WSJ writes about how China’s buggest PC and cellphone makers are facing limits on their growth:
During the past two weeks, Legend Group Ltd., China’s largest maker of personal computers, and Ningbo Bird Co., the largest China-based maker of cellphones, both reported missing their growth targets for the final three months of 2003. Both companies are leaders in industries that many predicted would see the rise of homegrown Chinese manufacturers. By taking advantage of low labor costs, government support and direct access to Chinese consumers, these companies have been expected to dominate the domestic market and potentially use that as a springboard to international success.
Until a few months ago, evidence seemed to indicate that was happening. Domestic cellphone manufacturers, for example, rose from nowhere in 2000 to take nearly 40% of the Chinese market, the world’s largest, last year. At the same time, international brands saw their grip on the country slip. Motorola Inc. held 30% of the market during 2001, but saw its share drop to less than 20% last year.
But a variety of factors are taking the luster off these new Chinese players. The heady growth in China’s domestic market has begun to level off and domestic manufacturers still lag behind international players in cellphone technology. In addition, both Legend and Ningbo Bird are struggling to adapt to structural changes in the rapidly evolving Chinese market.
For the past five years, the markets for both PCs and cellphones in China were driven by ultra-fast growth from buyers who were embracing such products for the first time. But now, demand growth for both is slowing, though analysts in both industries say it will likely still outpace world demand for another year or two. As recently as 2001, PC sales growth in China was roughly 25%, according to market-research firm International Data Corp. But that slowed to about 17% last year. Replacement buyers represent a growing portion of both markets.
Meanwhile, overseas manufacturers are proving their competitive mettle in the country. In PCs, Dell Inc. of the U.S. nearly doubled its market share to 7% during the past two years while Legend’s share held steady at 27%, according to IDC.
