A few weeks back I was talking to my mom; she'd just returned from a trip to Florida (yep, that's really what retired Wisconsinites do) and wanted to catch up. She asked, "Any interesting travel coming up?" Beyond the quick trip to Dallas and local conference stuff up here in the Bay Area, she took a particular interest in my trip to China this month.
Mom: "So, why are you going?"
Peter: "A customer analyst conference."
Mom: "Would I know the company? Who is it?"
Peter: "It's a company called Huawei."
I went on to spell "Huawei" several times, telling her not to feel bad for now knowing who it is. Just this last week, then, I got a text from her. Time Magazine featured Huawei in an article. Having never heard of the company a few weeks prior, she now felt it, "seems kind of interesting, to say the least."
We all know the implication. In the U.S., there's a grave mistrust of China. It's not limited to technology or even political wonks. It's not helped by reports of Chinese military hacking that could put everything from major corporations to the U.S. electric grid at risk. It hasn't done Huawei--a company historically rumored, and always denied, to be linked to the Chinese military--any favors. This isn't, however, just about the U.S. Yes, Huawei has had incredible success outside the U.S.; operators throughout the world use its gear--both small ones and big ones. Think about the recent Sprint-Softbank intrigues where executives have reportedly promised that Huawei would not be integrated into the Sprint network. Would this have been an issue if Softbank didn't already work with the vendor? It's possible, if only because of Huawei's presence in Clearwire, but much less likely. While U.S. politicians can't force operators in other countries to change up their vendors, it's not hard to imagine operators thinking twice about their vendor choices if U.S. objections become more aggressive.
Where we tend to view market dynamics through a competitive lens, Current Analysis has been following Huawei for a while--before it was featured in Time Magazine, before it had its first European mobile operator customer and before it was making smartphones or tablets. I can't say we have all of the answers about who it is and how it operates, but we have been witness to Huawei's evolution and have at least a few thoughts worth sharing.
· The Stories People Tell. No discussion of Huawei can ignore the competitive messaging around it. This includes competitors' charges that Huawei receives financial support from the Chinese government, copies products, engages in industrial espionage and conducts outright marketing mimicry. One of my favorite episodes was NSN's blog post from last year pointing out the uncanny similarity between Huawei's business consulting messaging and NSN's messaging ("Huawei loves Nokia Siemens Networks Consulting!"). True or not, beliefs – as well as repeated claims – around how the company does business ultimately shape the way it's seen by customers, competitors and governments.
· Huawei is not China. For the record, I have no knowledge of whether or not Hauwei is affiliated with the Chinese government. For its part, Huawei has done an impressive job of refuting the claim, publicly releasing detailed (audited) operational data, devising security measures that allow customers access to product source code and pointing to the reality of a global supply chain that sees most vendors employing substantial Chinese R&D. What I do know is that Huawei is no longer a Chinese vendor in the way it was a few years back. Realizing that its aspirations of being a global firm require a truly global workforce, the company has substantially ramped up its international workforce. In addition to greater exposure to international customers (demands and regulations), this has altered its positioning. Take the business consulting deal Huawei announced with Etisalat back in February. Business consulting requires complex capabilities and local understanding. An insular Huawei would never have won such a deal.
· Huawei is no Longer Cheap. The pricing of telecom network gear is one part art, one part science. Of course, the costs of the gear are one input. So too, however, is the margin a company is willing to accept, any financing it can offer, the strategic importance of the customer and other products that might get bundled into a solution. How does Huawei fit into this dynamic? To be sure, competitors will still point to price-based competition as a part of its sales strategy. Yet, while it was once known primarily as a low-cost vendor, competitors will also note that Huawei is not always a price leader anymore. This goes hand in hand with an acknowledgement that its products are often some of the best in the market-- that the company now competes on quality as well as price.
· Why Not Handsets? That Time article my mom read had a great quote from James Lewis of the Center for Strategic and International Studies. "No one cares about handsets. They can sell as many as the market can take." This definitely seems to be the case. But why? If unfair business practices are a worry, can't they be applied to handsets? If security concerns are the worry, shouldn't handsets be just as much of an issue? It's not unheard of for vendors to place software on devices that tracks user behavior without giving users a heads up. Recall the iPhone location tracking scandal? And yet, nobody seems to care about Huawei's devices here in the U.S. Are the concerns, then, really all about security of business practices?
· The Benefits of Culture. The Risks of Culture. There's no shortage of literature treating the role of "copying" in Chinese culture and the existence of what is alternately called a copycat culture or counterfeit culture. Most innovation has some degree of copying in its making (the now disgraced Jonah Lehrer did a good job calling this out in his 2012 book, "Imagine," before it was withdrawn from the market). Whether this has anything to do with how Huawei operates, I can't say, though there's no way it doesn't influence the way the company is seen. At the same time, if China enjoys a strong top-down governing structure, so too does Huawei. This helps to leverage the benefits of low-cost Chinese R&D and the ethos of hard work (sacrifice) for the benefit of the company. Some of this, naturally, has eased up as Huawei has expanded internationally and recruited workers who are accustomed to some degree of professional autonomy. Some aspects of culture, however, are hard to escape, if only in the way they impact how a company is viewed in the market.
Taken as a whole, what does this all mean?
To be honest, I'm not totally sure. Like any good story, this one is full of contradictions and uncertainties. Competitors will claim that Huawei unfairly competes on price, but not always. Products and marketing are often positioned as outright copies of other vendors, but customers and competitors, alike, attest to the quality of Huawei's products, and it's clearly been innovative around things like multi-standard and distributed base stations. Messaging around products such as its Single RAN solution have been successful at conveying Huawei's innovation, so much so that other vendors now use the term (pot, meet kettle). Yet, Huawei press releases and marketing launches still suffer from occasional awkward wording and fuzzy messaging.
The answer to what it all means is probably just as contradictory depending on where you're coming from. On the one hand, it could mean that Huawei is part of a massive, coordinated plot; strategically important technologies get the solid market treatment, and strategically important markets see competition on price--all driven by Chinese government money and agendas. On the other hand, it could just as well be seen as the result of Huawei being a young company with a young workforce growing significantly almost overnight while acting like any other business-oriented vendor and taking advantage of its own profitability (and competitor instability) to compete aggressively whenever there's an opportunity.
This might be an awkward analogy, but we've all seen young, talented athletes and other celebrities behave in seemingly irresponsible ways. Likewise, anyone who's ever visited Shenzhen (Huawei's HQ) has witnessed the chaos and contradictions inherent in a city that's grown tremendously in a short period of time. This isn't to say that Huawei's poorly managed, a bad marketer or likely to go out and buy a monkey like Justin Bieber. In looking at the company and evaluating its actions and motivations, however, the concept of "growing pains" cannot be ignored. Nor can it be denied that those "growing pains" are likely to be amplified by constantly being in the public eye to an extent that other vendors might not be.
Peter Jarich is the VP of Consumer and Infrastructure at Current Analysis. Follow him on Twitter: @pnjarich.