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Mountain village handsets storm market
Last Updated(Beijing Time):2008-07-19 11:31

By Yu Zhixiang


Mountain village handset, sounds wield? That is a rebellion force of mobile phones sweeping across the Chinese mainland. As the name implies, they are like a band of rebels rushing out of deep "mountain villages" where they lurk, looting the market and disrupting its order. In a plain term, they are mobile phones cloned after brand names and sold at knock-down prices without legitimate authorization and registration. 

For a glimpse, look at the one that provides TV programs, Bluetooth earphones, MP3 and MP4 functions, as well as a 1.3 million pixel camera lens. For all its advanced configuration, it sells at flabbergasting RMB 530 yuan apiece (about US$77).

Despite their illegitimate identities, these industrial rebels have already grown into a presence in the market, a momentum that shows no sign to taper off anytime soon. Then, What is the reason behind an orgy of knock-off handsets? How does such an interest chain come into being? And where will they head for?

Buying on the cheap

Mingtong Digital City, a typical mobile phone wholesaling center in Shenzhen, is home to myriad mountain village phones in all specification and styles, sold at narrowly-spaced booths next to one another.

One TV-enabled handset sells only for RMB 530 yuan (US$77) and another priced at RMB 430 yuan (US$63) has appearance and performance akin to Nokia's N73 type. Some feature newfound functions - such as examining the authenticity of a banknote - while others are marked by their eccentric looking - like a Benz or BMW model, for instance.

Clients come to buy in bulk. Heated bargaining, plus tested ring tones rising and falling here and there, has turned the market place into a hubbub of noise, signaling a brisk business.

The survival law for these knock-offs lies in their hyper-low prices. For example, while a world name mobile phone is priced at RMB 1500 yuan (US$219), a cloned one, with the exact same appearance (and function), sells only for RMB 325 yuan(US$47). The reasons? "For a mountain village handset, there are not such things as marketing and designing, and you can do without final stage testing and after-sales service, so the prices go sharply down," says one seller there.

"For a world brand, a large part of the phone cost goes to marketing," says Mr. Liu, a former LG employee. "Manufacturing may just make up one fifth of the price tag, while the rest money is mostly burned for TV advertising and hiring local promotional staff. The marketing mode is flawed."

Mountain village handsets fair well in the market these daysas their low price strategy has already translated into big sales. According to a senior fellow at the Ministry of Industry and Information Technology, China produced 549 million mobile phones in 2007, 483 million of which were exported. There was an increase of 80 million subscribers during the same period, which indicates a quite part of market share has been captured by bootlegged (or black) handsets. By some estimates, the market was flooded with about 150 million unregistered phones in last year alone.

Streamlined operation

Mountain village handsets have set up stable sales channels, though most of them are shut out of large chain stores, which are strict with branding and account settlement.

Some mountain villagers (phone makers) favor export business. For offshore shipment, they have to dismantle handsets into pieces and export them as components. In this case, branded phones would only invite more troubles, such as stricter inspection and possible dumpling charges at destination countries.

In Shenzhen, a boomtown in southeastern Guangdong province, thousands of mom-and-pop phone makers form a colossal and complete industrial chain, comprising every link from project designing, to software development, assembling, printing, packaging, logistic distribution as well as sales and after-sales service.

In the city's Huaqiangbei business district concentrate 400 formally registered project designing firms and 3000 sales companies, as well as countless small timers operating on this juggernaut industrial chain. Around the fringe of Shenzhen scatter over 600 handset makers and 3000 manufacturers of mobile phone parts.

Technological breakthrough

The emergence of mountain village phones should give credit to a significant technological breakthrough within the industry.

Mr. Liu, an industrial veteran with a track record for serving LG, a reputed multinational, is among those breaking away from an orthodox path of career and venturing into the mountain village. He now serves as the marketing executive of such a rebel company.  

Until recently, manufacturers in countries like Japan and South Korea have not only controlled the technology of phone chip, the heart of a mobile phone, but also owned the know-how of supporting software, according to Liu. "Even if you have paid a large sum of money for chips, you can not churn out handsets without software. So at the beginning, only those financially powerful home companies have access to this sector," says Liu.

But the huddle was cleared not long ago when a Taiwan company devised a new type of phone chips, which have preset interfaces with other hardware that can be plugged in for direct use. Though Chinese firms still rely exclusively on imported chips today, the technological progress has greatly lowered down the threshold for assembling a mobile phone, spurring unchecked sprawl of the bootlegged business throughout the mainland. Nowadays, an investor can easily ride on the nation's telecom boom by ploughing a few million yuan into the "mountain village".

Returning to the fold

In addition to the lifting of technological barriers, a landmark step for the mobile phone sector came in Oct., 2007, when the State Council announced the abolishment of approval procedures for manufacturing projects of state-specified mobile information facilities and terminals. That means the phase-out of the licensing system that has fettered phone makers for years.

"There used to be strict requirements for acquiring a mobile phone license - such as a minimum capital of RMB 200 million yuan, R&D capacity, related environment permit, as well as operation for at least two years in a row. It is nothing short of monopoly," says a business insider.

For a long time, manufacturing licenses were exclusive to large-sized state companies, while small firms that were equally capable of producing mobile phones could only run without legitimate identities and thus could not but make black handsets. To improve their status, some competitive knock-off phone producers sought to team up with one another in a bid to secure a license.

However, new problems surface as knock-off products gain momentum. Quite a lot "mountain villagers" dodge network testing, evade taxes and provide substandard products. Others are bent on copying best-selling brands, turning a blind eye to rules regarding intellectual property right.

On the other hand, the pell-mell growth of mountain village phones has actually cornered formal players, those law-abiding enterprises, into a survival crisis - many domestic brands are now struggling with shrinking sales and swelling losses.

Amnesty or clampdown ?

In face of  vitriolic criticism, mountain villagers also have something to say. "We become the scapegoat for all the missteps by home brands," says an unconventional phone maker. "The market has been dominated by foreign brands, due large part to the unimpressive quality and prices of domestic handsets. Even without our involvement, they could hardly survive a price war launched by their foreign peers."

Kan Kali, a telecom pundit and professor at Beijing University of Post and Telecommunication, categorizes mountain village handsets into three groups. In the first group are bootlegged mobile phones, which should be clamped down on by the authorities. The second group is those run by copycats, phone makers that clone their products after popular brands. Since they trample the intellectual property right of other manufacturers, they should be "kicked out the market too". The third group is consisted of phones of little-known brands. They manage to survive by keeping up with consumers' need in a fast and flexible manner. 

Mr. Kan interprets the emergence of mountain village phones as an innovation and a significant revolution to the manufacturing chain of mobile phones. "Some branded mountain village handsets, rarely heard of at home, are a household name in India, East Europe and across Africa," he says. "I think they have blazed a new trail for Chinese names to go global."

Many experts advise for the introduction of related laws, as well as joint action by government departments concerned to regulate the market and eliminate pirated phones at the source. "At the same time, there should be amnesty to these rebellion handset makers, encouraging them to build their own names and guiding them onto a viable path of development, " says one analyst who declines to be named. "That can be a win-win solution."

(US$ 1= RMB 6.85 yuan) 
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