Consumers Driving Market Demand
Rather than viewing the rapid growth in sales of pirated and substandard ICT products in China as the result of unethical behavior by manufacturers, it may make more sense to view it as a reflection of supply and demand. As the supply of ICT products in China has come to outstrip demand, the bargaining power of consumers has been strengthened. What has happened in China parallels the evolution of market theory, from a focus on product lifecycles, to Inside the Tornado, to the long tail.
With the strengthening of consumers' bargaining power, manufacturers have had to make more effort to meet consumers' needs. Leveraging the existing industrial structure, they have developed streamlined production and management methods, enabling them to introduce a wide range of low-priced products. At the same time, manufacturers have had to market their products efficiently through a wide range of channels to attract consumers' interest. The fact that this new business model has succeeded testifies to the inefficiency of the older models. If the phenomenon is analyzed only in terms of its unethical aspects, without considering why the new business model has been so successful, then the decline in the market share held by the leading vendors will continue.
Division of Labor Outperforming Vertical Integration
The success of pirated and substandard products derives from the individual competitive advantage of a large number of manufacturers and distributors, each focusing on their own self-interest. Together, these companies constitute a force that the leading ICT vendors have so far been unable to overcome. Just as Adam Smith's invisible hand concept brought down the large, centrally planned economies, so the leading ICT vendors need to recognize the new trend towards a complex division of labor. Companies need to identify where their own core competencies lie, and find an appropriate positioning for themselves within the industry supply chain. Only then will they be able to escape from the threat posed by the large number of new manufacturers producing pirated and substandard goods, and develop new business opportunities.
Importance of Enterprises' Value in the Supply Chain
The companies that have suffered most from the rise of pirated and substandard products in the Chinese market are the legitimate Chinese ICT manufacturers, which have found themselves squeezed between the leading international vendors and the new entrants manufacturing shoddy, low-priced products. The underlying problem is the legitimate Chinese vendors' lack of sustainable core competitiveness that is not easily replicable; they are not in a position to provide their customers or their collaborative partners with value that they cannot get elsewhere. As a result, as soon as a competitor (which may have previously been one of their partner companies) succeeds in replicating their operational or marketing model, the legitimate manufacturer will find itself facing intense price competition that may lead to its being completely supplanted.
In the future, it is anticipated that the leading international vendors will continue to leverage their strong brands, reducing the levels of their distributors, and expanding their distribution networks to encompass China's large, medium, and small-sized cities and towns, and even rural areas. At the same time, the new entrants will be building up their resources, and leveraging their advantages in terms of flexible production and marketing, to move away from their current guerilla strategy towards more conventional operation, and from rural areas, small towns, and the suburbs into medium-sized and large cities. The results of the competition between international vendors and the emerging Chinese manufacturers will depend to a very large extent on what kind of value the individual companies concerned are able to provide.