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What stops ZTE from creating a proxy company through which to buy the components? Or another one to also build their phones and products.

metalliqaz 9y ago
That's basically impossible to do at scale. When the US restricts commerce with an entity like ZTE, they require the US companies to make an effort to understand where the components are going to end up. In most cases, ignorance is not an excuse. So if a new company suddenly starts ordering the same parts at huge quantities in order to supply ZTE, then they will be immediately discovered and also subject to the restrictions. ZTE can probably use a range of existing suppliers to acquire parts but they probably would not escape harm because there are layers of middle-men getting added to the equation, and that's expensive.
yonkshi 9y ago
They could use proxy companies, but ZTE risk getting even further punishment from the US Gov if they were caught again, possibly exiting US entirely. Doesn't matter how many proxies they use, it takes one tear down to see if they used any US based components. Although, I wonder, had they used a proxy company when they were doing business with N.Korea and Iran, it probably would've been much harder to prosecute in the US. Perhaps their upper management didn't care enough at the time.
- jacquesm 9y ago
  Or perhaps they felt that as a foreign entity the US laws did not apply to them? There are lots of commercial transaction that may or may not violate US laws, typically those companies that engage in them are not aware of the reach of the long arm of Uncle Sam (not saying that's the case here, ZTE absolutely knew they were violating the embargo but still, you have to wonder to what extent they felt that being in China was protection enough). The more layers you use to obfuscate a thing like this the clearer it is that you know that you are doing something you should not be doing.
skybrian 9y ago
There is a risk of getting supply cut off if the ruse is discovered. It could work temporarily, but it's a risky supply chain to build a large or long-term business on.
bsder 9y ago
For smaller components, probably nothing. However, a cell phone needs a couple of big, expensive, important components. In particular, the main processor often comes directly from Qualcomm and ZTE isn't buying quantities that can be handled by anything less than a direct relationship. The more interesting question is how much this will impact Qualcomm's bottom line.

metalliqaz 9y ago

That's basically impossible to do at scale. When the US restricts commerce with an entity like ZTE, they require the US companies to make an effort to understand where the components are going to end up. In most cases, ignorance is not an excuse. So if a new company suddenly starts ordering the same parts at huge quantities in order to supply ZTE, then they will be immediately discovered and also subject to the restrictions. ZTE can probably use a range of existing suppliers to acquire parts but they probably would not escape harm because there are layers of middle-men getting added to the equation, and that's expensive.

yonkshi 9y ago

They could use proxy companies, but ZTE risk getting even further punishment from the US Gov if they were caught again, possibly exiting US entirely. Doesn't matter how many proxies they use, it takes one tear down to see if they used any US based components. Although, I wonder, had they used a proxy company when they were doing business with N.Korea and Iran, it probably would've been much harder to prosecute in the US. Perhaps their upper management didn't care enough at the time.

jacquesm 9y ago
Or perhaps they felt that as a foreign entity the US laws did not apply to them? There are lots of commercial transaction that may or may not violate US laws, typically those companies that engage in them are not aware of the reach of the long arm of Uncle Sam (not saying that's the case here, ZTE absolutely knew they were violating the embargo but still, you have to wonder to what extent they felt that being in China was protection enough). The more layers you use to obfuscate a thing like this the clearer it is that you know that you are doing something you should not be doing.

skybrian 9y ago

There is a risk of getting supply cut off if the ruse is discovered. It could work temporarily, but it's a risky supply chain to build a large or long-term business on.

bsder 9y ago

For smaller components, probably nothing. However, a cell phone needs a couple of big, expensive, important components. In particular, the main processor often comes directly from Qualcomm and ZTE isn't buying quantities that can be handled by anything less than a direct relationship. The more interesting question is how much this will impact Qualcomm's bottom line.