The world's second-largest economy is gradually gaining international prominence in some key IT equipment sectors, including PCs, smartphones and tablets, Gao Yuan and Shen Jingting report.

China's information technology equipment giants have been arming themselves with a steady stream of new technology, and the very best in local talent.

But as they continue to gain a global presence, some industry insiders are suggesting that the biggest players now need be aiming at the higher end of the manufacturing market.

According to a new report released by IT research firm Flurry Analytics on Monday, China has now overtaken the United States as the world's biggest market for active Android and iOS smartphones and tablets.

By the end of this month, it estimates, the Chinese population will own 246 million smart devices compared to 230 million in the US, the first month China has moved ahead of the US.

"The US will not take back the lead from China, given the vast difference in the populations of each country," said an accompanying report from Flurry, highlighting that China has more than 1.3 billion people, against 310 million in the US.

Lenovo breakthrough

One of China's greatest international technology successes has been Beijing-based Lenovo Group Ltd.

In the third quarter of 2012, Lenovo became the world's largest personal computer maker, surpassing Hewlett-Packard Co - the first time a Chinese company has taken the industry lead.

Lenovo managed to grab a 15.7 percent global market share against HP's 15.5 percent, according to industry research company Gartner Inc, the first time since the third quarter of 2006 that the US giant has failed to come out on top.

Although HP was able to reclaim the lead in the fourth quarter, industry insiders suggest it's just a matter of time before the Chinese company takes a permanent hold of the title.

"In addition to acquiring other vendors, Lenovo has taken an aggressive position on pricing, especially in the professional market," said Gartner.

"As a result, it has achieved significant market share gains over the last two years, exceeding regional average growth rates across all regions."

Scott Lin, Greater China president of PC maker Acer Inc, said that despite it becoming increasingly difficult for single companies to dominate entire industrial chains, more Chinese companies - which in most cases are still following market leaders - are likely to become No 1s in their specific fields.

"The US used to dominate the world's IT industry, but that was before Japan took over the display and memory sectors some 20 years ago. Now, IT companies in Taiwan have taken the lead in touch screen and transformable ultrabook manufacturing," said Lin.

Lenovo invested heavily in the mobile sector in 2012, paving the way for a furious battle with Samsung Electronics Co Ltd and Apple Inc for dominance of the sector.

In October, it opened a new research center in Nanjing, the capital city of the East China province of Jiangsu, to develop smartphones and other mobile devices for overseas.

Its mobile division entered five new markets during the year, including India and Russia.

Data from industry consultant IDC showed that Lenovo had taken an 11 percent share of China's smartphone market by the second quarter.

The company showed very well, that "you have to know your strengths, and utilize them in order to survive in the market", added Lin.

For many domestic and overseas manufacturers, China's biggest strength has been its low labor costs.

But increasing numbers have found the world's second-largest economy is losing its edge on that front to other Asian countries such as Vietnam, Myanmar and Bangladesh, and there is growing pressure on companies to try and figure out ways to regain that advantage.

Labor asset matters

Guo Xin, former president of IDC Greater China, said the country can afford to see some low-end manufacturers leave the country, but the most urgent task is how to hold onto the mid- and high-end producers.

He added that many overseas manufacturers jealously eye China's large, highly skilled workforce, which is capable of sophisticated levels of manufacturing and assembly, and this remains a huge asset to the country.

In December, Apple announced plans to move some production of its Macintosh computers to the United States from China.

Customers look at smartphones at an electronics store in Yichang, Hubei province. Liu Junfeng / For China Daily

Apple makes the majority of its products, from Macs to the iPhone and iPad, in China - a country highly efficient at manufacturing collaboration. But like some other US corporations, it has come under fire for relying on low-cost labor, and contributing to the decline of the US manufacturing sector.

"Honestly, it's not so much about price, it's about skills. Over time, there are skills that are associated with manufacturing that have left the US," said Apple's Chief Executive Officer Tim Cook, explaining the move in an interview with NBC.

Providing a skilled, reliable labor asset does not now guarantee profit margins for Chinese companies, and entrepreneurs should be finding new ways to improve the added value of their products to generate more profit, said Guo Xin.

And for China's top IT equipment makers, investing in research and development has become essential to increasing their global competitiveness.

Telecom equipment makers Huawei Technologies Co Ltd and ZTE Corp, for instance, have maintained high levels of spending on innovation.

Both founded in the 1980s in Shenzhen, in South China, the companies have quickly become world leaders and rising stars in the protection of intellectual property.

Huawei and ZTE each invest more than 10 percent of their total annual revenues on research and development, and close to half of their workforce works on R&D.

Over the past three years, ZTE said it had spent 20 billion yuan ($3.21 billion) on R&D.

"About 46 percent of Huawei's staff, or 68,000 employees, are working in the R&D sector," according to Fang Xingdong, the founder of chinalabs.com and a commentator on Internet industries.

"The number has already surpassed the total employed at the US-based Cisco Systems Inc, which has about 66,000 staff members."

Fang said the figure shows just how much of a priority Huawei places on innovation.

About 40 percent of the 30,000 employees at ZTE, meanwhile, are now employed on R&D work.

It has set itself the goal of "having the world's top talent working in some of the company's most important positions", and recently opened an office that is specifically charged with attracting talented employees from overseas.

According to the United Nations World Intellectual Property Organization, in 2011, ZTE applied for the largest number of patents offered through the Patent Cooperation Treaty, which provides a standard procedure for applying for patents.

By June 2012, it had filed 45,000 patent applications both at home and abroad and had been granted 12,000 patent licenses.

Wang Haibo, ZTE's director of intellectual property, said: "ZTE's patents already cover some critical technologies in the telecom industry."

An example is fourth-generation (4G) Long Term Evolution, or LTE, technology, a standard for wireless communication.

ZTE's basic LTE patents make up 7 percent of the total in existence, Wang said.

Rival Huawei, the world's second-largest telecom equipment maker and vendor, holds 15 percent of LTE patents.

Contact the writers at gaoyuan@chinadaily.com.cn and shenjingting@chinadaily.com.cn

(China Daily 02/20/2013 page13)