Having struggled for a long time to make a dent in China, LG Electronics expects to seek a fresh start in the market with its recently released flagship smartphone.
The G3 smartphone was launched in China by the Seoul-headquartered consumer-electronics giant on Fridaytogether with South Korean actor Lee Min-ho, who enjoys huge popularity in China after playing leading roles in South Korean shows including Boys Over Flowers.
The sale of the handset started exclusively Monday via jd.com, China's second-largest online retailer by market share. PR representatives with JD.com Inc and LG refused to reveal the sales figures when contacted Tuesday.
The gadget appears to be something LG could bank on to fight its way to the top of China's fiercely competitive smartphone arena.
Indeed, the G3 has received a lot of praise from the media and tech experts. US tech news network The Verge reported on May 27 that LG sets "the new benchmark for overpowered smartphones" with its G3 by being the first big name to apply a Quad HD display, nearly twice the resolution of Full HD display, to smartphones.
However, analysts said that the G3 may suffer a cold market reception as China has become increasingly tough for foreign handset manufacturers, except Apple Inc.
??Seeking a new start
"G3 is expected to make LG's products more popular among consumers, which is the most crucial step toward the company's revival in China's phone market," Shin Moon-bum, CEO of LG's China unit, told reporters during a group interview held in Beijing Friday.
Yet, even after years of hard work in the Chinese market, LG has always been a marginalized brand. As early as 2012, there were even market rumors of its retreat from the market.
According to a report issued by US-based market research firm IDC in late July, the company did not even crack the top 10 list in China in the second quarter, despite being the fifth-largest smartphone vendor worldwide over the same period.
"I believe the G3 would contribute a lot to the company in the market鈥lthough we had a late start [in China's smartphone market], we can make a difference in five years," said Shin.
To cater to Chinese consumers and meet the requirements of local telecom carriers, the company appears to have put more effort in customizing its G3, which entered China nearly three months later than its public release in other markets.
For instance, the G3 for Chinese users supports dual SIM cards and 4G cellular telecom networks as well as 2G and 3G networks, in response to China's ongoing transition from 2G or 3G telecommunication services to 4G.
Shin expected the sales of the G3 in China to more than triple that of its predecessor the G2, launched in the market on September 2013. He did not set a target date or reveal a specific figure but said that over 60,000 units of the G2 were shipped in China in its early stages.
Some analysts predicted that LG's global G3 shipments would hit 3 million in the third quarter, according to media reports. However, those numbers are small when compared with the 108.5 million smartphones that US-based market research firm Canalys said were shipped in China during the second quarter.
The gadget has reportedly taken on Samsung's Galaxy S5 at home, hitting sales of more than 100,000 units within five days after the phone's release in the country in late May, while sales of the Galaxy S5 in South Korea stood at only 7,000 to 8,000 a day in its first week.
The success achieved by the G3 in its home market would be unlikely in China's fiercely competitive smartphone battleground, Wang Yanhui, head of Shanghai-based Mobile China Alliance, told the Global Times Sunday.
LG's G3 seems to have no distinctive advantage over feature-rich phones offered by local players such as Beijing-based Xiaomi Technology.
"Higher resolution is one of the G3's major selling points, but it's not a necessity for me and would further shorten the device's battery life," said Li Yu, a 29-year-old Beijing resident, who prefers cheaper homegrown Android phones over global ones which he said have failed to offer appealing features worth their high costs.
While LG priced the G3 at 3,999 yuan ($649.8) for price-sensitive Chinese consumers, which is much cheaper than its launch price of 899,800 won ($869) at home, that is still more than twice as expensive as phones developed by Chinese companies.
The company's South Korean rival Samsung, No.1 global smartphone vendor in the second quarter, has already felt the squeeze in China.
Its share of the market by sales volumes reached 15.4 percent in the second quarter, down from 18.1 percent in the first quarter, while Xiaomi was second with 13.5 percent, Beijing-based market research firm Analysys International said on August 6.
Canalys even said in a report on August 4 that Xiaomi became China's top smartphone vendor by sales in the second quarter with 14 percent, outselling Samsung for the first time. Canalys ranked Samsung second in the report but without disclosing its share in China.
In order to stand out, foreign companies like LG and Samsung need to ramp up efforts in brand enhancement, said Zhang Yi, CEO of Shenzhen-based iiMedia Research.
"Foreign brands barely have any chance to snatch a slice of the medium- and low-end phone market, which is already dominated by local peers," Zhang told the Global Times.
Zhang's opinion was shared by LG's senior executives, who believe the G3 can help the company build up a high-end image in the minds of Chinese consumers.
Both Zhang and Wang believe it is not easy for LG to stand out as a premium brand in the Chinese phone market, where its current brand strength is rather weak.
"For me and most people around me, LG is a global premium manufacturer of home appliances other than smartphones," Beijing's Li said. "Only Apple is a high-end phone brand."
In addition to brand enhancement, LG also needs to broaden its selling network in China, said Wang. "The tie-up with the three local telecom carriers is significant for its future performance, as they account for 40 percent to 50 percent of handset sales in China."
LG shows no intention of having local carriers sell the G3. While jd.com for now is LG's only sales partner to cut distribution costs, the company said they will provide off-line options for Chinese consumers later.
A UCWeb stand promotes its mobile game distribution platform 9game at an exhibition in Guangzhou.
Yu Yongfu has his eyes on a billion users, and overseas ventures are vital to realize that goal
Starting as an entrepreneur, then becoming a successful business owner before becoming an angel investor is a well-trodden career path in the corporate world.
But investor-turned-entrepreneur Yu Yongfu is an exception.
Yu, who quit as vice-president of China's leading venture capital investment firm Legend Capital Management LLC and joined startup mobile browser company UCWeb Inc in 2006, said that being an investor is like sitting in the passenger seat of a car, while being a chief executive officer means you are in the driver's seat.
"Being a passenger is comfy, but without having the fun of a driver who controls the wheel of the car," said the 38-year-old.
Yu, who agreed to sell UCWeb to Alibaba Group Holding Ltd in June in China's largest Internet takeover, is determined to steer his Guangzhou-based company through a global expansion plan, especially after teaming up with the deep-pocketed e-commerce giant.
"Our goal is to rapidly double the number of people using the UC browser to 1 billion. If you look at Internet companies around the world, only Google Inc and Facebook Inc have established user groups that are as large as 1 billion.
"I think UCWeb and Tencent Holdings Ltd's WeChat are the two companies in China that have the potential to grow their user bases to that size," he told China Daily.
The goal cannot be reached without expanding to overseas markets, said Yu, who admitted that one of the main reasons he agreed to sell UCWeb to Alibaba is that the extremely profitable e-commerce giant can give his company's globalization plan a strong push.
UCWeb, the second-largest mobile browser in China after Tencent's QQ browser, is known for reducing data usage for those who surf the Internet through mobile devices.
The company saw its market share by active users in China drop 3.2 percentage points quarter-on-quarter to 31.6 percent in the first quarter of 2014, according to Analysys International. But its globalization strategy, launched in 2010, seems to be going well.
The company claims that its mobile browser has a market share of more than 10 percent in 10 countries. The UC Mobile browser even became the leading mobile browser in India earlier this year, accounting for 35 percent of the market.
But Yu wants UCWeb to have 1 billion users in three to five years and 50 percent from countries outside China.
"Being part of the Alibaba Group means that UCWeb is able to invest more in its overseas expansion. Alibaba is a very profitable company, which allows us to focus on long-term development rather than make short-term money," he said, adding that Alibaba's rich experience in tapping into e-commerce markets in other countries can also be valuable to UCWeb.
Yu said that 2014 is the year for UCWeb to gear up its globalization plan with a strong focus on developing countries.
When testing the waters in a new market, UCWeb tends to fly its engineers there and introduce its product to local tech fans. It will set up offices only when the number of users in a particular country reaches 20 million.
It has local offices in India, Indonesia and the United States, and it is expected to set up offices in Russia and Vietnam later this year.
"The Internet is the industry that is most suitable for global expansion. Users usually don't care which country the service provider comes from as long as the product is good," he said.
Unlike the personal computer-based Internet sector, which was pioneered by Western companies (US companies in particular), Yu said that Chinese firms can be leaders instead of followers in the mobile Internet industry.
"The mobile Internet has a lot to do with lifestyle. For example, people in the US and Europe spend a lot of time driving to work, while the majority of Asian people use public transportation to commute. That means that Asian smartphone users on average spend more than two hours every day on the mobile Internet."
The strong reliance on the mobile Internet leads to innovation. What's more, the PC-based Internet is an industry with a unified world standard, while the mobile Internet industry varies among regions, he said.
Wang Jian, an analyst with the Beijing-based Internet consultancy Analysys International, said that as one of the earliest mobile browser companies in China, UCWeb has strong advantages in going abroad as China has the most complex market in the world.
"Chinese users are very demanding and they are not used to paying, even if your product is good. So for those companies that have already established themselves in China, it is safe to say that they are ready to conquer other markets," said Wang.
Yu agreed, saying that entering a new market is like doing subtraction. "Sometimes we simply remove some features from the Chinese version of our product and it can become a hit in other countries," he said, adding that the most important thing to do when going abroad is choosing the right market.
He has divided the global market into four areas: China, developing countries, Japan and South Korea, and Europe and the US.
The top priority for global expansion is developing countries, because Chinese mobile Internet technologies are usually two years ahead of what is available in those countries. He said UCWeb has no plans to move into Japan or South Korea at this stage because it is very difficult to break into their industrial chains.
"The US and Europe are not easy markets, either. But we will keep looking for opportunities in those markets," he said.
Neil Flynn, head equity analyst at Shanghai-based website Chineseinvestors, which provides financial analysis of US-listed Chinese companies, said the most important aspect of Chinese companies' development strategies should be to expand into emerging economies.
"Consumer trends are similar to those in China, and these firms will have the experience and knowledge to profit," said Flynn, who has followed Chinese Internet companies for years.
"In the Western developed economies, we see the likes of Google and Amazon being dominant players for the same reason. These countries have similar consumer trends, so it's relatively easy for them to adapt their business models."
It might seem that UCWeb has chosen the right path, but Jane Zhang, principal research analyst at technology research Gartner Inc, begged to differ, saying that a mobile browser cannot serve as a powerhouse that will ensure sustainable growth for Yu's company.
She argued UCWeb's core selling point in China is saving money through reduced data usage. That alone, she said, is not enough to attract users in other countries.
"Most importantly, a browser itself is not badly needed by users in the mobile Internet era. If they want search facilities, or social media or shopping, they can directly go to apps with the necessary functions without going through browsers like they used to do in the PC Internet era," Zhang said.
It seems that UCWeb is aware of the challenges. But Yu said that the odds of success are usually higher when most people don't recognize an opportunity.
UCWeb has already launched a mobile game distribution platform called 9game and a mobile search engine known as Shenma, aiming to use a multiproduct strategy to hook more users on its way to becoming an information service gateway.
China's leading commercial property developer, Wanda Group, said over the weekend that it plans to invest $1.2 billion to build a mixed-use development complex at a premier site in Beverly Hills, Los Angeles, the company's first step into Hollywood's film industry.
Wanda said in a statement it will also set up an office in Los Angeles to handle entertainment sector investments, while its New York office will be responsible for commercial sector investments.
"The Los Angeles project is expected to aid China's entry into Hollywood's film industry and generally promote Chinese culture abroad," the company said.
An Air China airliner arrives at Guiyang's international airport in Guizhou Province. The flag carrier of China will spend 360 million yuan to raise its pilots' compensation. The move is expected to benefit 4,560 pilots at its five subsidiaries.
Air China raising salaries following protests by captains over long hours
Air China Ltd, the flag carrier of China, will spend 360 million yuan ($58.06 million) to raise each of its pilots' income by 80,000 yuan annually on average, which will benefit 4,560 pilots at its five subsidiaries.
The pay-raise plan is under discussion and still awaiting approval, an insider told China Daily.
In order to reward core employees, captains and instructors will get 18 percent more annual income on average, which will be around 174,000 yuan per person, said the plan. Usually, pilots' income is combined with a basic salary and floating wage, called an hourly fee and calculated by their flight hours.
Air China will increase the percentage of the floating wage, and the hourly fees of flight instructors will go from 409 yuan to 549 yuan, according to the plan.
"We are basically satisfied with the plan, although the increase is not very large," said a captain from Air China, who declined to be identified.
Air China had no official comment on the plan yet, said Ding Yue, a spokesman for the airline. An internal Air China document said that the company planned to spend 360 million yuan on pilots' pay raises.
The carrier's financial report showed that its net income was 3.319 billion yuan in 2013. The airline also forecast that its net profit would drop by 55 to 65 percent in the first half of 2014 compared with the same period in 2013.
But even with the raises, Air China pilots still will make less than pilots of other airlines, some business insiders said. Pilots' salaries at Air China are lower than other carriers in China, "especially compared with privately owned airlines", said Zhang Qihuai, vice-president of aviation law research for the China Law Society.
Zhang said as the flag carrier and State-owned carrier, Air China attracts pilots for its resource advantages.
But the rising privately owned and local airlines, which pay much higher salaries, are threatening the State-owned carrier's superiority, he said. "To raise salaries for pilots is a huge advance for Air China, but it is still low for the industry," Zhang said.
The plan was floated following the signing of a public letter by hundreds of Air China pilots in April. They complained of such things as long hours and unequal treatment of Chinese and foreign pilots.
"The company provides more benefits to Chinese pilots, such as medical treatment and pensions, which the foreign pilots have to foot themselves," Air China said, explaining why the carrier pays foreign pilots a higher salary. It did not address the issue of the hours.
"Money is not everything for the pilots, who are already a high-income group, and they want more labor rights," Zhang said.
During the peak season, some pilots work close to 100 hours per month, which is the authority's upper limit, said a captain from a domestic airline. The reason is a lack of pilots in China, Zhang added.
At the end of 2013, 35,505 pilots were licensed to fly in China, while the number of civilian aircraft totaled 2,145, according to the Civil Aviation Administration of China.
Boeing Co forecast in 2013 that China would need to add 77,000 new pilots during the next 20 years.
Businesses, policymakers should look to technology for efficiency gains
With some 632 million Internet users, China is now in the midst of a digital revolution. Last year alone saw the country's number of active smart devices grow from 380 million to 700 million, according to a report from Umeng, an app analytics firm. Meanwhile, its e-tail market stood at 1.84 trillion yuan ($295 billion) in annual sales in 2013, surpassing the size of the US market and becoming the largest in the world, data from iResearch show.
Until now, China's Internet economy, which is already 4.4 percent of GDP, has been largely consumer-focused, while many Chinese businesses have been slower to go digital. Across most sectors of China's economy, the Internet holds the promise of large improvements in labor productivity. As companies embrace Web technologies, their operations become more efficient, translating into productivity gains.
According to a McKinsey Global Institute (MGI) report, the Internet could fuel some 7 to 22 percent of the incremental GDP growth through 2025, depending on the speed and extent of Internet adoption by Chinese enterprises. By that point, it could generate 4 to 14 trillion yuan in annual GDP. Some 10 trillion yuan will be at stake in annual GDP by 2025, so capturing this potential will be critical for China's future competitiveness, particularly as the country's labor costs increase and its demographic dividend diminishes.
Perhaps even more important, the next wave of Internet development will help China shift toward an economic model driven by productivity, innovation and consumption. The heavy capital investment and labor force expansion that fueled China's rise over the past two decades cannot be sustained indefinitely. The Internet, by contrast, is facilitating the ongoing process of moving China's industry from less productive to more innovative and technologically advanced business models.
Much of the Internet's impact will likely come in the form of productivity gains. China has posted high rates of labor productivity growth in recent years, but its progress began from a very low base, so the productivity remains well below the levels in advanced economies. Meanwhile, China's labor force is projected to begin shrinking by 2015. To avoid a slowdown and continue to improve living standards, China will have to make its existing labor and capital stock more efficient, and wider technology adoption will be central to this effort. As Chinese companies digitize their operations on a wider scale, they will gain the ability to streamline operations, open new sales channels, accelerate the research and development process, and become leaner.
Take small and medium-sized enterprises (SMEs) as an example. Going digital can neutralize some of the disadvantages faced by Chinese SMEs today. The Internet provides a platform for entrepreneurs with new ideas to scale up rapidly and at low costs. It once took years to establish a huge sales force and wide distribution network, but e-commerce marketplaces grant SMEs instant and direct access to consumers, along with associated support services, such as payment and logistics.
Moreover, limited access to capital is a common challenge for SMEs. Yet, this picture is about to change. Big data to manage credit risks and online channels to reduce transaction costs provide financial institutions with greater capabilities to increase lending to SMEs. Private banks and Internet finance providers are injecting new competition into the financial services sector. Alibaba, for instance, provides micro-loans to its e-merchants. In addition, the Internet can also boost the export capabilities of SMEs, turning them into "micro-multinationals." They can reach overseas consumers directly by listing on foreign B2C and C2C platforms. In fact, 3,835 Chinese sellers were already on eBay with more than $100,000 in sales as of November 2012.
When SMEs have a platform for growth, collaboration and experimentation, the overall economy benefits. The rate of innovation increases, as new ideas and offerings can now be tested and rolled out quickly, easily and cheaply, introducing more competition and thus raising productivity in various industries.
The growth of SMEs in China could also create a disproportionate number of jobs. Helping SMEs flourish could mitigate job losses that could occur as labor productivity improves in the rest of the economy. China's ability to realize these benefits will depend on whether SMEs recognize the advantages the Internet can provide and are willing to adopt it in large numbers.
Facilitating more widespread Internet adoption is nothing simple; the Internet can also be a disruptive force. So the government is expected to face multiple policy challenges in harnessing the Internet for economic growth. First, a balanced set of regulations enhancing privacy protection and data sharing could remove constraints on big data adoption. Second, liberalize markets to encourage new innovations, allow robust competition and accelerate productivity. Third, the government can ensure that training programs are available to help workers continually refresh their skills. Fourth, building out networks is crucial to bringing more of the population online and facilitating industry adoption.
Lack of charging network dampens consumer enthusiasm
The Chinese government formally announced Wednesday to waive the purchase tax for new-energy vehicles in a bid to support the industry but experts said there is still a bumpy road ahead.
From September 1, 2014 to December 31, 2017, new-energy vehicles approved for sale in the Chinese market, including imported ones, will be free from purchase tax, according to a notice jointly released by China's Ministry of Finance, Ministry of Industry and Information Technology and the State Administration of Taxation Wednesday.
The new-energy vehicles approved for sale in the Chinese market include electric vehicles, plug-in hybrid electric vehicles and fuel cell vehicles.
The three governmental bodies will release a new-energy vehicle catalogue later to specify the vehicles that will be exempted from purchase tax, and automakers as well as vehicle importers can start applying for the preferential tax policy starting now, according to the notice.
The new policy follows a decision made at a State Council meeting on July 9, which said consumers who buy new-energy -vehicles can be exempted from the purchase tax, which is equal to 10 percent of the net vehicle price, from September 1 till the end of 2017.
"The notice shows that the government is supporting new-energy vehicles as it promised, which is a good news for the industry," Gao Jian, an industry analyst at Shanghai-based consultancy LMC Automotive, told the Global Times Wednesday.
In a bid to promote the new-energy vehicle industry, the government has released a number of policies, such as requiring the share of new-energy vehicles to be at least 30 percent in government procurement of vehicles by 2016 and making provisions for additional subsidies for new-energy vehicle purchase.
Several first-tier cities including Beijing and Shanghai have also adopted favorable license plate policy for new-energy vehicles.
With the subsidy and purchase tax exemption, the low-priced domestic new-energy vehicles will become more appealing to customers, but the shortage of charging facilities remains the biggest concern, Gao noted.
Without a stable charging facility network, it will be hard to persuade general customers, he said.
New-energy vehicles have failed to generate enthusiasm among the Chinese consumers due to a lack of charging stations and reliability and driving safety concerns caused by immature technology, according to a research note by global management consultancy A.T. Kearney on China's new-energy vehicle market sent to the Global Times Tuesday.
The new-energy market may bloom for a while with government support but it will not be able to achieve long-term growth without a strong natural demand from consumers, according to the research note.
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