Taking Back China
By Carlo Longino, Wed Aug 25 21:30:00 GMT 2004

Foreign handset vendors have turned the tables on China's domestic producers.

Local manufacturers like Ningbo Bird and TCL have been taking share from global giants in China, capitalizing on their wider distribution networks and making up what they lack in techy features with the number of models they have in the market and the speed with which they could create new ones. But it appears that Chinese vendors' share has peaked, falling from 49 percent in January to 46 percent in June, and the percentage of sales in money terms fell from 42 percent to 37 percent over the same period. Figures from June show Nokia and Motorola lead the market overall, with 15.5 and 14.1 percent respectively.

Domestic vendors thrived because their strengths were foreign vendors' weaknesses. Outside companies focused their sales and distribution on China's big cities, while local companies forged sales networks out into smaller cities and rural areas. Though foreign handsets have a better reputation for quality and features, local devices were brought to market very quickly and focused on fashion and design. But now, just as domestic makers link up with smaller European manufacturers to beef up their R&D, companies like Nokia and Motorola have retooled their sales and distribution to reach a much wider market and take back share.

But, although these companies' devices carry a foreign brand, they're often designed and made in China, as international companies have increased their research and design presence in the country to better cater to local tastes and preferences. For instance, Nokia's 6108 model, one of its most popular in the country, was developed entirely at the company's Beijing facility. Domestic suppliers are also increasing their reliance on local talent, shifting away from outsourcing design and production to places like Taiwan and South Korea.

The almost perfectly opposite strengths and weaknesses of the two groups of vendors played into the domestic suppliers' hands -- their devices were getting to a lot of areas that foreign brands weren't, and they followed local preferences, emphasizing fashion over function. But now that the distribution networks are on more equal ground, and consumers' interest in advanced devices with more features and better software grows, it's hard to see the balance of power not shifting back to foreign producers, at least for the short term.