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.
By Olivia Chung
Olivia Chung is a senior Asia Times Online reporter.
Source: http://www.atimes.com/atimes/China_Business/IK03Cb01.html
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.
By Olivia Chung
Olivia Chung is a senior Asia Times Online reporter.
Source: http://www.atimes.com/atimes/China_Business/IK03Cb01.html
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