Wednesday, April 18, 2007

Low barriers = high competition = looming shakeout

I read an article today online that I just can’t close, I don’t know why. David Wolf writes on Seeking Alpha about how the PRC’s state planning agency has approved four consumer electronics firms to start making mobile handsets, added to approximately 80 firms already in the Chinese market.

Wolf detects signs of capitalism among the central planners:

I see something very positive in the NDRC's move. The senior economists and policy makers at the NDRC are not stupid - they know that China's mobile handset market - no matter how big it is - cannot hope to support nearly a hundred companies in the business. Frankly, I doubt the entire world, with a billion handsets made each year, could support a hundred handset makers.

The message that the NDRC is sending in this move is that rather than select champions to support and force the rest out of business, they are letting the market decide who will survive. Will this mean cannibalistic hypercompetition among manufacturers? Absolutely. But the thinking is that the companies that DO survive will be better suited to compete both locally and globally than they would if the winners were selected by the bureaucrats.
Wolf predicts the survivors will be Nokia and Motorola from the West, Sony-Ericsson and Sanyo (Sanyo?) from Japan, LG and Samsung from Korea and two Chinese firms, Ningbo Bird and ZTE. A few ODMs might survive (probably not including BenQ, which made a failed effort to become a branded firm with its Siemens acquisition.

Wolf goes on to make an even stronger prediction:
Here is the ultimate result, and I'd wager this is what the NDRC is betting on: China will be the global center of the mobile handset industry, not just in manufacture and consumption, but in research, design and development as well.
I don’t know if I completely agree, but this is a provocative article rather than just more of the same.

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