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Trust Is Key to the Huawei Imbroglio

Oct 26 , 2012
  • Wu Sike

    Member on Foreign Affairs Committee, CPPCC

In order to ride the wave of economic globalization, China's major telecom-gear maker Huawei has always used the United States as its model for global expansion, and has spent 3-4 per cent of its annual income since 1997 on consulting services from US companies for the purpose of tapping the US market. By learning from companies in Silicon Valley, it developed a corporate governance structure similar to US multinationals, and now Huawei has successfully extended its business into Africa, the Middle East, Latin America and Europe. In the US market, however, it has thus far run into snags at every turn. Having not won a single contract from any local telecom operator of due weight ever since it entered this market in 2001, Huawei cannot but rethink its focus on this market.

On October 8, the US House intelligence committee filed a report, 11 months in the making, alleging that Huawei and ZTE would provide China's intelligence departments with an opportunity to intervene in US telecom networks. It recommended that US companies refrain from cooperation with Huawei whenever and wherever they can so as to avoid intellectual property rights losses. Right at the time when the US Congress published that report, Huawei's CEO Ren Zhengfei was in London meeting with British Prime Minister David Cameron, who announced after the meeting that Ren agreed to put in another 1.2 billion pounds to expand his company's businesses in Britain.

What a contrast! On one side of the Atlantic, the United States is trying as much as possible to block the entry of Huawei, while on the other side Britain is rendering its full support for this Chinese technology giant to further grow. What is of even greater concern to many, however, is the future action that Huawei, the world’s second-biggest telecom equipment provider, will take to make a breakthrough.    

Now a full global competitor, Huawei has come to be targeted by the Americans for at least two reasons. Firstly, Americans have become even more anxious about China's rise, which they see as a threat to their own interests. As their presidential election draws near, some US politicians would naturally come forward to block Huawei as the representative of Chinese business interests in order to score bigger political points. Secondly, their own companies and industries must be protected. Cisco and other US firms have always looked at Huawei as their strongest competitor and biggest rival, and contended that Huawei's arrival would dilute the profits of the telecom sector as a whole. While investing in 15 per cent of the world's telecom equipment and enjoying a gross profit margin of 45-50 per cent, these bigwig telecom operators net 25 per cent of the US’ telecom operating revenues. They therefore hate to have Huawei  come and share the profit. It is really a pity for Huawei to have harvested so little from a land it has tilled so laboriously and carefully for more than 10 years, and to struggle along a path filled with so many thistles and thorns.

Given its stable investment in Britain so far, we are optimistic about its future there for two major reasons. Firstly, it has laid a solid business foundation. As a partner to British Telecom (BT), the biggest telecom operator in Britain, Huawei has been offering upgrade services since 2005. Although Huawei has also come under evaluation and investigation by the British Parliament, such evaluation and investigation has centered mainly on its cooperation with BT. Since the partnership has grown fairly mature and Huawei has got a sound track record in Britain, analysts have pointed out that the evaluation and investigation will not have any substantial impact on its planned investment in this country or interrupt its partnership with BT. Secondly, Huawei has been doing businesses in Britain on a truly win-win basis. Given the slow recovery of the British economy, Huawei's continuous investment in Britain will undoubtedly help increase its employment and revive its economic growth. Compared with the United States, Britain has opened its door much more widely to Huawei.   

Reciprocal opening-up is the only path to mutual benefit. Having worked overseas for nearly 10 years, this author has personally witnessed Huawei's robust growth and expansion in many countries through earnest efforts in client service and unswerving pursuit of the business goal of win-win results. Against the backdrop of economic globalization, Huawei's investment in the United States and Britain is an encouraging step taken to spur its normal business expansion, just as many US and British conglomerates such as General Electric and Burberry have done by investing in China. As a healthy aspiration and pursuit, it should not be tainted with too much political coloring. Neither should it be arbitrarily demonized as a mistrustful deed.


Wu Sike is a member on the Foreign Affairs Committee of the Chinese People's Political Consultative Conference and member on the Foreign Policy Consulting Committee of the Ministry of Foreign Affairs



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