Megga first to gain in China venture

HONGKONG electronics maker S. Megga Telecommunications has emerged as the first third-party beneficiary of the wide-ranging memorandum of understanding signed in February between AT & T and China's State Planning Commission.

S. Megga and AT & T reached an agreement with the China National Posts and Telecommunications Industry Corp (PTIC) to form a joint-venture company to market, distribute and support consumer telecommunications products throughout China.

Under the deal, S. Megga will make telecommunications products using the AT & T brand-name at its Dongguan-based factory. These will then be distributed through PTIC's network.

The joint-venture partners also agreed to seek export markets in Asia for the China-made consumer goods, though no specific commitment to export volumes were revealed.

S. Megga is a long-time supplier to AT & T, having made AT & T-badged consumer products for the North American market for more than 10 years.

The AT & T business already accounts for more than half of S. Megga's telecommunications product revenue.

Among other products, S. Megga will make cordless telephones, facsimile machines, digital answering machines and videophones for the venture, all marketed under the AT & T brand.

S. Megga chairman Mr Ray Man Leung said the deal, which was being negotiated since late last year, had enormous financial implications for the company.

''The telecommunications market in China is worth about US$7 billion, of which consumer products represent about 20 per cent,'' Mr Leung said.

''This agreement is hugely significant for us.

''We expect to be able to penetrate every part of the country through the vast distribution network of the PTIC.'' Mr Leung said the venture partners complemented each other well, with AT & T providing the technology transfer and brand-name, S. Megga the manufacturing quality and capacity, and the PTIC the established distribution channels.

Details of the precise ownership split were still subject to negotiation between the partners, Mr Leung said. The joint-venture would ship its first product this year.

''This joint-venture is going to see some explosive growth simply because of the huge China market,'' Mr Leung said. ''We're very bullish about our prospects.'' The agreement - signed last week - is, in effect, an extension of an existing distribution arrangement between S. Megga and the PTIC, which was formalised last July.

The new joint-venture adds the considerable marketing weight of AT & T, the world's largest telecommunications firm, as well as AT & T technology.

''From S. Megga's point of view, this agreement with AT & T allows us to strengthen our existing successful relationship with our major customer - and now partner - in order for us to jointly pursue opportunities in China, the most exciting and potentially enormous telecommunications market in the world today,'' Mr Leung said.

S. Megga would immediately expand the production capacity of it Dongguan factory - which employed about 3,000 workers - to address projected increased demand, he added.

The facility was awarded an International Standards Organisation (ISO) 9001 certification last year.

Mr Leung said the company's manufacturing base would remain in Dongguan for the foreseeable future.

''But, if it is needed, we would set up facilities in other locations,'' he said.

AT & T Asia/Pacific's consumer products division managing director, Mr David Yang, said China represented one of the greatest opportunities anywhere in the world for telecommunications development.

''The new venture offers an excellent opportunity for both AT & T and S. Megga to increase investment in China, which is one of the fastest growing economies in the world,'' he said.