Why is Huawei in the cross hairs of industrial dispute between US and China ..

Who will blink first ??

Huawei is the world's largest telecommunication network equipment manufacturer after it overtook Ericsson in 2012. It is the second largest manufacturer of mobile phones in the world after Samsung. It operates out of Shenzen, the Silicon Valley of China.

The company has a strange ownership pattern. It is entirely employee-owned with the founder Ren Zhengfai, now at 74 years still an employee, owning 1.4% shares of the company and the rest owned by 82,471 of the 1,75,000 employees, who are decided on their contribution to the company.  (click here for the 2015 HBR paper on Huawei culture..)

The values that drive the Huawei work culture as identified by David De Cremer, faculty at Judge Business School, Cambridge, UK, and the author of the above paper are as follows,

• Customer-First
• Employee Dedication
• Long term thinking and
• Slow decision making 

Huawei places great emphasis on the customers in all their activities. As a first priority Huawei places great emphasis on meeting the customer needs. Meeting tough customer challenges has helped the company to acquire competencies that helped them in solving issues and gaining access to large markets in the middle east. It believes that a dedicated and committed workforce makes the company competitive and motivates the committed employee by giving him stock options..

Ren Zhengfai, 74 years, employee no.1 ..
army background with People's Liberation Army,
He is still in control as mentor .. courtesy ET

Huawei in addition has a planning policy where decision making takes time and long-term thinking helps the company plan for the future by a decade in advance unlike other European network hardware companies who plan by a quarter or a year.  The rotating CEO policy is another reform that has helped Huawei grow. The employees are motivated to read extensively and have intellectual exchanges inside the company, a culture called the "Power of Thinking" and feedback is shared with the employees to help improve the company.

Huawei was started in China in 1987 by Ren Zhengfai. Approximately 40,000 employees are non-Chinese. Huawei has Employee Stock Option Plan (ESOP) plans for its Chinese employees and deploys a time based Unit Plan for its non-Chinese employees. Click here for the Washington Post report .. 

From $48 billion in 2014, for the first time Huawei crossed $100 billion in revenue in 2018, reaching $107 billion. The last four years has seen phenomenal growth in its foreign revenue stream. It is one of the few Chinese companies receiving majority of it's revenues (almost 67%) from outside China, unlike other Chinese companies which generate their maximum revenue from within China. It is bigger than IBM and as big as the Indian conglomerate Tata Sons. What Tata Sons achieved in 150 years, Huawei achieved in 32 years ..

Of late, Huawei has been accused of Intellectual Property (IP) violations and engaging in espionage for the Chinese government by the Trump administration. Accordingly in August 2019, Huawei products will not be sold in US, as per a directive from President Trump blocking Huawei presence in US. Huawei also owns the Honour brand of smartphones.

A Huawei service centre in Brussels. Courtesy NY Times

The US ban on Huawei is slowly spreading to Europe, with already 20% Huawei share. Google already under pressure from Trump and US administration has already said that it is stopping providing Android OS, Google maps and other services to Huawei phones sold across the world. The loss of Google functionality for Huawei and Honour phones could in future be a big setback for Huawei.

Click here for the New York Times report giving a good picture of the scene in Europe which is closely linked to American economic system. European companies are slowly being armtwisted by US sanctions to fall in line.

Being a completely employee-owned private company in China, Huawei has a perfect role model for a socialistic type of company ownership. It's success would have been a morale booster to socialistic and communist systems in different parts of the world. Based on it's success, Huawei has great plans to grow and establish itself across the world. Huawei earns 50% of its revenues from smartphone sale through the brands Huawei and Honour, while the rest 50% sales come from selling 5G network equipment, the world leader, and providing  cloud based platforms.

How will US blockage affect Huawei revenues and growth ? If US and Europe ban Huawei products, will Huawei be able to sustain its business growing across the world having touched $107 billion globally.

The US plan is to stop Huawei from developing a stranglehold of the world through its 5G technology, being the leading provider of 5G network equipment across the world and gradual domination of the world. Click here for the ET report ..

The threat US senses from Chinese domination of the 5G and smartphone market and global communication is gradual loss of US control and influence across the world. This is a scenario US cannot and is afraid to see. Google has to toe US govt line else it be kicked out of US.

The much acclaimed Reliance Jio 4G high speed fibre optic telecom network in India works on Huawei backbone. It remains to be seen in the coming weeks, how American sanctions will affect Huawei network equipment users in Europe and Asia ..

Will Huawei continue its telecom network espionage activities in other countries like India, UK, France, Germany as well ? Foxconn in China has received reduced orders from Huawei to assemble Huawei ad Honour phones and has shut down some of its assembly factories. intel and Qualcom has stopped supplying microprocessors to Huawei. Huawei's introduction of ARC OS for its phones, can change the global mobile phone OS ecosystem. Day by day the situation is getting dicier for Huawei.

Is there anything more than what meets the eye ? Is US wary of Chinese dominance that could put US technology companies at risk of losing their edge and competence over the rest of the world ? Will Chinese dominance in the critical areas of 5G, IoT, Driverless cars etc be a threat to US critical edge and dominance of the rest of the world in the future ?

George