Phone exports ticking in tough competition
By Li Weitao (China Business Weekly)
Updated: 2004-07-13 11:10

But they are still finding it tough to crack the overseas markets and establish a significant presence there although they have already taken on international players at home, analysts said.

Internal statistics from customs show that China's top handset makers Ningbo Bird and TCL recorded dazzling growth in exports in the first five months of this year.

Bird exported 963,710 units of handsets in the period, more than 20 times the volume in the corresponding period last year.

Sales totalled US$64.62 million, a 1665.6 per cent growth year-on-year.

Top export destinations are France, Hong Kong, United Arab Emirates, India, Finland and Russia.

TCL exported 234,930 units in the first five months, more than 15 times the growth year-on-year.

Revenues hit US$17.36 million, up 772.4 per cent year-on-year.

TCL's top destinations are Thailand, Bangladesh, Hong Kong, India and Macao.

However, TCL accounts for just a small portion of the total handset exports from the China in that period, including foreign giants' manufacturing centres in China.

Total exports reached 51.01 million units with sales amounting to US$4.9 billion.

Major domestic handset makers have vowed to tap into overseas markets to spur business growth.

Bird is aiming to export 2 million units this year while TCL is targeting 3 million units.

Despite the export hike, the overseas markets remain a hard nut to crack for domestic players, said Guo Chang, a telecoms analyst with CCW Research.

"It may take at least three or four years for domestic makers to make a big splash in overseas markets," he said.

Low brand recognition and quality issues will thwart their broader expansion overseas, the analyst said.

Most of domestic makers' exports are still under foreign brands, Guo said.

"Such a scenario will continue for a pretty long period," he said.

Bird recently entered an alliance with German's Siemens to jointly tap both the home and overseas markets.

TCL has announced a joint venture with France's Alcatel to jointly design, make and sell mobile phones under Alcatel's brand.

Such tie-ups will help Bird and TCL broaden their expansion in overseas markets, said Liu Lei, an analyst with Analysys Consulting.

"Though Alcatel and Siemens have not fared all that well in China, they have strong brand recognition in overseas markets," she said.

Siemens and Alcatel, which were strong players in China years ago, have seen mobile phone sales sputter due to competitive local manufacturers.

Nevertheless, domestic makers will still find it quite hard to make a dent in overseas markets with their own independent brands as major foreign brands like Nokia, Motorola and Samsung enjoy popularity there, Liu said.

Analysts expect that domestic makers will be forced to beef up efforts to broaden overseas expansion due to intense and growing competitions in the overcrowded Chinese market.

"Exports are a good way for domestic makers to absorb inventories resulting from across-the-board increased output," Liu said.

Guo said the possible relaxation of handset manufacturing licensing is putting pressure on domestic makers.

"We cannot rule out the possibility in the long run that the regulators may open the market to new entrants," he said.

"Besides, some unlicensed makers already entered the market by bypassing the licensing barriers, which have eroded established players' profitability."

Wang Guoping, a telecoms analyst with China Galaxy Securities, estimated the average profit margin among domestic handset makers stands at 4 to 5 per cent.

"The margin for exported handsets is even lower," he said.

But with the expansion of sales scale, domestic makers will gradually cut costs, which will improve their profitability, the analyst said.

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