China’s Telecom Vendors

WSJ writes how China’s telecom vendors now face their next challenges in tapping developed markets:

In the past three months, Chinese vendors have signed deals in Ethiopia, Libya, Pakistan, India, Indonesia, Hong Kong, Brazil, Russia, Romania, Mali, Afghanistan — and even Iraq, where ZTE was awarded a $5 million reconstruction deal in February. The world’s newest third-generation, or 3G, cellular network began operation on Feb. 15, built by Huawei. It is located in the United Arab Emirates. Chinese telecom vendors often undercut their competitors by 20% to 30%.

Huawei is by far the biggest and best known, but the list of vendors includes others, such as ZTE and UTStarcom Inc. — which have both grown faster than Huawei in recent years based on lower-cost technologies.

“The Chinese have been filling the vacuum from vendors who are having tough times. Huawei pops up and takes the contract out from under them,” says Duncan Clark, managing director of BDA China, a Beijing-based telecoms consulting firm. “They’re more aggressive in financing. They’re doing well in developing markets and getting some business in developed markets, where the commissions will be higher.”

But a day of reckoning may be coming for China’s telecom vendors. On one hand, they are in the same boat as the rest of the world’s telecom-equipment makers, waiting for the haze to clear on which direction the industry is heading. On the other, their foray into developed markets will test their technological and service capabilities.

Competitors’ cutbacks have made it easier for Chinese companies to build international operations, says Cui Yi, ZTE’s vice president in charge of international marketing. In the developing world, he says, “Alcatel, Siemens — they close their offices or cut their employees. So we recruit them.”

But if maintaining margins is the daily battle, the greater fight is over technology, and in a sense over the character of many of these firms, which may have to change as they open to international partnerships and listings.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.