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Commentary: China telecom market dominated by local firms
Irene Chen, Taipei; Jackie Chang, DIGITIMES [Friday 21 June 2013]

In the past 2-3 years, Taiwan-based telecom firms have been seeking business opportunities in the growing wireless hotspot and broadband network market in China. However, only a small number of Taiwan-based firms have entered the market and succeed.

China's Internet and telecom market has a lot of business opportunities, but gross margins are generally low.

Taiwan-based Z-Com reported a gross margin of 26%m but the firm's China-based subsidiary Nanjing Z-Com Wireless reported a gross margin higher than the consolidated gross margin reported by the parent company.

China-based wireless device provider TP-Link stated that the firm's average gross margin has been above 30% with profit ratio above 10%. Compared with China-based firms, Taiwan-based telecom equipment firms have relatively low profit ratios.

Taiwan-based telecom equipment firms are not the only firms that are facing challenges in the China market as China-based firms have a combined market share above 60%.

Z-Com was one of the first Taiwan-based firms to invest into the development of WLAN products for the consumer market. However, the firm decided to exit the consumer WLAN equipment market in 2005. The firm shifted focus to WLAN equipment for niche industries and entered the China market in 2005.

The success of Z-Com in China is based on its Nanjing subsidiary. In China, only a few people know Z-Com but most know Nanjing Z-Com Wireless.

Z-Com stated that China-based telecom firms can have opinions on the standard of wireless hotspot equipment during procurement, hence Nanjing Z-Com Wireless has been establishing strong relationships with local telecom carriers. In addition to superior technology and business development, the firm has been supported by local governments through tax benefits and this is the reason for the relatively high profits, said Z-Com.

Z-Com stated that expanding capacity may be able to help the firm obtain a larger market share, but the firm needs to consider various business models and cooperation with the local ecosystem before expanding capacity.

Localization is the key for firms developing the international market, and despite that fact that Taiwan-based firms have been aggressive in achieving localization in the China market, firms have been facing increasing competition. Localization has become a necessity but does not guarantee success.

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