Huawei Technologies and ZTE have grabbed international attention by winning telecom contracts around the world, but they aren’t the only Chinese networking vendors looking to grow their international business.
One of these companies is Harbour Networks , a Beijing company founded in late 2000 by Yinan Li, formerly a senior Huawei executive.
Li, who now serves as Harbour’s CEO, isn’t the only former Huawei executive at the company. Four of the top six executives at Harbour came from Huawei, where they once held a variety of senior positions, including vice president of sales and marketing, vice president of research and development, and director of the company’s enterprise networks department.
Compared to Huawei – which has 24,000 employees and pulled in $5.6 billion in revenue during 2004 – Harbour is small. The company has 1,500 employees and its sales totaled $92 million in 2004, according to Andrew Tang, the company’s CTO and vice president of corporate strategy and business development.
“Although we are small, we are trying to be a market challenger,” Tang says.
To this end, Harbour has invested heavily in R&D, Tang says, noting that more than 700 of the company’s employees are engineers assigned to its R&D division.
Harbour hopes these R&D efforts will close the technology gap between its own products and those on offer from U.S. vendors such as Cisco and Juniper Networks. The company’s strategy is to offer network gear, including core routers and optical gear, with competitive feature sets and comparable performance, but at a lower price than the top U.S. vendors can offer.
About 8% of its 2005 sales – around $7.4 million – came from overseas customers, Tang says. Most of that came from Japan, where Harbour’s customers include the country’s three largest telecom operators, the national railroad, and several financial institutions, he says.
As users come to realize that Chinese vendors can offer cutting-edge technology at lower prices, companies such as Harbour will eat away at the market share of established leaders, Tang says
Not everyone agrees with that assessment. Corporate customers in the U.S. are looking for more than just lower prices, says Gordon Stitt, the president and CEO of Extreme Networks. “The companies building these networks are fundamentally betting their business on them,” he says.
Customers are more concerned with the quality of the product and software, as well as the kind of service and support they can get, Stitt says. “Price is not the foremost factor,” he says.
Looking ahead, Harbour expects its overseas sales to rise this year, Tang says, adding that 31% of the company’s revenue during the first quarter came from outside China.
In March, Harbour announced it had closed a $37 million round of funding from four venture capital firms, including TVG Capital Partners in Hong Kong and Temasek Holdings, a Singaporean investment company. Those funds are to be used for both operating expenses and to help finance the company’s ongoing R&D efforts, Tang says.
Another Chinese vendor that is looking to expand overseas is Maipu (Sichuan) Communications Technology , which is backed by several international investors, including Intel.
Based in the southwestern Chinese city of Chengdu, Maipu was established in 1993 and has 1,000 employees, including 400 engineers who work at the company’s R&D division. The company specializes in routers designed for both corporate networks and telecomm operators, as well as other network products.
Maipu, which had 2004 revenue of around $48 million, relies heavily on lower costs to compete against rival vendors. But the company also has invested heavily in developing its own technology, says Meggie Liu, the general manager of Maipu’s International Business Department.
Even so, Maipu’s most advanced router technology still lags behind that of market leaders Cisco and Juniper, Liu says. “At the high end, it is quite hard for Maipu to catch up with them,” she says.
But Chinese networking vendors have their own advantages, Liu says, noting that Maipu’s lower costs mean the company can compete head-to-head with rivals in the market for low-end and mid-range products.
Unlike Harbour, Maipu isn’t hoping for success in developed markets, such as Japan. Instead, it has focused its efforts on emerging markets in South Asia and Southeast Asia. Because of China’s own experience with economic development and the challenges companies face under these circumstances, Maipu is well prepared to work with companies in developing countries, Liu says.
That experience has paid off, Liu says. International sales accounted for 10% of Maipu’s revenue in 2004 and overseas revenue more than doubled year over year.
For now, Maipu has no plans for a push into the U.S. market, where Cisco’s dominant market position makes it more difficult for new companies to get a foothold, Liu says. However, the company has considered plans to enter the U.S. market, something that for now is just a “possibility,” she says.
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