Nokia has started a new market sizing exercise from the beginning of this year. With refreshing candor, they have increased the base market size over 10% for 2009 shrinking their own market share to 34% from the previous 38%.
I think Nokia is accepting the hard truth that the market is bigger than we all were willing to admit. However, I don’t think that the Shanzhai (Chinese Grey Market) impact has been fully baked into many estimates.
- Nokia announced their market share in Q1 2010 was 33%, which is probably the lowest number they’ve had in 5 years. Why would they play themselves down?
If we look at the Chinese market it seems that foreign brands like Nokia killed the Local brands but in reality if we include the Chinese Grey Market, Local vendors have started to come back since 2007.
- Since 2007, numerous unknown small assembly factories have been springing up in China and rapidly growing. There are more than 500 companies now.
- As urban areas in the Emerging Markets reached saturation the rural users were the next frontier but distribution, after sales support and driving down cost was a challenge. This market was successfully addressed by the so-called Shanzhai or Chinese Grey Market handsets as they evaded tax, regulatory requirements, IPR and any brand related issues giving them an advantage to the ‘I-don’t-care-about-quality-I-just-want-a-phone-that-doesn’t-look-too-cheap’ audience in the Emerging Markets.
- Nokia hunted down Local vendors between 2004 and 2005 but they’ve come back and without admitting that the Chinese grey market exists there’s no way you can compete with them.
Looking at the situation, I think history repeats itself. Starting from 2000, Local Chinese vendors rapidly took share from Motorola and at that time the R&D was provided by R&D houses in Korea packaging Texas Instrument basebands into modules.
- Companies like Bellwave once exported $400M worth of GSM modules to China a year, this was the time TCL, Bird, Amoi were on the top 10 vendor list.
- Now it’s Mediatek providing R&D expertise: the baseband and also assistance with the module packaging.
Our Wireless Device Strategies Team is preparing a report that explores the Chinese Grey Market in more depth as it is now more than 12% of the market, a market to keep track of. I think the handset market is bigger than Nokia thinks. Their market share in Q1 2010 should’ve been 31% including the total grey market.