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China telco gear makers tussle over sales in India row

China telco gear makers tussle over sales in India row
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First Published: Tue, May 18 2010. 03 57 PM IST
Updated: Tue, May 18 2010. 03 57 PM IST
Hong Kong: Chinese telecommunication giants Huawei Technologies and ZTE are treading familiar ground in their clash with India, scrambling to soothe spying concerns in a tough market they cannot afford to leave.
In a nod to India’s growing clout as a telecom consumer, the pair of Chinese firms has made several moves in the last week, including potential localisation of some production, to try and diffuse a row that has seen New Delhi stop most of their imports.
As markets go, the stakes are huge.
India now accounts for about $1 billion of ZTE’s annual sales, or about 10% of its total, while Huawei says it logged about $1.5 billion in contract sales in the market last year, about 5% of its total.
But margins are also incredibly thin in the highly competitive market, leading some to say a limited pullback could also be possible.
“This market is a big challenge for us,” ZTE chairman Hou Weigui told Reuters in a recent interview before the current conflict. “After so many years in India we haven’t earned any profit. It’s a big market, but we don’t have any hopes for profit there.”
Both ZTE and Huawei trace their roots to entrepreneurs who came out of China’s old system of state-run enterprises.
ZTE was founded by a group of engineers from a state-run company in interior China who came to the boomtown of Shenzhen in the 1980s to try their luck after the city was declared a special economic zone for private enterprise.
Huawei is grounded in similar roots, founded by a former People’s Liberation Army engineer who also set up shop in Shenzhen as an agent selling imported telecoms equipment.
While ZTE is now a publicly traded company with shares listed in both Shanghai and Hong Kong, Huawei remains privately held.
India’s telecom carriers, which are embarking on a new spending wave after the country’s recent issue of 3G licenses, are likely lobbying strongly behind the scenes to resolve the issue, which threatens to lock the world’s top two low-cost equipment providers out of the market if it goes unresolved.
Such an impasse would play into the hands of the world’s other major suppliers, Ericsson, Nokia Siemens Networks, Alcatel Lucent and Motorola, said Joseph Ho, an analyst at Daiwa Securities.
Commercial Decision
“At the end of the day it should be a commercial decision,” said Ho, commenting on possible outcomes to the current standoff.
“The regulators should be sure that national security is being taken care of. The Chinese are ready to set up factories in India for this market. They have to resolve this.”
Both ZTE and Huawei have said they are talking with Indian government officials to address their concerns, and may set up locally-based manufacturing plants to allay any security issues.
The current row dates back to late April, when reports emerged that Chinese equipment imports were being blocked. India has said there is no blanket ban, although all products must pass security checks.
A previous face-off in 2005 saw Huawei reportedly picked to supply equipment to state run BSNL, India’s largest phone carrier, only to have the deal yanked when Huawei refused to supply technology.
Huawei later proposed building a factory in India, but is still awaiting approval for the project.
ZTE also saw its plans to enter India’s wholesale telecom equipment market delayed in 2006 over concerns from India’s intelligence agency, according to media reports at that time.
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First Published: Tue, May 18 2010. 03 57 PM IST