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Friday, Jun 27, 2008
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Fusion of Indian software with Chinese hardware

Pallavi Aiyar

A view of Huawei’s office in Bangalore.

“I am so proud of my company,” says Li Jian, also known as Amit Li, as he shows off the headquarters of Chinese telecommunication equipment-maker, Huawei, in Shenzhen. Mr. Li is a graduate of the Hindi department of Beijing University and has spent the last year in Gurgaon, on the outskirts of Delhi, working as a public relations manager for Huawei’s Indian subsidiary.

His pride in Huawei is understandable given that in the span of 20 years, the company has gone from minnow to mammoth in one of the world’s key industries: telecommunications gear. For long dismissed as an upstart with few sustainable prospects, Huawei has defied predictions, broken the virtual monopoly of western firms in the sector and is today counted among the top five players in the industry.

At a time when established names like Ericsson and Alcatel-Lucent are reporting losses and plummeting profits, Huawei is aggressively expanding, its well-established position in emerging markets like India proving to be an advantage.

National champions

Huawei’s rise is a window onto the aspirations of Chinese companies in the global market place.

Not satisfied with China’s emergence as the low-cost factory of the world, the cultivation and support of selected “national champions” to compete against global firms is one of Beijing’s stated objectives.

However, it has not been smooth sailing for these nascent MNCs as they have attempted to spread their wings internationally.

Huawei’s growth has been dogged by accusations of murky finances, military links, and intellectual property rights violations.

It has been charged with opaque accounting and suspiciously close government connections and support.

In India for example, the company’s expansion plans have been regularly blocked by intelligence agencies on the grounds of it posing a security risk. Huawei-India was also barred for a while from bidding for contracts from state-owned companies.

But after almost 10 years in the Indian market, George Chen, the COO of Huawei’s research and development centre in Bangalore, the company’s largest unit outside of China, says Huawei’s troubles are a thing of the past. “Security is no longer an issue. It’s never mentioned by our customers or even by the government any more,” he said.

Today, Huawei India boasts revenues amounting to $600 million.

The Bangalore centre employs 1,600 people, only 40 of whom are Chinese.

The company has, moreover, been successful in securing major multi-million dollar contracts with Reliance and TATA Indicom in addition to a $150-million 3G rollout for Bharti Airtel in Sri Lanka.

Its relationship with public sector enterprises BSNL and MTNL is also improving and Huawei in currently in the running for securing a BSNL tender for 93 million GSM lines.

R&D centre

“In terms of market, India has the biggest potential in telecom and we want India to become our biggest market outside of China in the future,” says Mr. Chen, adding: “We want our India R&D centre to support our global operations, leveraging India’s English language skills and software expertise to our advantage globally.”

Huawei’s Bangalore centre is in fact one of the very few tangible examples of the potential for the coming together of Indian software with Chinese hardware.

At the centre, Indian engineers develop software for use in Chinese hardware, demonstrating “how Indian and Chinese comparative advantages can be combined for use globally,” says Mr. Chen.

And given Huawei’s relentless ascent on the global stage, this is not an empty boast.

“I would say Huawei is China’s most successful MNC; on the leading edge of China going international,” says Duncan Clarke, head of Beijing-based telecommunications consultancy BDA.

Calling the company the “Walmart of global telecom” given its emphasis on volume and price [Huawei has been known to undercut the price of competitors by as much as 70 per cent], Mr. Clarke says he likes “the impertinence” of Huawei.

“The sector needed shaking up and that is what Huawei has achieved,” he says.

Mr. Clarke attributes recent merger activity in the industry such as the creation of Alcatel-Lucent and Nokia-Siemens networks in part to competition from Huawei. The Chinese heavyweight today has a presence in over 100 countries, having recorded $16 billion in contract orders in 2007, over 70 per cent of which were generated from international markets.

Mr. Clarke says Huawei is still some five years away from being able to count itself as part of the exclusive top tier in the sector, given that it remains relatively weak in the area of network management and other more high-end tasks.

Its inability thus far to break into the U.S. market is another handicap as is the lack of internationalisation of its top management.

Many challenges

At the company’s Shenzhen headquarters Ross Gan, Huawei’s global spokesperson, admits that many challenges remain to be overcome.

He lists increasing transparency as one of them. Huawei’s founder Ren Zhengfei, a former PLA soldier, is known for never having given an interview to a journalist.

But Mr. Gan refutes accusations of Huawei’s “suspicious” government links. “Less than 0.5 per cent of Huawei’s total business is conducted with the Chinese government,” he says.

Mr. Clarke concurs. “I think far from being beholden to the State, Huawei in many ways sees itself as above the State.”

He adds that Beijing’s fingerprints are far stronger on Huawei’s main domestic competitor, ZTE Corporation, as well as other emerging Chinese MNCs like Lenovo, which is partly owned by the Chinese Academy of Social Sciences.

Anxious to rid itself of a reputation for IPR violations — in 2003, Cisco sued the company for copying computer codes — Huawei’s primary focus is to invest in constant innovation.

As a result, it spends 10 per cent of all its revenue on R&D and almost 50 per cent of it is over 68,000 employees worldwide are engaged in R&D activities.

By the end of 2007, Huawei had applied for 26,880 patents, of which 4,256 had been approved.

Back in Shenzhen, it is lunchtime and employees come streaming out of the state-of-the art R&D facility that bears a distinct architectural resemblance to the White House.

A special Indian canteen

Among the hungry crowds that head for the cafeteria are dozens of Indians, the bulk of who trot towards a special Indian canteen that serves up daal and rajma chawal.

A short drive away from the R&D centre, the Norman Foster-designed Huawei University rubs up against the company’s faux European-style employee-housing complex, all of which Mr. Li points out with visible satisfaction.

Later in the day, the boom town of Shenzhen recedes as the car speeds towards the airport.

But very soon, Mr. Li will be in another boomtown: Gurgaon.

“I feel equally at home in Shenzhen and Gurgaon,” he says chattily, wearing the mantle of his pioneering Chindian identity lightly.

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