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

• 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

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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
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

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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

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).

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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
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.

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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 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.

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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
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

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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.

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.

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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.
• 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

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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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