Competition drives cooperation in China
25 February 2008
‘Bigger than the sum of its individual parts’ seems to be the unofficial mantra driving the forward direction of companies jostling for market share in China’s highly competitive consumer electronics market.
With a lot at stake – mainland China’s consumer electronics market will account for 25 per cent of the global market by 2010, has been growing at a compound rate of 12 per cent a year, and is expected to reach about US$140 billion by 2010, up from US$82 billion this year – a wave of alliances between companies is reshaping the landscape of China’s electronics industry.
Historically, many cooperative agreements in China have been between domestic companies and foreign inward investors, and while this remains the case today, there are also new alliances springing up between domestic groups keen to further the advancement of home-grown technology. For example, the Guangdong 3G Industry Development Alliance has been set up in an effort to promote the rapid development of 3G in the southern province. Thirteen companies, including TCL, Guangdong Provincial Information Association, ZTE and Huawei have joined this alliance.
Similarly, twenty mainland China electronics makers, all members of the Enhanced Versatile Disc (EVD) industry alliance, have announced that they plan to end DVD player production in 2008. Quite a bold end-goal, on the surface, yet perhaps not as unrealistic as it might first appear. Only this week, news has broken of the resolution (finally) of the HD DVD versus Blu-ray format war, so who knows what a group of up and coming China manufacturers could achieve. These makers, including industry leaders such as Haier Co. Ltd, Skyworth Group Co. Ltd and TCL Corp., plan to replace DVD with EVD, mainland China’s homegrown format.
On a more international note, Beijing Gehua CATV Network Company has formed an alliance with other companies to provide a comprehensive high-definition television (HDTV) service and accelerate its development in China. The alliance includes Huacheng Film and Television Company, Dazhong Electronics (now owned by Gome), Dolby Laboratories, Changhong, Haier, Hisense, Panasonic, TCL and Sharp.
Japanese electronics giants are also cooperating. Pioneer plans to procure LCD panels from Sharp to add televisions smaller than 42 inches to its line-up. The two companies said they will combine their expertise to jointly develop products in next-generation DVDs, audio, car electronics and displays.
Alliances between makers and retail chains are also becoming prevalent. Retail chains dominate consumer electronics sales a handful of these players control as much as 40 per cent of sales in first-tier cities like Shanghai and Beijing.
Gome, China’s leading electronic retailer and Dell Inc, the world's No. 2 PC maker, recently signed an agreement to sell Dell computers in its stores. Gome also signed agreements with eight phone makers including Motorola, Sony Ericsson and Ningbo Bird to purchase five million phones in 2008.
Similarly, major electronics retailer Suning has signed a cooperation agreement with top home appliance providers Siemens and Sony. They will cooperate on a whole range of businesses ranging from product development, marketing and after-sales service to jointly increase their capacity in serving high-end consumers in China.
Arguably, unless consumer electronics players - whether Chinese or foreign - rethink their product development and sales and marketing directions, and consider the potential benefits of strategic alliances, they may risk losing the battle for the wallets of millions of Chinese and global consumers.
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