OVER THE PAST several years, news of large company lay-offs has received scant attention, even when the lay-offs have happened at Sony, one of the world's most widely known brands. But perhaps a more telling clue to what is happening in the business of consumer electronics is another piece of news from Sony on a US$2 billion joint venture with Samsung to manufacture liquid crystal display flat-screen televisions. This joint venture combination would have been unthinkable five to 10 years ago and it marks an incredible transition for Samsung from competing primarily on price to competing on innovation, quality, anticipation of future market trends, branding and marketing. Will Chinese manufacturers be able to follow in the footsteps of Samsung and be the next in line to take on Sony in the global market? There are many obstacles standing in the way of Panda and Skyworth in bringing themselves to the world stage. Some analysts point to their obvious deficiencies in marketing experience and understanding of the consumer markets elsewhere, but marketing expertise and insights can be relatively easily acquired. However, there are two real challenges for these Chinese manufacturers that are much more difficult to overcome. Firstly, Chinese manufacturers do not yet have a case for heavy research and design. Contrary to some beliefs, the consumer electronics industry has become almost a commodity industry where cost advantage is king. The industry is facing an increasing need for R&D as the differentiation between advanced computing devices and consumer electronic appliances decreases, and the concepts of home-networking and interacting consumer devices get closer to reality. Innovation in chip technologies is one of the strategies that Sony is betting heavily on to get the swagger back in its products. Chinese manufacturers are disadvantaged in this respect, not because they are behind in the development curve, but because the Chinese domestic market is much smaller than the global market that Samsung and Sony can use to spread their R&D expenses. Secondly, many Chinese manufacturers will find most of their products are not even qualified to compete in developed countries. Consumers in a country with gross domestic product per capita of US$30,000 are very different in their price sensitivities and decisions on price-performance trade-offs than those in a country with a GDP per capita of $1,000. The top-end products that these manufacturers make are meant to address the 5 per cent of the households in China that make US$5,000 a year or more, and this segment of customers sit in the bottom quartile in a developed market such as the United States. How should Chinese manufacturers overcome these disadvantages? On the issue of affording large R&D investments, Chinese manufacturers should, in order to generate enough scale to spread out R&D costs, first expand their markets in other developing countries where their price-based product strategies will be more likely to work. They should also choose and focus on products for which their domestic markets are comparable with those of global giants (MP3 players, DVD players). They should shy away from investing in R&D on products that have small domestic market demand (flat-screen TVs, car stereos), and instead rely on joint ventures with foreign companies as Samsung did in earlier years. To overcome the gap and reach the required product quality necessary to launch a push abroad, companies need to change their mindsets about their product positioning. Some companies have decided that their products are not as good as those of foreign rivals and they can compete only on price. To change this mindset and quality of product requires a strong commitment from the chief executive and heavy investment to develop products that are better and more expensive than what the local markets will absorb. Some companies are so successful at home they believe their products will naturally be a best seller abroad. Professor Christopher Bartlett of the Harvard Business School outlined what Samsung did with this mindset. Samsung's chairman flew 100 senior managers to the US to let them see how its products were positioned there. The managers were shocked to see Sony and Toshiba being displayed prominently in retail stores, followed by Philips and Panasonic. Samsung's products were stacked discreetly in the back with layers of dust on top. The managers joined the chairman in taking out their handkerchiefs to wipe the dust off the products and the point from the chairman was nailed home. Maybe one day our youngsters will save up their lunch money to buy the Chinese-branded gadget that they have always wanted. Ken Lo is the managing director of BusinessDevelopmentConsultants & Company.