DOMESTIC BRANDS
The greatest wish of Chinese mobile phone
brands is to overturn the international brand
domination of the market, mirroring the miracle of
the Chinese home electronics manufacturers. Below
we will analyze the top five DBs in the Chinese
market (Lenovo, Bird, Amoi, TCL and Konka) and
discuss their R&D, production, marketing, and
operation strategies:
• Lenovo
Lenovo’s R&D is centered on the application of
technology, with an emphasis on fashion and culture.
In mobile phones, particular attention is paid to the
R&D of core software; in the area of PDAs, attention
is given to the R&D of application technology. By
focusing on high-end products such as smartphones,
camera phones and MP3 phones, Lenovo has cleverly
avoided price wars. At the same time, it has achieved
a major distinction from other domestic
manufacturers; over 80% of its new products are
originally designed models [15].
Lenovo began in sales and service, and has
accumulated certain competitive advantages in
information systems while building a fine tradition of
quality services, extending the reach of its mobile
phone customer service. In line with its development
strategy, parts and components are purchased
externally. With its experience in sales and marketing,
product diversity, high technology volume and
comprehensive customer service, Lenovo has
succeeded in winning consumer recognition. In
addition, through its long-term technical and
outsourcing partnerships with Texas Instruments,
Siemens AG and South Korean mobile phone
manufacturer Sewon Telecom Ltd., Lenovo can
maintain tight control over product cost, product
release timing and product cycle, moving precisely to
market rhythms. In mid-2003, Lenovo terminated its
OEM operations to concentrate on original R&D
products. During the early phases, it targeted
secondary or lesser cities as a basis, promoting
specific models through marketing campaigns to
facilitate discussion points, while forming a close
relationship with existing electronics stores and
dealers [6][15].
• Bird
Bird collaborates with the French manufacturer
Sagem, introducing the Sagem production line and
advanced European management experiences to
improve its R&D and management standards. This
ensures the quality of products at the source. The
purchase of parts and components is relatively more
centralized. In R&D and production, Bird employs an
“outlet for technology” strategy: Siemens’ products
C. Y. Chang and F. H. Wang: Analysis of Strategies for the Mainland China Mobile Phone Industry
are able to reach the end consumers directly through
Bird’s large sales network in China, and Bird can
utilize Siemens’ advanced mobile technology
development platform to design mobile phones with
an original style, software platform and interface for
the Chinese market, under the Bird brand.
Furthermore, Bird has set up research centers in
Ningbo, Fenghua, Chongqing, Chengdu and Nanjing,
working with various academic institutions to nurture
professional talent. Their R&D follows trends closely
and new models continue to be developed and
released, covering GSM/GPRS/CDMA specifications
[2].
When Bird first rolled out its own-brand mobile
phones, DBs were not well known. Many dealers
were unwilling to sell Bird products. As a result, Bird
had to create its own sales network, which extended
into smaller towns; eventually including as many as
almost 50,000 retail outlets, giving Bird the title, “the
Number One Mobile Phone Network in China.”
Although Bird was not strong enough to compete
directly with foreign brands in metropolitan areas, its
inexpensive products with good signal reception
matched the nature and market environment of small
to midsized towns. By adopting the development
strategy of “encircling the cities from rural areas,”
Bird quickly opened up the market and successfully
elevated its product profile [2].
With R&D support, Bird has released several
new mobile phone models this year, and its market
share continues to grow on the back of a
comprehensive sales network with professional
post-sale service. In addition, their quality-first
strategy satisfies both domestic and international
demands. All aspects, from R&D and resource
purchasing to production and post-sale service, are
tightly controlled. As Bird’s domestic market
expands steadily, development of the international
market is also progressing smoothly, moving Bird
towards international brand status [2][5].
• AMOI
In the early years, AMOI was originally a home
electronics manufacturer that built a positive brand
image with its VCD players. Now, AMOI’s DVD
players and mobile phones are both regarded as
high-end products, further strengthening its brand
profile. AMOI cooperates with China Post Mobile,
the biggest mobile phone dealer in China, for
distribution of its products; this combines exclusive
sales and distribution, so that its new products can be
promoted rapidly across the nation. At the same time,
AMOI is a savvy marketer, sponsoring sports events
to gain publicity for its products. Its mobile phones
and home electronics are also sold through the same
network, doubling effectiveness [1].
AMOI’s main business is end products in
mobile communications. It is also taking steps to
95
diversify into a core combination of communications,
consumer electronics and computers. In R&D, AMOI
has a 1,200-strong team, with three research centers
in Xiamen, Shanghai and Nanjing. For domestic
sales, AMOI has built a comprehensive network, and
is currently working to set up international sales
channels (in the US, Singapore and Malaysia),
gradually implementing an international strategy [11].
In the first half of 2006, the company’s mobile phone
income was 1.84 billion RMB; total exports were
154,700 units, (1.12 billion RMB) [20].
• TCL
TCL was originally a home electronics
manufacturer. By refining consumer market
segmentation and precise positioning, TCL
concentrated on a powerful hardware design,
production capacity, and sales network for its mobile
phone business. The group’s experience and human
resources in selling home electronics, in addition to
the attention given to customer service, all
contributed to swift expansion of its market size. TCL
products include GSM/GPRS/CDMA products, with
feature designs incorporating characteristics of
Chinese culture, making them fashionable,
sophisticated, rich in value content and collection
worthy. As a domestic brand, TCL is leading the
pack. Its strategies of building a nationwide sales
network, actively utilizing promotional campaigns,
working closely with dealers and distributors, and
focusing on customer service through its fast
response team, are integral to TCL’s success [26].
As China’s sixth most valuable brand, TCL
Mobile has grown rapidly in the five years since its
creation through eye-catching achievements. In the
three fiscal years from 1999 to 2002, TCL Mobile
revenue grew exponentially 263 fold, pushing it to
the number one position in the inaugural DeLoitte
Technology Fast 500 Asia Pacific ranking in 2002,
which identifies the fastest growing high-tech firms
in the region. At the end of 2003, TCL was again
flying high in the DeLoitte Technology Fast 500 Asia
Pacific, making it the only firm to be ranked in the
top five in two consecutive years [7].
TCL Mobile is moving ahead with
internationalization plans, already having extended
into Southeast Asia, Russia and Germany, a process
helped along by its partnership with Alcatel. Its
corporate development and continuing expansion
requires the participation of many like-minded
talents, propelling forward the huge international
warship that is TCL Mobile [27].
• Konka
With its high profile in the home electronics
industry, Konka is already a household name in
China with strong international and domestic teams.
It has two R&D centers in Silicon Valley and
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International Journal of Electronic Business Management, Vol. 6, No. 2 (2008)
Shenzhen and is expected to achieve an annual
production capacity of 6 million units. Konka
products are fashionable, individualistic, localized
and suitable for business users, with particular
emphasis on original R&D. Konka’s technical
partners include Lucent, Intel, Infineon and
Qualcomm. [14].
The primary strength of Konka Mobile is its
dependence on the Konka Group, which gives it
advantages in branding and distribution. Konka
established its brand with Color TVs. It has long-term
partnerships with traditional outlets (such as home
electronics stores), providing Konka Mobile an
advantage. However, with the gap in technology
prowess and brand appeal between Konka Mobile
and leaders like Sony Ericsson and Motorola remains
considerable, and as increasingly more traditional
home electronics manufacturers enter the mobile
phone market, Konka can only attract mid to low-end
users with its products. At the same time, as major
international brands are also segmenting the market,
Konka’s market space will be further compressed,
and it is likely to face more intense competition from
both mobile phone manufacturers and those cross
over from home electronic brands. Therefore,
Konka’s strategic success will be determined largely
by the speed with which it brings out new products,
and its ability to control costs [4][14].
We will now discuss levels of vertical
integration in R&D, design & manufacturing, product
marketing, and sales channels, for these Top 5
manufacturers:
a. Component Integration
Businesses tend to focus their efforts on
developing new products, expanding the market and
building a brand image; they rely on outsourcing for
components. However, several DBs already have a
mature home electronics and component business,
and should have sufficient ability and the appropriate
conditions for component integration.
working with a professional partner in design and
hardware R&D can be beneficial to the manufacturer
in product update & renewal, as well as market
expansion.
b. Software R&D Integration
Two groups can be distinguished in this aspect;
the first includes companies such as TCL and
Lenovo, who have a strong technical background in
IT and prefer to develop their own products. The
second group includes those like AMOI and Bird,
who collaborate with foreign companies that offer
professional R&D skills or outsource part of their
software design. Software R&D in China’s mobile
phone industry has not been significant, with most
firms relying on collaboration with more advanced
foreign firms in core technology and function
The rapid growth of the mobile phone market in
China has contributed to a highly competitive
environment. The following are the conclusions of
this study:
a. Relatively Small Sizes
The production capacity of JV manufacturers
set up by major IBs in China is very high. For
example, in the first half of 2006, the total production
volume of Motorola was 37.5 million units, with the
production volume of Nokia approaching 37.7
million units. Production volume of the top five DBs
only reached about 20.2 million [20].
c. Hardware R&D Integration
Chinese mobile phone manufacturers basically
outsource this as good style and design give products
high added value and profitability. Furthermore,
b. Slow Expansion into International Markets
In 2005, the number of mobile phone units
exported from China was 228 million, of which 75.1
million were exported by Motorola, 32.8 million by
d. Manufacturing Integration
The strength of most manufacturers are their
economies of scale; they tend to engage in this aspect
of the value chain themselves. Some businesses
outsource or ODM for IBs.
e. Sales Channel Integration
Sales channel strength varies between
manufacturers. Most choose to work with
professional dealers and distributors, though some
rely on their own channels and networks in home
electronics or related industries. However, exclusive
sales and distribution are a likely trend for the future.
f. Brand Integration
Most manufacturers choose to create their own
brands. Generally speaking, the brands discussed here
were already established brands in home electronics,
IT and other communication-related industries, before
crossing over into mobile phone manufacturing;
brand building should pose little problem for them.
At the moment, manufacturers are not making
significant investments in the upper end of the chain,
specifically in software and hardware R&D, mainly
because of their limited technical skills. On the other
hand, like most Chinese businesses, they have the
advantage of manufacturing. At the lower end of the
value chain, because DBs have a unique
understanding and then ability to reach the domestic
market, they tend to establish their own sales
networks and provide quality customer service.
5. DISCUSSION AND
SUGGESTION
C. Y. Chang and F. H. Wang: Analysis of Strategies for the Mainland China Mobile Phone Industry
Nokia, 17.4 million by Sony Ericsson, 13.9 million
by Siemens and 11.3 million by Samsung. DBs have
yet to expand into international markets [20].
c.
Weak Software Design Capability
So far, DBs have a solid grasp on mobile phone
structural
technologies
and
style
design,
application-level software development, radio
frequency (RF) module design and mass production.
Although DBs have moved from OEM/ODM to core
technology R&D, they are still lagging behind IBs
standards in baseband chip, RF chip and software
production.
d. Significant Improvement in Hardware Design
Capability
Manufacturers have the capability to design,
develop and manufacture GSM, GPRS, CDMA
products, with breakthroughs made in the
development of mobile communication system
software and mass production technology of key
accessories. They can build mobile phone R & D and
production capability, from accessory components to
finished products. Currently, DBs can mass-produce
LCD panels, lithium-ion batteries, chip resistors, chip
inductors, multi-layer printed boards and other key
accessory components, as well as some testing
instruments.
Advantages in Manufacturing Capability
Because manufacturing is the competitive
advantage held by the Chinese mobile phone
industry, few businesses outsource production.
97
h. Increasing Importance in Post-sales Service
Because of competitive market conditions,
manufacturers are paying more attention to post-sales
service. Many DBs have established their own
customer service systems and are competing on the
basis of service quality. Implementation of
regulations on the responsibility to repair, accept, and
replace mobile phone products means that consumer
rights are now better protected, pushing corporations
to treat post-sales service as the new battlefield.
We propose these development strategies for
manufacturers to deploy, taking into account their
individual features and strengths.
1. Size
Control production of key components: Take
advantage of industry clustering by combining with
other component manufacturers to facilitate packaged
supply and production for the core business.
Enhance cooperation with network operators: As
network operators control more client resources, they
will have more bargaining power over wholesale
prices and bundled sales of mobile phones. It is vital
that manufacturers take the “size” strategy by
enhancing their partnerships to benefit sales.
Achieve breakthroughs in chips & other upstream
technology: Only by obtaining the core technology
can a company maintain its pace with the various
businesses provided by network operators.
e.
f.
Parallel Use of Own Outlets and Cooperative
Channels
As Chinese manufacturers have a unique
perpective of the domestic market and can capitalize
on opportunities effectively, they often prefer to build
their own sales networks. Their distribution channels
are concentrated mainly on secondary or tertiary
markets, trying to capture market share in areas out of
reach of international giants, such as small to
midsized cities and rural areas. Manufacturers with
backgrounds in home electronics or IT, such as
Konka and Lenovo, often rely on existing sales
networks and marketing experience.
g.
Developing Own Brands
Chinese manufacturers care very much about
building their own brands, investing huge resources
in advertising, brand promotion, and aggressive
marketing, to increase their consumer and network
operator influence. They are also rolling out new
products at an intensive pace. Manufacturers with
backgrounds in home electronics or IT already have a
high brand equity and can count on this crucial
advantage to promote their products
2. Differentiation
Strengthen design of mobile phone application
software
Increase the pace of new product release
Flexible production capability
Enhance brand image and profile
Improve customer service standards
3. Focused targeting
Strengthen mobile phone products and clarify market
position (high or low-end)
Engage in aspects of the value chain (R&D, design,
manufacturing, branding & marketing, sales &
service) to enhance one’s strengths
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ABOUT THE AUTHORS
Ching-Yi Chang is a PhD. Candidate of Department
of Business Administration at Antai College of
Economics & Management, Shanghai Jiao Tong
University, Shanghai, PRC. Mr. Chang currently also
serves as the President of the CID group and the
director of Taiflex, Quanta Storage, Shun On Electric,
and Topray Technologies. He earned an MBA from
National Cheng Chi University and BS in EE from
National Taipei Institute of Technology. His current
research interests are in venture capital management.
Strategic Management.
Fanghua Wang currently is the Dean of Antai
College of Economics and Management at Shanghai
Jiao Tong University, PRC. He holds his B.S. and
M.S. from Fu Dan University, both in Economics.
His current research interests are in Marketing and
Strategy Management. Mr. Wang has published over
100 articles, and over 30 monographs and teaching
materials. Now, he is the chief expert for the series
research jobs of the 2010 World Expo in Shanghai.
(Received November 2007, revised March 2008,
accepted May 2008)