China's
Burgeoning Mobile Phone Industry
By
staff reporter LI WUZHOU
CDMA handsets will occupy a section
of the Chinese market. |
When the cell phone
first appeared on the Chinese market in the late 1980s it
cost 10,000-20,000 yuan, and was the size of a brick. Regarded
as the ultimate status symbol, it was called the da ge
da, meaning very influential person. At that time, sales
of mobile phones were under state control, and stocks were
limited. Purchasers were required to place an order and make
an 80 percent down payment. How things have changed! Mobiles
are now available in multiple choices of size, color and function,
on request.
Thumb Culture
As an undergraduate,
Mr. Huang kept in touch with his former classmates by Internet
chat room. Since starting work in Beijing two years ago he
maintains contact through cell phone text messages. These
days at old school reunions, as soon as the reminiscences
are over the conversation turns to who has the latest model
of cell phone, and the most recent text message jokes. Short
text messages are now the toast of contemporary communications
in modern China, having been given the epithet "fifth
medium." According to statistics, Chinese mobile phone
users send 60 billion short text messages annually, and one
in every six sent anywhere in the world is in China. Apart
from being used to tell jokes, they also transmit weather
forecasts, lottery and stock market information, and seasonal
greetings. Chinese people, particularly those in the age group
15 to 25, adore this form of communication. It is low cost,
and satisfies the need to communicate quickly while allowing
time to think about and prepare a message.
Pigeon, the most ancient form of
message transmission, and the most modern mobile phones. |
This "thumb
culture" has spread throughout the social spectrum. China's
two main mobile telecom companies, China Mobile and China
Unicom, handled 90 billion short text messages in 2002. At
0.1 yuan per message, this translates to an income of 9 billion
yuan, and represents new era in telecommunications consumption.
Short text message
subscriptions and downloading information services are the
latest strategies for turning Chinese information portal site
-- Sina, Sohu and Netease, to name but three -- losses to
profits. Text message mania has created a new profession:
that of the professional short text message writer. There
is a demand for those skilled and prolific at writing public
messages and jokes that earn money each time they are forwarded.
Cell phone consumption
indicates the differences in economic priorities within Chinese
and Western consumer culture. When buying a mobile phone,
a Westerner considers its value for money in terms of core
technology, and the number of functions it performs. Chinese
mobile users, on the other hand, are guided solely by comparisons
with other mobile users as to the latest, flashiest models.
They give negligible consideration to the benefits of the
mobile as a business accessory, mainly using them to send
and receive short text messages and play games. Less than
30 percent of cell phones are actually used to make phone
calls. Only big planters, cultivators and dealers in rural
areas use them wholly for business.
Frequent sending
and receiving of short text messages and upgrading of cell
phones has brought rapid growth to cell phone consumption.
The current number of cell phone users in China surpasses
that of the United States, making it the world number one.
Shi Jixing, chairman of the board of the Eastern Communications
Co., Ltd. (Eastcom) and vice-chairman of China Mobile Communications
Federation, recently pointed out that the number of cell phone
users increases by 200,000 per day in China, and that their
users have spread to medium-sized and small cities.
The rapid increase
of cell phone users has nurtured a huge market in China.
World Magnates
Contend for Chinese Market
Motorola COO Mike
Zefirovski visited China in April 2003, when the battle against
SARS was at its fiercest. On behalf of Motorola, he presented
to the Chinese government medical apparatus for treatment
of SARS and other equipment and materials to the tune of 11.8
million yuan. He and Wang Qishan, acting mayor of Beijing,
went on to sign a memorandum of cooperation regarding the
investment of US $90 million in a Motorola research and development
company in Beijing, having already built a global procurement
and Asia-Pacific regional management center in Shanghai.
Many brand names provide a wide
choice of functions. |
Motorola occupies
a large GSM market share in China, and has also managed to
get a share of China's rising CDMA (Code Division Multiple
Access) market. In order to consolidate its market share Motorola
will continue to invest in China. In the coming five years,
its annual production value will reach US $10 billion, its
accumulated investments US $10 billion, and its accumulated
procurement value US $10 billion. The Motorola Research and
Development Company will at the same time spend US $500 million
on research, development and new equipment.
The sales volume
of the Motorola (China) Electronics Co., Ltd. in 2002 was
US $5.7 billion, making up nearly a quarter of Motorola Group's
total sales volume. Mike Zefirovski stated, "China is
Motorola's most important market, production and R&D center.
As the largest foreign-invested enterprise in China, we will
stick by our promise to invest in China and make it our world
base."
Following this
five other cell phone manufacturers: Philips, Ericsson, Nokia,
Siemens and Samsung, announced that they would transfer all
or part of their handset production to China. Many cell phone
manufacturers in Japan and the Republic of Korea have also
moved their mobile phone production lines to China.
Nokia stated that
by the end of last year, China had become its second largest
market, next only to the United States. Last year Nokia's
sales volume in China amounted to 3.4 billion euros, 0.2 billion
higher than the 2000 figure. Nokia has now invested US $2.3
billion in eight joint ventures employing 5,000 workers on
the Chinese mainland. It has also built the largest cell phone
production base in Beijing, calling it Xingwang (International)
Industrial Park.
All this indicates
that China will soon be the largest mobile phone production
base on the globe, and a battleground where European, American,
Korean and Japanese manufacturers vie for the Chinese market.
With this in mind
Motorola launched its E360 and V730 color screen cell phones,
aiming for the high end of the Chinese market. Nokia responded
by promoting its Nokia 7650 handset that can also be used
as digital camera, with a bigger Chinese market share in mind.
Young people pay more attention
to fashion than practical functions. |
Other prominent
mobile phone manufacturers, such as Siemens, Ericsson, Philips,
and Alcatel, actively cooperate with Chinese enterprises through
technological transfers and cooperative production in an effort
to develop new products and also expand their market share
in China.
Domestic Enterprises
Rise to Meet the Challenge
As European and
American handset manufacturers set up their production bases
in China, domestic manufacture also expands.
Prior to 1998,
the Chinese handset market was dominated by foreign brand
names, and in 1999 only 130,000 cell phones, or 5 percent
of the country's total output, came from domestic enterprises.
In 2001, the output of Chinese-made cell phones increased
to 12.3 percent, and in 2002 this figure rose again to 30
percent. Chinese brand names, such as Bird of Ningbo, TCL,
and Eastcom of Hangzhou, are among the top ten on the Chinese
market. In the first three months of 2003, the sales volume
of TCL cell phones reached 1.04 million, ranking third after
Nokia and Motorola. Domestic handset enterprises now challenge
the dominant position of foreign-funded enterprises.
According to experts,
competition between Chinese and foreign brand names boils
down to actual strength, cultural concepts and operating modes.
In the field of GSM, Chinese brand names survive because they
have narrowed the technology gap and gained an insight into
consumer psychology. They have also perfected a marketing
network, and provide good after-sale service. Bird cell phones,
for instance, have launched a strong advertising campaign
and created a nationwide marketing and service network. This
has taken it to the national top five.
Domestic enterprises
have the advantage of being able to offer after sales service.
Lenovo, for example, offers a 24-hour 800 free hotline service,
something many foreign brand names are unable to provide.
China's mobile
phone industry may be developing rapidly, but it is not without
its problems. Some domestic enterprises seek only to expand
their production scale, and pay little attention to upgrading
product R&D. Others do not own the intellectual property
rights to the core technology, so their development potential
is limited. Core technology and product upgrading constitute
the largest disparities between Chinese and foreign brand
names.
The quality of
Chinese-made cell phones is also inconsistent. According to
China International Finance Company, 6 percent of Chinese-made
cell phones are sent back for repair -- double the percentage
of foreign brands.
Has the "Cake"
Been Divided Up?
Of the 125 bidders
at an auction for a CCTV 2003 screen advertisement held in
November 2002, 15 were cell phone manufacturers, and it was
Panda Cell Phones that won the bid at a price of 108 million
yuan. By the end of 2002, the cell phone industry had invested
700 million yuan in TV advertising, more than double the 2001
figure. Competition on the cell phone market has become white-hot.
The global telecom
industry is currently in a slump, but the China mobile terminal
industry is a hot spot for industrial investment. The annual
production and sales volume of cell phones is 100 million.
Calculated at 1,000 yuan each, this translates to a market
value of 100 billion yuan.
According to the
latest market statistics, Chinese-made cell phones currently
in stock amount to 20 million, equivalent to almost one-third
the domestic demand. The market share for Chinese-made cell
phones is increasing, and each year more than 200 new varieties
go on the market.
Short text messages and pictures
are a new way of keeping in contact. |
The current cell
phone price war resulting from excess production capacity
is reminiscent of the color TV industry in its nascence. Manufacturers
are concerned at the ever shortening period of a new product's
popularity, and how in order to keep pace with demand the
cycle of new products must be accelerated, which means lower
profits and higher costs.
According to the
latest government statistics, there are 37 cell phone manufacturers
(including 22 foreign-funded enterprises) in China, and by
the end of 2003 production capacity will exceed 180 million
-- close to half the global total, and quadruple the domestic
market scale. Cell phone output is obviously much higher than
market demand.
When considering
the opportunities on offer from a domestic market valued at
one hundred billion yuan, however, hope springs eternal. As
regards domestic demand the forecast rapid increase in urban
and rural incomes is a favorable consumption indicator. Market
awareness among Chinese farmers, the growing number of agricultural
product brokers, and the needs of rural migrant workers will
combine to increase substantially the demand for cell phones.
Wang Bingke, deputy
chief of the Economic Operations Department of the Ministry
of Information Industry, maintains that the problem of surplus
production capacity does not exist in the cell phone industry
as there is a basic balance between production and sales.
This has been endorsed
by a survey on consumer confidence conducted by AC Nielsen.
It shows that lifestyle in the Asia-Pacific Region has been
influenced by the recent economic slump, and that fewer consumers
eat out or spend large amounts on entertainment and other
luxuries. China, however, is not affected by the unstable
economy in the Asia-Pacific Region. In 2002, China produced
120 million cell phones, of which 55 million were exported,
and 65 million sold on the domestic market.
Alida, president
of the AC Nielsen China, stated that in China, 36 percent
of consumers said they would buy new digital cameras in the
coming months; 39 percent would buy new personal computers
or portable computers; and 48 percent would replace their
cell phones with updated models that have more functions.
When considering
the uncertainties of the handset manufacturing industry, many
believe that the rapid development of Xiaolingtong (personal
access phone system) could be a positive influence on the
Chinese-made cell phone manufacturing industry.
Xiaolingtong is
a low-cost wireless service based on the fixed phone network
and charged on the same basis as a fixed phone. Since 1997
Xiaolingtong phones have appeared in the bigger cities,
and in 2003 they entered Beijing, Guangzhou and Shanghai.
According to statistics,
at the end of March 2003, the number of Xiaolingtong users
amounted to 15 million nationwide, covering more than 400
cities. Xiaolingtong targets the medium- and low-income consumers
that make up half of China's population. It is estimated that
by the end of 2003 there will be 10 million Xiaolingtong phones
in China.
This will have
tremendous impact on the cell phone market, as low Xiaolingtong
charges force other mobile phone companies to cut their tariffs,
providing more opportunities for medium- and low-income consumers
to own cell phones.
The future of the
cell phone market? Let's see ...
