Huawei: Giant China Telcom Moves Into US Market

26 January 2011.

Last springtime, an executive from a Chinese telecoms equipment company made a good intriguing job offer to some Silicon Valley software professional.

The Chinese company, Huawei Technologies, desired to get into the booming marketplace for Internet-based computing,

and it had simply moved its United States study headquarters here to capture some of the best local talent.

“How many engineers would you like for your group? Several hundred? That’s not a problem,”

the employer said, according to the engineer.

When the software manager turned down the offer, the Chinese executive was undeterred

and asked for the name of the engineer working under him.

The exchange underscores Huawei’s bold entry onto the world’s technology phase.

In the span of a decade, it has gone from imitating others’ products

to taking on international rivals using its own innovative computing as well as communications gear.

Huawei is one of many Chinese companies that are pushing into more sophisticated and profitable businesses.

Indeed, some analysts think its spectacular rise is really a model for other Chinese companies seeking to compete worldwide.

And its American drive is even more significant because it is China’s first truly home-grown multinational company.

Huawei is now the world’s second-largest telecommunications equipment supplier behind Ericsson associated with Sweden,

and with Chinese federal government backing, it has sewn upward major deals in Asian countries, Africa and Latin The united states.

In Europe, Huawei has outmaneuvered Ericsson to supply gear to big carriers.

Industry experts say Huawei, based in Shenzhen, has rapidly matured into a fierce competitor

in one of the most important and fiercely contested technology arenas:

sophisticated gear that enhances the delivery associated with voice and video over the Internet and through wireless devices.

They say Huawei is gaining, in part, due to heavy spending on research and development.

Chinese companies are generally weak in R.&D.,

but Huawei offers 17 research centers all over the world,

including Dallas, Moscow, Bangalore, India, & most recently, Plastic Valley’s Santa Clara.

Indeed, of the company’s 96,000 employees,

nearly half are engaged in research and development.

In May, Huawei opened a stunning $340 million research center in Shanghai

that this says will eventually house 8,000 engineers.

But Huawei has largely been locked out of the United States — until now.

Because security concerns help to make telecommunications a particularly delicate industry in this country,

even the touch of a Huawei presence has generated powerful reaction in Washington.

Some in Congress and the national protection establishment fear Huawei’s close ties to the Chinese military may allow China to tinker with American communications equipment.

The company has repeatedly already been linked to the People’s Liberation Military of China,

partly due to the fact it began by Ren Zhengfei —

a former soldier that worked for 10 years in China’utes Army Engineering Corps —

as a merchant of telecommunications equipment within 1988.

Mr. Ren, now 66, hardly ever grants interviews.

But according to the biography published in China, he insists on military-style efficiency

and the “wolf spirit” mentality that encourages the sales force to relentlessly attack competitors.

Last fall, several Congressmen wrote a letter to Julius Genachowski, ceo of the Federal Communications Fee,

raising the specter that an equipment purchase might permit the Chinese federal government to manipulate parts of the marketing communications network,

making it possible to disrupt or intercept phone calls and Internet messages.

Anticipating these obstacles, Huawei has hired a remarkable variety of Washington lobbyists, lawyers, experts and public relations firms to assist it win business in the usa.

It has also helped create Amerilink Telecommunications, an American distributor of Huawei items whose high-powered board includes

• former Representative Richard A. Gephardt,
• the former World Bank president James Deb. Wolfensohn,
• and the one-time chief executive of Nortel Networks, William A. Owens.

Amerilink executives appear at first sight primarily interested in helping Huawei conquer objections that its entry in to the American market could endanger national security.

“We take the accusations very seriously,” said Kevin Packingham, who recently left Sprint being chief executive of Amerilink.

“But regardless of the accusations, we have a model in position that ensures the security” from the network should Huawei win American contracts, he said.

The effort is beginning to repay.

Last fall, for example, the American Internet communications firm Clearwire

began screening a system based on Huawei’s 4G, or fourth-generation, network technology.

Still, Huawei has battled to break into the United States market,

largely because of the security concerns,

and accusations of intellectual property theft and company espionage.

Over the last decade, it has been sued in the United States by two of its major allies / rivals, Cisco Systems and Motorola,

who claimed that it stole software designs and infringed on patents.

But Cisco settled its suit along with Huawei soon after filing it.

And although Motorola, with whom Huawei has had a good alliance since 2000,

alleged that

• a group of Chinese-born Motorola engineers developed contacts with Huawei’s founder,
• and then, between about 2003 and 2007, conspired to steal technologies from Motorola,
• for which they utilized a dummy corporation set up outside the company,

just this week, Huawei sued against Motorola 

to block it from selling one of its sections to Nokia Siemens Networks.

Huawei wants the deal to exclude any kind of equipment based on widely used GSM and UMTS technology standards

because of fears it would transfer Huawei proprietary information to Nokia Siemens.

In addition, the deal with Motorola would push Nokia-Siemens ahead of Huawei in the global network gear market.

The reservations about Huawei lengthen outside the US as well.

In Europe, some competitors are now whining about so-called subsidies that Huawei receives from the Chinese government.

And within India, there are worries that Huawei networks could pose security risks.

Huawei denies it has ties to the Chinese military and disputes accusations of intellectual property theft.

Ross Gan, a company spokesman, says that Huawei is employee-owned and that it has grown through developing its own technology.

“We’lso are an innovative company driven by the business needs of customers,” he said.

Most significantly, in a statement, the company additional:

“Huawei has never researched, developed, produced or sold technologies or even products for military reasons in any country.”

Analysts also note Chinese companies have been willing to buy telecom equipment from American makers like Motorola,

apparently setting aside any concerns china might have about American espionage.

Obviously, Huawei’s drive to become multinational has not been entirely smooth.

“It was a huge problem for the company,” said Geoff Arnold, a veteran Silicon Valley software designer

who spent several years helping the organization develop a cloud computing product.

“The bean counters in Shenzhen didn’t have a clue about how to operate outside of China,” Arnold said.

“Huawei has great difficulty understanding what is happening outside of China as well as adapting their business practices.”

In 2008, for example, worries about national security and China’s weak protection of intellectual property

forced Huawei to drop its $2.2 million joint bid with the American firm Bain Capital to acquire 3Com, the American networking company.

Huawei also failed in other bids this year to acquire the wireless system division of Motorola

as well as 2Wire, a united states maker of broadband Internet software, according to people familiar with those deals.

Those bids collapsed, experts say, because both Moto and 2Wire were told that Wa was likely to block any kind of deals.

Still, Peter J. Williamson, the professor of business at Cambridge University, said that

while some continued to be bothered by Huawei’s origins,

its technological and commercial prowess makes it increasingly hard to ignore the achievement.

“The hardest market to crack is the U.S.,” he said.

“But they’ve cracked Europe,” he told the New York Times.

“And if they can work with Vodafone, one of the biggest service providers in the world, they can work with anybody.”

 

David Caploe PhD

Editor-in-Chief

EconomyWatch.com

President / acalaha.com