As part of our mobile research we recently examined ZTE. ZTE is an interesting example of a vendor that is well-positioned in growth markets. It is present in the large mobile markets of China and India, as well as emerging markets such as Africa, Latin America and Eastern Europe. Obtaining volumes is not a problem for the Chinese handset vendor, but significantly improving the bottom line is a more difficult task.

ZTE focuses primarily on two areas: targeting the low-end segment with cost-effective devices (2G and 3G) and customising handsets for mobile network operators. ZTE focuses purely on meeting its clients' needs, which means customising its handsets even if the numbers are small. It is also willing to sacrifice its brand by producing operator-branded handsets. On top of this, ZTE is very price competitive.

This approach is correct for ZTE. It is still a young player in the global handset market in comparison to its peers. Hence, working from the bottom up, by targeting the ultra-low-end and low-end handset segments, is sensible. It allows ZTE to avoid competing in the toughest segments, gain experience and make the most of its core strengths: low-cost production (derived from having its main R&D and manufacturing facilities in China) and short development cycles. Coupled with dedicated local teams and a competitive price, this makes for an attractive proposition. For example, ZTE's handset division was its fastest growing business unit during 2007. Its year-on-year sales revenues grew by 69.16% and it shipped over 30 million handsets in 2007 - the majority heading for emerging markets.

ZTE is working hard to build relationships with operators in both emerging and mature markets. Strong connections are vital as it begins to target the mid- and high-end handset segments. These segments will have a greater impact on the bottom line (if successful), but ZTE must expect strong opposition and be ready to face different challenges. Hence, strengthening its brand and reputation is the next step. ZTE must realign its brand from its low-end image (for both operators and consumers); this is not an easy task and will take time. To move into the mid- to high-end handset segments ZTE must re-educate operators and consumers about its new focus. It must also continue investing in R&D if it is to compete for the high-end handset segment. However, it must be careful to not neglect the low-end segment, as this will still remain its 'bread and butter' business.

Nonetheless, ZTE is taking the right steps - its handset strategy is sensible and realistic. Instead of jumping straight in at the deep end, which often means unrealistic expectations and increased pressure, it is concentrating on learning and developing its trade. Above all, ZTE does not need to rush. It is well positioned in emerging markets, which will be the key growth markets in the near future and in the long term. If ZTE continues to follow its level-headed strategy, there is little doubt that it will become a strong player in the global handset market during the next few years.

This comment is an extract taken from the report ZTE - taking the right first steps, the full version of which can be found on the Ovum Telecoms Knowledge Center.

Source:ovum.com