Shanzai! MediaTek and the “White Box” Handset Market – Case Solution

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Shanzai! MediaTek and the "White Box" Handset Market Case Answers

Background – MediaTek:

With the rapid evolution of telephony in the past few years, many wireless chipset manufacturing plants have confronted challenges adapting to the emerging market trends. In 2009, MediaTek took the fabless semiconductor market by surprise, capitalizing on roughly a third of the sales of the entire market.

As the marketplace evolved, so did technological innovation in the field. This left Mr. Tsai, the CEO of MediaTek, with a great dilemma. Tsai confronts great challenges in attracting tier-one companies (I.E Nokia, Motorola, or Samsung) to purchase MediaTek’s product, due to major competitors in the industry.

Currently, MediaTek is indirectly a mass supplier of chipsets to the Shanzhai (counterfeit) market. Tsai is skeptical of the company’s future in this market segment due to its uncertain characteristics and unforeseeable evolution, and is thus contemplating shifting to the more rigid market segment; tier-one brands.

External Analysis:

1. General Environment

Technological: In the past three decades, a major shift in technology has prevailed in the mobile handset industry. Through innovation and technological advances, the market shifted from analog transmissions (1G) to digital mobile communications in 1992 (also known as 2G), and ultimately to the Wideband Data Communications network (3G). With rapid changes in this dynamic marketplace only the most well-funded and well-managed companies have managed to emerge from generation to generation, whilst others have been unsuccessful.

Sociocultural: In the past thirty years, the evolution of the cellular mobile device market has had a vast impact on the interactional behavior within society. With the mass availability and affordability of wireless telecommunication devices, they have become widely accepted throughout the world. This phenomenon has resulted in great economic growth within the market.

Economic: With an increased demand for widely available wireless telecommunication devices, the handset market grew from a high-end niche market into the most widespread electronic device in the world. Estimates suggest that between 1.2 billion and 1.4 billion units were produced, and shipped in 2009 alone, categorizing it as the world’s most prevalent electronic device.

Global: With evolving technological innovation, globalization has prevailed in the past decades. With free-trade agreements and extensive transportation networks, the reachability of new market places has grown immensely. Thus, demand for both brand-name cellphones as well as “White Box” cellular devices has significantly increased, resulting in a vast demand for wireless chipsets.

2. Industry Environment

Porter’s Five Forces:

Barriers of Entry: Due to low labor costs, low production costs, a relatively low selling point (exhibit 5), and the widely available schematics of the wireless chipset, which can be found online, it can be argued that the…