Thorns on the Globalization Path of Huawei
From 2001 to 2002, the total investment for the telecommunication infrastructure dropped 50%, however, in the international market, Huawei’s performance deviated from the trends of the recession. In 2002, Huawei reached USD552 million of the international market sales.
Huawei is a born global company. In 1996, Huawei reached its first international customer Hutchison Telecommunications in Hong Kong. Then, the following year, Huawei built a joint venture company with the Beto Corporation in Russia to produce switching equipment. In 2002, its sales in Russia was $100 million. And soon after the expansion in Russia, Huawei entered India, Sweden, Thailand, Brazil, and even South Africa market.
In November 2000, Ren came to Africa with his global group. He made many business deals for Huawei’s future in Africa by himself such as a $20 million contract in Ethiopia and a $200 million CDMA project in Nigeria. In the following years, Huawei quickly occupied its market share in the Africa countries, Ghana, Mauritius, Morocco, Congo, and Kenya.
Following the expansion in the developing countries, in 2001, Huawei started to join in the developed markets. Because of the advanced features and low cost, Huawei’s products impressed the customers favorably in Europe. Very soon, Huawei received the contracts from the Netherlands, Germany and Frence.
However, Ren’s main target and dream land hiding in his heart is always North America and the United States. Only success in the United States can prove Huawei’s international achievement because Cisco lies here and waits for every challenger silently.
As the overlord of the whole industry of telecommunication, Cisco has occupied 70% of market share around the world. In 1994, Cisco entered into the China market, and soon reached the stable competitive advantages.
Since entering China, Cisco treated Huawei as the main enemy in the local market and did great efforts to narrow the gap between Huawei and Cisco. In 2001, Ren, in a company’s internal show, was profoundly moved and touched by his employees’ song, “Xiongjiujiu, Qi’angang, Kuaguotaipingyang”. This is a very famous army song prevailing in the time of Korean War, which calls people to join in the army and defeat with America’s invasion. The Huawei’s staffs changed this song in the show. The words “taipingyang” in Chinese means the Pacific Ocean. The song’s meaning implicates the ambition to expand cross the Pacific Ocean to the United States. And it is this song that makes Ren sparking his first dream about North America market. On Valentine’s Day in 2001, Huawei formally started it plan to penetrate into the United States market.
Ren’s early experience in the PLA may affect him at the idea and thought about the United States. Before this decision, in 2001, Huawei spent 150 million USD to conduct four research and development center in the United States
As the beginning of the expansion of Huawei in the North America market, Huawei attended the SUPERCOMM 2002, the global marketplace for communications technologies and systems in Atlanta. In this exhibition, Huawei released an operable platform with a series of products.
These products all has the function and capability as good as those of Cisco but with a cheaper price. An advertisement from the local paper shown that Huawei has the price less 20%-50% than Cisco at that time.
In the same year, Huawei tried to build the alliance with 3Com, and built a joint venture company, 3Com-Huawei. And the later story proved that this alliance relationship is great precious for Huawei.
The set of actions from Huawei in the North America market cause Cisco’s sensation. Reportedly, John T. Chambers, the former CEO of Cisco secretly attended the SUPERCOMM 2002 and visited the exhibition platform of Huawei. When he came back to the company, the “anti-Huawei” group was formed.
Even we do not count the stories from the nameless papers, the Huawei’s performance in the North America market in 2002 can prove its achievement. In this year, Huawei increased 70% of its sales in this market.
Huawei’s action in North America became a real threat for Cisco, and Cisco’s market share was ripped by Huawei piece by piece. Believably, Cisco tried to collect documents and files for the war with Huawei at the beginning of Huawei’s North America expansion. And these two company were never aware of the fact that it is the war that will span a decade in the future.
In December 2002, Cisco designated a group of representatives of laws to Shenzhen to contact with Huawei about the patent issues. Cisco claimed that Huawei copied the source code from Cisco. Strangely, Ren did not attend the conference, but send a negotiator. In the conference, Huawei’s negotiator indicated that the largest compromise is actively stopping selling the products which Cisco pointed with patent problems, but Huawei would never admit that Huawei used the source code of Cisco illegally. At the same time, Wall Street Journal reported the Huawei’s compromise and implicated that it is the proof of Huawei’s patent infringement.
The negotiation halted very soon. Cisco did not believe that Huawei showed enough sincerity, and Huawei thought that Cisco treated Huawei as a suspect with the largest malevolence. Huawei’s VP of development, Fei Min, said that Cisco had never tried to believe that Huawei is innocent from the start. Before leaving from China, Cisco’s group visited Shenzhen City Government, and pointed its decision to file a lawsuit with Huawei.
In January 2003, Cisco filed Huawei in U.S District Court for the Eastern District of Texas, which alleged that Huawei violated at least five Cisco patents and copied Cisco’s Internetwork Operating System source code.
Many years later, 3Com’s CEO, Bruce Claflin, recalled that at that time Cisco’s top management always claimed that they would take actions to Huawei and file a lawsuit in public.
The 2003’s January is the Chinese spring festival. At the last working day for whole year, the head quarter office of Huawei dropped into silence. A special conference of the Huawei’s top management started from 8:00 PM. Everyone was frustrated and watched at severe Ren. And Ren said slowly, “This is a spring festival gift from Cisco”.
After this conference, Ren give ten words in Chinese for the company to deal the lawsuit with Cisco, “striving for a draw, losing a bit is a win”. Ren believed that the purpose of the lawsuit from Cisco was to reduce Huawei’s international competence and break the alliance with 3Com rather than for the payment of punishment. And more compromises would let Huawei fail in the lawsuit. Very soon, Huawei formed a lawsuit group including some top managers. This group is not just for case, but also for the publicity and marketing in the United States. Huawei hoped this group could earn the customers’ confidence and build a well brand image in the North America market.
Ren sent his associate and top managers to the America. And this group took the every resource and advantage they have to fight against Cisco. Their preparation and strategy broke the pace of Cisco. After two rounds of public hearing, the court denied the requirement of the preliminary and permanent ban of all Huawei’s product in the whole United States market from Cisco. Huawei claimed in public that “Cisco sues for no reason but for suppressing the competition”.
At the same time, Huawei hired Edelman, a famous public relations company, to help the company change the image in the mass media and let the customers know the nature of this case. Bruce Claflin, the CEO of 3Com, even stood out for Huawei and proved that the code sources are different between two companies’ products. And the profession group from Stanford University recruited by the court provided the viewpoints to reject the requirement of Cisco. Huawei won a little battle and a little battle to reach the balance in the whole war.
However, the key issue of this lawsuit lies on the patents. Mark Chandler has high confidence with the proof collected by Cisco. He believed that when two code files was open in the court, Huawei would lose the whole war.
In October 2003, the work of comparing code sources for both side lawyers was finished. Dramatically, the proof shown the Huawei’s code source is “health”. In July 2004, Cisco dropped the case and Huawei removed the contest code and interfaces. The companies reached the final reconciliation agreement.
More dramatically, both sides claimed success. Cisco asserted that “completion of lawsuit marks a victory for the protection of intellectual property rights”, but yet Huawei's partner 3Com noting that court order prevented Cisco from bringing another case against Huawei asserting the same or substantially similar claims.
After this war, the lawsuit group was treated as heroes in China. However, Ren rejected the mass media’s willingness to interview those heroes. He said that “There is no hero in the management, but only professional operation. The person who is going to receive the flowers is just a representative not a real hero.”
In July 2003, Huawei’s product through 3Com’s channel enter the United States market. And because of the impact of the lawsuit, Huawei received the huge amount of orders. In 2010, the sales of the company were $765 million.
However, the path of Huawei’s global expansion did not become plain. In June 2004, a Huawei employee who was later dismissed was sued for photographing the competitor’s product illegally at the SuperComm tradeshow. In July 2010, Motorola filed a suit that Huawei support its competitor to steal the trade secrets. In January 2011, Huawei filed a case for Motorola’s illegal intellectual property transfer. In April 2011, these two companies reached the agreement that Motorola would pay an amount of money to Huawei as the intellectual property fee.
Huawei currently has around 110,000 employees worldwide, and approximately two-thirds of its revenues come from international markets. Ren’s global dream helps Huawei to achieve a multinational corporation and build a Global Fortune 500 Company.
Huawei’s Second Battlefield in Smartphone
According to the research firm IDC’s “Worldwide Quarterly Mobile Phone Tracker in the 2012 Fourth Quarter”, Huawei became the third largest maker, but still far behind Samsung and Apple.
Huawei’s consumer BG, the department for the consumer products which focus on the mobile phone production, was formed in 2010. However, the Huawei’s first mobile phone was produced around 2000. In 2000, UTStarcom, a Chinese telecommunication company, with its cheap telecommunication business solution, the Personal Access System (PAS), had high achievement in the China market. To adapt the Personal Access System, UTStarcom produced a certain telecommunication products, PAS phone, against the mobile phone. Unexpectedly, the UTStarcom’s PAS phone became extremely prevailing in China. And at this time, UTStarcom had a business strategy opportunity to enter telecommunication carrier network market. To defend against UTStarcom, Ren decided that Huawei should make its own PAS phone, and grow consumer product market. In 2000, the target given by Ren to the mobile phone group was “no profit, no loss, just survive and grow gradually”.
In 2007, Apple released the new generation mobile phone product iPhone. And at the same time the PAS system and its phone went to the ending stage. Huawei’s business strategy group pointed that the smartphone will replace the PC in the future. And iPhone’s effect let Ren know that in the future the telecommunication business will be moved to the “cloud” so that it is necessary to build the wireless business. And a profound reason for Huawei to produce mobile phone is the traditional telecommunication carrier network business will soon hit the ceiling top, especially as failed to enter the U.S. market.
In 2010, Huawei’s mobile phone brand appeared in the market, and consumer BG was formed formally. Ren knew that Huawei could not defeat Apple in 2010. A researcher at the Huawei’s consumer lab found that the best strategy for the Huawei’s mobile phone brand is to make the phone with the price of $150 that is at a low price market position. After few years’ development, Huawei built its third product class for the differentiation strategy. “Mate” is for the high-end market that the Mate7 won “the best of IFA” in the IFA 2014, “Ascend” is the brand for the mid-class consumers that the Ascend P6 is one of the most popular smartphone in China, and “Honor” is Huawei’s low-cost brand.
In 2012, Huawei’s total profits came from three parts, Carrier Network, Enterprise, and Consumer products and services. The former two BGs provided 73% and 5% of the total revenue, and the Consumer BG took 22%, which mainly came from the mobile phone product. Until the end of 2012, a total of 10.8 million phones were shipped, and 4.9% market share was occupied by Huawei in the fourth quarter. The firm experienced 89.5% year-over-year increasing rate in 2012.
Yu Chendong was designated by Ren directly as the leader and CEO of the Consumer BG. In Huawei, Yu has a nick name of “mad man”. His efforts and ideas always could bring changes to Huawei. However, his aggressive strategy in the Consumer BG was doubted by the firm’s top management and the public. He said to the mass media that he almost fired by Ren in many times due to difficulties in the path of the Huawei’s mobile phone. Obviously, Huawei’s mobile phone is highly expected to succeed by Ren since the Consumer BG was formed. “When we formed the own mobile phone brand, people and critics believed that we will fail. And when we turned our products from the feature phone to the smartphone, those people said that we will fail again. Finally, we survive.” In Huawei’s company culture, every three years the top manager should be rotated within different departments. However, Yu would stay in the Consumer BG for the next three years. It means that his performance overwhelmingly wins the trust from Ren, which is an infrequent arrangement in the Huawei’s management.
It seemed Huawei would become the largest mobile phone producer in China and the third largest in the whole world market thoroughly. However, Xiaomi rose up in 2012 while the main competitor ZTE grew strongly in the consumer’s market as a global player. ZTE is also a traditional global telecommunication equipment producer from China. And Xiaomi is a new generation Internet and Electronics Company in China, and the firm reaches the fifth place of the world smartphone vendor only within three years. Other competitors of the smartphone vendor include Lenovo, OPPO, and Coolpad. The ranks between Huawei and its competitors are very close.
Facing these competitors performance, Ren concerned that Huawei needs to find its own pace for development. The Internet and E-commerce technology used by the competitors might be not the strength of Huawei. He said that “I am worry about the development target of Consumer BG. You are trying to chase Apple, Samsung, and Xiaomi, and to build the economy scale. However, I hope that you won’t forget who you are. We can’t make the vertical integration in a short term. We don’t have the national resources to do the horizontal integration. We can’t just mimic Apple, Samsung, and Xiaomi blindly. We need to find the way of ourselves.”
“I am very glad that you said that Huawei will become the second largest mobile phone maker. Why? You see, Apple’s annual net profit is about $50 billion, while Samsung has $40 billion. If you could give me $30 billion net profit per year, I will announce that we are the third one in the world. Recently, you people like to talk about E-commerce. However, you people said you could sell 20 million units in the E-commerce channels but with $0.1 billion of net profits. And obviously that is not some high-tech things or high performance. Don’t get the Internet fever.”
“Huawei making mobile phones is like a marathon. Slowly and consistently be profitable.” He said, “There will be no meanings here if Consumer BG can’t survive.”
Until December 2013, Huawei Consumer BG’s annual revenue reached $9 billion first time, and the firm produced a total of 52 million mobile phones in this year. Huawei consolidates its world third largest maker’s position. It seems that Yu, the follower of Ren, will lead the Huawei’s Consumer BG to a brilliant future.
Quit from U.S. Market?
In the telecommunication market, the war between Huawei and Cisco never ends. In 2002, Cisco filed a lawsuit for Huawei’s patents and copyrights issues. However, ten years later, according to IEEE’s research report, “Patent Power 2012”, Huawei’s patent power ranks at the 17th place, while Cisco is the 2nd firm in the ranking. Huawei has become the one whom Cisco cannot ignore. And, gradually, the key issue of the war between two companies transfers into the information security area.
In June 2013, Edward Joseph "Ed" Snowden, a former information professional for the National Security Agency (NSA), disclosed thousands of classified documents revealed a global surveillance program of the U.S. government, US-984XN or the “PRISM”. As reported, nine Internet and telecommunication companies are believed to be involved into the program. Cisco is one of the nine.
Snowden even pointed that the U.S. government agents spy on Ren’s email, message, and call directly.
Meanwhile, Chinese government focused on the potential information threats from the U.S. companies. Especially, Cisco controls more than half of China’s two main Internet operators. Immediately, Chinese government emphasizes that the government has the responsibility to guard national information security, which implicates that Cisco’s business in China would significantly suffer from internet security problems.
Back to October 2012, the U.S House Intelligence Committee issued a report that two of China’s largest telecommunication companies, Huawei and ZTE, had threatened the national information security. “Huawei Technologies and ZTE Inc., were a national security threat because of their attempts to extract sensitive information from American companies and their loyalties to the Chinese government”, the House Intelligence Committee said. Huawei was believed that could potentially spy on Americans. Remarkably, before this investigation, Ren’s former officer of the People’s Liberation Army and military technology researcher profile were mentioned many times by the U.S. government.
This report is based on a yearlong investigation. Huawei issued an open letter to the U.S. government and asked for an open investigation to clear up the firm’s misperceptions about its history and business operations in February 2011. Ren even met the investigation group in Shenzhen formally in May. However, in the report, the House Intelligence Committee suggested that “the United States government should be barred from doing business with Huawei and ZTE and that American companies should avoid buying their equipment” and “the Committee should block any mergers and acquisitions involving the Chinese companies and American businesses”.
In October 2011, the U.S. Department of Commerce banned Huawei to attend an emergency network project’s public bid. Even President Obama pointed that his competitor in the election champion, Mitt Romney, has invested in Huawei, which is a high risky behavior to Americans.
At this moment, the U.S. government started the second round investigation for Huawei and ZTE.
After the House Intelligence Committee’s report issuing, Cisco claimed that the firm did not try to convince the Committee for the national information security problems. The only thing the firm did was providing the documents collected from 2003 to 2004 during the period of the lawsuit between Huawei and Cisco.
Ren was frustrated by the U.S. market and U.S. government. In 2013, Huawei’s rotation CEO, Xu Zhijun, said that “Huawei’s Carrier Network BG will meet the growing opportunity in the developed market, but exclude U.S. market” in an internal conference. And in the same year, Ren broke his lasting 20 years personal rule to accept the media interview first time in New Zealand. In the interview, when he answered to a Russian medium, his said “Our firm is just a small company. We only have about $1 billion sales in the U.S. market. We are just a private enterprise, and don’t have that high political position. If because of Huawei the relationship between China and U.S. were affected, it have been the loss of both two countries. So, we decide to quit from the U.S. market.”
The decision made by Ren soon became the top news of the mass media in the next day.
Most media believed that Huawei officially gave up on the U.S. market and Ren was angered by the set of actions from U.S. government and Cisco so that he was totally disappointed about this market. However, Ren’s decision of quitting may be just a business strategy to avoid political risks. Actually, Huawei left its Consumer BG in the U.S. market and its smartphone business operating well. Maybe Ren believes that the smartphone business is a less sensitive part for Americans.
In May 2014, Huawei released the first smartphone, Mate 2, without a carrier label or specific carrier customization to the U.S. market.
Huawei’s Future
From 1987, Huawei has been tied closely with Ren Zhengfei. Every word or action of Ren would be translated as the indication of the change of Huawei. In these twenty years, Ren refused all invitations from the media. There is no reporter could record his words. However, Ren issued many articles in public, such as famous “Huawei basic law”, “Huawei’s winter”, “My parents”, and “The spring of North Country”. Every piece of those articles became the classics spreading among the Chinese corporations and managers. Even Yang Yuanqing, the CEO of Lenovo, allocated “Huawei’s winter” in the Lenovo’s top management, and organized people to study this classic.
Ren’s unparalleled achievement arose the sensitive question that who is the successor of Ren?
In 2011, Ren set a new management arrangement this is the rotation CEO. To pave the way of rotation CEO arrangement, Ren wrote an article, “A spring river to the east”, to talk about his concerning of successors.
To be a family company or a public corporation is the most doubt for Ren. “When I was young, I admired Hercules. I believed in the heroism. However, hardships of life hid everywhere, and a person is lonely. When I finally understood the meaning of the cooperation, I was over forty.”
In 2004, Ren established the Executive Management Team (EMT). Ren started to bring group wisdom to the company’s leadership. In 2014, Ren called for studying from Ford’s “The Whiz Kids”. In that conference, Ren made a heavy and significant decision that Huawei will never be charged by Ren’s family members.
“Huawei’s question is not about too few successors, but too many.” Ren said “we should rely on the wisdom of all Huawei’s successors.”
Until now, Ren seventy years old, Huawei’s leadership and management model are finally unveiled.
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本文节选自我呕心沥血的Business Case Assignment，我一定要发一部分出来发泄一下。没日没夜都快写成书了……
