Oram: China can show us the way

17:00, May 11 2013
Huawei founder Ren Zhengfei was in Wellington last week.

At first glance it seems improbable that ambitious New Zealand companies could learn much from Huawei, a remarkable corporate success story even by the standards of its extraordinary home country, China.

Our companies are small and slow growing. One reason is they struggle to commercialise R&D and to develop into international businesses.

Huawei was a domestic start-up only 26 years ago. Yet, today, it is a global technology powerhouse leading its telecommunications equipment sector. Its revenues from 140 countries were US$35.4 billion last year, 70 per cent from outside China. It is aiming for sales of US$70b by 2017.

But despite the vast differences between it and Kiwi companies, there were lessons for New Zealand businesses when Ren Zhengfei, Huawei's founder, talked in Wellington this past week about his company's progress.

He spoke of core Huawei attributes such as collaboration with customers, technology excellence, employee ownership, innovative management practices, long-term strategy, wisdom to sidestep roadblocks rather than tackle them head on and, of course, a very strong streak of opportunism.

Huawei began by selling Hong Kong-made PBX switchboards in China. It targeted rural areas and small cities to avoid foreign competitors and to build customer relationships.


"When it comes to the business model of Huawei, first and foremost we are customer-centric," he said.

Being employee-owned helps the company to focus long term. Huawei is not distracted, like many western companies, Ren said, by the sharemarket's hefty demands for short-term investment returns.

"We can control and mange our lust, our greed. Instead we provide a good service for our customers and make reasonable money."

Of Huawei's 150,000 staff, half own shares. They have to be Chinese nationals but allowing other citizens to participate is under consideration, a company spokesman said.

Employees have to be with the company for at least two years, and they and their teams have to be performing well to be invited to buy shares. This has been a good source of capital for the company.

Its owners' equity was US$12b at the end of 2012. Ren owned only 1.4 per cent, with the rest of the senior executive and board teams owning under 1 per cent each.

This ownership model also helped the company invest more in R&D, although the strong cash flow from its operations was a far bigger driver of its heavy investment in technology, judging by its financial reports for the past four years.

Last year, it spent US$4.7b on R&D, equal to 13 per cent of its revenues; its 70,000 R&D staff globally makes up 40 per cent of its workforce; and for the past five years it has been in the top five corporates in the world for patent applications. That's all companies, not just telecom ones.

It only started its own R&D in 1990 and made its first digital telephone switch in 1992. Today, it is building half of the 150 or so fourth-generation mobile phone networks under way around the world, including Telecom's here.

Mathematics was the crucial technology breakthrough Ren credited for Huawei's success. The company developed algorithms that allowed it to handle multiple generations of mobile networks on one physical platform.

As a result, it can deliver the latest technology to telcos via hardware and software changes. In contrast, competitors require wholesale equipment replacement. The difference can save telcos between 20 per cent and 50 per cent, thus making Huawei highly price competitive, Ren said.

To help it stay at the forefront of innovation, the company is experimenting with a new style of executive leadership: Under Ren are three chief executive officers who take it in turns, six months at a time, to run the company, albeit in close consultation with each other.

Ren said he retained a veto over major issues if the trio and the wider senior management team and board failed to reach consensus decisions - or if he disagreed with them.

This approach, which started over a year ago, would help deliver consistency of strategy and continuity of management. It would prove more effective than the fast turnover of CEOs and senior management teams in many western companies, he added.

Ren, who is 68, said he would remain involved in the company until "they tell me I'm no longer needed".

Huawei was engaged, though, in a far bigger culture change - to a truly global company. It is quickly expanding staff and operations overseas, notably in R&D centres where there is particular local expertise of global value, such as in microwave in Italy and Java programming in India.

The company was also increasing the decision-making powers at local levels to help make it more responsive to customers, Ren said. This, in time, would turn its global headquarters in Shenzen, across the border from Hong Kong, into more of an advisory and support centre rather than a control one.

Huawei was also pushing itself to be more open and communicate more widely. It began publishing some financial details in 2000 but did not give its first annual results briefing until last month. It was co-led by Cathy Meng, the company's chief financial officer and Ren's daughter. Ren's press conference in Wellington on Thursday was his first on the record with journalists.

While greater openness would no doubt help build customer relations, it also had huge political importance. Huawei has long faced fierce opposition to sales of its equipment in the United States from politicians and competitors who cite cyber security concerns. They offer no evidence, though; and Huawei denies any wrongdoing.

In contrast, many other countries have welcomed Huawei. For example, in the UK where BT and other telcos are major customers, Huawei established a unit in 2010 to vet gear from China before it is installed. It is run in close co- operation with GCHQ, Britain's signals-intelligence agency, and uses security-cleared personnel.

New Zealand companies would never face such overt political hostility abroad. But they often struggle to establish their technology credentials because they are small providers from far away.

Like Huawei, they must assiduously develop their customer relationships.

There are other glimpses of parallels with Huawei in its early days. For example, Tait does not go head to head in big US cities with Motorola, its arch rival on emergency service radio systems. Instead, it targets small, rural county governments across the country. In aggregate, they offer it a huge market.

Hopefully, Huawei's deepening involvement here, such as a joint innovation centre with Telecom, announced last week, will give some Kiwi companies a chance to learn from it about getting their technology out to the world.

Sunday Star Times