Business: China's electronics giant moves out of shadows to challenge west's big names: Huawei has ambitions for global domination, but it may have to learn to be a bit more open first, writes Juliette Garside
(Observer (UK) Via Acquire Media NewsEdge) The security guard's mirrored sunglasses reflect Barcelona's pale winter sunshine. His job is to keep the crowds attending the sprawling trade fair at bay. Behind him, a pavilion the size of a bus garage houses the latest technology produced by China's Huawei. Those without a meeting to attend are told they cannot enter, and cameras are banned inside.
Huawei is China's biggest exporter, and its equipment helps run the BT broadband network, but the brand is unknown to most UK households. Regarded as a secretive organisation even within the people's republic, Huawei is headed by a former Red Army engineer, Ren Zhengfei.
Unlike other Chinese IT firms, such as the PC maker Lenovo and telecoms group ZTE, Huawei is not listed on the Hong Kong stock exchange. A private company owned entirely by its founders and employees, the names of its board members were only published for the first time last year.
But it is also a flagbearer for China's "going out" policy of encouraging the first generation of corporations created by economic liberalisation in the 1980s to compete on the world stage. Entrepreneurial and unbureaucratic, it has prospered without having the state as a shareholder.
It sells everything from mobile mast radios to software, data-centres and laptop dongles. Founded in 1987, Huawei only began exporting in earnest in 2000, but already over 65% of its revenues are from abroad. Last year, they totalled 185.2bn yuan (pounds 18.51bn), just half a billion pounds less than the world's largest telecoms equipment group, Ericsson.
Now Huawei is preparing to step out of the shadows. While its governance remains veiled, the company is pushing its brand to the fore. It wants to place its products in the hands of millions of western consumers, and become the fourth largest manufacturer of smartphones by the end of this year.
At the Mobile World Congress in Barcelona last month, Huawei's devices chairman Richard Yu said that by the end of 2012 he hoped to have sold 60m smartphones, up from 17m last year.
Hitting that target would vault the firm into the big league, behind Apple, Samsung and Nokia, and ahead of BlackBerry maker RIM and Taiwan's HTC. To succeed, it will have to redefine what "Made in China" stands for.
While Huawei's hometown of Shenzhen is the electronics workshop of the world, churning out iPhones for Apple and PCs for Dell, its produce usually bears the stamp of a foreign company. Aside from PC maker Lenovo, it is hard to name a Chinese brand known to European and American shoppers.
"Consumer perception is that a Chinese product is cheap and looks cheap because the quality is no good," says Francisco Jeronimo, an analyst at research firm IDC. "Huawei needs to change that perception."
Jeronimo believes Huawei products have the quality to compete, but says it will need to raise its public profile. The charge will be led from the UK, where no expense has been spared in recruiting British executives and an advisory board to help find friends in high places.
Former Sunday Telegraph editor Patience Wheatcroft is an adviser, as is Amazon's ex-UK boss Brian McBride, and Sir Andrew Cahn, once chief of staff for Neil Kinnock and recently chief executive of UK Trade & Investment, the government trade promotion body. To promote the smartphones, Bartle Bogle Hegarty, ad agency to Google and BA, will create a global campaign from London.
"It's imperative we are seen as a global brand and not a Chinese brand," says Mark Mitchinson, a Samsung veteran running Huawei's UK devices arm.
His newest stock are phones and tablet computers running Google's Android interface, which house computer chips that have four rather than the now usual two processors, allowing them to handle multiple instructions at the same time. They are fast, particularly when it comes to downloading video.
While most phone makers prefer to leave chips to specialists like Intel, Huawei, whose name stands for "China can" and "splendid act", designed its quad core processors in house and has become known in recent years for innovating. Some 62,000 of its 140,000 staff work in research and development, and there are 23 R&D centres around the world.
Without a recognised brand, Huawei's phones will sell on price. Its mission will be to mop up those mobile subscribers who don't yet own a smartphone, rather than trying to poach Apple's customers.
"There are certain manufacturers that have dropped the ball over recent years and others can pick up that ball and run with it," says Mitchinson.
Samsung has shown it can be done. The Korean company moved from fifth to second spot globally in smartphone sales last year, the only one in the top five to grow in the face of the unstoppable iPhone.
There are those who wonder why Huawei is so keen to risk its hard-earned yuans by chasing capricious mobile phone customers. The answer is that this is a high-growth market. Even in an early adopter nation like the UK, only half of us have a smartphone. And the handset market has the attraction of being a less politically sensitive one than infrastructure.
Huawei is already big in Europe, having last year won a breakthrough contract to overhaul the network of the UK's largest operator, Everything Everywhere. But an offer to donate pounds 50m of equipment to bring a mobile signal into the London Underground in time for the Olympics was never taken up.
A spokesman for Huawei says the deal fell apart not because of security fears, but because commercial agreement could not be reached between all the various players involved.
The culture within Huawei is often described as militaristic. Information is shared on a need-to know basis, with one employee complaining anonymously on recruitment website Glassdoor: "Don't expect to get the information or documentation to be able to carry out the job you are employed to do." Others who have worked there, like former UK mobile chief Jeremy Sheehan, says this comes from a desire to "protect client confidentiality".
Bengt Nordstrom, a strategic adviser to European mobile networks, says Huawei has succeeded because of its ability to learn fast. "Ten years ago they were really only selling on low prices," says Nordstrom. "It was hard to find people that could speak English well enough to conduct a business discussion. But for every quotation they produced, their quality increased."
Backed by a $30bn credit line from the China Development Bank, the pattern of Huawei's international expansion has followed its philosophy, borrowed from Chairman Mao, of encircling the cities by winning the countryside.
Beginning in Africa and Russia, it has moved successfully west. Only America has blocked its advance. Efforts to expand have been repeatedly neutralised by Washington. Offers to acquire Motorola's wireless division and a broadband software group were quashed after the sellers were informed that regulatory approval would not be forthcoming. A contract to modernise mobile operator Sprint Nextel's network was kyboshed, and the US commerce department last autumn barred Huawei from an emergency services contract. A British executive whose company buys from Huawei says US politicians are using espionage as a scare tactic to protect domestic businesses.
"What the Americans are really trying to do is stop Huawei getting the business they know they could get if they opened up their equipment market to them."
Huawei's stated ambition is to become as big as Cisco or IBM, with annual revenues of $100bn in 10 years. Nordstrom says this is unlikely without conquering America: "This is an industry where you need to be truly global to have a future."
Observers say the most serious threat to Huawei's ambitions comes from within. As Ren approaches his 68th birthday in October, the company he founded is facing a succession crisis.
In her letter published in last year's annual report, Huawei's charismatic chairwoman, Sun Yafang, thanked the staff for re-electing her, saying: "I am sincerely grateful to our employees' trust and confidence in me." It was a short statement that masked an internal power struggle. While Ren, who does not give interviews, has been criticised in the Chinese press for a lack of transparency, Sun is increasingly being seen as Huawei's public face, a networker who was among corporate China's most senior representatives at Davos this year.
But in October 2010, a report in Meiri Jingi Xinwen (Daily Economic News) suggested Sun had been offered 1bn yuan to leave Huawei so that Ren could prepare the ground for the appointment to the 13-member board of his son, Meng Ping, who is customer relationship management director and is said to have spent time in the US. The company denies this. Whatever the truth, Sun survived in a post she has held since 1999 and Meng did not join the board.
But the Ren dynasty holds sway at Huawei; Ren's daughter Meng Wanzhou is chief financial officer. Meanwhile, Ren Shulu, the founder's younger brother, is a member of the five-strong supervisory board that oversees the directors.
Gary Liu, a professor at the China Europe International Business School in Shanghai, says Ren's determination to find a successor from within his family stems from 2000 when his then second-in-command, Li Yinan, left to start a rival company, Harbour. Ren fought and eventually bought Harbour, but the experience, says Liu, destroyed his trust in non-family members.
Succession is not just an issue at Huawei. China's first generation of entrepreneurs at Lenovo and white goods maker Haier are also nearing retirement. "These companies' futures hinge on how effectively the incumbents manage leadership transitions. Indeed, the choices the founder CEOs make may well reshape their companies as well as the Chinese economy," says Liu.
Ren has resisted a stock exchange listing, but ownership could help shed light on the business and build trust. Huawei may have to open its own doors before America decides to do the same.
A Huawei employee displays the company's new MediaPad tablet computer at this year's Mobile World Congress in Barcelona. Bloomberg
Huawei founder Ren Zhengfei will be 68 this year.
(c) 2012 Guardian Newspapers Limited.
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