• Information and Communications Technology Opportunities
In China’s Pearl River Delta
By Ralph Rogers

The Pearl River Delta is one of the fastest developing economic regions and leading manufacturing centres in the world. It is made up of the two special administrative regions of Hong Kong and Macau as well as nine cities in Guangdong Province.

Within the Pearl River Delta the main concentration of Information and Communications Technology (ICT) companies are to be found in the cities of Shenzhen, Dongguang, Guangzhou and Zhuhai. The key ICT sub-sectors in these cities consist of mobile telecommunications, digital content, semiconductor and electronics design.

Mobile Telecommunications
China’s mobile telecommunications industry is monopolised by two companies, China Mobile and China Unicom.

China Mobile, which is by far the larger of China’s two mobile carriers, claims that its network is one of the most advanced 2G and 2.5G networks in the world. Guangdong Mobile, the provincial branch of China Mobile, generates one-third of China Mobile’s revenue and mobile phone subscribers in Guangdong account for approximately fifteen per cent of the total number in China.

Opportunities for UK companies wanting to work with China Mobile would be based around 3G network roll-out consultancy, and 2.5 and 3G network optimisation. However, UK companies would have to commit themselves to the long term and set up a team locally on site with Guangdong Mobile to ensure they can deliver the levels of support required.

China Mobile carries out public tenders for its procurement from its headquarters in Beijing.  Notice for equipment tenders, service tenders and the requirements for being a qualified candidate can all be found on China Mobile’s national website although this is only available in Chinese.

With regards to wireless value-added services, China Mobile welcomes any applications that would increase average revenue per user. China Mobile is interested in any applications in vertical sub-sectors such as retail, transportation and e-health that would generate traffic. China Mobile as an operator would not deliver projects like this itself but would assign one of its preferred content or service providers to meet with UK companies to discuss and develop such projects.

In addition to the technical opportunities China Mobile need business management training dedicated to the mobile telecommunications industry.

Digital Content
The key content aggregators of digital content, including music downloads, video, games and other information services, in the Pearl River Delta include Tencent, the largest instant messaging service operator in China, Net Ease, one of China's leading internet and online game services providers, and Kingsoft, a leading entertainment and application software developer, operator and distributor in China.

Chinese digital content companies understand the Chinese market very well and it is their view that the majority of internet and mobile content users in China are low-end users, and that they like typically Chinese style content. Their impression of digital content from the UK is that it is for high-end and business users.

They also think that Western-style content might not fit the Chinese market. They may therefore be reluctant towards companies from the UK wanting to sell British or Western content to them.

However, these companies are very open-minded and it is worthwhile for UK companies to meet them to discuss business ideas and present their products.

There may also be opportunities to provide business consultancy services to some operators. For example, intelligent traffic information is a new market in China. The number of private car owners is growing so there is a market for real-time traffic information services, though the Chinese operators are not sure about a successful commercially viable business model. They do know that the UK has been quite successful with this and are interested in talking to British companies that can provide experience and expertise in this area.

Semiconductors and electronics design
In the semiconductor industry, electronic system design is an area where UK companies could develop business opportunities. Potential buyers in the Pearl River Delta include design houses and equipment manufacturers, as well as electronics manufacturing service companies.

The Pearl River Delta is a key manufacturing base for consumer electronics and is a great market for integrated circuits. There are around two hundred design houses in Shenzhen, providing consumer electronics system design services. The majority of these will just use a copy of an existing popular solution and then sell it to the electronics manufacturing companies.

However, there are at least ten major design houses in the Pearl River Delta doing their own development.  Co-operation with these companies could provide a channel for UK integrated circuit design companies to sell to the consumer electronics original equipment manufacturers and original design manufacturers in the Pearl River Delta.

Shenzhen is the capital city of mobile handset manufacturing in China. You can find a whole supply chain of mobile phone handset components within a single street in Shenzhen.  However, they primarily engage in short-term, small-volume projects. Their handsets are unbranded and they sell into the low-end market in second- and third-tier cities and rural areas.

The Taiwanese fabless semiconductor design house MediaTek does great business in the Pearl River Delta providing a complete range of services to these companies. UK integrated circuit design companies could co-operate with design houses from Taiwan, Hong Kong or Shenzhen, incorporating their own unique integrated circuit designs, in order to sell into this huge market.

Barriers for UK Companies

Regulatory Issues
There are many regulatory issues, not just those set down by the government but also those set down by some of the key operators. For example, when China Mobile issues a tender notice, they will require a bidder to have several years’ working experience in China.

Large Chinese companies and operators also require prompt reliable after-sales service and onsite telecoms support which requires a long-term commitment and a lot of resources from the UK company.
 
In order to overcome these barriers a UK company will often have to work in partnership with a local company.

IPR
A weak enforcement of intellectual property rights (IPR) in China poses a tough challenge to British companies. The first step to prevent your IPR being infringed is to make sure you have registered your patents in China.

However, if your IPR is infringed then you will need to collect evidence of this and report it to the local administration of industry and commerce. Often a ‘cease-and-desist’ letter can be sufficient. 

According to the experience of one successful British software company in China, many manufacturers will eventually buy a licence from them because they don’t want to get into trouble with the authorities, but monitoring cases of infringement and taking action requires an investment in time and resources.

Ralph Rogers is a China Business Adviser with the China-Britain Business Council.  He can be contacted on 020 7802 2004 or ralph.rogers@cbbc.org

Success Stories

A good example of a wireless value-added services that benefits both retailers and China Mobile as well as the consumer is an application from M Cashback. This London-based mobile marketing company has concentrated significant efforts in mainland China including the Pearl River Delta.

The company created a Chinese subsidiary, Sino M Cashback, in late 2006. Since then it has signed up major provincial and municipal branches of China Mobile, as well as leading supermarkets, white goods retailers, and convenience stores.

Their concept is simple: a shopper sees an M Cashback logo offering a number of minutes of talk with the purchase of a product, such as a jar of coffee. The shopper puts the item in their trolley then at the till is given a receipt with a short code he can send in to redeem the free minutes and if they want can also top up their pre-pay mobile account or buy content the same way. 

Mobile phone companies like this concept as they are always looking at ways to increase the time that users talk in order to generate more revenue.

The system is particularly suited to China because it appeals to people who use prepaid SIM cards. That benefits operators, because if people have more free minutes on a prepaid phone, they are more likely to talk longer.

Zetex, an Oldham based company, who design and manufacture a broad range of integrated circuits and semiconductor products, provides a great illustration of a British company achieving success in the China market. The company entered the China market much earlier than most of its competitors, and China plays a key role in Zetex’s global business.

Zetex have had a presence in Greater China since 1989, when it first established a regional office in Hong Kong. The company entered into a joint venture manufacturing operation in Chengdu in 1995 and has since opened design support centres in Shenzhen and Taipei, Taiwan.  Zetex has major clients in the Pearl River Delta including ZTE, China’s largest listed telecom equipment maker.  Zetex recently won the Greater China Business Award 2008 for the North West of England region.