China's Big, Big Bird

By Michael Schuman

To get an idea of what happens when China, the workshop of the world, pulls double shifts, travel to Fenghua, a Spartan town 10 miles outside the eastern coastal city of Ningbo. There, Ningbo Bird, a manufacturer of mobile phones, has sprung from obscurity to challenge much larger foreign competitors, such as Nokia and Motorola, in a high-stakes battle for mainland market share. According to some estimates, Bird sells more cell phones in China than any other company, with revenues of approximately $1.4 billion in 2003.

But company president and founder Xu Lihua risks becoming a victim of his own success. In January 2003 he opened two factories that can churn out 18 million phones a year, but since China, the world's largest mobile-phone market, already has 250 million users, growth is slowing down, and Xu knows that he needs to stay competitive. ("I have a dream that we will be as big as Motorola, IBM or Microsoft," Xu says.)

But shifting to overseas sales won't be easy. Although China's exports are surging, most originate in factories set up by foreign investors. Few domestic companies have been able to convert success in their homeland into an international brand.

The emergence of a company like Bird provides a window into China's efforts to join the global big leagues. Chinese products like Bird's cell phones are often top quality, and it's probably only a matter of time before manufacturers acquire the marketing skills to convince the world of their products' reliability. But it's an urgent challenge: as consumer markets get ever more crowded, many mainland companies have to export or die.

Xu and three colleagues originally founded Bird in 1992 to make pagers, but the company's real growth has come from catering to mainlanders' taste for cell phones with flashy color displays and clamshell cases. It's now a crowded market. There are 37 foreign and domestic manufacturers, which together can produce twice the number of phones currently sold in China annually. As inventories quadrupled in the first half of 2003, prices fell 20%, according to research firm IDC. Yet more companies are crowding in. Huawei Technologies, China's largest telecom-equipment maker, announced late last year that it is launching its own cell phones on the mainland.

Bird is still profitable, but to maintain growth, it has nowhere to go but overseas. In September Bird launched three models in India, one of the world's fastest-growing markets. Bird phones are also sold in Malaysia, Hong Kong and Russia.

Xu says Bird's strategy is simple: "I want to sell at the lowest price." But it is not quite so simple. As Bird moves outside China, it has to develop local know-how in each new foreign market. And Bird managers acknowledge that they're just starting to overcome the mainland's reputation for shoddy goods and build an international brand. Still, Xu says, "what Chinese manufacturers can do, foreign companies can't do"--and that's make cell phones that are both chic and unbeatably cheap. The phone wars have only just begun. --By Michael Schuman. With reporting by Bu Hua/Shanghai and Kaiser Kuo/Beijing

With reporting by Bu Hua/Shanghai and Kaiser Kuo/Beijing