As one of the world's oldest and largest telecommunications equipment makers, LM Ericsson is fast expanding its business in China. The Swedish company has been operating for over a century in China, having delivered its first telephone sets to Shanghai in 1890.
Today it has nearly five million digital AXE public exchange lines installed or on order from customers in 14 Chinese provinces. It is supplying cellular systems with a total capacity of over 600,000 subscribers in more than eleven. There are 600,000 lines of its MD110 Private Branch Exchange installed or on order, most produced locally under technology transfer licence.
With China increasingly opening its business doors to the outside world, the pace of activity has quickened. In the space of the last two years, China has grown from its tenth most important market to its fifth. The President of Ericsson Telecommunications China, Hans Ekstrom, believes it could become Ericsson's biggest market worldwide for AXE public switching. For a company with a worldwide turnover of nearly US$6bn and as the world's market leader in the analogue and digital cellular infrastructure markets, these are claims which are likely to have a significant impact on China's telecommunications market.
The last year has seen two notable events. On April 1 Ericsson signed its biggest contract ever from a Chinese customer. The agreement covers delivery of US$300m-worth of AXE10 switching, transmission and cooling equipment to the Guangdong Post and Telecommunications Bureau. Another coup was a contract to install China's first commercial GSM (Global System for Mobile Communications) digital cellular network on the Pearl River Delta ? also in Guangdong.
If these were the highlights, the rest of the year's roll of contracts highlights the importance of friendly cooperation and technology transfer in Ericsson's Chinese strategy. They included:
* In August a signature of a contract with North East Communication Group Company in Liaoning province to set up Dalian Ericsson Company Limited. The joint venture company will assemble, engineer and provide technical support for the AXE10 systems to be delivered to the north of China.
* An extension of a contract with Beijing Wire and Communications Plant covering production of PBXs for small and medium-sized companies. The extension contract is valued at around SKr650m (US$81m) over six years.
* A contract to extend cooperation with Nanjing Ericsson Communications Company Limited, an established joint venture in Nanjing, Jiangsu province. Nanjing Ericsson Communications Company Limited will now start manufacturing all parts of Ericsson's cellular Mobile system, including AXE-10 switch.
Individual equipment makers are, of course, determined by the regulatory and telecommunications policy environment in which they work and Ericsson in China is no exception. China is making telecommunications a top priority as the government seeks to encourage foreign investment, better communications and a more competitive telecoms market.
Telecommunications spending in China is currently estimated at US$7bn a year, 80 per cent of which goes towards the purchase of network switching and transmission equipment. The government wants to install 10 million lines of digital switching each year between 1996 and 2000 and complete a nationwide high capacity backbone network incorporating 32,000km of optical fibre along 22 key trunk routes.
Telephone penetration currently stands at 1.63 telephones per hundred population (or a density of 1.63 per cent) according to Ministry of Posts and Telecommunications (MPT) data, although it stands much higher in the major cities at 18 per cent. The government plans to raise national penetration to 2.5 per cent by 1995, 5 per cent by 2000 and 40 per cent by 2020. This will involve expanding network capacity to 96 million lines by 2000 and should bring the MPT service revenues of over US$24bn by the same point.
The MPT is focusing at the moment on rapid expansion of the basic telephone network rather than on the introduction of sophisticated business services. However by the end of the decade, it is aiming to provide access to narrowband ISDN and intelligent network services. It is conducting studies into the provision of broadband next century, when it may also deploy Synchronous Digital Hierarchy multiplexing technology.
This broad overview should not obscure the smaller details of doing business in China, however. For a western company like Ericsson there are inevitable idiosyncrasies and difficulties to report. An Ericsson spokesperson highlighted some of the issues to China Economic Review and talked about negotiating style, personnel questions and bureaucracy.
He said, "The Chinese have a different way of negotiating. You are never sure of what stage a negotiation has reached." This requires highly skilled and flexible personnel. "We have had to send people out to China quite a lot," he added. "Mostly it has been bachelors because it has been difficult for us to find the families that have wanted to move to China. To try to remedy that we have built our own school in Beijing now."
Then he mentioned bureaucracy: "There are a large number of separate negotiating groups. Whereas here or in private industry you would have one group, in China there are many times several groups at different hierarchical levels, all of which must be negotiated with. It's very complicated ? it's a layered society." A common complaint, perhaps, but in the case of Ericsson it has not prevented an already successful campaign in one of their most important markets of the future. *