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ZTE Chairman Hou Weigui

Racing the West Head to Head

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Racing the West Head to Head

Source:CW

One out of every 23 mobile phones worldwide is made by China's ZTE Corporation, the world's fourth largest handset manufacturer. But ZTE chairman Hou Weigui is just getting started.

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Racing the West Head to Head

By Benjamin Chiang
From CommonWealth Magazine (vol. 498 )

The headquarters of ZTE are housed in a sparkling blue-green 30-story skyscraper in the Shenzhen Hi-tech Industrial Park in the Nanshan District of Shenzhen. A large signboard with the company's logo in blue and black lettering sits atop the high-rise. ZTE is a company that never sleeps, as someone is always working overtime to develop the newest communications devices.

ZTE is the world's fourth largest manufacturer of mobile phones. Its engineers design more than 200 new handset models per year, more than ten times as many as Taiwanese smartphone maker HTC.

Last year alone, every 23rd mobile phone in the world came from ZTE.

But ZTE also ranks among the Top Ten global telecommunication equipment suppliers. Its switches and mobile phone base stations are sold in more than 100 countries around the globe. The lion's share of 3G wireless network cards used in Taiwan are made by ZTE.

Last year ZTE posted record revenues of 86.2 billion renminbi (about NT$405 billion), a 23-percent increase over the previous year and about five times higher than the global industry average.

Recently, ZTE has been targeting the mainstream markets in Europe and the United States.

As Hou points out in an exclusive interview with CommonWealth Magazine, China's TD-LTE 4G mobile communication standard is already well established in emerging markets, and now it is making headway in Europe and North America as well.

In the past Hou spent some four months per year travelling to Latin America, Africa and Asia to do market research. But two years ago he began to sound out the American and European markets. "Only if we win in developed markets will the globalization of ZTE have won a true victory," says the usually low-key Hou.

However, ZTE's corporate presence at the GSMA Mobile World Congress (MWC) in Barcelona, Spain during the past three years can hardly be described as keeping a low profile.

ZTE spends heavily on this annual event, the world's largest mobile industry exhibition, and has become one of its biggest sponsors. At the venue ZTE flags were fluttering in the wind everywhere.

In fact, as soon as visitors stepped out of Barcelona Airport, they were greeted by a forest of white and blue ZTE signs. The more than 50,000 exhibition visitors had ZTE ID tags dangling from their necks and ZTE press kits in their hands.

In the main exhibition hall ZTE's giant, lavish pavilion triumphed over the neighboring booth of South Korean electronics giant Samsung.

"At the Mobile World Congress, ZTE is truly everywhere," confirms Roger Chen, vice president of Taiwanese mobile service provider FarEasTone Telecommunications Co. Chen, who attends the MWC every year, feels that ZTE's ambition to become a world-class telecom equipment supplier is palpable.

A Small Company with Big Dreams

Twenty-seven years ago ZTE was founded in Shenzhen, the border city near Hong Kong, with just seven employees. Today it has become a multinational company employing some 90,000 people worldwide. More than 50 percent of its revenue is generated in overseas markets.

Hou has been leading ZTE's quest for global expansion all along, yet does not display the haughty overbearing manner that one would expect of a tycoon boss. Although he heads China's largest listed telecommunications company, he is reserved and understated.

Hou always wears a simple white dress shirt for work and shuns symbols of power and influence such as personal assistants or a chauffeur. At 70 Hou is past China's standard retirement age, but he still drives himself to work. The successful entrepreneur comes across as a benevolent university professor.

Though he belongs to the legendary generation of Chinese entrepreneurs who founded the first private companies following China's market reforms in the 1980s – a generation that includes Liu Chuangzhi, founder and chairman of Chinese computer maker Lenovo, and Ren Zhengfei, founder and chairman of telecom equipment supplier Huawei Corporation – Hou is publicity-shy and seldom appears in public.

"I hardly ever accept interviews," he quips. "I focus my attention on company management." Silently entering the conference room without any aides in tow, Hou pulls out a chair, sits down and starts to talk about ZTE's internationalization strategy in a calm, steady voice.

"Enough, one picture's enough," Hou tells the photographer. He strictly manages his time and quickly leaves immediately after the interview is over to rush to the next meeting. The next day he is scheduled to travel to the United States to inspect operations there.

Back in 1985, Hou was working as deputy chief engineer in a state-run aerospace factory in Xian, Shaanxi Province. Then aged 42, he went south to Shenzhen to found Shenzhen Zhongxing Semiconductor Co. Ltd., the precursor of ZTE, together with six partners.

Crammed into a small office, the start-up crew dreamt of breaking the European and American dominance in telecom switches.

Plowing into Overseas Markets – A 16-Year Quest

But things did not always go according to plan in ZTE's battles abroad.

"In the beginning people didn't believe we could do it. So we were forced to devote more people to prove ‘Yes, we can,'" says Hou, recalling his company's arduous overseas expansion 16 years ago.

Industry insiders complain that Chinese telecom giants like ZTE and Huawei compete solely on cost to snatch away orders from rivals. "Huawei quotes at half the price of Ericsson, and ZTE quotes at 80 percent of Huawei prices," laments the president of an international telecom firm who did not want to be named.

ZTE has been able to accumulate rich development experience in the telecom equipment and handset sectors because it acts quickly and commits huge amounts to R&D. More than 30 percent of ZTE's staff is involved in R&D.

For the past consecutive eight years, ZTE has spent 10 percent of its revenue on R&D aimed at future technologies, gradually catching up to Western industry leaders Ericsson and Nokia Siemens Networks.

In March last year, ZTE overtook Japan's Panasonic as the top patent cooperation treaty applicant, indicating that the company is becoming more innovative.

"In the past we learned from others, following in their footsteps. Now we have to keep creating and overtaking others," Hou says.

ZTE has been constantly opening overseas branch companies and R&D centers. Fourteen overseas locations provide real-time customer services and jointly develop products with customers.

"ZTE doesn't depend on mergers and acquisition, but builds its own country teams. Although this is a somewhat slower approach, it is very down-to-earth," Hou asserts. More than 20,000 ZTE employees are foreign nationals who cultivate the markets in more than 140 countries.

Smartphones will be another growth driver for ZTE in the future.

In 1998 ZTE decided to develop its own handsets. In less than a decade it had produced 100 million mobile phones.

"Now we develop 200 new models every year. We help the 100 largest telecom service providers in the United States, Europe and Japan to develop made-to-order handsets," Hou notes proudly.

In contrast to Taiwan's HTC, which has adopted a strategy of developing a small number of high-end handsets around US$300, ZTE goes for the lower-end mass market, helping big international mobile telephony customers such as London-based Vodafone to develop made-to-order handsets at an average price of less than US$150.

Last year, ZTE put its smartphone operations in high gear, which caused its net profit margin to slip from 19 percent to 15 percent, a development that caused considerable uproar in capital markets. "That's the price you need to pay for grabbing market share," Hou comments coolly.

This year, ZTE began to revamp its business strategy by farming out orders for low-end feature phones, which have razor-thin margins, to its cooperative partners. "Our 5,000-strong R&D team fully focuses on the development of smartphones," Hou declares.

ZTE's smartphone output will double this year, topping 30 million handsets, second only to HTC's 50 million.

In car races, the top drivers use the curves to accelerate and overtake their competitors. As a firm believer in "passing on the curves," Hou is always ready to put the pedal to the metal when a rival slows down or makes a mistake. "The switch to a new generation is always an opportunity," declares Hou. "We've gone through several generational shifts in the telecom industry, and we're constantly outracing our rivals."

Translated from the Chinese by Susanne Ganz


ZTE Corporation

Founded: 1985

Chairman: Hou Weigui

2011 revenues: 86.254 billion renminbi

          (NT$405.4 billion)

          23.39 percent growth

2011 net profit: 2.06 billion renminbi

          (NT$9.7 billion)

           Overseas revenue share: 54 percent

Revenue growth in American and European markets: 38.7 percent

Keywords:

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