China Bell
Connecting the Dragon – Opportunities and challenges of the telecommunications industry in China
The Chinese telecommunications market, currently worth about $ 84 billion, is expected to reach $ 130 million for 2009. If all goes as planned, the Beijing Olympics this summer is expected to achieve transformation important in this sector, which will create new opportunities for foreign and local telecom operators.
3G – the next big leap
Texting during the Sydney Olympics, having a good news flooded China's mobile network whenever a Chinese athlete won a medal. The Beijing Olympics is expected to mark another important milestone for the nation's telecommunications industry. This time, some 500 million mobile subscribers in China have the option of receiving the latest Olympic updates in a "revolutionary" way – through 3G technology.
China is preparing for this moment, planning for the issuance of 3G licenses began operating from 2006, telecommunications companies have begun to invest heavily on planning and trial of its 3G network, and numerous companies are working day and night to develop the latest and best technology for mobile applications. Overall, 200 million Chinese are expected to be 3G users in 2009 and the implementation of the new technology is estimated to reach 5 billion U.S. dollars of annual investment from 2008 to 2010.
Although promising, the potential of 3G can not be performed without the development of an extensive telecommunications network and infrastructure. And the Chinese government realizes this. Since March this year the nation began to test the standard local 3G – TD-SCDMA network – in eight cities, including six Olympic cities – Beijing, Shanghai, Tianjin, Qingdao, Shenyang, Qinhuangdao and Xiamen and Baoding. For starters, China Mobile – the leader in mobile communications industry in China – will launch a total of 8,000 to 10,000 TDSCDMA base stations in these cities and the expansion the 3G network toothed coastal cities will soon follow.
All this indicates a promising future for wireless communication in China. This serves not only as a springboard for further opportunities for existing telecom players, but also benefit foreign companies are watching the Chinese market when the market becomes more deregulated after China fulfills its WTO obligations.
Market access for foreign companies
Before China joined the World Trade Organization (WTO) in 2001, many restrictions were imposed on foreign investors interested in the telecommunications industry. In particular, foreign suppliers of the network have not been able to penetrate this protected sector. Little by little over the past years, the Central Government has introduced a series of reforms to increase competitiveness and facilitate technology transfer in this sector. While foreign players still are not allowed to have a wholly owned company in China, which can now form joint ventures with local companies and invest up to 50% in the area of value-added services, up to 49% in national and international wire services and up to 49% in the field services and mobile telephony.
Unlike service providers, foreign suppliers of equipment it is much more easy access to China's telecom market. Almost all major original equipment manufacturers (OEMs) have established local manufacturing and research and development (R & D) facilities in China since late 1990. Currently operating in the market are the best players, such as Canada, Nortel, Alcatel-Lucent Bell Shanghai Ericsson, Siemens and Motorola. Japanese telecom equipment manufacturers such as NEC, Fujitsu and Hitachi, as well as Korea's Samsung and LG also have a strong presence in the Chinese market.
Weighing the challenges and opportunities
However, there are challenges players foreign overcome. Although the Chinese sector of telecommunications equipment has been growing at an astonishing rate of at least 15-20% in recent years (faster that the global economy of China), some foreign equipment manufacturers now face stiff competition in the Chinese market.
Historically, The main weakness of Chinese producers has been the lack of expertise. This gave opportunities for foreign manufacturers to penetrate niche markets with their technology superior experience. But the situation is gradually changing, as local manufacturers to make significant technological progress and begin to bridge the gap between domestic and foreign. A good example is the globalization of the two largest Chinese manufacturers of telecommunications equipment China – Huawei and ZTE (Zhongxing) – which are beginning to win the project for the construction of telecommunications networks in emerging markets suchas Africa.
On the other hand, manufacturers have strong local support from Central Government. The Ministry of Information Industry (MII) – the main regulator of telecommunications in China – has encouraged Chinese operators to buy telecommunications equipment from Chinese manufacturers, including leading suppliers such as Huawei, ZTE, Datang and Great Dragon.
Above all, weak enforcement of Intellectual Property Rights (IPR) in China also poses a tough challenge for foreign players.
To follow China to remain competitive in the telecommunications market is very important that foreign players continually innovate, adapt and react quickly to market changes and prepare to be aggressive in sales and marketing.
Finding a niche in the second-tier cities
A viable option is to search beyond the saturated markets of Beijing and Shanghai to explore some promising second-tier cities such as Shenzhen, Tianjin and Nanjing (see table 1). Other emerging markets include Qingdao, Xi'an, Hangzhou and Dalian.
Table 1: Growth of imports and the market potential of cities in seconds level
City
Import Growth (2002-2006)
Market Potential
Shenzhen
26%
– China's largest importer of telecommunications equipment, after Beijing and Shanghai
– An important distribution base for other provinces
Tianjin
33%
– An ideal gateway for overseas suppliers to serve the North Market of China
– One of the eight selected cities for 3G trials
Nanjing
44%
– Shows strong growth trend in imports
– The economic advancement of the city and its neighboring Jiangsu Province drive demand for telecommunications equipment high quality
Source: Multiple sources, including news reports, interviews, World Trade Atlas and Analysis JLJ
Join forces with the Chinese players
Another strategy employed by large global players to ensure faster access to the Chinese market is to partner providers. This works especially well if you target companies of government-controlled telecommunications.
In 2000, Siemens and Huawei joined the China Academy of Telecommunications Technology to form TD-SCDMA international forum to develop next-generation mobile technology. Alcatel alsoestablished a strategic alliance with Shanghai Telecom and Shanghai Bell Administration, while Ericssonpartnered Nanjing Panda Electronics.
With over 1.25 million cellular subscribers join the network of China each week, theChinese telecommunications market is one that can not be ignored. To reap the rewards in the long term of this promising market, investors must first take the challenge, be innovative and committed to their cause.
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