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"Quiet storm sweeping the world…” says an article celebrating the historic sales of MediaTek, but the quiet storm was actually referring to the character of the company’s chairman, Tsai Ming-kai, and his role in MediaTek’s journey to the top. After a hibernation of three years, Tsai has struck back by disarming the guys at the Financial Times with his views on the shanzhai ecosystem and cheap phone economics.
An engineer at heart, his tenure with management was quite short, with only a week spent at Stanford Business School. “I never properly went to business school.” But that was ten years ago. He added, “I took one week off to attend a course on innovation and strategy at Stanford Business School.”
There he learned management guru Clayten Christensen’s theory of “disruptive technology”. The Financial Times paraphrased this as “although industries tend to be vertically integrated in their early days, they disintegrate into specialized segments once technology becomes more mature, with the process creating opportunities for newcomers to compete against incumbents.”
Borne from United Micro electronics in 1997, MediaTek accurately applied this theory to master the art of innovation. Although they started with CD drives for computers, they entered the mobile chip market by 2000. While the big sharks like Qualcomm and Texas Instruments have shifted their focus to 3G mobile phone chips, MediaTek continued to improve the 2G mobile chips. He explains why: “Actually there was still room for technological improvement [in 2G phone chips]…”
But the turning point came with the development of innovative turnkey solutions, a reference design shipped with a chip. This innovative theory has left manufacturers to spend less time on the economics of phone hardware design and more time on improving the technology features. This has also turned out to be a lifeline for several shanzhai makers in China and Taiwan and is now guiding the monumental rise of local makers in developing economies like India.
CK Cheng, CLSA analyst explains the innovation involved, “The innovation was not so much the technology but the business model. It brought down the barrier of entry significantly.” The turnkey solutions from MediaTek have been largely responsible for making local players a threat for giants like Nokia, Apple, RIM and Samsung.
Tsai feels calling cheap Chinese phones ‘Bandit’ or ‘shanzhai’ is an injustice to them. “They were foolish to call themselves shanzai. They should have just stuck with ‘whitebox’, because then people used their name to criticise them…”
MediaTek has extended the reach of improved technology to lower income earners who had been left out of the equation by larger companies explained Tsai. “When technology is developed it inevitably serves those who can afford it, so the value created by leading technology is to serve those whose annual consumption power of is, say $5,000 or $10,000 … This serves a population that is a much bigger proportion of the world.”
Targeting low cost handsets not only brings low income earners into the technologically connected world, it’s smart business “ … because the emerging economies are a big market with billions of consumers, but what they need are low-cost, affordable solutions. This forces you to innovate.”
The media-shy Tsai prefers to maintain a low profile, but the interview suggests that he is more candid to his colleagues. Still, it’s his first interview in three years and well worth a full read.
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