40_Siemens assessment v1
- 1. CONFIDENTIALMobile Handset Competitor Analysis: SiemensSAMSUNG ELECTRONICS CHINA (SEC China)August 20, 2001This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
- 2. OVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK1. Background informationLocation Registered capital Management team Equity structureStarting year Number of employees Era analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus on Marketing, advertising and promotion Distribution (channel and sales force)Organization structure Ownership structureSales Profit 2. Strategy 3. Product/market Mission Vision Corporate strategy Market positionKey product offerings Key customers Value proposition Geographic focus Pricing1
- 3. KEY ISSUES TO PROBE - SIEMENSStrategyProduct/marketValue chain strategyOrganization & ownershipFinancial performanceWhat does Siemens aim to be in 2005 in mobile communication? How are Siemens’s product and value delivery system strategies different from its competitors’? What will be Siemens’s future products and which segments of the market will it target at? In which segment of the market is Siemens strong or weak? What is the key success factors for Siemens to pick up market share quickly since 1999? How does Siemens’s distribution channel differ from its competitors’? How capable is Siemens in R&D, manufacturing, sales and marketing? With a broad product portfolio, how does Siemens organize or reorganize itself? How does Siemens perform and is its performance expected to improve further? 2
- 4. BACKGROUND INFORMATION1. Background informationLocation Registered capital Management team Equity structureStarting year Number of employees Era analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus on Marketing, advertising and promotion Distribution (channel and sales force)Organization structure Ownership structureSales Profit 2. Strategy 3. Product/market Mission Vision Corporate strategy Market positionKey product offerings Key customers Value proposition Geographic focus Pricing 3
- 5. CHINA HAS DEVELOPED INTO A MAJOR PILLAR FOR SIEMENS BUSINESS IN ASIA PACIFICLocationBased at Germany 50+ JVs, 28 offices in China Shanghai is the largest Siemens location outside GermanyInvestmentInvested USD 0.44 billion in ChinaBusinessAll business sectors of Siemens including information and communication, automation and control, power, transportation and household appliance, etc.StartingEntered China's telecommunication in 1985 Information and communication business started 1991Employees 30,000 staff in information and communication mobile globally 25,000 employees for all business sectors in china History1982 Siemens Beijing office opened 1985 entered China's telecommunication market 1990 established JV Beijing International Switching System 1994 Siemens China founded in Beijing 1998 formed business segment - Information and Communication 2000 joined forces with CATT and Huavei for next generation mobile technology. Founded TD-SCDMA international forum with Datang, CATT, Huawei, Motorola, Nortel, China mobile, and UnicomImplicationAn early entrant to China's telecommunication market Broad product portfolio representing all business sectors of Siemens worldwideSource: Siemens press release4
- 6. STRATEGY1. Background informationLocation Registered capital Management team Equity structureStarting year Number of employees Era analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus on Marketing, advertising and promotion Distribution (channel and sales force)Organization structure Ownership structureSales Profit 2. Strategy 3. Product /marketMission Vision Corporate strategy Market positionKey product offerings Key customers Value proposition Geographic focus Pricing 5
- 7. SIEMENS AIMS TO BE NUMBER 2 IN MOBILE COMMUNICATION MARKET IN CHINA Product Focus on stylish new models with suitable pricing targeting mid to low end of the market Invest in future products, e.g., TD-SCDMA handsets and wireless home network devices, etc.Strategy Value delivery system Establish R&D centers for mobile communication in Beijing and Shanghai Mobile handset production capacity being raised to 14 million in Shanghai, a growth of 40% since 2000 Intensive marketing on new products with most competitive pricing Carefully select exclusive channel partner PTAC to maintain uniform price level nationwide to ensure healthy sales Helps resellers set up service centers to handle repair and maintenanceVision To be number 2 in the Asian mobile communication market (without Japan and Korea) 6
- 8. SIEMENS IS RISING STEADILY IN MOBILE HANDSETS SINCE 1999Monthly market share development (Percent of market in units sold)9899Jan ‘00Dec ‘00NokiaMotorolaSiemens EricssonSource: Retail AuditSource: IDC, McKinsey Analysis7
- 9. SIEMENS HAS OVERTAKEN ERICSSON TO BE NO.3 IN MOBILE HANDSET BY BOTH REVENUE AND SALES VOLUMEOthers SiemensEricssonMotorola199920012000Samsung NokiaBreakdown of sales by brand each year PercentSource: GfK, IDC, McKinsey analysisOthers SiemensEricssonMotorola199920012000Samsung NokiaBreakdown of units sold by brand each year Percent8
- 10. PRODUCT/MARKET1. Background informationLocation Registered capital Management team Equity structureStarting year Number of employees Era analysis4. Value chain strategy5. Organization and ownership 6. Financial performanceFocus on Marketing, advertising and promotion Distribution (channel and sales force)Organization structure Ownership structureSales Profit 2. Strategy 3. Product /marketMission Vision Corporate strategy Market positionKey product offerings Key customers Value proposition Geographic focus Pricing 9
- 11. Siemens offers a compete range of mobile communication solutions including devices, infrastructure and applications. Siemens’s mobile handsets come with good quality and competitive pricing Siemens targets the mid to low end of the mobile handset market. Most of its models are in the price range from below RMB 1000 to RMB 2200 Siemens has devoted great attention to the important 4th-tier cities and west China, hence its market share in these developing areas are relatively higher than its share in the more developed areas. KEY MESSAGES - PRODUCT/MARKET10
- 12. SIEMENS OFFERS A COMPLETE RANGE OF MOBILE SOLUTIONS INCLUDING DEVICES, INFRASTRUCTURE AND APPLICATIONSProductsNow and futureInformation and communication mobileSiemens product offeringsInformation and communication networksMobile network Wireless home network & office network Mobile handset C2588 (small, light smart) S2588 (brain truster) 3508 (small, light, sexy) 3518i (tough enough) 3568i (smart thinking)Broadband network IP network Fixed-line network Transmission network Office network Cable networkTake TD-SCDMA mobile handsets to serial production level by 2003 Offer the complete range of mobile solutions including mobile devices, infrastructure and applications, e.g., wireless home network, Complete range of GSM, GPRS and UMTS mobile networks, unified messaging and mobile payment Overall strategy of "a universe of one", pursuing IP driven voice and data communication and customer- oriented end-to-end solution and services Source: Siemens press release11
- 13. SIEMENS MODELS HAVE THE MOST COMPETITIVE PRICINGSource: McKinsey Analysis Product positioning Dec 2000A6188 (1.4%)8850 (1.8%)V8088* (3.9%)S800C (1.2%)A100 (0.8%)T28 (3.6%)8210 (4.6%)7.8%21.9%18.2%52.2%Business/professional Personal*WAP phoneProduct positioning June 20009110S800C (1.8%)V8088 (1.6%)8850 (1.7%)V998 (5.6%)3568* (0.5%)S600C (3.8%)7110* (0.9%)T28 (3.3%)8210 (3.7%)LF2000* (2.9%)6150 (1.8%)L2000* (4%)S2588 (1.8%)CD928 (1.1%)T18 (6.1%)T10 (1.2%)C2588 (3.2%)2188 (3.8%)L2088 (2.5%)3210 (2.2%)5110 (9.6%)368C (3.1%)3508 (1.6%)338C (0.6%)T2688 (4.8%)11.4%17.4%25.3%45.9%High High- mediumMedium- low Low Business/professional Personal*WAP phoneV998++ (6.9%)7689i (1.8%)LF2000i* (1.7%)3568* (1.7%)7110* (0.3%)6150 (0.9%)600C (2.3%)3310 (6.8%)3518i (1.8%)T18 (3.3%)CD928 (0.1%)S2588 (0.2%)C2588 (0.1%)T10 (0.7%)T2688 (6.2%) 3508 (3.9%)V2088 (1.0%)3210 (9.6%)5110 (5.9%)Retail price High High- mediumMedium- low Low Retail price RMB 3,500RMB 2,200RMB 1,600368C (2.3%)V2188 (1.3%)RMB 3,500RMB 2,200RMB 1,600Red - Nokia White - Motorola Blue - Ericsson Brown - Siemens Green - Samsung8250 (0.0%)6210 (0.6%)12
- 14. SIEMENS TARGETS MID TO LOW END OF THE MARKETHigh (> RMB 3,500)Source: Sino-MR (Jan 2001 – Feb 2001), CCIDBreakdown of unit sold by brand for each price point PercentHigh-mid (RMB 2,500-3,500)Mid (RMB2,000-2,500)Mid-Low (RMB1,500-2,000)Low (
- 15. Tier 1Tier 2Tier 3Tier 4NokiaMotorolaOthersSIEMENS ALSO ADDRESSES THE IMPORTANT 4TH TIER CITY MARKETPercent market share, 2000EricssonSiemens18%19%23%40%Tier size as % of total100%=Million units 6.77.08.514.8Source: McKinsey Analysis14
- 16. SIEMENS IS RELATIVELY STRONG IN CENTRAL, EAST AND WESTMarket share by brands per geographic area, 2001 PercentMarket share by geographic area PercentEastSiemensEricssonSamsungOthersNokiaMotorolaWestNorthNorth-eastSouth3013151311Central18Source: GfK, McKinsey Analysis15
- 17. VALUE CHAIN STRATEGY1. Background informationLocation Registered capital Management team Equity structureStarting year Number of employees Era analysis4. Value chain strategy5. Organization and ownership 6. Financial performanceFocus on Marketing, advertising and promotion Distribution (channel and sales force)Organization structure Ownership structureSales Profit 2. Strategy 3. Product/market Mission Vision Corporate strategy Market positionKey product offerings Key customers Value proposition Geographic focus Pricing 16
- 18. Siemens’s value delivery system strategy has evolved since 1999. It has invested $1.5 billion in the Asian Pacific area as its Asian offensive campaign Siemens has spent a great effort in localizing R&D and manufacturing. It has built R&D centers in Beijing and Shanghai and has raised the mobile handset production capacity in Shanghai to 14 million units in 2001. It is a leader in TD-SCDMA 3G technology in China Siemens has achieved a market share of 12% in sales volume, after intensive marketing of new models with competitive pricing, and aims to increase its market share to 15% Siemens distributes through exclusive 1st-tier national reseller PTAC and 2nd-tier provincial resellers. A uniform price level in the market is maintained nationwide to ensure healthy sales. KEY MESSAGES - VALUE CHAIN STRATEGY17
- 19. SIEMENS VALUE DELIVERY SYSTEM HAS EVOLVED OVER THE YEARS From. . . (1997)To. . . (2000)No R&D facility in China No product localization Production capacity in Shanghai Pudong (150,000) 60% of products for Chinese market produced in Hong Kong Brightpoint handling over 90% of distribution Market share less than 5%Product Production Distribution Marketing High commitment to TD-SCDMA – tests across China in 2001 Asian offensive campaign with US 1.5 billion investment in R&D and marketing until 2003 Production capacity in Shanghai has been raised to 14 million units from 10 million units in 2000 Uses different distributor (PTAC), but still only one nationwide Market share 12% as a result of intensive marketing of new models with competitive pricing Aims to increase market share to 15% Source: Interviews, McKinsey analysis18
- 20. SIEMENS INVESTS TREMENDOUS EFFORT IN EVERY PART OF THE VALUE CHAIN R&D Manufacturing and supply chainMarketing and branding Sales and distribution Service StrengthsR&D centers for mobile communication in Beijing and Shanghai with more than 500 engineers planned Lead international forum in TD-SCDMA Frequent introduction of new models Continuously increase local production capacity and capability Intensive marketing on new models with competitive pricing Healthy sales through exclusive channel partner PTACCapable after-sales service with 100 service stations nationwideLevers for improvement Lacks capability in W-CDMA and CDMA 2000Fully dependent on single national distributor Source: World computer journal, McKinsey analysis19
- 21. SIEMENS VALUE DELIVERY SYSTEM IS ORGANIZED AROUND PRODUCT LINES WITH MULTIPLE CUSTOMER INTERFACESValue delivery systemCustomer interfacesIC Mobile and IC Network communicate with the same telecom operators separately, with “multiple faces” Source: McKinsey analysis20
- 22. SIEMENS DISTRIBUTES THROUGH EXCLUSIVE NATIONAL RESELLER PTAC Source: IDCRationales Siemens partners with PTAC, taking advantage of their streamlined and efficient distribution channels. PTAC is selected as the exclusive national distributor due to resources and image. A uniform price level in the market is maintained nationwide to ensure healthy salesSiemens Channel StructureRely on both 1st-tier national reseller PTAC and 2nd-tier provincial resellers Devote much attention to low-tier city marketVendor1st-tier resellersConsumers2nd-tier resellersRetailers/retail chain stores12%9%79%67%12%67%12%21%21
- 23. ORGANIZATION AND OWNERSHIP1. Background informationLocation Registered capital Management team Equity structureStarting year Number of employees Era analysis4. Value chain strategy5. Organization and ownership6. Financial performanceFocus on Marketing, advertising and promotion Distribution (channel and sales force)Organization structure Ownership structureSales Profit 2. Strategy 3. Product /marketMission Vision Corporate strategy Market positionKey product offerings Key customers Value proposition Geographic focus Pricing 22
- 24. With a large product portfolio covering information and communication and home appliances etc. Siemens’s organization is product focused with clear lines of P&L responsibilities Siemens has over 50 JVs and WOFEs in China with large commitments in telecommunication. Siemens Shanghai is devoted to mobile communication including mobile handsets Siemens’s joint ventures are managed under their own global BU, and Siemens China, the holding company, coordinates and provides shared services for the global BU activities in China Siemens is starting to centralize sales and marketing to better handle solution sales, and the goal is to consolidate all marketing and sales functions under Siemens directly KEY MESSAGES - ORGANIZATION AND OWNERSHIP23
- 25. WITH A LARGE PRODUCT PORTFOLIO, SIEMENS TENDS TO BE MORE PRODUCT FOCUSED WITH CLEAR LINES OF P&L RESPONSIBILITYOrganization structureP&L responsibility ICM manager for information and communication mobile ICN manager for information and communication networkDriving factors In order to meet the trend of technological merging in Information and Communication field, the new Siemens business group - Information and Communication mobile (ICM) started its operation in April 1, 2000. ICM handles the entire mobile telephone business, with regard to both communications terminals (mobile and wired phones, mobile organizers and digital products) and mobile phone networks (products and services for mobile communication and intelligent networks). Source: Siemens press release, McKinsey analysis24
- 26. SIEMENS HAS OVER 50 JVs OR WOFEs IN CHINA, AMONG WHICH SIEMENS SHANGHAI IS DEVOTED TO MOBILE HANDSETSSiemens ChinaBeijing international switching systems BISCSiemens transmission systems Guangzhou (STSG)Xin De telecom international ventures (TIV)Siemens Shanghai Mobile communicating (SSMC)Shanghai Siemens business communication system (SBCS)Main driversTo be close to customers To be in line with government policies To become Chinese company for Chinese people40%With Guangzhou Nanfang photoelectrical telecommunication60%Beijing wire communication. Beijing telephone authorities Beijing comprehensive investmentShanghai Aijian, Shanghai XinguangWith Shanghai video and Audio Electronics, Shanghai Post and telecommunication 51%Establish year Product offering1990EWSD switching1993-1994Transmission systems (PDH, SDH, DWDM)1994Finance leasing and consultingHicom 300 switching systemGSM mobile networks and mobile handsetsMPT's First Research Institute19931993Not Exhaustive Source: Siemens press release25
- 27. SIEMENS HAS MADE LARGE COMMITMENTS IN TELECOMMUNICATION IN CHINAJV companyYear of contractPlanned investment (mDM)Siemens share (%)Chinese partner (share)Business scopeBeijing International Switching Systems Co., Ltd. Siemens Fibre Optic Cables Ltd Chengdu Siemens Shanghai Mobile Communication Ltd. Guangzhou Nanfang Transmission Systems Ltd. Siemens Telecom Power Supply Ltd. Shanghai Xin De Telecom International Ventures Co. Ltd. Siemens Business Communication Systems Ltd. Shanghai Siemens Shanghai Communication Terminals Ltd. Siemens Optical Fiber Cables Ltd. Chengdu90 98 93 93 94 93 95 9490 54.5 50 15 35 4540 50 51 60 50Beijing Wire Communication Plant 25 Beijing Telephone Authorities 25 Beijing Comprehensive Investment Co. 10 Chengdu Fibre Optic Cable Factory (CDC) The town of Shanghai; The Ministry for post and Telecommunications Guangzhou Nanfang Photoelectrical Telecommunications Equipment Factory Shanghai Aijian Company Ltd. 21 Shanghai Xinguang Telecommunications plant 28 Shanghai Video and Audio Electronics Co., Ltd. 40 Chengdu Telecommunications Cable Co., Ltd 50EWSD manufacturing and distribution Fibre optic cable GSM mobile radio networks and terminals Transmission equipment (e.g. PDH) Power supply for telecom systems Technology Training Hicom 300 Telephone and Telecommunication terminals Loose tube optical fiber cable Source: Siemens press release26
- 28. FINANCIAL PERFORMANCE1. Background informationLocation Registered capital Management team Equity structureStarting year Number of employees Era analysis4. Value chain strategy5. Organization and ownership 6. Financial performanceFocus on Marketing, advertising and promotion Distribution (channel and sales force)Organization structure Ownership structureSales Profit 2. Strategy 3. Product/marketMission Vision Corporate strategy Market positionKey product offerings Key customers Value proposition Geographic focus Pricing 27
- 29. Siemens Information and Communication (IC) reports another a year of excellent business performance globally. In 2000, IC mobile including the mobile handset business achieved EUR 9 billion in sales world-wide with an expected CAGR of 69% in 1999-2001. The EBIT margin of IC mobile has also improved from 6% in 1999 to 8% in 2000 Siemens achieved a revenue of EUR 2.4 billion in China over all sectors, to which Information and Communication made a significant contributionKEY MESSAGES - FINANCIAL PERFORMANCE28
- 30. SIEMENS INFORMATION AND COMMUNICATION REPORTS ANOTHER YEAR OF EXCELLENT BUSINESS PERFORMANCE GLOBALLY EUR billions * Mobile handset belongs to IC mobile Source: Goldman Sachs, Siemens Press Release, McKinsey analysis Global revenue IC network IC mobile*CAGR 1999-2001 Percent 1169199920002001EGlobal EBIT IC network IC mobile*CAGR 1999-2001 Percent 46102199920002001E29
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