What makes the Chinese telecommunications giant tick? Max Smolaks visits its birthplace to find out
In less than 30 years, Huawei has risen to become the world’s largest telecommunications equipment vendor (according to IHS) – and it is here to stay.
And the reason is R&D: Huawei reinvests at least 10 percent of its annual revenue into the development of new technologies, and out of the company’s 170,000 employees, 70,000 are directly engaged in research.
This army of engineers started working on 5G way back in 2009, so by 2020 – when we will actually make the switch to next-generation wireless networks – you won’t be able to walk a few steps without hitting a Huawei patent. It’s with this idea in mind that I set off towards the company’s headquarters in Schenzhen.
Army of engineers
The history of Huawei is closely tied to the history of Shenzhen – it was a small fishing village just 35 years ago, transformed by the establishment of a Special Economic Zone and now a city twice the size of London.
The company was founded in 1978 by Rei Zhengfei, a former People’s Liberation Army engineer. An almost mythical figure, Zhengfei is credited with establishing one of the first domestic telecommunications ventures, at a time when all of the network technology was imported from abroad.
The secret of the company’s initial growth spur was simple – China needed huge quantities of telephone exchange switches to modernize its infrastructure, and Huawei could deliver cheaper, locally produced kit. Later, it was actively promoted by the state as an alternative to foreign suppliers.
Today, 62 percent of the company’s sales come from outside China. Knowing this, Huawei wants to be seen as a modern organization to rival any of its Silicon Valley counterparts, but its approach to innovation is quite different. Beyond the squeaky-clean corporate showrooms, Huwei headquarters feel a lot like a research university, complete with wood paneling and overworked, young engineers sleeping in dark corners. New employees, who often travel to Shenzhen from far corners of the country, have the option of living on campus for the first two years of their employment.
All the facilities are covered in lush tropical greenery, and there’s even a lake with swans and Koi carp. Several staff canteens offer everything from traditional Chinese fare to steak and lobster. The architecture is a mess of styles and periods: we were told that the campus was built under the guidance of Zhengfei, who has a personal interest in building design – he attended Chongqing University of Civil Engineering and Architecture.
Local residents say that, years ago, working at Huawei was akin to a Chinese version of the American dream – it was a place where original thinking could propel someone towards unimaginable wealth.
Today, its only shareholders are its current and former employees. Shares are earned on the basis of their position and the length of time they spent with the company; however, only the holders of a Chinese passport who reside in the country can take advantage of this.
Another interesting quirk of the company are its three rotating CEOs – Xu Zhijun, Guo Ping and Hu Houkun – who lead the company for six months at a time, according to a strict timetable.
Marketing manager Daniel Kelly (who was previously responsible for building relationships with Huawei while working at British Telecom) says that this approach makes political sense: in a country struggling with corruption, having three CEOs helps to ensure that the running of the company is transparent and fair.
Despite its R&D prowess, Huawei struggles with something as simple as overseas marketing. Its obscure press releases and naming conventions are the stuff of legend: this year alone, we’ve seen the launch of Data Center 3.0, Agile Network 3.0 and the Business-Driven ICT Infrastructure (BDII) – I was present at the launch of the latter two, but wouldn’t be able to tell you what they actually mean.
The much-publicized security concerns in the US present a more immediate problem. In a nutshell, American intelligence agencies are worried that China could be using its growing export sector to develop built-in spying capabilities across foreign networks – something that has never been proven.
These issues are unlikely to stop the advance of Huawei. The era when the global telecommunications market was ruled by former state monopolies from Europe and North America is over: the Marconi Company is no more; remains of Canada’s Nortel have been cannibalized by a dozen different vendors; both Alcatel and Lucent are now the property of Nokia Networks (and there are rumors it could retire both brands); and the future of Bell Labs is unclear.
Sure, Ericsson and Cisco are still around, but so is ZTE – another Chinese-owned multinational located in Shenzhen – which last year made more than $13bn in revenue.
The data center industry should pay close attention to Huawei and the way it combines a culture of innovation with a degree of nationalism. Underestimating it would be a serious mistake.