China Focus: ZTE's success validates China's business reform drive

Having started as a processing company of fans, electric organs, heaters and telephones when it was born in 1985, the ZTE Corporation of today and its past are worlds apart.

In three decades, the Shenzhen-based company has transformed itself from a low-end processing business with a starting investment of three million yuan (489,000 U.S. dollars) to a world-leading provider of telecom equipment and network solutions worth billions of dollars.

According to its annual business report released in March, the Hong Kong- and Shenzhen-listed company's revenues hit 81.47 billion yuan in 2014, up 8.3 percent year on year; net profits surged 94 percent to 2.63 billion yuan. ZTE's international operations accounted for 50.2 percent of its revenues.

Upon the 30th anniversary of its founding, the company's success is a good case study of how corporate ambition and technological R&D ensure business prosperity, as the government encourages Chinese firms to innovate, become more sophisticated and stretch their muscles overseas.

ZTE's operations cover 160 countries, including major markets such as China, the United States, the EU, Russia and Japan. It is the fourth-largest smartphone manufacturer in the United States and the second-largest in the off-contract market.

Reflecting on the company's history, ZTE Founder and Board Chairman Hou Weigui said he had come to understand that the telecommunications industry would become a cornerstone and engine for a country's development in the modern era, an analysis based on his observations of the global market.

Company President Shi Lirong has described ZTE as a survivor, adept at making bold decisions, taking chances and grasping opportunities. Around 10 percent of the company's revenues go on research and development annually.

"Success has originated from our awareness of the golden opportunities the modern era offers, but also our adherence to innovation and a global mind set," Shi said.

ZTE filed 2,179 patent applications last year. According to data from the World Intellectual Property Organization, only two companies filed more: China's Huawei Technologies Co., Ltd. (3,442) and Qualcomm Incorporated of the United States (2,409).

After analyzing trends in mobile terminals, Shi said ZTE is currently prioritizing voice control technology and expecting it to propel the sector's future growth.

With cooperation from industry leaders including AutoNavi, Baidu, Nuance and Audience, ZTE launched a Smart Voice Alliance for mobile phones in September. The first alliance of its kind, it was created to integrate and align existing voice technology and resources at each stage from voice control product manufacturers, content providers, software designers to handset makers.

"Outwardly, a Chinese company's success in the global arena relies on products and brands. However, what matters the most is internal innovation in science and technology," Shi said. However, ZTE's global business abroad has not been without challenges. Since 2011, it has been embroiled in a number of patent infringement lawsuits in the European and U.S. markets.

The company beat off patent infringement claims by the United States-based Technology Properties Ltd. last month, according to a ruling by the U.S. International Trade Commission (ITC). This followed the ITC's Dec. 2013 decision to reject patent infringement claims by InterDigital.

According to Shi, ZTE respects reasonable complaints by other companies, but it will never compromise on abuses of intellectual property.

"If our peaceful negotiations are not respected, the company reserves to right to pursue appropriate and legal means to strike back," he said.

Utilization of internationally established rules and legal weapons becomes especially important to safeguard a company's values when doing business abroad, Shi advised. Endi