Will TomTom’s China foray succeed?

EL SEGUNDO, USA: After years of sitting on the sidelines, Dutch manufacturer TomTom NV recently entered China’s Portable Navigation Device (PND) market . But with PND sales in the country slowing after three years of explosive growth, has the company missed out on its market opportunity?

“In China—where TomTom lacked an official presence and only black-market PNDs could be found in small volumes—concerns regarding the messy Chinese market as well as issues related to the Amsterdam-based firm’s own marketing strategy made TomTom miss the peak of the Chinese PND market,” said Celina Li, Asian automotive researcher at iSuppli.

“Despite its late entry now, iSuppli believes that TomTom has picked an opportune time to enter China, with its products and strategy likely to receive a warm welcome.”

Second-quarter sales for TomTom, a leading global PND maker, reached 1.5 million units in Europe for a 49 percent market share in that continent, as well as about 800,000 units during the same period in North American sales for a 23 percent market share.

Good timing
For TomTom, the axiom that good things come to those who wait appears to be true.
TomTom bided its time to enter the vast China market until Chinese consumers, having developed more mature tastes, were ready for higher-end PNDs. Furthermore, China now has a more structured PND market.

Consumers today in China possess high recognition of PND products. Pricing is no longer the most critical factor in PND purchase decisions. Today, even very high-end models are in the affordable range of 3,000 yuan ($441), compared to about 5,000 yuan ($765) in the past. The old choices involving cheap, barely functional grey-market PNDs—either pirated or unnamed—are no longer tolerable.

In the meantime, the market also has become more structured and consolidated after years of overcrowding with low-end Shanzhai PNDs—knockoffs that forced branded models to enter pricing wars and invest in resources to build their brands. Pricing now has stabilized, however, and branded PNDs with authorized maps can be found that range between 1,000 yuan to 3,000 yuan.

Such a price range puts TomTom in direct competition with Garmin, Mio, Shinco and Unistrong, to name just a few.

In addition, the shrinking profit from the pricing war continues to flush out many Shanzhai PND makers and dealers—short-term profit seekers that usually must move on quickly to copying the next profitable product in order to survive.

Strength of TomTom
If it treads carefully, TomTom still has a healthy chance of winning significant share in the Chinese market. Poor navigation accuracy ranks as the biggest complaint among Chinese consumers about PNDs, whose accuracy depends on their digital map data and routing engines—otherwise strong areas for TomTom.

TomTom’s three new PND debuts, the Go 750, XXL 540 and XL 255, all come with leading map provider AutoNavi’s latest map data as well as TomTom’s fast positioning by downloading QuickGPSFix data. The TomTom Go750 reportedly receives signals from six satellites in less than 12 seconds when first turned on, which easily puts it ahead of other GPS navigation systems on the market.

TomTom also was a known brand name long PND Line-ups in China—priced at more than 3,000 yuan or $441—before its official entrance into China. The company has supplied its G720 to the Shanghai Volkswagen group since January 2009 and its G430VW to the Volkswagen Lavida since June 2009. Together, these two products have given Chinese users a peek into TomTom’s features.

All told, the company has a ripe opportunity to ride the wave of the biggest automotive market in the world. But as OEM embedded in-vehicle systems, aftermarket navigation systems and smart phone navigation applications gain more traction in China, TomTom is sure to face its share of challenges.

Source: iSuppli, USA.