New strategies for mobile phone manufacturers in China

The competition of mobile phone manufacturers in China is intensifying. White-brand mobile phone suppliers also forced gross profit from nearly 90 US dollars per unit in 2004 to less than 1.5 US dollars recently. At the same time, more Chinese companies and international companies have joined the market. For example, Lenovo recently launched its own smart phone. RIM also announced that it has established a partnership with China Telecom.

Some handset makers focus on mass production, while another part of the manufacturer focuses on creating a highly profitable market position. Manufacturers need to establish appropriate partnerships to help implement these strategies, and recently should try to select one or more of the following development paths.

Path 1: Support the needs of operators

In this case, operators control the user interface and preload their own value-added services. In return, handset manufacturers are promised the lowest amount of equipment purchases and are able to make full use of the operator's sales network. All Chinese operators have adopted this strategic partnership for 3G mobile phones; for example, Lenovo has jointly launched LePhone with China Unicom, a smart phone targeting the iPhone target market and pre-installing China Unicom's applications.

Path 2: Mobile phones are consumer electronic devices

In this case, mobile phone manufacturers and content and application providers cooperate. Certain devices with specific features will be widely acclaimed in specific market segments; for example, music devices, like Sony Ericsson's music phones. In some cases, mobile phone manufacturers have already cooperated with certain vertical portals; for example, Nokia has launched a mobile phone with a pre-installed video service widget for mobile phones with the popular online video website “Tudou.com”. This strategy creates the differentiation and selling points that attract users in the target segment market. There are already some signs of success in young people's market segments, attracting young people who want to visit these sites on the move.

Path 3: The mobile phone is the application platform

Mobile phone manufacturers play a role here as promoters and establish an open platform for third-party developers; Apple, RIM, and Nokia all implement this development path. However, due to conflicts of interest with telecommunications companies, this strategy is fraught with risks. All operators in mainland China have launched their own application store to compete with the stores provided by handset manufacturers.

Although China Mobile can negotiate a cooperation agreement with Nokia to launch its own application store, MM-Ovi, operators have done so partly because the highly competitive mobile phone subsidies are difficult to maintain. Chinese operators are not willing to marry others and become ready-made data transmission channels. However, mobile phone manufacturers are increasingly controlling user interfaces. It is difficult to imagine that they can reverse this trend.

Pressure falls on the operator's shoulder

In the 3G era, all operators understand the importance of mobile phones and launch major mobile phone subsidy strategies. One path is conducive to the operator's adoption and cooperation with weaker brands to maximize bargaining power. On the contrary, mobile phone manufacturers must avoid over-reliance on operator subsidies, and should develop their own core competencies and move toward the second and third development paths.

The final analysis pointed out that companies that can control the user interface will be able to earn the most profit. Mobile phone manufacturers are currently in a position of long-term competitiveness. Operators must make good use of their subsidy strategies and strive to develop their own content products and brand awareness. This is unlikely to happen in a small market, but the large Chinese customer base is a minority of operators’ exclusive assets.