Motorola In China

CONTENT

Introduction P. 3

Entry Into China P. 5

„« Background

„« Problems Faced

„« Strengths & Strategies

Present Challenges P. 13

Opportunities & Recommendations P. 16

Conclusion P. 19

References P. 20

INTRODUCTION:

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 ÐŽ§B. B. CallЎЁ. 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 ÐŽ§B. B. CallЎЁ became almost the monopoly at that time. More than 80% of the pager users were MotorolaÐŽ¦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, MotorolaÐŽ¦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