Summary Bullets:
- ZTE invested in Turkish systems integrator Netas, an aggressive move to improve its services reach and vie for a key partner role in China’s ‘One Belt, One Road’ initiative.
- In addition to geographic expansion, the investment enables ZTE to gain greater access to Netas’ non-telco business.
In December 2016, ZTE announced an agreement to acquire a minority share of Turkish systems integrator Netas. While Netas will remain an independent company, it will gain increased access to ZTE’s portfolio of products, services and solutions. For ZTE, the investment represents a significant foray abroad for the Chinese vendor. Located in a regional linchpin between Europe and Asia, Netas could provide a bridge between east, west and south as ZTE looks to expand its services organization.
One Belt, One Road
In the days leading up to the public disclosure of ZTE’s investment in Netas, the vendor commented at a conference that it plans to leverage its capabilities to contribute to China’s ‘One Belt, One Road’ (OBOR) initiative. An economic and infrastructure development initiative unveiled by China in 2013, OBOR aims to connect Central Asia, Eastern Europe and North Africa with improved transportation and information infrastructure in a bid to re-establish the Silk Road.
ZTE has been vocal in the past about its intention to support the OBOR initiative. However, its investment in Netas is an aggressive move to secure its position in a key country within the initiative, and to acquire new systems integration capabilities and customer relationships to push deeper into OBOR target markets. Of the 64 countries participating in OBOR, ZTE had a presence in 50 of them prior to its investment in Netas. With the weight of a premier systems integrator in the region, ZTE is in even better position to capitalize.
Beyond OBOR
Regardless of ZTE’s status as a collaborator for OBOR, the vendor will be a significant shareholder of a large systems integrator with customers including telecom operators, banks, governments and enterprises across multiple vertical segments. Netas is home to Turkey’s largest private R&D center, developing solutions that ZTE plans to make available to its international customer base. It’s another step forward for ZTE’s services business, as the vendor looks to expand abroad amid criticisms regarding its capabilities outside of its backyard.
With that in mind, perhaps the Netas investment is the first sign of a more aggressive geographic services expansion for ZTE. As competing services vendors demonstrate their own visions for the evolving industry landscape, ZTE is in a strong position to expand its services presence globally. The vendor has demonstrated momentum financially, and was recently tapped as the winning bidder for a contract with Wind Telecommunications and 3 Italia.
Overall, ZTE’s investment in Netas creates a number of opportunities, both telco and non-telco, while avoiding potential integration challenges that come along with outright acquisition. However, if ZTE plans on meaningfully augmenting its services capability in the future, it will need to consider acquisitions for more fully integrating its own culture, products and solutions.