Abstract

Competition Accelerates Resource Reallocation

As the competition in the Chinese mobile phone market has grown fiercer, Bird and TCL have begun to abandon their attitude that "marketing is everything" and are going back to a cost-focused strategy of building up strong capabilities across the board. This means moving away from dependence on overseas ODMs and building up in-house production capacity, while working to improve their bargaining position vis-?vis component suppliers. However, the different positioning of the two vendors' products has led them to adopt slightly different approaches to the repositioning of R&D resources. Bird's handsets are mainly oriented towards the entry-level market, so Bird's R&D efforts are naturally concentrated in this area; development and production of handsets for other segments is mostly outsourced. TCL's product range is less focused on one particular segment. Having strengthened its overall R&D capabilities through the acquisition of Alcatel's handset R&D team, it can be anticipated that TCL will continue to undertake R&D work in all segments.

Focus on Third, Fourth-Level Markets

Large retail chains have gradually come to dominate the handset market in China's first- and second-level cities. As a result, Chinese handset vendors such as Bird and TCL have been speeding up the expansion of their distribution network to relatively untapped third- and fourth-level cities and even rural areas. However, leading international vendors Motorola and Nokia have also been beefing up their entry-level handset lines, and are collaborating with China's operators to develop these same markets. It can therefore be anticipated that the competition in China's smaller cities and rural areas will grow increasingly intense. The proliferation of fake-brand and gray-market handsets is expected to affect the Chinese handset market's development, particularly in South China.

Position Threatened Due to Limited 3G Investment

While second-tier vendors and new entrants such as Amoisonic, Lenovo, ZTE, and Huawei have been working aggressively on 3G handset businesses, Bird and TCL have made quite limited achievement in this area. With competition in the 2G/2.5G market so intense, Bird and TCL have had to concentrate all their energies on maintaining their position in this market, thus leaving them little resources to develop 3G handset technologies. The risk here is that, as China's 3G market starts to take off, Bird and TCL may find their dominant position among the other Chinese handset vendors under threat.