Hard-Wired to Survive in the US-China Trade War

Pedestrians walk past a Huawei store in Beijing on December 28, 2018. - Chinese telecoms giant Huawei expects to see a 21 percent rise in revenue for 2018, its chairman said on December 27, despite a year of "unfair treatment" which saw its products banned in several countries over security concerns. (Photo by WANG ZHAO / AFP)

By David De Cremer

The escalating friction between the world’s two largest economies – America and China – is not only a traditional battle of economic supremacy but spirals down on winning the war on technological advancement and innovation. Huawei, a Chinese global telecommunications company has been the centerpiece of this US-China trade war yet this did not stop it to ascend and become the world’s leading telcom brand. Huawei is hard-wired to survive and their strategies, which include the company’s obsession and passion to provide the best service possible has effectively helped them respond to the present crisis.

 

Since 2018, the US and China have been engaged in a trade war largely involving the use of tariffs. Under the leadership of president Donald Trump, the US has taken a stand to protect their global interests by addressing, among others, the US trade deficit with China ($419 billion in 2018), the possibility of Chinese espionage and the violation of intellectual property rights (IPR). Especially with respect to the latter point of violating IPR, technology takes an important role in today’s digital business environment. It is therefore no surprise that in the context of the US-China trade war, technology companies become part of the conflict. One company that because of this dynamic has become a household name for almost any citizen worldwide is Huawei. 

Huawei is a Chinese telecom giant that was founded in 1987 by Ren Zhengfei in a small apartment in Shenzhen. Since then the company has gradually been building on its international reputation and in 2018 became one of the few US$ 100 billion revenue companies in the world. Specifically, in the fiscal year of 2018 Huawei´s revenue reached CNY721.202 billion (US$105.191 billion) and CNY59.345 billion (US$8.656 billion) in net profit. It makes Huawei a truly leading global company (67% of its revenue is from outside China) that is unparalleled in China. To illustrate how truly international Huawei is as a Chinese company, the company employs more than 40,000 foreign employees (of a total of about 170,000 employees), working in over 170 countries.

Huawei has been widely recognised as a globally leading organisation, but almost overnight became portrayed again as a Chinese company.

This company has been widely recognised as a globally leading organisation, but almost overnight became portrayed again as a Chinese company. The main reason for this change in image being that today they are regarded in the eyes of the US as the poster child of the Chinese government. Huawei became directly impacted by the trade war when the daughter of its founder, Meng Wanzhou, was arrested in Canada. According to the US, in her role as CFO of the company, she violated US sanctions rules against Iran by letting Huawei do business with Skycom Tech. This latter company is noted to work closely with Iranian telecom firms.  These events have put the company in the eye of the economic storm and raised concerns and questions about its international operations. 

To understand how Huawei today in the middle of a crisis situation is dealing with the situation by mean of representing their corporate values, it is valuable to look at their past. Indeed, understanding what made them successful as a company can also explain the way they respond today to the threats imposed on them. In this article, I focus on four important features that are recognised as being pivotal in their growth to become a world leader in the telecom industry. These four features are: obsession with service, focus as guideline, the importance to collaborate and the desire to survive. It is also those features that influence how they respond to today’s crisis.

 

Service

Huawei has earned its global reputation as being driven by the desire and passion to deliver the best service possible (Tao, De Cremer, & Chunbo, 2017). The pursuit of this desire is believed to enable customers to fulfill their dreams by using the Huawei equipment and/or smart phones. One important value that Huawei has to be in the telecom industry is to connect people. To achieve that customers will experience this sense of connection, it is a necessary requirement that Huawei is available 24/7 to provide service.  In fact, Ren Zhengfei clearly postulated that Huawei has the need for: “all our employees to take action. Huawei has only one clear value proposition: serve our customers.” As such, no excuses are in place when it comes down to fulfilling the dreams of their customers.  In the words of Ren Zhengfei, “We will always treat our customers with religious faith … serving customers is the only reason Huawei exists.” 

This focus on serving customers goes far beyond what is the standard within the industry, because Huawei makes the focus on service part of every employee’s responsibility. That is, it should be part of their identity as a member of the Huawei community. For that reason, Ren Zhengfei has introduced the mantra that Huawei should and will promote those who turn their eyes to their customers and their back to their bosses. He even said that: “For those who turn their backs to their customers while focusing on their leaders, we will absolutely let them go. Managers at every level of the organisation should recognise the value of employees who turn their backs on you. You may feel uncomfortable at first, but they are the right people for the company.” The fact that Huawei is also an employee-owned company (Tao et al., 2017), make this mantra of facing the customers, even if you have to forego the interests of your boss, very much embraced as there is no incentive to make customers lose faith in the integrity of their service and products (as this would only harm their own interests).

This no-nonsense attitude with respect to what the real purpose is for each employee, has propelled Huawei into the premier league of the telecom industry (especially so when the quality of their equipment and phones was still lagging behind those of their Western competitors), and remains to be an important concept that attracts customers globally. In today’s crisis, this focus on service and customer first has come to the fore several times. First, Huawei is communicating on a regular basis that they understand that this trade war and the focus on Huawei is hurting their customers. To meet this pain, Huawei regularly launches special actions to make their customers feel part of the Huawei community. For example, in the weekend of 12-14 July, 2019, Singaporean customers were treated on free bubble tea when they showed their Huawei phones and in addition even received some free calling time. Another similar initiative was launched in May 2019 in Mexico when days after the US banned Huawei, a restaurant offered free barbequed chicken wings to their customers who used a Huawei phone.

Ren Zhengfei has mentioned several times that if certain countries do not want them, they will put even more efforts into the countries that welcome them. He added that his main principle is that the customer comes first and nothing will intervene, also not his membership of the communistic party, which has been criticised internationally.

In addition, in the media the company signals that the only thing the company cares about is the interests of their customers and upholding the Huawei community. Ren Zhengfei has mentioned several times that if certain countries do not want them, they will put even more efforts into the countries that welcome them. He added that his main principle is that the customer comes first and nothing will intervene, also not his membership of the communistic party, which has been criticised internationally. With regard to the latter point, he mentioned that how he conducts business and his political convictions are not in an intimate relationship. They can co-exist, because the customer is his primary purpose. These statements, made in today’s trade war context, interestingly share many similarities with stories from the past demonstrating his willingness to do anything for those who are customers. Specifically, several years ago, Huawei was visited by an institutional investor delegation led by Stephen Roach, chief economist for Morgan Stanley. The delegation was met by Fei Min, the-then Huawei’s executive vice president of R&D, to the disappointment of Roach, who said, Ren Zhengfei did not meet with us, a team representing $3 trillion. Ren Zhengfei, simply explained that at the same time he had to meet one of their customers in person and Roach his team were not customers (Tao et al., 2017). 

 

Focus

One attitude that goes along with Ren Zhengfei’s passion to provide the best service possible is the motivation to stay focused on one thing. Of course, the founder of Huawei is clear on what he wants to do and why and as such knows where to invest his energy. This motivation to stay focused was expressed most clearly when Ren Zhengfei noted in 2015 when defining Huawei’s core business to seize strategic opportunities (see also De Cremer & Zhang, 2016): 

“It’s been a rough 28 years. Huawei has remained focused on our strategic business of ICT infrastructure development. Over the past 28 years, over 100,000 people have fixed our sights on a single opening in the gates, charging it over and over again. Huawei’s investment strategy is just that: Fast beats slow. Focusing on one point is actually a fast-beats-slow strategy. That’s why it generates results.”

The founder believes that by staying focused all your potential can be used to move fast. Why is moving fast so important? In an industry like telecommunication where innovation is key, ideas may fade out quickly and replaced by other, newer approaches. Your new product today, may be outdated tomorrow. From this perspective, it is essential for companies to act fast to serve the client in the best way possible. Being focused is in a way also a service to the customer, because intimes of crisis business will not die and customers will not be left out in the cold. It is this philosophy that enabled Huawei in early 2019 to continue their outreach towards customers with the newest products. Despite the crisis situation as it exists today, Huawei brought their first 5G-modem (with their own 5,000 chip-set included) to the market, and appeared as motivated as ever to become the number one in the world.  Especially Western media displayed surprise with this “nothing happened, let’s move on” attitude, which led to conclusions that Huawei is a company solely focused on their products and business (leaving any personal sentiment behind). Their belief in focusing on one thing to become really good, has always been inspired within the company by Ren Zhengfei’s story telling efforts. One famous story being: “We all know that water is soft and cannot cut through steel, but once you use high-pressure water it will do the job. In a similar vein, air is soft, but rocket engines use air to get launched.” In 2019, this “air” example gains even more traction with the 50-year old birthday of the Apollo 11 launch to the moon in mind, which relied on a similar principle to boost their rockets.  Focus is also displayed by means of the dedication Huawei employees show. Once you know what you want to achieve and you devote all your energy and attention to it, you can conquer any problem. This belief came to life during the spring festival in 2019 (Chinese New Year) when 5,000 employees stayed on the job to provide support to the R&D department. Being faced with this crisis, the Huawei community came together even more and forego the most important holiday season to focus on the further success of the company.

 

Collaboration

One important lesson that Huawei learned when they were trying to break into the European market in their earlier years was the value of cooperation. In those days, Huawei was met with hostility and suspicion as their European counterparts feared their strategy of low prices and great service. When the EU started to doubt whether Huawei would be allowed to do business in the EU’s internal market, the company changed its strategy and decided to seek for the help of their competitors. Ren Zhengfei himself realised that rather than competing they had to collaborate and search for some kind of alliance. It led to Huawei engaging in more collaborative efforts and exchanges that eventually led companies like Ericsson to endorse the decision of the EU to allow Huawei into their internal market. 

Huawei seems to have incorporated this idea of forgiveness in their corporate culture where failure by employees should be forgiven by their supervisors and those in management positions should take the responsibility to help improve the skills and performances of these employees.

This lesson created the belief that those who are supposedly your enemies should still be approached and forgiven if it serves the purpose of creating more value. As De Cremer (2018) noted, Huawei seems to have incorporated this idea of forgiveness in their corporate culture where failure by employees should be forgiven by their supervisors and those in management positions should take the responsibility to help improve the skills and performances of these employees. As Ren Zhengfei noted, “Do not discriminate against those who have made mistakes and lagged behind. We need to help managers who have been disciplined, because the purpose of our discipline is to help them rise again. As long as they have rectified their mistakes we should give them opportunities to pick themselves up and reach for even greater heights.”

Today, we see the same attitude emerging when Ren Zhengfei talks about Canada. Ren’s daughter, Meng Wanzhou, was arrested in Canada in November 2018, and this arrest propelled Huawei into global fame in the context of a US-China trade war. Given such circumstances, many would probably take a hostile stand towards the aggressor. Ren Zhengfei, however, has mentioned several times that he wants to collaborate with Canada. First of all, in trying to solve his daughter’s situation as she cannot leave Canada until a decision is made whether she will be handed over to the US or not. Second, and maybe even more important, being a business man first, Ren Zhengfei has emphasised several times that the investments Huawei wanted to make in Canada will still be honored by the company. Specifically, Huawei is still determined to buy land in Canada to build research centers and as such make Canada “Huawei’s global centre for theoretical research.” He explicitly invited Canada several times to join this effort by promoting the idea that Canada will be served well as investors will come to the country and contribute significantly to education and economy.

 

Survival

Ren Zhengfei being an influential leader, obviously also brings his own personality and fears into the DNA of the company. One specific fear of the founder is that his company may die one day. As a result, a main concern the founder carries with him is the question whether Huawei will survive. A famous story is that in times of crisis Ren Zhengfei will, without surprise, say that the fear of not surviving keeps him awake at night. More surprisingly, however, is that when times go well, Ren Zhengfei will still think about whether Huawei will survive. It is thus safe to say that his focus on being able to survive is an important thought in his life. In a similar way, Huawei has a very strong drive to survive and this is illustrated, first of all, in their ability to stay focused on delivering their new products as scheduled and at the same time driving innovation in ways as never before. 

Huawei is very much present and active in newer markets. Specifically, Southeast Asia is quickly becoming a region where the company establishes many strategic partnerships with the major telecom players.

Huawei’s needs to survive and its dedication to the job and customers are necessary. Despite the fact that the company is currently facing an almost existential crisis, the belief that they will be the best in the world remains unchanged – up to the extent that it may evoke impressions of the company being overconfident or even arrogant. The company truly believes that they can remain the biggest in the world and even if the US does not allow them to do business, they have many other customers to serve who want their products. Ren Zhengfei even mentioned that “the world cannot leave us because we are more advanced”. In light of this attitude, it is then also no surprise that Huawei is very much present and active in newer markets. Specifically, Southeast Asia is quickly becoming a region where the company establishes many strategic partnerships with the major telecom players – essentially flowing the same “establish cooperation and create alliances” strategy that they adopted successfully when forcing entrance into the EU market. 

The above also makes clear that Huawei does not appear to be so impressed by the US, and especially not when it comes down to losing them as a customer. Recently, Ren Zhengfei mentioned in the media that the US only represents a small portion of the global market, which underscores the observation that Huawei is willing to pick up the fight for survival. This kind of fight is literally seen in their decision to sue the US on their own turf. With this court case, Huawei wants to show that they are compliant in the corporate governance area and have no direct relationship with the Chinese government. For Ren Zhengfei, the decision to go to court is a natural one. In his view, it is the only thing the company can do, they fight, even though they do not know whether they have a shot at winning.

 

Conclusion

A crisis is a complex and uncertain situation that demands much resilience and adaptability of the company involved in it. Dealing with a crisis event is never easy because organisations have their own ways of how to run the company and expectations of the successes they want to achieve. When crisis hits all these defaults may have to be changed. This will be so much easier if the values of the company help to respond to the crisis in a way that (a) business value keeps being created, and (b) what the company stands for serves as a motivation rather than as an obstacle. With its features of service, collaboration, focus, and survival, Huawei appears to possess those values and as a result seems to keep the company afloat during the intense US-China trade war.

About the Author

David De Cremer is provost chair, professor of management and organisation at National University of Singapore (NUS) Business School, a fellow at the Judge Business School, University of Cambridge, and a fellow at the Hoover Institution at Stanford University. Before moving to NUS he was the KPMG endowed professor in management studies at Cambridge Judge Business School. He has published over more than 250 academic articles and book chapters and is the author of the book “Pro-active Leadership: How to overcome procrastination and be a bold decision-maker and and co-author of “Huawei: Leadership, culture and connectivity”.

References
1. De Cremer, D. (2018). Why forgiveness should be part of your compliance strategy. The European Business Review, May-June, 11-14.
2. De Cremer, D. & Zhang, J. (2016). Why Focus-based Leadership is important to Huawei’s Business Strategy. The European Business Review, May/June, 40-43.
3. Tao, T., De Cremer, D., & Chunbo, W. (2017). Huawei: Leadership, culture and connectivity. Sage Publishing.

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