Can Huawei become China's first global brand?

By: Lina Yueh

Chinese goods are everywhere it seems. But few are name brands and most are associated with being cheap consumer electronics or white goods.

But one company is seeking to change that. Huawei may not be a name that many people in the West are familiar with, but that could be about to change.

The firm is the first Chinese brand to break into the ranks of the top 100 best global brands, according to Interbrand.

It is the world's biggest telecommunications company and one of the most innovative. It makes the networks that power the internet and mobile phone networks. If you took a peek, you'd find that Huawei is used by BT and Vodafone as they make the USB dongles that provide mobile internet access. They also now make smartphones.

But even if Huawei is technologically competitive with the big players, can it go that extra step and convince global consumers?

In other words, can Chinese companies transform innovation into desirable brands? The answer to that will matter for China's future, as the world's richest countries all have that in common - the ability to produce globally competitive companies.

To find out, I gained unprecedented access to Huawei and its premises. Traditionally media-shy, its current chief executive spoke to me in the first broadcast interview ever given by one of the rotating bosses.

Huawei's sprawling campus

Unlike most other Chinese companies, Huawei has a sprawling campus that is reminiscent of Silicon Valley. The green, open environment is designed to encourage innovation, collaboration, and they even provide on-site basketball courts and ping pong tables.

I met a young engineer who says that Huawei is the place to be for Chinese graduates. He tells me that all of his classmates want to work for a global, innovative company and they call themselves Huawei-ren or Huawei people. They are the Chinese version of Googlers.

The company provides leisure facilities on-site to encourage innovation

However, there are obstacles for Chinese private companies. It was only in the late 1980s when consumer markets developed. This is as the centrally planned economy was liberalised and private firms emerged.

But state-owned companies still dominate key sectors of the economy and they get the bulk of bank credit. Huawei was established in 1987 by Ren Zhengfei with five investors who each put in 3,500 yuan. They imported telecoms equipment from nearby Hong Kong, just across the Chinese border.

Huawei also faces specific challenges as telecoms is an industry that can engender suspicion of industrial espionage. Ren's stint in the Chinese army is a cause for concern in the US and other places such as Australia. Huawei denies all of the allegations made against the firm but it is still banned from bidding for US government contracts.

Yet by not being a state-owned firm, Huawei could not rely on government policy that promoted Chinese-foreign joint ventures to gain technology and know-how. Instead, the company innovated and did so cheaply, undercutting competitors to gain market share.

Workers at the company call themselves Huawei-ren

Another difference in the Chinese attitude towards innovation is that firms like Huawei innovate to serve a market need. In other words, they don't create something new and then look for a market for it.

For instance, I got to step inside one of their anechoic chambers. It eliminates echo so that they can test for interference from their antennae or handsets.

It's one of only a few such chambers in the world, but they tell me that their competitive advantage comes from their data. As they are in 150 countries and over one-third of the world's population uses their products, they have more data with which to test and then fine-tune and improve their products.

But the next stage still needs to be invention - something which is certainly recognised in China. Spending on research and development (R&D) has quickly risen to be among the highest in the world at about 2% of GDP.

Tech companies like Huawei consistently spend over 10% of their revenues on R&D, which is in the same league as the biggest global innovators. Half of Huawei's 150,000 employees work in R&D and it holds an impressive 49,000 patents, making it one of the top five patent filers worldwide.

Of course, spending on R&D doesn't necessarily translate into innovation. For instance, around a quarter of Chinese patents are in design, which are thought to be less innovative than invention patents. In the US, the figure is less than 10%.

But Huawei is working on cutting-edge research that I got to hear about, though didn't get to see, as it hasn't hit the market yet.

I met one of their top scientists, Prof Yang Qiang, who works in what Huawei calls its Noah's Ark. It's where they focus on innovation that could be used in five to 10 years.

He said that they are working on a universal translator where people can speak to each other in different languages and the software translates meaning and not just words. It sounds like Star Trek.

The artificial intelligence can even interpret jokes. So, I tried one: why did the chicken cross the road? (Answer: to get to the other side.)

So how would the same joke be told in China? According to Prof Yang: how do you put an elephant into the fridge? You open the door, and put it in.

The company is keen to show off its investments in R&D

Huawei's next strategic move is to make its name known not just to industry insiders but to the seven billion people around the world, chief executive Guo Ping tells me in the first ever broadcast interview the company has done.

He believes they can take on the market leaders because their innovation is centred on customer needs. But can they get global customers to choose their smartphones over Samsung and Apple?

The thing about history is that it rarely repeats itself. One advantage that Chinese firms have is that their home market has more than a billion people so they start with the advantage of scale. So it's possible that China will be the source of the next global giants.

Huawei is racing to develop a 5G network where a film can be downloaded in seconds

But its path is likely to be different.

In the 1980s movie Back to the Future, Michael J Fox's character Marty McFly travelled back in time to the 1950s. He met a scientist who demanded proof that he was from the future.

After Doc Brown scoffs at the idea of an actor (Ronald Reagan) being president, Marty points to the TV and says that in the future, Japan makes the coolest gadgets like VCRs. Doc turns to him and says now he is convinced that he's not from the future since "Made in Japan" is synonymous with cheap, low-quality stuff.

In roughly 30 years, Japan rivalled the United States and became the world's second-largest economy. Japanese manufacturing transformed from producing low-cost goods into launching world-beating companies such as Sony, Toyota, etc.

Now China has overtaken Japan economically, so could its companies become the next global competitors? Can "Made in China" become "Designed in China"?

Huawei is close and if it succeeds, that would point to whether China can make that difficult leap from imitator to innovator. And that could help China become a prosperous nation.

Credit: http://www.bbc.com/news/business-29628044