Eastern Dons Foreign Garb to End Nokia, Ericsson's China Grip
--From AOL.-- Cooters
Hangzhou, China, Oct. 26 (Bloomberg) -- The chief executive of China's largest mobile phone maker may have hoped its partner, Motorola Inc., wasn't going to read his book when he dubbed his company ``a Chinese soldier in foreign clothing.''
If that wasn't a clear enough signal to Motorola that Eastern Communications Co. has designs on foreign companies' 70-percent share of China's mobile phone market, Shi Jixing goes on to describe their dominance as a ``problem that concerns national security.''
The Chinese government wants Motorola, Nokia Oyj and Ericsson AB to provide the latest technology to their Chinese partners in return for continued access to Asia's biggest mobile phone market -- even if that means helping local companies to become their biggest rivals.
That was clear yesterday, when Eastern said Motorola would extend its cooperation with Eastern to include phones that can access the Internet 13 times faster than existing phones.
``We need to be involved in the entire process of the phone's production, from design to manufacturing to marketing,'' Shi said in an interview at Eastern's 22-storey Hangzhou headquarters.
Shi peppers his 278-page history, ``How Eastern Does It,'' with references to the late Chairman Mao Zedong and revolutionary anecdotes. In the interview, he also borrows a phrase from Mao, describing the new project as ``the great leap that deepens our technology transfer.''
And like the Great Leap Forward, in which China set goals to supplant industrial powers as the world's biggest steelmaker, Shi also sets ambitious targets. Domestic phone makers could grab as much as 50 percent of the cell phone market within five years, from less than 30 percent now, he said.
Shi's 10-year plan sees Eastern's sales of cell phones and switches rising seven-fold to 80 billion yuan ($9.7 billion) by 2010, as growing economic affluence spurs demand for phones. China's cell phone users may reach 100 million within two years, he says.
Televisions First
Chinese firms now make 70 percent of the country's color televisions, assembling low-cost models locally using cheap labor to compete with imported televisions that cost three times more.
``The phone companies believe they can repeat the experience,'' said John Lu, an analyst at ING Barings. ``They are very aggressive in pushing their phones. It's a good move for a firm like Eastern to tie up with Motorola.''
Eastern is the leader among a batch of Chinese companies that have moved into the cell phone business including: Konka Group Co., that will partner with Lucent Technologies Inc. in the new Internet phone project; ZTE Corp., that will partner with Texas Instruments Inc.; Qingdao Haier Refrigerator Co. and TCL Communication Equipment Co.
Eastern started five decades ago as No. 522 Factory, an equipment maker for the country's postal and telegraph ministry. Shi, now 58, started his career as an engineer, rising through the ranks to become the factory's manager and top Communist Party commissar.
In 1990, he helped Eastern sign up with Motorola to invest in a cell phone joint venture in China. Sweden's Ericsson and Japan's NEC Corp. were earlier contenders for the partnership.
Internet
In 1996, Shi helped recast the factory into a publicly traded company. Eastern is now the fourth biggest stock on Shanghai's B shares index. It makes 2 million phones a year in China and has a 6 percent share of the country's cell phone market.
In August, Eastern secured an agreement for Motorola to supply the Chinese firm with chips, computer software, servers and switches to make phones that can be linked to the Internet by the end of 2001.
The phones will use general packet radio services, or GPRS, technology that is much slower than so-called third generation mobile phone networks still under development. Yet the technology may be more accessible to China's masses.
Prices
Even GPRS phones such as Motorola's 6188 model cost as much as 5,000 yuan ($604) each, more than triple the price of locally made phones without such functions. That's nearly five months' of wages earned by an average Chinese bank officer last year, according to government statistics.
``Since 3G technology is unlikely to take root in China for a long time, a cheap and cheerful upgrade by the GPRS is a good interim measure,'' said Andy Perkins, who tracks phone companies at Prudential-Bache Securities Ltd. in Hong Kong. ``Eastern is likely to remain at the mass-produced end of the market.''
Eastern last month released its fiscal 2000 profit forecast, predicting that sales will grow 45 percent to 10 billion yuan. In fiscal 1999, Eastern's profit rose 12.8 percent to 229.3 million yuan.
Finland
In a country where installing a telephone line takes as long as nine months, readily available mobile phones have great appeal. In March, China reported 57.1 million cell phone users, surpassing Japan as Asia's No. 1 phone market.
``Voice telephony will make up the biggest segment in the company's products, where the prices will tend to the middle and lower niches in the range,'' Shi said. ``Of course, we will also introduce a number of high-end phones to establish our brand among the top players in the industry. ''
As a sign of his devotion to the company's roots, Shi keeps the numbers ``5228'' on his cellular phone -- Eastern's latest EL600 model -- and on the license plate of his car.
In Chinese, 5228 sounds like a chant for the old factory: `522! Get Rich!''
The final word perhaps should go to the Finnish.
``The Chinese are good copiers but they do not have the researh and development resources,'' said Esa Mangeloja, an industry analyst at Conventum Bank in Helsinki. ``To match up with Nokia is light years away.''
Oct/26/2000 6:04 ET |
