Emerging telematics opportunities in China

Emerging telematics opportunities in China

China promises to be one of the biggest telematics markets in the near future, on the back of a flourishing automobile industry, a massive mobile network, a huge transport and logistics sector, changing consumer attitudes and support by the government. Sensing that the giant economy may finally be waking up to embrace telematics, key industry players are already lining up to get a foothold in the market. This is a big change from 2005, when telematics was a relatively unknown area in China.

The first impetus came from the logistics and transport sectors. Almost from being negligible in 2005, the market for fleet management systems was estimated to have reached $300 million by the end of 2007. The segment is forecast to be worth $786 million by the end of 2012, according to a study by ABI Research. The 2008 Beijing Olympics provided a further push; a global positioning system-enabled fleet management system was installed in the majority of taxis and busses in the capital. A similar trend is taking place in Shanghai, which is getting ready to host the World Expo.

Logistics companies see a lot of value in implementing fleet management systems to overcome problems of safety and theft as well as to meet increasing security requirements by the government. But analysts caution that it’s too early to see growth in the fleet management system market. “We predict that the main growth will start happening in 2011-2012,” says Dominique Bonte, practice director, telematics and navigation at ABI Research. He says that expensive and heavy vehicles used in the infrastructure and construction sectors will be important areas for growth due to increased demand for vehicle tracking devices.

The next big trigger for growth is expected to come from the automobile industry. In 2009, China surpassed the US to become the world’s largest automobile-producing country. Toyota launched the popular G-Book service in China in the year, aimed at high-end vehicle owners. G-Book is a service that links the onboard navigation system to the service’s call center through a communication module that can be used to provide a range of services, including navigation setting, vehicle tracking in case of theft, and automatic relay of air bag deployment information in case of accidents. The company says the service has received encouraging responses from users. Toyota has already implemented its “evolutionary customer relationship building” (e-CRB) system in China across Toyota and Lexus dealerships, enabling the company to centrally manage relationships with customers throughout the sales and after-sales processes. “The consumer telematics market is finally taking off in China with the launch of G-Book and General Motor’s OnStar service,” says Bonte.

For its blockbuster OnStar service in China, General Motors set up a $46 million joint-venture—Shanghai OnStar Telematics Co—in partnership with the Shanghai Automotive Industry Sales Co. The company says that, initially, the service will be available on select models of Cadillac, Buick and Chevrolet cars. The service will be in Mandarin and will be available throughout mainland China.

Analysts say that though being the first in the market will be a certain advantage for Toyota and GM, both will have to overcome the initial challenges of educating consumers, employees and dealers about the value of the service offered by products such as G-Book and OnStar. Other challenges may include the linguistic complexities, as there are hundreds of dialects spoken in China, and the need to continuously update the road mapping system, which is constantly changing due to massive construction of new infrastructure across the nation. Tristin Lin, research manager, automotive and transportation practice at Frost & Sullivan China, says that apart from educating customers, the companies need to invest in research to understand how the Chinese customers will interact with telematics. “They need to understand what features the customers are willing to pay for and how much they will be willing to pay,” he says.

Automobile OEMs are also gearing up to cater to the automobile telematics market. Harman International, a global provider of premium audio and infotainment solutions, opened a research and development center in Shanghai in September. The company has also decided to manufacture its recently unveiled latest generation software-based scalable automotive infotainment system in the company’s existing facility in Suzhou. Harman’s chief executive, Dinesh Paliwal, says the new system integrates automotive audio, navigation and wireless technologies with a new generation of connectivity options.

Wary of increasing problems of vehicle theft, traffic congestion and road accidents, and aware of the need for a reliable way to get in touch with emergency services, a growing number of Chinese are turning to telematics services, including GPS-enabled navigation devices. The navigation market also received a boost from a government initiative around the Beijing Olympics—the first real-time traffic information system to tackle traffic congestion during the games. The government policy of requiring all public transport vehicles and special purpose vehicles to be fitted with GPS systems has also fuelled growth. Nissan teamed up with the Beijing Transportation Information Center to launch the Star Wings navigation system, offered with Nissan Teana sedans, while Audi introduced its TMC navigation system in Beijing. Honda and Toyota have a new generation telematics service called Mobile in Vehicle (MIV) in select models. The technology, developed by South Korea’s SK Telecom, integrates computing and mobile communications technology with automobile systems.

Mobile telecommunication is another important growth area for Telematics services. China currently has more than 680 million mobile subscribers as compared to only 270 million users in the US. GyPSii, a social networking application company, announced a deal with China Unicom to launch Unispace, a lifestyle service for iPhone users. China Transinfo, a leading provider of public transportation information system technology in China, announced a partnership with China Telecom to provide the company’s newly launched real-time traffic information mobile phone application, Palmcity Live Traffic, for China Telecom users. China Telecom has more than 43 million users. In another deal, Chinese video sharing site Youku entered into a content partnership with Nokia and Sony-Ericsson. Under the agreement, all Nokia and Sony-Ericsson handsets in China will come pre-loaded with the Youku client.

South Korea’s electronics giant Samsung unveiled its channel decoder RF system-on-a-chip, targeted at China’s mobile TV broadcasting market. The device, which is compliant with the China Multimedia Broadcasting (CMMB) standard, will enable mobile consumers to view real-time news, sports, weather forecasts and other TV programs. China’s mobile TV market is estimated at 6.5 million units and will continue to grow annually at the rate of 64% to 47 million units by 2013, according to market research firm Techno Systems Research.

Though an increasing number of companies are planning and launching telematics products and services, the market is not without serious challenges. A report by research firm CCID Consulting says that China's telematics market faces a host of problems, such as low product awareness, lack of unified product standard, high price, small market size, outdated information service system, and unsuitability of foreign product models. Bonte of ABI Research says that the complex regulatory landscape in China presents another challenge, as different provinces have their own regulations. Even user needs may vary from region to region. Bonte says that educating users on the benefits of telematics services is a key task for the industry players. Western telematics companies should consider partnering with local distributors and technology providers, which are already licensed by the local governments, to gain access to the market.

Building nationwide wireless infrastructure is also a key challenge. China’s wireless communication market is controlled by the three state-owned telecom companies: China Mobile, China Telecom and China Unicom. Lin of Frost & Sullivan China says that automakers need to convince telecommunication service providers to invest in wireless infrastructure to grow the telematics market. Current business models are based on the assumption of steady revenue streams from user subscription fees. This model has yet to prove itself, though, says Lin. In the absence of a successful business model, Chinese telecom service providers are not willing to invest in building the infrastructure needed to offer telematics services on a large scale.

Analysts agree that there is huge potential for telematics growth in China, but close cooperation among different players—including telematics service providers, telecom operators, automakers and government agencies—will be required to realize that potential.

Rajesh Chhabara

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