ICBC, Huawei: It’s Cold Out There 工商银行、华为：国外市场冷清

By newsdoug on March 30, 2012

As today officially marks the end of the latest quarterly earnings season, I thought I’d take a quick look at 2 of China’s leaders in their fields, banking giant ICBC (HKEx: 1398; Shanghai: 601398) and telecoms equipment leader Huawei Technologies, which are discovering the world outside their protected home market can be lucrative but is also quite competitive and fraught with other challenges. ICBC saw its profit last year rise 25.6 percent, but its pretax profits from overseas operations rose a more modest 18 percent. (results announcement; English article) The overseas growth was down sharply from the previous year’s 37.2 percent rise, as ICBC expanded aggressively in Africa, South America and Southeast Asia. Meantime, Huawei saw its revenue grow just 11.7 percent last year, according to a company executive quoted by Chinese media, a relatively disappointing result for a company whose sales the previous year rose 24 percent and was used to seeing even higher rates in previous years. (Chinese article) Obviously many complex issues are behind these relatively modest growth figures, but the biggest one is certainly the fact that global markets are much more competitive than China’s domestic one, where local players have a home-field advantage that includes strong direct and indirect support from Beijing. Still, as China comes under pressure to wean its companies off state support and as these companies themselves try to become serious global players, they will have to take such international steps and prove to the world that they can compete with other top world players. ICBC has been the most aggressive of China’s big banks in its international drive, buying banks in Southeast Asia and Latin America, and expanding its partnership with Standard Bank, Africa’s biggest lender, to boost its Africa business. (previous post) Bank of China (HKEx: 3988; Shanghai: 601988) has also been active in currency services, its traditional strength, signing a series of landmark deals in recent months to enter the global commodities trading business. (previous post) Huawei, meantime, was one of China’s biggest exporting success stories for years, but has run into another roadblock in the last year, namely distrust by western governments who fear the company is just a spying arm of Beijing. Those fears have killed a number of Huawei’s initiatives in western markets over the last year, including one setback this week when the company was banned from bidding on contracts to help build a new high-speed data network in Australia (previous post) This kind of protectionist obstacle is something that all Chinese companies will have to deal with as they expand abroad, and other global giants must frequently deal with such issues from local governments as well. Both Huawei and ICBC seem like quick learners, and I fully expect both to overcome the various obstacles they run into and eventually become respected competitors on the global stage. But in the meantime, they will have to deal with many new issues, and will also have to be satisfied with much lower growth rates than they traditional got from their home market.

Bottom line: The latest results from ICBC and Huawei show that Chinese firms can compete globally, but will get much slower growth from international operations than domestic ones.

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