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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: TobagoJack who wrote (38843)9/25/2003 7:27:14 PM
From: elmatador  Read Replies (1) of 74559
 
Handsets

Published: September 24 2003 13:38 | Last Updated: September 24 2003 13:38


When price wars eat into profit margins, the usual outcome is consolidation. But plummeting prices have failed to eliminate players in China's overcrowded handset manufacturing industry. Instead, having built up an inventory estimated at 20m at the end of the second quarter, China-based manufacturers have continued to gear up output in the third. The bulk of this output is for the domestic market; of the roughly 25 per cent of phones exported, most are made by foreign manufacturers.


Hard-pressed multinationals such as Nokia and Motorola have an unlikely ally; Beijing is considering reversing the build-up. The government's first step should be to scrap all incentives to encourage production. These, sometimes dished out at local government level, have kept several players afloat. To erstwhile white goods and TV makers, these incentives make the industry look attractive: just a couple of million dollars to build a factory; high variable costs; and - for the top echelons - profit margins that can come in at 10 per cent. Many local companies have simply taken handouts and rebadged imported phones, thereby not even delivering on the government's aim of building technical and design expertise.

But Beijing needs to step carefully. Any attempt to cut imports by raising tariffs to stamp out the practice of rebadging could be counter-productive, as well as contrary to World Trade Organisation obligations. The smartest move would be to weed out the patchwork of incentives.
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