Nation's telecom equipment giants plunging resources into R&D sector

The Chinese telecom equipment manufacturers Huawei Technologies Co and ZTE Corp are trying to further build their strengths in innovation and provide secure products to customers.

Founded in the 1980s, the two companies, both based in the coastal city of Shenzhen, in South China, have quickly become leaders in the world's telecom industry and rising stars in the protection of intellectual property.

Huawei had $32.4 billion in revenues in 2011, a year-on-year increase of 11.7 percent. It has been the world's second-largest maker of telecommunications equipment measured by revenue since 2009, beating Nokia Corp, Siemens AG and Alcatel Lucent SA in that regard, and only coming in behind the Stockholm-based Ericsson.

ZTE owes its quick rise in part to its expansion around the world, especially into some emerging markets. ZTE is the world's fourth-largest mobile phone manufacturer measured by shipments and the fifth-largest seller of telecommunications equipment.

Many such companies' strategies place an emphasis on the need for innovation. ZTE, for example, invests an average of more than 10 percent of its total annual revenue into research and development every year. In the past three years, ZTE's investments into R&D surpassed 20 billion yuan ($3.21 billion), the company said.

"We believe human resources are the most important intangible asset a company has," said Wang Haibo, ZTE director of intellectual property.

About 40 percent of the 30,000 employees at ZTE now undertake R&D work. The company has more people performing that sort of work than any other listed Chinese company.

ZTE has set itself the goal of "having the world's top talent working in some of the company's most important positions". It recently opened an office that is specifically charged with attracting talented employees from overseas.

According to the United Nations World Intellectual Property Organization, ZTE in 2011 applied for the largest number of patents offered through the Patent Cooperation Treaty, which provides a standard procedure for applying for patents. By June 30, 2012, ZTE had filed 45,000 patent applications both at home and abroad and had been granted 12,000 patent licenses.

"ZTE's patent rights have already covered some core patents related to critical technologies in the telecom industry," Wang said.

An example is fourth-generation Long Term Evolution, or LTE, technology, a standard for wireless communication. ZTE's basic LTE patents make up 7 percent of the total in existence, he said.

Huawei also has advantages related to intellectual property. It applied for the third-largest number of patents through the Patent Cooperation Treaty in 2011. In the same year, it increased its investment in R&D to $3.76 billion, a year-on-year increase of 34.2 percent.

Huawei also helps operate a global network of 15 R&D centers and 25 innovation centers.

"About 46 percent of Huawei's staff, or 68,000 employees, are working in the R&D sector," said Fang Xingdong, founder of chinalabs.com and a critic of Internet industries.

"The number has already surpassed the total employed at the US-based Cisco, which has about 66,000 staff members."

Fang said that shows how much of a priority Huawei places on innovation.

Both companies have showed a determination to push forward with innovations.

Dai Shu, spokesman for ZTE, said doing so will help the company provide customers with reliable and secure products.

"We strictly adhere to various standards concerning network security," Dai said.

In addition, the quality of ZTE's products has been attested by third-party safety organizations, such as UL LLC, a safety-science company.

In October, a US congressional report accused Huawei and ZTE of posing a national security risk to the United States. Both companies denied the allegations had any truth to them.

The safety and integrity of Huawei's products and services have been recognized in the industry, several Huawei officials said.

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