Home Asia-Pacific I 2001 The Evolving Chinese Telecommunications Market

The Evolving Chinese Telecommunications Market

by david.nunes
Jay KitchenIssue:Asia-Pacific I 2001
Article no.:5
Topic:The Evolving Chinese Telecommunications Market
Author:Jay Kitchen
Title:President and CEO
Organisation:Personal Communications Industry Association, USA
PDF size:20KB

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Article abstract

The Yangtze (also called Chang Jiang) River, stretching 6300 kilometres from the Kunlun Mountains to the East China Sea, is the transportation, economic and cultural backbone of southern China. Its rush to the sea cuts breathtakingly steep gorges in the Chinese landscape, creating currents that are impossible to navigate without the help of local river guides.

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The Chinese telecom market bears much resemblance to China’s most important river – its vastness is stunning, its promise is immense, but it is also fraught with perils. If one takes an imprudent manner to entering it and doesn’t engage the help of the locals, there is a high probability of being smashed against the rocks. There is no one-size-fits-all strategy for wireless companies competing in Asian markets. The Chinese market is distinct-culturally, politically, geographically, and technologically – from Japan, Korea, Thailand, and the rest of Asia. it is by far the most difficult major Asian market to enter, but the sheer size of its consumer-base – 1.3 billion people -and its expanding consumer culture make it the world’s largest and potentially most profitable market. And its appetite for wireless is growing: Zhang Jiping, Vice-President of China Telecom, addressing the US-China Telecommunications Regulatory and Policy Forum in Beijing, projects continued high growth in wireless, with both mobile subscribership and Internet users surpassing 300 million by 2010. There are four major hurdles to doing business in China of which every company considering entering this market should be aware: the regulatory character of the Chinese government; the unique influence of Chinese culture on the way business is conducted and the wants and needs of Chinese consumers; the rural nature of much of the country; and the sheer expense of doing business in a market in which the infrastructure and technological capabilities are not always developed. The Chinese Government. After years of being operated and regulated by the Ministry of Posts and Telecommunications, the Chinese telecommunications industry is re-sponding to government measures designed to foster a more competitive and efficient environment. In 1998, the government formed the Ministry of Information Industry to act as the main regulatory agency for the Chinese telecom industry and spun off various telecom companies in an effort to divorce the businesses from the ministries that previously provided regulatory oversight. As liberalising as these steps are, it is doubtful the Chinese government is headed toward a true, Western-style privatisation of the telecommunications market anytime soon. Strict ownership rules still apply for foreign companies seeking to do business in China, ensuring that majority ownership of any Chinese telecommu-nications company remains in Chinese hands. However, the government makes exceptions when it recognises that its industrial base cannot meet China’s needs: infrastructure manufacturers are exempt from tight government control of foreign involvement, as the domestic industry is nowhere near capable of meeting the enormous infrastructure needs of the nation. This development attests to China’s realistic assessment of the limitations of its industrial base and the resulting flexibility in government policy. Though China’s regulations are more onerous than most nations, some of the most successful wireless markets in the world operate under heavy government oversight. Therefore, foreign companies rely on a variety of approaches to doing business with the Chinese government. For example, non-governmental organisations, such as PCIA, play a vital role by building relationships with government officials, fostering trust and understanding of outside concerns. In addition, many foreign-owned businesses find it beneficial to partner with a local company, as it eases the navigation of regulatory intricacies. The current stance of the Chinese government raises an interesting long-term question: How will China fit in with the rest of the world? The answer is unclear. China is venturing further into the interdependent global economy -for example, the Chinese delegation at PCIA’s recent GlobalXChange mobile convergence trade show jumped 40% from last year – and is recognising the need to integrate its telecommunications industry with world-wide standards. However, some important areas in which the Chinese government has not yet formed consistent policy, such as privacy and a realisation that communication is a world-wide phenomenon in which China will play a significant role, warrant close attention. Chinese Culture Any company seeking entry to a foreign market must consider that country’s unique cultural features when developing products and market entry plans. Because it has been politically and economically closed for so long, China’s cultural characteristics become even more complex. Assumptions that Chinese consumers will respond similarly to Westerners are faulty. It is projected, for instance, that unlike consumers in most Western nations, the introduction to the World Wide Web for most Chinese will not be through a desktop PC with big screens and a multitude of colours. Rather, it will be through wireless devices such as mobile phones and two-way messaging. PDAs and other devices that seek to put the power of a PC in your hand may not find a natural market among Chinese consumers. Also, China is a “cash” society, unlike other nations where purchasing on credit is long established. This presents an additional barrier that e-commerce and m-commerce must overcome. The mystery of the Chinese consumer is one of the largest variables for foreign companies eyeing the Chinese market. Very little reliable information on consumer attitudes, beliefs and tendencies exists, and the opening of the Chinese market presents a huge need for that knowledge. PCIA, through the recently launched the ‘PCIA Global Initiative’ and in conjunction with Yankelovich, is developing the first global consumer study and analysis. One aspect of Chinese culture that plays to the benefit of foreign companies seeking entry into the Chinese market is the dishonour associated with, and government intolerance of, corruption. Last September, the former Vice Chairman of the Chinese parliament was executed for accepting bribes, a punishment many China experts thought sent a signal that corruption will not be tolerated by the central government. Rural Population In Beijing, Shanghai, and other major cities, streets are plastered with billboards for handsets and it seems everyone is talking on a mobile phone. As soon as one leaves the city limits, however, wireless products are nowhere to be found – this truly is an industry based in the big cities. And while Chinese mega-cities offer huge markets of consumers, companies entranced by the 1.3 billion total population figure should keep in mind that the vast majority of the Chinese population – 800 million people-live in relatively isolated rural areas. Huge areas of the Chinese countryside have yet to see even basic electrical appliances, much less a handheld wireless device. Contrary to the images in television commercials, it is not realistic to expect these remote corners of the world to ascend to wireless devices without going through the intermediary steps of basic technological advancement. Additionally, the telecommunications infrastructure necessary to connect all of China’s people must be built in a terrain of mountains, gorges, deserts, and other inhospitable environments, and it is still many years off. Expense A decade ago, following the collapse of the Soviet Union, Western companies rushed headlong into a market they didn’t understand, and the vast majority regretted it. The same irrational exuberance toward the Chinese market, as it starts to open to foreign investment and competition, threatens to produce the same disheartening results. China is not a “get-rich-quick” market place – it can be the monetary equivalent of quicksand for foreign companies. Shanghai is crowded with half-completed office towers, as foreign companies, after being frustrated by limited technological capabilities, a myriad of government regulations, and other impediments, eventually gave up and returned home. To succeed in this market, a company must be willing to commit to a long-term investment strategy and be realistic about the costs involved. In light of these obstacles, how can foreign companies succeed in the Chinese market? They must not be so awed by the massive consumer-base that they do not take into consideration all the many uniquely Chinese factors that can impact long-term market success. But it is not necessary to go into this process blind intermediaries such as PCIA are ramping up to meet these educational needs. Conclusion Companies seeking entry into the Chinese telecommunications market should not be deluded about what awaits them. The biggest market on Earth contains many obstacles to success, but with 1.3 billion consumers, it cannot be ignored. Companies that find success in the Chinese market will realise an enormous return on their investment. The indicators look very promising -a new government acceptance of foreign companies, an increasingly informed and technology hungry consumer culture, an official realisation of the need to improve infrastructure – but there is still a long way to go before the Chinese telecommunications market can live up to its potential.

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