Chinese Handset Vendors Reel From Foreign Competition
By Carlo Longino, Tue Dec 21 20:15:00 GMT 2004

Profit and sales warnings from the country's two biggest domestic handset makers reveal the extent of foreign vendors' resurgence in China.

TCL, China's second-biggest handset vendor, said today its domestic sales in November were 58% lower than last year, and said it might lose money in the fourth quarter. The day before, China's top manufacturer, Ningbo Bird, said it expected to miss its sales goals for the year by 30%. Both companies, along with China's smaller handset vendors, have been decimated by the resurgence of foreign players in the country.

Domestic manufacturers had thrived in the country until the middle of 2004, taking advantage of their wide distribution networks and the speed with which they could bring new models to market. A government-affiliated consultant said that local companies held half the market at the beginning of the year, but only 38% in June. As China's mobile market has matured, consumers' interest turned to handsets with advanced features, an area in which Chinese vendors are struggling to keep pace. Handset sales growth is slowing as well -- Gartner says 70 million handsets will be sold in the country this year, just 16% more than in 2003. One analyst also says Chinese vendors are hanging on to an inventory of 40 million unsold devices.

The figures reinforce the importance for Chinese vendors to break into foreign markets to maintain and grow their sales. While they may have expertise and experience in selling to developing markets, they must also evolve their engineering and design efforts to allow them to create advanced models that can compete against foreign brands. While there are still plenty of developing markets around the world, they will eventually mature -- and without that evolution, Chinese manufacturers will be caught out, much like in their home country.

TCL and Ningbo Bird are hoping their partnerships with Alcatel and Siemens, respectively, will help shore up their weaknesses and result in organizations that harness the strengths of both domestic and foreign vendors. These kinds of changes are needed, as it looks like the Chinese market will only get more competitive with the entry of new vendors like Research In Motion and Japanese vendors waiting to pounce on China's 3G networks.