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Chinese and Indian employees at a Huawei research and development center in Bangalore, India. Chinese IT companies, including Huawei and ZTE Corp, are strengthening their footholds in the Indian market because they see a great talent pool in the country and a huge market demand. [Photo/China Daily]

Chinese telecom firms discover challenges in sub-continent

Chinese telecom equipment makers Huawei Technologies Co and ZTE Corp vowed to continue making a full commitment to the Indian market despite local regulatory uncertainties and intensified competition.

Huawei, the world's second biggest telecom equipment manufacturer, based in Shenzhen, said India is one of its most important strategic markets. The company operates in more than 140 countries and regions. Huawei has invested more than $400 million in research and development in India since it entered the market in 1999, the company wrote in an email to China Daily.

"Huawei is currently investing $150 million to construct a new state-of-the-art R&D campus in Bangalore which will have capacity for 5,000 staff upon completion in mid-2013," the email stated.

Huawei is about to invest $2 billion over the next four years in India as it looks to aggressively market consumer devices and set up the global R&D center, the Economic Times, an Indian newspaper, reported in June.

India is also the largest single-country overseas market for ZTE, the world's fifth largest telecom equipment provider. ZTE has recently won part of a mobile network expansion contract, worth around $1.09 billion, from India's state-run mobile operator BSNL, to supply equipment and software technology.

"We have operated in India for more than a decade. Looking ahead, ZTE is determined to expand operations and be more localized in India," Cui Liangjun, general manager of ZTE India, told China Daily.

Both the Chinese telecom equipment makers have seen their Indian businesses taking off in the past decade. ZTE revealed its annual sales in India reached a record high of $1.5 billion in 2009, from about $100 million in 2004. However, its annual revenue in India in 2010 and 2011 slightly slipped, because of "the downturn of the whole telecom market", Cui said.

Huawei currently employs 6,000-plus direct staff members in India, with 90 percent of them being local residents. Huawei clocked $1.5 billion in revenues from India in 2011-12, the Economic Times reported. Of them, $1.2 billion was contributed by its network business driven by 3G deployment and network expansion by operators. The remaining $300 million came from devices such as handsets, software protection keys known as dongles and set-top boxes, the paper said.

Developing quickly in the Indian telecom market was by no means an easy thing. One of the biggest obstacles for Chinese telecom companies was adverse policies. Because of security concerns, Indian authorities made Huawei and ZTE jump through hoops to get a foothold in India's vast telecommunications space.

In August 2006, the Foreign Investment Promotion Board of India rejected ZTE's application seeking approval to undertake trading activities. ZTE has not been given permission by the FIPB to carry out cash-and-carry activities with telecom equipment, which prevents ZTE from undertaking retail and bulk selling of products.

At the same time, Huawei, which also wanted to trade its telecom products in India, had been in negotiations with the FIPB over the previous four years regarding security concerns, Indian media reported.

In 2010, the Indian government temporarily banned 25 Chinese network equipment suppliers, including Huawei and ZTE, from taking part in infrastructure projects. It is reported that the Indian government fears malicious software in foreign equipment could put national security at risk.

It is particularly wary of China because the two rising nations share a long border and a rocky history, local media said.

There is the possibility of a corruption scandal over the 2008 sale of spectrum for second-generation mobile phone services. The Supreme Court of India revoked 122 telecommunications licenses that were issued at below-market prices earlier this year.

The ruling applies to licenses for eight operators. Many of them had purchased equipment from Chinese vendors including Huawei and ZTE. Analysts have started to worry that the two companies may fail to collect money.

"Yes, it is challenging in the India market. First, because all vendors have a strong presence in India, high quality, good service and price play an important role in winning any customers. Second, there are also many regulatory issues which also affect operations in India from time to time," Huawei said.

Cui Liangjun said there were a total of 16 telecom carriers in the Indian market. The level of competition has made them extremely sensitive to price. As a result, operators have become very demanding and tend to transfer risks to telecom equipment companies.

"Moreover, we have a different culture to India and that creates difficulties over internal communication and management," Cui added.

Nonetheless, Chinese telecom companies feel obliged to pay attention to the country because it is a fast-developing market, analysts said.

The Indian market is one of the largest in the world, with the number of telecom subscribers second only to China.

The number of mobile subscribers in India rose to more than 900 million today from about 4 million in 2001. The rate of increase of new mobile users has sometimes surpassed China. India adds around 6 million to 7 million mobile users a month currently.

In order to succeed in an emerging market such as India, both companies have clear strategies. Huawei said the first important thing in doing business in India is to understand the unique needs there and to manage challenges and opportunities.

"Then we need to sustain innovation and to foster local cooperation and achieve win-win success," Huawei said.

Cui at ZTE said it insists on a localization strategy. About 85 percent of ZTE India employees are local residents. The company built a software research institute in Bangalore in 2005 to develop added-value software and customized products. Meanwhile, ZTE set up its biggest overseas network operation and maintenance center in India to better support local telecom carriers.

shenjingting@chinadaily.com.cn