The world's leading handset manufacturers, drawn to the explosive growth of the Chinese market, are facing a rising challenge there from indigenous manufacturers. China's rapidly expanding mobile subscriber base is supporting the expansion of local firms, who are using their knowledge of local tastes to cash in on Chinese consumers' insatiable appetite for the latest gadgets. Phones made and designed by Chinese firms will account for a third of the global handset market in 2009, and the increasing competition has caused the average price for a feature phone in China to drop from $220 to $90 in just five years. Native firms have grabbed market share by developing innovations, such as twin SIM card slots and phones that double as projectors, at a price and pace that foreign firms have difficulty matching.
These developments reflect the growing maturity of homegrown Chinese companies, which are starting to transform themselves from low-cost manufacturers into innovators in their own right. This evolving position gives Chinese firms, as well as the Chinese government, a greater stake in the protection of intellectual property (IP) rights, an issue which has long been a bone of contention between China and the West. China's regional and national governments are increasingly aware of the need for stronger IP protections and have begun to implement them.
These trends are a double-edged sword for Western firms. The rising innovation capacity of Chinese (and other developing-country) firms will make them stronger competitors in both developed and emerging markets. But greater protection for IP will make introducing products in emerging markets safer and potentially more profitable for foreign firms. Working with market experts can give firms a clearer picture of both the legal and sales landscape and help them to become more nimble contenders both at home and abroad.