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UPDATED: August 30, 2010 NO. 35 SEPTEMBER 2, 2010
Reading Market Challenges

Though a late starter, China's electronic reader (e-reader) market is growing explosively. This year, e-reader sales in China are expected to reach 3 million units from 300,000 in 2009—20 percent of the global total. U.S. research firm DisplaySearch forecasts China will overtake the United States as the world's largest e-reader market before 2015, by virtue of its large population.

Along with the boom come development opportunities for e-reader makers. Hanvon Technology Co. Ltd. in Beijing, which unveiled its first e-reader in 2008, is now the world's second largest e-reader maker by sales, next only to Amazon.com Inc., producer of Kindle. With triple-digit growth since then, the company aims to rank among the world's 500 largest companies in 10 years. Hanvon's success has inspired a number of businesses to jump into the hot market.

It is still hard to say, however, if their investment will pay off.

The reason is not just the reading devices are too expensive to become more popular or the providers are progressing slowly in duplicating Amazon.com's effective content-derived profit model.

Presently, 85-90 percent of e-readers produced worldwide use black-and-white e-ink screens. However, only two firms mass-produce the screens, with Taiwan-based PVI controlling around 80-90 percent of the global market. Due to inaccessibility to the core technology, the makers on the Chinese mainland have to comply with upstream suppliers in terms of production and hand over most of their profits to the latter. It's said Hanvon planned to ship 500,000 e-readers last year, but sold only 270,000 units, because suppliers failed to meet its request for E Ink screens.

The predicament facing e-reader makers is not new for other Chinese manufacturing enterprises. Several years ago, when Chinese TV makers beefed up efforts to tap the booming LCD TV market, they purchased LCD panels from foreign companies. At that time, the LCD panel accounted for half of a TV set's cost. Later, almost all Chinese TV makers incurred huge losses because short supplies triggered increases in panel prices.

Technological advancements have made e-publishing an irreversible trend, creating a huge market for e-readers—even though only distinctive product features provide competitive advantages.

Apple Inc.'s iPad is a good example. With diverse functions and applications and user-friendly designs, this tablet device has had a big impact on the e-reader market. In the meantime, identical Chinese e-reader products are not competitive against big foreign brands.

Fortunately, innovation is topping the agenda for greater numbers of Chinese e-reader makers in their bid to outdo foreign rivals.

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