As is well known, China has for decades been a world centre for manufacturing all kinds of goods including footwear, textiles, toys, chemical products and electronic items. Over 30 years after the first economic reforms of Deng Xiaoping, its low labour costs and its growing domestic market have made China one of the most dynamic industrial regions on the planet. In early 2010, the Asian giant managed to knock Germany out of first place in the ranking of global exporters,[1] and it is getting ready to dethrone the US as the world’s industrial leader.[2]

China’s supremacy can be clearly seen in the field of e-readers. According to various different sources, around half of the world’s electronic ink devices are manufactured in China.[3] It is estimated that between 60% and 70% of the local market is currently in the hands of Hanvon,[4] which has sold over one million e-readers.[5] This technological colossus, founded in 1998, has implemented significant developments in text recognition software, biometric solutions and other advances that have earned it various international awards.[6] Its main goals for the medium term are to grow in the US market,[7] create a mass market for its recent colour electronic ink device[8] and expand as a content distributor.[9] Nevertheless, the list of the main manufacturers of e-readers should also include companies like Jinke – with its popular device, Hanlin –,[10] Newsmy and Netronix.

According to Zhang Yanan, an expert in electronic devices from the consulting firm Analysys International, foreign e-readers have little penetration as yet in China, since companies like Amazon or Sony are proceeding with caution, whether it is because of copyright issues, because of the lack of sales channels or because of difficulties related to Chinese fonts.[11] This state of affairs, added to the fact that the very gadgets distributed by Apple or Amazon in industrialized countries are assembled in China, may lead us to believe that the Asian giant has a comfortable advantage in this area. However, Chinese e-reader manufacturers face a similar challenge to the one plaguing IT service companies in India: namely, the difficulty of creating a brand and competing over variables that go beyond price alone. Indeed, competition between e-reader manufacturers is so ferocious that profits keep falling, forcing many of them to withdraw from the market – as was the case with Foxit and its eSlick device –[12] or to migrate to other activities, such as tablet production[13]. Perhaps over time we will witness the phenomenon of commoditization in the new sector of tablets, as more players join the field. At the end of the day, value and profits go to wherever the devices are designed, not to where they are manufactured. The New York Times recently described how the assembly of an iPhone 4 earns Chinese companies just 6.54 dollars – about 1% of the sales price of the appliance –, while Apple’s profits amount to 360 dollars.[14] Apple and Amazon – just like countless multinational companies –[15] employ integrated business models that reach far beyond the sale of hardware, which enables them to withstand the price war far better. As the vice president of Hanvon, Wang Bangjiang, explains:

Amazon basks in the glow of a much more mature market, where customers are willing to pay $10 to download a book. With juicy income from content sales, Amazon is well positioned to lower device prices, which in turn attracts more customers. This is not the case in China, where most customers are used to the free downloading of books. So Chinese e-reader makers like Hanvon still rely on device sales for most of their revenues, and find it difficult to lower device prices.[16]

Nonetheless, according to Sun Peilin, a colleague of Zhang Yanan at Analysys International, there is a way out of this jam:

The profit margin from selling hardware has become increasingly narrow due to intense competition (…). What Chinese e-book [e-reader] producers can do is cooperate with publishers for software development. Otherwise they won’t survive by only selling hardware.[17]

Such an awareness has led to the appearance in China of digital ecosystems that combine hardware, software and content, making them much better equipped to compete with their US and European rivals. We will present some of these interesting cases shortly, but first we will briefly describe some of the main local e-commerce platforms.