Taiwanese manufacturers setup shop in Shenzhen

Attracted by the opportunity of third and forth tier distribution channels throughout China, struggling Taiwanese manufacturers are starting to setup shop in the markets of Shenzhen. It's a move that they hope will bolster dropping sales and offer better profit margins on their netbook products.

While most Chinese multinationals are focused on the larger international distribution channels to get their wares on shelves and into homes, the shanzhai distribution model has found success in the micro distribution model of traditional Chinese markets. Visit one of Shanzhen's bustling tech markets or digi-shopping centers and you'll find it heaving to the rafters with customers looking for clone phones, cheap notebooks, netbooks and above all, a bargain-priced piece of technology.

For the shanzhai, the traditional market style of distribution is a very effective way to sell their products, and it's one that has proven to be very lucrative. Take the example of Benephon. Through direct sales in markets in Benephon-owned stores in Shenzhen and other small towns and cities around China, they have cut down on the distribution middle men, thus lowering the prices and offering their K-Touch brand of phones for very competitive prices. So much so that its sales for 2008 outstripped those of major brands Samsung, Motorola and Sony Ericsson.

As of late 2008 and so far in 2009, we've witnessed these manufacturers increasingly turn their attention and manufacturing expertise to the mobile PC space, most notably the mini-note or netbook form factor. Despite some negative press about the rise of the shanzhai PC, this summer has seen record sales of these devices in China, and rising exports to India and other BRICK countries. This has tempted some major Taiwanese manufacturers to try the shanzai distribution model, opening stores in the markets in Shanzhen itself.

Three Taiwanese companies have so far opened up stores in the key tech markets of Shezhen; MSI, Pegatron and MiTac. Without sounding disparaging, neither of these companies have torn up the stock market of late and they probably represent a growing coven of Taiwanese players who have suffered tremendously in the recent economic downturn - companies who are willing to dip a toe in the shanzhai waters across the strait.

Taking advantage of this distribution model, these products are apparently available at lower prices to customers and dealers in the markets, available with or without branding. These devices will no doubt end up in China's smaller cities and rural areas via the dealers who service those areas. It would appear that shanzhai-style distribution is one sure way to penetrate China's markets.

[Image Source]

Articles - News