The development of China’s mobile phone industry can be divided into three periods: initial birth, rapid growth and intense competition. Through analysing three generations of Chinese mobile phone producers and their distinct strategies for competition, this paper finds that domestic firms such as ZTE and Huawei have become new leaders through their innovation capability in key technologies. Innovation capability has built a solid foundation for them to implement strategic development such as directly supply to mobile phone operators, expansion into the international market and making sound technology choices (3G). On the other hand, lack of innovation capability has led to the development bottleneck of earlier leaders. This finding implies the significance of early development of innovation capability and capability in cutting-edge key technologies for domestic firms. Further, it indicates that though firms without innovation capability in key technologies may reach prosperity during the initial birth and rapid growth of the domestic industry, they are extremely vulnerable when the industry enters the intense competition period.
Keywords: China, innovation, technology management, domestic firms, catching-up, mobile communication, mobile phone, telecom equipment, ZTE, Huawei, TCL, Ningbo Bird, PEG, Eastcom