Taiwan bars mainland handsets

By LI WEITAO,China Business Weekly staff (Business Weekly)
Updated: 2003-06-24 10:35

Cold water was dumped last week on Chinese mainland handset manufacturers seeking new markets amid increasing inventories and intensifying price wars, when Taiwan authorities announced their decision to maintain the ban on imports of mainland-made mobile phones.

Taiwan's "board of foreign trade" (BOFT) last week decided to delay dealing with the issue of opening the local market to mainland handset makers, industry insiders said.

The postponement is largely due to strong opposition from Motorola and local maker BenQ, they said.

The decision is bad news for mainland manufacturers, which are seeking to boost exports at a time when their output capacity is growing much faster than market demand.

Besides, the SARS (severe acute respiratory syndrome) outbreak, which has scared potential buyers from shopping, has worsened the problem.

Taiwan's action breaches its WTO (World Trade Organization) obligations, suggested Fu Hongxing, an analyst with market researcher IDC (China).

Taiwan, a WTO member, is obliged to open its markets.

The Chinese mainland on January 1 scrapped the 3 per cent tariffs previously imposed on imported mobile phones.

That has resulted in a flood of imported phones, mainly from Taiwan Province, South Korea and Japan.

Statistics indicate during the year's first quarter 664,000 handsets were imported via Shanghai, a 530-per-cent growth year-on-year.

In January and February, 1.239 million handsets were imported via Shenzhen, a 440-per-cent growth year-on-year.

However, mainland-made handsets have been shut out of Taiwan's market.

"Taiwan's authorities are setting up policy barriers to block imports of mainland-made phones," Fu told China Business Weekly.

Taiwan's postponement is expected to dent the business expansions of several mainland makers - including Ningbo Bird, TCL and Legend - which have been seeking to crack the Taiwan market to boost exports.

"The potential of the mainland's market is, no doubt, quite big," Fu said.

"However, as there are too many makers, and several players in the adjacent industries are seeking to move into the mobile phone market, established players have to increase exports and explore new markets."

Executives of mainland handset makers, however, insist the impact will be limited. They plan to seek alternative markets to boost exports.

"The size of Taiwan's mobile phone market is quite small," said Xu Xiguang, vice-president of Ningbo Bird.

"The ban will have almost no impact on our exports."

Previously, Bird's phones were rebranded and sold in Taiwan Province, Xu revealed.

According to the Taiwan Electrical and Electronic Manufacturers' Association, handset demand in Taiwan stands at 5-6 million units per year.

That is far less than the mainland's market demand.

Ministry of Information Industry (MII) officials predict 120 million handsets will be sold this year in the mainland.

Bird will attempt this year to increase its exports to Southeast Asian and European markets.

The company also sells a small number of mobile phones in India and Pakistan.

Bird plans to export 1 million handsets this year, five times more than last year.

Gu Lei, chief operating officer of mainland-based handset maker CECT, said mainland makers' entry into Taiwan Province, if approved, will have little impact on Taiwanese handset makers.

"Taiwanese handset makers have more advantages than mainland manufacturers in terms of cost control," Gu told China Business Weekly.

Taiwanese handset makers ship roughly 90 per cent of their products to international brand-name vendors and mainland makers, indicates Taipei-based industry tracker Market Intelligence Centre (MIC).

With a lack of core handset technologies, most of the mainland's makers are original equipment manufacturers for manufacturers in Japan, South Korea and Taiwan Province.

However, stung by price wars and large inventories, mainland makers will knock harder on doors of new markets such as Taiwan, Gu said.

"A price war has been initiated by TCL, and more players are expected to aggressively cut prices," Gu said.

TCL recently cut significantly the prices of its colour screen phones.

"Decreasing profit margins will drive mainland players to expand overseas," Gu said.

Industry observers have suggested Motorola is opposed to the opening of Taiwan's market because it is afraid mainland manufacturers will eat into its market share.

Taiwan's locally made brands account for about 10 per cent of Taiwan's market. Motorola and Nokia hold a combined 50-60 per cent share.

With innovative designs and aggressive marketing, mainland makers have been steadily gaining market share from foreign giants such as Motorola, Nokia, Siemens and Sony Ericsson.

MII's statistics indicate mainland makers held more than 50 per cent of the mainland's handset market during the first quarter.

Some analysts doubt that figure, suggesting it is actually about 35 per cent.

They agree, however, that home-grown makers are gaining share from foreign vendors.

Analysts suggest mainland makers' entry into Taiwan's market would shake Motorola and Nokia's dominance there.

(Business Weekly 06/24/2003 page1)