BlackBerry launch a smartphone in China Jeff knew that this would not be his typical international product

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BlackBerry launch a smartphone in China Jeff knew that this would not be his typical international product launch. As BlackBerry's (formerly Research in Motion) VP of Global Marketing, he had received a 'green light' to proceed with the launch of the company's smartphone in the Chinese market. With a population of over 1 billion and a growing middle class, this launch would appear to be a 'no-brainer' for this globally oriented Canadian company. BlackBerry had recently signed an exclusive service agreement with China Mobile Ltd to provide wireless service to the company's smartphone users in China.

This was supposed to pave the way for an aggressive entrance into this potentially lucrative market. What concerned Jeff, however, was not the mechanics of launching the company's products - after all, he had done that several times in a number of countries - but the report on his desk by Marbridge Consulting which indicated that in 2005 China sold 15 million counterfeit phones compared with 60 million handsets marketed through authorized dealers. In other words, roughly 20 percent of the smartphones in China were knock-offs (or had been smuggled into the country). The Marbridge report also noted that an unlicensed factory in China requires only 1 million yuan ($125,000) to get into the business of producing knock-offs.

Further, these factories can get product to market fairly quickly by simply by-passing government testing of their product. Unlicensed handset factories in China also do not pay taxes and provide no customer service - which means that they can keep costs low and sell phones for a fraction of the cost in North America. From his research, Jeff knew that knock-off handsets and used phones have been undercutting the margins of most of the phone manufacturers in China and forcing them into the red. John Ure, a researcher at the University of Hong Kong, recently indicated that it is virtually impossible to police the black market in China. While smuggling is a capital offense in China, operators of unlicensed factories merely receive a slap on the wrist from a government with a poor track record of enforcing intellectual property rights.

The end result is that these unlicensed handset factories continue to grow in size and scale, putting additional pressure on foreign smartphone manufacturers. Jeff knew that these knock-off factories in China would not be successful if they did not have customers. Chinese consumers are obviously price sensitive and are apparently willing to overlook issues of poor customer service and a product that may well not meet even local quality standards. According to Mike Davies, an analyst with Gartner, 'Manufacturers will have an ongoing problem in China if customers continue to buy things based on price, not quality'. Jeff also had to question just how lucrative the Chinese market really was. A number of investment banks and law firms had already supplied BlackBerries to their employees in China using services provided in Hong Kong. How much up-side remained in the corporate market was a question that Jeff had to wrestle with