Presentation on theme: "Motorola China Failure of Success"— Presentation transcript:
1 Motorola China Failure of Success Internation Trade and Competition in High TechMotorola ChinaFailure of SuccessOctober 10th 2007Jing YuanWei XuKin WongJoseph WoffordAlex Ingles
2 Final recommendations Design a business strategy that enables Motorola to be competitive in both high and low end markets.High EndLow EndUse Motorola brand only for high-end marketFocus on profitability, brandingAcquire local manufacture to exploit low-end marketDon’t yield market segment
3 Motorola leadership in China – 1981 to 2001 Market environment in ChinaHad just openedNeed for new technologyForeign companies hesitate to enter in fear of political instabilityMarket environment of competitorsNo domestic competitorsGlobal competitors are rareNokia has not started to focus on cell phonesMotorola StrategyBranding from pager business in ChinaBuilt a bureaucratic network in China, favor of Chinese governmentAttracts local talent and traini thembenefit for employees, localized R&D, relationship /JV with local company, localized supply chainVast investment and view China as a strategic marketManufactures handsets in China both for export and domestic salesGood public relation
4 Motorola competitive advantage erosion – 1998 to 2004 Technology Change: In 1996, GSM become the standard for 2G in China.From analog to digital, Motorola losses its advantages.Market Change: Market in large cities has changed. Growth is in small citiesand rural area. Development of low end market.Demand Change: Shifting in demand (in cell phone,headset) from simplyfashion to fashion combined with sophisticated technology.Company Operation Change: Losing the relations with the localsNot doing well globallyInconsistent change in marketing and styles.Domestic Competitors: 1. From assembly to clone to R&D.2.Penetrate to lower end market,e.g. rural areas,small cities.3. Pricing advantages.4. Design to Chinese customers’ taste.Global Competitors: 1. Nokia has lower cost of headset.2. Perform better in GSM phone.3. Has distribution channel to small cities and developlower end market.
5 Risks and Challenges Intensive competition Chinese suppliers were getting too good.Their quality, low-priced parts had helped create new, homegrown and extremely aggressive competitors.Numerous global competitors.Short life cycles for new products.Government policy to insulate domestic companies.Need for distribution network to reach small cities.New products, designed to Chinese consumer’s taste by local companies.The Tiananmen Crisis in 1989.Change of preference from CDMA to GSM .5
6 How can Motorola regain its leadership Focus on both profitability and market sharePreserve the Motorola brandUse Motorola brand only for high-end marketIn 2004, Motorola is the leader with 40% of market shareDon’t “tarnish” the brand for high-end phonesFocus on profitability within Motorola’s traditional area of strengthLeverage R&D assetsRISK: Becoming a niche brand rather than dominating the marketALTERNATIVE: Differentiate high end models through other means“Within their value chains, firms have partnered with potential competitors within their industries-suppliers and customers-to create and capture value.”†Don’t Yield the Bottom of the MarketAcquire local manufacture to exploit low-end marketUse established distribution networkLeverage local (cheap) supply chainAligned with their current positioningRISK: Lack of approval from the governmentALTERNATIVE: Enter a joint-venture with a local firm†-S. Godfrey, C. Rynbrandt, C. Stunson, C. Sullivan, “Understanding Porter’s Five Forces In the Digital Age”, 2000.
7 Cell phone industry in China TODAY – Porter’s 5 forces EntrantsHigh-end - High capital investments requiredLow-end – lower investments (buy components in the market) but low marginsRegulatory barriersSuppliersHigh-end: a) Vertical integration for some components and b) dependency on suppliers for others (e.g.: high-density flash memory)Commoditized market for low-end componentsCustomersCarriers/retailers (main customers): strong bargaining powerFinal consumers:High price sensitivityLocal trend followersLow brand loyaltyRivalry20+ competitorsInternational AND local competitionHigh-end AND low-end competitionSubstitutesLandline - difficult to getUTSTARCOM – low-end marketVOIP – difficult to getNot have oneLow forceMediumHigh force
8 Cell phone industry TODAY 2004: 14.5%2004: 16.9%Number of mobile phone usersChina 2004 (case): 336 millionChina June 2007: millionWorldwide Jan 07: billionWorldwide Sales (units)2004 (case): 674 million2007 Q1: millionWorldwide Market share Q1 20072004: 15.4%2004: 30.7%Motorola Earnings Announcement Jul 07Nokia: 21.1%
9 Comments from last class “Motorola didn’t have a premium brand”According to Exhibit 11 in the case, in 2004 Motorola was the absolute leader in the high-end segment.“International OEMs can’t compete in the low-end market”Nokia AND Motorola have gained significant market share from the local competitors from 2004 to 2007“The only customers of manufactures are the carriers”Although this is the case in most countries, in China retailers are also major players in selling handsets.According to CCID, in 2003 the carriers were responsible for only 18.4% of handsets sold.Still, the retailers also have a strong bargaining power over the manufacturers.