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Connecting the Dragon – Challenges and opportunities in the telecommunications industry in China
telecommunications market China, which currently represents approximately $ 84 billion, is expected to reach $ 130 billion in 2009. If all goes as planned, the Olympics in Beijing this was expected to result in major changes in this sector that will create new opportunities for foreign and local telecommunications.
3G – The Great Leap Forward
During the Sydney Olympics, enabling text messages good news flooded mobile network in China every time a Chinese athlete won a medal. The Beijing Olympics should mark a new milestone for the telecommunications industry of the nation. This time, some of China's 500 million subscribers will have the option to receive the latest Olympic updates in a "revolutionary" way – through 3G technology.
China is preparing for this moment, the Planning of 3G licensing has begun operating since 2006, telecom operators have started to invest heavily in planning and prosecuting the 3G network, and many companies are working tirelessly to develop the latest and greatest in technology mobile applications. Overall, 200 million Chinese are expected to become 3G users in 2009 and the implementation of the new technology is estimated to 5 billion dollars of investment each year from 2008 to 2010.
Though promising, the potential of 3G can be achieved without the development of an extensive telecommunications network and infrastructure. And the Chinese government realizes it. Since March of this year, the nation began to test the local 3G standard – TD-SCDMA network – in eight cities, including the six Olympic cities – Beijing, Shanghai, Tianjin, Qingdao, Shenyang, Qinghuangdao, and Xiamen and Baoding. For starters, China Mobile – the industry leader in mobile communications in China – will be put in place a total of 8000 to 10,000 base stations TDSCDMA in these cities, and expansion of 3G network toothing coastal cities will soon follow.
All the above indicates a future promising for wireless communication in China. This serves not only as a springboard for further opportunities for existing telecommunications players, it would also benefit foreign companies eyeing the Chinese market where the market becomes more deregulated, after China meets its obligations to the WTO.
Market access for Foreign companies
Before the accession of China into the World Trade Organization (WTO) in 2001, many restrictions have been imposed on foreign investors interested in its telecommunications industry. In particular, providers foreign networks have not been able to penetrate that protected area. Gradually, over the past years, the government Central introduced a series of reforms to increase competitiveness and facilitate the transfer of technology in this sector. Although foreign players are still not allowed to have a wholly owned subsidiary in China, they can now create joint ventures with local companies and invest up to 50% in the value-added services, up 49% in national and international cable services and up to 49% in the area of fixed-mobile.
Unlike service providers, equipment suppliers foreigners find it much easier access to the telecommunications market in China. Almost all major equipment manufacturers (OEM) have established local manufacturing and research and development (R & D) facilities in China since the late 1990s. Currently active in the market are key players plan like Canada's Nortel, Alcatel-Lucent Shanghai Bell, Ericsson, Siemens and Motorola. Japanese telecommunications equipment manufacturers such as NEC, Fujitsu and Hitachi and Samsung and LG Korea have also established a presence on the Chinese market.
Weighing the challenges and opportunities
But there are challenges which foreign players must overcome. Even if the hardware sector in China telecommunications has grown at an astonishing rate of at least 15-20% in recent years (faster than the economy China's overall), some foreign equipment manufacturers now face increased competition in the Chinese market.
Historically The main weakness of Chinese producers lack of know-how. This has provided opportunities for foreign manufacturers to penetrate niche markets with their technologies and expertise. But the situation is gradually changing as domestic manufacturers to make significant advances in technology and begin to reduce the gap between domestic and foreign. A good example is the globalization of China's two largest Chinese manufacturers of telecommunications equipment – Huawei and ZTE (Zhongxing) – starting to gain projects building telecommunications networks in emerging markets such as Africa.
In addition, local manufacturers have strong support from central government. The Ministry of Information Industry (MII) – the main regulator of telecommunications in China – has encouraged Chinese operators to purchase telecommunications equipment manufacturers Chinese, including leading vendors such as Huawei, ZTE, Datang and Great Dragon.
Especially, the application of low intellectual property rights (IPR) in China also poses a challenge for foreign players.
To remain competitive in the China telecommunications market, it is extremely important that the foreign players to continuously innovate, adapt and react quickly to market changes and be ready to be aggressive sales and marketing.
Find a niche in the cities of second rank
A viable option is to look beyond 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 in imports and the potential market for second-tier cities
City
Import Growth (2002-2006)
Market Potential
Shenzhen
26%
– China's largest importer of equipment telecommunications, after Beijing and Shanghai
– An important distribution base for other provinces
Tianjin
33%
– An ideal entry point for foreign suppliers to serve the market in north China
– One of eight cities chosen for testing 3G
Nanjing
44%
– Displays the highest trend growth in imports
– Economic promotion of this city and its neighboring Jiangsu Province drive demand for telecommunications equipment high quality
Source: multiple sources, including newscasts, 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 national vendor partners. It works particularly if they target the telecommunications companies controlled by the government.
In 2000, Siemens associated with Huawei and the Chinese Academy of Telecommunications Technology Forum toform TD-SCDMA international develop the next generation mobile technology. Alcatel alsoestablished a strategic alliance with Shanghai Bell and Shanghai Telecom Administration, while Ericssonpartnered Nanjing Panda Electronics.
With over 1.25 million cellular subscribers signing on the network of China every week, the telecommunications market is one that can not be theChinese ignored. To reap the benefits long term this promising market, investors must take the challenge, to innovate and to stay to their cause.
About the Author
The JLJ Group is a company that combines the expertise of four in-house divisions to provide solutions for companies entering and growing in China.
The JLJ Group – www.jljgroup.com
The JLJ Group is a one-stop service-provider assisting foreign companies to enter or grow in the China market. Our services in the following five areas assist foreign companies who wish to Research the Business Environment, Enter the Market or Grow their Business in China:
- Market Consulting
- Corporate Formation
- Human Resources
- Tax & Accounting
- Business Process Outsourcing
For more information, please visit www.jljgroup.com or email to info@jljgroup.com.
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