Time for a Reset? Huawei’s Challenges in the United States

Today, the Chinese company Huawei is a global private-sector trendsetter. In the United States, the government perceives it as a threat. Why?

Starting in a one-room workshop in Shenzhen in the early 1980s, Huawei is today a global giant generating over $32 billion in annual revenues, with offices in more than 140 countries.

Like many other emerging Chinese multinationals, Huawei’s strengths are in cost-efficiencies, increasing differentiation capabilities and disruptive innovation. But unlike many Chinese multinationals, it grew up in the laissez-faire Shenzhen and the private sector.

Today, four of every five major telecoms operators worldwide cooperate with Huawei, including those headquartered in the nations that are U.S. allies or support U.S. security alignments. In the United States, it has been rebuffed by the government, time and time again.

Huawei’s Challenges in the United States

In China, Huawei had none of the perks of the national champions. Like Sam Walton’s Wal-Mart, it started its expansion in the countryside and captured cities only later.

Before the global crisis, many senior executives saw Huawei as the emerging global leader in mobile infrastructure.

It entered America on Valentine’s Day in 2001. Despite repeated bids, its efforts to win a major contract from the top-tier U.S. carriers, AT&T, Sprint, T-Mobile and Verizon have been frustrated.

Just a few examples: In 2007, Huawei’s effort to buy 3Com was thwarted by a U.S. government intervention.

In fall 2010, Sprint Nextel solicited bids for a network upgrade. Reportedly, Huawei offered a deal that would have saved the carrier at least $800 million from its existing costs in its first year of operation alone. But members of Congress launched a letter-writing campaign urging Sprint not to include Huawei, and the then-Commerce Secretary (current China Ambassador) Gary Locke called Sprint CEO to convey his “very deep concerns” about the company and national security.

While Huawei employs 140,000 people worldwide, less than 1.3% of its personnel are in the U.S. In light of business potential, this translate to missed opportunities

Unspecified and unsubstantiated, these accusations contrast sharply with Huawei’s success in the marketplace. Indeed, in the case of Huawei in America, there are deep incongruities between the accusations and business realities.

Joint Opportunities?

Instead of such severe anti-market measures, Huawei’s expansion in America could be seen as an opportunity for the U.S. government, companies, innovation and consumers.

  • Huawei’s expansion in the U.S. brings jobs, capital and tax revenues. 
  • In addition to differentiation and innovation, Huawei continues to exert a major competitive impact on price rivalry, through efficiencies and innovation.
  • Currently, the company maintains seven advanced R&D centers, which translates to high-quality jobs and efficient capital in America.
  • Due to its efforts to ensure cyber security – an end-to-end global cyber security assurance system, independent third-party testing institutes, opened up source code, and former CIO for the UK government John Suffolk as its global chief cyber security officer – Huawei could be seen as a role model for security practices in the ICT sector.

Huawei relies on the ABC model: “Assume Nothing, Believe Nothing and Check Everything.” This approach applies to Huawei itself as well, given that two-thirds of its components do not come from the company, but around the world.

Huawei’s Global Leadership

Like Sam Walton’s Wal-Mart in the U.S., Huawei first created foothold in rural regions, which were neglected by foreign multinationals and Chinese national champions, and only then proceeded to capture urban centers.

After a difficult transition in the early 2000s, it leveraged its strategy in global markets – starting with developing regions – with the support of U.S. consulting giants, such as IBM. Paradoxically, much of Huawei’s global leadership is founded on American lessons on multinational corporate strategy.

However, at least partly, the concern for Huawei has less to do with the company itself, but reflects the current uneasiness in the West over the rise of Chinese challengers worldwide.

Until the 1980s, advanced-country multinationals dominated FDI flows worldwide. Today, emerging-country multinationals play an increasingly central role in global FDI. Despite their great diversity, they all come from nations in which GDP per capita is substantially lower than in the advanced economies.

In addition to their growing capabilities in differentiation and innovation, Chinese multinationals have superior cost-efficiencies that contribute to U.S. consumer welfare.

Risk of anti-market interventions

As long as barriers continue to deter Chinese FDI in the U.S. the unequivocal message is that America is open for business, but not for Chinese business. No rhetoric can disguise these realities.

The noble goals and the not-so-noble realities are reflected by the recent activities of the Committee on Foreign Investment in the United States (CFIUS), which has historically monitored the impact of and coordinated U.S. policy on foreign investment.

Indeed, current proposals to expand the CFIUS should be assessed with prudence, in the light of the CFIUS actions in the past decade, its controversial decisions and possible use of deterrence as effective policy instrument, proposed lack of transparency, anti-market process and added uncertainty.

While the excesses of the CFIUS provide a replicable blueprint for political interventions in the economy, increased transparency would support the mandated goals of the CFIUS process, as members of the U.S. intelligence community have rightly argued. At the moment, the unintended consequence of the CFIUS actions is the internationalization of anti-market interventions.

Seeking unipolar sanctions in a multipolar world is a sure way to escalate trade and investment conflicts in the future and undermine the activities of American companies worldwide. In turn, a successful outcome in the Huawei case could prove a game-changer by accelerating investment flows into America at a historical moment when inward investment is needed the most.

If a security case against Huawei, its senior executives or its products does not exist or if it cannot be made, then there is a win-win case for Huawei in America – one that is in line with U.S. interests and U.S. values.

This commentary is based on Dr Dan Steinbock’s The Case of Huawei in America (http://usahuawei.com/#very-top). The website also features the first position paper on supply chain security by John Suffolk, Global Chief Cyber Security Officer for Huawei and former CIO for the UK government

3 Responses to "Time for a Reset? Huawei’s Challenges in the United States"

  1. Burk   September 12, 2012 at 3:35 pm

    Does Economonitor routinely publish press releases?

  2. stroyde   September 13, 2012 at 2:28 am

    >Unspecified and unsubstantiated

    Well blockhead, does the CIA regularly publish their findings in the Times?

    They don't have to lay whatever evidence they have against Huawei. Otherwise
    Huawei is handed clues about where their junk is hanging out, and what other things ought to be tucked in. They teach this in Intelligence 101, which is certainly some number greater than your IQ.

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