3Com's China link

3Com stopped selling high-end routers and switches for corporations about six years ago to concentrate on service provider and small business gear. But in 2003, the company reentered the market by forming a joint venture with China's Huawei Technologies.

Huawei-3Com develops and builds products and sells them in China and Japan. In 48 other countries, 3Com sells the joint venture's products under its own name. 3Com gets all its high-end enterprise routers and about 65% of its high-end enterprise switches from the joint venture, says Anik Bose of 3Com.

The deal gave 3Com a way to gain ground in China while also getting a source for competitively priced enterprise gear. It looked good for Huawei, too: The company had a small but fast-growing enterprise network business in China, which it wanted to globalize. The joint venture let Huawei do that without hiring thousands of sales representatives and building a worldwide brand, Bose says.

3Com owns 49% to Huawei's 51%, but in April said it was in negotiations with Huawei to acquire an additional 2% and take control of the venture. That step would require the Chinese government's approval.

So far, the strategy has paid off richly in China but not as well elsewhere, Bose says. In the 2004 calendar year, the joint venture had revenue of $262 million, according to a recent 3Com financial statement. Most of that revenue came from sales in China, 3Com acknowledges, though it says sales have started picking up elsewhere. Among the challenges in the U.S. have been upgrading joint-venture products with redundancy and other features that customers outside China have demanded, but also Cisco's dominance of the U.S. LAN market. 3Com is going after Cisco by charging 20% to 30% less for comparable products, according to Bose.

There has been some resistance to the Chinese-origin products among potential customers in the U.S., but customers are growing more comfortable with the arrangement, he says. 3Com points out that the products are fully tested and supported by 3Com, and cites its longtime relationship with Accton Technology of Taiwan, which supplies a large percentage of 3Com's small-business gear.

3Com plans to gradually shift more products to the joint venture, but to hold on to some R&D, such as on VoIP, security and network management features, Bose says. 3Com believes the joint venture is better at implementing new technologies than developing them, he says.

"They're doing some innovation, but . . . these guys are really good at [being a] fast follower," Bose says.

Value for money, with a trusted vendor backing up the product, led the government of Campbell County, Ky., to buy 3Com routers developed and built by Huawei. In 2003 the county was using older Cisco routers in its central office and branches. Looking to eventually put VoIP on the network, IT Director Andy Kuykendall could have replaced the branch routers with newer Cisco systems and upgraded the central box, but 3Com made a better offer, he says. The cost of added features was key.