Abstract

By the beginning of 2009, several different models co-existed in China's mobile phone distribution channels, and competition was still fierce. There are three major power blocks in China's mobile phone channel system, including sales agents, 3C retail chains and mobile phone specialty stores, and mobile operators. They have developed differently in response to market changes.

Position of National Agents Unshakable

Since 2004, international brands such as Nokia and Motorola have been making heavy use of direct supply, which has greatly increased distribution efficiency. However, the strategy has also increased the requirement for the size of sales teams and management costs. Under these circumstances, large national agents like PTAC and Telling Communications have become the brands' outsourcing partners, providing logistics services between the factory and the consumer, sales, and maintenance. They also help the brands manage FD platforms and relations with retailers and sales agents.

Currently, Nokia, Motorola, Samsung and Sony Ericsson adopt channel models which are mainly built around national sales agents, securing these agents' dominant position in China's mobile phone channel system.

In order to increase market penetration, national agents have also started trying to transform themselves, adjusting their previously singular development models. For example, in 2008 Telling Communications expanded the retail scale of its own brand Itell. China PTAC Communications Services also expanded retail scale through its subsidiary CentreYou.

Consolidation among Retailer Chain Continues

Compared with the relatively small number of national agents, competition between retail chain stores, which can be found in all regions, is fierce. This has resulted in acquisitions and restructuring, which in turn has caused an increase in market concentration among these companies. This has also caused the need for these companies to develop branded operations. Smaller companies are gradually being taken over by others or are pushed out of the market.

3C retail chains, which started out by selling home appliances, have relied on scale, management, and brand advantages to move to the forefront. They have already caught up with, or even surpassed, traditional mobile phone specialty chains, and have become a major force in China's mobile phone channel system. Gome and Suning are using different methods to continue to expand their scale and influence.

Faced with competition from 3C retailers, such as Gome and Suning, and from operator channels, traditional mobile phone retail chains have to deal with a new round of re-shuffling in their sector. Sales per store of companies such as Zhongyu and D.Phone are falling, while Xieheng and Kinfic are conducting large-scale store closures. To escape their predicament, these companies are considering ways in which to transform their businesses. Besides expanding to rural areas where mobile phone penetration is below 30%, they are also exploring the e-commerce arena. For example, D.Phone rolled out online ordering services in 2007. It still remains to be seen how these business models will develop, especially in light of the fact that besides specialized e-commerce companies, Nokia, Motorola and Haier have also established special websites to exclusively sell their mobile phones. Nokia has even set up an online store in Chinese. Consumers can enjoy free shipping services if they order through the Internet or by telephone.

Operators Aiming to Establish Strong Market Position

To promote value-added data services and obtain more subscribers, operators have gradually increased their activities in mobile phone customization and procurement. Following the start of 3G in China, service promotion and demand for greater differentiation requires a dominant position for operators in the industry chain. Therefore, operators are gradually increasing the number of customized mobile phones, and their involvement in mobile phone specifications is also growing.

However, it should be noted that the three major operators in China are all stressing sales through open channels during initial 3G development. China Unicom has achieved complete market development through four major agents. This has to do with the fact that the three major operators have come to a new starting line after the industry restructuring and the issuance of 3G licenses. Therefore, they try to make extensive use of external channel resources to distribute their products to all regions. Quickly taking advantage of new market opportunities is a priority for these operators. Only after establishing a stable and strong market position will these companies give more consideration to dominating the industry chain and trying to develop more customization.

Appendix

Research Scope

This report analyzes development trends among Chinese mobile phone channel players, including sales agents, retail chains, and mobile operators.

Product Definitions

FD Model

The FD (Fulfillment Distribution) model was first launched by Nokia in China in 2004. Other companies, including Motorola, also began using this model. This model involves direct supply by mobile phone brands to retail channels. Specifically, mobile phone brands first set up platforms in each region for direct logistics and cash flows - FD. End-market retail companies complete cash payments through FD. When these companies require shipments, the FD model can deliver shipments within 24 hours, and the FD model generates revenues through service fees.

Appendix

Research Scope

This report analyzes development trends among Chinese mobile phone channel players, including sales agents, retail chains, and mobile operators.

Product Definitions

FD Model

The FD (Fulfillment Distribution) model was first launched by Nokia in China in 2004. Other companies, including Motorola, also began using this model. This model involves direct supply by mobile phone brands to retail channels. Specifically, mobile phone brands first set up platforms in each region for direct logistics and cash flows - FD. End-market retail companies complete cash payments through FD. When these companies require shipments, the FD model can deliver shipments within 24 hours, and the FD model generates revenues through service fees.

List of Companies