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How Ningbo Bird Became a High-Flier

By Bruce Einhorn Anybody arriving at the corporate headquarters of Ningbo Bird might be forgiven for wondering what all the fuss is about. It's the leading Chinese manufacturer of cell phones, but its offices are anything but high tech. Today, many Chinese tech companies with big-time aspirations have shiny modern buildings that can compare with anything in Hsinchu, Bangalore, or Singapore. Not Bird. With its dark hallways, peeling wallpaper, and heatless rooms, the Bird HQ resembles an old-fashioned communist enterprise.

Yet Bird is no state-owned industrial dinosaur. It's one of China's high-tech success stories. In just a few years, the Shanghai-listed outfit has come from nowhere to grab a sizeable piece of the domestic market. Last year, it had about 6%, and it's expanding quickly.

Bird and other Chinese companies like it are shaking up the telecom industry in China, where multinational giants like Motorola (MOT), Nokia (NOK), and Siemens (SI) have long dominated the cell-phone market. With the encouragement of the Chinese government, local players like Bird are threatening that dominance, which might spell trouble for the telecom industry -- not only in China but worldwide (see BW Asian Cover Story, 1/27/02, "Winning In China").

China has 200 million cell-phone users, making it the world's largest market, and it's clear that the government wants to have some local companies that can rival the Motorolas and Nokias. The rise of Bird is another example of how Beijing's policy to become an tech power is shaking up business.

I recently talked to Ma Sitian, the top financial officer at Ningbo Bird and deputy general manager, about how Bird was faring in the increasingly competitive market. Edited excerpts of our conversation follow:

Q: How does Bird differ from other Chinese manufacturers like TCL and Eastcom?

A: TCL and Eastcom are both state-owned enterprises. They have obvious advantages. Bird is not the same. Until 1998, the government didn't invest at all in this company. In 1999, the Chinese government allowed nine local companies to produce mobile phones, and Bird was the only one that didn't have the government as the main shareholder.

Q: How was Bird able to enter the business and make an impact so quickly?

A: From 1993 we made pagers, which were completely developed by Bird. When we decided to enter the mobile-phone business, we wondered whether to do it ourselves, as with pagers, or to find a foreign partner. Motorola, Nokia, Philips (PHLKFM), Siemens, and Ericsson (ERICY) all had their operations in China, so our choice of partners was limited. But the Chinese government wasn't allowing any more foreign companies to come in. Sagem hadn't entered China, but the Chinese market was so big, it wanted to enter, so they wanted to cooperate with us.

Q: So what's the relationship with Sagem?

A: We started in September, 1999. We bought production equipment from Sagem and paid a royalty for each phone that we produced -- $1 to $2 per phone. That [arrangement] changed in 2000. Now we buy the modules from Sagem. Of the 20 Bird phones, half are now from Sagem. In 2002, we set up a joint venture with Sagem from production and R&D.

Q: How about other companies?

A: From 2000, we started to find other partners: BenQ (BENQF), Quanta, LG, Sewon, Bellwave, Mobile Link. From BenQ, Quanta, and LG, we buy components. With Bellwave and Mobile Link, we have R&D cooperation. There are a lot of Taiwanese and Korean design companies that, nonstop, are designing new products. But they themselves can't produce or sell them. We can cooperate with them.

Q: Does Bird do any R&D of its own?

A: Starting in 2002 we have had our own R&D for new products. Out of the 7 million phones we made last year, 1 million were designed completely by Bird.

Q: How can small companies like Bird hope to compete against big multinationals like Motorola and Nokia?

A: Motorola and Nokia are in the big cities, but in the rural areas and small cities they have not focused enough. So we think that Chinese companies can grow very quickly by concentrating on those areas. Bird is putting a lot of energy into those smaller cities and the countryside. Also, we more clearly know what Chinese consumers like in their phones -- that's our strength. And we're a local company, so we can more effectively control labor costs.

The China market is growing, but prices are falling. Motorola and Nokia need to have their profit margins at certain levels. Compared to them, we can have lower profit margins and still make money.

Q: What's in store for the new year?

A: In 2002, we had 20 new phones. In 2003, we will have at least two a month. In 2003, we also want to do high-margin phones and enter overseas markets, like Southeast Asia. We want to sell between 600,000 and 800,000 handsets in Malaysia, Indonesia, Thailand, and Hong Kong.

Q: Why head overseas when there's such a huge market here in China?

A: In 2003, there will be some Chinese companies leaving the market, because the market is going to be leveling off. So competition will be even more intense. Capacity already exceeds demand. China's capacity is over 100 million, and the demand at most is 80 million. So we have to export -- and use R&D to reduce costs. Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online

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