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This case was prepared by
Associate Professor Terence
Tsai of China Europe International Business School,
Shanghai, China, Shaohua Lu
of Ohio State University, USA,
Dr. Gary Liu and Shubo Liu of
China Europe International
Business School, as a basis
for class discussion rather
than to illustrate either effective or ineffective handling of
an administrative or business
situation.
Please send all correspondence to Associate Professor
Terence Tsai, China Europe
International Business School,
699 Hongfeng Road, Pudong,
Shanghai, P.R. China. E-mail:
tterence@ceibs.edu
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DOI: 10.1142/S0218927513500053
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Demographics
54% of the Chinese mobile users were classified as advanced
data users, accessing emails, web browsing and gaming
are just some of their day-to-day activities. Almost 9 out of
10 mobile phone users subscribed to prepaid mobile plans,
which possibly hinted the Chineses buying behavior (see
Exhibit 1).
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distribution industry would not last long. The manufacturers determined the price, the sales policies, and so forth,
while the agents had no choice but to follow. I was unhappy
with that, said Rong. In April 2002, Rong cleared out the
stock of Beijing Benephon and established Beijing Tianyu
Communication Equipment Co., Ltd (Tianyu).
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Partnership
Given the increasingly intense competition worldwide, a
firm could not be content with becoming a domestic leader
anymore, Rong realized in 2006. From then on, Tianyu had
managed to engage the best suppliers, specifically, the top
five worldwide or the top three in the domestic market. In
fact, it was difficult to make such a decision when Tianyu had
a low sales volume. Tianyu had to pay for premium charged
by the top-notch suppliers. For example, Rong made efforts to
enter into a partnership with RFMD, the worlds leading firm
in the semiconductor industry. But at the same time, Tianyu
needed to afford a premium of 2030%. Now we decide to
work with the strong partners, we have no other choice,
Rong continued, but more importantly, we should recognize the value of our partners. She described it as second
party principle, and required all employees in the company
to comply with it. Rong commented:
Actually, we benefit a lot in terms of global standards, a
broader outlook, and the ambitious objective.
Management System
As Tianyu earned a lower profit margin than other mobile
phone manufacturers, the entire company was required to
operate efficiently.
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People are the most important asset and Tianyu put a great
deal of resources on HR development.
Rong claimed that the age of huge profits was a thing of the
past as growth in Chinas mobile phone industry slowed
down. Then came a wave of mergers and acquisitions within
the industry; ultimately, only the efficient companies survived. For this reason, the corporate culture of Tianyu was
characterized by saving money. Most employees were
familiar with Rongs words, Drive mad, first ourselves, and
then our competitors.
Tianyus operating expenses sum up to RMB 20
million every month, and half was used for research and
development. We are low in cost, Rong said. Lu Weibing,
the overseas sales director of Tianyu, once worked at Konka3,
where he had a luxurious office and an Audi with a personal
driver. But, he enjoyed no privileges at Tianyu. For example,
he worked with other executives in a large open office,
and collected invoices for reimbursements after his trips.
Similarly, Rong worked in a small office where a camp bed
was placed, and did all these trivial things.
The Arrival of 3G
In May 2000, Chinas TD-SCDMA4, Europe and Japans
WCDMA5, and Americas CDMA2000, were approved by
the ITU (International Telecommunication Union) as the 3G
international standards. 3G cell phones featured a new generation of mobile communication system that combines
3
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General Packet Radio Service, the data rate of which can amount to 56114Kbps.
Enhanced Data Rate for GSM Evolution, a solution for technology transition from
GPRS to 3G.
8
China Statistical Yearbook 2009, edited by State Statistical Bureau, PRC.
9
China Statistical Yearbook 2009, edited by State Statistical Bureau, PRC.
10
http://www.stats.gov.cn/
7
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centered on voice and text messaging services. Network coverage was the major concern for mobile operators during that
period; branded handset makers enjoyed a greater say and
influence in the cell phone market.
As China started to develop its 3G market, the competition among operators extended to every link of the industry
chain, such as products, value-added services, and marketing.
Besides, mobile communication operators attached more and
more attention to phone customization. Generally, there were
four categories: low-level customization, mid-level customization, high-level customization, and complete customization. Along with the diversification of 3G services, operators
custom requirements became sophisticated. Therefore, terminal handset makers were required to meet the advanced
requirements of phone feature other than product color, user
interface, keypad, and packaging.
At an early stage of market development, 3G cell
phones were vital to operators market share. As a result,
mobile communication operators began to order customized 3G cell phones and strengthened their control over the
sales channels expanding into the sales sector. In September
2008, China Unicom set up and incorporated Unicom
Huakai, a company engaged primarily in customizing and
procuring GSM and WCDMA cell phone terminals. Tianyi
Telecom Terminals Corporation Limited, a subsidiary of
China Telecom, was formally founded in November 2008 to
specialize in the customization development and centralized
procurement of mobile terminals (including cell phones,
network cards, and related accessories). 3G cell phone customization strengthened the dominant position of mobile
communication operators in the entire industry chain.
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markets in Southeast Asia, Africa, and Latin America, primarily focusing on countries such as India, Pakistan, Bengal,
Indonesia, Nigeria, Russia, Turkey, and Brazil.
In the fast-changing mobile market in China, Tianyu
faced a number of internal and external problems during
the period of 3G transition toward the end of 2008. Despite
the challenges, it only took Tianyu six months to get a preemptive advantage in Chinas 3G cell phone market, earning
a spot in Chinas mobile communication operators 3G phone
procurement list. Meanwhile, Tianyu actively expanded
its international market. Its overseas sale was expected to
account for 60% of the total sales revenue in 2010.
Though Tianyu proved to be a competitive player in
the 2G cell phone market, it saw a different picture in the 3G
market. As a new entrant to the 3G market, Tianyu encountered fierce competition from foreign handset makers, like
Nokia, Samsung, and LG, which had advantages in brand
awareness and technology.
Additionally, China was yet to see a boom in demand
of 3G market. By 2008, Chinas 3G cell phone user base was
a mere 352,000. Obviously, the 3G market was far away from
its full potential. The user base was limited; most people
knew little about the 3G business. But at the same time, the
three operators promised to invest billions of dollars in 3G
business for the next five years. It seemed many things were
worth expecting in Chinas 3G market.
Although Tianyu achieved great success in the 2G
market, it confronted great challenges sustaining it and
competing with international big players in the 3G era was
no-nonsense. How can Tianyu maintain rapid growth under
new market conditions? Was it a risky move, or a must-do, to
further upgrade Tianyu brand and embark on the 3G transition? Will the current success in 2G market accelerate Tianyu
future growth or hinder it? How would Tianyu cope with
the new challenges? Rong only had limited time to find the
answers to these difficult questions.
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Exhibit 1
Key Groups: Estimated Market Proportion of China
Female
49%
Male
51%
Ages 1524
19%
Ages 3544
23%
Ages 2534
23%
Ages 4554
20%
SMS/Voice user
36%
Prepaid user
87%
Business user
45%
Ages 5564
14%
Voice-only user
10%
Postpaid user
13%
Personal user
55%
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Exhibit 2
Mobile Media Usage in the Past 30 Days
(Q1 2010US vs. China)
64%
Text messaging/SMS
Picture messaging/MMS
22%
27%
Mobile internet
Email
37%
38%
US
China
25%
8%
21%
Pre-installed games
40%
19%
16%
18%
Text alerts
Ringtone downloads
27%
18%
20%
Application (App)
downloads
17%
13%
16%
23%
Picture downloads
Instant messaging
Location-based Services
86%
4%
14%
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Exhibit 3
Exhibit 3
PricePrice
Structure
ininChinas
Phone
Market
in 2007
Structure
Chinas Mobile
Mobile Phone
Market
in 2007
Unit: RMB
Brand
Less
than
500
500
1,000
1,001
1,500
1,501
2,000
2,001
2,500
2,501
3,000
3,001
and
above
Nokia
41.6%
29.9%
18.4%
37.1%
42.0%
37.2%
45.6%
33.3%
Motorola
21.5%
11.9%
17.7%
18.6%
27.5%
15.1%
6.0%
16.9%
Samsung
7.2%
10.0%
4.5%
13.0%
14.0%
22.6%
30.5%
10.2%
Lenovo
6.0%
7.2%
7.8%
3.8%
0.1%
0.0%
0.3%
5.7%
Sony Ericsson
2.9%
2.6%
4.2%
12.7%
6.9%
12.2%
5.1%
4.7%
Bird
4.0%
7.8%
3.7%
0.4%
0.0%
0.0%
0.0%
4.3%
Amoi
1.9%
3.5%
5.5%
2.0%
0.5%
0.9%
0.4%
2.9%
LG
2.1%
2.0%
1.5%
2.6%
4.6%
6.1%
3.0%
2.3%
K-Touch
0.6%
3.1%
5.2%
0.8%
0.0%
0.0%
0.0%
2.2%
ZTE
5.5%
0.7%
0.4%
0.4%
0.0%
0.0%
0.4%
1.8%
Other
6.7%
21.3%
31.1%
8.6%
4.4%
5.9%
8.7%
15.7%
Total
100%
100%
100%
100%
100%
100%
100%
100%
Source: Competitive Analysis of Chinas mobile phone industry 20072008, CCIDConsulting, January 2008.
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4
Exhibit 4
Pictures of K-Touch D152Exhibit
and K-Touch
A5110
K-Touch D152
K-Touch A5110
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Exhibit 5
Development of Mobile Communications Technology
Exhibit 5
Development of Mobile Communications Technology
CDMA2000 1
Rev.0
153.6 kb/s
1 EV-DO Rev.0
download: 2.4 Mb/s
upload: 153.6 kb/s
1 EV-DO Rev.A
download: 2.4 Mb/s
upload: 153.6 kb/s
1 EV-DV
3.1 Mb/s
CDMA2000
GSM/GPRS/
EDGE
171 kb/s/384 kb/s
1 EV-DO Rev.B
download: 2.4 Mb/s
upload: 153.6 kb/s
WCDMA
R99/R4
384 kb/s
HSDPA (P1)
1.8 M/3.6 Gb/s
HSDPA (P2)
7.2/14.4 Mb/s
HSUPA 6.8 Mb/s
HSPA+
download: >40
upload: >50 Mb/s
WCDMA
GSM/GPRS/
EDGE
171 kb/s/384 kb/s
R4
384 kb/s
HSDPA
MC-HSDPA
8.4 Mb/s
HSUPA
2.8 Mb/s
HSPA+
>10 Mb/s
TD-SCDMA
2.5 G
3G
Source: Zhenzhou LEI, The history and the future developments of mobile communications technology, Mobile Communications,
24, 2008.
Source:IssueZhenzhou
LEI, The history and the future developments of mobile
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Exhibit 6
Exhibit 6
Telecommunications
Industry
and
License
Telecommunications
IndustryReorganization
Reorganization and
3G3G
License
3G License
Telecoms
Operators
TD SCDMA
China Mobile
China Mobile
Strength
Weakness
China Railcom
WCDMA
CDMA2000
China Unicom
China Netcom
China Telecom
China Unicom
Advanced Technology
Complete Industrial Chain
A large customer base
Post-Merger Integration
Operational Capability
China Telecom
Easy Upgrade
First Mover Advantage
Troubles in merger
Handset deficiency
Source: Summarized by authors from Could Elephant of China Mobile Run Fast?, China Entrepreneur, Issue 5, 2009.
Source: Summarized by authors from Could Elephant of China Mobile Run Fast?,
China Entrepreneur, Issue 5, 2009
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