You are here

What has Huawei given to the world?

By homing in on less-affluent markets ignored by industry leaders, businesses like Huawei disrupt the industry titans - and lift billions out of poverty.

BT_20190116_HYHUAWEI_3668948.jpg
Huawei's strategy is to survive by low-cost competition. What we cannot forget is that innovation and progress are triggered by new competition, not only by brilliant engineers and scientists. New competition forces the established players to be inventive.

WOULD the world be better off without Huawei? To answer this question, you need to know the story of a struggle. One is named Cisco or Ericsson or Nokia or Alcatel-Lucent. He once dominated the world of telecommunications, exporting network switches from Europe and the US and providing mobile carriers all over the world with the reliable infrastructure that powers our laptops and smartphones. He spent incredible amounts of money on research and development, recruiting the smartest engineers into world-class laboratories, and bringing forth previously unseen technological marvels.

The other is named Huawei. She was a scrappy fighter who didn't play by the rules, but who tried to survive in a country plagued by copycat competition, pricing pressure and poverty. She not only persisted for three decades, she somehow managed to bloom to her fullest, until the chief financial officer and deputy chairman, Sabrina Meng, was arrested in Vancouver on Dec 12. She was whisked away by bodyguards into a Cadillac Escalade on a US$7.5million bail and would wear a GPS ankle bracelet for the next 51 days until the next extradition hearing scheduled for Feb 6, 2019.

Companies usually survive and even prosper after important executives leave - Apple took off under Tim Cook; Microsoft flourished under Satya Nadella; Uber realigned itself under Dara Khosrowshahi - so long as they don't lose market access.

But losing market access is what's in store for Huawei in the United States, Australia, New Zealand, Canada and the United Kingdom.

sentifi.com

Market voices on:

Blocking Huawei may be a punishment for the company's alleged violation of the US sanctions against Iran, a matter that has yet to go to trial. Or it may be intended to forestall concerns that Huawei is spying, a claim for which substantial evidence has yet to be found.

What is evident, however, is that Huawei earns half its revenue from overseas, where consumers won't buy its products unless they are cheaper or better than Cisco's and Ericsson's. Of the 170,000 Huawei employees, 40,000 are non-Chinese. So what will the world look like if Huawei collapses tomorrow?

In Enlightenment Now, Harvard scholar Steven Pinker noted that in 1800, a person in Britain making an average wage needed to work six hours to earn enough to purchase a hand-dipped candle that burned for one hour. Any non-natural light sources were deeply expensive.

Eight decades later, in 1880, after the invention of the kerosene lamp and the refinery technologies of Rockefeller's Standard Oil, the average American needed to work for 15 minutes to afford an hour of artificial lighting.

Later, the incandescent bulbs introduced by Thomas Edison could be lit for an hour at the cost of a mere eight seconds of labour.

Later still, fluorescent bulbs that cost only half a second were introduced. Today, solar-powered LED lamps are practically free in terms of fuel costs.

The prices of running water, electricity, automobiles, personal computers, mobile phones, washing machines, vacuum cleaners, stoves, air conditioners, dishwashers and refrigerators have all plummeted. Whereas in 1929, Americans spent more than 60 per cent of their disposable income on necessities, people are spending less than a third nowadays. When measured by purchasing power, our material advancement is indisputable.

What we cannot forget is that innovation and progress are triggered by new competition, not only by brilliant engineers and scientists. New competition forces the established players to be inventive. Without it, old corporations grow fat, executives become lazy, and consumers suffer. Competition might be bad news for CEOs, but it is a boon for the public.

And here is the story of Huawei over the last three decades:

When a magnitude 6.8 earthquake hit Algeria in May 2003, killing some 3,000 people, expatriate managers working for major multinationals all fled. Huawei stayed. The company's engineering team completed a network migration as scheduled, which ensured access to communication during the emergency period.

When civil war broke out in Libya in 2011, Huawei kept its flag flying in the country. In the words of Xia Zun, the general manager at the time, Huawei's goal is "to serve our customers, be they government troops or rebels … because in times of war, people need to report back home more than ever".

Huawei is no saint. But it fits into a pattern. For every market giant in China, there have been hundreds of copycats. They typically start out focusing on markets ignored by Western multinationals, and rather than competing with cutting-edge technologies, they develop products and distribution systems for less-affluent populations.

Haier began by making compact refrigerators for small homes in China, a market segment that Western organisations deemed unprofitable; PC maker Lenovo invested in its distribution infrastructure - local offices, sales teams and supervisors - in order to be able to manage a sprawling retail network covering the remotest towns and villages.

China's massive population is what enables copycats to fight, and the winners of those fights develop immense economies of scale and extreme operating efficiency. Through this corporate bloodshed, the scrappy copycats turn into world-class gladiators. It's the gladiator Huawei, which innovates and leads 5G providers, that now clashes with the US.

The White House's consideration of an executive order that would bar all US companies from buying Huawei-made equipment is no skirmish over compliance. It is a battle for dominance over critical technologies in the age of connectivity and smart machines.

When I visited Shenzhen in China last year, local managers explained to me that much of the city's infrastructure will be digitised, and that Huawei will saturate it with a 5G network. This will lower speed issues and latency problems for computers using the network. In other words, the amount of computing power needed for a driverless car, for instance, can be massively reduced. That computing power can simply be off-loaded onto the city's infrastructure by way of the next-generation networking system.

This is a radical vision, radically different from Intel's. As autonomous driving takes off, vehicles are to become computers on wheels. More powerful microchips will be needed, and Intel could again dominate that transportation market. Huawei has a different idea for connected cars - one that will directly undermine Intel's strategy in China and beyond.

For the most part, this should concern no one but China's IT industry - except that without Huawei, Apple won't have its largest international market, and Facebook won't have a well-connected India, Bangladesh or Africa to fuel its overseas expansion.

And the rest of us will have less ability to use technology to alleviate poverty, an effort that has historically been made possible by low-cost competition. Only by disrupting the powerful industry incumbents can we lift billions out of poverty. And that's what's at stake.

  • The writer is LEGO Professor of Management and Innovation at IMD Business School.