The early years
One of the first areas of the Chinese economy to open up to foreign competition, under Deng Xiaoping’s economic reforms, was the telecom infrastructure sector. Huawei was established by a man by the name of Ren Zhengfei. Yes, Ren was a Major in the PLA and in 1983, along with a million others, he lost his job. During his time with the PLA, Ren was in fact a civil engineer building bridges and factories. In 1987, he was a 44-year-old businessman who had suffered a number of failures, but wanted to try again in the telecommunications field. With funds invested by five colleagues to provide working capital of about EUR 4 000, he started Huawei. At the time, he had little support and many things were stacked against him. In China, he was called someone who dared to eat crab – that means someone who tries something new despite its menacing appearance.
When Huawei first started, the Swedish multinational Ericsson had already been in China for three years. In fact, there were nine international communications equipment manufacturers doing business in China at the time. Also, during this period, over 400 Chinese telecom manufacturers sprang up. Competition was based around the big cities of Shanghai, Beijing and Guangzhou. Huawei didn’t stand a chance. So, establishing their headquarters in the new city of Shenzhen, the sales force went west to the remote and regional areas of China.
At the time, money was tight. The rules around private companies meant that bank loans were virtually impossible to secure. Out of necessity, the Huawei staff share ownership structure was developed to raise the capital necessary for growth. It has been the backbone of the company’s success. Shares were offered to retain staff. Today, 80 000 employees own Huawei, with our largest single shareholding belonging to our founder Ren Zhengfei, who has 1.4 per cent of the company.
Mr Ren has always admired US business models. He noted they focused heavily on R&D, and he looked at their business structures during a visit to the US. He then hired expert companies to help him grow his business – IBM, PWC, KPMG, Hay Group, etc. And they are still with him today, guiding the business and driving his vision.
In the year 2000, Huawei went global. It was a slow start, with only one per cent of our revenue coming from outside of China. However, what it did do was to change the course of our company’s history – and, more importantly, upend the entire telecom sector. Just as we did in China, we went to the markets that the global giants of the time ignored. Africa, the Middle East, South-East Asia. We were fortunate in that we timed it perfectly. We totally missed the 2G era, so we started to focus on 3G R&D. Because the dot-com bubble had burst, our competitors spent less on R&D, giving us an opportunity to catch up. We did, and our technology gap turned into a level playing field. Huawei knew that the only way we could succeed was to have better technology, so the company mandated that a minimum of 10 per cent of our revenue needed to be spent on R&D. By the time 4G arrived, Huawei had become a global leader, to the point where we are now the world’s No. 1 telecom infrastructure builder, welcomed as much in Europe as we are in China.
Our privately-owned business operates in 170 countries and our global revenue is approaching 86 billion euros a year. We now provide more than one-third of the world’s population with their daily communications needs. With such reach, it is no surprise Huawei receives plenty of attention from global regulators and security agencies. As our Global Head of Cyber Security, John Suffolk, often says: we are the most poked, prodded and audited company on the planet.
We understand that we are a pioneer, breaking new ground for a Chinese company. We are truly global in operation - today we do more business outside of China than we do in China. We are a clear leader in our field, and we are privately owned. These are attributes not normally associated with a Chinese company. There is no doubt more companies like Huawei are coming. We can’t pretend the rise of Smart China isn’t happening.