Motorola in China

Motorola in China is an interesting case, no matter in the past or present; therefore we are going to analyze Motorola in China in this research. It entered the China market in late 1980s when there were not so many MNCs investing in China due to the uncertainties. When Motorola started losing the leading position of the mobile phone market in the world because of the changing format of mobile phones, it was still the leader in China. However, the leading position of Motorola in China is now diminishing. All these ups-and-downs seem to be interesting and worth paying attention to.

In order to analyze these situations, we should first have a look on the history of Motorola. Motorola was founded by Paul V. Galvin as the Galvin Manufacturing Corporation, in Chicago, Illinois, in 1928. Its first product was a "battery eliminator", allowing consumers to operate radios directly from household current instead of the batteries supplied with early models. The name of the company was changed to Motorola, Inc. , in 1947. In 1959, Motorola was a leader in military, space and commercial communications. It started the mobile phone business in the1970s.

In 1977, an experimental Motorola cellular phone system was designed to employ both portable and vehicular phones. This construction began in the neighboring cities of Washington, D. C. and Baltimore, Maryland, U. S. A. After many years of development, the company's first DynaTAC cellular system began commercial operation in 1983. Motorola had become the premier worldwide supplier of cellular telephones in the late 1980s and it entered the China market in 1987. Motorola opened a representative office in Beijing in 1987, and set up Motorola (China) Electronics Ltd. in Tianjin in 1992.

Motorola now has a wholly-owned company, a holding company, 24 subsidiaries and 9 joint ventures, with more than 12,000 employees in China. By the end of the 2002, the total investment of Motorola in China is US $ 3. 4 billions dollars. However, when the format of the mobile phone changed from analog to digital, Motorola lost its leading position and later was replaced by Nokia. Now the leading position of Motorola is decreasing each year due to the increase in local mobile phone producers in China. Nokia is the main rival in China. Motorola has faced many challenges when it entered China in 1980s.

How did Motorola solve these problems? It is now also facing the problem of losing the market share in China. What should it do to change the situation and what is Motorola going to do in the future? We will discuss these questions in the following sections. ENTRY INTO CHINA 1. Background Motorola has foreseen the potential opportunities in China as far back as in 1984. In that year, the top management of Motorola carefully analyzed the situation in the Asian Pacific. They spotted at the incongruence between the rapid development of China and its preliminary communication infrastructure.

That meant China would be an ideal site for Motorola to develop its business in. Years after, they made a significant strategic decision. That was, to enter the China market. Early in 1986, Motorola started its planning to enter the China market. Then, in 1987, Motorola officially set up its representative office in Beijing. Its objective for China investment at that time was to set up a world-class enterprise and make it competitive in the global market. Motorola has been the market leader of the Chinese mobile phone industry since its entry into China. In fact, it has faced a series of challenges.

The company overcame them one by one with its internal strengths and appropriate strategies. 2. Narrow Customer Base Firstly, when Motorola entered the China market, the majority of the Chinese could not afford any communication products and the customer base was rather narrow. However, since Motorola was brave enough to take the initiative, it enjoyed the first mover advantage. At first, Motorola specialized in producing its pager product called ? §B. B. Call??. Since it was the first foreign firm to enter China, which was an area where competition in the communication was close to zero, it quickly conquered a certain portion of the market.

Afterwards, Motorola continuously expanded its market share. Its ? §B. B. Call?? became almost the monopoly at that time. More than 80% of the pager users were Motorola? ¦s customers. At that time most pager users were from the high-income class. When the communication market shifted towards the use of mobile phones, these rich people took Motorola as their first preference. Therefore, Motorola became a highly-trusted brand of mobile phones among the Chinese. In more technical terms, Motorola has earned customer loyalty in China. Later, when the income of common Chinese increased, Motorola?

¦s customer base gradually expanded and it continued to lead the market. 3. Political Environment Conquering China markets is costly. In fact, doing business in China has never been an easy task for foreign firms. The Risks Political risks and government restrictions are all hindrance for their development. China's inflation is soaring and the tax rules keep changing. Price control, currency restrictions, together with the lack of a functioning legal system made many MNCs threatened to leave. The authorities sometimes even shut down Motorola's manufacturing operations by delaying permission for additional production.

Solution: Commitment Shown However, Motorola turned these threats into opportunities and built up its path towards success. A critical part of Motorola's strategy is to show Beijing its commitment to the Chinese economy. (i) Tian An Men Incident In 1989, the Tian An Men Incident broke out in China. Most foreign firms were worried that there would be more violent incidents in the coming years and avoided investing in China. However, Motorola showed strong confidence and invested US$100 million to build a ? §B. B. Call?? factory in Tianjin.

While all foreign firms kept themselves away from China, the construction of the Tianjin factory was definitely a big encouragement to China. That was a successful beginning for the cooperation between Motorola and the Chinese government, and enhanced Motorola? ¦s further development in China. (ii) Contribution To Local Industries Motorola continued its heavy investment in China. It transferred its technology and techniques in relation to the local Chinese partners' needs, technological base, financial affordability, skill levels of engineers and workers appropriately.

It has also donated $100 millions to help local suppliers upgrading technology and equipment. Motorola even cooperated with the local competitors that are eating away at its top position in handsets. For example, it has agreed to sell chips for cell phones to TCL and Eastcom. In fact, like in most developing countries, Chinese Government is in favor of an international corporation whose investment is in the direction of national industry development. And Motorola did reinvest its profits earned in China back into Chinese industries.

Motorola offered financial support to both local elementary school systems and several local universities with special scholarships named as: "Motorola Scholarships". By all these efforts, Motorola is in a favorable position with the related government agency and building cooperative relationships with both local and central governments. 4. Competition From Other MNCs Motorola also faced challenges from its competitors. In early 1990, for example, a Japanese firm entered the China market and produced pagers, trying to use a low-price strategy to conquer the market.

Motorola did not compete with a pricing strategy. Instead, it overcame these challenges by adopting strategies with certain level of local responsiveness. Solution: Local Responsiveness Motorola tried to adapt to the China market by the production of pagers with Chinese display. Such a strategy helped Motorola attain the leading position in the communication market. In fact, Motorola has faced a big crisis when the mobile phone format shifted into GSM in 1995. At that time, Motorola reacted a bit slowly on the change and was a bit late in producing the GSM mobiles.

That little delay already cost Motorola a lot because it has lagged behind its competitors and lost part of its market share. At that difficult situation Motorola stuck to its locally responsive strategy and released new models of portable phones with Chinese display. The strategy was effective and Motorola succeeded in fighting back for its market. 5. Cost Advantage From Local Sourcing Motorola enjoyed great cost advantages because it used materials sourced directly from its suppliers in China. Its manufacturing presence in China also provided strategic flexibility.

Local sourcing could lessen the impact pf expected economic growth and greater pricing pressures. 6. Human Resources Development Motorola believed that high-quality talents are the key to success. Therefore, it put much emphasis on the training of employees and tried to exploit their creativity to the greatest extent.. (i) Motorola University (MU) In 1993, Motorola invested millions of US dollars and opened the development centre named as the Motorola University. It further opened another development centre in Tianjin in 1996. (ii) Local Personnel Training

The goal, pursued by Motorola, is to get employees at all levels to forget narrow job titles and work together in teams to identify and act on problems that hinder quality and productivity. Motorola also provided oversea training internships to its middle-layer management staff. Up to now, over 70% of its middle-layer management posts are performed by Chinese workers. It is also an evidence of localization. (iii) Six Sigma Besides some Leadership Development Program (LDP) in order to help employees develop quickly, the ? §Six Sigma Training, Consulting and Certification program?? is the essence of Motorola University.

Motorola, the company that holds the Six Sigma trademark, says the data-driven defect-reduction process has saved the company more than $16 billion over the past 15 years. In concrete terms, Six Sigma translates into a target of no more than 3. 4 defects per million products. Motorola employees record the defects found in every function of the business, and statistical technologies are made a part of each and every employee? ¦s job. Six Sigma is run by a Green Belt/Black Belt/Master Black Belt designation. Master black belts spend nearly all of their time consulting, mentoring, and training Green Belts and Black Belts.

Black belts are the project leaders who skilled in the use of statistical methods and interpersonal communication, and dedicated to using Six Sigma methods to ensure customer satisfaction. Green belts, requiring less training, are the team leaders capable of forming and facilitating six sigma teams and managing six sigma projects from concept to completion. Six Sigma is widely adopted by many leading global organizations nowadays to drive customer satisfaction. 7. Quality Leader Today, Motorola is known worldwide as a quality leader.

And the Motorola management demonstrates its quality leadership in a variety of ways, including top-level meetings to review quality programs with results passed on through the organization. Motorola knows what levels of quality its products must achieve to top its competitors. There are benchmarking programs that analyze all aspects of a competitor? ¦s products to assess their manufacturability, reliability, manufacturing cost, and performance. Motorola has measured the products of some 125 companies against its own standards, verifying that many Motorola products rank as best in their class.

PRESENT CHALLENGES We have shown you that what threats and problems that Motorola was facing when it entered the China market. Motorola was so successful that it can make use of its strengths to build up and defense its leading position. However, the environment is changing so rapidly and the leading position of Motorola is shrinking. Now we come to the challenges that Motorola is facing. 1. Loss Of Top Talent The head of Motorola? ¦s China operations, Timothy Chen and the CEO, Christopher Galvin have resigned recently.

Both these Motorola executives have long realized the importance of cultivating good ties with Chinese officials. Former CEO, Galvin, himself traveled frequently to China, meeting everyone from top government officials in Beijing to the executives at vendors in southern Guangdong province. And Chen had been a high-profile spokesman for Motorola in China. Communist cadres view the company with far less suspicion than they do other U. S. outfits by their effort. It is really a big loss for their resignation. 2. More Homegrown Competition A few years ago, Motorola didn't much need to concern itself about competition in China.

Most other European and Asian rivals were far behind Motorola, and local China brands such as TCL offered little more than cheap assembly of phones based on modules sold to them by companies such as France's Wavecom. Not much value-added there. Motorola's lead in the handset market is now shrinking, however. Statistics on market share in China are still notoriously unreliable, but most experts agree that Motorola, while still No. 1, is slipping. And it's the locals such as TCL and Ningbo Bird making inroad, with stylish phones that are more in tune with the tastes of fashion-conscious Chinese consumers.

According to the Chinese government, it plans to move its domestic handset makers from 25 percent to 85 percent of the local market in three years. Even more worrisome for Motorola, the locals are no longer just slapping together phones based on parts they have purchased from abroad. Instead, they are ramping up their inhouse research and development, doing the hard work themselves. TCL, for instance, has sharply cut its purchases from Wavecom, and has more than doubled its headcount of R&D engineers, to almost 500. As the Chinese reduce their reliance on foreign help, they will be even more competitive against Motorola.

Chinese handset makers are rolling out competent products with very competitive manufacturing costs. And as China is the largest market of Motorola outside of North America , the potential threat surely should not be underestimated. 3. Slower Growth As competition grows on the mainland, China is no longer the dynamic market it once was. The growth is slowing, to around 10% a year, from much higher double-digit growth that marketed the last five years. 4. Shift Of Demand Another challenge for Motorola is the location of that demand. Until now,

companies could focus their attention on the country's three big and prosperous metropolitan areas -- Beijing in the north, the Shanghai metropolis in the east, and the Pearl River Delta in the south. Now companies need to be looking more to smaller cities and the countryside for growth. That's where local rivals like TCL have a big advantage, since they have the distribution network in these areas. OPPORTUNITIES AND RECOMMENDATIONS Despite all these threats, China still offers great opportunities for Motorola. And the opportunities are worth the risk. High costs today will add up to advantage tomorrow.

China is simply the fastest-growing telecommunications market in the world, adding nearly 1 million cellular-phone users each month. Total subscribers should hit 22 million by the end of this year, making it the world's thirdlargest cellphone market after the United States and Japan. By such opportunities, Motorola should surely remain committed to the business in China, but it have to increase its competitiveness in China market by making a handful of improvement. Below is our suggestion. Promotion The weakness of Motorola is mainly due to its marketing strategies. Motorola should, first of all, pay more attention to its promotion methods.

Without effective promotion skills, Motorola cannot transmit its new message and new image of the products to the customers. Image and brand recognition, not technology or manufacturing quality, will be the decisive factor in mobile-phone sales in China in the future. Customers cannot be attracted to this brand if the advertisements are not impressive enough. Motorola should follow what its competitors have done regarding to the promotion techniques. For example, Nokia and Ericsson prefer to advertise by famous pop stars. Their advertisements have been proved to be very successful.

This can immediately draw the attention of the market and lead to a continuous profit growth from the support of the customers. Product Design Although Motorola spends a lot on research and development, the local responsiveness shown is not enough to satisfy today? ¦s China market. Motorola should be more aware of the appearance improvement of its mobile phones other than the quality factor. It has to be very clear about what the Chinese customers require and demand for the mobile phones. It is necessary for Motorola to modify its products so that they can well suit the market.

The models of Motorola have long been criticized as technology winners with unsatisfactory design, especially when compared with the offerings of local rivals. In order to fight back, innovations on product design are required for success. As a leader in the China market, the products of mobile phones launched should be trendier to match the needs of the customers. Scope Of Market The developments of Motorola are mainly limited to big cities like Beijing and Shanghai. As these major cities in China progressively become saturated, Motorola should expand their markets to other developing cities to maintain its profit growth.

These developing cities have a growing potential and there is still a great demand for mobile phones there. Therefore, in order to sustain its leader position in China, Motorola needs to consider other new markets for developments. Besides, due to the increasing competitors, Motorola should consider the plans of acquiring other small local firms in China. This can help to gain distribution channels, eliminate some of the competitors and increase its market share. CONCLUSION Motorola is a good example to show us how a MNC operate in a foreign market.

The management has shown their vision to invest in China during the 1980s, while other firms were not willing to take the risk. Motorola had excellent strategies to cope with the challenges so that it was able to become the leader of the handset in the market of China. Moreover, in adapting to the changes of the environment, Motorola illustrates how a MNC should do with the challenges. In this report, we are able to see how a MNC develop in a new market, and more important is that we can see how a MNC change the strategies for different conditions. We cannot tell whether Motorola will be able to defend its leading position.

However, we are sure that the firm will need to continuously adjust its strategies for the challenges in the future. REFERENCES Kotler, P. , ANG, S. H. , Leong, S. M. & Tan, C. T. (2003), Marketing Management: An Asian Perspective, Third Edition Prentice-Hall, Singapore. Motorola China, Retrieved: 11 December 2005, from http://www. motorola. com. cn/en/about/inchina/china. asp Investment in China, Retrieved: 6 June 2005, from http://www. chinabiz. org. tw/InvCina/200109-091/91-82. htm Motorola Selected as Role Model in China, Retrieved: 12 January 2001, from http://english. people. com. cn/english/200101/12/eng20010112_60330. html