Huawei Technologies: The Exception, Not the Rule
My friend in New York sent me an email last week asking for information about a Beijing-based financial firm that just offered him a job at their newly established international headquarters in New York. It made me recall a China Tech News article I read earlier this month about Huawei Technologies signing a letter of intent to invest EUR20 million to set up an innovation center in Dusseldorf, Germany. Like the Chinese investment firm in New York, Huawei is looking to hire plenty of locals – 200 local engineers to be exact – in addition to the 400 employees in their European headquarters. The innovation center will be far from Huawei’s first global investment – Huawei has been expanding globally for the past 20 years, and it is one of the few Chinese firms to do so successfully.
What does Huawei Technologies do?
Huawei Technologies is a Shenzhen-based privately held high-tech enterprise that specializes in R&D, production and marketing of communications equipment. It also provides customized network solutions for telecom carriers. Take a look at the image below for a more detailed breakdown of Huawei’s product portfolio.
Huawei’s Global Operations
In 2008, 75% of Huawei’s contract sales came from international markets. Much of its original success abroad was due to the fact that it was uniquely positioned to take advantage of growth in developing nations. First, because Huawei began designing products and services for the Chinese market, it developed a product portfolio specifically catered to the needs of developing nations. Huawei’s solutions were more suitable for other developing nations with limited existing infrastructure to work around or build upon. According to this Bloomberg article the engineering costs for Huawei are between 15-16% lower than competitors like Nokia Siemens Networks or Ericsson, an instrumental factor in its global expansion success thus far.
Second, as a Chinese company, it is able to enter developing markets in the Middle East and Africa that may be politically unstable. This is an advantage compared with Western multinationals who are unable to enter such markets due to international and domestic pressures and legal restrictions.
However, developing nations are not the sole source of Huawei’s success outside the Middle Kingdom; Europe has quickly become an important market for the company as well. In less than ten years, Huawei now supplies all of Europe’s major operators including Vodafone, Deutsche Telekom, France Telecom and Telefonica, with European sales reported at around 3 billion USD. According to its corporate website Huawei has established 14 R&D centers around the world from Stockholm to Moscow to Bangalore. Huawei has also partnered in joint ventures with other leading global firms such as Siemens and Symantec.
The Exception Not the Rule – But Worth Keeping an Eye On
I hope for my friend’s sake that the Beijing-based investment firm in New York is able to follow Huawei’s success in their international expansion strategy. In my opinion, Huawei is the exception, not the rule when it comes to Chinese companies’ overseas expansion success. Other Chinese companies will try to mirror Huawei’s achievements in overseas markets, but at present the vast majority of these firms are likely to fail. Nevertheless, as Chinese companies experiment and develop winning formulas – and as they become more transparent in their business practices – there will be a group of companies that will become true global players. I do not know exactly when this time will come, but like you, I will be observing closely.
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