Shanzhai MediaTek And The White Box Handset Market Case Solution

2. Problem Statement

The Shanzhai benefited MediaTek without a doubt, but the question was for how long would this gray segment work its way through and whether MediaTek should look towards working with tier-one brands? Additionally, what ways, if any, exist as a means of cutting off supplies to knock-off manufacturers?

Tsai was concerned with the problem of prospective path taken by these knock-off manufacturers. Additionally; he wondered what exactly could be done by these manufacturers as a means of improving their foothold in Mainland China.

3. External Analysis

The external analysis essentially defines the industrial perspective of business standards and practices, which impact the profitability of the individual manufacturers.

i. Industrial Structure

Industry estimates suggested that in between $1.2 Billion to $1.4 Billion units were shipped in the year 2009, with east and south Asia being by far the largest markets and advancing quickly.

The developing world was still clinging to the hopes of 2G technology bringing advanced options to their cellular phone, whilst the developed world was looking towards the prospects of 3G technologies.

Schenzen was the site of China’s first “distinct economic zone” which accumulated spectacular economic growth in a short span of time, due to its strategic location and trade attributes. Schenzen is the largest manufacturing centre for mobile phones in the world with estimated 2008 exports of $12.23 Billion, of which 34 percent went through Hong Kong. This figure does not consider the amount smuggled out which may spike the number to countless Shanzhai cell phones.

ii. Porters Five Forces Model

Threat of New Entrants

The white-box model impacted the industrial arena by significantly lowering the entry barriers to get into the handset business, due to the prime reason of no requirement of system integration skills as all the subsystems, and their interfaces were totally codified. The white-box model allowed manufacturers to attain supplies from legal manufacturer at a higher price but presented the customer with a rather customized product suiting their individual needs.

Bargaining Power of Suppliers

The bargaining power of suppliers was relatively medium because of the fact that there was only one leading producer if considered in the exclusive context of Asian region. However, if considered globally, there were numerous suppliers of chipsets who varied in the quality of options provided. Additionally, since the Shanzhai was the foremost problem segment, it attained its supplies through legal manufacturer who accepted larger than required supplies so that they can sell it for a profit in the secondary market.

Bargaining Power of Buyers

The bargaining power of buyers was relatively low due to the widespread number of such buyers. There are two buyers that can be considered: the industrial buyers of chipsets had a low bargaining power due to their nature of illegal business that did not allow much cushion if considered logically; however, the customized nature of attaining different supplies from different vendors allowed them to create cheaper products. The consumer buyer group had a higher bargaining power. This was because they offered such a vast variety of knock-off cell phones that they can buy suiting their needs.

Degree of Rivalry

This aspect can be considered of a higher rating due to the fact that these knock-offs were a large segment of the Chinese market. The presence of such a high number of players, the aspect of competition or rivalry attempted to be based on innovation with respect to customization. Mass customization was the crux of the whole process which allowed for the proliferation of knockoff ideology.

Threat of Substitute Products

Threat of substitute products was relatively medium in nature, due to the fact that there existed the possibility of the advent of new technological innovation, which can lead to the redundancy of present ideas widespread in the market.

4. Internal Analysis

i. Marketing and Competitive Position

MediaTek products were in some respect technology followers because they lagged behind in certain areas from key competitors like Infineon, Freescale, Qualcomm, so on and so forth due to their inability to provide with 3G capabilities. This is the prime reason for not being able to sell to tier-one brands. Therefore, while tier-one chipset suppliers worked with their loyal customers to incorporate more intricate ideas to improve performance, MediaTek increased its customer base by covering the low end of the feature phone market.

MediaTek chipsets were now sold in handsets spread over more than 120 countries. Millions of customers who had never before utilized the convenience of cell phones now had a plethora of options to choose from featured with customized options targeting a niche segment which was widely ignored by the tier-one brands.

MediaTek was profound for its strengths that included the provision of a reference design for customers which was mainly a technical blueprint for the system that included both the hardware and software. On the software side, two key design tools were available which included the emulator and simulator. All this was provided with trainings to the specific workforce covering the specific area. These trainings allowed for detailed understanding of utilizing these tools. Additionally, numerous universities adopted these training sessions as a subject course which can be opted by students allowing for basic understanding and building of concepts.