The case of ZTE has a warning significance for many Chinese companies that are in the process of globalization.

 

With the rapid development of economic globalization, traditional multinational corporations have grown into global corporations, and corporate competition has risen from the competition between individual companies in the past to the competition in global value chains. Major changes have taken place in the way companies compete. At the same time, in the face of the strengthening of national government supervision and the promotion of international organizations, more and more companies have strengthened compliance management, and compliance competition has become a new competition rule for global companies.

ZTE's heavy fines have exposed the lag in the ability of companies to control compliance risks and major deficiencies in corporate compliance management systems.

 

First of all, ZTE's emphasis on the prevention of compliance with export control compliance is insufficient, and it lacks the correct assessment and understanding of the risk of export control compliance. After the US investigation was conducted in March 2012, ZTE did not take the necessary measures for compliance management of export controls. Instead, it wanted to set regulations to avoid US export control regulations.

Secondly, ZTE has still not been able to seize the opportunity to block loopholes in compliance management when it has been investigated by the U.S. government. Instead, ZTE has adopted a non-cooperative attitude, leading to further escalation of the export control compliance risk faced by the company, and ultimately leading to The company's compliance management in export control is completely out of control.

According to information disclosed by the US Department of Commerce’s Bureau of Industry and Security (BIS), the decision of BIS to include ZTE and its three affiliates in the “entity list” in March 2016 was based on the two ZTE confidential documents it obtained. Out of the two confidential documents named “Report on Completely Rectifying and Standardizing Corporate Export Control Related Business” and “Import and Export Control Risk Evasion Program” described ZTE’s establishment, control and use of a series of “cutoffs”. The company bypassed US export control programs.
 

Third, ZTE's compliance management system has major flaws. ZTE's compliance management department does not have a direct reporting channel to the board of directors, and the power of the CEO or sales department to make decisions can easily break through compliance controls. Therefore, the compliance department needs an independent structure and reporting line. Otherwise, the risk can not be communicated to the company's senior leadership, resulting in the use of compliance management.

Fourth, in recent years, ZTE’s autonomous technology has developed rapidly, but some key components with high technological content also rely on foreign suppliers. For example, core components such as high-speed optical communication interfaces and large-scale FPGAs purchased by ZTE's global value chain have been stopped by US companies in accordance with export control regulations, and ZTE's production is difficult to sustain. This is the fundamental reason why ZTE was forced to reconcile with US law enforcement authorities.

Through a sound compliance management system and a deep-rooted compliance culture to withstand compliance risks, it has become the soft competitiveness of modern global companies, and compliance competition has become a new rule for corporate global competition. Without a soft competitiveness centered on the compliance system and compliance culture, it will be difficult to adapt to the new global competition situation.