The Late Bird Gets the Worm - Latecomer Strategies: Leveraging and Learning by China's Handset Makers

In four short years, Chinese phone handset makers went from having less than 6% of the domestic market to overtaking their foreign competitors. Steven White, Assistant Professor of Asian Business and Comparative Management at INSEAD, and Wei Xie of Beijing's Tsinghua University consider the phenomenal rise of Chinese handset makers in the context of recent academic literature concerning how latecomers in certain industries may be gifted a number of key advantages. But how do latecomers acquire the resources and capabilities to enter and eventually compete head on with incumbent multinationals?

by Steven White, Wei Xie
Last Updated: 23 Jul 2013

The remarkable ability of Chinese manufacturers to acquire competitively valuable resources and capabilities forces foreign MNCs to continually adjust and readjust their grand strategies for operating in the country. The mobile phone handset industry in China is a prime example. From a collective market share of only 5.9% in 1999, Chinese phone handset makers overtook the local market that had been completely dominant foreign companies by 2003.

Steven White, Assistant Professor of Asian Business and Comparative Management at INSEAD, and Prof. Wei Xie of Beijing's Tsinghua University consider the phenomenal rise of Chinese handset makers within the broader question of how latecomers in certain industries may develop a number of key advantages.

Motivated and well-organised firms in many developing nations can often liberally exploit cheap and well-trained labour. They also have local market knowledge, cooperative governments and a host of other advantages. While they may have nothing like foreign MNCs R&D strengths or global logistical structures, they also have no need to spend nearly as heavily in these areas.

But an absolute necessity for latecomers in such environments is the ability to learn quickly and thoroughly. As the authors explain through an in-depth analysis of Chinese handset makers, "learning" has typically involved absorbing external knowledge from either foreign-based or adjacent MNCs, upgrading technical capacities, and acquiring whatever resources and capabilities are needed to compete in an arena where strategic or tactical mistakes can often have irrevocably negative consequences.

White and Wei adopt an organisational learning perspective to address some of the questions posed by recent latecomer studies. Namely, how do firms generally acquire the resources and capabilities to enter and eventually compete head on with incumbent multinationals? What contextual factors (i.e., industry, policy, national and international) play a critical role in the process?

The authors expand this debate by considering a broader range of resources and capabilities that may help to explain the success of the latecomers vis-à-vis dominant incumbents. In doing so, they conducted 22 interviews of managers in both Chinese and foreign handset makers, as well as industry analysts.

The triumphs of Chinese latecomers in this field are all the more notable considering the major barriers to new entrants in the mid to late-90s:

· The biggest players in the industry had all established production and sales operations, mainly through JVs. Most of these were well financed and gave every indication of assuring long-term success.

· Foreign firms even had clear cost advantages. Unlike in other types of labour-intensive industries (garments, toy making, etc), firms were themselves reaping the benefits of low local labour costs by producing in China.

· Foreign firms were typically vertically integrated and had reliable, comprehensive and long-term component supplier relationships.

Yet, by the late 1990s, what seemed to be an unassailable position came under threat. The authors detail how factors such as maturing technology, easier sourcing of standardised components, and the Chinese government's control of telecommunications standards (and active promotion of local manufacturers) opened the door for a host of domestic latecomers.

Most of these were leading Chinese firms coming from other consumer products industries with sophisticated quality control and inventory management processes, extensive distribution channels, strong national brand name recognition, and local market knowledge.

White and Wei consider leading domestic producer Ningbo Bird as a telling example of a latecomer implementing a highly effective learning strategy to gain vital resources and capabilities at competitive stages of the Chinese market's development. Entering the market only in 1999, it became the world's eighth biggest handset maker within five years, capturing half of the country's export market.

The study concludes with a comprehensive analysis of the conditions that have and continue to favour new market entrants, and the lessons their experience may have for other firms in China as well as other national contexts.

INSEAD 2005

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today