product management in china: Cross national production, Wintelism

1. PRODUCT CYCLE, WINTELISM
AND CROSS-NATIONAL
PRODUCTION NETWORKS FOR
DEVELOPING COUNTRIES
ZIXIANG (ALEX) TAN
Presented By:
Eshaan Raizada
B09
K R Shyam B17
Shubham Singh
B15
Ayush Hirwani
B12
Sarvesh Mishra
(ASSOCIATE PROFESSOR AT SYRACUSE UNIVERSITY,
SYRACUSE, NY, USA
B60

2. AN OVERVIEW
“The case study provides insights about concepts like product cycle, the Wintelism
phenomena and cross-national networks for developing countries by taking the China’s
Telecom Manufacturing Industry as a case.”
• China has recently emerged as a significant player in the global telecommunication
industry
• Direct imports support most of China’s high end markets
• The medium-end Chinese market is handled by subsidiaries and joint venture with
multinational corporations
• The indigenous manufacturers have come up to dominate low-end markets and are
progressively trying to capture the medium-end markets

3. OBJECTIVES
• To understand the concepts of product cycle, wintelism, and
cross national production network
• To plot growth and maturing of Chinese telecom sector
• The importance of the role of the Chinese government in terms
of regulations and policies enabling indigenous production and
reverse cross national production
• To learn from China’s success as a developing nation during
the past decade

4. PRODUCT CYCLE THEORY
• The original product cycle theory was developed by Japanese economist Akamatsu
Kaname(called the flying geese formation theory)
• This theory explains the three main stages of product development in advanced
countries, their introduction to developing countries and finally setting up of export
centers in developing countries

5. WHAT HAPPENED IN CHINA?
• The product cycle theory explains multinational corporations strategy in
China however the existing literature needs to be expanded
• The multinational corporations localize their product in China to take
advantage of lower labor costs and to remove entry barriers
• The rapid technological growth has made the last step of product cycle less
relevant

6. WINTELISM
The Wintelism theory has been developed from the success of Microsoft’s
Windows in the operating system market and Intel’s CPU in computer
processor market

7. CROSS-NATIONAL PRODUCTION
NETWORKS
• This concept refers to the consequent disintegration of the
industry’s value chain into constituent functions that can be
contracted out to independent producers
• US philosophy : ‘open’, ‘fast’, flexible’, ‘formal’, ‘disposable’
• Japanese philosophy: ‘closed’, ‘cautious’, ‘centralized’, ‘long-term’,
‘stable’

8. THE IMPACT
• Most facilities in China have served as assemble centers for
developing nations rather than production centers
• The success of Wintelism and Cross-national production
network have had significant impacts on China’s indigenous
markets
• The implementation of reverse cross national production
networks

9. THE CHINESE MARKET AND
GOVERNMENT POLICY

10. INTRODUCTION
• China has emerged as a significant Telecom market since the
late 80’s
• In 2002, China had 120 million landline users, 120 million
mobile users, and 26 million internet users.
• Rapid facility and large scale support build-up.
• High demand for infrastructure: influx of Telecom
multinationals, such as AT&T, Motorola, CISCO, NORTEL,
Ericsson, Nokia, Samsung to name a few.
• Engaged in Direct Import, Local production, Joint ventures to
technological transfers.

12. GOVERNMENT POLICY
• Regulations and policies have focused on:
• Production localisation of Multinational corporations
• Subsidiaries and joint ventures
• Nurturing indigenous manufacturers.
• These policies try to restrict direct imports and promote the
establishment of joint ventures and local subsidiaries by MNCs
• Government Guidelines for foreign investment in
telecommunication: Encouraged, restricted, and prohibited

13. PROCUREMENT POLICY
• Market shares are given to MNCs who are willing to transfer
technologies and to establish local production
• Procurement policies lean towards local manufacturers.
• Providing them favourable bank loans, attractive tax breaks,
generous R&D support.
• Rise of local players such as Huawei, ZTE and many more.

14. EVOLVING MARKET
COMPETITION
• DIRECT IMPORT FROM MULTINATIONAL CORPORATION
PREFERRED
• DIFFERENT PATHS HAVE EVOLVED FOR DIFFERENT PRODUCTS
 Local assembly
 Production
 Joint Ventures
• FACTORS DETERMINING THE PATH
 Competition
 Technology
 Government Policy
 Demand
 Capacity of Manufactures
• CATCHING UP PERIOD DEPENDING UPON THE AVAILABILITY OF
CORE COMPONENTS

15. CENTRAL OFFICE SWITCHES
198
2
198
7
199
2
199
7
2000
Direct
import
100 89 54 5 0
Joint
Venture
0 11 36 63 57
• ChSuipnpalie rhsas 0start0ed t1h0e e3x2por4t3 to other
countries but they have been successful
with only less developed countries
• Difficulties to match the modern day
technology
• Direct Import from western countries of
ATM & IP technology

16. WIRELESS COMMUNICATIONS SYSTEMS
• The competition is moderately fierce
• 1G technology was relied on direct import from two suppliers
Motorola & Ericsson
• 2G made the competition fierce
• The model was changed from direct import to local assembly
• The export to other countries has not been started

17. DATA COMMUNICATIONS SYSTEMS
• New market in China
• The advanced technologies have created much less severe
pressure for MNC to localise their production.
• The situation leads to a direct import market

18. Historic Evaluation
1871-1949 1949-1978 1978-1994 1994-2000 2000-
1871-
Planning
economic
system
Before PRC
establishment
intrducing
competation
reforming
telecom
sectors
market
oriented

19. Re-Organization In CHINA’s Telecom Sector
Separation of Politics from Enterprise
of Telecom and Post Industry in 1994
Establish China Unicom in 1994
Implement the separation of Telecom from
MII in 1997
China Telecom reorganization in February 1999
Guo Xin Paging
China Mobile
4.20.2000
China Satellite
Communications
12.19.2001
China Telecom
Year 2000
China Network
Communications Ltd. 1999
China Railway
Communications Ltd. 2000
China Netcom
5. 2002
China
Telecom
5. 2002
Ji
Tong
China Mobile China Railway
Communications
China Satellite
Communications
China
Netcom
China
Telecom
China
Unicom

20. Emerging Indigenous Production
6.1
Investment Revenue
8
10.3 11
12.8
18.1 19.4
26.9
33
24.6
3.3 4.6
6.8 7.1
11.8
16.8
18.8
26.5
33.7
37.5
42.7
49.7
60
50
40
30
20
10
1.3 2.5 1.2 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
High growth of télécom services revenues, but investments are under
pressure, especially in fixed voice.

21. Growth In Mobile Users In CHINA

22. China Is Developing A Strong Telecom Industry
> Chinese vendors are already
well established in fixed
networking
> They are increasing their
market share in mobile
infrastructure
> The main vendors have
complete product portfolio
> They started in China, and
are now exporting
aggressively
Telecom industry in China
55%
45%
Fixed networking
6%
94%
Mobile infra
Chinese vendors: Huawei, ZTE, WRI, UT
Starcom, etc
Int’l vendors: Alcatel, Ericsson, Nokia,
Siemens, Lucent, Nortel, Motorola, etc

23. Government’s Support To Domestic Vendors
 assignment of research grant for R&D
 low interest loans
 discounted tax rates
 generous provision of land in high-tech
industrial parks
 Operators are encouraged to purchase
products of domestic vendors: Supply-demand
coordination conference

24. China Telecom Revenue From Companies In 2003
31%
14%
0%
2%
37% 16%
CT CN
CM CU
CS CR
Revenues From Companies

25. Elements in the value-chain
Dis-integration and
outsourcing
Sarvesh Mishra B-
60

26. Traditionally integrated
systems
Dis-integrated
Global
Economy
Cross National production networks make it possible for
the production of any elements in the value chain to be
contracted out to independent producers

27. China’s indigenous corporations emerge as powerful
competitors to MNCs
Wintelism
CNP
Government
industrial
policies
Favorable Financial
incentives
Challenges
Weak in some elements of production
IC industry still behind advanced countries
Not sophisticated enough in Sys Design & S/F dev
Keep the strengths &
outsource the
weaknesses
Reversed Cross National Production
networks
Developing countries
contract out to firms in
advanced countries

28. Established in 1988, Shenzhen China
Sales reached 2.66$ in year 2000
Products: Fixed n/w, wireless n/w, data comm n/w & optical
transmission n/w
Products exported to 40 countries
Major success factors:
• Entrepreneurship
• Govt support
• Wintelism
• CNP
• Capable of designing & assembling its own sys at low cost

29. Challenges and
operations:
ASIC (application specific ICs)
Outsourced to
Texas
Instruments,
IBM, Motorola
and others
Cooperation
with Foreign
partners
Up To Date
component
s

30. Lets
Conclude China has attracted most of the MNCs for trade and
production
Coexistence of direct imports, local subsidiaries & JV of MNCs and indigenous manufacturers
Shaped market competition: Interrupted product cycle
Development and deployment in advanced countries, imported to China as demand emerges
MNCs are pressured to establish local assembly & production facilities: to break market entry barriers

31. Local assembly to local production
Reversed cross national production networks
Contract out what they are weak in
Similar trends are evident in markets like India
and Brazil