China's phone makers in speed dial
mode By Olivia Chung
HONG KONG - Foreign cell phone giants such
as Nokia and Motorola will face intensified
competition by Chinese handset companies after
last month's announcement by Beijing that
government licenses will no longer be required to
manufacture and sell mobile phones in the country.
Some industry experts said it's time for
domestic brands to turn defeat into victory in the
world's biggest mobile phone market which is
dominated by foreign brands.
Because the
license system, introduced in 1998, set a quota on
mobile phone production, it
often took a long time for a potential handset
manufacturer or seller to win approval from the
National Development and Reform Commission (NDRC)
before marketing its models. In the past nine
years, only 90 mobile phone manufacturing licenses
were issued, and in one case, Ningbo-based Aux
Telecom in 2004 brought the Ministry of
Information Industry (MII) to court after its
application had been rejected five times.
Under the new policy, the NDRC is no
longer involved in the process and handset vendors
can sell phones after their new models have been
sent to the MII for quality checks.
Industry experts and analysts welcome the
government's move, saying it opens the gate for
newcomers, some of which have been selling phones
in the black market.
Li Xiaolong,
marketing director of Aux Telecom, which finally
secured a mobile handset license from the NDRC
last year, said the lifting of restrictions on
mobile phone production is good news and he
welcomes the competition. "Domestic handset makers
can turn defeat into victory in the country only
if more new entrants are allowed to enter the
market," he said.
"The licensing system
was aimed at reining in the handset market and
keeping it from getting overheated," Deng Weihang,
manager of the planning department of TSD
Electronic Company in Shenzhen said. "Now the
market has matured and new handset manufacturers
have to make rational investment decisions before
entering it, so it's a ripe time for canceling the
restrictions on mobile phone production."
Wu Zhizhong, chairman of Huizhou Qiao Xing
Communication Industry, part of New York-listed
Chinese handset maker Qiao Xing Universal
Telephone, said he expects foreign handset brands
to lose ground to Chinese brands after the former
"overdraw their credit limits" in five to seven
years in China.
"International handset
vendors such as Nokia, Motorola, Samsung and Sony
Ericsson are betting all of their global money on
the mainland market which, has already matured,
that's why their income and expense trends were
disappointing ... I believe these handset giants
will erode their profitability in five to seven
years," he said.
He said the trend of
disappointing performances among foreign vendors
is partly caused by Chinese consumers' attitude of
"love the new and loathe the old" towards mobile
phones, which is in contrast to the brand loyalty
on which foreign handset vendors rely.
"Besides, new Chinese brands are doing
much better on brand name, research and marketing
development and closing the gap with foreign
brands," Wu said.
According to Gartner
Inc, a US-based information-technology consulting
firm, foreign handset vendors remain dominant in
the mainland market, with combined market share of
the top three foreign brands - Nokia, Motorola and
Samsung - accounting for more than 50% of the
total in the second quarter of the year.
Among the home-grown brands, Lenovo has
the top position, followed by Bird.
Sandy
Shen, a Gartner's telecommunications analyst based
in Shanghai, does not think the cancelation of the
licensing scheme will have any material impact on
competition between local and foreign handset
brands in the mainland market, even if some of the
black market mobile phone manufacturers become
legal.
"When calculating the market share
of domestic handset vendors, we have already
included phones in the black market, which is 20%
of the total market," she said.
The "black
phones" are the handsets sold in the market
without government approval, some of which are
smuggled from abroad, evading customs duties,
others are knockoffs of famous brands, and the
third local brands with their own designs.
From January to June, 23.43 million "black
phones" were sold in China, compared with 71.47
million licensed handsets, according to CCID
Consulting, a research firm under the MII.
However, Shen echoed Li's views, saying
it's possible that the mainland handset market
situation might change in five to seven years
because domestic handset vendors have been
increasing their share since the last December
quarter.
"I don't think this trend is
going to abate. Also, because of the declining
global market share of foreign brands such as
Motorola, some of their share in China's market
could be captured by local handset vendors," she
said.
Due to a lack of new product
launches, Motorola's global share has declined and
its China market share is no exception.
Shen said Samsung is likely to replace
Motorola as the second-biggest foreign handset
brand in China, with Nokia remaining on top in the
third quarter of the year.
"Even though
the top handset brands are strong in first or
second-tier cities, the third- and fourth-tier
cities are still very fragmented with many brands
surviving. And a lot of new entrants start with
rural areas and then push into urban areas," she
said.
Rural China is emerging as a key
battleground, where local brands are very
competitive against foreign brands.
"People in the rural areas are more
price-sensitive and don't have strong brand
loyalty, so they buy things which can give them
the best value. To cater to such values,
home-grown brands pack more features into their
phones, making people think they can get more
value from these products," Shen said.
Among the new entrants of home-grown
handset vendors, Beijing-based Tianyu is a rising
star. It expects to sell 13 million mobile phone
units in 2007, a 113.1% growth year-on-year to
become the third biggest domestic handset vendor
in China.
"Tianyu uses a very aggressive
marketing strategy in second- and third-tier
cities by offering high commissions to traders,"
said an official of a domestic handset vendor who
asked not to be named.
To compete for the
rural market, Nokia is expected to launch
entry-level handset models which might be sold at
350 yuan (US$47) in the fourth quarter of the
year. Its old Nokia 1100 model is available now
for less than 400 yuan.
In terms of unit
sales, the total market share of foreign handset
brands was reduced to about 60% in the second
quarter of this year from 73% in the last quarter
in 2006, according to Shen.
China's mobile
phone users exceeded 520 million by the end of
September this year, with a monthly rise of 6.91
million on average, according to statistics from
the MII.
Olivia Chung is a
senior Asia Times Online reporter.
(Copyright 2007 Asia Times Online Ltd.
All rights reserved. Please contact us about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
