Dealing with China’s megacompany

Rather than relying on joint ventures to secure technology transfers from foreign companies, Ren Zhengfei, a former deputy director of the People’s Liberation Army engineering corporation, founded Huawei in 1987. Ren, seeing foreign companies often reluctant to transfer advanced technologies to Chinese firms, sought to reverse engineer foreign technologies.

Today Huawei Technologies Co., Ltd., is a Chinese multinational conglomerate specializing in telecommunications equipment, consumer electronics, artificial intelligence and technology-based services and products, headquartered in Shenzhen, Guangdong, province, near Hong Kong. [The name Huawei can be translated as “splendid act” or “China is able”.] CNBC reported that Huawei’s revenue in 2018 will exceed 100 billion US dollars for the first time

Huawei has deployed its products and services in more than 170 countries, overtaking Swedish Ericsson in 2012 as the largest telecommunications-equipment manufacturer in the world, Apple in 2018 as the second-largest manufacturer of smartphones, just behind Samsung Electronics.

It ranks 72nd on the Fortune Global 500 list.

Ren’s success has resulted in a company with some 200,000 employees — more than 76,000, unlike most Chinese companies, devoting enormous sums to research. In 1918 the company will dedicate 20-30 percent of R&D funding to basic science research, up from its previous 10 percent, and increase R&D funding to at least US. up from its previous 10 percent.

Huawei’s international success has faced difficulties and cybersecurity concerns selling in some markets (including the United States), over allegations that its equipment may contain “backdoors” affording unauthorized surveillance by the People’s Liberation Army, its founder having previously worked for the Chinese military. Ren argues that its products pose “no greater cybersecurity risk” than those of any other vendors. But Huawei stated in April 2018 that it would largely pull out of the U.S. market, due to the Washington’s scrutiny.

During its first several years the company’s business model consisted of reselling private branch exchange (PBX) switches imported from Hong Kong. Its first major breakthrough came in 1993 when it launched its C&C08 program controlled telephone switch, by far the most powerful switch available in China. By initially deploying in small cities and rural areas and placing emphasis on service and customizability, the company made its way into the mainstream market.

In 2005, Huawei’s foreign contract orders exceeded its domestic sales for the first time when it signed a Global Framework Agreement with Vodafone. Huawei also signed a contract with British Telecom (BT) for the deployment of its multi-service access network (MSAN) and Transmission equipment for BT’s 21st Century Network (21CN), providing BT and the UK telecommunications industry with some infrastructure necessary to support future growth. In May 2008, Huawei and Optus developed a mobile innovation centre in Sydney, Australia, providing facilities to develop new wireless and mobile broadband concepts into “ready for market” products. In 2008, the company embarked on its first large-scale commercial deployment of UMTS/ HSPA in North America providing TELUS‘s new next generation wireless network and Bell Canada with high-speed mobile access.

Huawei classifies itself as a “collective” and not as a private company. But Richard McGregor, author of “The Party: The Secret World of China’s Communist Rulers”, said that this is “a definitional distinction that has been essential to the company’s receipt of state support at crucial points in its development”.

The issue of Huawei’s classic Chinese company’s relationship with the Chinese government and other state-owned companies has blown up in Canada. Huawei’s Vice-chairperson and CFO Meng Wanzhou was arrested in Canada on December 1, 2018, at the request of the United States, which accuses her of violating US sanctions against Iran.

Meng Wanzhou, Huawei’s chief financial, told bankers in 2013 that her company no longer had a stake in Skycom Tech Co., a Hong Kong company that did business with Iran, and that she had quit its board. Lawyers for Ms. Meng, who was arrested Dec. 1 in Canada at the request of the U.S. for alleged violations of Iran sanctions, argued that she and Huawei severed ties to Skycom in 2009 and can’t be held responsible for its activities.

Canada’s soft approach to Huawei has clearly been a source of frustration to its allies.  Critics said it was one thing to allow Canadians the option to purchase Huawei smartphones, but permitting it to build a 5G network in such important telecom infrastructure in Canada was another matter entirely.

Huawei is already barred from the U.S., and both Republicans and Democrats have raised concerns about Canada’s network upgrades given how closely the two countries’ networks are integrated. The U.K., Australia, and New Zealand are all moving to keep Huawei out of 5G network development.






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