It has not been a good week for Chinese telecoms giant ZTE. Alongside a significant drop in profits, reports suggest that as many as 12,000 employees could be laid off as part of a major cost-cutting program.
A report from Marbridge Consulting, citing an internal source, states that ZTE has already conducted three rounds of staff reductions since February, with overseas employees reportedly most at risk. An internal memo has reportedly emphasized the importance of localization during difficult economic times, noting that “local staff could assume more responsibilities and reduce the need for deploying Chinese staff overseas.”
In a challenging economic climate, ZTE is not alone in cutting personnel or trimming its portfolio. Other carriers and equipment vendors have carried out similar moves. Nevertheless, a potential reduction of up to 12,000 jobs would be a substantial workforce contraction by any measure.
Shareholders also face gloomy news: ZTE has warned that its first-half profit for 2012 could fall by as much as 80 percent. The company attributes the decline to several factors, including a slowdown in China’s broader economy, tighter cash flow, and intensifying competition in the wireless market.
ZTE still expects to report a positive profit in the period, with the forecasted range between RMB 154 million and RMB 308 million (approximately £15.5m to £30.9m), down sharply from RMB 769 million (£77.2m) recorded in the prior year.
Meanwhile, ZTE and fellow vendor Huawei have been embroiled in a contentious trade dispute with the European Union over alleged “dumping”—the practice of selling subsidized goods below market value to undercut competitors. At the time of earlier reporting, industry observer Dr. Lin Sun, TelecomsTech’s Beijing correspondent, commented that the two companies were “aggressive price cutters to drive out competitors, with or without government financing,” and that proving dumping could be difficult because aggressive pricing has been a recognized part of their market strategy.
Compounding ZTE’s troubles, two of its executives in Algeria were later sentenced in absentia to 10 years’ imprisonment after being convicted on bribery charges. Each was fined three million dinars (about £25,000) and barred from participating in public tenders for two years.
These high-profile controversies and the accompanying negative press appear to have taken a toll on ZTE. Despite the setbacks, the company remains one of China’s largest telecoms equipment manufacturers, second only to Huawei.
How should ZTE respond in this situation? Is the EU dumping investigation the trigger for a deeper crisis at the company, or are these separate setbacks that have simply coincided? The coming months will be crucial in determining whether ZTE can stabilize its finances, rebuild trust, and adapt its global workforce strategy to a more localized model.