Starting in a one-room workshop in Shenzhen in the early 1980s, Huawei is today a global giant generating over $32 billion in annual revenues, with offices in more than 140 countries.
Like many other emerging Chinese multinationals, Huawei’s strengths are in cost-efficiencies, increasing differentiation capabilities and disruptive innovation. But unlike many Chinese multinationals, it grew up in the laissez-faire city of Shenzhen – benefitting from the private sector in China’s first Special Economic Zone.
Today, four of every five major telecoms operators worldwide cooperate with Huawei, including those headquartered in nations that are US allies or support US security alignments. In the United States however, Huawei has been rebuffed by the government time and time again.
The question is why.
Huawei’s Challenges in the United States
In China, Huawei had none of the perks of the national champions. Like Sam Walton’s Walmart, it started its expansion in the countryside and captured cities only later.
It entered America on Valentine’s Day in 2001. Despite repeated bids, its efforts to win a major contract from the top-tier US carriers, AT&T, Sprint, T-Mobile and Verizon, have been repeatedly frustrated.
A few examples: In 2007, Huawei’s effort to buy 3Com was thwarted by a US government intervention. In fall 2010, Sprint Nextel solicited bids for a network upgrade. Reportedly, Huawei offered a deal that would have saved the carrier at least $800 million from its existing costs in its first year of operation alone. But, as members of Congress launched a letter-writing campaign urging Sprint not to include Huawei, the then-Commerce Secretary (and current US Ambassador to China) Gary Locke called Sprint CEO Dan Hesse to convey his “very deep concerns” about the company and national security.
While Huawei employs 140,000 people worldwide, less than 1.3% of its personnel are in the US. In light of business potential, this translates to missed opportunities.
In the case of Huawei in America, there are deep incongruities between the accusations and business realities.
Toward Joint Opportunities
Instead of such severe anti-market measures, Huawei’s expansion in America could be seen as an opportunity for the US government, companies, innovation and consumers.
· Huawei’s expansion in the US brings jobs, capital and tax revenues. In the absence of substantiated allegations, such interventions translate to missed job creation, capital and tax revenues in America.
· Boosting Competitiveness. In addition to differentiation and innovation, Huawei continues to exert a major competitive impact on price rivalry.
· Supporting Innovation. Currently, the company maintains seven advanced R&D centers in the US.
· Ensuring Network Security. Of the 56 networks that are in use worldwide today, half are deploying Huawei technologies. Due to its efforts to ensure cyber security – an end-to-end global cyber security assurance system, independent third-party testing institutes, opened up source code, and former CIO for the UK government John Suffolk as its global chief cyber security officer – Huawei could be seen as a role model for security practices in the ICT sector.
Huawei and Its Founder
In the West, the argument is that since Huawei is not public, it must be suspicious. Why has the company not gone public?
Well, from the Chinese perspective, Huawei’s corporate governance has served to retain human capital. Besides, there are many winning US companies that have not gone public or have gone private in order to retain their flexibility – like Huawei.
Since 1990, Huawei has rewarded some 65,000 employees with the right to buy Huawei stock. The stock ownership plan has allowed the company to attract and retain talent. Some 98.6% of shares in Huawei belong to employees. Chinese rules prevent companies with large employee ownership from going public.
The current friction on Huawei’s corporate governance reflects the company’s transition from a regional giant to a global ICT leader. As Huawei continues to globalize, it will reconcile Chinese and global corporate norms.
Then, there is the issue of Huawei’s founder Ren Zhengfei. In the West, he is often claimed to have a mysterious role in the People’s Liberation Army (PLA) and the Chinese Communist Party (CCP). Again, reality may be more intricate and prosaic.
Struggling his way from humble circumstances, Ren was not only confronted by the potential of abject poverty that threatened all Chinese lives, but the legacy of the nationalist Kuomingtang that led his parents to labor camps in the 1960s. It was Ren’s success that paved his way to the PLA’s engineering forces, in which he participated five years, more than three decades ago.
In turn, the influence of private entrepreneurs within the CCP has increased mainly after 2002, with efforts to open up the Party to business and executives. This policy is in line with Chinese views on inner-party democratization. It could also be seen as in line with US goals of democratization: the more inclusive the Party, the better it can reflect the diverse interests of the Chinese people.
Risk of Anti-market Interventions
What is so tragic in these misguided measures is that, due to different stages of economic development, US-Chinese M&As are now poised to reap complementary opportunities in the marketplace. In the coming decades, China will need advanced technology and know-how, whereas America will need jobs and capital.
Overall, the expansion of Chinese companies has led to significant economic contributions in the foreign markets in which they operate, via job creation and contributions to GDP and local taxes, says the prestigious World Economic Forum (WEF). The WEF considers Huawei an exemplary case. In contrast, anti-market interventions against Huawei represent severe politicization and minimal transparency.
As long as barriers continue to deter Chinese foreign direct investment in the US the unequivocal message is that America is open for business, but not for Chinese business. Indeed, US trade and investment policy is at risk for being perceived as unipolar. In the long-run, such threats may return to haunt US corporations and their efforts to grow and expand in foreign markets, which are today more vital than ever before to American corporations.
The Committee on Foreign Investment in the United States (CFIUS) has historically monitored the impact of and coordinated US policy on foreign investment. While the excesses of the CFIUS provide a replicable blueprint for political interventions in the economy, increased transparency would support the mandated goals of the CFIUS process, as members of the US intelligence community have rightly argued.
In the coming decades, the role of US corporations in the world economy will decrease in relative terms, while those of large emerging economies will gradually increase. Seeking unipolar sanctions in a multipolar world is a sure way to escalate trade and investment conflicts in the future and undermine the activities of American companies worldwide.
In turn, a successful outcome in the Huawei case could prove a game-changer by accelerating investment flows into America at a historical moment when inward investment is needed the most.
If there truly is a security case to be made against Huawei, it should be made publicly, in a transparent and specific manner. However, if that case does not exist or if it cannot be made, then there is a win-win case for Huawei in America – one that is in line with US interests and US values.
Dr. Dan Steinbock is Research Director of International Business at India, China and America Institute, a Visiting Fellow at the Shanghai Institutes for International Studies and a Visting Fellow at the EU Center in Singapore. This commentary is based on Dr. Dan Steinbock’s “The Case for Huawei in America” (http://usahuawei.com/).
