Contents

1. Introduction…………………………………………………………………………………2

2. Company overview……………………………………………………………………..3

3. Motorola's Strategy for Strategic Investment in China…………….4

4. Motorola : "A Good Corporate Citizen of China”……………………….5

5. Recent Awards and Recognitions in China………………………………..6

6. Question and Answer………………………………………………………………….7

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The case examines the strategies adopted by the US electronics company, Motorola, in China. It focuses on Motorola's initiatives in the Chinese market to establish itself as a major brand. The case provides detailed information on the four-point strategy adopted by Motorola in China and the results of the same.

The case throws light on the increasing competition in the Chinese mobile handset market and the reasons for Motorola changing its strategy. The case also deals with the impact of SARS on the market and the future prospects of Motorola in China. The case provides detailed information on the Chinese mobile handset market.

Two major Issues of case is :

The strategies adopted by Motorola to gain popularity with Chinese consumers.

How far those strategies helped Motorola become a successful company in China.

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Company overview

Motorola Inc., a global leader in offering integrated communication solutions and embedded electronic solutions, was founded in 1928. From its humble beginnings making rectifiers and mobile radios, Motorola grew up in the 1940s and 1950s, and in the 1960s, it began to develop overseas markets and gradually became a global company. Currently Motorola has over 95,000 employees across the globe, and its business covers wireless communications, semiconductors, automobile electronics, broadband and Internet access products. Motorola is a technology leader in the fields of mobile phones, pagers, two-way radios and commercial GSM and CDMA systems. In 2002, Motorola had a total sales volume of US$ 27.3 billion. Mr. Christopher Galvin is Chairman and Chief Executive Officer of Motorola Inc.

Motorola in China

Motorola opened a representative office in Beijing in 1987, and set up Motorola (China) Electronics Ltd. in Tianjin in 1992

Currently Motorola's facilities in China include a wholly-owned company, a holding company, 9 joint ventures and 24 subsidiaries, with more than 12,000 employees

Total investment in China by the end of 2002: US$ 3.4 billion

Sales in China in 2002: US$5.7 billion

Motorola's Performance in China in 2003

Total sales: US$4.67 billion

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Total exports: US$4.09 billion (including US$1.29 billion in International procurement and an export of US$2.8 billion by Motorola China)

Local sourcing: US$2.8 billion

Total employees: 10,000(with 1,400 for R&D)

R&D centers: 19

Motorola's Strategy for Strategic Investment in China

Motorola's growth in China goes hand in hand with China's economic development and China's increasing participation in the world economy. Motorola's is increasing its commitment to supporting local research and development both inside the company and in partnership with research organizations and universities in China. In addition, Motorola is devoting essential corporate resources to help develop the capabilities of local suppliers so that they can take part in the company's uncompromising, world-class supply chain. As part of Motorola's commitment to China following the country's ascension to the WTO, the company recently pledged $90 million to set up an R&D company in Beijing.

Since entering China, Motorola has dedicated itself to the localization of the company's management ranks. The company's strategies are best summarized as below:

Motorola is steadfastly committed to investing in China and transferring technology and building local manufacturing and R & D capabilities in order to provide the country with advanced communications solutions.

The company will continue its long-term plan to localize management in China and to develop and train excellent local management talents.

The company will continue to work with local companies to create a comprehensive local supply chain.

Promote joint ventures and cooperative projects with local partners to take advantage of China's new market opportunities

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that result from China's increasing integration into the world market.

China, Motorola is now focusing on

Creating global centers for excellence in China for the company--manufacturing and R&D centers

Looking for new growth opportunities in the areas aside from our existing main business --E911, broadband and automotive electronics

Motorola : "A Good Corporate Citizen of China”

In China, Motorola has been honoring its long-term commitment to China by also being a good corporate citizen in the country. Such activities rang from philanthropy to supporting China's accession into the World Trade Organization (WTO). Here are the highlights:

Anti-SARS: In May 2003, Motorola donated a total of RMB 11.80 million worth of anti-SARS equipment, cash and goods.

Project Hope: Donating RMB 27 million over 9 years setting up more than 60 Project Hope primary schools and funding 12,000 poverty-stricken children to return to school.

Higher Education: Providing RMB 11 million to 12 universities including Peking University and Tsinghua University.

Disaster Relief: Donated flooded areas along the Yangtze River valley and the Northeast China region; setting up 11 schools for homeless children in flooded areas.

Sports Sponsorship: The 11th Asian Games, the 21st Universiade, the 7th and 8th National Games, CNBA, National Football League Matches, Badminton Matches, and Games for the Handicapped.

Environmental Protection: "green China" Program in 1998.And, in 2003, joined with other local and foreign handset manufacturers in China to sign a pledge to take back used phone/battery

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Active support for China's bid for the 2008 Beijing Olympic Games: Motorola actively supported Beijing for its bid t host the 2008 Olympic Games (Motorola's communication equipment has-been used in seven Olympic Games).

Recent Awards and Recognitions in China

1. Foreign Investor of the Year, 2003 awarded by CCTV as part of the television network's Economic Leaders of the Year program. Motorola was the first corporation so recognized.

2. 2003 Best Service with Innovation in Mobile Telephone Business(CCID)

3. In 2002, Fortune Magazine's Chinese Edition identified Motorola as China's best global employer.

4. The Magazine's Chinese Edition also cited Motorola as the best among global companies in China for

Its long-term commitment Innovation

Adaptation to the local market.

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According to company sources, Motorola wanted to become more Chinese than the local Chinese companies. Explain the strategies adopted by Motorola to gain popularity with the Chinese consumers. How far do you think those strategies helped Motorola become a successful company in china.

Part I

The strategies adopted by Motorola to gain popularity with the Chinese consumers:-

Motorola has a principle that is “Understand Chinese culture, pay respect to Chinese conditions, does not be self- opinionated, do not always blame others”

Initially Motorola adopted a four- point strategy in china that is

Investment/Technology Transfer Management Localization

Local Sourcing

Joint Ventures/Co-operative Projects

Investment/Technology Transfer

Initially, Motorola set up a plant at a total cost of $120 million in the Tianjin Economic & Technology Development area for manufacturing pagers, simple integrated circuits and cellular phones. In the next phase of its investment of around $400 million, the company built its second plant for manufacturing automotive electronic, advanced microprocessors, walkie-talkie systems and fabricated silicon wafers. In

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addition to its wholly-owned manufacturing plants between 1995 and 2002. Motorola entered into nine joint ventures with Chinese firms to expand its presence in the market and also increase its production capacity. The joint ventures helped Motorola gain access to the Chinese market without establishing additional manufacturing plants.

By 2001, the company had invested around $400 million in Joint ventures in accordance with the Chinese government policy to boost foreign investment in telecommunication equipment parts, Motorola invested heavily in the production of semiconductors and mobile handsets. It also brought GSM technology to china and analysts credited Motorola with introducing and popularizing this technology in the country.

In the line of four-point strategy, Motorola invested in research and development centers in China. In 1999, Motorola established the Motorola China Research & Development Institute in Beijing. The company announced that its research center would focus on technological development and innovation. Motorola’s R & D institute conducted research in the area of communication, software and semiconductors.

Motorola employed around 650 engineers for its research activities in China. The company also entered into research partnerships with Chinese university and institutes.

Over the years, Motorola entered into agreement with two Chinese telephone service providers “China Unicom and China Mobile” for installing telecom networks across the country. It also provided GSM technology to the mobile service vendors “Hubei Mobile Communications and Eastern Communication Co. Ltd”

Though Motorola had a significant investment in the semiconductor business, by the early 2000s, with the worldwide slowdown in the semiconductor business and the China emerging as the world’s largest mobile market, the company started focusing more on its mobile handset business.

Management Localization

Motorola not only established manufacturing plants in China, but also localized the management. The company realized that in order to increase its market share, it had to hire more Chinese employees. However, Motorola also realized that the Chinese managers were not familiar with western management concepts and that the country lacked managerial talent. Though the Chinese were good at basics

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they lacked practical application of theories. Thus, Motorola established the Motorola University in 1993 to train young Chinese people to take up global managerial positions. The mission of the University was “to train and develop world-class staff for Motorola”. Motorola also provided in-house training to its employees. The engineering recruits were sent to its manufacturing plants in other countries like US, Singapore and Hong Kong for on-the-job training in designing and other high-tech manufacturing procedures. It also initiated a career management program called Cadres 200. Under this, Motorola selected around 20 top employees for a leadership training program and posted them in Motorola manufacturing plants across the world.

Sourcing Locally

To the extent possible, Motorola sourced components from the local Chinese players. This reduced its cost and also complied with government’s requirement that MNCs working in China had to source a certain percentage of components from the local firms. Motorola provided training to the local suppliers to improve their standards by extending technological and managerial support. It also helped them to increase their productivity and quality levels, and even assisted them to enter global market. Motorola also encouraged its foreign supplier to set up plants in China. According to reports by, 2002, around 45 Motorola suppliers had set up manufacturing in China.

In order to inculcate a competitive sprit among its Chinese suppliers, Motorola conducted exhibitions. Such as “Teaming for Excellence” which allowed its suppliers to showcase their talent and components. By 2002, Motorola had 176 direct suppliers and 700 indirect suppliers and the usage of local components increased from 58.85% in 2000 to 65% in 2001.

Building an Image

Motorola also focused on building its brand among the Chinese. It installed glow signs in busy market areas and placed advertisements in print and television to increase awareness among consumers about the company. It was reported that due to its extensive marketing the Chinese associated Motorola with quality and did not mind paying a premium price for its products. The company also opened up Motorola exclusive showrooms in the up-market areas such as Shanghai and Beijing offering latest mobile handset models.

Motorola also introduced a new retailing concept called Motorola Towns. These towns were based on the Nike Town in the US and aimed

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at providing a unique retailing experience to consumers. In Motorola Towns mobile handsets were displayed and consumers could walk in and use various technological gadgets without spending any money. According to company sources, the aim of Motorola Towns was to attract the high end consumers

With Chinese players competing on price and gaining a foothold in the entry level, Motorola decided to concentrate on the high- end market. In order to obtain visibility for its high-end products, Motorola adopted various marketing initiatives. The company organized lavish launch parties for its mobile handsets, wherein models walked down the ramp displaying the new Motorola handsets. Motorola also sponsored local sports events to enhance brand recall among consumers.

Along with its marketing activities, Motorola concentrated on building its image as a good corporate citizen in china. Motorola associated itself with ‘Project Hope’ which was initiated by the China Youth Development Foundation.

According to Motorola sources, from 1994, it provided financial aid to more than 9,000 children to complete their school education and constructed around 40 Motorola Hope Schools in about 25 provinces.

To strengthen Project Hope, Motorola undertook a Motorola Hope Tour in which the company’s top executives visited underdeveloped areas in the country to learn about the local conditions. Motorola also organized programs like’ Green China’ to protect the environment in the country.

Motorola started feeling the heat by the early 2000s, when it saw its market share declining due to fierce competition in the Chinese mobile handset market. In order to increase its sales and market share, Motorola announced a new strategy in June 2002.

The 2+3+3 strategy

It is an evolution of the previous Four-Point strategy the company has stuck to for the past 8 years. The new strategy can be explained as follows:

The ‘2’ refers to building China into a world-wide manufacturing and R&D base.

The first '3' refers to three new growth areas including semiconductors, broadband and digital trunking systems.

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The second '3' refers to three $10-billion goals: annual production value to reach $10 billion by 2006, accumulated inputs in China to reach $10 billion by 2006; and local purchasing to reach $10 billion in China within the next five years".

The core of the new strategy is the same as that of the Four-Point Strategy: Win-Win for Motorola and China. Based on the new strategy, Motorola will continue to be a good Corporate Citizen in China, to deeply root itself in China and to be integrated into the China society.

Measures have been taking by all sectors to implement the 2+3+3 strategy. Motorola has adjusted its worldwide manufacturing capacity and has shifted some production to China. The company also decided to hire 4,000 more engineers and researchers and add 1 billion USD in R&D to the existing 18 R&D centers.

Part II

Due to its focused strategy in Chinese market, Motorola was the leader in the mobile handset market with a share of 31% in 2000.

Motorola was successful in China due to its understanding of the market and the people and because of the strategies it adopted. By 2003 Motorola was regarded as the most successful as the strategies it adopted helped it to understand Chinese culture, it paid respect to Chinese conditions.

By adaptation of four point strategy it was able to gain access to Chinese market. It was able to localized the management. In order to increase its market share, it hired more Chinese employees. As it established Motorola University in 1993 it was able to train young Chinese people to take up global managerial positions. Through this it was able to train and develop world-class staff. Through the strategies Motorola reduced its cost and also complied with the government’s requirement that MNCs working in China had to source a certain percentage of components from local firms.

Because of its strategies Motorola had 176 direct suppliers and 700 indirect suppliers and the usage of local components increased from 58.8% in 2000 to 65% in 2001.

It was found that due to its extensive marketing the Chinese associated Motorola with quality and did not mind paying a premium price for its products.

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Motorola introduced several new concepts like Motorola Towns. Because of its strategies Motorola was able to build its image as a good corporate citizen.

However, with increasing competition Motorola started experiencing a decline in its market share and by 2002 its share was down to 28%. Hence Motorola was bound to change its Recipe and announced a new five-year ‘2+3+3’ strategy in June 2002.

If we examine closely the Share of Chinese Market in Motorola Global Markets then we can find that in 1999 China’s share in global Motorola revenues was 10% then in 2000 it increase to 12% and then in 2002 it grew up to 14%. Hence it shows that the strategies it adopted helped Motorola became a successful company in China. But it was limited up to certain period.

In early 2003 Motorola experienced a slowdown in sales in China with the outbreak of Severe Acute Respiratory Syndrome. While Motorola experienced a decline in its market share, the local players had increased share to 20%. For the same period Motorola’s sales declined by around 58%.

It was found that the reason for its losing market share was excessive inventory, desperate competitors and cut throat pricing.

Lastly it was suggested that as it was slow down of demand in urban areas mobile companies need to focus more on smaller cities and rural areas.

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