Thursday, 27 January 2011

A lesson from China

Why Not? By Wong Sai Wan

Huawei Technologies Co Ltd is a tale that could have easily been a Malaysian one if only we had taken the route blazed by the Chinese firm.

IN the late 1970s, telecommunications companies worldwide were investing heavily into PBX (Private Branch Exchange) believing it to be the future of the industry.

It was the in-thing then to have your own telephone exchange and operators to make and receive as many calls as the system allows through a single telephone number.

But when the world went cellular, most of these companies abandoned the PBX system for wireless telephony.

While some went into the actual business of providing cellular phone services, others went into production of the phone itself.

Yet others turned their attention to solutions for the industry.

Of course, there were some who went into all three aspects of the business. Scandinavian companies Nokia, Ericsson and Benephone were among those that had their fingers in every pie.

Here in Malaysia, it was no different. Our telecommunications giant in the mid-1980s was a company called Sapura Telecommunications Bhd under the stewardship of Tan Sri Shamsuddin Abdul Kadir.

Sapura then owned a flourishing PBX system business with many of its solutions largely developed locally, a thriving public phone box business – also with many locally-developed technologies – and a cellular phone network called Adam with the prefix 017, which was eventually bought by Maxis.

Sapura was a company way ahead of its time, like Google or Facebook. I remember being introduced to its then head of technology at a warung outside its headquarters in Wangsa Maju.

He showed me a cellular phone they were working on, thin as any digital phone we have today.

A state-of-the-art item then, it had all the fancy buttons and functionality that we take for granted today.

Sapura was then the company to work for, and Shamsuddin and his sons Sharil and Shariman were looked up to, as how we look up to Steve Jobs of Apple fame.

Shamsuddin ploughed back much of the company’s profits into research and development. It even had R&D centres and manufacturing plants in the United States.

But for reasons best known to Shamsuddin, Sharil and Shariman, Sapura gave up the telecommunications business. It is now an oil and gas company.

I will not speculate on why they did it, but wonder what might have been had they stuck with it.

At about the same time as Sapura was making headway in the telco industry, an ex-People’s Liberation Army (PLA) officer Ren Zhengfei – among hundreds of thousands then “retrenched” – was told by Chinese leader Deng Xiaoping to go forth and venture into business.

Ren did just that and set up Huawei Technologies in a small area outside of Shenzhen, which Deng had just declared as a Special Economic Zone. Like Sapura, Huawei’s initial venture in 1988 into the telecommunications business was in the realm of the PBX.

It stuck with this business for four years, with most of its customers in Hong Kong.

But when the world started going cellular, instead of trying to get a licence from the central government in Beijing, Ren turned the company’s attention towards providing solutions for cellular telephony.

As Ross Gan, Huawei’s corporate communications worldwide head, tells it, Ren recognised the importance of being a solution provider – both hardware and software – in the industry, and the importance of providing these solutions in the rural areas, away from the more established competitors.

In the early days, switches, base stations and networks were realms of the likes of Scandinavian giants Ericsson and Siemens.

Investing in the rural areas meant Huawei had to come up with the most efficient and hardy hardware. Today, that is being put to good use all over the world.

By 1995, Huawei had generated sales of about US$18.4mil (RM56.2mil), most of which came from its efforts in the rural venture in China.

It only expanded into the urban areas three years later. Ren knew that if Huawei were to take on the best at home and abroad it had to benchmark itself against the best – including international consulting companies IBM, Hay Group, Mercer, PricewaterhouseCoo­pers (PWC), and Fraunhofer-Gesell­schaft (FhG).

With the rest of the world admiring the economic miracles of China and India, Huawei, in 1999, set up the first and largest R&D centre in Bangalore.

The centre is still among the most advanced not only for Huawei but also for the whole of Bangalore today.
The following year, its total sales from the international market alone reached US$100mil (RM305mil).

There has been no looking back since. Huawei’s growth since then has been phenomenal. Of course, like most Chinese companies, its Western competitors accused it of all sorts of misconduct – from being “re-engineering experts” to “price under-cutters when tendering for projects”.

Whatever the truth may be, Huawei has left its competitors behind. Among its achievements:

> OVER 100,000 people are employed by Huawei worldwide;
> IT remains a private company, with 98.58% owned by the workers through the Union of Shenzhen Huawei Investment & Holding Co Ltd; Ren holds just 1.85% equity;
> LARGEST applicant under the UN World Intellectual Property Organisation’s Patent Cooperation Treaty programme with 1,737 filings lodged;
> PROVIDES software and hardware solutions to all European telcos and 45 of the world’s top 50 players;
> DEPLOYED the world’s first Long-Term Evolution (LTE) commercial network for TeliaSonera in Oslo, Norway, in 2009, and in the same year was awarded a contract to build the world’s largest LTE network for Telenor in Norway; and,
> ACHIEVED US$3.1bil (RM9.5bil) profit from total revenue of US$21.8bil (RM66.53bil) in 2009.

The management also recognises the importance of talent and research, says Gan, pointing to the fact that over 46% of its employees are engaged in R&D.

Of this number, a little over 70% have a Masters degree, and their average age is 29.

Huawei is now among the most exciting companies to work for in China because of the management style of Ren and his team, as well as its emphasis on the future.

But here in Malaysia, to most people on the street, Huawei is the plug and play USB modem commonly called the dongle by those in the industry.

The company was the first to come out with such a modem, which is now widely used by many Malaysians to access the Internet via mobile broadband.

Huawei has been in the country for the past decade and the country’s three main operators (Maxis, Celcom and Digi) are major customers of this Chinese giant of a company.

Someone in China could have been writing a similar article about a Malaysian company if the likes of Sapura had stayed in the business.

> Executive editor Wong Sai Wan was more than impressed with the Chinese company’s head office in Shenzhen and noted the numerous signboards pointing to Huawei City all along the expressway.

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