[November 23, 2006]

NEC Quits from China's Mobile Phone Market

(SinoCast China IT Week Via Thomson Dialog NewsEdge) SHENZHEN, November 24, 2006, SinoCast -- Japan-based NEC Corp said on November 22 that it will quit the mobile phone market in China due to losses it incurred in the business, following withdrawals by other Japan-branded vendors such as Toshiba.

Japan-based NEC has stopped manufacturing at its mobile phone plant in Wuhan, capital of Hubei Province, and it won't launch new models in the Chinese mainland, which has not launched a third generation network, said Cai Li, a spokesperson of NEC China.

"We have to reorganize the global handset business and focus on 3G phone manufacturing and sales," Cai said.

NEC, which is strong in 3G products, is projecting a JPY 48 billion loss this year in its mobile and personal solutions business, more than three times the previous estimate, because of slowing handset sales and higher costs for getting rid of inventories.

"It's a natural strategic withdrawal for NEC as its handset business doesn't perform well in the Chinese market," said Li Xuefang, an analyst at Beijing-based CCID Consulting, a research firm under the Ministry of Information Industry.

Before NEC's withdraw, other Japan-branded mobile phone makers, including Panasonic, Toshiba and Mitsubishi, have already withdrawn from China, where Nokia and Motorola dominates the market.

NEC has a 3G base station manufacturing facility in Tianjin focusing on exports. China is expected to issue 3G licenses in 2007 and the next-generation network allows users to enjoy high- speed services from video conferences, film downloads to multi- player 3D games.

In January, NEC once again insisted that it decided to quit from the mid-end mobile phone market in China and stick to the upper part of the value chain. In the meanwhile, it started to reduce models of new products and cut off export volume of mobile phones as well.

Several factors lead to NEC's failure of mobile phone business in China: poor product quality, weak brand building, lagging research ability, and ineffective inner management.

During the last Quality Conference held by the Ministry of Information Industry (MII), led by NEC, Japanese mobile phone makers were at the top of the list of the biggest-complaint- receivers in 2005.

Comparing with Chinese and European handset outfits, which have their own ubiquitous distribution channels, NEC could not effectively adjust its half-baked selling network to adapt to the fast changing environment in this country. What is more, NEC always takes more time in research and marketing its latest products than Chinese and European brands, making its mobile phones less competitive.

During the January-April period in 2004, handsets makers from Europe launched 44 models of mobile phones in China, three times the number of Japanese brands. As for Chinese mobile phone makers, they unveiled 77.

NEC has been slow in marketing adjustment for it is lack of native managers that have better understanding of Chinese markets and Chinese cultural. After Lu Lei took the office of president of NEC's branch in China, he brought a stream of fresh air along with new management system. However, his ambition and reform was nipped in bud by NEC high-ups.

A former NEC employee discloses that the advertisement review procedure is too long. NEC China has to file an application to NEC headquarters for final approval, which usually takes one to two months. "When we get the green light, the market has changed."

Copyright 2006 Sinocast

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