Meeting local needs
A: As I mentioned earlier, one of the main focuses for Huawei has always been the customer. So we started off distributing PBXs, and then we thought there was also an opportunity to develop our own products, based on customer requirements. We saw there was an opportunity to customize and modify products and make them more appropriate for local requirements. And I think we can say that this pursuit of customization and trying to meet the requirements of the market has been the foundation of Huawei’s success.

Q: And would you say there is anything about the corporate culture within Huawei that encourages dynamism and innovation?

A: We are in a high tech industry, so innovation is a cornerstone of our culture. And it’s not just innovation for innovation’s sake. It is customer-centric innovation, which means understanding the customer’s needs and trying to quantify them and having the results show up in the products we manufacture, deliver and employ. And I think to this end, for the last 10 years, Huawei has tried to integrate the Eastern work ethic with Western professional management. We have hired many consultants, from IBM to Towers Perrin, to FHG, to Mercer, to TWC, to institutionalize and professionalize our productive processes, such that we have an integrated product development and various related work processes, all in pursuit of refining this ongoing process of understanding what the market needs and trying to meet those needs.
     Within the management team at Huawei. There is this questioning of, “Where does Huawei want to be in 10 years time?” The answer is, we want to be the Toyota of the telecoms industry, where there is international acceptance, and where there is an international recognition of quality and how the pursuit of quality is an ethos built into the Huawei brand.
     In China’s current stage of development, product quality tends to be associated with tainted toys and the like, so as an international company, we try to set ourselves apart from those kinds of assumptions about Chinese brands.
     The result is that when customers come to the campus here in Shenzhen and take the tour that you’ve been on yourself, a lot of them are amazed. It does not fit in with their traditional perceptions of what China is or what Chinese companies are associated with.

An international company
     So, again, we are an international company that happens to have our international headquarters in Shenzhen. And if you look at the growth of our business, it is now operating internationally. In 2007, 72% of contract orders was generated outside China. That was up from 65% in 2006 and 54% in 2005. And China will eventually become a single country market for us.

Q: Is production always within China? I’m aware, of course, that you have centers outside China.

A: We have R&D centers abroad; we have training centers abroad. But all manufacturing is within China.

Q: From year 2000 on, as I understand it, there was in fact a special emphasis at Huawei on penetrating international markets. How successful has this strategy been, in terms of actual contracts and revenue streams?

A: The internationalization strategy started in 1997. Basically, it can be broken down into four stages. The first stage of Huawei’s growth was within China. The second phase saw Huawei moving into the emerging markets, including the Asia Pacific, Africa and the BRIC countries. The third stage, starting from 2000, was Huawei entering Europe, and the first contract we obtained was with British Telecom (BT), to implement their 21st-Century network. That was in December, 2005. Huawei is currently involved in the third and fourth stages, the fourth being entry to North America.
     In terms of numbers, in 2007, business in North America was worth US$100 million, so it’s early days yet. And this year we are increasing our head-count in the US. And we have two or three R&D centers in the US, headquartered out of Dallas and including a presence in Silicon Valley.

Q: I understand Huawei has a deep commitment to Research & Development. What is the R&D strategy? What are some of the cutting edge technologies now in development at Huawei? How does the company promote innovation? Why has the company set up R&D units abroad as well as within China?
     I’m wondering whether there’ some cultural approach that has been developed internally, by Huawei, for R&D. For example, I’ve heard that Sony has a strategy of trying to figure out where there could be opportunities to outflank other companies. I’m wondering whether there’s something very strategic in Huawei’s approach to R&D, or whether it’s a more organic recognition of where needs seem to be appearing.

Commitment to R&D
A: I think it’s both. On the one hand, we have 48% of our employees committed to R&D, and that’s a definite competitive advantage for us. What we try to do is hone that resource and apply it firmly to customer requirements. I mentioned earlier that we use our profits to facilitate that process, the setting up of systems and so on.
     Secondly Huawei recognizes that it can’t do everything itself, and that’s why it has joint ventures and partnerships, with companies such as Global Marine, in submarine network systems. Huawei and Global Marine have now entered into a Memorandum of Understanding to establish a joint venture to deliver end-to-end competitive submarine network solutions. We’ve now also formed a JV with Symantec in security and storage appliances. The new company will develop and distribute world-leading security and storage appliances to global telecommunications carriers and enterprises.
     We’ve only just announced the arrangement with Symantec, but everything is proceeding as originally planned. We announced it back in early February.
     We’ve also formed a joint venture with Nokia-Siemens, in TD-SCDMA.

Q: Recently, at CeBIT Germany, Huawei announced a 3.5G datacard supporting mobile digital TV (MDTV). Do you have any comments on the significance of that announcement? Does a 3.5G datacard product put you ahead of other players in the industry, or does it simply signal that Huawei is determined to find a foothold in these new markets?

A: Well, our terminals division is actually organized as a separate business unit, and as such they pursue a more independent strategy, and I think you have to look at this from that perspective. That business model is actually based on an ODM model, and they are focused on customizing terminal units for the operators. It’s not the case that the Huawei’s brand name will appear on these products. The name might be Vodafone, for example, with whom we have a five-year exclusive contract for handsets.
     Very early on, Huawei recognized that its strengths lay in understanding operator requirements and customizing products based on those requirements. So it’s a very clear strategy.
     Helping us understand those operator requirements means setting up a global R&D network, and we site our facilities based on talents that we find in the various markets. For example, we have our largest R&D center in Bangalore, India, and that is mainly focused on software development. In Sweden, the focus is on RF (radio frequency) technology. In Moscow, the R&D is focused on algorithms, and there we have all these wonderful Russian mathematicians and scientists.
     In addition to the R&D centers, we have also set up joint labs with operators, and we call these Innovation Centers. We’ve one this because each operator has different requirements, a different set up for the network, so that when we work with their engineers, we are able to see how well the latest products fit, and how we can add value and solve their problems.

Q: With Huawei’s R&D within China itself, are there particular products and technologies that receive a lot of focus?

     A: Well, China is the headquarters, so we coordinate across all the centers. Another differentiating factor is that Huawei is technology agnostic. We support almost all platforms, including GSM, CDMA and WiMAX, and soon, LTE (Long-Term Evolution).
     We work on these platforms with the goal of meeting customer requirements, regardless of the individual platform itself. A key factor that allows us to do that is our cost structure, which is quite different from that of Western vendors and one that allows us great flexibility.
     For example, one area where we can differentiate our cost structure from that of the Alcatels and Lucents, Nokias and Ericssons, is the cost of R&D. The R&D engineers we employ cost one sixth of what they would cost in the West.

Moving to fixed-mobile convergence
Q: Roughly speaking, mobile communications technology seems split between time-division and code-division based technologies. Does Huawei have a strategy for achieving 3G-and-beyond networks that are interoperable and offer a genuine path to fixed-mobile convergence (FMC)?

A: For FMC, fixed-mobile convergence, you need to have competencies in several areas. On both the optical and access sides, if you look at the industry rankings, you’ll see that we’re well positioned. In the wireless space, we also have a lot of significant traction. In the terminal space, we’ve been able to demonstrate that we are able to customize our products to customer requirements. In all the key areas that contribute to FMC, Huawei has been able to demonstrate considerable success.

Q: I understand that Huawei designs its own ASICs. Or to be more accurate, your ASICs are designed and produced by a subsidiary, High Silicon. I assume that High Silicon was made a separate entity because it has been highly successful in its own right, or perhaps it was simply convenient to handle its operations that way.

A: Yes, I think that the demand for that specialization is quite distinct. They are very much focused on the ASICs, and it’s ASICs that very much drive our technologies. And because we’ve adopted a platform system, all the ASICs are designed for a common platform, such that we can modularize and build on top of that.
     In the context of FMC, where there’s a lot of integration and convergence, having the shared ASIC platform helps us to achieve that goal.

Q: But when you say it’s a shared ASIC platform how does that work? Does that mean there are shared blocks of IP, within the chip designs, that can be applied in a variety of design configurations?

A: Correct.

Q: And are you able to comment on time to market, and qualification and all the rest of it, for Huawei’s solutions, as compared with other chip-design companies?

A: Well, it’s not so much an independent chip-design business as a supporting operation for the products that we roll out for our operator customers. But having the company as a subsidiary within the group allows us to customize and shorten time to market, definitely.
     And the way that we organize our trials means that we can very easily identify problems and make any necessary changes, on chips that WE control. Otherwise, as you know, a lot of the technology would have to be licensed from the likes of Qualcomm and Broadcom, and so on.

Employee ownership
Q: Who invests in Huawei?

A: Huawei is 100% owned by its employees and there are 20,000 of those shareholders. The partnerships and JVs I’ve already mentioned, of course.

Q: It’s generally understood that Huawei has had a cooperative relationship with 3Com in particular. How does that relationship stand, now?

A: The relationship with 3Com began in 2003. We formed a joint venture with them, and we subsequently sold our controlling majority interest, and eventually the entire JV, to 3Com. Then in September of last year, Bain capital wanted to acquire 3Com, with Huawei as a minority partner. However, due to the complexity of the acquisition process, including cost increases and changes in stock-market conditions, Bain Capital and Huawei have now announced they intend to withdraw from the proposed acquisition.
     Rest assured that Huawei and 3Com will continue to maintain their friendly cooperation and comply with the existing agreements between them.