China's Telecom Equipment Market Heats Up

At least 20 multinationals are making and selling telecoms equipment in China, but few have faired as they expected. Allowing for the capital they have invested, perhaps half of them are losing money in the country.

The rise of domestic competitors is making the situation worse. In 1995, local equipment makers had less than 10 percent of the market and supplied mostly cheap, low-capacity equipment to rural markets. In 1999 local firms are expected to take more than half the market.

Huawei is the biggest domestic telecoms equipment manufacturers in China. Its product range covers main telecoms areas such as switches, transmission, access networks, wireless and mobile communications, ATM, data communications, power supplies and power monitoring equipment. It has 10,000 staff and its sales in 1998 were over US$1 billion.

Zhongxin Telecom is one of the earliest manufactures engaged in research, production and marketing of SPC digital switching equipment in China. It sells a range of over 30 products and is developing sales overseas. Its products cover 11 major telecoms areas including switching, access, mobile systems, transmission, videoconferencing and data communications. It has 5,500 staff and sales in 1998 were $482 million.

Eastcom is the first manufacturer in China that imported advanced technology to produce cellular mobile telephony products on a large scale. The company has 3,000 staff and sales in 1998 of $685 million.

Foreign firms blame government protectionism for the success of their local competitors. They say there is a government policy directing provincial authorities to give local firms at least half of their business to local vendors. In 1998, the Ministry of Information Industry (MII) stated that it expected the regional authority to buy $18 billion worth of telecoms equipment, nearly 60 percent of which should be local.

"There is no doubt that Chinese telecoms firms are benefiting from the government help, however this is not the only reason for their success. Local suppliers tend to offer cheaper switching and network access equipment to second- and third-tier cities. In doing so, they are successfully reaching a mass market that most foreign suppliers are not yet able to reach. Also, local vendors are able to help telecoms operators with 'user credit' from Chinese banks and that is also a key success factor," said Bill Wang, North Asia sales director for the New Century Group (NCG).

Local firms are, in some areas, outmarketing their foreign competition and often offer technology that is more suitable to current market conditions. Huawei for example, has 70 percent of the market for broadband access networks. Its products are designed to bridge the last mile between network exchanges and housing estates.

Price is another factor. Chinese firms are charging 10 percent to 20 percent less for switches. As a result companies such as Zhongxin, Great Dragon, Datang and Huawei have taken almost half of the switching equipment market.

Local vendors have established strong nationwide sales and service networks. Huawei has 33 branch offices in China with 2,000 to 3,000 sales people. Zhongxin has 27 branch offices and 26 service centers with over 1,500 sales staff. Eastcom has 27 offices, which form a network to collect customer and competitor information and provide sales/service support.

Zhongxin, Huawei, Eastcom, Great Dragon and Datang are all supplying own-brand equipment and services to China's fast-growing telecoms markets. Understanding these local players, where they are heading and how to compete against them will be critical for multinational telecoms firms to survive and profit in China.

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