Motorola: China Experience

Nathan Bentley, Sultan Alkhuzam, Qiaotian Li, and Chenlin

Outline• Company Background • Cultural Background• Industry Analysis• Marketing Strategy• Customer Analysis• Competitors • SWOTT Analysis • Discussion Questions

Company Background• In 1928, Motorola

was founded by Paul V. Galvin in Chicago, Illinois

• Portable radio transceiver model SCR-300

Company Background, contd.• In 1958, Motorola started to provide radio

equipment for most NASA space flights • In 1974, Motorola sold its color television receiver

business• In 1999, Motorola merged with General Instrument

Corporation• In 2000, Motorola offered the world’s first

commercial GPRS cellular network

Company Background, contd.• Motorola has continued to grow (2004 sales in

US were $31.3 billion)• Ranked 200 on the Fortune 500 in 2008 with

sales of $36.622 billion

China• In 1987, Motorola entered China when it opened its

first office in Beijing• In 1992, Motorola set up Motorola Electronics Ltd. in

Tianjin• Motorola has 1 wholly-owned factory, 1 holding

company, 8 joint ventures, 18 R&D facilities, and 26 sales offices in China

Company Background, contd.

Product Line of Motorola in China• Beeper-Pagers (BP machine/Call machine)• Mobile Phones (DaGeDa/Brick)

Company Background, contd.

Company Background, contd.

• Two-Way Radios • Wireless Communications Facilities • Semiconductors • Automobile Electronics

Development Strategy• ‘‘Win-win or two + three + three” strategy• ‘Two’-- a global production base and a R&D base • ‘Three’-- three times US $10 billion• ‘Three’-- digital trunking and iDEN / semiconductors /

broadband and wireless communications

Company Background, contd.

Cultural Background

Chinese Think of Cellphones As:

• Fashion Accessories• Part of a Digital

Outfit

• Send text messages• Access the internet • Listen to music• Take pictures• Show personality

Chinese Use Cellphones To:

Considered When Purchasing:

• The number of pixels of the camera• The acoustics of the mp3• The internal memory capacity• The design• The ring tone

Industry Analysis

• Overall Market Analysis– Market structure– Market characteristics

• Brand Attention Analysis– Overall market– Segmented markets – Price structure– Pixel structure

• Wireless Service Providers: • Only two mobile operators in China: China Mobile

(69%) and China United Telecommunications Corporation--UNICOM (31%)

Market Structure

Market Structure, contd.

Investigated manufacturer

Best sold Area

36.84% South

21.05% East

15.79% North & Middle

5.26% East north & South west

Source: ZDC

• Distribution: Major department stores and retail outlets provide key locations for distribution

Market Structure, contd.

Market Characteristics

• High pixel camera phones continue to heat up • Smart phones have become mainstream

Brand Attention AnalysisOverview• Overall Market -Nokia is the industry leader. Sony E and Samsung have been in the fight of the

No.2. Motorola is the No.4 brand.

• Market Segments -Smart phones, music phones, and camera phones have become popular.

• Price Structure -The price range of 1000-2000 is still the mainstream. Samsung and Nokia are

competitive in this price range.

• Pixel Structure -Two million pixel mobile phones is the mainstream. High-megapixel phones will

be a trend.

Overall MarketThe Distribution of Brand Attention

Source: ZDC (Internet consumption research center)

Overall marketAttention comparison of different products

Music phone Smart phone 3G phone camera phone

Attention proportion

Source: ZDC

Market Segments Brand Ranking

Top 10 music mobile phone Top 10 smart mobile phone

Ranking

BrandAttention

proportionBrand

Attention proportion

1 Nokia 68.1% Nokia 69.3%

2 Sony Ericsson 10.2% Samsung 6.8%

3 Motorola 6.5% Motorola 6.6%

4 Samsung 5.9% Dopod 6.5%

5 Lenovo 2.7% Sony Ericsson 1.8%

6 Dopod 1.3% M8 1.7%

7 Oppo 1.2% HTC 1.6%

8 LG 1.1% Sharp 1.13%

9 Sharp 0.9% blackberry 1.08%

10 Blackberry 0.7% Lenovo 1.07%

Source: ZDC

Price StructureThe attention distribution of different price ranges

Below 1000 Yuan 21.4%

4001 to 5000 Yuan 4.3% Above 5000 Yuan

3.1%3001 to 4000 Yuan 7.8%

1000 to 2000 Yuan 37.1%

Source: ZDC

Price Structure Brand Ranking by Price Range 1000-2000 Yuan 2001-3000 Yuan

Ranking BrandAttention proportion

BrandAttention proportion

1 Nokia 44.4% Nokia 69.3%

2 Sony Ericsson 13.7% Samsung 6.8%

3 Samsung 10.4% Dopod 6.6%

4 Motorola 8.0% M8 6.5%

5 Lenovo 5.2% LG 1.8%

6 LG 5.0% Motorola 1.7%

7 Dopod 3.2% Sharp 1.6%

8 Jinli 1.7% Sony Ericsson 1.13%

9 Blackberry 1.3% HIC 1.08%

10 OPPO 1.1% Quot 1.07%

Source: ZDC

Pixel Structure

Above 5 million 19.00%

1 million 8.10%

Source: ZDC

Pixel Structure Brand Ranking By Pixels

2 Million pixel 3 Million pixel Above 5 Million pixel

Ranking BrandAttention proportion

BrandAttention proportion

BrandAttention proportion

1 Nokia 51.9% Nokia 59.5% Nokia 64.2%

2 Motorola 8.5% Samsung 11.2% Samsung 20.45

3 Sony E 7.4% Sony E 7.1% LG 3.8%

4 Dopod 6.0% LG 4.3% Sony E 3.7%

5 Lenovo 5.7% M8 3.2% Sharp 3.4%

6 Samsung 5.2% Motorola 3.0% Tianyu 1.7%

7 Apple 2.7% Dopod 2.6% Dopod 1.5%

8 Blackberry 2.3% Lenovo 2.4% HTC 0.73%

9 LG 2.2% HTC 2.0% Motorola 0.72%

10 Amoni 1.5%Blackberry

1.0%

Source: ZDC

Customer Analysis

• Population in China is 1.3 billion.- Average income is $6,000- Household Spending:

Lowest 10% account for 1.6% Highest 10% account for 34.9%

• In 2005 there were 353 million subscribers

Customer Analysis, contd.

• In 2007, 547 million subscribers– 42% penetration- 84% of Chinese consumers prefer foreign cellophanes

Customer Analysis, contd.

• Segments of the Chinese Market by Region– The eastern region:

• 53% market share• High purchasing power

– The central region:• 22.5% market share

– The western region:• 24% market share

Rapid growth

Customer Analysis, contd.

• In 2000, cellphones were only for “affluent bosses”

• Other segments came into the market• Due to differences in demographics,

psychographics, and lifestyles, Motorola classifies consumers into four groups

Customer Analysis, contd.

Customer Analysis, contd.

• Heavy Users:– Businessmen/women– Professionals over age 30– People with a high income– Those who need them for their job– Early adopters (mostly)– Willing to pay extra for high quality– Significantly more loyal to certain brands

• Early Adopters = 13%

Customer Analysis, contd.• Early Adopters = 13%

• Technology Enthusiasts:– Mostly men– Highly educated– Aged 25-45– Eager to try new hi-tech device– Willing to buy cellphone accessories– Attached to other devices such as laptops

Customer Analysis, contd.

• Fashion Seekers:– Women ages 20-40– Care about appearance more than function

• Colors and sizes

– Celebrities on TV have large influence on them– Shorter product life cycle (technological change)

Customer Analysis, contd.

Customer Analysis, contd.

• Social Life Lovers:– Average income– Love to socialize and make friends– Price sensitive– The lowest profit margin– Basic users (looking for basic features)– Rapidly growing

Competition

• High due to rapidly growing market and emerging local brands

• As China is a socialist government, it gives advantages to local companies

• Competition is divided into:– Local companies (Chinese)– Foreign companies

Competition, contd.

– Nokia China– Nokia of Finland entered China in 1985– 22 local offices and 8 joint ventures and research

centers

Competition, contd.

Competition, contd.

– The largest player in the Chinese market

– Chinese market accounts for 15% of Nokia’s sales

• Nokia:– Chinese market is Target #1.

• 2005, 22% market share.• 3Q 2007, 35% market share.

Competition, contd.

Nokia Segmentation

• Korean Company

– In 1997 started in china– Three areas:

• R&D• Manufacturing• Sales and marketing

– Integration with the Samsung Group• Sharing internal resources

Competition, contd.

Competition, contd.

– Doesn't maintain clear focus on cellular phone products

– In 2005, 10% Market share– In 2007, 11.6% market share

• (Germany):– Started in China in1972 (manual telegraph reviser)– 28 local offices and 40 manufacturing plants– Invested more than 500 million in China– No longer in cell phone industry

Competition, contd.

• (Sweden& Japan):– 26 local offices, 10 Joint ventures, 4 wholly-

owned subsidiaries– Invested $600 million dollars in the Chinese

market– Chinese market is the largest market in the world

Competition, contd.

Competition, contd.

• :– In October 2001, a 50:50 joint venture began

between Sony Corporation and Ericsson– Targeted young women (niche marketing

strategy)– In 2007, the company had a 4% market share

• Segments the Market is Based On

Competition, contd.

• Local companies:– 25% of the overall market – The government strongly supports them– Large companies might buy them out– TLC has 6% of the market

Competition, contd.

Marketing Strategy• Known as “greenfield operation”• Began in 1987 when company entered Chinese

market• Its first goal was to set up a fully-functional,

wholly-owned subsidiary to give the company greater control and access to local markets

• This allowed for local production and global coordination

Marketing Strategy, contd.

• Investment and infrastructure support from the government in key economic zones also provided an incentive to locate there• Possibility of capturing large Chinese market

was also alluring • Since then, the company has tailored its

products to local markets • Motorola has also pursued local sourcing

Marketing Strategy, contd.

• In 1999, 65% of components were imported• By 2006, 69% of components were

purchased locally• Local sourcing provides Motorola with three

primary benefits:– Lower manufacturing costs– Less currency fluctuation risk– Ability to better cater to Chinese government

Marketing Strategy, contd.

• Company markets phones to four distinct segments:– Heavy Users– Technology Enthusiasts– Fashion Seekers– Social-Life Lovers

• Different ads are designed for each segment• Brand identification is not emphasized

SWOTT Analysis

Strengths

Expertise in developing cell phone technology

Extensive, locally sourced production facilities

Contracts with China Mobile, Cisco, and Nortel

Vast distribution networkReputation for quality, features, and designStrong brand recognition

WeaknessesNot proactive enough; complacentProduct quality, while good, is not as high as

Nokia, its biggest competitorCompany has developed advanced, highly-

differentiated products that may not be affordable to the fastest-growing segments of the burgeoning Chinese market

Ability to pay debt has diminished

OpportunitiesAccess rapidly growing market (China)Partner with greater number of distributors Capitalize on introduction of 3G data networksIncrease cooperation with governmentConsider buying smaller competitors if possibleCreate a cheaper phone for poorer areas of

China

ThreatsEmergence of numerous smaller competitorsLarger, stronger competitors such as Nokia and

SamsungChinese government rules and regulationsChinese government policy of promoting local

companies over their international counterpartsEvolving technology and product obsolescenceSlowing growth due to current economic

downturn

TrendsFull transition to 3G devices and networksEventual switch to 4G networks and devicesShift from “voice-centric” to “data-centric”

products (smartphones)Emergence of WiMAX, High-Speed Downlink

Packet Access, and Long-Term Evolution technologies

Better battery life and increased functionality

Question One

• Should Motorola react to the emergence of local brands by engaging them in head-to-head competition or through cooperation?

Question Two

• Faced with the expanding low-priced segment, how should Motorola, known as a high-end brand, position itself?

• Is the company's current branding strategy effective in penetrating this segment?

• If not, what kind of marketing strategy should the company follow?

Question Three

• What should Motorola do in order to effectively cut costs in developing a low-priced mobile phone?

The EndQuestions?