Nigeria’s Chinese contractor, ZTE, sinks in debt back home

One of the Federal Government of Nigeria’s contractors, ZTE, is going down in debt back home in China.
This has raised fears that ZTE, which handled the CCTV project in the Federal Capital Territory, Abuja, and is expected to undertake the second phase of the project for the Ministry of Police Affairs, may not meet its contractual obligations.
ZTE, according to reports from China, recorded a major loss of revenue in the first three quarters of 2012.
The preliminary financial results for the first three quarters of 2012 announced on October 4, 2012 by ZTE, showed a net loss attributable to shareholders of between RMB1.65 billion and RMB1.75 billion.
When compared with the result for the same period in 2011, it is a reversal of between 254.42 per cent and 263.78 per cent.
The company’s top management is reported to have apologised for these operating results and has agreed to collectively reduce their own compensation.
The report said although these results may be surprising to some, several industry analysts believe them to have been inevitable.
The global financial crisis and the Eurozone crisis have brought about fierce competition in the telecom industry.
Although it is widely recognised that the industry has gone from an era of “high gross profit” to one of “micro-profit”, China’s ZTE continues to single-mindedly pursue market share instead of profit – a low-price strategy that has led to their loss of cash flow, the report monitored online said.
Without having accumulated a foundation of competency or innovative capabilities, ZTE still hopes to reach the level of, or even surpass, its competitors during the financial crisis but the company will continue to be blindsided by the fact that during the financial crisis, its customers will be especially focused on product quality and efficient delivery of solutions.
As reported by the media in India, BSNL was recently taken in by ZTE’s offer of low prices.
BSNL planned to expand its countrywide 2G network and selected ZTE over other international vendors on the basis of cost.
Unfortunately, it is unclear as to whether ZTE will be able to provide the agreed upon equipment and BSNL may be forced to re-tender the bid, putting their network expansion severely behind schedule.
A similar incident took place in Pakistan.
PT, a Telenor company, chose ZTE to update its network in Pakistan due to ZTE’s low prices.
The project was severely delayed, and, as a result, there was a significant decrease in network quality.
In addition, PT’s income decreased steadily for three months, with total losses reaching upwards of $6 million.
ZTE is able to maintain a low rate of profit, around three per cent.
Such a low profit rate does not allow for the company to have enough cash flow to enhance its management system to effectively deal with the financial crisis.
Last year, ZTE’s poor management capabilities resulted in a case of fraud.
In order to meet the requirements of management to receive a customer payment earlier than was possible, the local ZTE office in Malaysia falsified a customer letter to say that the customer accepted the products before the actual agreement date.
In response to its losses and in order to control its overseas operation costs, ZTE has withdrawn many of its staff in international markets – around 7,000 to 10,000 people, according to a credible resource.
ZTE even closed some poor performing offices.
These types of measures will certainly have a negative impact on the company’s future operations and a customer’s initial investment can’t be protected.
In Saudi Arabia, for example, ZTE increased the price of a STC project by 30 per cent after winning the bid.
Approaches such as these, the report said, will not help the company recover from these huge losses, but they will put their customers in great risk.