How Huawei became the world's No 1 telecoms gear supplier

The tougher stance reflects growing security concerns in the West about Huawei.
PHOTO: Reuters

Before 2004, few mobile network operators in Europe had heard of Huawei Technologies, much less considered it a potential supplier. But that changed after Richard Yu Chengdong, who now heads Huawei's consumer business, proved to a small Dutch operator the lengths to which the Chinese company was willing to go to serve its customers.

Back then, Telfort was the smallest of four cellular communications providers in the Netherlands. Daunted by the prevailing market prices to deploy a 3G network, the company entered talks with Huawei, then a scrappy upstart with just a handful of employees in Europe. Telfort also had another potentially bigger problem - it did not have the space to house the necessary equipment at its base stations.

Huawei, which was desperate to break into the European market, sprang into action. Yu, who was vice-president of wireless networks then, cancelled all of his appointments and worked with Huawei's small team in Europe and engineers back in China to devise a solution.

Within a week, they came up with one - a base station that could be deployed in two parts, required little space to install and was cheaper to run.

Telfort was impressed. Within months the deal for a 10-year contract worth 230 million euros was sealed and Huawei was on the map. The next year, it won contracts from BT Group, formerly British Telecom, and became a supplier to Vodafone Group, one of the world's largest mobile carriers.

"Huawei was not dominant in China at the time, they were well-positioned with customers like China Mobile but they said that if you want more business in China then you need to show us you're an international company," Stefan Scheuerle, a former Huawei sales executive who worked on the Telfort deal, said in an interview.

"Telfort was the door-opener, and after we signed BT and Vodafone as customers, that was then finally the point when Huawei was accepted all over Europe," said Scheuerle, now chief revenue officer at Sensorberg, a German start-up.

Today, Huawei is the world's largest telecommunications equipment maker and gets almost half of its more than US$100 billion in annual revenue from overseas markets. But its acceptance in Europe, where it has an estimated 30 per cent of the market, is under threat. The US is pressuring European countries to block Huawei, citing national security concerns that the company has strenuously and repeatedly denied.

The US wants to ensure that the backbone of 5G networks, which promise to deliver data speeds up to 100 times faster than existing 4G systems, are provided by friendly nations, arguing that the infrastructure also supports military uses. China's shrill promotion in recent years of an industrial modernisation plan had caught the attention of hawks in US circles, who viewed it as a threat to America.

While China has hit back at the US, accusing it of hypocrisy in using state power to suppress Huawei, damage has already been done. Vodafone said it was suspending the deployment of Huawei equipment in its core networks across Europe until the political uncertainty surrounding the firm is resolved. BT is removing Huawei gear from the core of its mobile network. Other carriers are weighing the risks of using Huawei only to have to rip out the equipment should governments later ban the company.

Global contract sales.
Photo: SCMP

However, a senior company official at Huawei last week said that markets closer to home will likely provide most of the 5G revenue in the near future.

Xu Zhijun, who takes turns with two other executives to chair Huawei, said at a briefing at the company's Shenzhen headquarters that the biggest demand for the company's next-generation mobile broadband hardware is in the Middle East and Asia.

As one of the handful of Chinese technology companies with a global footprint, Huawei however now finds itself caught in the broader contest between the US and China. At stake is the dominance of technologies like artificial intelligence, autonomous vehicles and internet of things. And the 5G data network is the circulatory system that will carry the lifeblood of these new technologies.

"We would encourage all governments to take an objective look at the evidence and maintain an open, engaged approach to 5G and other network developments," a Huawei spokesman said in response to a request for comment. Ren Zhengfei, the septuagenarian president and founder, has previously said that he would rather shut down Huawei than do anything to harm the interests of its customers.

Looking back at its humble beginnings, one would be hard-pressed to predict that Huawei would become the present-day juggernaut, with more than 170,000 employees and a presence in more than 170 markets. The company was founded in 1987 by the middle-aged and demobilised soldier Ren, who set it up with 21,000 yuan after failing at several prior ventures.

Huawei revenue by product segment.
Photo: SCMP

"Huawei was like a start-up company, it did not have the burden of having a legacy business, and it grew in strength by recruiting many good engineers. They were inspired by how Ericsson and Nokia functioned," said Bengt Nordstrom, chief executive of Stockholm-based consulting firm Northstream and a former Ericsson executive. "I think it's fair to say that Huawei's competitors underestimated them maybe up until 2010. But not any longer."

Interviews with former Huawei employees, competitors and long-time industry analysts paint a picture of a company moulded after Ren's values of hard work, an almost cultlike stoicism in the face of hardship and privation, and a relentless focus on meeting the customers' needs. For this article we also drew on the book Huawei: Leadership, Culture and Connectivity, co-authored by Tian Tao, a member of the Huawei International Advisory Council, and which Huawei has verified as being accurate in its depiction of company events.

Born in 1944 in China's poor southwestern Guizhou province to schoolteachers, Ren joined the People's Liberation Army's engineering corps in 1974 and was sent to build a chemical plant in the country's northeast, where temperatures can plunge to minus 20 degrees Celsius in winter. The harsh conditions shaped him and Huawei. "Everyone slept on the grass" in the beginning as there was no housing, and the soldiers ate pickled cabbages and radishes for six months of the year, he said.

"We learned to endure hardship. We learned from the world's most advanced technology while living a life that could be seen as primitive."

Huawei revenue by region.
Photo: SCMP

Huawei is known in Chinese business circles for its "wolf culture" in being fearless and aggressive. Indeed, Ren often recounts tales of bravery by Huawei employees in the face of extreme hardship and adversity, and this customer focus and stoicism has become an essential part of its self-identity.

On May 12, 2008, a magnitude 8.0 earthquake brought down buildings in China's Sichuan province and left 87,000 dead. As thousands were evacuated to safety from the aftershocks, Huawei engineers guarded a temporary installation of communications equipment on top of a shaking hill.

The book by Tian lists more examples, such as Huawei staff working in the aftermath of earthquakes in Chile and Japan, in a chapter on Huawei's "culture of dedication".

Huawei started out as a trader of telecoms equipment, purchasing telephone switches from Hong Kong and a Zhuhai company, and reselling them to post offices and mining sites in rural areas. It was a lucrative business, as resources were scarce in China at the time.

In 1991, Ren invested all of his capital to develop Huawei's own switch products with a research and development staff of about 50.

In the 1990s, "Huawei" was synonymous with low prices, poor quality but excellent service. The company's switches were not very reliable and often broke down. But what Huawei did not have in quality it made up for with service. It had people around-the-clock to get systems up and running again, and the company's staff would apologise to their customers and never argued, according to an unnamed Chinese telecoms operator cited in Tian's book.

Huawei's customer focus left a deep impression as good service was unheard of in those days, according to the operator.

"The company has always impressed me as extremely determined and ambitious," said Duncan Clark, the chairman of the advisory firm BDA China, who once did consulting work for Huawei. In the early years, "Huawei's only choice was to go to rural parts of China where foreign vendors weren't active".

Today, almost one in two of its staff are involved in research and development and the company's annual research and development budget runs to as much as US$20 billion, more than its three closest rivals combined.

Huawei had a 28 per cent share of the global telecoms equipment market as of the third quarter of 2018, increasing its market share by 4 percentage points since 2015, according to research firm Dell'Oro Group.

To be sure, critics contend that Huawei did not climb to its position today by customer service alone.

Last month, the US filed charges against Huawei, accusing it of conspiring to steal technology from US operator T-Mobile and violating US sanctions by concealing its business ties in Iran. Huawei has denied committing the asserted violations set out in the indictments.

In 2004, US-based Cisco Systems took Huawei to court, accusing it of stealing software code for use in Huawei routers. The two companies later settled the lawsuit.

While Huawei comes under siege in Europe, where governments are facing increasing pressure to stand in line with the US, it still has supporters, including Globe Telecom in the Philippines, whose chief executive said it has found no security flaws in the equipment.

The former director of Britain's Government Communications Headquarters last week said in an op-ed article that the "chorus of voices" calling for a blanket ban on Chinese companies like Huawei amid perceived cyber threats were "short on technical understanding" of cybersecurity and the complexities of 5G networks.

Meanwhile, the UK National Cyber Security Centre has determined that there are ways to limit the risks from using Huawei in new 5G networks, the Financial Times reported on Monday, citing people familiar with the matter. This conclusion would carry weight with other European leaders given the UK is part of the Five Eyes intelligence-sharing network together with Australia, Canada, New Zealand and the US.

Huawei will look to make its case at MWC Barcelona, the annual event formally known as Mobile World Congress, which is the most important trade event of the industry. It takes place later this month in Spain's second most populous city. US officials are reportedly increasing the size of their delegation to the event, saying they want to draw attention to the security of 5G mobile gear.

The stakes are high, with Huawei competing against the likes of Cisco, Ericsson and Nokia for billions of dollars worth of potential next-generation network contracts.

Kevin Curran, a professor of cybersecurity at Ulster University in Northern Ireland, said he was once asked by a Huawei executive what the company could do to alleviate concerns in the West. He advised the executive to continue following the model in the UK, where Huawei has set up an oversight group to review its security practices.

"The only way to ensure that a piece of software or hardware does not contain back doors is to have independent trust experts audit the code. There is simply no substitute for looking at code," Curran said in an interview. "Huawei has been supplying access network kit to the UK's fixed and mobile networks for over 15 years. If there was a smoking gun, you would think someone might have found it by now in the code."

This article was first published in South China Morning Post.