Is ‘dumping’ scandal aftermath starting to hit ZTE hard?
It hasn’t been the best of weeks for Chinese telecoms behemoth ZTE: not only are their profits down, but it’s been reported that up to 12,000 of their staff could lose their jobs as part of a cost-cutting exercise.
A piece by Marbridge Consulting, citing a source within the company, has claimed that ZTE has already made three rounds of cuts since February, with overseas workers very much at risk.
Staff have purportedly been sent a circulatory explaining the importance of localisation in tough economic times as “local staff could assume more responsibilities and reduce the need for deploying Chinese staff overseas”.
In a bleak economic outlook ZTE certainly aren’t the first mobile provider to be shedding staff, nor to cut back on their portfolio. However the reported 12,000 is a big number of job cuts whichever way one looks at it.
The news from the stock market doesn’t look any brighter, as ZTE has warned that its first half profit for 2012 is set to drop by up to 80%.
This has been put down to a variety of reasons, including an overall slowing down of China’s economy, increased cash-flow difficulties and a more competitive wireless market.
ZTE is still turning over a profit, with the increase expected to be between RMB 154 and 308 million (£15.5m and £30.9m), but it was at RMB 769m (£77.2m) for last year.
Alongside Huawei, ZTE is of course in the middle of a bitter trade row with the European Union over ‘dumping’ – illegal subsidies to undercut rivals.
At the time of the report in May, Dr Lin Sun, TelecomsTech Beijing correspondent, said that the two companies were “aggressive price cutters to drive out competitors, with or without government financing”, and as they essentially used it as their trademark, it would be difficult to prove dumping.
Two weeks later, two ZTE executives in Algeria were sentenced to 10 years’ imprisonment in absence having been convicted of bribery offences. The duo were also fined three million dinars (£25,000) each and banned from public tenders for two years.
The inevitable negativity from these stories appears to have left ZTE somewhat punch-drunk. Ironically enough, ZTE’s position in the biggest telecoms equipment makers in China is second only to Huawei.
What would you do in their situation? Is the EU ‘dumping’ probe the catalyst for a chain of disaster for ZTE, or it this all a series of unfortunate events?