Tuesday, May 17, 2005

Telecom's China Syndrome - The Emergence of China's Big Three (Huawei, ZTE, UTStarcom)

From LightReading: Telecom's China Syndrome

"The emergence of China's Big Three (Huawei, ZTE, UTStarcom) is ratcheting up the fear, uncertainty, and doubt among established incumbent vendors – and there's no denying that a clear and present danger exists, especially for vendors that have slipped into the second tier of suppliers. Buyer perceptions of China's telecom vendors continue to improve, as demonstrated in the 2005 Telecom Equipment Market Perception Study published this spring by Heavy Reading; and the ability of China's vendors to compete aggressively on price can seem limitless."

"But there are, in fact, limits to how far China's vendors can go in their price aggression. (...) While Chinese vendors often set their prices 25 to 50 percent below incumbent vendors' to win reference customers abroad, the cost advantage held by China's vendors on the labor front is significantly less than that. This report confirms the general view that China's vendors are sacrificing profitability for market share.
Clearly, they cannot continue to do so indefinitely: It's not in their best interests, nor in the interests of the Chinese government, to subsidize foreign telecom carriers. Moreover, as China's vendors increase their sales and marketing personnel in industrial markets, their labor-cost advantage will begin to deteriorate. The bottom line is that the Chinese cannot indefinitely rely on a low-cost strategy to seize business in developed markets."

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