Motorola and Nokia, after two years of lackluster sales, are roaring back to claim greater market share in the world's biggest mobile phone market, putting once-dominant Chinese phone makers on the defensive and forcing them to turn to redesign and export.
A major objective now by these companies is to get the Chinese users to switch. The Chinese mobile phone market has 330m users and is expected to increase by 11% this year, to roughly 366m, compared with the US mobile phone market of 190m.
"For several years, Motorola and Nokia went through a real bad time in China because of bad designs, but now they have been winning back market share," said Paul Denlinger, principal of China Business Strategy, which advises companies entering the China market and Chinese companies going global.
The major Chinese makers include Bird, TCL, Panda and Konka. TCL suffered a US$50m loss in the first quarter, down 13% compared with last year when inventory piled up, Bird's earnings fell by 47%. Shares in both companies plummeted by as much as 40%.
In fact, sales of all major Chinese makers are declining, as competition with foreign firms is intense and profit margins have shrunk dramatically, said a senior executive from one of China's largest mobile phone retailers. "I remember when we had profit margins of RMB10,000 (US$1,235) on the Motorola 'bricks,' but now we're down to RMB30-40 (US$3.70-US$4.94) per handset," he said, declining to be identified.
Motorola and Nokia, which led the Chinese market in the early 1990s, have revived sales by introducing new models that are more appealing to Chinese consumers, Denlinger said, noting that Motorola's Razr model "is the first model in a long time that looks like it was designed by designers, not hardware engineers." New CEO Ed Zander, formerly of Sun Microsystems, literally put design engineers in charge, then the hardware and software engineers took over.
Nokia overcame its unfathomable resistance to the clamshell designs popular in Asia, and is now selling them in China.
They are innovating in R&D, as is Sony Ericsson with its P910 model, popular with businessmen in Shanghai and Beijing, and selling for a hefty US$700-$800.
"Chinese companies had a free cakewalk because Motorola and Nokia didn't have their act together," Denlinger said, adding that they will have to play catch-up in terms of design, though their design departments are not as sophisticated as those of foreign firms. And they will have to maintain lower-end prices, ranging from US$74 to US$247. Motorola and Nokia business models range from US$247 to US$617.
Many local brands are looking to developing country markets in Southeast Asia and Africa, as well as the Middle East, because of the pressure on the Chinese market and unsold inventories. Bird, once strongly favored by young Chinese women, is now selling in Southeast Asia.
An informal survey taken by the CHINA ECONOMIC REVIEW in Shanghai showed that most people buy Nokia and Motorola because of high quality, prestige, reliable after-sales service, multi-functionality, marketing and attractive appearance. It's also the appearance and style that put the foreign brands back in the ballpark.
Those who bought Chinese brands didn't sound too enthusiastic, and most people questioned cited low price as the main reason for purchase; they gave relatively low ratings to quality, reliability, after sales service and appearance. Salespeople said middle-aged and elderly people mainly buy domestic brands because of the price; customers of all ages buy foreign brands, despite the somewhat higher prices, citing fashionable appearance and reliability.
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