Wild West

By Ramesh Akkineni

From an article in San Jose Mercury News by John Boudreau
Not long ago, Tsoi Chun Bun made potato chips. Now he designs and sells millions of mobile phones a year.

He is one of hundreds of young entrepreneurs seeking overnight fortunes in Shenzhen Inc. — the Wild West of the mobile-phone industry. Phones made and designed by these Chinese vendors will account for about a third of the 1.1 billion cell phones that will be sold around the world this year.

Three decades ago, Shenzhen was China's first city to experience market-oriented economic reform, unleashing anything-goes capitalism that has spread throughout the nominally capitalist country. And while China's mobile-phone industry has spread beyond Shenzhen, the southern region remains a center of the mobile-phone ecosystem that inspires dreams of instant success.

"It is China's version of the Gold Rush," said Shanghai-based Ken Qing Wang, general manager of the China operations of Silicon Valley-based Telegent Systems, which supplies analog TV chips to the mobile-phone industry. "A lot of wealth has been generated."

Tsoi, who at 33 is already wealthy and founder of Chinaking International Development, has his eyes set on even loftier heights. "There are lots of billionaires in their twenties here," he said. Waving a pink cell phone, Tsoi proclaimed he intends to join the billionaires club after a successful initial public offering "in a couple of months."

Countless companies, from component parts suppliers to design houses, make their home in Shenzhen. In this complex food chain small companies seek to carve out their turf with niche factories producing such unheralded parts as keypads, mobile-phone speakers and plastic molding. Some specialize in paint. Others are located higher on the food chain, designing devices used by consumers from Brazil to India.

"You see all these companies. You see all these people running around. You feel you are at the center of something, the birth of something," said William Stofega, an IDC analyst who specializes in global mobile device technology and trends. "It's phenomenal."

The crowded business environment in Shenzhen Inc., which according to government figures employs some 4 million workers, means each player tries to undercut the other in design and cost. In the past five years, the average price on low-end Chinese feature phones has plunged from $220 to $90.

"Every day in Shenzhen, new companies join the mobile-phone industry," said Dennis Zhu, director of marketing of Tinno, a Shenzhen mobile-phone design company. "But many companies also crash every day."

Because the mobile-phone makers rely on the same chipsets, competition to create differentiating features is fierce. "It's bloody and it's getting bloodier," said Ji-Chang Hsu, executive vice president of Taiwan-based MediaTek, whose chips power the vast majority of Chinese mobile phones.

These vendors are more narrowly focused on individual markets — selling a line in China and, say, Indonesia — and are able to create and implement new features, such as twin SIM card slots so a phone can have two numbers or mobile TV, much faster than companies whose sales span the globe.

These guerrilla mobile-device makers typically churn out a new mobile phone with new features designed with local markets in mind in less than four months, versus nine months for the large global players, said Mingto Yu, chief financial officer of MediaTek. "It's impossible for a global company based in the United States or Europe to do this," he said. "You need that local touch."

MediaTek supplies the core technology — virtually all of the device's guts — to the vast majority of cell phones rolling off the assembly lines of these Chinese mobile-phone vendors, making it much easier for newcomers to spring up overnight. Former potato-chip maker Tsoi, for example, has two brothers who also started their own cell-phone companies. While many enter the market by initially making fake iPhones or Razrs, those that create their own designs find higher profits. "Their ability to get feedback from the market is fast. They can track trends quickly," Telegent's Wang said.

Chinaking, which produces 50 new models a year, developed a mobile phone that can be used as a projector. Tsoi grabbed a phone and displayed a cartoon on his shirt. "I call this the baby sitter," he said.

"In China, people use a cell phone for two months, then change to a new one," Tsoi added. "The cell phone is almost like fashion. This gives us a push to innovate."

The knife-sharp competition has also led to increasing quality in an industry once known more for exploding batteries and cheap knockoffs than innovation. "There still may be a quality gap between Chinese mobile companies and multinationals like Nokia, but it's no longer enough to influence the buyers," said Jeffery Wu, founder of mobile-phone maker G-tide, a 21/2-year-old company that is selling 31/2 million devices a year, from Africa to Latin America.

At the same time, the introduction of Google's mobile-phone operating system, Android, which doesn't require a license, will help Chinese cell-phone makers "legitimize their companies" and wean them off copycat ways, said Kai-Fu Lee, who until recently headed up Google's China operations.

Popular posts from this blog

It Pays to be a Nervous Wreck

By Ramesh Akkineni
from an article in Livemint Two weeks ago, Microsoft issued the sort of quarterly report usually seen of a company in finest mettle. Redmond’s sales were up 15% and profit double that, excluding certain deferrals. And the rest of the year, it projected, would be just as sanguine—certainly unlike in the economy as a whole. Elsewhere, that would be a mandate for staying the course. In Redmond, though, they were crossing off days on their calendars, waiting until Friday, the first day of February and thus the first opportunity Microsoft would be able to truthfully state, “Okay, Yahoo, it’s been a year since we talked to you guys; where’s the beef?” Microsoft remains obsessed about Google because it reads the same things everyone else does about how Google’s style of free, “in the cloud” computing means the slow and steady decline of Windows and Office. That’s a technical debate, one in which both sides have good arguments. But....
Read more

Korean Model

By Ramesh Akkineni
from an article by Ha-Joon Chang in the Guardian In my lifetime Korea has lived through one of the greatest development miracles – half a century ago, its annual per capita income was around £50, less than half that of Ghana at the time. Today, it stands at £12,000, putting it on a par with Portugal and Slovenia. How was this possible? Korea of course did things that most people agree are important for economic development, such as investment in infrastructure, health and education. But on top of that, it also practised many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy, combining protectionism with export subsidies; tough regulations on foreign direct investment; active, if not particularly extensive, use of state-owned enterprises; lax protection of patents and other intellectual property rights; heavy regulation of both domestic and international finance. The Korean experience shows that sustainabl...
Read more

Maxims from Poor Richard 3

By Ramesh Akkineni
Image
from Poor Richard's Almanac, 1735 Look before, or you'll find yourself behind. Bad Commentators spoil the best of books, So God sends meat (they say) the devil Cooks. Approve not of him who commends all you say. By diligence and patience, the mouse bit in two the cable. Full of courtesie, full of craft. A little House well fill'd, a little Field well till'd, and a little Wife well will'd, are great Riches. Old Maids lead Apes there, where the old Batchelors are turn'd to Apes. Some are weatherwise, some are otherwise. Dyrro lynn y ddoeth e fydd ddoethach. The poor man must walk to get meat for his stomach, the rich man to get a stomach to his meat. He that goes far to marry, will either deceive or be deceived. Eyes and Priests Bear no Jests. The Family of Fools is ancient. Necessity never made a good bargain. If Pride leads the Van, Beggary brings up the Rear. There's many witty men whose brains can't fill thei...
Read more