China Emerges as a Leading Design Center for Cellular Phones

Strategic Insights -

China, the world's largest cellular phone market, has become a hub for design and innovation in the industry, with major international vendors and domestic players investing heavily in research and development (R&D) efforts. Led by companies such as Nokia, Siemens, and TechFaith, the country is seeing a significant shift in the design landscape, with an increasing focus on innovation, creativity, and meeting the unique demands of the Chinese consumer market.

Key Takeaways:

  • **R&D Investment:** Major international vendors such as Nokia, Siemens, and Motorola have increased their R&D efforts in China, with a focus on innovation and meeting the demands of the Chinese market.
  • **Design Capabilities:** Chinese handset vendors are beefing up their design capabilities, with some companies like TechFaith Holding Ltd. already securing deals with vendors to design 62 different handsets this year.
  • **Engineering Talent:** Companies are poaching good engineering talent from one another, with an average engineer in Beijing earning less than $800 a month, compared to an experienced chip design engineer in Austin who could earn $6,600 a month.
  • **Innovation:** The Chinese-designed phones are not just for the domestic market, as they meet the unique demands of the Chinese consumer market, with features such as digital cameras, 1-megapixel resolution, and polyphonic ring tones becoming standard.
  • **Exterior Design:** Companies are focusing on exterior design, with fashion-conscious women driving the demand for stylish handsets, including teardrop-shaped phones, handsets with gold accents, and tiny phones with mirrored surfaces.
  • **Independent Design Houses:** Companies like Cellon Inc. and TechFaith Holding Ltd. are emerging as independent design houses, active in China and generating significant revenue from the country.
  • **Strategic Partnerships:** Chinese handset vendors are forming partnerships with foreign vendors, such as Sagem SA, to acquire design capability and expand their market share.
  • **Joint Ventures:** Companies like Alcatel and TCL have formed joint ventures to transfer R&D capabilities to China, with Alcatel shuttering production facilities in France and shifting production to China.

Statistics:

  • **Market Share:** Nokia has overtaken Motorola as the top seller of cell phones in China, with its Beijing design center accounting for more than 40% of the company's total shipped volume worldwide.
  • **Text Message Volume:** China is expected to send approximately 550 billion text messages in 2004.
  • **Handset Variety:** Major retail outlets in China may carry as many as 800 different handset models from about two dozen different brands.
  • **Engineering Staff:** Siemens intends to increase its engineering staff from 180 to 400 by the end of the year and to 1,600 by the end of 2005.
  • **Revenue Generation:** Cellon generates about half of its global revenue from China.

Sources:

  • "Byline: Kaiser Kuo, SPECIAL TO THE AMERICAN-STATESMAN BEIJING --"
  • "China, which is now the world's largest cellular phone market and has been one of the largest sources of phone manufacturing, is fast emerging as a leading design center as well."