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ASIAN CASE RESEARCH JOURNAL, VOL.

17, issue 1, 123143 (2013)

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acrj
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

Beijing Tianyu Communications:


Winning in the 3G Era*
A day after the Spring Festival in 2009, Rong Xiuli was
examining a sample of the latest 3G cell phone at her office.
Compared with the other handsets on the desk, it looked
rather unusual, relative to a fleet of impeccably-designed 3G
phones from the famous global brand names.
Seven years ago, Rong had closed down Beijing
Benephon Communications (Beijing Benephon), the first
company she founded in 1995, and established Beijing
Tianyu Communication Equipment Corporation, entering
the handset manufacturing industry. Beijing Benephon was
then the biggest distributor of Samsung cell phones in the
Chinese market, and its exit came as a surprise; but it was
not a surprise that Tianyus first attempt at in-house R&D
almost turned into a disaster in its first year. A few years
later, however, the company emerged as a strong player in
the market, while some previously famous brands struggled for survival or disappeared. In 2007, Tianyu achieved a
sales volume of 1,700 units, finding a place among the Top
10 list in Chinas mobile phone industry. In the following
year, the company overtook Lenovo, with a 6% market
share, becoming the top domestic brand, just behind Nokia,
Samsung, and Motorola.
But Rong did not feel relieved at what Tianyu had
achieved; the Chinese mobile phone market was changing

The case study is supported by research grants of China Europe International


Business School.
2013 by World Scientific Publishing Co.

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DOI: 10.1142/S0218927513500053

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fast. At the end of 2008, the 2G cell phone market declined


sharply because of the global economic downturn.
Meanwhile, as the long-awaited 3G1 licenses were issued,
China formally entered the 3G mobile market. Rong decided
to enter the unknown arena and pains followed.
Staring at the sample that needed further improvement, Rong Xiuli wondered, Was it a must or a risk to
enter the 3G market? What resources or capabilities should
Tianyu develop in order to both meet the challenges in the
new 3G market and upgrade its low-end brand identity?
Facing both local and international competitors, Rong and her
colleagues needed to find the answers urgently.
Chinas Mobile Market2
As technology advanced and the Chinese population became
more affluent, more phone users were surfing the web
through their mobile small screens (40% currently).
With a total of 755 million mobile subscribers in China,
China had become the worlds largest mobile device market.
Although the average mobile user spent just over USD $10
per month, simple maths stated that the Chinese mobile
service market was worth 7.55 billion per month in revenue.
That was equivalent to $2,900 per second.

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).

3G: the third generation of communications technology.


http://www.penn-olson.com/2010/08/09/china-mobile-market/

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Mobile Media Usage

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Comparing with the US, China had a higher proportion of


people accessing the Internet using mobile phones. China
was also ahead when it came to gaming and instant messaging through mobile devices. Location-based services (LBS),
were not as popular as LBS companies such as Foursquare
and Gowalla, who were only starting to gain ground in the
US market. Apps download were surprisingly more active in
China too (Exhibit 2).

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The Birth of Tianyu


In 1996, Rong Xiuli joined a private Hong Kong trading
company in the communication equipment industry. In a
cooperative market research project with Benephon, a Finnish
mobile phone manufacturing company that intended to enter
the Chinese market and search for domestic partners, Rong
saw a huge market with great potential and prevailed upon
her boss to sign an agency agreement with Benephon. The
Chinese mobile phone industry, however, did not explode
as expected. As a result, the new business incurred a loss of
RMB 1.6 million in the first year. Rong Xiuli responded to her
boss complaint that, I owe you for the loss, although she
was only an employee at that time.
In early 1995, Rong set up Beijing Benephon to continue the agency for Benephon. As part of the agreement, she
had to repay the loan of RMB 1.6 million with a 25% annual
interest. Rong asked all her employees to look for partners.
Eventually, one of them became a shareholder of Beijing
Benephon, holding 35% stake in the new company. Soon after
Beijing Benephon was founded, Chinas telecommunication
industry grew at a nearly three-digit rate annually. Beijing
Benephon started making profits and became the regional
agent for Samsung, Ericsson, and Nortel. By April 2002, it
had become Samsungs largest agent in China and accounted
for about half of the companys sales in the country.
It was then, however, that Rong decided to close Beijing
Benephon. She insisted that the high profit in the cell phone

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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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Research and Development

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Tianyu purchased handset design solutions and outsourced


the production shortly after the establishment, but Rong
insisted on developing the design in-house. As a result, in
early 2003, an IC (Integrated Circuit) engineer from Silicon
Valley was recruited in Tianyu and appointed to build the
R&D team. The team spent RMB 20 million on the handset
design platform; six months later, it finished the first mobile
phone in the laboratory. Unfortunately, within the first month
on sale, 22% of the new cell phones were withdrawn because
of quality problems. By the end of 2004, Tianyu had recalled
over 50,000 defective mobile phones. We replaced all faulty
products. They were returned in two or three months. The
product cost per unit was RMB 700800, Rong said. Worse
still, Tianyu lost all hopes of getting a production license.
The huge loss combined with the gloomy prospect failed the
whole company. However, Rong decided to continue the
business and dropped the plan of in-house design. Instead,
she sought cooperation from MediaTek, the leading fabless
semiconductor company from Taiwan.
Not surprisingly, the top-notch fabless firm showed
no interest in the tiny unknown Tianyu. Luckily, Rong
had a chance to meet Xu Zhiqiang, the general manager in
charge of wireless communication business of MediaTek. Xu
was impressed by Rongs determination to build Tianyu
into Chinas Nokia. It was the goal we both pursued that
facilitated the cooperation, said Rong. She recognized that
Xu had long desired to make a world-class chipset comparable and to provide support to the leading domestic mobile
phone models. Unfortunately, most MediaTeks clients, which

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beijing tianyu communications: winning in the 3g era 127

divested the R&D department not long after purchased


Turnkey solution, showed no sign of ambition.
In April 2006, Tianyu was granted the production
license to make and sell mobile phones with its own brand.
Three months later, Tianyu sold more than 300,000 cell
phones based on MediaTeks Turnkey solutions. When the
monthly sales topped one million units in the end of 2006,
Tianyu signed an agreement of in-depth cooperation with
MediaTek. Specifically, MediaTek helped Tianyu restructure
the R&D process, and Tianyus engineers were required to
pass the examination designed by MediaTek. In 2007, Tianyu
had about 80 new products on the market, and was ranked
9th in the cell phone industry with a 1.9% market share. Rong
commented:
A prototype is one thing; industrialization is another. No
matter how perfect the prototype seems to be in the lab,
a great amount of knowledge and know-how related to
mass production are necessary to turn a prototype into a
product. We thus learned from MediaTek about how to
make a reliable product for two years from 2006.

Unexpectedly, Rong asked the R&D team to depart from


the Turnkey solution when Tianyu proved a success in
the cooperative product development with MediaTek. The
team was required to innovate independently by combining
MediaTeks total solution with a variety of other solutions, for
example, Qualcomms design solutions, VIAs solutions for
CDMA cell phones, Microsofts solutions for smart phones,
etc. Rong explained:
Engineers would become reluctant to go beyond MediaTek
because it provided such a total solution that only a few
were left to in-house design team. If things went on like
this, there was no doubt that the final result was the loss of
capability in research.

Rong persuaded MediaTek to open the source files so that


engineers at Tianyu could build a bridge between various
solutions or combine others with MediaTeks by modularization. It had been very hard for the R&D team at that time,
In terms of appearance, the new products were not attractive;

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some even ugly, Rong recalled, But in terms of technology


accumulation, the team was successful.
Nevertheless, those ugly cell phones meant trouble
for the sales and distribution channels. There were a lot of
complaints in 2008 as the new products sold poorly in the
market. Yet we could have made money if we continued
the cooperative product development with MediaTek. Some
people said that I must have gone mad, Rong laughed.
She understood that it was difficult to mobilize the entire
company to sacrifice the immediate benefits for uncertain,
long-term development. But, she firmly believed that Tianyu
would have no future if she did not do that. In 2008, Tianyu
invested RMB 150 million in R&D and expanded the R&D
team up to 600 people. Rongs objective was to break the
restrictions imposed by a sole platform and prepare for the
upcoming 3G technology.

Sales and Distribution


Since the inception of the company, Tianyu had been focusing
on the mass market as the common people could not afford
such premium mobile phone brands such as Samsung. Tianyu
set the objective of making cheap but good cell phones.
Tianyu aimed at the small and medium-sized cities
and the countryside, rather than the relatively saturated
large cities. In terms of geographic distribution, Tianyu
acquired a higher market share in West and North China
specifically 3.1% in northwest, 2.5% in southwest, and 2.5%
in northeast than in East (1.7%) and Middle China (1.9%).
Tianyus cell phones were sold mainly in the range of RMB
5001,500 (see Exhibit 3). Additionally, some cell phones sold
below RMB 500; these were designed for the low-end market.
D152 and A5110 (see Exhibit 4), for example, were the two
best-selling low-price cell phones, both of which were sold at
less than RMB 400. A5110 sold 700,000 units altogether, and
D152 200,000 units. Among the 52 models Tianyu sold on the
market in 2Q09, 38 were sold below RMB 1,000, and only two
were priced above RMB 2,000. A Vice President of Tianyu
said, Cost effectiveness is the key to success in our target

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beijing tianyu communications: winning in the 3g era 129

market; President Rong is good at it. In other words, she is an


expert at making goods with high quality and low price.
Besides, Tianyu could not distinguish itself in Chinas
mobile phone market without building a strong sales and distribution channel. During her years as a mobile phone agent
in Beijing Benephon, Rong had earned the first pot of gold.
But more importantly, she had developed a better understanding of the distribution channels than most other manufacturers not only on the basis of prosperity, but also the
hidden problems. For example, the cell phone manufacturers
generally possessed 2030% of the total 4050% industrial
profit, while the retailers got only about 5%. As a result, the
manufacturers played a dominant role in the mobile phone
industry.
Rong reformed the distribution policy at Tianyu. The
sales and distribution channels retained a major portion of the
profit, while Tianyu retained a fixed 10%. However, buyout
supply and promotion campaign would be their responsibility. To propagate the new policy, Rong visited the distributors and retailers, explaining the risks as well as the benefits.
Her efforts were rewarded with an expanding distribution
network. Moreover, the distribution channels were successfully stimulated by Tianyus innovative policy to sell and
promote with great enthusiasm.
Unlike the traditional multi-layer exclusive distribution
system, Tianyus compressed distribution network included at
most an interlayer before the retail stores. As a result, Tianyu
not only enlarged the space for profits, but also increased the
flexibility in responding to the changes in demand. However,
a flat distribution network was not the whole picture. Rong
said:
Good products are essential, but insufficient, to the effective management of distribution channel. Also, the companys credibility is one of the fundamentals.

Tianyu had about 400 sales people and 50 subsidiaries across


the country. In addition, an after-sales service team of 300
people was created to address any troubles caused by defective products. But the major part of Tianyus distribution
network was made up of more than 1,500 distributors and
retailers.

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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.

Tianyu outsourced the production to third-party contract


manufacturers. In fact, Rong once set up a test factory when
Tianyu applied for a production license in 2006. But she soon
found the in-house production idea unappealing. She said:
I studied Honghai, the leading third-party contract manufacturer, and concluded that there is no chance for Tianyu
to compare with Honghai in handset manufacturing.
Factory management is not my strength.

By standing on the shoulders of the giants, Tianyu was


getting stronger. As a result, it had greater bargaining power,
and its relationship with suppliers changed gradually.

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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beijing tianyu communications: winning in the 3g era 131

Tianyu set up an accounting information system in 2000


when information system was rare in enterprise management. Subsequently, the system expanded into inbound logistics, outbound logistics, and internal management control.
Moreover, Rong employed professional companies which
offered audit services to improve the management system.
For instance, Tianyus sales team was grouped by region, and
sales directors rotated among various area. Financial management was centralized at the companys headquarters. As
for the supplier selection and purchasing decision, procurement manager was required to work with others in such
departments as R&D, quality control, and production control.
Additionally, all employees had the right to examine the price
and quality.
In addition, the distributors were required to replenish
the stock in three lots every month. As a result, Tianyu shortened the lead time to 20 days from the industry average of
2 months. The companys safety stock was maintained at the
2-week sales volume, while the industrial level was 2 months
on average. The distribution channels are sensitive to the
changes in market demand; Tianyu could thus respond very
quickly to their feedback, Rong added. With regard to production outsourcing, Tianyu established an information-based
system called virtual plant management, which delivered
the information from the factory to Tianyu, and vice versa.
The installation cost was covered by Tianyu and the contract
manufacturers.

Structure and Culture


Under the functional organizational structure, Tianyu stayed
close to the market and responded quickly to the changes.
More than 20 executives reported directly to Rong. All major
decisions were made through discussion by the top management team, but Rong had the power of veto. Even when
Tianyu increased its headcount to 1,600 from a few dozens of
people in the beginning, it maintained a flat, two-level structure. I can reach the senior executives easily, Rong added,

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also, as the team leader, they can reach other members


easily.
Rong aimed to build Tianyu as a platform on which the
employees would have the opportunities to achieve their best.
You might put forward a good idea at first, but you alone
cannot implement it. You need many people to go along with
it, Rong continued:

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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

A famous electronic enterprise in China.


Time Division-Synchronous Code Division Multiple Access.
5
Wideband Code Division Multiple Access.
4

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beijing tianyu communications: winning in the 3g era 133

wireless communication with multimedia communication


such as the Internet. It could handle images, music, video,
and other media formats, and provide a wide range of
services including web browsing, conference calls, and
e-commerce. During the transition from 2G to 3G, the
demand for rapid Internet access led to the emergence of
2.5G technology, a stepping stone between 2G and 3G. 2.5G
technology included GPRS6/EDGE7 technology of GSM
and CDMA2000 1 technology of CDMA (see Exhibit 5).
China Mobile held a TD-SCDMA 3G license, China Telecom
a CDMA2000 3G license, and China Unicom a WCDMA
3G license (see Exhibit 6). The issuance of the three licenses
marked the official arrival of the 3G era in China.
The launch of Chinas 3G market was of special significance to the countrys development during the economic
downturn in 2008. Compared with the GDP growth rate
of 13% in 2007, Chinas GDP increased 8.95% year-on-year
in 20088, with a GDP growth rate of 10.1% in 2Q08, 9.0%
in 3Q08, and 6.8% in 4Q089. The industrial added value
increased at a declining rate in 2Q08, with a growth rate of
8.2%, 5.2%, and 5.4% in October, November, and December,
respectively10. In 4Q08, a few Chinese ministries, including
MIIT, SDRC, Ministry of Finance, SASAC, and Ministry of
Science and Technology, jointly announced a variety of favorable policies for Chinas 3G industry, including financial aid,
project support, network construction, product research, commercialization, and industry development. The TD-SCDMA
project was seen as impetus behind the economic recover

Cell Phone Customization for Operators


In the 2G era, cell phones were only used as an independent consumer electronic device as Chinas telecom business
6

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.

Competition in 3G Cell Phone Market


The 3G business quickly emerged as a new growth opportunity for domestic handset makers as foreign and domestic
handset makers did not differ much in the production of
CDMA2000 and TD-CDMA cell phones. In 2008, TD-SCDMA
was tested for trial commercial use in Chinas 3G market.

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beijing tianyu communications: winning in the 3g era 135

ZTE and Samsung soon built an advantageous position in


the market in terms of product quality, features, and variety
because of the heavy investment in TD-SCDMA technology
over the past years. Based on their strong R&D capabilities
and capital strength, as well as rich experience in offering
customized mobile terminals for operators, ZTE, Huawei, and
a few other big equipment manufacturers also became a great
competitive force in the 3G market. Additionally, domestic
handset markers such as Lenovo, Coolpad, and Hisense benefited from their strong investment in TD-SCDMA technology.
Foreign handset makers such as Nokia and Sony
Ericson did not perform well at the early stages of Chinas
3G market due to the lack of investment in TD-SCDMA technology, but they found new growth opportunities upon the
issuance of WCDMA and CDMA2000 3G licenses. In the
international market, Nokia attached great importance to 3G
cell phones, especially WCDMA cell phones. Sony Ericsson
expressed its intention to enter the TD-SCDMA market and
launch more 3G products to cater for the needs of Chinese
users.

Challenges in the 3G Era


During the seven-day National Holiday in October 2008,
Tianyus sales volume declined more than 75% year-on-year;
the sales volume in October fell by over 50% compared with
last month. Further, the 3G market looked to have good
prospects against the rapid deterioration of the 2G market.
Rong quickly informed its OEM factories that Tianyu would
soon cut its orders, and at the same time, launched the 3G
transition.
Tianyu was just a nobody in the 3G market, Rong
said with a smile, We have no experience in making 3G
phones, no business relationship with operators, and were
not a big name company. We have nothing at all in this
regard.

At a sales meeting held at the end of October 2008, Rong


called for all the employees to concentrate on the 3G business

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and start to do business with telecom operators. Meanwhile,


she stopped making any efforts in the traditional sales channels. To adapt to the sales model of the 3G market in which
operators have a dominant position, Rong restructured her
sales force by sales channel (not by province/region) and
deployed a large proportion of resources for the operator
channel. During the period around Tianyus sales meeting,
Tianyu signed a Patent License Agreement with Qualcomm,
and reached a cooperation agreement with Microsoft. As
nearly 90% of the R&D resources were devoted to the 3G
business, there was no extra effort to be made on the GSM
and CDMA businesses.
The companys 3G transition, however, faced a lot of
resistance from within the company. The transition exerted
tremendous pressure to Tianyus R&D team as a 3G product
was a precondition for doing business with operators. Worse
still, the resistance from Tianyus sales team was even greater.
They had to abandon their years of business relationship with
over 10,000 retail outlets and over 600 authorized service and
channel stations in the 3G transition; at the same time, they
were required to do business with unfamiliar and aggressive
mobile operators. The state-owned operators usually had a
huge bureaucratic organizational structure. As a result, both
the headquarters and branches in the area affected the purchasing decision.

Looking to the Future


Through exports, Tianyu had begun to seek overseas expansion. Based on feedback on local customer demand from local
distributors and the overseas sales team, the company planed
to make minor changes to the existing popular product
designs before mass production. As different countries had
different customer demands and market environments,
Tianyu chose to enter only those overseas markets that were
similar to the Chinese market in terms of demographics and
economy. After analyzing each countrys population, level of
economic development, cell phone penetration rate, market
entry barriers, and a few other factors, Tianyu targeted

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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.

8/13/2013 4:38:58 PM

138 ACRJ

Exhibit 1
Key Groups: Estimated Market Proportion of China
Female
49%

Male
51%

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Ages 1524
19%

Ages 3544
23%

Ages 2534
23%

Ages 4554
20%

SMS/Voice user
36%

Advanced data user


54%

Prepaid user
87%

Business user
45%

Ages 5564
14%

Voice-only user
10%

Postpaid user
13%

Personal user
55%

Source: The Nielsen Company.

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beijing tianyu communications: winning in the 3g era 139

Exhibit 2
Mobile Media Usage in the Past 30 Days
(Q1 2010US vs. China)
64%

Text messaging/SMS
Picture messaging/MMS

22%
27%

Asian Case Res. J. 2013.17:123-143. Downloaded from www.worldscientific.com


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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%

Source: The Nielsen Company.

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140 ACRJ

Exhibit 3

Exhibit 3
PricePrice
Structure
ininChinas
Phone
Market
in 2007
Structure
Chinas Mobile
Mobile Phone
Market
in 2007

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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.

Source: Competitive Analysis of Chinas mobile phone industry 20072008,


CCIDConsulting, Jan 2008

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beijing tianyu communications: winning in the 3g era 141

4
Exhibit 4
Pictures of K-Touch D152Exhibit
and K-Touch
A5110

Asian Case Res. J. 2013.17:123-143. Downloaded from www.worldscientific.com


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Pictures of K-Touch D152 and K-Touch A5110

K-Touch D152

K-Touch A5110

Source: Google Image, http://images.google.com.hk

Source: Google Image,

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142 ACRJ

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

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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

communications technology, Mobile Communications, Issue 24, 2008

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beijing tianyu communications: winning in the 3g era 143

Exhibit 6

Exhibit 6
Telecommunications
Industry
and
License
Telecommunications
IndustryReorganization
Reorganization and
3G3G
License
3G License

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Telecoms
Operators

TD SCDMA

China Mobile

China Mobile

Strength
Weakness

China Railcom

The most powerful one


Government support
Technology not ready
Handset deficiency

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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