2005 Telecoms equipment See Huawei run

Telecoms equipmentSee Huawei runHow much of a threat are China's big suppliers?Mar 3rd 2005 | from the print editionTHE aggressive push into international markets by Huawei, China's leading telecoms-equipment manufacturer, appears to be bearing fruit. In December, Huawei won an estimated $100m contract to build a third-generation (3G) wireless network for Telfort, a Dutch operator that has always used gear from Ericsson, the world's largest telecoms-equipment firm. In January, Huawei won a $187m order for another 3G network, in Thailand, beating Ericsson and Motorola with a bid 46% below the operator's original estimate.Last week came evidence that Huawei can compete on more than just price. A report based on a survey of over 100 telecoms operators worldwide, carriedout by Heavy Reading, a market-research firm, found that Huawei ranked eighth among wireline-equipment suppliers, up from 18th last year. (Cisco came top.) Most strikingly, Huawei ranked fourth in service and support. The report calls Huawei's ascendancy “astounding” and says it has already surpassed several incumbent vendors in perceived market leadership.As a result, incumbent western firms should be “very scared” of Huawei, says Jean-Charles Doineau of Ovum, a consultancy. Huawei's reputation as a low-cost vendor is only the visible part of the iceberg, he says. Below the waterline, the company has high technical standards, though it is not known for its ability to innovate. It also has a 30% share of the vast Chinese market, equivalent in size to Europe's. Having developed products at the behest of its demanding domestic customers, Huawei can then sell them elsewhere.Big ambitionsInitially, Huawei concentrated on developing countries, but it is now gaining traction in the developed world, in Europe in particular. Last week it was named a key supplier by COLT, a British operator, and also won a $100m broadband contract from Optus, an Australian firm. Huawei has yet to win the endorsement of a first-tier operator, but its gear is being evaluated by BT,Britain's incumbent operator, and by Vodafone, the world's largest mobile operator. BT is expected to announce the suppliers for its new “21st Century Network” soon, and Huawei is on the short list. Arun Sarin, Vodafone's boss, says his firm is watching Huawei closely.Much of Huawei's competitiveness derives from its low labour costs. Richard Lee, a company spokesman, says Huawei can pay its senior engineers a quarter of the going rate in the developed world, and junior engineers just an eighth. The question, says Jason Chapman of Gartner, a consultancy, is how sustainable that advantage will prove to be as Huawei moves into international markets. Its regional affiliate in the Netherlands, set up to support the Telfort deal, for example, will have to pay developed-world wages. Mr Lee responds that, so far, only 3,400 of Huawei's 24,000 employees worldwide are non-Chinese, so the firm will continue to have a cost advantage for several years.That said, it must catch up in other areas, says Mr Doineau. While Huawei is very competitive on price and technical specifications, equipment providers do more than simply deliver boxes to service providers: they also have to be able to deploy entire networks. Huawei has done that in some parts of the world, often by flying in armies of engineers, but in the long term it needs local affiliates. “They need to build that before they can be compared to Ericsson,” says Mr Doineau. Huawei is also criticised for its opaque finances—it remains a privately held company—and for its supposed links with the Chinese government. Mr Lee responds that Huawei is striving to be more transparent in order to build its brand. Tellingly, the firm will hold its analysts' event in Europe for the first time this year.Its developed-world rivals, meanwhile, are responding to the threat from Huawei, ZTEand other Chinese firms by forming partnerships and moving research and development, as well as manufacturing, to China and other low-cost economies, both to reduce costs and to gain access to local markets. Bill Owens, the boss of Nortel, a Canadian equipment-maker, says the Chinese vendors are “quality competitors”. Nortel already outsources all its manufacturing, and has just formed a joint-venture with China Putian to develop 3G gear.The upshot is that although Huawei is very different from its foreign rivals today, those differences will diminish in the coming years. As it advances into western markets, Huawei is having to become more like a western firm; and in order to compete with the likes of Huawei, western firms are having to become more Chinese. “The gap is narrowing,” says Mr Lee.。