Huawei? Who are they? Meet the coy colossus of China

Andrew Murray-Watson reports from Shenzhen on the telecoms giant that wins contracts round the world but keeps quiet about itself
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The Independent Online

The last (and only) time Huawei made headlines in the UK was when it emerged two years ago as a bidder for Marconi, the British group that had come close to collapse after a string of disastrous acquisitions.

Marconi hoisted the "for sale" sign after it lost out on a key contract to build part of BT's next-generation network, 21CN. It was Huawei, a little-known Chinese company, that picked up the work instead.

Today, the rump of Marconi is a small, anonymous part of the sprawling Ericsson empire. Huawei, by contrast, is one of the largest telecoms equipment manufacturers in the world.

Its headquarters is more like a small town than an office building. Located a few miles from the centre of Shenzhen, the Chinese city that neighbours Hong Kong, Huawei's campus stretches to nearly a square mile. A three-lane highway runs through the complex.

The company's chairman is in the habit of visiting a different country, noting the architecture he likes and putting up buildings of the same design at Huawei's HQ. Hence there is a large office complex that bears a close resemblance to the White House in Washington and a "chill out" area for staff that looks like a Bali beach hut.

Over 20,000 staff work here, while 3,000 live on site in a residential area that has schools, playing fields and all the other trappings of urban living. There is a massive research department, a highly automated distribution centre that handles 30,000 different raw materials but only employs 38 workers, and a manufacturing complex.

In 2005, when it made its abortive bid for Marconi, Huawei had turnover of $3.8bn (£1.9bn) and net income of $681m. Last year its turnover was $8.5bn, with revenues of $512m. It now holds over 20,000 patents and counts most of Europe's major telecoms companies among its customers.

Its relatively low profile is explained by the fact that in Europe it does not sell directly to the consumer. But in the UK, for example, its technology will play a key role in the country's telecoms infrastructure.

BT's £10bn 21CN project will create a next-generation telecoms network with an unprecedented bandwidth and speed. For Huawei, winning this assignment was a bridgehead to an assault on European markets that has accelerated over the past two years. Its customers now include Vodafone, Orange and Telefonica, to name but a few.

While it is easy to marvel at the scale of Huawei's operations, the company, like China itself, remains opaque to the outside observer and has yet to embrace the transparency of Western businesses.

It was founded in 1988 by Ren Zhengfei, a former officer in the People's Liberation Army. Little is known about him or his fellow board members. A company spokesman says it began as a third-party reseller of other groups' telecoms devices, before selling its own technology to the domestic market. Huawei has apparently never had any outside investment, although its expansion has been funded in part by unspecified loans from nationalised Chinese banks.

All of its shares are owned by 60 per cent of its employees and Mr Zhengfei now only holds 1 per cent of the equity.

But Mr Zhengfei and his fellow directors never give interviews. In fact, in Huawei's annual report, the identities of the board members are not even mentioned. Instead there is a message from the "executive management team".

While this may seem odd from a Western business perspective, it is more normal in Chinese culture, where it is bad form to boast about success.

In a rare interview, Hu Zhijun, chief marketing officer says the lack of transparency only applies to the public and not to its customers: "The telecoms industry has a small overall base of companies – about 500 operators globally – and we are fully understood by our customers."

In addition, Huawei is audited every year by KPMG, the accountants, and its annual report gives a modicum of information about its operations and operating performance.

Still, questions remain about who is ultimately responsible for the company's behaviour and performance, and arguably it is this that has made it harder for Huawei to break into new markets. Not that there seems to be much wrong with its technology. The company employs 30,000 R&D engineers across the world. It has development bases in Stockholm, Bangalore, Moscow, Dallas and San Diego, and 10 per cent of group revenues – some $1bn this year – is spent on R&D. Although this is low in absolute terms compared with the sums spent by rivals like Ericsson, Huawei's low cost base gives it a distinct edge (as Marconi found to its cost in 2005).

"R&D cost is largely made up of the cost of people," says Mr Zhijun. "But to hire a Chinese engineer costs about a sixth of what it does to hire an engineer in America or Europe."

In the company's giant exhibition hall at its Shenzhen base, the scale of Huawei's ambitions becomes clear. As well as network equipment for fixed-line and mobile telecoms operators, it has a thriving terminal division which supplies devices such as mobile handsets, video-conference phones, wireless internet routers and 3G data cards for laptops.

All visitors, or rather "distinguished guests", are ushered around the vast hall to marvel at Huawei's technological achievements. In total, the company shipped 27 million such devices in 2006 and a further 17 million in the first half of 2007, including three million for Europe.

Most of its products to European markets are "white label" goods, which carry the operators' brands. For example, Hua- wei makes one of Vodafone's most popular 3G mobile phones, called the V710. Nearly one million of the devices have been shipped so far.

Huawei has achieved what most Chinese companies have failed to do: it has become a genuine global giant. However, until the group opens the door to its boardroom, as well as its exhibition hall, its achievements will remain open to question.