How to combat Huawei and China Inc.

Kate Gerwig
07 Feb 2011

The rise of Chinese telecom equipment vendors with government backing is a growing challenge for European and North American telecom vendors. At the same time, telecom service providers analyzing RFP responses are finding it difficult to make apples-to-apples comparisons between vendors due to a lack of transparency into future contract costs from Chinese vendors.

The telecom equipment business has already changed due to Huawei’s influence. But as the Sundance Kid asked Butch Cassidy, “Who are those guys?” In parts one and two of our ACG Research on Huawei series, we talked to Dr. Ray Mota, ACG’s managing partner and founder, whose analysts spent months researching Huawei's business model and its plans to compete in the global telecom equipment market.

Now Mota offers telecom vendors and service providers seven recommendations for dealing with the market force dubbed “China Inc.” by Cisco CEO John Chambers in 2007 when asked which company was his closest competitor.

Mota advocates closer service provider/vendor partnerships since operators are under pressure to sustain profitability. “Vendors need to align themselves with providers’ Telco 2.0 business models to become more partners than companies providing individual products,” Mota said.

To make that happen and to compete or work with China Inc., he offers the following recommendations for both vendors and service providers.

Understand your value proposition and be honest about it. Vendors shouldn’t go after certain deals because they don’t make good business sense. Look at the requirements and see how much network and service intelligence is needed. If it’s very little, like dumb access aggregation or something that doesn’t require a lot of differentiation, those deals may not be good for you, because if an RFP becomes a price war, it could be very difficult for vendors to differentiate themselves. Huawei could come in with a profit margin so low it would be a waste of energy to bid against it.

Understand and study the vendor selection criteria. Many service providers create vendor selection criteria based on many different functions. First ask the service provider for clarification on the criteria. Vendors will find that certain service providers rate criteria at varying levels of importance. Some examples include vendor reputation, professional services, quality of sales team, price or available financing. By understanding the vendor selection criteria, vendors can do an assessment to see if they can compete. If the criteria include low intelligence or low price, it may not be a fit.

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