When Toshiba Corp, Japan's second-biggest chip maker, withdrew from China's mobile phone market and sold its stake in a related venture in April, it sounded the horn ahead of Japanese mobile phone firms' escape from the Chinese market.

It's definitely not just a retreat. Similarly, withdrawal from the Chinese market could also be found with other Japanese handset makers including Sanyo, Panasonic and Mitsubishi although some brands, such as NEC and Kyocera, are continuing to fight for growth in the China's market.

Japan's handset producers, previously star players in the Chinese market, are now overshadowed by both international handset giants, such as Nokia, Motorola and Samsung, and Chinese brands like Bird, TCL and Amoi.

"We reviewed our business in China because it was difficult for us to sell advanced mobile phone units," says Toshiba spokesman Keisuke Omori.

The company sold its 33-per-cent stake in a mobile phone venture, which it established in 2000, and facilities to Nanjing Putian Telecommunications Co.

Toshiba, one of the major players to roll out high-end handsets based on the CDMA (code division multiple access) network in China, had been targeting the high-end market. It had been selling phones with built-in cameras and video e-mail capability for about 6,000 yuan (US$722).

It did not have a licence to produce GSM phones.

Toshiba attributed its retreat to the high cost of handset production, and its heavy inventory.

Toshiba is not alone in encountering difficulties in China.

Earlier this month, media reports hinted Mitsubishi was about to pull its mobile phone business out of China.

There was no immediate response from the company. But the firm has been quoted by a Beijing-based newspaper as saying it will soon make an announcement.

Nevertheless, Mitsubishi is currently struggling to survive in China.

Chen Yuhong, general manager of Zhongfu Telecom, one of the largest handset chain stores in Beijing, says sales of Mitsubishi's eight types of handsets are quit flat.

"Compared with other leading handset makers, Mitsubishi is comparatively slow in rolling out new models to attract customers," Chen says.

As a matter of fact, Mitsubishi is also encountering great difficulties overseas.

The company in April announced plans to withdraw from the European market and close down its research and development centre in France.

It is also planning to retreat from Taiwan.

Analysts believe failure to localize its strategies could have been a fatal misstep for the Japanese firms.

"Their market strategies, as well as their operations, are not in line with the real situation in the Chinese market, although those strategies and operations proved quite successful in the Japanese, European and US markets," says Zeng Jianqiu, a professor with Beijing University of Post and Telecommunications.

In Japan, most handset makers are accustomed to producing handsets in accordance with telecoms operators' orders, which means they don't have to care too much about sales and marketing.

And a stable market environment and bonded sales pattern have made Japanese handset makers focus more on enhancing quality and technology rather than promoting their brands.

However, in the Chinese market, placing orders with handset makers is not a regular practice for Chinese telecoms operators. In other words, customers have many handset options.

Therefore, competition in the Chinese market is very fierce, as all the players want a big share of the market.

"Many Japanese handset makers failed to launch their products that well attract the Chinese customers," Zeng says.

For example, many Japanese firms continue to overlook designs of the handsets, ignoring Chinese customers' needs for fancier handsets.

Also, most Japanese handset makers are producing high-end handsets. That leaves them in a weak position to command a large share of China's market, which is dominated by low-end and mid-range users.

Some of those handsets, on sale, go for 1,000 yuan (US$120) to 2,000 yuan (US$240).

Some stores offer phones for as low as 500 yuan (US$60).

"Localized research and development should also be enhanced to improve performance in the Chinese market," Zeng says.

But he believes the Japanese firms' recent retreat from the Chinese market might be temporary.

"China's mobile phone market, the world's largest in terms of subscribers, will continue to become a must for almost every handset marker," he says.

Zeng's remarks were echoed by a high-ranking official with Toshiba (China), who says "Toshiba will come back to the Chinese market at the right time."

China's market is currently shared by both international and local companies, with foreign brands holding the upper hand.

Nokia held the top spot in China's mobile phone market last year and in the first four months of this year, followed by Motorola, which took up 13.4 per cent of the market share in the first four months.

The highest-ranking Japanese-invested mobile phone maker was Sony Ericsson Mobile Communications Ltd, a Japanese-Swedish joint venture.

"For Japanese companies, localizing their business strategies in the Chinese market is a must if they are to regain their past glory," Zeng says.

Leading technologies, abundant capital and international experience are advantages held by Japanese firms, he adds.

Amid the difficulties facing Japanese firms, NEC and Kyocera have made an effort to adapt more quickly to China's market.

"We are trying to better adjust to seek growth in the world's most populous market," says Brian Lu, president of NEC (China) Ltd.

The company plans to launch several new handset models, which have a mobile music function, to tap the Chinese market this year.

NEC hopes to grow into one of the top five handset makers in the Chinese market this year.

In addition, the company is readjusting itself to cash in on China's pending 3G (third-generation) mobile technology launch later this year.

NEC in January established a 3G mobile terminal research and development centre in Beijing.

"For 3G, China will be our focus, besides the Japanese market," Lu says.

Chen Jinqiao, director of the China Academy of Telecommunications Research under the Ministry of Information Industry (MII), believes there is a long way to go before Japanese handset makers will stand high in the Chinese market.

Earlier this year, the Chinese Government introduced a new handset manufacturing licence system as part of its efforts to open the handset manufacturing sector.

MII figures indicate mobile phone production in China is expected to reach 260 million units this year.

(China Daily 06/20/2005 page7)