As the structure of the mobile phone industry has changed and as the key factors affecting competition between mobile phone vendors have been transformed, the lion's share of the profits in the Chinese mobile phone market have gone, first to the leading international mobile phone vendors, then to those Chinese mobile phone manufacturers with a production and domestic sales license, to the Korean and Taiwanese mobile phone firms, and then to Chinese mobile phone design houses. Since 2005, the mobile phone reference designs supplied by Taiwanese company MediaTek have been transforming the competitive balance in the Chinese mobile phone market. Benefiting from its innovative business model, MediaTek's share of the mobile phone IC solution market in China has shot up from less than 2% to over 50%. This report examines MediaTek's innovative new business model.
In its development of the Chinese mobile phone market, MediaTek has employed a revolutionary new business model that uses highly-integrated products to attract new customers and disrupt the supply chains of the leading international IC suppliers. By exploiting the growing competitiveness of the white-brand mobile phone vendors in the Chinese market, MediaTek has been able to avoid being constrained by the existing supplier relationships of the longer established Chinese mobile phone brands. MediaTek's success is the fruit of innovation in product design, customer development, and operational strategy.
Underlying MediaTek's innovative new strategic thinking is an unusual breadth of vision, careful timing, and an awareness of the need to integrate R&D with managerial capabilities.
Strategic Planning Based on Resources Available
It is readily apparent from the success of MediaTek's business model that for an innovative business strategy to be successful it must be properly implemented. By building up their manufacturing and managerial capabilities, new entrants can gradually progress to the point at which they are able to compete directly against the longer established firms in the industry on technology development. Timing is very important here, and so are the resources available to the enterprise, which may need to continue allocating resources to the development of a particular business area over an extended period. To succeed in turning an innovative strategy into high profits, an enterprise must evaluate its own capabilities and be careful not to overreach itself.
An Innovation Model Spreading to Other Industries
The business model that MediaTek has used to develop the mobile phone IC market in China is actually quite similar to the strategy that MediaTek had previously employed when developing the DVD player IC market; by providing highly integrated IC solutions, MediaTek was able to foster the growth of a group of new-entrant DVD player manufacturers that possessed a high level of marketing savvy and valuable relationships. MediaTek outsourced module assembly -a business area where the entry barriers are relatively low -to other companies, and used large-volume production to build cost advantage. Software changes and modularization were leveraged effectively to enable MediaTek to offer a wide range of different products, and to make it possible for the company to respond rapidly to changes in market demand.
A similar process now appears to be underway in the Chinese car industry. It remains to be seen whether any supplier will be able to achieve a level of success in this industry similar to that which MediaTek has achieved in the mobile communications IC market.