Abstract

MIC Perspective

 5.1 Industrial Structure Reconstruction and Bargaining Power Reshuffle to Significantly Deepen the Influence of Large-scale System Integrators

Following the anti-counterfeit actions during the Universiade, the Chinese government continued to encourage gray-market companies to register their trademarks and be included into national management system. However, it is undeniable that many companies tend to carry on their operating models similar to that used in the gray-market industry. Despite of the fact that the Chinese government thinks that getting rid of Shanzhai culture is quite essential, how to improve tax system and to create fair competition environment are two major challenges that the government is currently facing.

How long the effectiveness of the anti-counterfeit actions and Chinese government's encouragement for gray-market players to register will last is unpredictable. However, the industry's increasing bargaining power is deemed as the positive result of those actions carried out by the government. In the past, PCBA managed to have high influence on the Chinese mobile phone industry since it was capable of having a high degree of financial leverage with a small amount of capital. During the anti-counterfeit period, some small-scale systems integrators exited the market and those stayed in the market are medium- and large-scale system integrators and their influence on the industry is increasing as a result. With the pressure given by medium- and large-scale systems integrators, small-scale PCBA manufacturers are losing their advantage in bargaining power and are fading out of the market. Overall, the remainders in the industry are those with relatively large economies of scale and the anti-counterfeit actions that help reshape and rebuild the industrial structure have had positive influence on the industry.

From another perspective, due to the popularization of Shanzai culture, the Chinese mobile phone industry in the past experienced some radical changes compared to other countries. In recent years, faced the market uncertainty, the chip and component industry suppliers have taken a more conservative attitude towards shipment and inventory control and channel distributors also have become more cautious toward operations. After the changes in the industrial structure and the elimination of small-scale industrial players, it is anticipated that the industry supply chain connecting upstream component suppliers, components distributors, PCBA manufacturers, terminal suppliers will be more stable. Meanwhile, with bargaining power of terminal suppliers increasing substantially, some small and medium component suppliers, including Taiwan-based companies, will likely to feel operating pressure and how they will react should merit further observation.

5.2 Product Positioning and Outsourcing Efficiency as Major Challenges for Branded Vendors

With a rapid economic growth and a widening gap in wealth, a phenomenon found in the consumption habits of Chinese consumers has become increasingly evident, especially in the Smartphone product segment. The phenomenon demonstrates there are significant differences found in consumer demand and preferences for Smartphones based on different consumption patterns and user scenarios. This phenomenon is just beginning to surface in the Chinese Smartphone market. Living in the era where mobile broadband and Internet services are growing in popularity, in the face of diversification in user scenarios, the market will be fragmented into a large number of different segments. Diverse consumer demand is expected to put branded vendors to test in terms of product R&D, market setting, distribution channel planning, and marketing and promotion capabilities. In addition, since Smartphones belong to high-priced products, how to build consumer brand awareness and loyalty will demonstrate how well Smartphone companies develop their brands.

Faced multiple market segments, Chinese local mobile phone companies have made their forays into the Smartphone market either through the dual-brand or multi-brand strategy. Observed the traditional business model of Chinese mobile phone companies in the past, it is found that except a small number of first-tier manufacturers, most Chinese mobile phone companies that focus on multi-level and comprehensive product developments were facing challenges due to insufficient in-house R & D and product design capabilities. In order to enter the Smartphone product segment, higher technical requirements will be given in terms of product design, software integration, and application services compared to the past. In particular, differentiations in hardware and software integration and the human-computer interface are expected to play a key role in future product designs. Therefore, it will be inevitable for those companies to seek help from IDHs (Independent Design Houses), or contract manufacturers. Meanwhile, how branded vendors can integrate their own product planning while leveraging design competitiveness of the outsourcing companies to avoid situations happened in the past where there were a large number of products with high homogeneity will become a major challenge for branded vendors.

Appendix

Glossary of Terms

List of Companies