Fran O'Sullivan: Huawei founder scoffs at US rage

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Ren delivers a master-class on why company's business model is such a threat to capitalist-style competitors.

Ren Zhengfei is moving to decentralise. Photo / Supplied
Ren Zhengfei is moving to decentralise. Photo / Supplied

When I joined a number of New Zealand business journalists invited by Huawei to take part in the first ever press conference by its elusive founder, Ren Zhengfei, in Wellington last week, I wanted to find out what it was about Huawei that drove the US congressional machine to paroxysms of rage over the Chinese company's commercial success.

Note the word "commercial", as despite the highly inflammatory report by the US House of Representatives permanent intelligence committee in 2012 - which stopped just short of accusing Huawei of spying - the committee has never come up with anything remotely like a smoking gun or even anything sufficiently concrete to underpin its insinuation that the company is or could be a vehicle for Chinese Government cyber-spying.

And, that Ren's own background within the People's Liberation Army means Huawei is merely a cypher for the Chinese military establishment.

More interesting to me about the committee's report was the underlying fear that Huawei was the beneficiary of Chinese state-sponsored capitalism.

The committee's recommendations spoke volumes: Chinese companies like Huawei should quickly become more open and transparent; they should list on a Western stock exchange with advanced transparency requirements which would offer a "more consistent review by independent third-party evaluators of their financial information and cyber-security processes, complying with US legal standards of information and evidentiary production, and obeying all intellectual-property laws and standards". Well, Ren Zhengfei is having none of that.

In just 90 minutes, Ren delivered a compelling master-class on why the business model that his telecom equipment company uses is such a threat to Western-capitalist style competitors, such as the US telco suppliers, that fear Huawei's advance.

Ren has developed a strong strategic response to Western capitalism (and, yes, he did resort to some military metaphors). It suits Huawei commercially to mount a customer-centric approach rather than follow the Western-style listed company approach of putting shareholders first.

My own questions focused on Huawei's business model, whether Ren planned to list the firm and who would succeed him.

Unfortunately, I didn't get a chance to question him on the "soft Chinese loans" that are said to have propelled both Huawei's international expansion and helped fund customers to buy the Chinese products over those of US and other international competitors.

Ren didn't disappoint.

The Huawei founder clearly enjoyed himself having a poke at the US corporate model dominated by the need to post strong, short-term results: "We can control and manage our lust, our greed. Instead we provide a good service for our customers and make reasonable money," he scoffed.

He side-stepped my question on whether that enabled the company to undercut competitors. It clearly is a factor, but Ren made a compelling case that technological prowess is the determining factor when it comes to getting clients.

One central factor was the focus on obvious mathematical genius - the innovative algorithms that Huawei has developed to enable it to use one kind of cellular antenna for multiple mobile network types.

This enables it to shave up to 50 per cent off the cost for customers and share profit with them. R&D investment is a major - Huawei is one of the world's top patent generators.

New Zealand has the opportunity to benefit from Huawei's decision to put R&D centres in other jurisdictions outside of China. Ren was optimistic about the prospects from the planned innovation centre Huawei is setting up with Telecom which is going to use considerable Huawei componentry.

Despite the US committee's urgings, Ren said there was no intention to list the company in the next five to 10 years. The company would continue to be owned by its employee shareholders.

Ren is running a rotating CEO system (there are currently three) but he retains a veto over major strategic issues.

He deplored the tendency of Western companies to replace the entire top team at companies with a change of CEOs, who brought their own people on board.

Right now the company is moving to put in place a decentralised model as it moves from being an international company to become a global company.

Intriguingly, this is the one area where Ren admitted an element of fear (or trepidation) that it may not come off. Allowing locals to runs operations ("those who can hear the gunfire direct the operations on the ground") is a major step.

It would result in the Shenzhen HQ being a support operation rather than a control HQ. For a man who has long held the veto over major company decisions (even though his own shareholding is about 1.4 per cent) that is a major move.

Letting go the reins will be difficult despite his contention that he would stay on at Huawei until "they tell me I'm no longer needed".

He jests that he might then open a little restaurant (he cooks for his guests). But chances are he will remain a player for some years yet.

Ren is a master strategist. He has studied the commercial terrain and not only pinpointed his competitors' strengths and weaknesses, but developed strategies to place Huawei ahead of the game,.

This does present a real challenge to US-style corporates.

Huawei's model could be vulnerable as it moves over a lengthy period to refashion as a "truly global company". But US competitors should not rely on that.

Instead of resorting to back-door protectionism, they would be better placed by developing compelling technological advances and strategies of their own.

- NZ Herald

Fran O'Sullivan

A columnist for the NZ Herald

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