china product management
TRANSCRIPT
PRODUCT CYCLE, WINTELISM AND CROSS-NATIONAL PRODUCTION NETWORKS FOR DEVELOPING COUNTRIES
ZIXIANG (ALEX) TAN
(ASSOCIATE PROFESSOR AT SYRACUSE UNIVERSITY,
SYRACUSE, NY, USA
Presented By:Eshaan RaizadaB09K R Shyam B17Shubham Singh
B15Ayush HirwaniB12Sarvesh Mishra
B60
AN OVERVIEW
“The case study provides insights about concepts like product cycle, the Wintelism
phenomena and cross-national networks for developing countries by taking the China’s
Telecom Manufacturing Industry as a case.”
• China has recently emerged as a significant player in the global telecommunication
industry
• Direct imports support most of China’s high end markets
• The medium-end Chinese market is handled by subsidiaries and joint venture with
multinational corporations
• The indigenous manufacturers have come up to dominate low-end markets and are
progressively trying to capture the medium-end markets
OBJECTIVES
• To understand the concepts of product cycle, wintelism, and cross national production network
• To plot growth and maturing of Chinese telecom sector
• The importance of the role of the Chinese government in terms of regulations and policies enabling indigenous production and reverse cross national production
• To learn from China’s success as a developing nation during the past decade
PRODUCT CYCLE THEORY
• The original product cycle theory was developed by Japanese economist Akamatsu
Kaname(called the flying geese formation theory)
• This theory explains the three main stages of product development in advanced
countries, their introduction to developing countries and finally setting up of export
centers in developing countries
WHAT HAPPENED IN CHINA?
• The product cycle theory explains multinational corporations strategy in
China however the existing literature needs to be expanded
• The multinational corporations localize their product in China to take
advantage of lower labor costs and to remove entry barriers
• The rapid technological growth has made the last step of product cycle less
relevant
WINTELISM
The Wintelism theory has been developed from the success of Microsoft’s Windows in the operating system market and Intel’s CPU in computer processor market
CROSS-NATIONAL PRODUCTION NETWORKS
• This concept refers to the consequent disintegration of the
industry’s value chain into constituent functions that can be
contracted out to independent producers
• US philosophy : ‘open’, ‘fast’, flexible’, ‘formal’, ‘disposable’
• Japanese philosophy: ‘closed’, ‘cautious’, ‘centralized’, ‘long-
term’, ‘stable’
THE IMPACT
• Most facilities in China have served as assemble centers for
developing nations rather than production centers
• The success of Wintelism and Cross-national production
network have had significant impacts on China’s indigenous
markets
• The implementation of reverse cross national production
networks
INTRODUCTION
• China has emerged as a significant Telecom market since the
late 80’s
• In 2002, China had 120 million landline users, 120 million
mobile users, and 26 million internet users.
• Rapid facility and large scale support build-up.
• High demand for infrastructure: influx of Telecom
multinationals, such as AT&T, Motorola, CISCO, NORTEL,
Ericsson, Nokia, Samsung to name a few.
• Engaged in Direct Import, Local production, Joint ventures to
technological transfers.
GOVERNMENT POLICY
• Regulations and policies have focused on:
• Production localisation of Multinational corporations
• Subsidiaries and joint ventures
• Nurturing indigenous manufacturers.
• These policies try to restrict direct imports and promote the
establishment of joint ventures and local subsidiaries by MNCs
• Government Guidelines for foreign investment in
telecommunication: Encouraged, restricted, and prohibited
PROCUREMENT POLICY
• Market shares are given to MNCs who are willing to transfer
technologies and to establish local production
• Procurement policies lean towards local manufacturers.
• Providing them favourable bank loans, attractive tax breaks,
generous R&D support.
• Rise of local players such as Huawei, ZTE and many more.
EVOLVING MARKET COMPETITION• DIRECT IMPORT FROM MULTINATIONAL CORPORATION
PREFERRED
• DIFFERENT PATHS HAVE EVOLVED FOR DIFFERENT PRODUCTS
Local assembly
Production
Joint Ventures
• FACTORS DETERMINING THE PATH
Competition
Technology
Government Policy
Demand
Capacity of Manufactures
• CATCHING UP PERIOD DEPENDING UPON THE AVAILABILITY OF CORE COMPONENTS
CENTRAL OFFICE SWITCHES1982
1987
1992
1997
2000
Direct import
100 89 54 5 0
Joint Venture
0 11 36 63 57
Suppliers 0 0 10 32 43• China has started the export to other countries but they have been successful with only less developed countries
• Difficulties to match the modern day technology
• Direct Import from western countries of ATM & IP technology
WIRELESS COMMUNICATIONS SYSTEMS
• The competition is moderately fierce
• 1G technology was relied on direct import from two suppliers
Motorola & Ericsson
• 2G made the competition fierce
• The model was changed from direct import to local assembly
• The export to other countries has not been started
DATA COMMUNICATIONS SYSTEMS
• New market in China
• The advanced technologies have created much less severe
pressure for MNC to localise their production.
• The situation leads to a direct import market
Historic Evaluation
1871-Planning economic system
1871-1949 1949-1978 1978-1994 1994-2000 2000-
Before PRC establishment
intrducing competation
reformingtelecomsectors
marketoriented
Re-Organization In CHINA’s Telecom Sector
Separation of Politics from Enterprise
of Telecom and Post Industry in 1994
Establish China Unicom in 1994
Implement the separation of Telecom from
MII in 1997
China Telecom reorganization in February 1999
Guo Xin Paging
China Mobile
4.20.2000China Satellite
Communications
12.19.2001
China Telecom
Year 2000
China Network
Communications Ltd. 1999
China Railway
Communications Ltd. 2000
China Netcom
5. 2002
China
Telecom
5. 2002
Ji
Tong
China Mobile China Railway
Communications
China Satellite
Communications
China
Netcom
China
Telecom
China
Unicom
Emerging Indigenous Production
6.18
10.3 1112.8
18.1 19.4
26.9
33
24.6
3.3 4.66.8 7.1
11.8
16.818.8
26.5
33.7
37.5
42.7
49.7
2.51.31.20
10
20
30
40
50
60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Investment Revenue
High growth of télécom services revenues, but investments are under
pressure, especially in fixed voice.
China Is Developing A Strong Telecom Industry
> Chinese vendors are already
well established in fixed
networking
> They are increasing their
market share in mobile
infrastructure
> The main vendors have
complete product portfolio
> They started in China, and
are now exporting
aggressively
Telecom industry in China
55%45%
Fixed networking
6%
94%
Mobile infra
Chinese vendors: Huawei, ZTE, WRI, UT Starcom, etc
Int’l vendors: Alcatel, Ericsson, Nokia, Siemens, Lucent, Nortel, Motorola, etc
Government’s Support To Domestic Vendors
assignment of research grant for R&D
low interest loans
discounted tax rates
generous provision of land in high-tech
industrial parks
Operators are encouraged to purchase
products of domestic vendors: Supply-
demand coordination conference
31%
16%37%
14%
0%
2%
China Telecom Revenue From Companies In 2003
CT CN
CM CU
CS CR
Revenues From Companies
Traditionally integrated systems
Dis-integratedGlobal Economy
Cross National production networks make it possible for the production of any elements in the value chain to be contracted out to independent producers
China’s indigenous corporations emerge as powerful competitors to MNCs
Wintelism
CNP
Government
industrial
policiesFavorable Financial incentives
Challenges
Weak in some elements of production
IC industry still behind advanced countries
Not sophisticated enough in Sys Design & S/F dev
Keep the strengths &
outsource the
weaknesses
Developing countries
contract out to firms in
advanced countries
Reversed Cross National Production networks
Established in 1988, Shenzhen China
Sales reached 2.66$ in year 2000
Products: Fixed n/w, wireless n/w, data comm n/w & optical transmission n/w
Products exported to 40 countries
Major success factors:
• Entrepreneurship • Govt support• Wintelism• CNP• Capable of designing & assembling its own sys at low cost
Challenges and operations:
ASIC (application specific ICs)
Outsourced to Texas
Instruments, IBM, Motorola
and others
Cooperation with Foreign
partners
Up To Date component
s
Lets ConcludeChina has attracted most of the MNCs for trade and
production
Coexistence of direct imports, local subsidiaries & JV of MNCs and indigenous manufacturers
Shaped market competition: Interrupted product cycle
Development and deployment in advanced countries, imported to China as demand emerges
MNCs are pressured to establish local assembly & production facilities: to break market entry barriers
Local assembly to local production
Reversed cross national production networks
Contract out what they are weak in
Similar trends are evident in markets like India and Brazil