After losing market share in China to the country's home-grown vendors, {dirlink 2|19} (Nasdaq: CSCO) has teamed up with ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) to tap into some local expertise. (See Cisco, ZTE Team Up.)

Cisco has signed a wide-ranging cooperation agreement with the Chinese equipment maker that will address next-generation networks, 3G, and data technologies to take advantage of ZTE's position in the local service provider market and its customer knowledge.

"ZTE is obviously very well known in the market. They're a local company with local contacts," says Cisco spokesman Ron Piovesan. "As we look to China's service provider market, drawing on the expertise of ZTE is very attractive to us."

"This is our first cooperative agreement with a Chinese telecom company," he notes, adding that it's more of a marketing agreement than a partnership, with an eye toward promoting Cisco routing technologies in the Asia/Pacific region. Products that come under the deal include Cisco's 1200-series router, the 7600-series router, and its branded professional services.

"Much of the focus will be on China," initially, but it will expand to places like India and South Korea, although notably not Japan. Cisco considers Japan "a very different market" from the rest of the Asia/Pacific region, says Piovesan, noting the Japanese market is far more advanced, with one of the highest broadband penetration rates in the world. Plus, Cisco already has a strategic partnership with Fujitsu Ltd. (Tokyo: 6702; London: FUJ) there, which has included customizing the Cisco IOS XR. (See Cisco, Fujitsu Form Router Alliance and Fujitsu, Cisco Unveil Core Router.)

While Cisco seems to be enthralled with the prospects of the Indian telecom market of late, its market share in China is under attack from local players like Huawei Technologies Co. Ltd. and, yes... ZTE. (See Cisco Pays to Play in India.) Market research firm IDC reports Cisco's share of the Chinese market has dropped from 75 percent in 2001 to 48 percent.

But this agreement is focused on "ZTE's strength in both fixed line and wireless telecommunications combined with Cisco's strength in routing and data communications," according to Zhong Hong, vice president and general manager for ZTE's data division, in a statement. He added that the combination would attract customers "especially if they are exploiting the efficiencies of IP-based communications in their networks."

The opportunity for Cisco is in China's move to next-generation networks, says Piovesan. "At the core of what this is all about is IP... service providers are moving en-masse to all-IP networks." He cites {dirlink 5|33}'s (NYSE: CHA) "very aggressive" move to an IP network, ChinaNet2, with other operators following suit. For its part, ZTE gets to work with an established IP networking giant to drum up more business at home. "IP is where we exist," says Piovesan.

The Cisco/ZTE tie-up wasn't the only agreement announced today by a Chinese company. Huawei had a major deal of its own, becoming the first Chinese vendor to receive Approved Supplier status from Vodafone Group plc's (NYSE: VOD) Global Supply Chain. Its signed a framework agreement to supply equipment to any of Vodafone's operating companies around the world. (See Huawei Meets Vodafone's Needs.)

— Nicole Willing, Reporter, Light Reading