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PhotonGolf
PhotonGolf
12/4/2012 | 10:16:15 PM
re: Has Huawei Got Cisco's Number?

CX,

I found your message interesting. My company is facing a decision regarding business in China. I'd love to ask a couple of questions of you.

Could you drop me an email at [email protected]?

Thanks,

P
sigint
sigint
12/4/2012 | 10:16:15 PM
re: Has Huawei Got Cisco's Number?
Skpetic:

The last point I want to make is that the business model of the chinese (sell based on
price) is ultimately self-defeating. Telcom
is an attractive industry because of the profits
that can be made selling the gear. If the
chinese companies kill the margins for the whole
industry by fighting on price, all they will
end up with in the end is another manufacturer
of a commodity product.
__________________________________________________


Skeptik, agree with most of your post. However, from what I've learnt about chinese manufacturing processes, they do have healthy margins. Partly because of the cheap labour, but primarily because of the manufacutring paradigm fashionable in the west of the 80s - backward integration.

The idea is simple - make something, sell it cheap, push everyone out of the market. Then proceed to manufacture all components that go into your product. Then proceed to manufacture the inputs required for those components too. Ultimately, you end up with healthy margins.

I don't know why it works for them, when it didn't for the rest of the world. Lower R&D costs, possibly ? :)
skeptic
skeptic
12/4/2012 | 10:16:14 PM
re: Has Huawei Got Cisco's Number?
The idea is simple - make something, sell it cheap, push everyone out of the market. Then proceed to manufacture all components that go into your product. Then proceed to manufacture the inputs required for those components too. Ultimately, you end up with healthy margins.

I don't know why it works for them, when it didn't for the rest of the world. Lower R&D costs, possibly ? :)
-----------------------------------

Its also got to do with the structure and
priorities of businesses. The problem with
vertical(?) integration on that scale is that
while you do drive the costs of the product
down, you also often end up in businesses
that don't reflect the core of what you
are producing.

An example. People who publish newspapers or
magazines can be vertically integrated to the
point where they own printing plants, paper
mills and even forests. But owning those things
makes the core business (the magazine) subject
to capital expenditures or cyclical instability
in the non-core businesses. It can also distract
the company away from what makes the money.

Those sorts of (vertically integrated)
businesses tend to work well
in some parts of the world where massive
conglamorates are the norm and markets are
effectively partitioned to eliminate competition.

But there is a price. I dont think anyone would
consider Japan or south korea as ldeal models
the US should copy anymore.

I think if you got rid of the US antitrust laws,
changed certain parts of the tax code and also
changed some of the banking regulations...that
similar corporate structures would appear in the
US.

But at the price of killing innovation (outside
of manufacturing innovation), reducing the
standard of living and concentrating an
enormous amount of economic power in a very
few hands.


biofiber
biofiber
12/4/2012 | 10:16:13 PM
re: Has Huawei Got Cisco's Number?
The idea is simple - make something, sell it cheap, push everyone out of the market. Then proceed to manufacture all components that go into your product. Then proceed to manufacture the inputs required for those components too. Ultimately, you end up with healthy margins.

I don't know why it works for them, when it didn't for the rest of the world. Lower R&D costs, possibly ? :)
----------------------------------------------

It's called vertical integration.

I believe the key advantages that US companies should leverage are (1) creativity; (2) environment; (3) deep pocket. I don't think you should worry too much about Huawei or whoever want to take a piece of business from the US companies. Most telecom/datacom equipment business will become commodity eventually. I guess it could happen within 5 to 15 years. US companies can just move up the food chain. I've done it myself. If you aren't old enough, I suggest you to learn some new skills to ensure yourself will not be commoditized in a few years.

If you want to learn more about China and its business environment, drop me a line: [email protected]
oc
oc
12/4/2012 | 10:16:13 PM
re: Has Huawei Got Cisco's Number?
Apply to Huawei, they don't make money on high-end stuff. They could sell products at or lower than material cost initially. Then they improve product qulity and most important, develop their own ASIC to make cost unbeatable.

Not only the selling price, they won Chinese market by offering customer service no one else can match.
Titanic Optics
Titanic Optics
12/4/2012 | 10:16:12 PM
re: Has Huawei Got Cisco's Number?
I agree and disagree with some of your economic points:

"It [Japan] does not have any more advance tech to lead it economy ahead. ThatGÇÖs why its economy has been in bad situation in 10 years now."

Actually, no. Japan is in the fix it is in (the fix being 10 years of falling stock market and delationary pressures) because of several business and financial failings, not a lack of technology: double-barreled speculation in stocks and real-estate, trouble at bank lenders, corporate parents and lenders that drain themselves supporting firms that should fail, banks that are very shaky...etc. etc.


"Now , economy is driven by tech and market."

I agree with the main thrust of your discussion. Not only is technology important, but it must be conceived and marketed properly, or it won't matter (Apple and Sony Betamax example.)


"As I said Chinese has many good tech that before were stored in office, now are pushed out to market, It also has market and low-labor cost. This will push Chinese econ advance"

I question whether the "businesses" in this communist nation will figure out the marketing end of things, which you discuss the importance of. Yes, there is a large market to sell within China, which helps the manufacturers spread out their costs. As you note, a one-time gain in technology must be sustained, and you seem to believe that Chinese firms can sustain this advantage. I'm a little less sure as to whether Chinese firms can exploit advantages of large home market, low labor rate, and recent gains in technology. The handicaps will be a lack of outside investment for R&D, a "communist" mind set trying to compete in global markets, and as you note, the difficulty of sustain a one-time gain in technological advance.


jamesbond
jamesbond
12/4/2012 | 10:16:12 PM
re: Has Huawei Got Cisco's Number?
CAN ANYBODY MAKE HEAD OR TAIL OUT OF FOLLOWING
GIBBERISH ?


CX writes ---

Now , economy is driven by tech and market.
For a developed country it must has very cutting-edge tech that can ignite very hot spots in economy but no one else can follow. Just like Windows-« and Intel-«. Only do this, the country can keep the distance from others. Otherwise, you know the result.
For a developing country, even if it doesnGÇÖt has to advanced tech that sit on the top of others, it can still make progress. 70s Japan and now China are example.
Japan is a very good example in this. In 70s, it grappled tech from US and used it. This made it a developed country. In 90s, it lags behind US and in computer tech. It does not have any more advance tech to lead it economy ahead. ThatGÇÖs why its economy has been in bad situation in 10 years now.
Biz rules are changing too. If you consider IBM, or Apple, we cannot say Intel-« and Microsoft-« have the best tech. But they are best in market. Market is important. Japanese wireless tech is better than US and Euro. So what. No one else use it except Japanese.
As I said Chinese has many good tech that before were stored in office, now are pushed out to market, It also has market and low-labor cost. This will push Chinese econ advance.

Now , economy is driven by tech and market.
For a developed country it must has very cutting-edge tech that can ignite very hot spots in economy but no one else can follow. Just like Windows-« and Intel-«. Only do this, the country can keep the distance from others. Otherwise, you know the result.
For a developing country, even if it doesnGÇÖt has to advanced tech that sit on the top of others, it can still make progress. 70s Japan and now China are example.
Japan is a very good example in this. In 70s, it grappled tech from US and used it. This made it a developed country. In 90s, it lags behind US and in computer tech. It does not have any more advance tech to lead it economy ahead. ThatGÇÖs why its economy has been in bad situation in 10 years now.
Biz rules are changing too. If you consider IBM, or Apple, we cannot say Intel-« and Microsoft-« have the best tech. But they are best in market. Market is important. Japanese wireless tech is better than US and Euro. So what. No one else use it except Japanese.
As I said Chinese has many good tech that before were stored in office, now are pushed out to market, It also has market and low-labor cost. This will push Chinese econ advance.


sector7G
sector7G
12/4/2012 | 10:16:11 PM
re: Has Huawei Got Cisco's Number?
China has a, well, somewhat less than exemplary record when it comes to human rights - the plight of the Tibetans, the Uighurs, and the Falun Gong come immediately to mind. China needs to accept the basic 20th century concepts of human freedom and dignity - the ones we hold so high in this country - before we allow China and companies like Huawei to join our economy.
vermillion
vermillion
12/4/2012 | 10:16:07 PM
re: Has Huawei Got Cisco's Number?
Let's spend a few minutes inside the head of 7G, by paraphrasing 7G's insightful remarks:

"America has a, well, somewhat less than exemplary record when it comes to human rights - the plight of the native Americans, black Americans, Japanese Americans, Chinese Americans, Poor Americans, Gay Americans, Sick Americans, Vietnam vets, and, oh heck, why not, let's say the Branch Davidians come immediately to mind. BLAH BLAH BLAH BLAH and , oh, by the way, this human rights stuff is a red herring and has nothing to do with telecom bizness."

Ouch, that hurt. But I think I will be OK. How about you, 7G, must be hell being like that all the time. It's OK, 7G. Have some warm milk and you may feel better.

I'm guessing you are one of a very few who are linking this telecom equipment provider to a bunch of nasty things done by the Chinese government.

If America didn't want to play ball with the Chinese, America shouldn't'a let them in the WTO or given them MFN status, 7G. Too bad some other "weird" people care for oddball ideas like free trade, capitalism and competition.

Don't worry, there are other people in the USA who, unlike you, are smart, confident & capable, and who welcome the challenge. Most are born in the USA (like Bruce Springsteen), and lot more come from away to join the party (including a LOT of Chinese). As one source in the story suggested, maybe some of the really smart people State-side will start doing deals with these guys.

If you still think Huawei is a big problem, 7G, then you are kidding yourself. The "problem" is not the Chinese, 7G, it is ordinary Americans who don't want to pay thru the nose for everything from garlic to telecom switches. The same ordinary folk apparently are not as concerned about the issues you raise.

Like those wiley Chinese say, "Hao xin mei hao bao", or "It doesn't pay to have a good heart". America's good turn in letting them in the market is not being met with another good turn in wherein the Chinese pretend to be stupid and uncompetitive. How sad! But it cuts both ways--that is the beauty of trade!

Now I gotta go send Huawei a resume!

-vermillion

P.S.
What does "7G" stand for anyway? I figure it is what you annual salary oughta be...
biofiber
biofiber
12/4/2012 | 10:16:07 PM
re: Has Huawei Got Cisco's Number?
China has a, well, somewhat less than exemplary record when it comes to human rights - the plight of the Tibetans, the Uighurs, and the Falun Gong come immediately to mind. China needs to accept the basic 20th century concepts of human freedom and dignity - the ones we hold so high in this country - before we allow China and companies like Huawei to join our economy.
------------------------------------------------

You must be nuts to say this. What do you know about China? You even used Falun Gong as an example here. LOL.
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