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NSA spy scandal prompts China push to favor local tech vendors

The NSA spying scandal has put a strain Cisco and Qualcomm businesses in China

By Michael Kan
December 4, 2013 06:30 AM ET

IDG News Service - While China's demand for electronics continues to soar, the tech services market may be shrinking for U.S. enterprise vendors. Security concerns over U.S. secret surveillance are giving the Chinese government and local companies more reason to trust domestic vendors, according to industry experts.

The country has always tried to support its homegrown tech industry, but lately it is increasingly favoring local brands over foreign competition.

Starting this year, the nation's government tenders have required IT suppliers to source more products from local Chinese firms, said an executive at a U.S.-based storage supplier that sells to China. In some cases, the tenders have required 50 percent or more of the equipment to come from domestic brands, said the executive, who requested anonymity.

Recent leaks by former U.S. National Security Agency contractor, Edward Snowden, about the U.S.'s secret spying program aren't helping the matter. "I think in general China wants to favor local brands; they feel their technology is getting better," the executive said. "Snowden has just caused this to accelerate incrementally."

Last month, other U.S. enterprise vendors including Cisco and Qualcomm said the U.S. spying scandal has put strains on their China business. Cisco reported its revenue from the country fell 18 percent year-over-year in the last fiscal quarter.

The Chinese government has yet to release an official document telling companies to stay away from U.S. vendors, said the manager of a large data center,A who has knowledge of such developments. But state-owned telecom operators have already stopped orders for certain U.S. equipment to power their networks, he added. Instead, the operators are relying on Chinese vendors such as Huawei Technologies, to supply their telecommunications equipment.

"It will be hard for certain networking equipment made in the U.S. to enter the Chinese market," the manager said. "Its hard for them (U.S. vendors) to get approval, to get certification from the related government departments."

Other companies, especially banks, are concerned that buying enterprise gear from U.S. vendors may lead to scrutiny from the central government, said Bryan Wang, an analyst with Forrester Research.

"The NSA issue has been having an impact, but it hasn't been black and white," he added. In the future, China could create new regulations on where certain state industries should source their technology from, a possibility some CIOs are considering when making IT purchases, Wang said.

The obstacles facing U.S. enterprise vendors come at a time when China's own homegrown companies are expanding in the enterprise market. Huawei Technologies, a major vendor for networking equipment, this August came out with a new networking switch that will put the company in closer competition with Cisco.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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