Video Editor

In fact, the international mobile phone giants have a very shrewd plan...

That means using patent lawsuits to stall Shenzhen-Hong Kong Electronics for a year or two, by which time they will have already regained the market.

But to their utter surprise, Shenzhen-Hong Kong Electronics didn't play by the rules at all.

Instead of being intimidated by the lawsuit, they launched a large-scale price reduction and promotion.

The price of Shenzhen-Hong Kong 1 dropped to 2999, and Shenzhen-Hong Kong 2 dropped to 4499. This move directly devastated their low-end and mid-end markets.

The most crucial point is that the quality of Shenzhen-Hong Kong mobile phones far surpasses international standards, so now even a fool would know which brand to buy.

Of course, those traitors and double agents are not included, because they are not human at all.

What really broke the defenses of international giants was that Shenzhen-Hong Kong Electronics still made a profit after lowering prices!

After listening to the marketing department's cost analysis report, Motorola China President Smith turned pale. "Impossible! 2999 and they still have a profit? Just how low are their costs?"

"According to our calculations, the cost of Shenzhen-Hong Kong 1 should be controlled at around 2500, and the selling price of 2999 still leaves a gross profit of nearly 500." The marketing director said with a forced smile, "The reason we succeeded is that they used a domestic supply chain, and their labor and component costs were more than 30% lower than ours."

"Thirty percent?!" Smith could hardly believe it.

"Yes... Moreover, Shenzhen-Hong Kong Electronics has its own factory in Shenzhen, and the relevant departments have given it a lot of policy incentives, and the taxes are low. We have to pay tariffs on imported parts, and there is also value-added tax after assembly, so we can't reduce costs at all."

Smith slumped into his chair, feeling a profound sense of powerlessness for the first time.

Unable to win a price war, lacking evidence in a technology war, and resorting to lawsuits...

News came from the Shenzhen Intermediate People's Court that the court had quickly scheduled the trial for next month.

"So fast?" Smith was stunned. "When did Chinese courts become so efficient?"

"I heard... I heard that Shenzhen-Hong Kong Electronics is a key enterprise supported by Shenzhen, and the court is also paying close attention to this case."

"What about the evidence we've prepared? Is it enough?"

The general counsel shook his head with a wry smile. "Mr. Smith, to be honest, most of our so-called patent infringement evidence is far-fetched. Although the technical implementation of Shenzhen-Hong Kong 2 has similarities to our patent, strictly speaking, it does not constitute infringement. If we really go to court, we don't have much of a chance of winning."

"Then what should we do? Withdraw the lawsuit?"

"Withdrawing the lawsuit now would be tantamount to admitting that we made a false accusation, which would be even more embarrassing."

Smith rubbed his temples, feeling a splitting headache.

……

Just when the international giants were in a state of panic, the relevant departments stepped in.

After all, it's still the 1990s, a time of hardship and preparation, and it's impossible to completely knock out international mobile phone giants.

In a meeting room of a relevant department in Shenzhen, several leaders called together representatives from both sides.

"I've invited everyone here today to mediate this patent dispute." The meeting was chaired by a deputy director from the city, surnamed Wang. "We're all business people, and harmony brings wealth... Going to court is time-consuming and exhausting, and it's not good for anyone."

Motorola's Smith and Shenzhen-Hong Kong Electronics' Suning sat on opposite sides of the conference table, the atmosphere somewhat awkward.

Director Wang continued, "We've looked into it, and if this case were to go to trial, it would have a negative international impact. The country is currently focused on attracting investment and needs to create a favorable business environment. Therefore, our suggestion is for both parties to reach a settlement privately."

Smith felt relieved; this was exactly what he wanted.

But he still wanted to show their toughness verbally, saying, "Director Wang, it's not that we want to sue, but Shenzhen-Hong Kong Electronics did infringe on our patents. If Mr. Suning is willing to admit it and pay compensation, we can consider withdrawing the lawsuit."

Suning smiled.

"Mr. Smith, you say we infringed on your patent, where's the evidence? Show it to everyone."

"We have a technical analysis report..."

"Don't bother with those far-fetched reports. We're all sensible people; this kind of thing will only make you a laughingstock," Su Ning interrupted him. "If there were solid evidence, the court would have already ruled against us. The problem is, you don't have any."

Smith looked very unwell.

Director Wang quickly tried to smooth things over, "President Su, Mr. Smith, we're not here to argue, we're here to resolve the issue. Here's a suggestion—Motorola withdraws the lawsuit, and Shenzhen-Hong Kong Electronics doesn't pursue the matter of false accusation. How about we both compromise?"

Su Ning glanced at Director Wang, knowing that this was the order from above.

In 1995, there was still a need to attract foreign investment and require investment and technology from international companies.

If this lawsuit goes on, it will definitely have a negative impact.

After a moment's hesitation, Suning spoke up, "A settlement is possible, but Shenzhen-Hong Kong Electronics has its conditions."

"Go ahead," Director Wang breathed a sigh of relief, as long as they were willing to negotiate.

"Actually, it's not entirely a condition that benefits Shenzhen-Hong Kong Electronics; it's more of a suggestion for all foreign mobile phone brands." Suning looked at Smith, and then at the representatives of the other companies present. "Why do you think Shenzhen-Hong Kong Electronics was able to drive the price down so low?"

No one responded.

"Because our entire industrial chain is in China." Suning answered its own question, "From chips to screens, from batteries to casings, all components are sourced domestically. Low cost and high efficiency are our advantages."

Smith frowned. "You mean..."

“What I mean is, you can also enjoy this advantage,” Suning said directly. “Shenzhen-Hong Kong Electronics is willing to open its supply chain and provide components for all mobile phone brands. You can place orders, and we will produce as many as you need. The price will definitely be more than 30% cheaper than importing from abroad.”

The meeting room was silent for a few seconds, then erupted into chaos.

"What did you say?"

"Open supply chain?"

"Supplier parts for us?"

Representatives from several foreign companies looked at each other in disbelief.

Suning nodded. “That’s right. Shenzhen-Hong Kong Electronics has a complete mobile phone industry chain in Shenzhen, from R&D to production to assembly, all in one go. You can purchase our components and assemble them yourself; or you can outsource the manufacturing to us and put your brand on them. Once the costs come down, the prices can come down, and your market competitiveness will increase.”

Smith's mind was racing.

That's definitely a solution!
If they can use Shenzhen-Hong Kong Electronics' supply chain, their costs can be reduced by at least 30%.

At that time, they will only need to sell their phones for four or five thousand yuan to make a profit, and then they can engage in a price war with Shenzhen and Hong Kong.

But the problem is... doesn't this mean admitting that you are not as good as your opponent and asking for help?

“Of course, if you are unwilling to cooperate, you can build your own supply chain in China,” Suning continued. “But building a supply chain takes time and investment; it simply cannot be done in less than two or three years. In those two or three years, the market will have already been divided up by us.”

This statement hits the nail on the head for all international mobile phone manufacturers: time is often the most precious thing.

The market changes every day now, should we wait two or three years?
The daylily buds have gone cold.

Director Wang's eyes lit up. "President Su's suggestion is excellent! It resolves the dispute and promotes cooperation. Foreign companies can reduce costs by using China's supply chain, while Chinese companies can earn orders and expand production. It's a win-win situation! With everyone's costs and prices at the same level, whoever wins the market will truly depend on their individual capabilities."

Smith and several other representatives discussed the matter in hushed tones for a while.

Finally, Smith looked at Suning and asked, "Mr. Suning, what you're talking about... how exactly does it work?"

“It’s very simple,” Suning said. “You send people to inspect our factories and supply chain, see which components you like, and place an order. We will produce according to the order and deliver on time. Prices are transparent and quality is guaranteed.”

"That patent lawsuit..."

"If you withdraw the lawsuit, we will let bygones be bygones, since it was all a farce to begin with."

Smith hesitated for a few seconds before finally nodding. "Okay, we'll go back and report to headquarters. If headquarters agrees, we'll withdraw the lawsuit and discuss specific cooperation."

"In addition, Shenzhen-Hong Kong Electronics needs international mobile phone brands to open up their patented technologies to us."

After a brief silence in the meeting room, Smith was the first to react, "President Su, you mean... you're going to trade your supply chain for our technology patents?"

“It’s not a swap, it’s a cross-licensing,” Suning corrected. “Shenzhen-Hong Kong Electronics opens its supply chain to provide you with high-quality and inexpensive components; in return, you open some of your non-core patent technologies to Shenzhen-Hong Kong Electronics. We share resources and achieve win-win cooperation.”

Representatives from several foreign companies exchanged glances and began to whisper among themselves.

“That’s an idea… We have a lot of non-core patents in our technology patent portfolio. We don’t need them ourselves anyway, so we can license them out in exchange for resources.”

“Their supply chain does have a cost advantage. If we can use it, there will be more room for us to lower the price of our products.”

“But the core technologies cannot be opened up, and this must be made clear.” Su Ning waited until they had finished their discussion before continuing, “Don’t worry, what I need is not your chip designs or core algorithms. What I need are those basic, general-purpose technology patents—such as power-saving optimization schemes, signal enhancement processing, and human-computer interaction interface designs. These technologies may be outdated for you, but they still have learning and reference value for Shenzhen-Hong Kong Electronics.”

Nokia's representative, Richard, stroked his chin. "Mr. Su, your proposal... is quite unique. Usually, Chinese companies try every means to steal technology, but you're openly discussing an exchange."

“Stolen technology is unreliable and won’t allow for large-scale operations. Moreover, Shenzhen-Hong Kong Electronics has always sought to circumvent current patents,” Suning stated bluntly. “After all, what we want is legal authorization and long-term cooperation. Shenzhen-Hong Kong Electronics aims to be a century-old enterprise, not one that relies on underhanded tactics.”

These words drew nods of approval from the leaders present.

Director Wang even showed an approving expression, "President Su's vision is something worth learning from!"

The Ericsson representative asked, "So how exactly does it work? How are patent licensing fees calculated?"

“Two options.” Suning was clearly prepared. “First, you license a batch of patents to Shenzhen-Hong Kong Electronics at once, and we pay licensing fees based on the patent value. Second, and simpler—you purchase our components, and we deduct patent fees based on a certain percentage of the purchase amount.”

The moment this proposal was announced, the eyes of several foreign representatives lit up.

The second method is essentially a disguised price reduction!
They got cheap parts, avoided the hassle of patent licensing, and didn't have to pay cash.

Smith immediately did the math in his head: if Motorola purchased 50 million worth of parts from Shenzhen and Hong Kong a year, and deducted 5% of that, that would amount to a patent fee reduction of 2.5 million.

This is equivalent to discounting the parts again!
“This proposal…is very attractive,” Smith said frankly, “but we still need to report to headquarters, since it involves patent licensing, which is not something I can decide.”

“I understand.” Suning nodded. “The others will do the same; go back and discuss it with your headquarters. But I can guarantee that the quality and price of Shenzhen-Hong Kong Electronics’ supply chain will be the most competitive in the market.”

The Siemens representative suddenly asked, "Mr. Su, what if we choose to build our own supply chain in China? After all, relying on a competitor's supply chain in the long term is too risky."

“Of course,” Su Ning smiled. “But I must remind everyone that building a complete mobile phone supply chain requires hundreds of millions of yuan in investment just for factory buildings and equipment. We also need to train skilled workers and establish a quality management system. Stable mass production is simply impossible in less than two or three years. And in those two or three years…”

“Shenzhen-Hong Kong Electronics may have already achieved a market share of over 50%.”

Another silence fell over the conference room.

Although these words are harsh, no one can deny them.

Shenzhen-Hong Kong Electronics is currently riding a wave of momentum, with its discounted products almost sweeping the market.

If we wait two or three years, the daylily will be too late.

Director Wang spoke up at the opportune moment, "Gentlemen, although President Su's words are direct, they are indeed the truth. There is an old Chinese saying, 'The business world is like a battlefield,' and timing is very important. If we cooperate now, everyone will benefit; if we wait two years, we may not even get the soup."

The foreign representatives all understood the implied meaning...

This is a statement from the relevant departments, supporting Shenzhen-Hong Kong Electronics and hoping for cooperation among all parties.

Ultimately, Smith, representing several foreign companies, stated, "President Su, Director Wang, we are very interested in today's proposal. We will immediately report to headquarters and provide a response as soon as possible. Personally, I believe there is a high possibility of cooperation."

"Great!" Director Wang was delighted. "Then let's wait for your good news. Today's negotiations were a great success; everyone got what they needed, and we'll all develop together!"

After the meeting, Director Wang specifically called Su Ning aside.

"President Su...you really made Chinese entrepreneurs proud today." He patted Su Ning's shoulder forcefully. "You were neither arrogant nor humble, polite and respectful, safeguarding national interests while also finding a way out for the company. If the higher-ups knew, they would definitely look at you with new respect!"

"Director Wang, you flatter me. I'm just doing this for the company's development."

"Whatever the reason, the result is good." Director Wang lowered his voice. "Your idea of ​​exchanging technology for market access today is very visionary. What we lack right now is technology, and being able to exchange market access for technology is a great thing! Don't worry, if Shenzhen-Hong Kong Electronics needs any support from relevant departments in the future, just let us know! We'll provide whatever we can—policies, land, loans!"

"Thank you for your support, leaders!" Su Ning knew that this was the biggest gain of the day, having received recognition and support from relevant departments.

In China in 1995, this meant far too much.

“Oh, right,” Director Wang said, remembering something, “I’ve also heard about your Shenzhen-Hong Kong Lingyun Dance Troupe. Tell Han Ling to do her job well. If she needs any performance venues or permits, she can contact the Cultural Bureau directly. I’ve already spoken to them.”

"Thank you so much!"

The two chatted for a few more minutes before Director Wang left, satisfied.

On the other side, representatives from several foreign companies were walking and chatting in the corridor.

"This Suning is no ordinary company," Smith remarked. "I thought he was just a nouveau riche, but I never expected him to have such a long-term vision."

“His proposed solution is actually beneficial to us,” Richard said. “Using non-core patents in exchange for the supply chain is like getting rid of a burden and making money at the same time.”

"The problem is, what if we teach our apprentices, but the masters starve to death?" Ericsson's representative was somewhat worried.

"Don't worry," Smith sneered. "We only offer outdated technology; he can't access the real core technology. Besides, once they rely on our patents, they'll have to pay licensing fees obediently. This is a long-term business."

"What about headquarters..."

“I would recommend agreeing,” Smith said. “The most important thing right now is to retain the Chinese market. As long as we can use the Shenzhen-Hong Kong supply chain to reduce costs, we can wage a price war. Stabilize the market first, and we can deal with the rest later.”

The others nodded in agreement.

……

Unbeknownst to these international mobile phone giants, Suning was standing by his office window, watching them drive away.

Su Ning knew that he had made the right move today.

Opening up supply chains may seem like a way to help foreign companies, but in reality, it binds them to China's industrial chain.

Once they get used to using Chinese parts, they can never do without them again.

At that time, Shenzhen-Hong Kong Electronics will not only make money selling mobile phones, but also selling components.

Moreover, controlling the industrial chain is equivalent to controlling the discourse power.

This is the real trump card.

As for those foreign brands?

They use Chinese parts, put foreign brands on them, and make money off Chinese people.

But the core manufacturing sector is already in the hands of Chinese companies.

This war has entered a new phase starting today.

"President Su, do you think they will agree?" Huang Yunyun asked.

"Yes," Suning said confidently, "because this is their only option right now. They can either cooperate and use our supply chain to reduce costs, or build it themselves, but by the time it's built, the market will be gone. Any normal businessman knows which option to choose."

"But if we open up our supply chain to them, aren't we afraid they'll learn it and turn against us?"

“Don’t worry.” Suning turned around. “First, the core of the supply chain is economies of scale and cost control, which they can’t learn; it’s determined by the market. Second, once they get used to using our components, they won’t be able to live without them. At that point, it won’t be them controlling us, but us controlling them.”

Yang Ru, standing to the side, seemed to be deep in thought. "Just as you often say, whoever controls the industrial chain controls the power of discourse."

“Yes.” Suning nodded. “Moreover, what I really want are their technology patents. Although they are not core technologies, they add up over time. For Shenzhen-Hong Kong Electronics to develop, price wars alone are not enough; it also needs technological accumulation.”

He then walked to his desk, picked up a document, and said, "Notify the R&D department to prepare to receive the patented technology. Also, the production department should prepare to expand capacity. Once the cooperation is finalized, orders will come in like snowflakes."

"Yes!"

After the two went out, Su Ning sat down and lit a cigarette.

Today's negotiations were successful, but he knew that this was just the beginning.

International giants will not be willing to give up the market, and there will be various open and covert struggles in the future.

But at least, Shenzhen-Hong Kong Electronics has gained a foothold and has the leverage to negotiate.

The next step is to take advantage of this cooperation opportunity to rapidly expand our own capabilities.

Once Shenzhen-Hong Kong Electronics masters the core technologies and establishes a complete industrial chain, it will no longer be a collaboration, but a leadership role.

The afternoon sun in Shenzhen shone through the windows, and the office was very quiet.

But Su Ning knew that the outside world was changing because of his words today.

Furthermore, during the subsequent negotiations with all parties, Suning will set exclusive conditions to exclude some regions that it has long disliked.

For example, companies in India and TSMC in Taiwan are forcing international mobile phone giants to incubate their own wafer fabs and chip production capacity in Shenzhen and Hong Kong.

...(End of this chapter)