Cellphones in Emerging Markets

Knowledge@Wharton writes:

According to Ron Garriques, executive vice president of Motorola’s personal communications sector, markets in the developing world — especially China and India — are emerging as the battleground for mobile-device makers.

Today, Illinois-based Motorola leads in North America and is investing heavily in China, said Garriques during a talk at the recent 2005 Wharton Technology Conference. Motorola’s archrival, Finland’s Nokia Group, the world’s biggest cell phone maker, trounces everyone in Europe and has a hefty head start in the developing world. “The high-growth markets are India, Pakistan, the Middle East, Africa, Turkey and all of South Asia,” he said. “These markets are dominated by Nokia, with over 60% market share. Nobody else has more than 10%.”

Cell phones and other mobile devices such as Blackberries represent more than just additional gizmos that western firms can peddle to consumers elsewhere. They are also a way for developing countries to accelerate their growth by skipping over the lengthy, costly process of installing landlines and computer networks to support them. In many places, consumers can jump directly to wireless services without ever having used landlines.

Affordability is especially important in China, which is flooded with phones. “There are about 200 manufacturers of cell phones in China that are state-owned enterprises,” Garriques noted. “They believed that the market was a commodity business and created about 18 million cell phones that nobody ever bought. They are all being offered now for $5 a piece. [These companies] called the market wrong. The technology curve changed — from grayscale to full color, from candy-bar to clamshell — and all those phones are just sitting there.”

Affordability is less important in India, where consumers like more expensive clamshell phones, Garriques said. Motorola’s market research has indicated that Indians don’t want to be stigmatized as buyers of only the candy-bar phone. “People think about the Indian market as a lower tier. About 30% of the U.S. market is high end, and maybe it’s only 5% in India. But India has 1.1 billion people” compared with 290 million in the U.S. In gross numbers, that means India’s premium market is about half the size of the United States.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.