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Huawei & ZTE: Global Market Challenges
In the first few years of this decade, China's two leading telecom equipment manufacturers Huawei and ZTE pushed aggressively into overseas markets, changing the competitive landscape of the telecom industry. This move toward internationalization was dictated in part by a slowdown of capital investment from China's domestic telecom operators. With limited space for expansion in their home market, Huawei and ZTE have had to look beyond China for growth.

From their debut in the international market, both Huawei and ZTE engaged in aggressive pricing to capture market share. While this gives Chinese vendors a significant advantage in winning contracts, it also squeezes their profit margins. For many deals, these aggressive bids were even lower than any cost advantage held by these vendors (due to lower labor and production costs) could justify. Huawei and ZTE were able to maintain this aggressive pricing strategy due to heavy government subsidies, which helped buoy their profit margins as they expanded internationally.

Huawei and ZTE have both developed a severe subsidy dependency, relying increasingly on government subsidies for profitability. But China is facing growing pressure to address its trade imbalance, and calls are being made to reduce or eliminate the subsidies that have been most beneficial to Huawei and ZTE. In its Eleventh Five-Year Plan (2006-2010), the Chinese government is emphasizing the transition of its economic growth model from export-oriented to domestic-driven, and a target has been set to achieve trade balance by 2010. To achieve this goal, China will have to cut subsidies to exporting sectors which will come as a harsh blow to Huawei and ZTE.

This report analyzes the international competitive positioning of China's two leading telecom equipment manufacturers Huawei and ZTE. It examines the economic factors that have affected both companies' expansion worldwide, and it analyzes financial data from both companies to evaluate how their price-driven competitive strategy has affected them, as well as how their growing internationalization is affecting profitability. Finally, the report explores how projected changes in China's national economic policy will affect the business models of Huawei and ZTE over the next five years.

Huawei & ZTE: Global Market Challenges provides critical insight and analysis for a range of industry participants, including:

Telecom operators that are considering deploying equipment made by Huawei or ZTE
International suppliers of telecom equipment interested in knowing more about Chinese competitors and changes in the Chinese market that may affect the market positioning of those competitors
Investors that need a better understanding of how changes in the Chinese telecom equipment market will affect competition among technology suppliers
Sample research data from the report is shown in the excerpts below:
Table of Contents (lri1206toc.pdf)
With limited space for expansion in the home market, Huawei and ZTE have had to look beyond China for growth. The companies began exporting as early as the late 1990s, but since 2002 they have been particularly aggressive about penetrating overseas markets. As a result, exports surged after 2001, as shown in the following table.
[click on the image above for the full excerpt]
Yet as exports grew throughout this decade, both companies' profitability has been in decline, with ZTE's drop being relatively more stable. As shown in the following graph, this slide accelerated in the first half of 2006 suggesting that profitability remains on a downward track and has yet to hit bottom.
[click on the image above for the full excerpt]
Companies profiled in this report include: Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763).
Total pages: 13
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