Tech startup: I really do make mobile phones!

Chapter 216 Industry Market Research
Orange Technology, General Manager's Office.

Wang Kai from the market research department only entered quietly after receiving a report from Zhou Yumeng.

He held a thick, beautifully bound report in his hand, his expression respectful yet bearing the meticulousness of a seasoned market researcher.

"Mr. Chen, I'm sorry to bother you!"

Wang Kai got straight to the point.

"I'd like to give you a special report on the '2011 Global and Domestic Smartphone Industry Annual Summary and Analysis Report' compiled by our market research department."

Although Chen Mo browses a lot of financial and technological information on a daily basis, the authenticity of online information is hard to verify, and it is far less reliable than the conclusions drawn by Wang Kai's professional team after going deep into the front line and cross-verifying the information.

He looked up from behind the large desk, put down the pen in his hand, leaned back in his chair, and gestured for him to leave.

"Yes, I've been waiting for your market research team's year-end report! Tell me, just how deep is this quagmire this year!"

Wang Kai walked to the desk, but instead of sitting down, he stood up, opened the report, and began to explain in a steady and clear manner:
"Mr. Chen, let's start by looking at it from a macro perspective."

2011 was undoubtedly a significant watershed year in the history of mobile communications, marking the official completion of the transition from the feature phone era to the smartphone era.

Global smartphone sales reached an astonishing 4.72 million units, a year-on-year increase of 58%, and accounted for more than 30% of all mobile phone sales for the first time, reaching 31%.

Especially in the fourth quarter, driven by the strong performance of Pingguo 4S, the sales volume of the quarter reached 1.49 million units, a year-on-year increase of 47.3%.

The market is experiencing explosive growth.

"At the operating system level, the landscape is already clear."

Android systems accounted for 49% of the market throughout the year and successfully broke through the 50% mark in the second half of the year, becoming the undisputed market leader.

With iOS accounting for a stable 19% of Apple's market share, and thanks to the phenomenal sales of 3700 million iPhone 4S units in a single quarter, Apple surpassed Nokia, the former king, to become the world's largest smartphone manufacturer for the first time.

Nokia, once the dominant player, and its Symbian system experienced a precipitous decline, with second-quarter shipments plummeting 33% year-on-year, from 2500 million units to 1670 million units, clearly demonstrating its downward trend.

Chen Mo tapped his fingertips lightly on the table and pondered, "11 was indeed the year that determined the fate of smartphone manufacturers!"

"Apple 4S has completely crushed Apple in the high-end market, and Apple has officially become the new standard-bearer of the Android camp with its strategy of flooding the market with low, medium and high-end models."

He suddenly remembered the "perennial runner-up" who had once rivaled Triple Crystal in the early days of Android and asked, "What about HYC? What's the current situation of this former formidable rival of Triple Crystal?"

Wang Kai quickly flipped to the relevant section of the report, his tone tinged with regret: "President Chen, the situation at HYC is far from optimistic!"

"The North American ITC (International Trade Commission) has made a final ruling that HYC infringed on multiple Apple patents and has banned the sale of its related products in the North American market."

This heavy blow essentially paralyzed HYC's operations in North America.

Worse still, the European market is likely to follow suit with similar sanctions.

Its decline can be said to be inevitable.

Ultimately, the root cause lies in its wavering strategy. From initially relying on Microsoft's Windows Phone, to switching to Google Android, and later attempting to develop its own system, it scattered its efforts and missed the best window of opportunity for development.

Chen Mo nodded. HYC's experience was a classic example of what not to do in business.

He then recalled another giant known for its OEM manufacturing, which also tried to get a piece of the pie this year: "I remember Foxconn also launched its own brand of mobile phones this year called Foxconn, how is it going?"

Wang Kai's face showed a complicated expression, as if he wanted to laugh but felt it was inappropriate.

"Yes, Mr. Chen! Foxconn launched the 'Foxconn' mobile phone with great fanfare in October, but it became a typical 'cannon fodder' case in the industry."

I heard that the first batch of 5000 units were produced, 2000 of which were allocated to internal employees, leaving 3000 units.
According to reliable sources, most of them went directly to the North China Qiang Electronics Market and were used as 'disassembly models for learning'.

That phone had an extremely chaotic hardware configuration, as if it were haphazardly pieced together. The processor, memory, and storage were severely mismatched, causing system lag, alarming overheating, and a very poor user experience.

"Ha ha!"

Chen Mo couldn't help but laugh out loud this time.

"HYC is about to collapse, and Foxconn still wants to cross the river by feeling its way across the river?"

These companies, which originated from contract manufacturing, often have the misconception that assembling mobile phones has no technical barriers, since the parts are readily available.

But they forgot that 'configuration coordination' and 'system optimization' are the soul of a smartphone.

This is like putting a Ferrari engine on a tractor chassis and bicycle tires—no wonder it won't run!

He paused, then added, "Oh, by the way, I heard BTD also considered setting up a mobile phone project team?"

Wang Kai nodded: "Yes, President Chen! BTD was indeed initiated and studied, but after seeing the disastrous situation of Fukeshi, the project team quickly and quietly disbanded. It seems they are quite cautious."

After laughing, Chen Mo waved his hand, his expression returning to seriousness.

"Jokes aside, let's just take these little incidents with a grain of salt and focus on how our real 'competitors' are performing in the domestic market."

Wang Kai immediately switched to the core data section.

"Mr. Chen, this is a ranking and estimated data of the top ten domestic smartphone manufacturers in terms of sales this year, compiled from multiple data sources:"
1. Zhongxing: Global sales of approximately 3685 million units, with a domestic market share exceeding 12%, ranking 5th globally, showing very strong momentum.

2. Chrysanthemum: Global sales exceeded 2631 million units, with a domestic market share of 10.1%, showing great potential and ranking 6th globally.

3. Fantasy (including the newly acquired Motorola sub-brand): Global sales exceeded 1450 million units, with a domestic market share of 7.9%, ranking 9th globally.

However, Fantasy's own brand reputation in China has declined, and Motorola, as a sub-brand it acquired, is an important supplement to its sales.

4. Coolpad: Domestic sales exceed 1200 million units. It is the main supplier of customized handsets for the three major telecom operators, with a domestic market share of 5.7% and a global ranking of 17th.

5. Orange: Domestic sales exceeded 990 million units, with a domestic market share of 4.3%, ranking 24th globally.

As a brand focused on the domestic market, this is quite an achievement.

6. Wheat: Domestic sales exceeded 780 million units, with a domestic market share of 3.1% and ranking 32nd globally.

As a newly established brand, it is experiencing rapid growth.

7. Green Machine: Global sales exceeded 643 million units, with a domestic market share of approximately 2.9%, ranking 38th globally.

8. Blue Aircraft: Global sales of approximately 640 million units, with a domestic market share of approximately 2.9%, ranking 39th globally.

9. Meizu: Domestic sales exceeded 580 million units, with a domestic market share of 1.8%, ranking 45th globally.

10. Nietzsche: Domestic sales exceeded 463 million units, with a domestic market share of 1.4%, ranking 56th globally.

"Preliminary estimates indicate that total domestic smartphone sales exceeded 8000 million units last year."

Although international brands such as Nokia, Sanjing, and Pingguo still hold a significant market share, a landmark event occurred:
The overall market share of domestic brands has reached 49.2%, almost on par with international brands (50.8%)!

This is a historic breakthrough.

Chen Mo looked at the detailed list and a meaningful smile appeared on his lips.

According to the media's ranking system of "four major manufacturers and four minor manufacturers," this year's round of fierce competition has initially set the tone for the industry landscape.

He has a clear mind.

The so-called "Big Four" manufacturers (Zhong, Ju, Huan, and Ku) have a sales threshold of tens of millions, but the quality of each is different.

Zhongju is a true technology powerhouse, and its momentum is strong. Fantasy, on the other hand, has already lost its reputation and is only relying on the Motorola brand to maintain its standing.

Kupai is deeply tied to telecom operators and is the manufacturer that has received the most policy subsidies this year, bar none.

The threshold for the four smaller manufacturers (Orange, Wheat, Green, and Blue) is five million, but Meizu has actually reached that level as well, so there are five of the "Four Heavenly Kings".

With its first-mover advantage and unique product technology experience, Orange remains the leader in this small group.

As newcomers, Xiaomai and Lanji have quickly risen to the forefront, and their internet marketing model and Bubu Gao (a traditional Chinese medicine) distribution channels are indeed unique and impressive.

Wang Kai added, "Besides the top ten, manufacturers like Duowei, Tianyu, and Jinli also had total sales exceeding 200 million units. Their core market is still intact, so they shouldn't be underestimated!"

Overall, the tide of smartphones replacing feature phones is unstoppable, and all surviving manufacturers have benefited from this wave, with sales skyrocketing.

Wang Kai paused for a moment, then mentioned another development.

"In addition, Mr. Chen, we have noticed that people from Lex have been frequently active in Shenzhen recently, intensively investigating the mobile phone supply chain. It is very likely that Mr. Xi will also be personally involved in making mobile phones!"

"Hehe, not surprising!" Chen Mo chuckled. "Boss Xi is a top-notch accountant; he's shrewd enough to calculate anything!"

Entering the smartphone market now, even if the phones themselves don't make money, as long as the story is told well, Lexis.com's stock price will definitely surge first.

This is absolutely a sure-fire way to make money!

After reporting on the dramatic market landscape of the smartphone industry in 2011, Wang Kai closed the first part of the report, his expression becoming even more serious.

He lowered his voice unconsciously: "President Chen, I will now give you a detailed report on the internal compliance inspections conducted by the compliance monitoring team established in June of this year on the various companies under the Orange Group."

This inspection covered major entities including Orange Technology, Yuancheng New Energy, Orange Micro Motor, Orange Treasure Internet, Zhicheng Centralized Procurement, Orange Home Smart, and Orange Innovation Materials.

The investigation focused on grassroots operational procedures and middle-level management execution.

Wang Kai was extremely careful with his words, trying to point out the problem without sounding like he was accusing his colleague.

"We must objectively recognize that the Orange Group has experienced extremely rapid development in the past year, with its business and team size expanding dramatically."

During this process, compliance management in some aspects failed to keep pace, and some potential risks emerged that require attention.

For example, Yuancheng and Chengke have flaws in their employment practices, failing to pay social security contributions for all types of employees in full and on time in strict accordance with the Labor Contract Law, and the employment agreements for some outsourced personnel also have loopholes with ambiguous definitions.

Orange Technology's headquarters and the newly established Smart Orange Procurement Center discovered irregularities in some of their procurement processes.

This includes the perfunctory qualification review of some new suppliers and the failure to fully implement internal disclosure procedures for some "single-source procurement" projects that reached the prescribed amount.

As a data platform, Chengbao Internet focuses on user information security management.
Although there is a general framework, the specific measures for hierarchical protection of user information are not detailed enough, and the retention period of access logs on some backend servers does not meet industry best practices.

Orange Creation Materials has experienced instances where the submission of environmental testing reports lagged behind the production schedule.

Wang Kai speaks at a steady pace, but each word is clear and forceful.

He paused briefly to observe Chen Mo's reaction before continuing to offer his suggestions.

"In response to these identified risks, our compliance team, after internal discussions, has drafted the following preliminary improvement recommendations for your reference in your decision-making:"
First, establish a systematic and tiered compliance training mechanism, setting up different courses for frontline employees and senior managers to strengthen everyone's awareness of compliance red lines;

Second, it is recommended to establish dedicated compliance specialist positions in the core business departments of each subsidiary. These specialists will be subject to the subsidiary's business management, but their reporting line will be directly connected to the headquarters compliance team.

At the same time, authoritative third-party auditing institutions are introduced to conduct annual surprise inspections of high-risk areas such as data management and supply chain procurement;
Third, strengthen the firewall from a technical perspective, such as requiring Orange Security to complete a comprehensive upgrade of its user data encryption system within a specified timeframe.

Orange and Zhicheng are required to launch an intelligent supplier dynamic evaluation and contract management platform to achieve full electronic record-keeping and reduce the need for human intervention.

Wang Kai emphasized this point, his tone both humble and firm.

"Mr. Chen, these are just our preliminary suggestions and professional judgments based on the inspection results."

Ultimately, the decision on whether to adopt the proposal and how to implement it rests with you.

We strongly recommend that the effectiveness of rectification of these key compliance indicators be strongly linked to the annual performance evaluations and compensation incentives of the general managers and core management of each subsidiary!

After listening, Chen Mo gave Wang Kai a sharp look.

He was well aware that once this plan was implemented, it would not only be a necessary step to strengthen the company's risk control, but also mean that the power and influence of the market research department led by Wang Kai would be substantially expanded.

The compliance team is a double-edged sword in corporate governance.

Chen Mo pondered for a moment, his fingers unconsciously tracing patterns on the table, before finally making a decision.

"Okay!" Chen Mo's voice broke the brief silence. "I agree in principle to the plan to set up dedicated compliance officer positions in each subsidiary!"

"The selection of personnel must be made carefully to ensure their professionalism and independence, and they must be directly responsible to the headquarters, with a separate budget."

Regarding the third-party audit, let General Manager Gong coordinate with the finance team to take the lead in contacting and coordinating, while your compliance team is responsible for providing the audit focus and requirements.

As for compliance training for all employees, we will distribute the problem list and standards to each subsidiary and have their top executives take personal charge, developing specific training plans and rectification schedules for their own issues. I want to see the results.

In particular, labor contracts and social security contributions are the bottom line and must be 100% compliant!

Tell the general managers of all subsidiaries to take a long-term view. Don't let the desire to save a few negligible costs alienate frontline employees or create potential labor disputes; that would be a classic case of losing more than you gain.

"Okay, Mr. Chen!" Wang Kai quickly jotted down the key points in his notebook, feeling relieved, knowing that Chen Mo was determined to reorganize the company.

Finally, Wang Kai stepped forward, lowering his voice to almost a whisper, and reported some information that required close attention, which he had gathered through informal channels such as the "Employee Care Group".

"Mr. Chen, there are a few more things I need to report to you privately."

First, He Jian, General Manager of Chengbao, has had at least two undisclosed contacts with personnel from Beijing Baidu recently.
Coincidentally, his wife purchased a luxury apartment in Beijing's Haidian District last month, located less than 500 meters from the Baidu headquarters building!

"Secondly, Lei Jun, CEO of Wheat, came to Shenzhen recently. On the surface, he had a public business meeting with Xu Mingyuan, General Manager of Yuancheng, mainly to discuss battery supply."

However, later, through He Jian's connections, he had a secret meeting with Wang Teng, the technical director of Chengbao Internet.

According to information gathered indirectly, the exchange between the two parties seemed to have gone unpleasant, and Director Wang Teng was visibly downcast afterward.

"Third, Xu Mingyuan, the general manager of Yuancheng, recently made a rather noteworthy decision: his wife, children, and elderly parents in North America have all completed the procedures to return to China to settle down!"

"Fourth, Feng Guofu, the factory director of Chengke, has been in frequent contact with several key leaders of the local banking system in Chongqing recently, and has hosted banquets for them at high-end venues on several occasions. The specific topics are unknown!"

Chen Mo listened quietly, his face expressionless, as if these undercurrents of information were merely imperceptible ripples in a teacup.

His gaze deepened, as if looking through an office window, as if he were deep in thought.

After Wang Kai finished speaking, the office fell silent again. Chen Mo then waved his hand calmly, his tone indifferent.

"Okay, I understand! I'm aware of the situation. You can go ahead and get busy. Prepare a written report on the compliance rectification plan as soon as possible and distribute it to all subsidiaries for compliance rectification!"

"Yes, Mr. Chen!"

Wang Kai nodded respectfully, quietly left the office, and gently closed the door behind him.

The office returned to silence, with only the soft hum of the fresh air system remaining.

Chen Mo slowly stood up, walked to the huge floor-to-ceiling window, and looked down at the endless stream of cars below and the city skyline under construction in the distance.

(End of this chapter)