The China question
There's no avoiding the fact that China now dominates the optical networking industry. True, it's not the largest market (although it is the fastest growing) or the most technically advanced (although most of its long-haul systems operate at 10 Gbit/s). Nor have China's OEMs beaten their competitors in North America, Europe, or Japan. The dominance comes instead from the potential size of its internal markets, from the aggressiveness of its business expansion overseas, and from its growing manufacturing base, which produces optical equipment for internal consumption and under contract for overseas vendors.
Helping to fuel China's growth is the current global market in which no product or technology will succeed unless the cost is low and the return high. Low-cost labor has usually been China's competitive edge, but as new Chinese companies compete in the global telecommunications arena they are beginning to rely on a skilled and educated workforce, along with advanced manufacturing facilities and automation. Companies such as Huawei Technologies are already highly automated. When I visited its Shenzhen headquarters, I saw a beautiful sprawling corporate complex, an enormous new R&D center, and a manufacturing facility easily on par with Lucent or Cisco.
Will China continue to provide a welcome market lift for our industry or only prove to be a formidable competitor? We know its market boom cannot continue without some rough spots. The Chinese government claims its GDP expanded 8% in 2002, with a corresponding 12% increase in industrial output. However, overall growth is expected to slow a bit as exports are affected by the world economy and the government reduces investment to control its budget deficit.
The happy news, as reported in the cover story by our colleagues at Strategies Unlimited, is that the Chinese market for optical-transport equipment and components should grow rapidly to $3.1 billion in 2005. The more challenging news is that Chinese companies are polishing their competitive skills, making alliances, and winning contracts overseas. So most likely the arrival of Chinese optical networking industry will prove a mixed blessing. China—welcome to the club!