Tadiran Telecom Ltd., owned by Shlomo Shmeltzer, is a longstanding manufacturer of switchboards for enterprises. The company, which underwent many incarnations before Shmeltzer acquired it, is best known for its Coral model switchboard, which is installed at thousands of enterprises in Israel. What most people don’t know is that the company has had a subsidiary in China since the 1990s in collaboration with China Telecom Corporation Ltd. (HKSE: 768; NYSE: CHA) and which has an annual turnover of $10 million.
At first glance, $10 million seems low. After all, China Telecom operates in a huge market. Tadiran Telecom president and CEO Eldad Barak told "Globes" in an interview that China Telecom was a telecommunications carrier and that the marketing of switchboards was not a core business.
"Globes": Please describe your activity in China.
Barak: "We are known in China, like in the rest of the world, for our enterprise communications solutions. In the past, we mostly sold Coral switchboards, but we now have a unified communications system (Internet protocol enterprise communications services), which we call Aeonix. We also have software technology for managing service centers, and we have new developments of control room systems. These are applications which use enterprise communications capabilities to supervise shifts, sites, and so on."
How is collaboration with China Telecom handled?
"Our activity is a joint venture in which we own 51%. China Telecom and another company, which is a huge company but not in this field, are partners in the venture. This is a joint venture, and this venture is responsible for marketing our products only in China."
Does China Telecom market Tadiran Telecom products to its customers?
"No. China Telecom is one of the owners in the joint venture, in which we own, as I said, 51%. This venture markets the solutions. We don’t only sell to China Telecom's customers, but to everyone."
It sounds like a marvelous marketing channel. Why not leverage the link with China Telecom?
"You have to understand that it is a telecommunications carrier. That's different."
Is your business in China profitable?
"Yes. It is profitable and growing. Profits have risen every year, including during the crisis of 2008. The activity is growing constantly, slowly in some years, faster in others."
Does your company focus on China, or do you sell in other Asian markets?
"No. Only in China."
Is the switchboards market going to disappear in favor of cloud solutions? Do customers need enterprise switchboards at all?
"It doesn’t really make any difference. Our new technology can also work with the software and services model. The way enterprises consume communications and buy services is changing, especially by small businesses, but this doesn’t matter to us as a technology vendor. Our technology was born for the cloud environment. It is a new development. We're not talking about obsolete technology with limited applications; on the contrary. Today, it is possible to install this technology on every computer. It is extraordinarily flexible.
"Most of the market still works with the old model. On average, especially in the West, about 35% of users buy traditional switchboard services as a software service. We don’t go a sell directly to the end customer. Even the Chinese subsidiary, which is responsible for marketing, uses markets beneath it. Today, a carrier can use our technology to offer the service you're talking about. This means that we're handling this technology change and we're part of it."
How does this work in markets besides China?
"The main market in which we see extraordinary demand is actually the US; the most Western market. We're not selling in China because we have an obsolete solution. On the contrary, we've launched new technology which suits the most advanced, the most Western, markets."
Is the Chinese company managed by Israelis?
"By Chinese. By the way, I strongly believe in this. In every market we operate in, the manager I appoint is a local manager who understands the local culture. That's my approach to things."
Do you have plans that you can disclose about activities in China?
"Tadiran Telecom sells in 41 countries. I decided to focus. That means that we've marked five main territories, besides Israel: China, India, the US, and Russia. We want to focus in order to grow."
You've been active in the Chinese market for many years. What lessons have you learned? What would you advise an Israeli company that wants to work in China?
"First of all, deal with the culture in two ways. One is to appoint locals to key positions. In our case, we appointed the CEO and his team is Chinese. The second is to work with a Chinese partner."
How would you characterize the Chinese market?
"You have to understand that this market is not afraid of technology. It knows how to look at technology. It wants to know modern technology. We work in a very focused way. We marked fields through which we deepen our foothold; one is energy companies and electricity utilities, and the other is railroads. That's the secret of success."
Published by Globes [online], Israel business news - www.globes-online.com - on June 11, 2013
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