The commercial reality of Huawei’s trust issues

Analysis

The commercial reality of Huawei’s trust issues

Jennifer Scott
Ezine

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This week, we have been visiting Huawei’s headquarters in Shenzhen. The company has been on a mission in the past three years to open its doors to more journalists and try and change its reputation as a closed off firm to one of openness and transparency. Yet, it is still struggling to break into some of the world’s biggest and most lucrative markets.

Amid rumours the company has links with the Chinese state government – Huawei's founder Ren Zhengfei is a former major of the People's Liberation Army of China – it has experienced continuing failure in the US. 

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A US government committee even went as far to say Huawei’s equipment posed a risk to national security and businesses across the country should not use it, or any kits from fellow Chinese firm ZTE.

Discussing the difficulties Huawei had in the US – the firm holds less than one per cent market share in its biggest business area of supplying telecom networking equipment, for example – Scott Sykes, head of international media relations, was honest about the bleak outlook when it came to gaining the trust of big customers, both private and public.

“We have had to accept it is a commercial reality,” he said. “It is nothing to do with our intent. We are ready, willing and available to serve telcos and consumers in the US. But the fact is we see no significant commercial opportunity for the foreseeable future.”

This hasn’t stopped Huawei trying though. It began operations in the US in 2001 and now has 13 offices across the country, employing 1,500 people – 70% of which are American citizens. Yet, even with this presence and what Sykes sees as “doing its part to participate and bring jobs and stimulate the American economy,” its home roots of China was stopping it from fairly competing for business.  

“If we are going to put it down to one reason it would be protectionism but it is more complicated than that,” he added. “You could add politics and sinophobia perhaps, but the main problem is protectionism.”

Some have suggested acquisition might be the answer for a strong entry into North America, gaining an existing customer base without having to build up its own brand.

Huawei has been throwing a lot of investment into its devices division to take on the big guns such as Apple and Samsung. As a result, industry analysts had touted the company as a suitor for struggling mobile manufacturer BlackBerry, buying its existing footprint across North America.

However, speaking to Computer Weekly at a press conference in Hong Kong, Sykes claimed M&A had never been Huawei’s growth strategy and it could go as long as 10 years without buying another company, putting it out for the running for the struggling mobile manufacturer.

“We think we have been very successful with the strategy we have taken,” he said. “We have [grown] organically. We started our company simply as a reseller in 1987. In 1990, we made a major transition to have our own products. In 1995, we got into mobile kit. In 1997, we started our international expansion.”

“Those are all very significant hurdles and we have done all of those through organic growth and development.”

Sykes also said the company would not go public in the next five to 10 years, exclaiming “no IPO for Huawei". The executive admitted both going public and M&A activity were seen as avenues of growth for many firms and acknowledged others would judge these bold statements, but stuck to his guns.

“People may say we are wrong, [but] that’s ok, we are fine with that,” said Sykes. “We understand that people are going to watch us and that people are going to have opinions. We accept that. [But] we think we have chosen the right strategy.”

You could add politics and xenophobia perhaps, but the main problem is protectionism

Scott Sykes, head of international media relations, Huawei

He added: “Let’s say this about the US… nothing simple is going to solve that challenge,” he said. “Acquisitions, going public, all other kind of simple approaches that you might think of won’t solve what is happening there.”

However, despite its shortcomings across the pond, Huawei’s business in the UK is booming. In October 2012, it confirmed it would be investing £1.3bn into its UK operations, including a new headquarters in Reading, and last week confirmed that £125m would go into a new UK R&D centre.

While it has major contracts with big telecoms players such as BT and EE, it has also won the backing of the UK government, striking up a strong relationship with universities minister David Willets and even receiving a visit from Chancellor of the Exchequer George Osborne when he was on his tour of China last week.

"One of the most exciting opportunities for collaboration between Britain and China in the next step of our relationship is between our cutting-edge, high-tech companies,” said Osborne when he went to Shenzhen.

“I am delighted to be visiting Huawei's headquarters with leaders of some of Britain’s most entrepreneurial tech companies to welcome Huawei's investment into the UK."

With the “special relationship” that exists, for now, between the US and UK, Huawei could try to leverage the trust it is being shown on our shores to gain more trust on the other side of the Atlantic.

However, currently, Huawei’s two main focuses are R&D and trying to get a positive message out there to prospective customers in the telecoms sector, worldwide governments and consumers looking for their next smartphone. The journey is sure to be a long one though and, even if Osborne is Ren’s new best friend, Obama will take a lot more convincing.


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