CONFIDENTIALThis report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.August 20, 2001Mobile Handset Competitor Profile: MotorolaSAMSUNG ELECTRONICS CHINA (SEC China)麦肯锡三星战略1motorolaOVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK1. Background informationLocationRegistered capitalManagementteamEquitystructureStarting yearNumber of employeesEra analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus onMarketing, advertising and promotionDistribution (channel and sales force)Organization structureOwnership structureSales Profit 2. Strategy 3. Product/market MissionVisionCorporate strategyMarket positionKey product offeringsKey customersValue propositionGeographic focusPricing2麦肯锡三星战略1motorolaBACKGROUND INFORMATION1. Background informationLocationRegistered capitalManagementteamEquitystructureStarting yearNumber of employeesEra analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus onMarketing, advertising and promotionDistribution (channel and sales force)Organization structureOwnership structureSales Profit 2. Strategy 3. Product/market MissionVisionCorporate strategyMarket positionKey product offeringsKey customersValue propositionGeographic focusPricing3麦肯锡三星战略1motorolaMOTOROLA HAS HIGH ASPIRATIONS FOR ITS CHINA BUSINESSTargeting sales of US$ 10 billion in China by 2002/2003Focusing production operations in China, as production there is about 15-20% cheaper than in Singapore and 30-40% cheaper than in EuropeSource: Analyst reports4麦肯锡三星战略1motorolaMOTOROLAS CHINA BUSINESS SPANS SIX PRODUCT CATEGORIESMotorola ChinaMobilehandsetsNetworkequipmentPagersTwo-wayradiosSemi-conductorsAutoelectronics andaccessoriesMobilenetworkequipmentFixed linenetworkequipmentWirelesscommunicationsSource: Motorola websiteSet up representative office in 1987Operations include:1 holding company1 WOFE8 joint ventures26 subsidiaries12,000 employeesUS$ 3.4 billion total investment to date5麦肯锡三星战略1motorolaSTRATEGY1. Background informationLocationRegistered capitalManagementteamEquitystructureStarting yearNumber of employeesEra analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus onMarketing, advertising and promotionDistribution (channel and sales force)Organization structureOwnership structureSales Profit 2. Strategy 3. Product /marketMissionVisionCorporate strategyMarket positionKey product offeringsKey customersValue propositionGeographic focusPricing6麦肯锡三星战略1motorolaMOTOROLAS HANDSET STRATEGY COMBINES AN ATTRACTIVE PRODUCT RANGE WITH SUPERB VALUE CHAIN MANAGEMENTDeveloped a wide product range which covers all key price points and offers a wide range of functionalityInvested heavily in product localization through China-based R&D teamExpanded local manufacturing in order to reduce costs and improve time-to-marketClosely managed first-tier group of nine resellers in order to minimize price competition and facilitate order trackingCommitted handset promotionSpeedy roll-out of new releasesProvision of high-quality after-sales servicesAdvanced technologyProduct rangeValue chainCorecompetencies7麦肯锡三星战略1motorolaPRODUCT/MARKET1. Background informationLocationRegistered capitalManagementteamEquitystructureStarting yearNumber of employeesEra analysis4. Value chain strategy5. Organization and ownership 6. Financial performanceFocus onMarketing, advertising and promotionDistribution (channel and sales force)Organization structureOwnership structureSales Profit 2. Strategy 3. Product /marketMissionVisionCorporate strategyMarket positionKey product offeringsKey customersValue propositionGeographic focusPricing8麦肯锡三星战略1motorolaMotorola has entered the low-end of the mobile handset market since 1999. Its products are more function-driven compared with Nokias products, which are more fashion-drivenMotorola takes more than 50% of the share in the high-end and high-mid-end of the mobile handset market, and more than 20% of the share in the low-end and mid-low-end. Its low-end handsets represent more then 50% of its product offeringsMotorolas market share is relatively consistent across tier-cities and geographies, taking approximately 30% everywhereKEY MESSAGES - PRODUCT/MARKET9麦肯锡三星战略1motorolaMOTOROLA HAS RECENTLY FOCUSED ON BUILDING OUT ITS LOW-END PRODUCT PORTFOLIO Product positioning Dec 2000Business/professional PersonalProduct positioning Jun 2000V8088 (1.6%)Business/professional PersonalV998 (5.6%)LF2000 (2.9%)LF2000 (4%)368C (3.1%)338C (0.6%)T2688 (4.8%)CD928 (1.1%)V2188 (3.8%)V2088 (2.0%)A6188 (1.4%)V8088 (3.9%)V998+ (7.0%)P7689 (1.8%)L2000 (2.2%)LF2000 (1.7%)368C (2.3%)T2688 (6.2%)V2188 (1.3%)V2088 (1.0%)366C (0.5%)T2288 (0.3%)T360 (0.3%)High High-mediumMedium-low Low High High-mediumMedium-low Low Source: Interviews, McKinsey analysis10麦肯锡三星战略1motorolaMOTOROLA MODELS ARE MORE FUNCTION-DRIVEN THAN NOKIAFashion BusinessBasicFunChangeable cover Sub-100gVoice-dialRecordingVibrationTri-bandWAPBuilt-in modemIR-portChinese inputLi-Ion batterySMS messagingGamesComposable/ downloadable ringer tone82106210P7689V998+L2000WWWFashionClassicPrice in China (RMB)26522878236918001452Equivalent features, Nokia more fun/fashion vs. Motorola more functionsMotorola offers lower price models with similar features, tri-band and WAP* Nov. 2000 priceKey differences11麦肯锡三星战略1motorola Source:GFK, Sino-MRMOTOROLA HAS HIGHER SHARES IN CHINA IN FASHION AND BUSINESS SEGMENTSNokiaMotorolaModels2000ChinaTaiwanHong KongIndonesiaSingaporeFlagship8850A6188Fashion-High8210, 8250V8088, V998+Fashion-Low3310T360, T2988, T2688Basic3210, 5110V2088/2188, V2288, StarTac, CD928/938Business-low6150L2000 SeriesBusiness -High6210, 7110P7689Total:12麦肯锡三星战略1motorolaMOTOROLA HAS DRIVEN SALES INCREASES PARTICULARLY IN THE LOW-END PRODUCTSMid-low(RMB1500-2500)High-mid(RMB2500-3500)High(RMB 3500)December 2000April 2001Product mixPercent of unitsMarket share by price pointPercentLow (RMB3500)Low (RMB1500)Source: Interviews, Sino-MR (Dec 2000 - April 2001), McKinsey analysisMid(RMB2000-2500)13麦肯锡三星战略1motorolaMOTOROLAS MARKET SHARE IS RELATIVELY CONSISTENT ACROSS TIER CITIES AND GEOGRAPHIESMarket share by tier citiesPercentMarket share by geographic areasPercentNorthWestNortheastCentralTier 1 Tier 2 Tier 3 2000April 2001SouthEastSource: Sino-MR, GfKDec 2000-April 200114麦肯锡三星战略1motorolaVALUE CHAIN STRATEGY1. Background informationLocationRegistered capitalManagementteamEquitystructureStarting yearNumber of employeesEra analysis4. Value chain strategy5. Organization and ownership 6. Financial performanceFocus onMarketing, advertising and promotionDistribution (channel and sales force)Organization structureOwnership structureSales Profit 2. Strategy 3. Product/market MissionVisionCorporate strategyMarket positionKey product offeringsKey customersValue propositionGeographic focusPricing15麦肯锡三星战略1motorolaMotorolas value delivery system strategy has evolved since 1997. Product development has been more customer oriented and new releases are catering for needs by different customer segments. Localization of mobile handset manufacturing has been furthered to a production capacity of 18 million units in Tianjin and 8 million units in Hangzhou. With increasing investment in sales and marketing, Motorola is now the strongest brand in ChinaMotorola employs PTAC, CellStart, Heguang, Eastcom, SunYin, Sinya, North Telecom, Hengxin, and Forte as its 9 first-tier resellers. It intends to reduce the many tiers of resellers that has become a disadvantage to Motorolas channel efficiencyMotorolas key strength lies in advanced technology, committed promotion, wide distribution network and quality after-sales serviceKEY MESSAGES - VALUE CHAIN STRATEGY16麦肯锡三星战略1motorolaMOTOROLAS VALUE CHAIN HAS EVOLVED OVER THE PAST THREE YEARSFrom. . . (1997)To. . . (2000/2001)Manufacturing Sales and marketingDistributionProduction capacity in Tianjin (1.5 million) and Hangzhou (200,000)Strong brand awarenessMarket share 34%50% reimport via Hong Kong Strong nationwide tiered dealer network (10-15 tier A dealers)Close relations with PTTs Expanding production capacity at Tianjin to 18 million units, and at Hangzhou to 8 million unitsStrongest brand awareness in ChinaDeveloped needs-based customer segmentation Market share 30%50% reimport via Hong KongNumber of dealers limited to 9; shared exclusivity by product Kept strong retail support (doubled marketing and sales staff since 97)Source: Interviews, McKinsey analysis17麦肯锡三星战略1motorolaMOTOROLAS KEY STRENGTHS LIES IN ADVANCED TECHNOLOGY, COMMITTED PROMOTION, WIDE DISTRIBUTION NETWORKS AND QUALITY AFTER-SALES SERVICES Source:IDC 2000Key strengthsRecent development Committed handset promotionSpeedy roll-out of new releasesStrong brand recognitionPays more attention to market needs Continues to promote models with free giftsSales and marketingHas nine first-tier resellers, the largest number among vendors Price competition among resellers is eliminated Can effectively manage the production volume with close tracking of orders from the channelsBest vendor on channel support in promotion, advertisement, service centers and fundingAltered its strategy in 2000 to employ two authorized reseller from every modelDistributionProvision of quality after-sales servicesSets up Internet-based consumer club and plans to double service stations in 2001After-sales servicesAdvanced technologyHighly localized products - strong local R&D (800 engineers, 18 research centers, investment 13 b. RMB)High rate of new product introduction (9 new products in 2000)Ready for 3GProduct development18麦肯锡三星战略1motorolaMOTOROLA DISTRIBUTES EXCLUSIVELY THROUGH NINE FIRST-TIER RESELLERSSource: IDCRationalesMotorola employs PTAC, CellStart, Heguang, Eastcom, SunYin, Sinya, North Telecom, Hengxin, and Forte as its 9 first-tier resellers.Historically assigned one Motorola model to each resellerEliminates price competitionEnables Motorola to effectively manage production volume with order trackingRecently shift strategy to have 2 authorized resellers for every model in order to improve promotions and access to customersMotorola is the best vendor on channel support as promotion and advertisement is provided. It also helps resellers to set up service centers to handle repair and maintenance services.As the leading vendor in China, Motorolas channel strategy is of continued importanceMotorola Channel StructureMotorolas well-built distribution network plays an important role in its success in ChinaToo many tiers of resellers become a disadvantage to Motorolas channel efficiencyVendor1st-tier resellers2nd -tier resellersRetailers/retail chain storesConsumers100%21%64%3%85%12%76%19麦肯锡三星战略1motorolaORGANIZATION AND OWNERSHIP1. Background informationLocationRegistered capitalManagementteamEquitystructureStarting yearNumber of employeesEra analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus onMarketing, advertising and promotionDistribution (channel and sales force)Organization structureOwnership structureSales Profit 2. Strategy 3. Product /marketMissionVisionCorporate strategyMarket positionKey product offeringsKey customersValue propositionGeographic focusPricing20麦肯锡三星战略1motorolaMotorola has 8 JVs, 1 WOFE and 1 holding company in China, among which Hangzhou Eastcom Cellular Phone (8 million units production capacity) and Motorola Tianjin (MCEL, 18 million units capacity) are devoted to mobile handsetsMotorola is mainly organized along product lines, however, its WOFE in Tianjin has been reorganized to be more customer focused. Motorola Tianjin is divided into 4 sectors, i.e. Personal Communication for consumers, Commercial, Government and Industrial Solutions for corporate and government, Global Telecommunication Solutions for telecom operators, and Integrated Electronic Systems for assemblersKEY MESSAGES - ORGANIZATION AND OWNERSHIP21麦肯锡三星战略1motorolaMOTOROLA HAS 8 JVs AND 1 WOFE IN CHINA, AMONG WHICH 1 JV AND THE WOFE ARE DEVOTED TO MOBILE HANDSETSMotorola (China) investmentLeshan - Phoenix semi-conductorShanghai Motorola paging productsHangzhou Motorola Mobile communi-cationHangzhou Eastcom cellular phoneShanghai zhongmei automotive electronicsHuamin Smart card,Beijing Huamin smart card system manufacturingMotorola Tianjin (MCEL)Established yearProduct offering1995199520002000199919981992SemiconductorPagerGSM and CDMA networkMobile handsetsAutomotive electronicsSmart card system and productMobile handsetsMobile infrastructureSemi-conductorsTwo-way radiosBase stationsHandset accessoriesWith Ansenmei and Leshan RadioWith Shanghai Radio (SRCEM)With Eastcom and Putian42%With Eastcom and PutianWith Shanghai GEWith Sino-overseas construction information100%Source: Motorola press release22麦肯锡三星战略1motorolaMOTOROLA IS ORGANIZED ALONG PRODUCT LINES, HOWEVER ITS WOFE IN TIANJIN HAS BEEN REGORGANIZED TO BE MORE CUSTOMER FOCUSED R&D Hang Zhou/ShanghaiManu-facturingSalesServicesManu-facturingSalesServicesMotorola China Personal communication Commercial, government and industrial solutions Global Tele-communication solutions Integrated Electronics Systems Asia tele-communication product manufacturing site (planned)R&DManu-facturingR&DManu-facturingSalesR&DManu-facturingSalesR&DManu-facturingMobile handset* pager*In 2001, 18 million units capacityGSM, CDMA Mobile network and handsets GSM, CDMA Mobile networkMobile handsets*In 2001, 5 million units production8 million units capacity Two way radio GSM, CDMA systems, e.g., base station BatteriesHangzhou Motorola mobile communicationHangzhou Eastcom cellular phone Motorola Tianjin (MCEL)MarketingSource: Motorola press release23麦肯锡三星战略1motorolaFINANCIAL PERFORMANCE1. Background informationLocationRegistered capitalManagementteamEquitystructureStarting yearNumber of employeesEra analysis4. Value chain strategy5. Organization and ownership 6. Financial performanceFocus onMarketing, advertising and promotionDistribution (channel and sales force)Organization structureOwnership structureSales Profit 2. Strategy 3. Product/marketMissionVisionCorporate strategyMarket positionKey product offeringsKey customersValue propositionGeographic focusPricing24麦肯锡三星战略1motorolaMotorola has been maintaining its market share of 30% in mobile handset. Due to increasingly intensive competitions, its market share is expected to drop to 20% in 2005.Motorolas EBIT margin for mobile handset is 5%, which is very low compared with Samsungs EBIT at 15% and Nokias EBIT at 20%. The low EBIT margin is mainly due to its high cost of goods sold.KEY MESSAGES - FINANCIAL PERFORMANCE25麦肯锡三星战略1motorolaMOTOROLA HAS GROWN WITH THE MARKET AND MAINTAINED ITS 30% MARKET SHARE IN MOBILE HANDSETTotal revenuesUSD billions Number of unitsMillions Average priceUSD Source:IDC, Dresdner Kleinwort, Samsung, McKinsey analysis26麦肯锡三星战略1motorola