JP/18/HUAWEI

Huawei harbors global telecommunications ambitions

At a glance, it could be any university campus with studious young men and women continually strolling to and from their rooms carrying books and laptops. Its residents also like to call their huge compound a campus.

However, this is not a university. The vast complex is the Shenzhen headquarters of Chinese telecommunications equipment giant Huawei Technologies, where at the noon bell thousands descend from their gleaming office towers and march like factory workers past manicured lawns and soaring palm trees to the cafeterias.

The campus-type complex is like a mini-village housing graduate recruits -- engineers and scientists -- who are the main young business and technology brains behind the company's high- tech product portfolios.

Huawei's impressive headquarters facility is surrounded by a number of sleek stone and glass structures that house the company's various departments.

The headquarters and its huge research and development (R&D) center -- more than 45 percent of Huawei's 35,000 employees are engaged in R&D work -- is a testament to the company's confidence and global ambitions.

Even its main rivals in the developed countries now express great respect for Huawei's rapidly growing R&D capability, with its highly skilled, yet relatively low-paid engineers.

And, judging by Huawei's stunning track record, the strategy is working, as can be seen from the broad range of its products and market acceptability of its equipment in 90 countries around the world.

Set up in 1988 as a PABX distributor with a few thousand dollars-worth of sales, Huawei has grown into China's largest provider of telecoms infrastructure equipment and associated software.

It has more than 40 percent of the domestic market for fixed- line switchers and 55 percent of the transmission equipment market, with domestic sales totaling US$3.3 billion in 2004 and $1.70 billion in the first half of this year alone.

Through foreign partnerships and its own extensive overseas sales networks, Huawei has also turned its international business into a multibillion-dollar operation, generating US$2.28 billion in international revenues in 2004, up 117 percent from 2003, according to the company's annual report.

In the first half of this year alone, Huawei booked $2.47 billion in international sales revenues.

Impressive portfolio

Huawei has developed an impressive portfolio including wireless products (UMTS, CDMA2000, GSM/ GPRS/ EDGE and WiMAX), network products ( NGN, xDSL), optical network and data communications, value-added services (intelligent network, CDN/ SAN and wireless data), and mobile and fixed terminals.

Huawei Technologies, nearly unknown before the telecoms bubble, has become an overnight sensation in its aftermath. Based in China -- where labor is cheap and engineers plentiful -- telecom demand is still rising and local companies are often favored. Huawei is now a tough competitor for Western suppliers.

However, Huawei's Director of Corporate Communications, Fu Jun, denies that his company focuses on the lower end of the telecoms equipment market.

"Our main competitive edge is our ability to meet customer requirements and, by doing that, we can still produce gross margins of between 40 percent and 60 percent," Fu says.

"Huawei possesses leading and quick service supply capabilities in the development of telecom value-added services, which deliver good platforms for service providers to implement original applications globally," noted Laurent Mayer, president of 123Multimedia, the biggest content provider in France, at a seminar in Beijing recently.

True, Huawei still stands deep in the shadows of industry heavyweights like Nokia, Lucent, Alcatel, Dell, Cisco Systems Inc. and the Nortel Networks Corporation. But its domestic and foreign sales to developed and developing markets have grown by leaps and bounds, especially over the last five years, thanks to its expanding partnerships with foreign technology suppliers.

Huawei can now legitimately claim to be a world-class telecom supplier, the most global of any Chinese company that has succeeded in penetrating what formerly resembled a gentleman's club of suppliers for mobile network infrastructure.

Last year, for example, Huawei out-competed many rivals, including Alcatel and Siemens for rights to build 3G (third- generation) wireless phone networks in the United Arab Emirates. It asserted its American ambitions by tying up with 3Com, the arch rival of Cisco. Huawei also clinched a contract with Dutch operator Telfort for 3 G network infrastructure that could reach the value of $500 million.

The company won over $400 million in contracts in Africa from telecom operators in Kenya, Nigeria and Zimbabwe covering third- generation (3G), NGN, optical transmission, switches, routers and intelligent networks products.

Huawei has also become one of the mainstream equipment suppliers in Indonesia. It has signed a deal with PT Excelcomindo in Jakarta to provide a customized network solution covering many isolated islands.

The project will deliver GSM and GPRS services to 40 percent of Indonesia's 220 million population. The company has also set up a 3G trial network in Bali.

Accessing Western management techniques

From the outset, Huawei has been fully aware of the problem inherent within many Chinese businesses -- top-down management. It therefore early on set up partnerships with foreign management consultants that offered the best expertise in their fields: With IBM (in IT projects and process reengineering), Hay Group (in human resource management), PricewaterhouseCoopers (in financial management) and Germany's Fraunhofer Gesellschaft (in production management and quality control), to ensure a world-class performance by Huawei in all areas of its business.

This leaves nearly half of the company's 35,000 staff free to focus on technology R&D and a further third on sales, marketing and customer service, with about 11 percent of staff working on the production floor.

This ratio of resource allocation and Huawei's investment in R&D, which takes up at least 10 percent of its revenues, is considered by most analysts as the most appropriate for a company that focuses on high-tech and knowledge-based products, such as telecom equipment.

Huawei looks overseas for research and development expertise as well as sales. It set up a big software development center in Bangalore, India -- the software hothouse of Asia -- a research center for advanced mobile technology in Stockholm, Sweden, and two other R&D facilities in Silicon Valley and Dallas, Texas.

The R&D center in Bangalore, designed to tap into India's huge pool of highly skilled workers, already employs almost 1,000 on advanced research and development in telecommunications and networking solutions, especially 3G systems, said Huawei's senior vice president Liu Xinsheng.

The facility also conducts software testing for mission- critical resources and delivers world class technologies, including wideband switching, embedded systems, 3G mobile communications, wireless infrastructure, network management, data communications, intelligent networks, and IP applications like VoIP.

Competing in China has not, as some outside analysts believe, been all that easy. Ever since market reforms and deregulation were introduced into the market, numerous foreign vendors have entered the Chinese market, establishing local production and R&D facilities and hiring local staff for sales and marketing.

"We created from the outset a level playing field for all market telecom equipment vendors," asserted Ms Zhang Qi, a director general at the information and communications ministry at a seminar in Beijing on Oct. 20.

And, of course, Huawei was not the only domestic company to seize the opportunities offered by a booming telecommunications market as a clutch of other Chinese companies have entered the fray as well, including state-owned ZTE Corporation, now the second-largest vendor.

The telecom operators themselves have changed beyond measure. No longer content to follow slavish central directives, they are locked in a fierce battle to deliver real value to their consumer and business customers, and expect their suppliers to be key partners in the process. (Vincent Lingga)