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NSA spying scandal accelerating China's push to favor local tech vendors

Michael Kan | Dec. 5, 2013
The NSA spying scandal has put a strain on the China business of Cisco and Qualcomm, the companies said recently

"Overall in the longer-term, the environment is positive for local vendors. We definitely see them taking market share from multinational firms in China," he added.

Chinese vendors are also expanding outside the country and targeting the U.S. market. But last year Huawei and ZTE saw a push back from U.S. lawmakers concerned with the two companies' alleged ties to the Chinese government. A Congressional panel eventually advised that U.S. firms buy networking gear from other vendors, calling Huawei and ZTE a security threat.

Huawei and ZTE have both defended the safety of their companies' products, but the security concerns around Huawei and ZTE continue.

At least in China the two companies are enjoying easier access to their home market. This year, IT purchases in the country are estimated to reach US$113 billion, making China the third largest tech market in the world after the U.S. and Japan, according to Forrester Research.

Other U.S. tech vendors, including Hewlett-Packard and IBM, are also reporting a slowdown in their China sales. But analysts believe the decline stems from the nation suspending IT purchases in recent months. Chinese President Xi Jinping took power last November, and authorities have been leading anti-corruption investigations against local officials, which will include scrutiny of government purchases.

The sales opportunity in China, however, remains vast, especially among private commercial enterprises that want cutting edge technologies. More Chinese businesses are moving toward cloud computing, and building new data centers, creating demand for products from HP, IBM and Microsoft.

But at the same time, China's local tech vendors will continue to grow more competitive, putting more pressure on their foreign rivals. Technology is becoming easier for companies to replicate, and China will continue to support local brands, said Kitty Fok, an analyst with research firm IDC.

 

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