For Alcatel Shanghai Bell (ASB), 2007 was an unusual year. As Alcatel acquired Lucent, Lucent’s Chinese business was integrated into ASB. As in other parts of the world, this integration also gave rise to many challenges and problems for ASB. However, ASB still managed to register wonderful performance last year. Secured orders rose by 25% over the previous year while sales increased by 16%.
ASB was even paid a visit by French President Nicolas Sarkozy during his visit to China at the end of November in 2007 in recognition of its achievements. It was during this visit that ASB won EUR750 million (RMB8.24 billion) worth of orders from China Mobile and China Unicom. The deals made Frederic Rose, the president of ASB, feel giddy. “From the perspective of market share, we are striving to be the No. 2 telecom equipment and solution supplier in China,” he said.
ASB’s foreign investor status has become a great source of competitiveness for the company.
The Merits of SOEs
As one of the pilot companies in China’s reform and opening-up drive, ASB has been on a long road to change and development. In 1984, Shanghai Bell, the first joint (JV) venture in China’s telecom industry, was co-established by China Posts and Telecommunications Industry Corporation (PTIC), Bell Belgium and the Cooperation and Development Foundation of the Kingdom of Belgium. Later on, Bell Belgium was merged by Alcatel which inherited the shares of Bell Belgium in Shanghai Bell.
In 2001, the equity structure of the JV was adjusted. Consequently, the Chinese side and Alcatel hold 50% and “50% plus one share” in the JV, respectively. The extra one share goes to the president who has the final say in decision making. This famous “golden share” model created an unprecedented example in international business. Thus, the JV became a company limited by shares from a JV with limited liabilities, which maintains the “golden share” equity structure.
With particularly complicated origins, ASB is a genuine half-breed. It is one of 153 large SOEs directly under the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and it is the only one of them that has foreign investment. ASB is now trying to turn the “seemingly-perfect” merits of the JV, including a broad product portfolio, world-class R&D resources, strong government background and a nationwide sales network, into reality.
“Meanwhile, we are tapping domestic and international resources for our development. Compared with our rivals, the ability to make the best use of local and international markets is our biggest advantage,” says a confident Yuan Xin, chairman of ASB. Yuan is the Chinese representative assigned by SASAC, who directly reports to the central authority.
ASB came into being amid a complex historical background. At different periods, it shouldered assorted missions, such as pilot project for the reform and opening up of China’s telecom industry, as well as a model for large SOEs controlled by foreign investors. Although some of the missions may be a burden for the JV, the status as a large SOE sometimes brings some advantages unparalleled by its rivals.
In 2007, ASB and Datang Mobile won a contract from China Mobile for the construction of TD-SCDMA networks in Guangzhou and Qingdao. The networks are critical to the 2008 Olympic Games and account for more than 27% of the total market. At the end of 2004, to facilitate the development of TD-SCDMA, ASB became a strategic investor for Datang Mobile by buying 3% of its stock for RMB150 million (US$21 million). At the moment, many international giants coveted the deal. In addition to aligning their development strategies, the status of both companies as large SOEs directly under the SASAC also assured the success of the bids.
In 2007, China Mobile acquired Pakistani telecom operator Paktel to deploy its first overseas network. It was the first venture by a Chinese operator in the international market. ASB was selected by China Mobile as one of its major partners for the project’s network construction. Besides constructing and upgrading part of the network, ASB also provides support for local operations. China Mobile was extremely diligent about selecting partners for the project. According to some sources, the ASB’s SOE status was a major factor in its selection.
The advantages of SOE status should be no surprise. After all, a significant part of ASB’s sales in China comes from other SOES under the SASAC, including the four telecom operators. One year after Lucent’s China business was merged by ASB, the transition for employees was relatively seamless. “There is nothing bad about doing business in China as an SOE,” said one old employee.
Innovative Partnership Model
Although the status that comes with being a large SOE helps the company get closer to its customers, what counts in the end is strength in an increasingly competitive market when the telecom industry is under restructuring. Last year, ASB began looking for a model to deepen its cooperation with operators.
Not long ago, ASB set up a “Green Action” team led by an elite group. The members include four executive vice presidents and three vice presidents who cover virtually all important operations in the company. It was the first time such a high-profile team had ever been put together at ASB. The goal was to facilitate and implement the “Green Action Plan” that ASB signed with China Mobile. At the end of 2007, China Mobile launched the “Green Action Plan” which centers on energy saving and emission reduction. ASB became one of the first partners in this initiative.
The ongoing “Green Action Plan” means a lot to ASB as it involves all aspects of the JV. “This will be an important step that we take to change our business philosophy and achieve a win-win situation with our customers,” says Yuan Xin. According to Hu Hao, vice president of the ASB network architecture and migration, in this initiative, the cooperation with China Mobile includes connecting a green industry chain with new products and technologies, E-commerce, operation maintenance and customer service systems.
Member Comments