Competing on Cost Does Not Compute

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Blackberry had problems in China even before it came to the market (RedBerry and other competition). Now that it is there, it faces many of the same challenges as its multinational peers.

Reuters reports that the Blackberry services in China can be had for a US$65 handset plus as much as US$75 a month service charge. That is great, if you can get enough people to pay (after, all not everyone fits into the “wealthy consumer” category). The customer in the Reuters article uses his Blackberry as a phone, but does not subscribe to the push mail service – as he can still get emails for just US$2.50 a month on his old PDA. So, someone is doing it cheaper? No surprise there:

    “’In China, there is always undercutting in the market’, said John Ure, who directs a telecommunications research project at the University of Hong Kong. ‘It is virtually impossible to police.'”

Even selling expensive mobile handsets can be a problem, as many are cheap knock-offs:

    “In 2005, China sold roughly 15 million so-called black-market phones, compared with 80 million handsets sold through licensed dealers, according to Marbridge Consulting.”

I have noted before that to compete on price, in China’s often bloated markets, companies need very deep pockets (and a bullish outlook), and the point is made again in the Reuters article:

    “‘Manufacturers will have an ongoing problem in China if customers continue to buy things based on price, not quality’, said Ken Dulaney, a Gartner analyst.”

For most foreign companies competing on the basis of defensible platforms such as technology, service, quality and brand will still be the best option, even if it means that they aim at a (not inconsiderable) niche market. The mass market may be attractive in theory, but it is a bloody battlefield in practice.

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One Response to “Competing on Cost Does Not Compute”

  1. Archive » Two Tech Deals for China. One In, One Out.| China Business Blog Says:

    […] mpanies, with deep pockets (or high barriers to entry) can sustain (see more on this issue here). The strategy seems to have worked well for AMD, however, and while Intel is reported to […]

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