How can the U.S. company be No. 1 again in the world's biggest cell-phone market? It'll need a sharp Razr follow-up to beat Nokia and Samsung for starters
Sanjay Jha, the new co-chief executive officer of Motorola (MOT), is looking for ways to revive the company's handset division, and China is bound to be one of his most important challenges (BusinessWeek.com, 8/4/08). The country should be easy territory for Motorola: China is the world's largest cell-phone market, with more than 500 million people owning mobile handsets, and it wasn't that long ago that Motorola was the market leader. The company, which spent many years building its operations in the country, was No. 1 in China (BusinessWeek.com, 9/23/03) until 2004.
Even after Motorola fell behind Nokia (NOK) in China, it clung to a respectable No. 2 position in the fast-growing market, and in April 2007, that second spot meant Motorola still had more than a 20% share. But as the company's fortunes suffered worldwide, its China business was no longer a sure thing. Over the past 16 months, Motorola's China sales have "plummeted," says Flora Wu, an analyst in Beijing with BDA China, a market research firm. Today, Nokia is tops in China with 38% of the market. No. 2 is now Samsung Electronics, with 16%. Motorola is a distant third, with just 7.5% market share.
What went wrong? To some extent, Motorola in China faces the same problem that plagues the company everywhere: failing to produce an encore to the tremendously successful Razr, which it introduced back in 2004. And coming out with new and interesting models is especially important in China, where big-city consumers replace their phones frequently and put a priority on models that are cool-looking but reasonably priced. Motorola "just had problems launching new and popular models," says Wu. "The Chinese market is one of the most competitive," she says. If you're an executive at a company that doesn't keep pace with what your rivals are launching, "your market share will decline sharply."
An Olympic Gag Order
It hasn't helped that Motorola's biggest rivals have been so good at tackling the China market. Samsung is a global sponsor of the Beijing Olympics, which means it is the only cell-phone maker allowed to advertise in Beijing during the Games. So, while the Korean company plasters billboards and bus stops with ads for its phones, Motorola can't respond. The U.S. company even had to take down a big sign atop its China headquarters in downtown Beijing. Samsung is also sponsoring the Chinese gold-medal-winning men's and women's gymnastics teams. "When they receive a gold medal, they're wearing the Samsung shirt," boasts spokesman Gyehyun Kwon, a Samsung corporate vice-president. "That way, Chinese people [see] Samsung is really helping the Chinese people."
For its part, Nokia remains comfortably ahead of the pack in the country, with models ranging from high-end handsets for affluent residents of big cities like Beijing and Shanghai to inexpensive entry-level phones suitable for new users in the countryside. "Nokia has really covered every segment of the market," says Dave Carini, an analyst in Beijing with market-research firm Maverick China Research. To develop its China business further, the Finnish company announced last month plans for an additional $150 million in its in-house venture capital fund targeting potential investments in China and India.
Restructuring May Boost Motorola
The news from China hasn't been all bleak for Motorola, however. The Schaumburg (Ill.) company has managed to win some important infrastructure contracts recently. For instance, early this month Motorola announced in the first half of the year it had landed $431 million in contracts to provide China Mobile (CHL), the country's top cellular operator, with second-generation GSM equipment. That's up from $394 million for the same period in 2007.
A government-backed restructuring of the country's state-owned operators might also boost Motorola's business, says Simon Leung, president of Motorola Asia-Pacific. Following the restructuring, there will be three Chinese cellular operators: China Mobile, current No. 2 China Unicom (CHU), and China Telecom (CHA), which until now had been a fixed-line operator without a cellular business. Motorola, says Leung, has good relationships with each operator. "We are the only ones with the technology to address the needs of all three of them," he says. "We are in a very good position."
Stay Tuned for New Models
When it comes to handsets, "we do have a gap" with the market leaders, Leung concedes. "We took our eyes off the ball a little bit. We didn't have the phones in the market at the right time." Still, he points to several new models that the company plans to introduce soon. "Stay tuned," he says.
BDA's Wu agrees that Motorola isn't out of the running completely in the Chinese handset market, since the company has significant R&D resources it can utilize to help it rebuild. But Motorola's rivals aren't standing still, and the company's missteps have hurt its reputation among Chinese consumers. "The brand has suffered," she says. "The problem cannot be sorted out in a short period of time."
Einhorn is BusinessWeek's Asia Regional Editor in Hong. With Chi-Chu Tschang in Beijing
