Chinese telecom equipment maker ZTE is facing multiple challenges in India. On one hand revenues from India have declined to 5 per cent of the overall revenues from 8 per cent earlier, on the other hand it is under security scrutiny for alleged links with the Chinese intelligence agencies.
A flat market has forced the company to cut costs including a 30 per cent reduction in employees in India. Business Line met Cui Liangjun, CEO, ZTE Telecom India Pvt Ltd, to know how the company plans to ride through the uncertain times.
How are you dealing with a flat telecom market?
This is a very tough time for telecom industry including us. But we see some expansion projects going on with Reliance Communications, Tata Teleservices and Idea Cellular. There is also the GSM contract from BSNL. So we are doing okay. But at the same time we are reducing costs. In the long-term, I believe we can ride out this tough time
How are you cutting costs?
We had to undertake cost-cutting measures globally, including India. This year (2012), we would have reduced our employee base, direct and indirect, by 30 per cent. After reduction around 1,500 employees will remain, including third party. We hope to absorb this manpower in our other markets. ZTE has also combined its small R&D team in Bangalore with its services team.
How long do you think before the market starts picking up?
I think 2013 will be okay. Operators were planning network expansion but because of uncertainty in the regulatory environment, these budgets have been kept pending. But after three months, I expect this uncertainty to get over and operators will restart expansion. If you compare India and China, the network here in India is still not very good. Therefore, there is a requirement for building networks. After March, much of the regulatory issues will be clearer so from Q2-Q3 operators will start investing in network.
If the demand picks up, do you plan to expand your manufacturing capabilities here?
We have our facility in Manesar, which currently manufactures fixed broadband equipment. If demand picks up then we will either expand ourselves or look for partners to do contract manufacturing. We are also talking to Indian and foreign manufactures for contract manufacturing. We can also look at manufacturing wireless equipment. It all depends on costs. We will have more details in the next few months.
Indian Government is planning to come out with a local manufacturing policy. Do you support it?
Thirty years back, China also had a similar policy. At that time Ericsson, Nokia and Motorola formed joint ventures in China. I think the manufacturing policy is in the interest of India. We will follow this policy. But there are some issues around value addition required under this policy which needs a stronger ecosystem.
Where do you see the security concerns against Chinese vendors heading?
We want to do business in all countries and we want to share our technology with our customers. But this issue we understand that there is a concern but we have not anything wrong. We just want to do business. If there is any policy in this regard from Government, we will follow. You can even test our equipment.
But the problem is that spyware and malware are not easy to detect so even if your equipment is put under test chances of catching anything is zero.
There are some international standards on security. Since 2010 we have already incorporated these common criteria certification. There is no such backdoor spyware and even if we want to there’s no way we can. There’s so much mistrust and misunderstanding on this issue. In China, there are a number of US vendors like Cisco supplying equipment. So we have to do something to reduce the mistrust.
In terms of technology, ZTE has been a laggard isn’t it?
We were late in entering the 2G and 3G technology. But in 4G we are ahead of others. And compared to western companies, our products are cost efficient also.
Globally, how do you see ZTE’s growth?
Globally, we are confident that ZTE will go ahead of Nokia Siemens (NSN) and Alcatel Lucent (ALU). We have the full fledged portfolio from wireless to wireline to terminals. ALU is strong in wireline and NSN is okay in wireless but ZTE has the product range to be a one stop solution.
Do you see yourself as a serious player in the handset space?
Globally, we are No. 4 device maker. We are doing all platforms including Android, and Windows. In the Indian market, we are doing well with operators. But we are still learning this market. If we want to compete with Samsung and Apple, we will have to work on the brand image. We don’t want to compete with Indian brands as their costs are lower but quality is also low. We don’t want to be a low-end brand. We plan to launch our 4G phone in India soon. Model is ready we are doing some tests.
Do you see any opportunity in other segments?
Yes. We are looking at opportunities in power, education and railways. Going forward, we will get one-third of our revenue from telecom equipment, one third from handsets and the balance from enterprise.