Should we fear the growth of Chinese telecoms company Huawei?

Huawei logo The company still remains unknown to most Western consumers

When I first went to see Huawei, about 10 years ago, I had very little idea of who the company was, or what it did.

Ten minutes in the impressive corporate display hall in the booming city of Shenzhen illuminated me. It was full of elaborate and expensive machines.

Huawei was designing and selling the switch and network machinery that makes modern telecommunications and the internet possible. This was indeed a hi-tech business.

But the really convincing thing was the customer base this thrusting Chinese company already had.

I had had the prior conception that this was a classic developing-world company, supplying a fast-growing home market with cheap machines "inspired" by Western research and development.

Start Quote

The Americans argue that Huawei might just be a Chinese internet Trojan horse”

End Quote Peter Day

And indeed there's been litigation between Huawei and a notable US rival, Cisco, over intellectual property. Even so, 10 years ago, Huawei already had a convincing A-list of international customers, proudly touted in its flashy corporate videos.

Surely companies such as British Telecom would not involve themselves with a dubious supplier?

In a world hungry for connectivity, a new competitor for the existing oligopoly of companies such as Ericsson, Alcatel-Lucent and Nokia was very welcome to the big spending telecoms network companies creating vast new communications infrastructures.

(There were no big American names on Huawei's customer lists, though. There still aren't. I will come back to that later.)

'Unknown company'

Nevertheless, there were several obvious mysteries about Huawei 10 years ago. Some of them I now understand, some of them have been explained. But some linger on, to the detriment of the company.

Thinking about them tells us a lot about the new imperatives of our utterly interconnected wired-up world, its vast potential and its frightening dangers.

Huawei has moved into making mobile phone handsets Huawei has moved into making consumer products

First of all, who and what is Huawei? It has 150,000 employees, and a worldwide business-customer base. Yet even its top executives admit it's the least famous big company in the world.

The company started life in Shenzhen, close to Hong Kong, in 1987. Its shy founder, Ren Zhengfei (still in charge), was a former engineer with the Chinese army who saw a unique opportunity developing in China's non-metropolitan areas.

The booming "first-tier" cities Shanghai and Beijing had already been equipped with new telecoms networks by the leading Western equipment suppliers.

But the Westerners were wary of much of China. Mr Ren set up Huawei to import foreign telecoms equipment and sell it to that China unknown to overseas firms.

It was a booming market. Chinese municipalities were anxious to catch up with the modern world pioneered by the first-tier cities.

To help the business grow, Mr Ren hit on an ingenious Red Army sort of way of drumming up the investment Huawei needed. He asked his growing number of employees to supply the cash. In return, he made them shareholders.

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It now seems a bit rich for the Americans to object to cyber-spying, when they are doing such huge amounts of their own”

End Quote Peter Day

The company says that workers and pensioners now "own" 100% of the company. One of the employee shareholders is Mr Ren; he's got the biggest stake, 1.4% of the company.

This strange status of a worker-owned collective puzzled me when they told me about it 10 years ago, and it is still puzzling. The role of chief executive is also rotated every six months, even more puzzling.

The uncertainties of ownership is one of the features of Huawei that seems to have made the US government very suspicious about the company.

Another thing I did not understand 10 years ago was how so many of the Huawei employees were involved in research and development - more than 40% of them, they said. It sounded an impossibly large proportion for a company that made so many large and complex boxes containing so much complicated technology.

But think about it, and you'll realise that this is a business that has adopted the model of the many Western companies who rushed into China to get their products manufactured there. What Huawei does is design telecoms equipment, then it gets it made by a huge chain of Chinese suppliers.

It's a sort of Chinese version of Apple, with products designed in-house and then outsourced to a Chinese supply chain.

Consumer move

Except that until now, all of this activity has been going on behind the scenes. Huawei's customers were giant international companies, not consumers. It was a business-to-business brand.

BT logo British Telecom is a big customer of Huawei

But as it matures, the company is increasingly nagged by a lack of brand name recognition. It is, after all, one of the largest Chinese businesses.

To tackle this, the company has recently rolled out a cascade of mobile devices, phones and tablet computers. They are linked with Huawei's core business, telecoms. They give its own corporate customers new products to sell to their retail customers.

But the smartphones and the tablets may also make Huawei's name into a consumer brand name. If, that is, it can deliver the features and the styling savvy consumers seem to need, in a devilishly competitive market place. China is - after all - the biggest smartphone market in the world.

The phones and computers made a brave new show in Huawei's huge showcase building in Shenzhen when I paid a return visit a few months ago. It recently launched - in London, to emphasise its international credentials - the thinnest smartphone in the world. I'm told such things matter.

So here is a worker-owned Chinese company, with a huge investment in research and development unusual in China, producing hi-tech equipment in demand all over the world. It sounds remarkable.

US protectionism?

There is just one fly in the ointment, and it's a big one. One huge world marketplace is to a large extent closed to Huawei - the USA.

The Americans are wary of a company whose equipment plays such an important role in the global telecoms infrastructure being run out of China, especially when its ownership is still pretty opaque, or at least puzzling.

American legislators have issued disquieting reports highlighting fears that every Huawei machine has a kind of secret back door engineered into it so that Chinese cyber-snoopers can snap up from afar invaluable corporate, economic or geopolitical secrets. Vehemently denied by the company, of course. Huawei maintains all this is US protectionism.

But it is already well known that Western organisations are being bombarded with a torrent of internet hacking seemingly originating in China. The Americans argue that Huawei might just be a Chinese internet Trojan horse.

To counter these fears, Huawei is trying to internationalise itself. It has hired some top Westerners for key corporate positions to try to demonstrate its transparency.

The UK is obviously regarded as a beachhead to the Anglo-Saxon world. Huawei has some well-known British worthies on its local board.

And to convince the government that vital UK customers such as BT are not being sold switching equipment that gives China backdoor access to state secrets, Huawei built a special unit in Banbury that vets the company's equipment for security before it is dispatched to UK clients.

Of course, in the past few months these security concerns have been put into an entirely new perspective by the revelations about government snooping disclosed by former US National Security Agency contractor Edward Snowden. It now seems a bit rich for the Americans to object to cyber-spying, when they are doing such huge amounts of their own.

Surely it has been obvious since the start of mass use of digital, scannable telecommunications that the authorities would use everything they could get their hands on to monitor messages and data and searches and everything else. What did anyone think they were doing at GCHQ in Cheltenham?

The internet is a Faustian bargain, and that discomforting fact ought to have long been apparent to its users. Mad magazine had it right all those decades ago - technology has moved us into a world of Spy v Spy, theirs against ours.

But whether that's got anything to do with Huawei, well maybe only the spies really know.

Peter Day Article written by Peter Day Peter Day Global business correspondent

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