China Calling
By Carlo Longino, Wed Jul 28 21:45:00 GMT 2004

Chinese device makers are looking to foreign markets for future growth. reports that China's handset vendors want to boost their exports to sell more devices at higher margins. Although there's still a lot of room domestically for penetration, a recent study says the monthly income of potential subscribers in the next year is a quarter of current users, at about $70 per month, a sobering figure for handset makers and carriers alike. But just as outside vendors had to adapt to the Chinese market, local vendors have to ring up some serious changes to compete internationally.

The Chinese market is dominated by low-end devices with an emphasis on looks and styling, and concerns over quality and R&D abound. Domestic manufacturers accounted for three-fourths of recent Chinese complaints about handsets, although those companies only sell half the handsets in the country. And many vendors have built their businesses around repackaging foreign technology and components in locally designed shells.

But bigger companies like Ningbo Bird and TCL, both of which have linked up with European manufacturers, are now increasing R&D, with a particular emphasis on software, which has been generally overlooked. Nearly a third of the world's phones are already manufactured in China, and coupling the country's low labor costs with a willingness by vendors to do whatever it takes to sell to Western carriers -- meaning customization -- could turn the domestic producers into very viable global competitors. But the lack of a significant domestic 3G market, and a potential government mandate to use TD-SCDMA, could see solid 2G products gaining traction just as 3G technology gets over the tipping point.

The article points out that many local manufacturers are caught between low-end devices and the higher-end foreign offerings that feature more advanced technology, and that any outside sales will be driven by high-end devices -- clearly they'll want to follow Samsung's example, which has followed this very strategy to gain significant share outside its home market. But Samsung's got a significant R&D push behind it, helped along by Korea's position at the forefront of wireless technology.