Update on Telematics in China Part 2

Charlotte

26th February 2015

The slowdown in economic growth in China is having an effect on that nation’s willingness to allow Western companies to enter the domestic space. This is as much to allow Chinese companies to export their products and services as it is to impact the domestic market.

Western companies who have previously seen only a long, hard road into the Chinese market with uncertain returns are beginning to look again.

M2M and Internet of Things connectivity enabler, Stream Technologies, says that it has been looking at the Chinese market for a number of years but had always opted against trying to break into it due to the high levels of investment required and the absence of any low-hanging fruit.

However, the past few years have seen a “shift in mindset”, according to chief executive Nigel Chadwick. “There is a willing to learn mentality across the network operators who want to develop their entire machine to machine services, driven by the fact that China has such a massive internal market.

“On my last visit, there was definitely a change in wanting to collaborate and liaise and potentially do some joint work in China. There's a realization that they are going to have to collaborate with a much wider set of companies to enable Chinese companies to come out and export to other parts of the world in the Internet of Things ecosystem.”

On the commercial telematics side of things, the growth is just as stark. C.J. Driscoll and Associates estimates that there are five million GPS fleet tracking and Beidou tracking devices in the market today.

The research firm recently produced the first ever report on the Chinese commercial telematics market, which found that it’s the fastest growing sector of its kind in the world. The firm predicts this market will grow by around 18 per cent each year until 2020 when it will have more than 12 million devices in service, making it the biggest market in the world.

This growth is expected to be driven by a number of factors including the fact that the addressable market size is growing every year. China is the largest market in the world for trucks.

However, there is a bigger issue driving the growth – the country's prohibitively high logistics costs. The Chinese government has recently just announced a six-year plan to reduce its logistics spending as a percentage of GDP, which currently stands at 18.5 per cent, compared to just 8.5 per cent in the US.

“It is a huge problem and it is hurting them economically,” adds Driscoll. “The whole logistics sector is so inefficient. The government is aware of that and is pushing for the deployment of commercial telematics and the market is going to continue to grow and it is dominated by Chinese companies. Most of those don't have any Western partners and some of them may want to (partner with a Western company).”

“There's a lot of low-hanging fruit for a well established TSP, no question about it. A Western company would have to pick the right Chinese partner to attack the market. There is a lot of risk, I wouldn't deny that, but I would expect to see a lot more commercial TSP's entering the market through partnerships, drawn in by the fact that even a small piece of it could be a lot of business.”

Some of the cultural differences, which make the Chinese market so difficult to break into, are also at play in the services that are offered. For example, Driscoll says that fuel theft is a huge issue in China, so a lot of the solutions are based around fuel monitoring. Many local governments also require that taxis and public buses have a tracking solution embedded and that the data is shared with the authorities.

The 'Big Brother' concerns raised by some employees in the Western world, simply don't apply in China. Driscoll says that, far from being primitive, Chinese solutions are actually 'fairly sophisticated'.

He said: “There are a lot of Chinese solutions which include things like video. It isn't just tracking location, it is recording audio and video for some market segments. Government at various levels for certain segments insists on being able to monitor fleets themselves.

“The local government wants to be able to monitor taxis and public transit buses for safety and monitoring traffic, they want to be able to track where cabs are and they say it is for passenger safety and also driver safety. That's the nature of the Chinese government and society…. there isn't a lot of privacy, the government has cameras everywhere.”

WirelessCar's Johannson says it essential that service providers offer a broad range of services because there is huge demand in China for in-car services.

“They have higher requirements on the number of services and the pace of development is maybe the biggest difference,” he said. “In Europe we are trying to work at the same pace as the automakers but in China it needs to happen faster. Everyone wants to be perceived as fresh and first in line.”

But Johannson says one area that is not cutting edge, has proved surprisingly popular:

“What is really stunning is the concierge service (where drivers can call for information, advice, etcetera) which, in a way is dying in the US and Europe, but it is really increasing in China. It is fantastic the usage we have on those services compared to the US and Europe. We are talking about maybe 40 times the volumes of calls compared to the US.

“That was a surprise and it puts very high requirements on the tools that the call center is using and also the training of call center agents. That's something we have learned the hard way, first of all to make sure we have a technology that supports these kinds of volumes and expectations on delivery times for the services but also making sure that the actual call center agents are properly trained.”