Chinese Tech Firms Combine Form and Function To Capture the Local Market

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by: Shaun Rein

Motorola's (MOT) fortunes changed in China after the red hot Razr phone was introduced to the marketplace. Like in the United States, the Razr has rejuvenated Motorola's operations. The company had lost its edge over the past few years and was seen as a phone for old people, rather than for the coveted youth market. Motorola's turnaround with the Razr shows the importance Chinese youth place on design and indicates an increasingly cultured Chinese consumer.

Although the Razr was not specifically designed for the China market, it indicates the importance that multinationals and domestic Chinese companies have to place on industrial design in order to succeed in a country where consumers are faced with a dizzying array of choices. More multinationals like Samsung and Sony (NYSE:SNE) are also setting up design centers in China to cater specifically to the China market. They are hiring the 10,000 or so students who graduate from China’s 400 design schools every year.

Chinese consumers, especially in the youth sector, are savvier than 10 years ago when they bought for utility rather than as a way to express themselves and aspire to certain social strata. Domestic Chinese mobile phone manufacturers have not made the industrial design investments necessary to be able to compete with Motorola and Nokia (NYSE:NOK). Soutec (Group) Technology, China Kejian and Nanjing Panda Mobile Communications Equipment are all local manufacturers that recently stopped producing phones after stalling sales.

Chinese firms need to understand that to compete at an international level they need to come up with designs that appeal to consumers. They need to follow in the footsteps of sector leaders Lenovo (OTCPK:LNVGY) and Haier and invest in in-house design teams or outsource to top Chinese industrial design firms like S.POINT and Togo\Trio Design, to China based expatriate-owned firms like onetwodesign, or major international ones which have a China presence like IDEO and Frog Design.

The importance of design should not be underestimated in the China market. Two of China’s leading companies, Lenovo and Haier, have recognized the necessity of investing in industrial design. While it has not been determined whether their first major attempts will bear a high return on investment, it is certain that they are on the right track and are giving indication that China may soon have brands that rival those from the US, Japan, and Korea.

Coinciding with its acquisition of the IBM ThinkPad line and an infusion of private equity money from Newbridge and General Atlantic Partners, Lenovo became aggressive with its design and hired international design firm ZIBA to design the Opti Desktop PC. The PC won a Gold Award from the IDEA industrial design competition cosponsored by IDSA and BusinessWeek. Lenovo has also had major success with the release of its new Tianyi laptop line, which won a prestigious iF design award in 2006.

Haier, one of China’s largest producers of home appliances has also gone global in terms of design. The company recently won a gold award for its A-003 standing air conditioning unit from the iF International Forum Design. The design was created in-house by Haier’s design teams in China. Realizing that they cannot differentiate solely on low pricing anymore, Haier and other Chinese firms are increasingly investing in industrial design to differentiate their products both in form and quality of use. Haier’s product lines already dominate the Chinese marketplace and have made great strides in the international arena.

China has long been considered a source of low cost manufacturing; will it soon be thought of as a center of innovation as well, especially in the industrial design sector where the sheer numbers of the country’s market size necessitate China specific design initiatives?

The domestic Chinese industrial design community has already made great strides and is fast catching up with international counterparts as evidenced by the success of Haier’s in-house design team. With Chinese consumers demanding better looking products, the industrial design sector will continue to grow in sophistication. Within a couple of years, China’s young talent will have had the global exposure and experience necessary to compete with the best designers from around the world.

It may not be too many years before China is on par with Korea and Japan in creating world class industrial design rather than copying someone else’s mould. Maybe the next ‘Razr’ will come from China sooner rather than later.

Shaun Rein is the Managing Director of the Shanghai-based China Market Research Group CMR, a Shanghai based firm that helps foreign firms entering or expanding in China get the market intelligence they need to make smarter decisions in China. This article originally appeared in China International Business. CMR analyst Ben Cavender contributed to this article.

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