Huawei, ZTE expanding in Latin America
July 15th, 2009
Here’s an article from Fortune magazine published late last month on Chinese telecom suppliers making inroads in Latin America I’d meant to link to earlier. The gist: Chinese companies Huawei and ZTE are moving into the Latin American market following their success offering low-cost cell phones in Africa. Both companies have done very well in the latter continent – Huawei now has a 29% market share of the phone-company gear industry there, nipping at the heels of market leader Ericsson, with 30%. ZTE, an 11-year-old company, is now the world’s six-largest handset seller.
Indeed, on the streets of Lima, the cheapest cell phone model belongs to ZTE, which goes for about 80 soles (US$27) if memory serves. Like so many Chinese-made products, low-price usually translates to questionable quality. Buying my handset there, I remember the sales girl convincing me that I should spend the extra US$7 to buy the second-cheapest handset, a Nokia, which was much better quality, she assured me. It will be interesting to see how the company fares offering its up-market ZTE i766, which boasts mobile television.
The article discusses one major advantage that both Huawei and ZTE enjoy that other foreign telecom companies don’t: a well-connected, deep-pocketed government:
Huawei and ZTE benefit from the fact that the Chinese government holds stakes in dozens of local phone companies. It is not surprising that these telcos increasingly buy much of their infrastructure from homegrown companies. Financially, China’s telecom suppliers also benefit (like some struggling U.S. companies today) from tax rebates and R&D grants. But what really irks rivals are the government’s low- to no-interest “loans” that needn’t be repaid, and the deep discounts local companies get on the energy and raw materials they purchase from other Chinese companies. According to public filings, this year ZTE received a credit line from the government of nearly $15 billion. Beijing bestowed $10 billion on Huawei in 2004.
Chinese blue chips from different industries also offer “bundles” to emerging-market countries: Buy our phone gear and we’ll source your raw materials. “China coupled a Huawei, oil, and magnesium deal in an African package,” says James Mulvenon, author of a famous Rand report on Chinese defense electronics and technology. “Cisco can’t compete.”
Will we see similar telecom, oil and copper “bundles” between China and Latin America in the near future?
Image: unplggd.com