Looking at its gross profit margin in 2007, it is easy to assume that ZTE is fit for the Indian market, as the country's operators will be looking at greenfield and at expanding wireless projects in the next 2-3 years. ZTE, whose gross profit margin for wireless communication in 2007 was 43.6%, will be in a strong position to offer products at best prices. However, volume of business in India will also assist its European rivals to compete.

After China, India is the main market for ZTE, which in turn reflects in its strategies for the country. Though investment in India for its handset manufacturing is not on its immediate agenda.

Of late the company's strategies in the country have started paying well. Its revenue climbed from $100 mn in 2004 to $750 mn in 2007, and it has set a target of $1 bn in 2008 from its operations in India. This assumes significance, as India will see investment by new operators and existing players in both 2G and 3G services.

During an economy downturn, when operators further resort to cuts in both opex and capex, ZTE may catch up again because of its price advantage. The company is bullish about India.

With nine to ten new operators set to start mobile services throughout the country, ZTE is also in talks with them and in fact some of the players, including a Russian telecom company Sistema, which has partnered with Shyam Telelink, has already finalized the Chinese firm as a vendor for its pan-India rollout of CDMA network.

Mature Markets
 According to IDC, while China accounts for 42% of ZTE's total business, emerging markets such as Africa also witnessed sales growth of 111%, Asia Pacific market grew by 67%, while rest of the world revenue grew at 155%.

But in matured markets, it is yet to make strong bonding with operators. Though over 60 mobile operators in more than 50 countries deploy ZTE's GSM equipments, the list of customers does not include the major players in Europe or the US. Its main list includes names such as China Mobile, China Unicom, Reliance, Etisalat, Telenor, Hutchison, etc. And this results in its performance in the Europe and America. ZTE's revenue in Europe and North America have shown a growth of 8.3% as it is making inroads in matured markets.

 Its strategies for matured markets are different and ZTE has special teams to look after its CDMA and GSM businesses. “There is no difference between our strategies for CDMA and GSM. Markets are different for us and hence technology demands vary. We focus on both CDMA and GSM players in matured markets. However, our strategy will depend on technology demands of operators,” says Wi Richun, director, International Market, GSM, ZTE.

In 2007, ZTE delivered more than 24,000 units of CDMA base stations worldwide showing 100% growth over 2006.

Broadband
 ZTE Corporation is betting big on the Indian WiMax market. The company is looking at offering low cost solutions to all those operators who are waiting for WiMax licenses. ZTE is expecting a market size of 10,000 base stations after one year from the issue of WiMax licenses in the country.

Zhao Songpu, vice president and general product manager, WiMax Product Line, ZTE, says, “India has a large population. As frequency would be limited for HSDPA, mobile WiMax will be a focus area for us in India. WiMax will be the main choice with fixed line operators. According to me, fixed WiMax will grow faster than mobile WiMax.”

“Indian market should not be compared with broadband growth in China. In fact, broadband growth in China this year has not been very impressive. After stabilizing in mobile, India's broadband subscriber-base will grow,” says Zhang Xinyu, director, Global Market, ZTE.

However, its success in the Indian broadband market will depend on factors like penetration of low cost PC and broadband equipments for individual users. The government may miss its broadband target for 2008 considering the current growth.

Handsets
ZTE's target is to make 50 mn handsets in 2008 and deliver over 15 mn of these to India. In 2007, it produced 30 mn handsets, of which 10 mn came to India.

“Cost of manufacturing is still high in India. Sales will have to come to a certain level before we can think of setting up a manufacturing unit in India,” says Shiyou, executive VP, ZTE.

“Till date, ZTE has been focusing on the low-end handset market, but is now beginning to target wealthier segments. If it is to make a serious move into producing mid to high-end handsets, it needs to convince operators that it has the expertise and reliability to produce high-end devices. It must also re-educate operators and consumers on its brand and reputation,” says Raymond Yu, analyst, Ovum.

“In India, ZTE is planning to introduce its own branded handsets,” says ZTE's Shiyou. This is a significant development for a company that has been supplying handsets to mobile operators on OEM basis. This apart, competing with market leaders like Nokia will be a tough game for ZTE.

“If the timing is right, we will sell low-cost ZTE handsets directly in the Indian market by this year end. We will bank on volumes to drive growth”, says He Shiyou. Its R&D facility in India for developing VAS is equipped to make handsets if required.

It is also planning to supply high-end handsets to its operators in matured markets. From a consumer perspective, ZTE's handsets (2G and 3G handsets) are inexpensive. This meets the demand of low-end consumers, but not mid to high-end consumers. “To target high-end segments ZTE must enhance its brand image through effective marketing”, commented Raymond.

High-end handsets are not new to ZTE. It is also the largest supplier of TD-SCDMA handsets for the Olympics by supplying about 30% of the purchase order recently placed by China Mobile.

“Over the years, ZTE has also been partnering with global telecom carriers including H3G, BT, Telecom Italia, and Telefónica to develop digital broadcasting mobile TV standards. With accelerating market growth and ZTE's strong terminal capabilities, the company has successfully gained the trust and recognition of various multinational telecom operators,” says Qiang, general manager, ZTE Smartphone Production Line, ZTE.

Every year, ZTE commits over 10% of its annual revenue to R&D. It has also been granted more than 350 international intellectual properties and has applied for over 8,000 patents. Raymond of Ovum says that ZTE must continue its investments in research and development. “To compete in the more lucrative handset segment it must not only imitate but also innovate. This is one area that differentiates top five handset vendors from their competitors,” Raymond added.

ZTE has a rigorous handset development process. Its local teams provide a valuable channel to facilitate communication between the client and ZTE's R&D teams. These teams support the whole handset development process from start to finish-managing the initial tasks such as defining handset specifications right through to testing and delivery.

 ZTE's success in India depends on its association with the operators and other stakeholders, but with the company looking at reaching out to individual users with its own handsets, it must strengthen its brand in the market place. Also, price alone will not bring confidence to operators. Open dialogues with operators in offering futuristic technologies will help gain market share.

Baburajan K
baburajank@cybermedia.co.in
The author was hosted in Shanghai

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