Enhancing partnerships with internationally known firms can be an effective way for domestic handset makers to further sharpen their competitive edge and seek overseas expansion, analysts say.

"Exposed to fiercer competition, such alliances will become a very promising way for firms to become stronger both in the domestic and overseas markets," said Zeng Jianqiu, a professor with Beijing University of Post and Telecommunications.

He believes competition as well as co-operation should be the main themes for the development of the domestic handset manufacturing industry.

Zeng's remarks were echoed on Monday when representatives from TCL Communication Technology Holdings Ltd (TCL Communication), the intended holding company of Huizhou TCL Mobile Communication Co Ltd (TCL Mobile), inked a memorandum of understanding (MOU) with worldwide telecommunications leader Alcatel to form a joint venture.

The JV will involve research and development, sales and distribution of mobile phone handsets and related products and services.

Under the terms of the MOU, TCL Communication will be the major shareholder in the new company with a 55 percent stake, while Alcatel will hold the remaining stake.

The formation of the JV involves contributions from both partners of 55 million euros (US$65 million) by TCL Communication and 45 million euros (US$53.5 million) by Alcatel.

The formation of the new venture is expected to be completed during the third quarter of 2004, subject to the signing of definitive agreements and necessary approvals by shareholders and regulatory authorities.

"This is an exciting partnership which will provide us with a platform to rapidly grow our international business," said TCL Mobile CEO Wan Mingjian.

"Furthermore, the joint venture company and TCL Mobile will be able to create significant synergies to deliver a profitable business going forward."

Philippe Germond, president and COO of Alcatel said: "With this operation, we are making another important step in our strategy to focus on communication solutions. As part of this strategy, Alcatel will maintain end-to-end mobile solutions capabilities for its customers."

Analysts believe that TCL Communications and Alcatel officials realized that the combined strength of the two shareholders can better position TCL Mobile and the JV in the competitive mobile handset market.

It can also potentially deliver a fast-growing and profitable handset business to the global market.

The JV and TCL Mobile combined will have an extensive sales network offering coverage in China, Latin America, Europe and the rest of the world addressing major operators and distributors.

The domestic handset market has witnessed dramatic development over the past five years.

MII figures indicated that domestic handset makers took only a tiny 2 percent market share in 1999. However, the figure jumped to about 55 percent last year, with several rising star handset makers including TCL, Bird, Konka, Lenovo and Amoi.

(China Daily April 28, 2004)