Chinese handset makers, coping with intensifying competition at home, have been ramping up their efforts to tap into the overseas markets in the past years.
BDA expects total export volume of domestic vendors to reach over 32 million units this year, up from about 20 million units last year, with Huawei, ZTE, TCL and Bird accounting for the bulk of sales.
Chinese companies use a range of strategies when entering overseas markets. Generally, there are four approaches to overseas market entry: ODM, agency/distributor, operator channel and establishing a proprietary sales channel.
ODMs manufacture handsets for overseas branded vendors or operators, who then use their own brand logos on the handsets. For branded exports, domestic vendors usually go through local agencies/distributors or work closely with operators, as well as build up their own sales channels.
Bird and TCL: Leading the pack
Ningbo Bird's exports totaled more than 6.1 million units in 2005, up from 3.3 million units in 2004. It mainly targets emerging markets with its mid- and low-end GSM/GPRS products.
BDA believes the company will fail to reach its 2006 export target of 8 million units, given its lacklustre performance over the first three quarters of this year.
In the past, Bird has entered emerging markets through local agency/distributors.
Bird has set up its own sales channels for robustly emerging markets such as India. Additionally, it works closely with vendors and operators in developed markets through the ODM model. Reportedly, ODM and branded exports contribute evenly to Bird's total exports to date.
In terms of ODM, Bird provides handsets to Sagem and European operators, such as Vodafone and Orange. For branded exports, Bird uses its own sales channel in India and works through agencies/distributors in Russia, the Middle East and Southeast Asia.
TCL surpassed Bird as the leading player in the overseas handset market in terms of export volume last year.
BDA believes Huawei and ZTE will both exceed Bird's volume this year, mainly due to their strong performance in overseas operator markets.
Amid the increasing competition, Bird must strengthen its operator channels and enrich its product lineup by launching high-end and 3G models in order to improve profit margins and strengthen financial performance for the company, which last quarter saw results in the red.
Leveraging Alcatel's overseas sales presence, TCL jumped to the top position in 2005, with a shipment volume of 6.4 million units. BDA expects the company will continue to bear fruit from its strong overseas presence, with an export volume predicted to reach 9.5 million units this year.
The overseas market became an essential component of company sales, making up over 85 percent of total shipments over the first three quarters this year.
Asia-Pacific, Europe, the Middle East, Africa as well as Latin America, are TCL's main export markets, which like Bird, also focus on mid- and low-end GSM/GPRS phones. The company uses ODMs and its own branded exports as its two major methods of overseas sales.
In terms of ODM, TCL entered the Russian market using local brands, and leverages Alcatel's good brand awareness in Europe and Latin America for its own branded exports.
It provides Alcatel branded handsets to Vodafone, Telefonica, Orange and some distributors in the markets listed above.
However, similar to Bird, the company also lags behind in high-end phones and 3G exports. According to BDA interviews, the company integrated its global R&D resources into subsidiary JRD Communication Inc early this year, and is currently developing feature phones and 3G products to be launched abroad next year.
3G handset suppliers
ZTE, Huawei and Amoi have started providing customized 3G handsets to foreign operators. BDA anticipates the total 3G handset export volume will reach 4 million units by year-end, up from 1.1 million last year, with Huawei and ZTE as the main contributors.
Based on its annual report, BDA estimates ZTE's total overseas sales were approximately 2.5 million units in 2005, all of which were branded exports.
ZTE has good relationships with operators in Brazil, Peru and Venezuela, and its main region of exports to date is Latin America. Handset sales (mainly CDMA phones) are usually bundled with equipment sales.
In addition, ZTE has made progress with 3G products, supplying customized WCDMA and EV-DO handsets and data cards to Hutchison, TELUS and other overseas operators.
BDA estimates Huawei's export volume reached 3 million units in 2005, of which 3G products made up over 16 percent.
Regionally speaking, the company works closely with operators in India, Pakistan, Algeria, Brazil and Venezuela. In developed countries and regions, Huawei has provided customized WCDMA phones to Vodafone, Singtel and PCCW.
Amoi has set its 2006 export target at 0.6 million units, anticipating 3G products to account for over half of total sales. Thus far, it has provided WCDMA phones to Vodafone, Hutchison and Orange, as well as Taiwanese operators. Compared to the four vendors listed above, Amoi lags behind in terms of volume but has a relatively strong R&D capability in 3G and high-end products.
BDA believes Amoi will take advantage of its higher ASPs, which will help balance the company's financial burden caused by high R&D costs.
Overseas export outlook
Other manufacturers and new entrants are expanding to overseas markets as well, including Lenovo, Haier, Hisense, Konka and Gionee.
BDA forecasts local vendors' total exports will match domestic sales volumes this year, topping 32 million units.
BDA believes operator channels will be essential in the market in the long term, especially for 3G handsets.
Operators will play a central role in procuring 3G handsets in both developed and emerging markets, focusing on relatively highly customized models in order to differentiate from other competitors. Compared to global leading players, Chinese vendors are more willing to customize products upon operators' specific requirements, so as to give them leverage over global rivals.
Additionally, operator channels also help domestic vendors build up brand awareness in overseas markets, the key step in bringing business abroad. In this scenario, ZTE and Huawei are the best-positioned vendors to extend operator channels.
Of course, alternative strategies may also become more effective in the near future, since open channels still dominate the distribution system, especially in emerging markets.
Geographically speaking, BDA believes most domestic vendors will focus on emerging markets in the short term due to the higher entry barriers in developed markets.
Criteria and requirements for product quality, after-sales service and certification are higher in developed markets, while domestic vendors are usually in a weak position in their R&D and after-sales systems.
Moreover, since developed markets are dominated by big foreign vendors that usually have many IPR claims for core technologies, domestic vendors may also face IRP issues.
In contrast, emerging markets have a strong demand for mid- and low-end handsets, which comprise the majority of domestic vendors' product lineup.
Local vendors' relatively cheap pricing also attracts emerging market customers.
The author is a senior analyst of BDA, a Beijing -based telecom research and consulting firm.
(China Daily December 4, 2006)