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China’s Mobile Market Potential Several years ago, the idea of entering the Chinese market seemed too risky for some. But the time is rapidly approaching when it will be irrational not to enter this enormous market, and those who hesitate will be seen as the real risk takers. With the serious potential revenue that can only be generated in a country with roughly1.3 billion consumers, and an economy that enjoys an 8% annual growth rate (2002), China offers a growing number of compelling reasons why outside companies should seek entrance. For wireless developers, China is currently the marketplace to see and be seen. The enormous numbers, key user habits, encouraging business models and potential for profit create a sound case for having a strategic presence in this market.
It was well publicized when China surpassed the US as the world’s largest wireless market, but the news came as no surprise to those on the inside who have been working to shape and form this rapidly evolving environment. The ever-growing statistics continue to demand attention and repeatedly confirm what many already know to be true: Wireless in China is big business, and it will only get larger. There are currently more than 220 million subscribers, and, on average, operators are adding more than 4 million new subscribers every month. During Chinese New Year celebrations (2003), China Unicom and China Mobile users combined to send a total of 7 billion SMS messages. Compared with other key markets, China has maintained steady growth, and the potential for further advances remains unflagging. Still relatively low at 15%, the market penetration rate indicates that an enormous portion of the market potential has yet to be realized and is still waiting to be capitalized upon. The market potential in China is beyond question. One common marketing challenge, however, is defining the number of markets that exist within China and then addressing the issue of how to penetrate them most effectively. Anyone unfamiliar with the wireless landscape might be lulled into thinking, mistakenly, that all users are the same, and the market is unified. At the corporate level, there are two primary operators, China Mobile and China Unicom. However, some provinces are larger than most European countries, and within these provinces, cultures can vary drastically. By some estimates, there might be as many as 31 Chinese markets. What is wildly popular in Beijing might be thought too simple or old-fashioned for a Shanghai audience. A wireless dating service may be acceptable in Guangdong but lie beyond the interpretation of legal boundaries in a more traditional market like Fuzhou. China Mobile and China Unicom delegate significant independent decision-making authority and autonomy to the provincial operators. In doing so, both have acknowledged the nation’s cultural, political and socioeconomic diversity. Different regions have different standards, platforms, market segments, and hence require individual relationships. And while not all markets are of equal financial or strategic importance, it is key to realize these divisions can act as barriers to a comprehensive market presence. Top-level connections with China Mobile or China Unicom are vital to establishing a long-term position, but for actual revenue and income, provincial operators are paramount, rendering the need for complex and resource-consuming relationships at both levels. Just as there are distinctions among the provincial operators, so too do differences exist among the individual users and their habits. Due to the sheer size of the customer base, it is impractical to expect a high degree of uniformity of user patterns and characteristics. While the wireless divisions of large Internet portals that frequently report revenue of more than $5 million each quarter continue to dominate the current SMS market, the shift to new technologies is unmistakable. There are numerous trends that point to an increasing demand for services beyond SMS, such as the number of early adopters and the rapid uptake of new technologies within a few important demographic user groups. With the introduction of GPRS coverage to key markets, the entire wireless value chain has seen an increase in activity. From the independent vendors who sell the latest Java phones, all the way to the operators who are migrating their customer base to a new technology, revenue is steadily increasing. In less than a year, demand for services has driven up the numbers of revenue-making GPRS applications from nothing to 280. Much of what is happening in China today is reminiscent of the early wireless boom in Japan. Like early Japanese growth, games, ring tones and icons account for 53% of China’s GPRS services. User lifestyles also demonstrate many parallels, including a long daily commute and low home PC/Internet penetration rate. China’s operators are doing their part to help create a similar environment: The chosen business model has mimicked Japan’s, with China Mobile and Unicom charging content and application providers approximately 15% of each exchange. This policy is spurring developers to produce compelling content, in turn creating more ARPUs, hence facilitating more migration. For most wireless companies, the answer to whether or not to enter the Chinese market is probably obvious. The factors are in place, the technology is being used, and money is being made. With the issue of necessary presence established, the question then changes to market entry strategy. How does an outside company move into the heart of a vibrant and growing market? When and how to enter Often, when people think of China, they define the country and the people in terms of barriers. The most famous landmark, the Great Wall, was built for the sole purpose of keeping outsiders in their place, outside. People from countries with Latin-based languages often find the written and spoken forms of Chinese incomprehensible. For those not from China, the country and its markets can be a real mystery. However, lessons can be learned from earlier attempts at entering. Looking to history, and returning to the Great Wall metaphor, small and independent raiders who managed to scale or climb over the barrier by brute force were often disappointed to find that they were unable to carry their loot back over the wall again when it was time to leave. This example of a haphazard market entry strategy illustrates that forced entry into the market may be possible, but it can make for problems later on when dealing with the necessary government regulations. On the other hand, large-scale armies were unable to climb the wall clandestinely, but a few of them were successful anyway. Of course, no large army ever conquered the Great Wall through direct battle or by laying siege, but often such tactics were not required. Conquering armies generally convinced the guards at the gate to permit free travel by developing a mutually beneficial partnership, an early example of a successful market entry strategy. This lesson is important for organizations today that are trying to get around China’s physical and cultural barricades. When speaking of entering and existing within the Chinese market, few outside companies can claim to have an actual, revenue-earning presence, much less a first-movers advantage. Not many companies have survived from the very beginning, but those who have learned some very important lessons and can enhance a later market-entry strategy through key partnerships. First movers achieve immediate market presence, secure the operator relationship, and capitalize on the initial opportunity to gather user loyalty; those entering the market later benefit from a smoother road. By the second round, problematic technology is no longer a difficulty. Product launches become routine. Gone are the unexpected interruptions to service, missing data, and quirks within the system. Marketing becomes easier as the end users are better educated, and past marketing campaigns can be analyzed and improved. With billing platforms in place, the revenue streams flow without undue loss. Experience diminishes the multiple crises and establishes a profitable pattern. The easiest way to take advantage of a strategically timed market entrance is to separate the content production from the distribution. Inserting a product into an already mature value chain maximizes the market benefits while minimizing the resource expenditures needed to develop the process. If you can find a company with keys to the gate, you can confidently send your product into the market without trying to climb or knock over the ever-present wall. The differences between the corporate-level operators and the provincial operators demonstrates the inherent value of this strategy. In the absence of a mature operator/distributor relationship, companies are faced with the daunting task of not only establishing rapport on the corporate level but creating synergies with the individual provincial operators as well. Big strategy meetings, policy conferences, and other corporate decisions are handed down from the central offices, but content providers ultimately want to get into the hands of the users. Reaching users requires the provincial operators, where marketing and trends are applied, billing takes place, and the real relationships bear fruit. Issues such as these make a proper market presence a far greater investment in resources than most companies are willing to make. Conclusion While many markets have promised great things, China has quietly, and without much fanfare, delivered on those anticipated wireless opportunities. The migration has been relatively smooth, growth plentiful, and revenue consistent. All factors are positive and encouraging for wireless developers looking to jump into the largest market in the world. The technology is here, the users are multiplying, and the time to enter has arrived. What is your company waiting for? About the Author Norbert Chang is the founder of Enorbus Technologies. Before co-founding Enorbus, Norbert worked for UBS Warburg in their worldwide R&D division as a software developer. He played an integral role in the system architecture for Warburg's web based equity research offering. Norbert also led multiple research projects focusing primarily on wireless technology and applications. Norbert has worked as a Systems Analyst for Colonial Consulting Corporation designing and implementing financial systems. Norbert holds a BS in Finance and Information Systems from New York University. He has also studied at Beijing Normal University and Central University for Nationalities in Beijing.
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