Chinese vendors Huawei and ZTE seek European lab approval

British Telecom and Deutsche Telekom are testing DSLAMs from Zhongxing Telecom Company Ltd. (ZTE), one of China s big-three homegrown telecoms equipment manufacturers, in their European laboratories. The tests could mark the beginning of serious Asian competition for European and North American telecoms equipment manufacturers, which have so far dominated the European market.

The move follows another member of China s big three, Shenzhen-based Huawei Technologies successful foray into the German market. They re coming in with a competitive quality product at a much lower price, so they will win contracts (in Europe), said Ted Dean, managing director of consultants BDA-connect in Beijing, China.

We ve started a strong drive into Europe, said Phil Derry, chief executive of ZTE UK Ltd., of Newcastle upon Tyne, England. Shenzhen-based ZTE has created a wholly-owned U.K. company called ZTE UK Ltd., which it plans to use as its European headquarters, whereas Huawei s market entry strategy has been to partner with local systems integrators, such as Apella in the U.

K. or Vierling in Germany. For ZTE, the result from Europe s largest telecoms labs could give the company much-needed quality approval, which is one of the biggest challenges for Chinese companies to overcome in Europe. If they can get into BT labs, that will be the big approval stamp they need, said Dan Margo, trade development manager of the China Britain Business Council, of London.

This is an indication that quality is improving. The biggest hurdles for Chinese companies looking to export their products in Europe are overcoming the perception that their goods are inferior in quality and getting brand recognition. State by state (in Europe), we re getting people familiar with Chinese technology, said Jiang Chen, vice president of international marketing at ZTE.

And some analysts think this perception will quickly fade. They ve done a lot on quality control and reliability issues, said BDA s Dean, adding that Chinese vendors can produce equipment quickly and price it competitively. Despite this, some observers do not think the European equipment manufacturers are concerned, even though there is a strong likelihood that Chinese vendors can undercut them on price if the quality is good enough.

There is still a snobbishness among Western manufacturers on quality, said Margo. As soon as the Huawei s can show they can compete on quality then that will have to be addressed. European vendors are aware of Chinese companies moving into their territory, but on the other hand, they, too, have been making inroads into China for years.

We re fully conscious that there will be Asian competitors, said Jacques Dunogue, secretary-general of Alcatel, of Paris. But for the time being, (Chinese manufacturers) are still handicapped by their (smaller) size. Alcatel recently restructured its holdings in China to create Alcatel Shanghai Bell, an Alcatel-controlled joint venture.

With revenues of $2-3 billion a year domestically, the company claims it could be the second largest telecom vendor in China, behind the state-owned manufacturer PTIC of Beijing, which is the leader of the big three. These revenues put Alcatel Shanghai Bell withing striking distance of Huawei, which reported $2.

66 billion revenue in 2000 with aggressive forecast growth for 2001. In fact, the vendor market is competitive in most segments in China. For example, Huawei leads the optical transport equipment segment domestically, which includes synchronous digital hierarchy equipment, the largest single segment, according to market research company RHK Inc.

, of San Francisco. We ve created this joint venture to serve local customers and to implement a research and development center, said Dunogue, adding that the company plans to be exporting up to $1 billion of equipment in three years time. Meanwhile, Chinese companies looking to move into the European market are facing the challenges for any new entrant.

We need to learn the way of Europe and their way of doing things, said ZTE s Chen. For example, BT wants more of a partner rather than an equipment supplier. But the stereotypical perceptions concerning doubts around intellectual property integrity and poor quality are also not small obstacles. The biggest challenge is to get the West to appreciate that (the Chinese) have their own capabilities, said James Ennis, managing director of Apella, Huawei s systems integrator partner in the U.

K. and Ireland. They re not copyists. All of this stuff is really their own intellectual property. Earlier this year, Huawei inked an optical networking contract with PfalzKom of Ludwigshafen, a German telecoms operator, via Huawei s partnership with Vierling Electronics GmbH Co. KG, of Ebermannstadt, Germany.