Huawei Technologies Taking Leap to Worldwide IT Solutions Giant

Source: The Nikkei Weekly 11/21/2011 Edition

Guangzhou – Touted as China's most successful multinational firm, Huawei Technologies Co. has grown into the world's second-largest telecommunications equipment maker, trailing only Sweden's Telefonaktiebolaget LM Ericsson.

The growth has been driven by its networking infrastructure business catered to telecom companies. The Guangdong Province-based firm, characterized by its bold vitality, is now expanding its customer base to include other types of companies looking to build information systems as well as smartphone users, to become a comprehensive information-technology solutions provider.

“We will take responsibility for stabilizing networks anytime, anywhere,” 67-year-old Huawei Technologies founder and CEO Ren Zhengfei once said to his employees.

The company's fearless vitality was alive and well even in tumultuous Libya, where a bloody civil war just ended with the death of Col. Moammar Gadhafi. When the war broke out, many Chinese expatriates working in Libya flew back to their home country. But Huawei Technologies employees stayed put in the Middle Eastern nation.

Founded in 1988, the company started by offering telephone switchboards and other such devices in rural areas, capitalizing on the absence of major makers operating there. The company gradually cracked the overall domestic market. Then it made inroads into Africa and Southeast Asia, where demand for mobile telecom base stations surged.

Leveraging the technology and know-how honed in these emerging nations, Huawei Technologies also forayed into advanced countries. The firm entered Japan by supplying base stations to Emobile Ltd. At present, the firm's clients also include Japan's top three mobile carriers, including Softbank Corp.

Growing Overseas

The Chinese telecom giant has achieved an overseas sales ratio of 65%.

It now seeks to win orders to build information systems for non-telecom companies, a new business that the company started in 2009.

“We are a latecomer (in the information system market), but Huawei Technologies has big advantages,” said a company executive who is in charge of the information system operations. The executive is confident about the prospect of the new business. The company reckons that it can win more orders by joining hands with IT firms well-connected to financial, electric and other industries. It has so far seen sales of the operations double on the year, and expects to ring up $4 billion this year.

Huawei hopes the new business will serve as a springboard for the company to make a big leap forward, capitalizing on corporate information systems’ big transition into cloud computing. Currently, 5% of its work force, or 6,000 people, are working to develop cloud computing technologies. The company plans to increase the number of such employees to 10,000 next year.

Also, Huawei Technologies aspires to become one of the world’s top three mobile device vendors by 2015. In September, it began Japanese smartphone sales in partnership with Softbank.

Going it Alone

Wang Yang, secretary of the Guangdong Provincial Committee of the Communist Party of China, cites Huawei Technologies as an example of companies growing without a strong relationship with the government. Huawei Technologies is the largest private enterprise by sales in China, a country where state-run firms always have a strong presence.

But people outside China look upon Huawei Technologies differently. U.S. national security officials are cautious about the possible involvement of the Chinese government, more notably the People’s Liberation Army, in which Ren once served. Washington blocked the Chinese company's attempts to buy 3Com Corp. in 2008 and 3Leaf Systems Inc. in February this year, citing “security concerns”.

When the bid to acquire certain assets in 3Leaf Systems was rejected, Corporate EVP and chief of the U.S. operations Hu Houkun released a lengthy open letter to rebut each and every one of the allegations against Huawei Technologies – regarding the ties between the company's founder and the People's Liberation Army as well as financial support the company gets from Beijing – which he termed “misconceptions.” The letter signifies the company’s strong desire to crack the U.S. market.

For Huawei Technologies, which has constantly expanded its business sphere and has chosen to stay put even in the war-torn region, the option to withdraw from a market may simply not exist, no matter how difficult the market is.