Abstract
Following the introduction by the Chinese government in March 2005 of a new approval system for mobile phone production and sale, by the end of September 2007, over 50 new entrants had been awarded licenses. Added to the 30 existing vendors, there were over 80 mobile phone manufacturers authorized to sell mobile phones within China in September 2007. The approval system was abolished by the end of 2007, making it even easier for new companies to move into the mobile phone business. Most of the new entrants are Chinese companies with a background in central office equipment manufacturing, ODM, mobile phone design or distribution, or TV or PC manufacturing. Companies such as Huawei, Tianyu, and Yulong have made effective use of their existing sources of competitive advantage to achieve impressive sales performance.
The number of mobile phones sold in China each year has been growing steadily by around 30% per year. Annual mobile phone sales rose to over 150 million units in 2006, and this figure was estimated to have risen by approximately 33% to just under 200 million in 2007. Despite the high concentration ratio and intense competition in the Chinese mobile phone market, the potential for dramatic sales growth continues to attract large numbers of new entrants.
By comparison with the more mature supply chains in the TFT LCD (Thin Film Transistor Liquid Crystal Display) and PC industries, which are dominated by large international corporations, the situation in the mobile phone industry is more open and fluid. The availability of turnkey solutions from companies such as MTK and Spreadtrum has substantially lowered the entry barriers for companies looking to move into the mobile phone business. At the same time, it is now possible to source key components such as PCB (Print circuit Board), application-specific ICs, STN (Super Twisted Nematic) panel, CSTN (Color Super Twisted Nematic) panel, TFT LCD panel, LCM (Liquid Crystal display Modules), and camera modules from local Chinese manufacturers, which provides significant cost savings for new entrants.
As of September 2007, there were more than 50 mobile phone vendors in China that could be classed as new entrants. Most of these companies have adopted a business model in which they focus on marketing, while outsourcing production and R&D, suggesting that these firms are approaching the mobile phone business with a speculative mindset. By and large, the new entrants have relied heavily on price competition, concentrating their efforts on securing a share of the market in China's small and medium-sized regional cities. From the point of view of China's larger and longer-established mobile phone vendors, this has made an already difficult situation even more challenging, while doing little to promote the growth of the Chinese mobile phone industry as a whole. By contrast, given the growing importance of the operator channel in the Chinese mobile phone market, mobile phone vendors such as Huawei and Yulong that have chosen to focus on supplying mobile phones to telecommunications operators have the potential for impressive shipment growth.
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Research Scope
This report examines the development of new entrants in the Chinese mobile phone industry, focusing on five vendors: Huawei, Tianyu, Yulong, Gionee, and GT Mobile.