Beats Electronics to expand China operations

When Beats Electronics launched its first product in 2008, the appetite of consumers for expensive, large headphones with an overtly hip hop music branding seemed highly uncertain. "We came to market with the US$300 'Beats by Dr Dre Studio' on the same day that Lehman Brothers folded," said Luke Wood, the president and chief operating officer of California-based Beats.

That was at the height of the global financial crisis. Investment bank Lehman Brothers filed for bankruptcy with US$613 billion in total debts and closed its doors on September 15, 2008.

"We didn't know whether that was a good time to put out a US$300 headphone, but it sold well," Wood said. "More importantly, we created a market for premium audio in the headphone space which didn't exist then."

More than four years later, Beats has become entrenched as the global market leader for headphones priced at more than US$100. The privately held company is due to build up its operations in China this year to meet growing demand for its headphones worldwide. "We're going to be making investments, from the standpoint of operations and research and development, in Shenzhen," Wood said, without providing figures. "We will also hire a marketing team based in Shanghai and build up our sales organisation in Hong Kong."

Wood said Beats was now sharpening its focus on managing its contract manufacturers on the mainland and logistics partners. The company has more than 170 staff, including about 40 engineers. Beats was also "investing more … resources against counterfeiting" this year, he said. Similar to the strategy of other packaged-goods firms, Beats is working to catch counterfeits before these reach the market.

Efforts to shore up Beats' research and development, manufacturing, logistics, and sales and marketing infrastructure directly stem from the company's decision a year ago to amicably part ways with Monster, a maker of premium-priced audio and video cables, speakers and headphones.

Monster, which is also based in California, was the exclusive manufacturing partner for the Beats by Dr Dre headphones. The firm helped Beats founders Andre Young, the hip hop artist known as Dr Dre, and Interscope Geffen A&M (IGA) record group chairman Jimmy Iovine introduce the high-performance Studio at the International Consumer Electronics Show in Las Vegas in January 2008.