3Com’s China Out Strategy: Why and How

Ron Sege

Chairman and CEO, Echelon Corp

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Will China (and India) Revert to the Historical Mean?

From at least the year 1500 to 1820, China + India accounted for ½ of Global GDP…

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0%

20%

40%

60%

80%

100%

1500 1550 1600 1650 1700 1750 1820 1870 1900 1950 1970 2000

ROW

India

China

Disruptive Innovations Favor New Entrants

“An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.” - Clayton Christensen, Innovator’s Dilemma

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How Did These New Entrants Disrupt the Status Quo?

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+

Build a modern design platform that allows you

to deliver faster solutions and cycle

times

Home Market Innovation

Dramatically Drive Down

Costs

Attack your competitors’ higher cost structures &

business bloat

Deliver a new level of service that disrupts your

competitors’ customer interaction models

Deliver a New Caliber

of Service

+

Disruption: Toyota Motor Car

• Division of Toyoda Automatic Loom Works, 1933 • Began investigating auto production for the domestic market in

1929, at the request of the government • Differentiates via the “Toyoda Precepts:”

– “Research and creativity” – “Cooperation and consistency”

• Pioneered many low-cost techniques: Kanban, continuous process improvement, DFM, DFQ

• As of March 13th, 2013, Toyota is #1 in US – 205K units/month

Source: Wikipedia 5

Disruption: LG

• Established as Lak-Hui Chemical Industrial Corp. in 1947. In 1952 became the first Korean company to enter the plastic industry.

• Became Lucky-Goldstar 1958; Lucky produces hygiene products -- GoldStar produced South Korea’s first radio.

• Renamed LG 1995; acquired US-based Zenith & went global

• In 2013 Counterpoint announced that LG had overtaken Apple in smartphone unit volume

Source: Wikipedia 6

Disruption: Samsung

• Founded in 1938 as a trading company; moved into food (noodles), textiles, insurance, securities and retail

• Entered electronics in 1969; globalized in the 80s • Began ‘big bets’ in R&D starting in the 1980s

– DRAMs, LCDs, mobile phones – Second to IBM in US patent production

• Samsung Electronics was the largest IT company based on 2012 revenues

• Samsung’s revenues = 17% of South Korea’s GDP…

Source: Wikipedia, The Economist 7

This is What We Did at Huawei-3Com…

Home Market

Innovation

Dramatically Drive Down

Costs

Deliver a New Caliber

of Service

The New 3Com

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Some Good Results and a Nice Acquisition…

University Picks 3Com Switches Over Cisco’s

Do HP, 3Com value claims trump Cisco

3Com Continues Transition With

Security Play

3Com’s high-end switch: A fast, green alternative

to Cisco

3Com finding an opportunity in recession

3Com Switches Back to Selling Switches

3Com spawns a startup legacy, 30

years later

3Com exports H3C to the world

3Com, into a new era: Adds operations in the region and brings products “high end”

3Com To Lead Enterprise Networking with H3C Portfolio

3Com goads Cisco with H3C push

3Com is back impressively with new enterprise

switches

H3C defeats Cisco and Alcatel in key accounts

3Com Uses China to Challenge Cisco

3Com Launches “Catch-up” Race from China

Cisco’s Threat from China

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Who Is Next?

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And How Will They Do It?

Home Market Innovation

Dramatically Drive Down

Costs

Deliver a New Caliber

of Service

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Free Advice: What I Learned About Doing Business In China…

• The West does a deal first then gets to know each other; China gets to know each other then does a deal -- Guanxi

• China has been around for a long time and has had great success too…

• Face matters in China

• Chinese are natural born entrepreneurs

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More Free Advice: Some of My Favorite Quotes from H3C Days…

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On Merging Best Practice…

“…as China merges into the global economy, best practice in China will become best practice globally and vice-versa.”

-- Operation China, HBS Press, 2007

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On the Need for Mutual Change…

“IF YOU DON’T LIKE

CHANGE, YOU’RE GOING

TO LIKE IRRELEVANCE

EVEN LESS”

-- General Eric Shinseki,

US Army Chief of Staff

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On Globalizing Your Business…

“At its heart, Global 2.0 means abandoning

the notion of centralized control over high-

value aspects of production, adopting

instead a worldsourcing network of

innovation, where ideas can come from

anywhere, as pools of talent emerge to meet

market needs.

- William J. Amelio, CEO Lenovo, June 2008

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On the Need for Trust…

“Speed Happens when people truly trust each other”

-- Edward Marshall

“Trust always affects two outcomes – speed and cost”

-- Stephen Covey

“Mistrust doubles the cost of doing business”

-- Professor John Whitney, Columbia Business School

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THANK YOU!

Thank You!

谢谢

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