Motorolas Retake at the Win-Win Strategy - Case Study Example

Motorola: Retake at the Win-Win Strategy Till three years back the papers and trade magazines couldn't have enough of extolling the unprecedented success of Motorola Inc. in the global handset market and were especially impressed with its conquest of Chinese markets. Those newspapers and trade magazines are inundated with the synopsis and analysis of how the same company slipped to the third spot in the Chinese segment with Samsung and Nokia on the second and first spot respectively. The paper seeks to examine the probable causes of this phenomenon and also suggest corrective measures. In the process answers to following questions will be provided: 1. How should Motorola appropriately react to the emerging local brands, head-to-head competing or cooperating in some fields 2. Will licensing manufacturing technology to Chinese manufacturers weaken Motorola's core competency 3. Facing the expanding low-priced segment, how should Motorola, traditionally known as a brand for high-end mobile phone, position itself 4. Is the company's current branding strategy effective in penetrating into this segment If not, what kind of marketing strategy should Motorola follow 5. What should Motorola do in order to effectively cut costing in developing low-priced mobile phone Introduction "Years have passed with hardly anyone compassionate about the new dimension protruding the world economy where trade is internationalized, investments have crossed boundaries and economies have changed too fast to notice the change. This led to the creation of huge consumer markets and a surge in research and development activities. There is an increase in manufacturing activities which have further led to an increase in demand for skilled labour and advanced technology. This has also resulted in mergers, acquisitions, exploration of new consumer markets and search for better supply chain partners." (Berger, 2000). Precisely put, this is the wave of globalization that every company, big or small, wishes to ride in its lifetime. On the verge of sinful exaggeration, I risk to comment that the phenomenon of globalization has made and ruined the fortune of many companies. The story of Motorola is a story of effort, clairvoyance and survival. A company with very humble beginnings, the Illinois giant went global as early as 1960's when the concept of globalization was itself in rudimentary stages. With each passing year, the company scaled new heights in the field of consumer electronics, semiconductors, wireless devices and other related domains. Motorola- a brief background Originally christened as Galvin Electronics, today's Motorola Inc. was founded by Paul.V.Galvin in Schaumburg, Illinois, USA, in the year 1928. Its first line of business was . from thence it migrated into other areas and created a series of firsts which changed the way the people over the way communicate. The two-way radio service, the first pager service, cellular handsets, the six sigma theory, GPRS etc., to name a few. Interestingly, Motorola's journey has also been one of frequent investments and divestitures, which largely remains unparalleled. It progressed the most under the leadership of Robert Galvin and by the 1980s, it became a world leader in chip, modem, cable and wireless technology. It merged with General Instrument Corporation in the 1990 and proposed the development of first HDTV technical standard. By 2001, the company had a worldwide sales of US 30bn and by 2007 it crossed the $100bn mark. Motorola- The Chinese Affinity China has always been the cynosure of the eyes of global investors and Motorola Inc is no exception to this. It forayed into the Chinese territory in 1987 and set up its first office there in Beijing. Buoyed by the response and initial success, it set up Motorola China Electronics at Tianjin in 1992. Then, it mainly limited its production activities to products such as two-way radios, mobile phones, automobile electronics, semiconductor, cell phones and pagers. When Tango, was launched in 1995, it revolutionized the way the Chinese population communicated and for the next decade, Motorola Inc remained the highest seller of wireless communication handsets and other peripherals in China. Tango was a two-way personal pager, perhaps the first the world has ever known. In 2003, it boasted of a whooping 23.8 % of the Chinese handset market valued at $3.4bn. Year 2002 is regarded as a milestone year in Motorola Inc's China experience. It was then that the company adopted the famous "win-win" or "two + three + three" strategy to increase its stake in Chinese market. The salient features of the "2 + 3 + 3" strategy are: 2: two reflects the two centers which the company wanted to establish in China, Global Production Base and a Research and Development base. 3: the first three reflects the three key growth areas which Motorola wanted to champion in China. They are 'digital trunking communication systems', 'semiconductors' and 'broadband'. 3: the next 'three' signifies the three $10bn growth targets. These mainly consisted of achieving annual production of $10bn, overall investment in China of $10bn and total local sourcing to Chinese markets worth $10bnall by the close of the year 2006. Motorola Inc pursued its 'win-win' strategy aggressively, making required adjustments in its business and manufacturing units globally. Under no circumstances, could it allow to slacken its hold on the Chinese markets. It functioned in the sectors such as 'Personal Communication Sector (PCS)', 'Semiconductor Products (SCP)', 'Broadband Communications Sector (BCS)', 'Global Telecom Solutions Sector (GTS) ', 'Commercial, Government and Industrial Solutions Sector (CGISS)' and 'Integrated Electronics System Sector (IESS)'. [*] With a holding company in the Chinese mainland, joint ventures with over ten major firms, more than 24 subsidiaries and an employee base greater than 15000, Motorola Inc's future looked pretty impressive. Keeping in view the company's golden decade in the country, one can say that the decision to enter the Chinese mainland had been well timed and thought of. It made its foray at a time when the telecom and wireless sector was in its initial stages of development and pitched zero competition for the company. And though there was a lot of governmental control in all the key areas of entrepreneurial developments, the Schaumburg scion succeeded because of the joint ventures it underwent with the firms operating in the country. Structure of The Chinese Telecom Market With China Mobile and China Unicom as the major players, there is a duopoly in the Chinese telecom sector with the state as the whole and sole regulator. The advent of foreign firms as network infrastructure providers is still prohibited. Additionally, the high cost of setting up network infrastructure in the country is also acts as a deterrent to the foreign firms. So the most aggressive competition in the Chinese telecom sector exists in the wireless handset segment. Here, the handset manufacturers do not enter into any collaboration with the service providers and market their products independently. The latest trends in the Chinese Telecom segment point at a decline in the tariff which and 3G facilities will be directly responsible for it as their demand is sure to increase. Due to the economic recession, the demand for handsets has indeed declined over the past year. But the fact that it still is the highest in the world, is a motivation enough for the major cellular firm in the country, whether foreign or local, to expand its business here. Let's take a look at the major distribution strategies adopted by the handset manufacturers in getting their product to reach the end consumer. As stated earlier, the wireless service providers prove to be expensive when used as distribution channels, owing to large transaction costs and secondary tariffs. But due to the market coverage enjoyed by the two sole providers in the country, no handset manufacturer can escape aligning with them altogether. Another distribution channel used by majority foreign companies is the state-funded and regulated distribution network companies such as CellStar and Brightpoint which rule the roost when it comes to providing reliable and quick distribution channel across the country and the Asia Pacific. Then there are retail chains like Gome, Suning Appliance, and Yongle, that have retail outlets over the country and also serve as selling counters for the products of major handset manufacturers. It solely depends on the strategy and policy of the company as to which medium it considers the best for the marketing of its product. Motorola Inc depends uses a mix of marketing and distribution medium to channel its cell phones. The once topmost manufacturer and seller of mobile handsets in the country had to face some serious competition from other players in the market, starting 2003. The major competitors are Nokia, Samsung, Siemens and Sony Ericsson. If withstanding foreign competition was a task, then overcoming competition from domestic cellular firms of china was an uphill task and remains so. The two companies that showed maximum prospect of growth were TCL and Bird. Overcoming indigenous competition is tougher because these indigenous firms enjoy immense government support which fringes on the edge of partiality. Having thus examined the basic background relevant to the questions under consideration, we can safely move on to answer them. 1. How should Motorola appropriately react to the emerging local brands, head-to-head competing or cooperating in some fields As mentioned above, the imminent threat Motorola faces is from local firms such as TCL and Bird which not only have been able to achieve economies of scale in recent period but also enjoy immense government support with regard to licensing and other benefits. Competing with them in wake of such situations is not only difficult but also requires a tactical approach. Price competition is by far the best way by which one can drive out other smaller firms in the market but as stated earlier, these firms have been able to provide low cost cellular devices in the market. Head-to-Head competing is always there as an option and the outcome is decided rather quickly. A head on competition is more than just price competition. It requires the firms to outdo each other in all the aspects surrounding the product such as its utility, design, presentation, marketing techniques, environment-friendliness, after-sales service and high sensitivity to consumer preferences. No wonder Motorola Inc is sufficiently equipped to pose such a challenge to the local firms which , though have come close to it in the market share, are still behind it when it comes to international operation and mobilizing resources. But another question here arises is, wouldn't it be better for Motorola Inc to deploy its resources to compete with the multinational giants like Nokia and Samsung In my opinion, the option of Co-operation in certain fields common to the production processes of the competing firms is a better option. This will also enable them to reap the advantages of co-branding, which "describes a form of cooperation between two or more brands, which can create synergies that are valuable for both participants, above the value they would expect to generate on their own". [Hollensen,2007] 2. Will licensing manufacturing technology to Chinese manufacturers weaken Motorola's core competency This question, by nature, introspects the viability of the localization approach which the firm has been following over the years in the Chinese territory and I must say it has been immensely successful. For a better insight into it, lets' examine the needs for localization by a firm. The highly intense competition businesses have to face in many of todays markets is due to the complex interaction of many factors: over-supply, the importance of time in manufacturing processes and in satisfying demand, globalisation processes and environment instability.[Garbeli, 2003] Businesses pitched with such intricacies look for ways to tackle the production problems in order to maximize their returns and fulfill the demand, and to create the demand in over-supply markets. This is where the need for localization or as the question puts it 'licensing technology' comes in. In its nascent days, Motorola Inc followed the policy of static localization and set up its first factory in China in Tianjin to manufacture wireless devices and other electronic components for sale into the local market and some parts of Asia. But with the passage of time, it turned into a global production base for the Company with an R&D investment estimated over $10mn. It now follows the policy of dynamic localization with product and brand standardization and process optimization as key priorities. If the company is able to achieve the mentioned component or quality standardization across the global networks, then the core competency of the company will remain un-affected. In fact, the move to license its technology to local manufacturers and to hire inland workers and training them accordingly has only strengthened Motorola's foothold in China. The government authorities also favour such an attitude as it helps the indigenous firms to grow rather than endanger their existence. The best example to prove this point is that in its 20years sojourn in China, the firms with which Motorola entered into sharing technological know-how and component outsourcing activities, majority of them ended up being accorded a corporate status either through joint venture with Motorola, or functioning in their own capacities. 3. Facing the expanding low-priced segment, how should Motorola, traditionally known as a brand for high-end mobile phone, position itself Motorola's approaching Nemesis is the low-priced segment with Finnish cellular giant, Nokia spearheading it. Nokia, the world leader in low-priced as well as high end mobile technology has operations and consumer base in over 30-50 countries of the world. This has enabled it to reap benefits of the economies of scale and in turn transfer it to the end-user in form of grounded prices. Another feature that keeps it ahead of the competition in the market is the susceptibility of its manufacturing process which can be adjusted at an astonishing rate to meet the changing consumer preferences. Innovation is by far its most valuable asset. No other firm attaches so much value to product, marketing and supply chain innovation. Motorola is thus faced with two choices: either opt for processes that lead to reduction in the production cost of the products or market itself appropriately to be the crme de la crme among the wireless device manufactures. What is required at this stage is an overall attempt at overhauling the firm's position with respect to the consumers, not only through better and strong product offering but also through relationship marketing i.e. building close contacts with the consumers through marketing feedback and control. Onus is now on the level of customization the firm can offer its consumers, so that ultimately the price consideration takes a second seat. The main area of innovation should be the product itself and how the firm projects it to the target consumers. A product is a set of tangible and intangible attributes including packaging, colour, quality and brand plus the services and reputation of the seller (Kotler, 1999). The concept of Product Life cycle should be exploited thoroughly to not only "promote more frequent use among current user but also develop more varied use among current users and to create new users".[Hollensen,2007] Moreover, the company needs to define the Unique Selling Point (USP) of its product which gives it an edge over the rival's products. A quick SWOT analysis of its current market position accompanied by radical questions about the nature and viability of its product should solve the problem. 4. Is the company's current branding strategy effective in penetrating into this segment If not, what kind of marketing strategy should Motorola follow The current branding technology followed by the company is mild and un-aggressive. It basically seeks to sell on the basis of its brand equity without any further additions to it. This, at a time when the competitors are leaving no stone unturned in creating brand awareness and consciousness in the country. For eg. Samsung rose to the second position shortly after the conclusion of Beijing Olympics because as one of the official sponsors of the Beijing Olympics, its name and logo was all over there. And it is no secret that the consumers in this part of the world are more moved by branding than the consumers in any part of the world. The fact that Motorola Inc was once, in fact till 4 years back the largest supplier of cellular devices in the Chinese market speaks volumes for the efficiency of the marketing strategies of the company. It has a wide base of customer-care outlets all over the country, a product range catering to all the segments of the society, world class Research and development centre etc. basically, it has everything that takes to launch a successful product in the market, except the drive to do so. Another factor that is conspicuously missing in the company's current product offerings is the innovation in design, technology and uses. It needs to recreate the success of Moto Razor, the 2004 launch whose market success remains unparalleled. Except for a few additions to the capabilities of the Moto Razor and its higher versions, the company has not been able to come up with anything in the past four years that would hold the consumers in complete awe. "You need to run faster to remain where you are" (Kotler,1999 ) 5. What should Motorola do in order to effectively cut costing in developing low-priced mobile phone That's a million dollar question, the answer to which holds the key to basically all the present woes of the organisation. Low cost mobile phones are the need of the hour, if the company wants to encash on the growing demand for wireless services in the country, which is being triggered primarily by the bourgeois and the proletariat. In comparison to its contenders, it also reaps the advantages of economies of scale and as far as possible transfers it to the customers in the form of reduced costs. But this is not enough. A more radical and innovative approach towards pricing is required which will be effective in short term as well as long term. Price is the currency value a customer is asked to pay for the product or service offered for sale by the seller. "The price determines the profitability, the competitive position and the relative quality perception customers will assume for the product." [Hollensen,2007] "Pricing is like a tripod'- three legs being cost, demand and competition."(Justin Paul et al, 2008). The image of Motorola as the producer of High End phones has somewhere led to 'skimming price strategy', which "involves charging a high price at the top end of the market with the objective of achieving the highest possible contribution in a short time."(Hollensen,2007) But this has its own disadvantages in the form of increased vulnerability to local competition and high cost of quality maintenance. The most ideal approach at this stage would be "penetration pricing" because there is absolutely no dearth of demand and whatever is produced is sure to get absorbed by the increasing demand. The company has to gradually move to the position of Global Price leader and adopt a mix of price differentiation policies and price standardization policies. Also, at the stage where Motorola Inc is currently is, there is one area where it can seek to cut costs and that is the supply chain comprising the channel for movement of raw materials as well as finished goods. A suitable mode of transport and channel selection has to be hit upon so as to minimize the intermediary expenses and provide the advantage of the same to the consumers in the form of reduced prices. Conclusion In the nutshell, the prospects of Motorola Inc in China are as bright today as they were twenty years back. The firm only needs to concentrate more on the emerging pricing trends and innovative business solutions and it will be right on track of providing "seamless mobility", not only throughout China but around the globe. Works Cited Hollensen,S .(2007)Global Marketing: Decision-Oriented Approach, FT/Prentice Hall Maria Emilia Garbeli. (2003). "Over Supply and Manufacturing Localisation",Sympnoya Emerging Issues in Management. Kotler P., Scott W.G.(1999). Marketing management, ISEDI, Turin. Berger, Suzanne.(2000) How We Compete: What Companies Around the World Are Doing to Make It in the Global Economy. DoubleDay. Paul, Justin and R.Kapoor. (2008). International Marketing, Tata-McGraw Hill. Webliography www.btmbeijing.com www.ibscdc.com [*] http://www.motorola.com.cn/en/about/inchina/china.asp Read More