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Low-hanging fruit: ripe or already gone?: The emerging market harvest is well underway

With mobile markets in India and China generating growth in numbers that few can get their mind around-but offering revenue and market share that many are fighting to get their hands on-it’s little wonder that the industry is looking farther afield for similar opportunities.
This just in: there are no other countries on Earth with populations in excess of one billion that currently are enjoying steady economic growth and, therefore, explosive demand for mobile handsets and services. But a combination of factors points to several large, prospering nations as the next battleground for rapid growth in handset shipments.
Whether those factors-there’s conventional wisdom as well as caveats and qualifiers-favor the large multinational handset vendors or the multitude of smaller players may depend on the scale needed for success.

The definitions
First, a distinction: Sheer volume in handset shipments is found in mature, replacement markets, which comprised two-thirds of all handset sales last year, according to Strategy Analytics. Growth in volume, however, is found in the emerging markets, where the quickest gains are made in the pursuit of market share.
Second, a definition: Emerging markets worthy of investment typically exhibit several key factors, including high population, low cellular penetration, a strong economy, political stability and a favorable regulatory environment.
With overall growth in the wireless industry cooling-iSuppli Corp. recently forecast 13-percent global growth in handset shipments this year, about half the average of 25-percent growth over the past three years-handset vendors would love to grab the proverbial low-hanging fruit.
Whether that fruit is ripe or has already been picked, however, depends on with whom you talk.
“The low-hanging fruit is gone,” said Chris Ambrosio, analyst at Strategy Analytics. “The players will have to work harder to find these new opportunities. This plays to the strengths of the multinationals.”
India and China still loom as priorities as the players expand their channels and exploit their brand, partnerships and local manufacturing advantages to gain market share, Ambrosio said.

Outside the big 2
Meanwhile, the players-the usual, multinational suspects and a bevy of scrappy competitors-are focused in general on the Asia-Pacific region and Central/Eastern Europe and other global hotspots, specifically including Bangladesh, Pakistan and Thailand, according to Ambrosio and others. While the players battle it out to establish distribution channels and partnerships, they will be assessing whether these markets can support the investment necessary to justify their pursuit.
Bangladesh has a population of 147 million people, of which 9 million people were cellular subscribers in 2005, according to the CIA World Factbook. Pakistan, with a population of 166 million people, had 13 million subscribers in 2005. Thailand’s 65 million people had 27 million subscribers in 2005.
Nokia Corp., which claims 60 percent of the Indian market, has been proactive in identifying markets and market conditions beneficial to growth, according to Ambrosio, and Motorola Inc. is focused on improvements in this area in order to compete with its arch rival. The world’s top two handset vendors, along with Samsung Electronics Co. Ltd., Sony Ericsson Mobile Communications and LG Electronics Co. Ltd., have demonstrated the efficacy of platform-based, in-country manufacturing. And that has given the top five the vast bulk of global market share-about 80 percent-while dozens of competitors alternatively attempt to build brand, find a niche or dissolve via consolidation with others.

Smaller players with a chance
The opportunities, however, are not limited to 800-pound gorillas with existing chunks of market share. According to Ambrosio, the field remains open to multinational corporations with network-to-handset, end-to-end solutions, which favors Chinese firms such as Huawei and ZTE, as well as Sony Ericsson, scion of L.M. Ericsson and Sony Corp., and mainstays Nokia and Motorola. This element could work against Samsung and LG, Ambrosio said.
Another factor affecting handset vendors’ fortunes: which markets allow the development of direct-to-consumer retail models? According to Albert Lin, analyst at American Technology Research, the most attractive global hotspots with direct retail opportunities could provide improved average selling prices and margins, with fewer network operator-imposed hoops to jump through. Currently, Lin said, the global balance of operator-controlled retail vs. direct retail is about 50-50.


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