Although it once looked like local Chinese handset players would be able to defend their home turf and control the world’s largest wireless handset market, now it appears that size and scale may win out in the end.
New research shows Chinese handset makers like Ningbo Bird Co. Ltd., TCL Communications Technology Holdings Ltd., Amoi, DBTel Inc., Konka, Eastcom, Haier and others are losing market share to industry leaders like Motorola Inc. and Nokia Corp.
“The incumbents (like Nokia and Motorola) have finally gained some mastery over the distribution channel in China,” said John Jackson, a mobile-phone analyst with research and consulting firm Yankee Group. “The large traditional incumbent brands have been able to gain market share.”
Numbers on the Chinese market are somewhat difficult to come by. The market is much harder to quantify than other countries due to its unconventional retail landscape and vague corporate structures. Mobile phones are sold under a variety of brands and from a variety of manufacturers in China, and sometimes it’s not clear which phone is contributing to which company’s bottom line. Indeed, there are almost 50 different mobile-phone brands available on Chinese store shelves, comprising more than 1,200 different phone models. Nonetheless, research generally shows that overall handset sales in the country are increasing, and that foreign brands are claiming a greater chunk of China’s market.
According to GfK Asia, which is based in Singapore and part of the international GfK Group research firm, the Asian mobile-phone market grew 19 percent in 2004, largely on handset sales in China. Indeed, the country accounted for 61 percent of the Asian handset market, above locales including Korea, Taiwan, Hong Kong, Thailand, Malaysia, Vietnam, Singapore, Indonesia and India.
GfK Asia found that foreign brands like Motorola and Nokia increased their share in the Chinese market to 58 percent by the end of last year, up from 54 percent a year ago. In the country’s 121 largest cities, foreign brands increased their share from 60 percent a year ago to 62 percent. According to rival market research firm iSuppli Corp., Chinese handset brands claimed 50 percent of the market at the beginning of last year but that number declined to around 40 percent by the end of last year.
“This growth in foreign brands at the expense of local brands is attributed to distribution expansion outside of the leading 121 cities and the successful retailing of high-end products among the more affluent populations of the leading cities,” wrote GfK Asia. “There is also evidence that international products retain a technology advantage over local products.”
The situation was much different at the beginning of 2004. It was then that local Chinese handset suppliers were flooding the country’s market with inexpensive handsets to meet a rapidly growing demand pushed by an expanding economy. Analysts at the time lauded local suppliers’ ability to churn out low-cost products through a complex and convoluted network of local distribution points. The situation was such that dozens of Chinese electronics companies jumped into the country’s handset business.
“The number of entities and the number of manufacturers there continues to grow,” Yankee Group’s Jackson said. China “does not adhere to the rules of a traditional market economy.”
Jackson said the Chinese market suffers from a chronic oversupply and that all signs point to an imminent cycle of massive consolidation among dozens of handset players. However, such consolidation has yet to happen, and the market continues to groan under its own weight.
“The market should not be able to support the number of players that it is,” Jackson said.
The situation appears to be taking its toll. According to reports, local Chinese handset leader Bird said it will miss its 2004 sales targets by 30 percent. The announcement coincided with news that TCL’s November handset shipments will be 58 percent below that of a year earlier.
Jackson said foreign brands are scoring gains in China thanks to their persistence. Nokia, Motorola and other major handset suppliers have managed to grasp the country’s intricate distribution system, thus putting their products on equal footing with those from local brands. Further, large Chinese cities are easing into a handset replacement phase as well-to-do Chinese consumers tire of their first handset. Jackson said international brands like Motorola and Nokia are more appealing to replacement shoppers.
The resurgence of foreign handset brands in China coincides with notable changes in the market’s landscape. Infrastructure companies ZTE Corp., Huawei and others are beginning to expand out from China’s boundaries with sales of CDMA and W-CDMA gear. Further, the country appears to be gearing up to deploy the home-grown TD-SCDMA standard for third-generation services, which could potentially give local Chinese handset players a leg up on foreign phone suppliers.
“The underlying growth in Asia of mobile phones continues to demonstrate the value of the product as a must-have, and a fashion and lifestyle statement,” said Andy Drake, GfK Asia’s managing director. “The outlook is particularly positive when overlaying countries where product ownership is still in its relative infancy.”
