Cracking the west: Could Chinese telecoms giant Huawei be the next Alibaba?
In a recent post we looked at Alibaba – the new darling of the tech investment community. Alibaba’s IPO raised over $25bn, and the Dow Jones Industrial Average closed at its highest level of the year on the day of its IPO.
If Alibaba is the favorite Chinese child of western investors, Huawei, the telecommunications network and services provider, could be the next. It’s already a great success story in its own right – the first ever Chinese company to enter Interbrand's rankings, placing 94th… and the mobile category is primed for action with recent market rumours that both BT and Hutchison Whampoa are considering acquisitions of either O2 or EE.
Huawei: The next darling of investors?
So who is Huawei (pronounced How-why-ei in English) and why is its success not yet celebrated in the same way as Alibaba?
Both questions go to the heart of the west’s view of Chinese business. On the one hand, Huawei is another Chinese economic miracle. Founded as recently as 1987, Huawei is now the largest telecommunications equipment maker in the world, having overtaken Ericsson in 2012. Huawei has over 140,000 employees, and invests a staggering US$5 bn p.a. in R&D. Its products and services have been deployed in more than 140 countries and it currently serves 45 of the world's 50 largest telecoms operators.
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Its breadth of operation – networks, handsets and services – combines the separate western silos of landline operators (think BT or AT&T), mobile networks (like Vodafone) and handset manufacturers (like Nokia) in one.
Huawei’s lifeblood is innovation. For example, it is involved in over half the rollouts of super-fast 4G mobile networks so far announced in Europe and has filings for close to 50,000 patents. All this frenetic activity takes place on a huge campus in the manufacturing city of Shenzhen, just across the border from Hong Kong. The site boasts a buzzing “Tower of 10,000 engineers”, meeting rooms designed as Zen gardens and an espresso bar with first-class baristas. Just across the road is the massive factory complex where Foxconn makes Apple’s iPhones and iPads.
So far, so typical for rapidly expanding Chinese enterprises… and yet western sentiment has not yet fully embraced Huawei.
Partly, it’s casting. Huawei ‘s founder, Ren Zhengfei, is a former Chinese Army engineer. That party connection is not atypical in the higher levels of Chinese companies, but is certainly different from Alibaba founder Jack Ma’s background as an English teacher.
Perhaps another reason is the uneasy transition for the west as Chinese telecoms firms such as Huawei have expanded from their vast home market to become global players. This is a worry for the rich-world telco incumbents under threat for market share (look at Ericsson and Nokia in the last few years) .
It’s also a new challenge for those responsible for the integrity of critical infrastructure such as phone systems. Post-Snowden, everyone is increasingly aware of how governments of all political colours and countries are careful to both exploit and protect sensitive communications networks and software.
The question of how to embrace Huawei is a challenge for the west. Perhaps unsurprisingly, protections run deepest in America. Huawei has worked on networks for a number of smallish mobile operators there, but its repeated attempts to buy American tech firms have been scuppered by official opposition.
By contrast, in Britain, Huawei set up the Cyber Security Evaluation Centre in Banbury in 2010 as a new way of persuading purchasers, and the British government, that equipment from the manufacturer that runs it can be trusted. It operates in close co-operation with GCHQ, the UK's signals-intelligence agency, in nearby Cheltenham. Its security-cleared staff, some of whom used to work for GCHQ, are responsible for making sure that the networking equipment and software that Huawei sells to British telecoms companies are reliable and secure.
So, slowly but firmly, Huawei is expanding its footprint into new markets.
In the meantime, the company will continue to forge ahead in its relentless acceleration across the telco space – even leapfrogging Apple on key features.
According to many users, the most wanted new iPhone 6 feature had been sapphire glass, the hardest material in nature after diamonds, and also more sensitive to the touch than other screen protectors. Sapphire glass is used in LED lighting and submarines. More parochially, it stops your iPhone screen from cracking when the device is dropped. But with manufacturing challenges and high costs, Apple disappointed many consumers by not putting sapphire glass covers on its new iPhone. By contrast, Huawei said recently that it would release a limited edition version of its high-end phone with sapphire glass screen protection stealing a market first from its US rival.
In the red-hot commercial battle of modern day telecommunications, it looks like Huawei will be a key player for all to consider over the next decade and beyond.
Andrew Harrison is development director Asia Pacific for WPP’s Brand Union. You can follow him on Twitter @AndJHarrison