Reuters Summit: Japan looks offshore for mobile phone R&D

TOKYO (Reuters) - Japanese mobile phone makers are venturing out of their home-based product development shops and testing the vibe at outsourcing firms in China and India, heeding a wake-up call from their more aggressive global rivals.

The move by Japanese companies is still at an early stage, with industry heavyweight NEC Corp and lesser-known rival brands Kyocera and Mitsubishi Electric Corp leading the wave of offshore migration for new product development.

Other major players such as Matsushita Electric Industrial Co's Panasonic brand and Toshiba Corp have dabbled in buying finished phones from Taiwan to sell under their own names, but they still do the bulk of the design work at home for their most important models.

Analysts said the move to offshore design work, which has been a long time coming, mirrors a similar trend at major western rivals and is a critical step if Japanese firms ever want to become serious players on the global stage.

Despite Japan's prowess in many consumer electronics segments, its mobile phone makers command a relatively meagre 5 percent of global handset sales away from their home turf, according to market research firm IDC.


Looking to China

IDC analyst Kimura Michito said Japanese players have typically stuck to high-end model design, a factor that has kept them out of many developing markets and limited their ability to become serious global players.

"Their cost structure is too high," he said. "Costs are very high in Japan. If handset vendors want to become worldwide players, they have to be prepared to offer a variety of products."

NEC, Kyocera and Mitsubishi Electric have looked to China in their early steps abroad, forming relationships with China TechFaith Wireless Communication Technology Ltd, a Beijing-based design shop set up by former Motorola employees.

NEC began working with TechFaith the earliest, setting up a joint venture with the company in late 2003, said TechFaith chief financial officer Eva Hon. Kyocera and Mitsubishi became clients in mid-2004, she added.

"We are talking with some other Japanese companies now," she said, declining to give names. "It's significantly cheaper for them. We usually charge about US$1.5 million per model. That's significantly lower than their own costs, maybe eight to 10 times lower."


Software powerhouse

Kyocera chairman Yasuo Nishiguchi said China had been a good design shop for models sold in emerging markets, but the more selective home market could be a tougher nut to crack in the near term.

"For the Chinese market, we have already started out with TechFaith...The Latin American market will be with TechFaith," Nishiguchi said at the Reuters Asia Technology and Telecoms Summit in Tokyo on Tuesday.

NEC and other Japanese players are also looking to software powerhouse India, joining industry heavyweights Motorola and Nokia, which already outsource significant amounts of research and development to Asia's third-largest economy.

In June, NEC formed a joint venture with HCL Technologies Ltd, India's fifth-largest software services exporter, to design wireless applications software.

That venture is likely to post revenue of about US$25 million by its third year, and has the potential to grow to US$75 million to US$100 million in sales in five years.

Indian software outsourcing giant Wipro Ltd also counts some Japanese mobile phone makers among its large client base in that area, said I. Vijaykumar, vice president for wireless and mobile networks. He declined to provide any names.

"The main reason why global players come to us is because we shorten the time to market for mobile products," he said.

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