Huawei has come a long way from reselling and reverse engineering phone switches in the late 1980s to the world’s largest telecom company that’s in the cross hairs of US security establishment. Four factors played key roles in the astronomical rise of Huawei: Hard work, hustle, government’s assistance, and luck.
First, let’s quickly go through the events that led to Huawei’s dominance in 5G.
- A Turkish professor, Erdal Arikan, worked on an obscure mathematical problem in information theory for 20 long years and published a wonky paper in 2009. Basically, the paper was about reducing noise during transmission of data and addressed the so-called “Shannon’s limit” — named after an MIT scientist who published a seminal paper in 1948!
- Arikan studied at CalTech and MIT, but had returned home.
- Sixty years after Shannon’s paper, the professor from Turkey seemed to have solved the problem and called his solution, “polar codes.”
- Arikan himself didn’t think that his polar codes solution would be of any practical use and failed to patent his findings.
- Two years later, he approached U.S. firms Qualcomm and Seagate to see if they would be interested in his theory. Both companies turned him down. American companies were satisfied with a theory called LDPC, which was proposed back in 1960! Big mistake.
- Next year, in 2012, Arikan got a call from Huawei, who asked him a lot of questions but kept the cards close to its chest.
- Huawei’s scientists saw the potential in polar codes. In 2012, Huawei had just surpassed Ericsson to become the world’s largest telecom company. Thus, Huawei was rich and confident to make a huge gamble.
- Huawei invested hundreds of millions of dollars in R&D to turn Arikan’s polar codes into a practical reality. (But Huawei didn’t pay Arikan any fee or royalty).
- Later, with the help of other Chinese firms such as Lenovo, Huawei got its solution accepted in the 5G standards.
- Now, Huawei holds more 5G patents than any other company in the world. Overall, China holds more than a third of all core (or, “SEP”) 5G patents — more than twice as much as the U.S.
Huawei’s success is no doubt based on its culture of diligence and customer service, as a Harvard Business Review article explains. Huawei is known for its “wolf culture” — employees work long hours, with stories of people sometimes sleeping in the offices at night. Huawei’s people also attend the standards committee meetings more often and propose more initiatives than Americans. Knowing that it has a long way to go to catch up with the western corporate giants, Huawei has spent a lot of money on R&D over the years (while U.S. corporations got greedy and spent trillions of dollars on stock buybacks).
Huawei succeeded partly because western companies stumbled badly. Thanks to the financialization of U.S. economy, even tech companies were taken over by bean counters, hedge funds, and other Wall Street types, starting in the 1980s. Soon, technology giants like Western Electric, ITT, AT&T and its Nobel prize-factory Bell Labs were hollowed out. (Bell Labs was behind great inventions such as transistor, laser, Unix operating system, the “C” computer programming language, and several foundational technologies for cellular communication). Driven by profits, U.S. corporations leaned towards software and viewed hardware as cheap commodities that can be outsourced to third-world countries like China.
The biggest prize for Huawei was the fall of Canada’s Nortel and America’s Lucent after the dot-com bust in 2001. Within two years, Nortel had laid off about 70,000 employees. Huawei was just starting to expand outside China, and jumped at the opportunity to hire as many former Nortel employees as possible.
When Nortel went bankrupt in 2009, Huawei plucked Nortel’s smartest scientist, Wen Tong, who happened to be Chinese. Later, Huawei convinced him to move to China and gave him practically unlimited budget to develop the best lab in the world. Wen Tong, of course, was the brain behind the transformation of Arikan’s polar codes into Huawei’s world-class 5G products.
While Americans were propagandized about the wonders of small government and free market, Huawei relied upon the Chinese government for growth. Beijing enabled cheap and plentiful loans; and used diplomacy to open telecom markets for Huawei in developing nations around the world. Chinese government’s generous spending on domestic telecom infrastructure also helps companies like Huawei. By the end of 2020, China will have 700,000 5G base stations, a vast majority of which will be Huawei gear.
From the Great Wall to the Grand Canal 2000 years ago to bullet trains and highways in the 21st century, Chinese leaders always understood the importance of infrastructure. Thus, it’s no surprise that Huawei has remained a “national champion” for successive Chinese leaders.
Hustle and IP Theft
Starting at the bottom pole and facing western giants with extremely advanced technologies, Huawei had to hustle in pursuit of its big dreams. Selling products that were much cheaper than western competitors was one way to capture market share. Many articles have also been written — like this one in Wall Street Journal — about Huawei’s rise and allegations of IP theft and corporate espionage (although most cases settled out of courts).
For example, Cisco sued Huawei in 2003, claiming that Huawei had stolen software codes and even manuals, along with bugs and typos. It was quietly settled out of court. Motorola claimed that a relative of Huawei’s founder (Ren Zhengfei) stole specifications of a base station; T-mobile alleges that Huawei tried to steal information about a robot that’s used for testing smartphones; and Quintel says that it shared some technology when Huawei proposed partnership, and later Huawei simply stole the idea without forming a partnership.
Huawei is alleged to have shortchanged little people as well. A Portuguese inventor — Rui Oliveira — says that he shared with Huawei his patented idea for a detachable camera for smartphones. Huawei rejected the idea at the meeting, but later seemed to have used it.
Cheating small people will generate a lot of bad publicity.
Growing Out of Hustling
When people and countries are poor, they hustle. Ethics and morals get run over by survival instincts. For example, the U.S. stole a lot of trade secrets from England in the late 18th and early 19th century. Industrial spies were openly encouraged, rewarded and glorified — think of the town Lowell in Massachusetts. However, at some point, people and countries have to grow up, play by the rules, and even learn to be generous.
China is now a global economic powerhouse and just behind the U.S. in technological capabilities. China has to elevate its business ethical standards, rule of law, and professionalism. When I went to China last year, I encountered problems that are typical for travelers in developing nations — for example, taxi drivers or even concierge in 4-star hotels ripping off tourists. China has to shed these habits, as it grows prosperous.
Finally, China has to become an innovator — of not just incremental things, but transformative and revolutionary ideas. For example, consider how western inventions like steam engine, electricity, telephone, TV, automobiles, airplanes, plastics, transistors, computers, Internet, robots, Artificial Intelligence etc. transformed the world and humanity.
Western corporations are quite furious at China, partially because China borrows western innovations and eventually takes over the markets. For example, the West came up with solar panels, but now China owns 70% of the global market. Similarly, twenty years ago, Huawei was a nobody in the telecom industry. Now, it’s world’s #1, after having leveraged U.S. expertise.
Well, the good news is that Chinese society is likely to generate innovative, creative, and visionary people. It will take another generation, since children have to grow up in middle class families and must have the luxury to pursue hobbies, imagine possibilities, dream big, dare to think out of the box, and take risks.