1. Motorola China Failure of Success
Internation Trade and Competition in High Tech
Motorola China
Failure of Success
October 10th 2007
Jing Yuan
Wei Xu
Kin Wong
Joseph Wofford
Alex Ingles

2. Final recommendations
Design a business strategy that enables Motorola to be competitive in both high and low end markets.
High End
Low End
Use Motorola brand only for high-end market
Focus on profitability, branding
Acquire local manufacture to exploit low-end market
Don’t yield market segment

3. Motorola leadership in China – 1981 to 2001
Market environment in China
Had just opened
Need for new technology
Foreign companies hesitate to enter in fear of political instability
Market environment of competitors
No domestic competitors
Global competitors are rare
Nokia has not started to focus on cell phones
Motorola Strategy
Branding from pager business in China
Built a bureaucratic network in China, favor of Chinese government
Attracts local talent and traini them
benefit for employees, localized R&D, relationship /JV with local company, localized supply chain
Vast investment and view China as a strategic market
Manufactures handsets in China both for export and domestic sales
Good public relation

4. Motorola competitive advantage erosion – 1998 to 2004
Technology Change: In 1996, GSM become the standard for 2G in China.
From analog to digital, Motorola losses its advantages.
Market Change: Market in large cities has changed. Growth is in small cities
and rural area. Development of low end market.
Demand Change: Shifting in demand (in cell phone,headset) from simply
fashion to fashion combined with sophisticated technology.
Company Operation Change: Losing the relations with the locals
Not doing well globally
Inconsistent change in marketing and styles.
Domestic Competitors: 1. From assembly to clone to R&D.
2.Penetrate to lower end market,e.g. rural areas,
small cities.
3. Pricing advantages.
4. Design to Chinese customers’ taste.
Global Competitors: 1. Nokia has lower cost of headset.
2. Perform better in GSM phone.
3. Has distribution channel to small cities and develop
lower end market.

5. Risks and Challenges Intensive competition
Chinese suppliers were getting too good.
Their quality, low-priced parts had helped create new, homegrown and extremely aggressive competitors.
Numerous global competitors.
Short life cycles for new products.
Government policy to insulate domestic companies.
Need for distribution network to reach small cities.
New products, designed to Chinese consumer’s taste by local companies.
The Tiananmen Crisis in 1989.
Change of preference from CDMA to GSM . 5

6. How can Motorola regain its leadership
Focus on both profitability and market share
Preserve the Motorola brand
Use Motorola brand only for high-end market
In 2004, Motorola is the leader with 40% of market share
Don’t “tarnish” the brand for high-end phones
Focus on profitability within Motorola’s traditional area of strength
Leverage R&D assets
RISK: Becoming a niche brand rather than dominating the market
ALTERNATIVE: Differentiate high end models through other means
“Within their value chains, firms have partnered with potential competitors within their industries-suppliers and customers-to create and capture value.”†
Don’t Yield the Bottom of the Market
Acquire local manufacture to exploit low-end market
Use established distribution network
Leverage local (cheap) supply chain
Aligned with their current positioning
RISK: Lack of approval from the government
ALTERNATIVE: Enter a joint-venture with a local firm
†-S. Godfrey, C. Rynbrandt, C. Stunson, C. Sullivan, “Understanding Porter’s Five Forces In the Digital Age”, 2000.

7. Cell phone industry in China TODAY – Porter’s 5 forces
Entrants
High-end - High capital investments required
Low-end – lower investments (buy components in the market) but low margins
Regulatory barriers
Suppliers
High-end: a) Vertical integration for some components and b) dependency on suppliers for others (e.g.: high-density flash memory)
Commoditized market for low-end components
Customers
Carriers/retailers (main customers): strong bargaining power
Final consumers:
High price sensitivity
Local trend followers
Low brand loyalty
Rivalry
20+ competitors
International AND local competition
High-end AND low-end competition
Substitutes
Landline - difficult to get
UTSTARCOM – low-end market
VOIP – difficult to get
Not have one
Low force
Medium
High force

8. Cell phone industry TODAY
2004: 14.5%
2004: 16.9%
Number of mobile phone users
China 2004 (case): 336 million
China June 2007: million
Worldwide Jan 07: billion
Worldwide Sales (units)
2004 (case): 674 million
2007 Q1: million
Worldwide Market share Q1 2007
2004: 15.4%
2004: 30.7%
Motorola Earnings Announcement Jul 07
Nokia: 21.1%

9. Comments from last class
“Motorola didn’t have a premium brand”
According to Exhibit 11 in the case, in 2004 Motorola was the absolute leader in the high-end segment.
“International OEMs can’t compete in the low-end market”
Nokia AND Motorola have gained significant market share from the local competitors from 2004 to 2007
“The only customers of manufactures are the carriers”
Although this is the case in most countries, in China retailers are also major players in selling handsets.
According to CCID, in 2003 the carriers were responsible for only 18.4% of handsets sold.
Still, the retailers also have a strong bargaining power over the manufacturers.