12/5/2005 -- It probably didn’t leap out at you at the time, but Cisco Systems Inc.’s partnership last month with Chinese telecom giant ZTE Corp. has the potential to improve Cisco’s standing in the red hot Asia-Pacific region. Although it’s not clear the two companies have a very good idea of just how they’re going to collaborate.

To recap, Cisco and ZTE signed an agreement to work together to develop business opportunities in the telecommunications service provider market in China and elsewhere in Asia-Pacific -- with the exception of Japan.

John Marcus, a senior analyst for telecom infrastructure with consultancy Current Analysis sees a lot of potential upside to a Cisco/ZTE pairing. At the same, however, Marcus is scratching his head over just what the two partners have in store. "There could be some significant synergies that this pairing could exploit, but the companies have provided no detail at all as to what they intend to do. This gives the impression of defensiveness rather than strategic foresight," he argues. If nothing else, Marcus suggests, the deal could help to shore up the competitive positions of both vendors in Asia-Pacific. "Each contributes unique products and/or channel strengths that the other lacks, which could prove very important if executed as intended," he notes.

But the promise of such a pairing is mitigated to a large extent by uncertainty, says Marcus. "[T]he scale and timetable of the Cisco-ZTE partnership in Asia is unclear, possibly even to the principals themselves. Once the two vendors have come up with a cogent game plan and go to market together, other vendors and potential customers might start to take closer notice."

The deal could affect Cisco’s relationships with other partners that are also strong in China, Marcus suggests. "Cisco’s existing system and services channel partners such as Ericsson and Lucent ... and Siemens [which has stated its need to grow its business in China] need to consider if and how the ZTE partnership will affect them, and whether they need to revisit their partnering strategy in the region," he writes. In the long-term, the deal could be a coup for Asia-Pacific carriers, as it will help to increase their options and clout. "Potential carrier customers in the region should use the possibility of Cisco and ZTE’s future technology collaboration to drive home their own technical requirements to both vendors’ development organizations," Marcus concludes. "Their biggest joint competitor in the region, Huawei, has become well known for its willingness and ability to perform significant custom development on system deals, and so this level of cooperation may be required to make the Cisco/ZTE alliance worthwhile to the end user, rather than dealing with them separately as usual." -Stephen Swoyer