Overview of Handset Distribution Channels in China

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An Overview of Mobile Phone Distribution Channels in China February 2003 TABLE OF CONTENTS 1 CHINA MOBILE PHONE MARKET ...........................................................................2 2 CLASSIFICATION OF CURRENT HANDSET DISTRIBUTION CHANNELS ..................3 2.1 2.2 2.3 2.4 Conventional Handset Distribution Channels .....................................................................3 Conventional IT Distribution Channels..........................................................
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  Copyright © 2003 China Business Solutions Ltd. All rights reserved.Telephone: +44 (0)1223 421968, facsimile: +44 (0)1223 281700, e-mail: info@chinabusinesssolutions.comhttp://www. chinabusinesssolutions.com An Overview of Mobile Phone Distribution Channels in China February 2003T ABLE OF C ONTENTS  1   C HINA M OBILE P HONE M ARKET ...........................................................................2 2   C LASSIFICATION OF C URRENT H ANDSET D ISTRIBUTION C HANNELS ..................3   2.1 Conventional Handset Distribution Channels.....................................................................3   2.2 Conventional IT Distribution Channels...............................................................................4   2.3 Household Appliances Chains.............................................................................................4 2.4 Number of Distributors/Retailers ........................................................................................6   3   O PERATIONS OF C HINA H ANDSET D ISTRIBUTION C HANNELS ..............................5   3.1 Inter-Channel Relationship..................................................................................................5   3.2 Distribution Modes for GSM Handsets................................................................................7    3.3 Distribution Modes for CDMA/GPRS Handsets..................................................................8  4.   C HARACTERISTICS OF H ANDSET D ISTRIBUTION C HANNELS IN C HINA ........9   4.1    High-end vs Low-end Handsets...........................................................................................9   4.2   Major cities vs medium-to-small cities................................................................................9   4.3    Rural Areas..........................................................................................................................9   4.4    Regional differences in distribution channels......................................................................9  5.   E VOLUTION OF H ANDSET D ISTRIBUTION C HANNELS ..................................10   5.1    Big Foreign Brands ...........................................................................................................11   5.2    Domestic Manufacturers....................................................................................................11   5.3 Imported Handsets.............................................................................................................12   5.4    Role of Super Household Appliance Chains......................................................................12  6.   T RENDS OF N EW H ANDSETS D ISTRIBUTION C HANNELS ..............................13    An Overview of Handset Distribution Channels in China China Business Solutions Ltd Copyright © 2003 China Business Solutions Ltd 2 1 China Mobile Phone Market China is now the largest market for mobile phones in the world. According to MII, by end of 2002, the number of mobile phone users rose to 206.616 mln, an additionof 61.394 mln users during the year, with a penetrate rate of 16.19%. The Ministryof Information Industry (MII) predicts that the number of mobile phone users islikely to surpass those of fixed-line telephone users by 2004. However the speed of growth has slowed over the last two years and the market has entered into a steadyand mature stage.  Growth rate of Mobile Phone Users 0%20%40%60%80%100%120%140%160%1994 1995 1996 1997 1998 1999 2000 2001 2002   Chart 1. Growth of Mobile Phone Users in China (1994 to 2002)  Data Source: MII, 2003 By end of Nov 2002, the total sales volume has reached in total 113 mln units,including both GSM and CDMA phones. According to MII statistics, the latestranking of handset sales volume in China by end of 2002 is as follows: Motorola, Nokia, Bird, TCL, Siemens, KeJian, Amoisonic, Konka, EastCom (Samsung isexcluded due to problem with statistics). Motorola still leads the market (66%), far ahead of Nokia (18%) and Bird (10.4%).Most of the handsets manufactured are sold in China. In 2001, 67% were sold athome, 31% were exported and only 2% remained as stock. However due toincreasing overcapacity of production, exports have been increasing in the last year and reached 45% in 2002.  An Overview of Handset Distribution Channels in China China Business Solutions Ltd Copyright © 2003 China Business Solutions Ltd 3 In terms of geographical distribution of sales, the share of Eastern China is 62.7%,Central China 19.3%, and Western China 18% in 2002 (see Chart 2). However recent trends show that the market share of Eastern China is decreasing, while thoseof Central and Western China are rising. Some estimated that mobile phone subscriberswill reach about 360 million with an annual increasing rate of 26.2% by the end of 2005, of which 24.5% will be in the eastern provinces, 26.7% in medium provinces and 31.6% inwestern province.   EasternChina, 63%CentralChina, 19%WesternChina, 18%   Chart 2. Geographical Distribution of Handset Sales  Data Source : CCID 2002 2 Classification of Current Handset Distribution Channels The distribution/retailing channels discussed in this section are mainly used byJV brands such as Motorola and Nokia and Chinese indigenous brands. Imported brands will be discussed later in the report.There are mainly three categories of distribution channels. 2.1 Conventional Handset Distribution Channels This category covers first tier distributors, including handset retailers, specialisthandset distributors, specialist handset agents, and operator outlets. They areacting as main forces of handset distribution, amounting to total 82% of sales in2002 (see Chart 3). Most agents or distributors often handle more than onehandset brand. For example, Shanghai CellStar International Trading Co., Ltd.deals with many handset brands.  An Overview of Handset Distribution Channels in China China Business Solutions Ltd Copyright © 2003 China Business Solutions Ltd 4 2.2 Conventional IT Distribution Channels This category refers to the IT products distributors, who distribute all kind of IT products, such as computers, printers, and routers, etc. These types of distributorshave their systematic distribution channels. With their increasing understandingof China handset market, distributors such as Digital China (a member of LegendGroup) and Ingram Micro China (a subsidiary of Ingram Micro) are becomingmore powerful in distributing handsets through their existing channel coverage.This category has accounted for 6% of total sales in 2002. 2.3 Household Appliances Chains This category, consisting mainly of household appliances chains, have widegeographical coverage, can hold large stock, operate flexibly, enjoy directinterface with end users, and make flexible pricings. Thus they have been theemerging force in handset distribution. Well-known examples are GoMeHousehold Appliances and SuNing Household Appliances. Chart 3 presents the proportion of handset sales volume sold by different channelsin 2002 (data by June 2002). SpecialistHandsetAgents, 20%SpecialistHandsetDistributors12%Others 8%HouseholdAppliancesChains 4%HandsetRetailers 34%OperatorOutlets 16%IT Distrbutors6%   Chart 3. Distribution of Sales among Major Channels  Data Source: CCID, June 2002 Note: The “Others” category in the chart includes retail supermarkets, handset supermarkets andon-line handset shops, etc.
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