Chinese Handset Vendors Still Struggle
By Carlo Longino, Thu Jun 02 00:15:00 GMT 2005

As market demands in the country shift to high-end devices, homegrown competitors are having a hard time competing.

For more than a year, Chinese handset vendors have seen their market share in their home country decline as foreign manufacturers got their acts together and started devoting more resources there. Combined with a maturing mobile market, China's handset businesses are having a hard time, even as the market overall is booming.

Whereas consumer tastes there previously dictated low-cost, low-end models with an emphasis on fashion and styling, the replacement market in the country is growing, and those returning buyers are looking for higher-end devices, preferably with a foreign nameplate.

Compounding the troubles, foreign vendors have reworked their manufacturing and distribution processes in the country, to where they can match local vendors' cost structure -- while their large scale means they can squarely beat them when it comes to securing components, and getting them at low cost. Just for a comparison, Nokia sold 66.1 million handsets worldwide in the fourth quarter of 2004, which China's second-biggest vendor, TCL, sold 10 million during the entire year. These economies of scale dictate that the assumption that Chinese vendors are always the lowest-cost manufacturers isn't true, says one analyst.

The push to build a large-scale handset export industry in China continues, but Chinese companies' success in selling to other emerging markets may not be the lock it was once assumed to be. If global giants can turn a profit on sub-$50 handsets and many believing costs can be driven down even further quite quickly, things may be difficult for China's manufacturers.

Foreign companies have put a lot of money into beefing up local R&D in China. It makes sense: local design for local products. So perhaps Chinese manufacturers will be able to leverage knowledge of their home market to their advantage. But those local manufacturers have been trying to increase their own technical development, with little apparent result, and their linkups with minor European players haven't turned out well, either.