Qualcomm, Intel, Texas Instruments, Infineon and MediaTek are the major players in the chipset manufacturing playing field. What is a chipset? A chipset is a pair of chips designed to work together to control communications within a computing device (such as between the main memory and graphics controllers) and between integrated peripherals (such as Ethernet, USB, and graphics devices). Chipsets are usually marketed as a single, often branded, product.

It’s a mercilessly competitive industry. Strategic alliances with big-name manufacturers of electronic devices drive new product innovation and raise speeds ’n feeds until the next chipset innovation comes forth. At the brand level, electronics manufacturers promote their products in channel with the co-funding support of chipset manufacturers, who must continually strive to ensure that their brand of chips is promoted as a primary reason to purchase. Failure to do so would mean their particular set of chips fades to nothing more than an assembly of integrated circuits on a motherboard.

Chipsets are integral to the process of product design, for example in developing multimedia smartphones for emerging markets. So if your chipset is part of the latest, greatest, must-have product, your market share soars. Last year, chipset manufacturer MediaTek took the #2 chipset manufacturer position from Texas Instruments. MediaTek’s revenues increased by 30% last year, and for Q1 2010 they have reported a revenue increase of 38% year over year. Meanwhile, the #1 chipset manufacturer has seen their revenues shrink over the same period. Why such impressive growth for MediaTek? The answer is the Shanzhai Channel.

The Shanzhai Channel is composed of “mom & pop” mobile handset makers. These are manufacturers of handsets that mimic best-selling models from Nokia and Apple devices, are as small as cigarette packs, or are simply an innovative hodgepodge of form factor and functionality. Cellphones rely on a combination of chips, which are usually procured separately by manufacturers. That was, until MediaTek started offering chipsets that included most of what is required to make a mobile phone work, reducing development time and costs by as much as 50%.

Operating on the fringe (Shanzhai literally means “mountain stronghold”), Shanzhai products now account for 20% of China’s cellphone market. This base has propelled MediaTek to a 24% market share of the global cellphone chip market, compared to Qualcomm’s 37%. It’s important to note that a full 90% of MediaTek’s revenues come from China.

There is a huge channel marketing lesson to take away from this. Every industry has a marketplace, and every marketplace is composed of channels of distribution and routes to market. There will always be a Tier 1, Tier 2, Tier 3 categorization by the sales team of their customer base. And always it will be Tier 3 that is underserved by the manufacturer, because these customers are abdicated to distributors that focus on the 20% of customers that make up 80% of their business. Tier 3 is the green field of opportunity that gets the least level of support.

MediaTek has shown us how direct investments in and paying attention to the broad base of Tier 3 customers can deliver an overall increase in market share that can act as a solid platform for profitable growth. Serving the underserved does not mean targeting lesser growth. Short term, it will require a disproportionate investment in resources. But what you will find in Tier 3 are end-customers hungry for attention and the type of support you will find relatively easy to provide. You just need to make the commitment to identify and then go after your company’s own personal Shanzhai Channel.

You should do this. You’ll be a hero to the masses. You’ll feel confident about your offering. You will sense the opportunity. You will find new customers that need the services you can provide. And you will be very, very busy. Volumes and profits will follow if you stick with it. So go out and find your own mountain stronghold. Shanzhai!