Providing_Global_IT_Solutions_from_China_The_Huawei_Story_-_Zhang_Guanjing

Paths International C.... In Madlim Chin... Bu1ln•u Providing Global IT Solutions from China: The Huawei Story -- 1 of 362 -- Providing Global IT Solutions from China: The Huawei Story Edited by Zhang Guanjing +Paths International Ltd -- 2 of 362 -- -- 3 of 362 -- Article I Huawei as a Star flll+•~-+III~......JJ+.<IIL...Lib........L.......LI!II~I ...~II~LI....LI .....IIIII ......IL....Ib...LIIL........oiiii.......~II~··II...LI ...LI-+IIIII~.....IIL...Lfl!o+< ollll.......oiiii........LIIIo+llll+•l~ f Huawei-A star you have to know, a rich fruit of its boss by ! t creatively studying and applying Mao Zedong's Thoughts. Do you + + ; ; want to know the secret of its success? of its successes? t~~~III•......•III•......,""~I ....•II~ ..............,......,....II•...IJ!o...III•......,""......'II•~I ....•I.....I ....... I,.....I,.....Jlo...III•...IJ!t4-•"".....'lll'~l'...'ll ~.....~.. ..... ~,......,..,ll; Chapter I The Four Strategies Making Huawei' s Success 1. 1 The market-oriented strategy The market is the source of all tasks; the enterprise can neither exploit competi- tive products and advanced technologies nor realize all strategies without the success in the market. The market is the life of Huawei Huawei' s nowadays success mainly benefits from the power of marketing and technologies. As a matter of fact, Huawei has just gradually become a leader in terms of advanced technologies in recent years. Its products or technologies were far from being good in previous years, but the marketing employees of Huawei could still sell the products whose qualities were not very well. Therefore, there was a saying to de- scribe Huawei in the industry: "Huawei has the first-class market, the second-class service, and the third-class products." We know that we can make up by the strong customer relationship even if the products are not so good. And we can build the cus- tomer relationship by heavily focusing on customer's requirement and react quickly to meet their requirement, in other words, we can build different types of interest com- munity with customers in different ways. It is the strong marketing ability that has helped Huawei breakthrough in the marketing field continuously, and then it accumulates cherished capitals for itself so that it would acquire the ability to invest more resources into the R&D department and 1 .. -- 4 of 362 -- push forwards the company to improve its products and technologies. Corresponding- ly, the improvement of products' quality and cost effectiveness, as well as technologi- cal content would promote the development of the market even further. In this way, a positive cycle is formed. The market is the source of all tasks; neither can the enter- prise develop products with strong competences or advanced technologies nor can it realize all the strategies without the success in marketing. Without guarantee of the high marketing efficiency, the enterprise cannot accumulate sufficient capital to build or fulfill a variety of incentive plan in Huawei. Especially, 70% of share dividend in Huawei per year is only supported by high profits, according to the "employee stock ownership" scheme which is created by Huawei originally. Huawei has gained great profits from the market in China at its early stage. Con- sequently, it has accumulated enough wealth and power to carry on the strategy of in- ternalization and go into the overseas market. When Huawei opened the international market 11 years ago, it is already the biggest national telecommunication enterprise in China with an annual turnover as high as several billion RMB with a workforce of 4, 000 domestic employees, some individual products had reached the international ad- vanced level(e. g. its switches). And other products have been commercialized and the full product line is in shape, all of them benefit from Huawei's success in the Chinese market. The market is not only the source of all tasks but as well the life of the company. The success Huawei has made is a proof of this viewpoint. The boss of Huawei owned nothing at the beginning of establishing the business. He started his career from a dealer of other companies' products in order to accumulate "the first barrel of gold" till he was capable of building his own team and develop his own products, He accu- mulated more capitals relying on the strong marketing abilities, then the company could employ and unify stronger teams to research and develop more and better prod- ucts to sell them to more customers. Huawei grew from nothing, from small group to a large one, from weak to strong, and is developing and expanding itself step by step. After all, the "source" of all these successes can be attributed to the market. The market is the core of all tasks The boss of Huawei is the most powerful marketing master in Huawei, and the market-related tasks almost occupy his whole working time. For example, it takes him two thirds of time to conduct investigation on marketing in different places in the world every year, expecting to obtain first-hand data on the forefront of the market so that the company could adjust marketing strategies in time, or deploy forces or reg- ulate resources distributions, or collect feedbacks from customers to adjust the think- ing ways in the research and development of new products to meet market demand. -- 5 of 362 -- No matter if he is in the headquarters of Huawei or on a business trip, he will meet or visit the customers' senior executives to explore the "leadership resource". To achieve this objective, Huawei has particularly drawn up some relevant regulations to avoid any ambiguity in operation for all leaders in Huawei to standardize the working proce- dures. Moreover, Huawei makes specific responsibility division of each regional de- partment, representative office and customer base, which means every leader in the company should be responsible for his or her region. It is not only to "do one's duty" but also to take ownership for such "high-level support". During my working in the headquarters of Huawei from 2002 to 2003, I was assigned to be a "high-level support- er" in a regional department. At the same time, I was the "high-level resource" of the company in respect of receiving international customers in daily work; hence, I was well aware of the importance and practical utility of my job. In Huawei, all the lead- ers in the company have to clear the way for the market in spite of whether you be- long to the marketing department or not, because the market is the core of all tasks and is of the highest importance in Huawei. All of Huawei's tasks are based on the market, which is definitely the core of all tasks. First and foremost, it is embodied in the aspect of product research and develop- ment, for example, whether it should set up a product research program or not, or how to define the way of thinking on designing the products and the guidepost in re- search and development, or how to select the technological standards of the products, or how to improve the products to be nicer and the like. These jobs are all carried out according to the prospect and feedback from the market. The bonus of the R&D de- partment is directly linked to the profits of the products, which is emphasized by the IPD process, and also is a key regulation pushed forward to enhance the efficiency and benefits of product research and development in Huawei. In the second place, it is reflected in the service strategy of the company. The service strategy absolutely supplies services to the market segments of the company, as it is an integral component of the company' s overall marketing strategy. Huawei treats "service" as a powerful method to break through the market by matching it with the marketing employees. The high-standard engineering service quality can not only win a good reputation for the company, but also drive customers to purchase more products of Huawei. On the other side, it will take effect on other customers as a mod- el to push Huawei' s products to enter new market segments. Huawei has set up an "experiment bureau", which provides part-testing for new products, is an effective weapon widely used to make breakthroughs in the market through pre-sale service. And another sharpened weapon of Huawei is to build up a model in respect of the sue- 3 ~ -- 6 of 362 -- cessful application of the company's products in the market, so that it can be a "role model" to attract customers to visit Huawei and facilitate their decision making. In fact, it sets to break through the market through favorable post-sale service. In Hua- wei, both the "experiment bureau" and "role model" are the two powerful marketing tools which are commonly used to facilitate the marketing via services. In addition, they are the classical plays shown when customers are invited to visit the ''New Silk Road" in the process of opening up the international market. Thirdly, the significance of marketing is shown in work related to the supply chain, for instance, the foundation of the ISC process is meant to guarantee that the products of the company should be of high quality in both the international and do- mestic markets, as well as to ensure competitive cost and inventory management and quick marketing reaction. Furthermore, the logistics system which is adapted to inter- national competition and the managerial ability in terms of subcontracting and engi- neering are definitely needed. At last, it is manifested by the regulation of job rotation in Huawei. On one hand, the regulation focuses on concentrating all powers of all the sections to support the forefront soldiers in the market, on the other hand, it helps strengthen the mar- keting awareness of the supervisors in other sections. It is well welcomed by the of- fices in the forefront of the market and is proved in practice that the implementation of the regulation has achieved excellent results from the market. I was trained in the form of taking a temporary post in the Inner Mongolia office of Huawei for half a year and obtained an outstanding achievement in the market from July to December in 1998, additionally; the rotation played a real-supportive role in the local market. Many executives at all levels in various sections have the experience taking temporary posts in the frontline like I did, no matter how long or short the time was, or whether they could sign a lot of contracts as luckily as I did or not, this kind of experience has worked very well with regard to fostering the awareness of the market and supporting frontline soldiers by all sections and departments. The marketing deparbnent is the one who received the most investment in Huawei As the biggest department in Huawei, employees in the marketing department ac- count for 38% of the total number of Huawei, and the marketing costs are the highest operating expenses in Huawei as well. At the moment, about 14,500 employees are working in the marketing system out of 38,000 as the total in Huawei, besides, it is said that 10,000 among them are stationed overseas. Moreover, more than half of the overseas marketing employees are Chinese, that is to say, 5, 000 Chinese employees may be long-term stationed from the home in overseas markets. Suppose that the av- erage monthly wage per one employee is 8,000 RMB, equal to US $1000, and the o- -- 7 of 362 -- verseas allowance for each employee is US $ 50 everyday, which will count US $ 1 , 500 every month. Likewise, suppose that everyone goes on business trip overseas once every month, then the airline ticket and accommodation fee will be US $ 1 ,000, then the total fee of the long-term dispatched employees who work abroad per month would be as high as US $ 17. 5 million. If there are no allowances for the local-hired employees in the host country, on the condition that it is all the same as other fees , and then the total amount of monthly fees of local-hired employees is estimated to be US $ 10 million. Both of the two items will sum up to US $27. 5 million, in that way, it can be estimated that the annual direct labor cost is about US $ 330 million in total. Considering the office rental fees and overhead expenses of the eight regional departments overseas and more than 80 foreign offices around the world, internation- al exhibitions, tests and experiment sections, as well as seminars and the expenses of inviting and receiving customers are all counted, depending on my working experience in Huawei for many years, the annual cost for opening up the international market of Huawei should be no less than US $ 500 million, which does not include the cost in domestic market in China. Anyway, it is just a number reckoned conservatively. Huawei is inclined to select the most luxurious office buildings to set up marketing representative offices around the globe in a wish to show the image and power of the company. There is an example of the Asia-Pacific department whose headquarters is located in the Petronas Towers in Kuala Lumpur, the capital city of Malaysia. It is well known that the Petronas Towers is one of the highest and most luxurious sky- scrapers in the world with extremely lavish decoration, which charges very expensive rental without any doubt. And another example is the representative office in Shang- hai. It is sited in the Jin Mao Tower in Pudong District of Shanghai, which is also one of the highest and most luxurious architectures in China. What's more, the rent ranks the top among all. On the other side, it is also a commonly used method and regular business practice to cultivate the market by inviting customers to visit China as well as have a tour in the headquarters of Huawei and see the "New Silk Road". The cost in this aspect is al- so amazing. For the sake of satisfying customers and making them feel easy, Huawei spends money generously. Generally speaking, all of the expense for the customer vis- it, including the tickets, accommodation, diets and tours are all paid by Huawei. And Huawei offers business-class or first-class tickets as well as five-stars hotels for its cus- tomers, a very common business banquet will usually cost more than 1 , 000 RMB. Huawei lavishes in opening up the market, which means that inviting and serving the customers is a vital step to expand its market shares at home and abroad , and it is also regarded as a key measure to open up and maintain customer relationships. There- 5 ~ -- 8 of 362 -- fore, it occupies an important position in the marketing budget It is not an individual case to rent a helicopter or special commercial airplane to serve visiting customers in Huawei, which is another lavish evidence to show how much Huawei emphasizes the importance of marketing. The telecom and IT industry exhibitions which are held all over the world attract more of Huawei' s attention. Since Huawei has started to open the international mar- ket since 1996, it took part in nearly all the main exhibitions that it could be permit- ted to join. It spends money in every exhibition immensely. There are many places to spend money, for example, it is needed to employ a professional exhibition designing company to make several hundred square meters of huge exhibition booth, carry the equipments to the site for display, and organize some technology specialists from do- mestic to overseas to explain and show the technologies on the exhibition site. Above all, it is much more important to invite officers and specialists on the customers' side to visit the exhibition at home and abroad, all the travel expenses are all paid by Hua- wei. In summary, it will cost Huawei at least one million dollars directly or indirectly for each international exhibition it takes part in. In the Hong Kong Telecom Exhibi- tion in 2000, Huawei invited more than 2, 000 customers or partners worldwide, which cost about HK $ 200 million incredibly. The human resource's policy also leans towards the marketing sections in Hua- wei. Firstly, in general, the employees in the marketing department are paid with much higher salaries, secondly, their bonus is linked with the marketing performance closely and directly, thirdly, the standards of various allowances as well as the alloca- tion of the company stocks are relatively higher for these employees. Customer man- agers in the marketing department have the right to "sign the bills" when serving the customers, which may lead to gray income, especially for those marketing gurus who enjoy their lives "easily and comfortably". This is the reason that it often seems a di- rector of the marketing office, who ranks rather low in Huawei, is much richer than a director in headquarter. Nonetheless, the boss of Huawei may regard that as "the clearer the water is, the less fishes are in it", so the "result-oriented'' mentality focu- sing on the performance of salespeople merely leads to less interventions of the cus- tomer managers' expenses, although these expenses are usually huge. The system of the company is to stimulate the frontline of the market to get more orders and sign more contracts; on the other hand, the preferential policy and the investment take effect on unifying and keeping a marketing team with high quality and competence which ensures to push forward the marketing work smoothly. In all, the sustained high-investment in the market segments of Huawei has resul- ted in continuous high rewards and favorable economic benefits, all of which enhance -- 9 of 362 -- Huawei' s confidence and determination to invest in the market as well as guarantee the capability and resources of investment involved. Consequently, there is a virtuous cycle emerged. The substance of business wars is the competition between marketing systems Comparing the marketing competition among companies to war, Huawei would be a "war-machine" with a rigorous organizational structure and complete functions , and the marketing system could be regarded as the "standing army" of the "war ma- chine". The substance of the "business wars" between companies is competition be- tween their marketing systems in real sense. The members of the marketing system in Huawei are made up of "wolves", for the reason that Huawei needs the wolves' sense of smell so that they can find out and seize the constantly changing opportunities in the market and use the power of the teamwork to conquer stronger rivals. Huawei has always been requesting its marketing employees to cultivate and enhance "the nature of wolves", aiming at learning from wolves who are so astute and cruel to enemies with a spirit of boldness, fearlessness and strong teamwork. Furthermore, the horrible characteristic of wolves is that they don't follow the rules and never fight with routine method. They believe in pragma- tism with the purpose of conquering rivals and getting food. It is such a marketing team that not only scares opponents in China but also foreign giants, even the MBAs trained by American esteemed universities have no ideas to handle it, because they have never seen such a team who is "fighting" like wild wolves. Huawei is a war ma- chine that produces such "employees with the wolves' nature" in a large scale to con- stitute its marketing system. The "wolves' nature" is the cultural side of Huawei's marketing system, similar to "software", but it is the organization of Huawei that can enable the "wolves ' na- ture" to come into play in the marketing arena. As far as I am concerned, the market- ing system of Huawei is regarded to be the most disciplined one in the world. There are nine regional departments (including eight regional departments overseas) of Hua- wei established around the world. In addition, it has marketing offices or branches in more than 80 countries with 14,500 employees in the marketing system fighting brave- ly in the frontline battlefields all over the world. Every regional department is a cen- ter where the company dispatches marketing resources and makes decisions. The ma- trix-type organizational structure made up of "strips'' and "blocks" organically com- bines the customer's line with the product line together closely so that they can be in- dependent from and cooperative with each other. That is to say, both "operating" and "selling" would echo and promote each other. The flat decision-making mecha- nism ensures full-authorization and sufficient resources to the frontline soldiers in the 7 ~ -- 10 of 362 -- market. With that in place, the company can adjust ways according to local conditions and make responses as quickly as possible in every battle in the business war. Further- more, thanks to such a managerial mechanism, the high rate of winning every busi- ness battle is guaranteed as well. The organizational framework of Huawei has kept on changing, depending on the change of the market trend. After 2000, at a time that the reform of the telecom sys- tem was underway in China, there were four main telecom service providers in this country, changing from the situation when there had been just one monopoly control- ling the market in the past, and the decision-making authority of the service providers was gradually moving up to higher level. In view of the situation, a reform of the or- ganizational frameworks of all the representative offices in every province and city, in accordance with changes of the customers' system, was carried out under the manage- ment of the domestic marketing department of Huawei. To be more concrete, it es- tablished four systematic departments, directing at satisfying different customer groups, in particularly, it also established a headquarter of customer systems in Bei- jing, aiming at serving the big four service providers(for the reason that all of the headquarters of the Big Four are in Beijing ) . On the contrary, as far as the basic-lev- el customers are concerned, such as those in counties or urban areas (C3, C4), the de- cision-making power of branch offices was gradually taken back by the headquarter and a mass of customer managers at the basic level were transferred, some of whom were supplemented to the marketing teams in Beijing or in provincial- level cities, and others were sent out to reinforce the international marketing force. What is more, the working gravity in the basic-level market was adjusted to improving the en- gineering and service quality. By the time entering 2005, the overseas market of Huawei began to be available for the business on the full scale, and sales in the international market exceeded that in the domestic market for the first time, impelling Huawei to immediately "degrade" the national marketing system, which had been parallel to the international marketing system, to a regional department in China, and comprised the global marketing sys- tem for Huawei together with other eight overseas regional departments. In so doing, it guaranteed Huawei's success in operations as a multinational telecom giant running businesses all over the world, and it adapted to internationalization in respect of the organizational structure. And the national marketing department, which was com- pletely integrated into the international system of the company, is matched to interna- tional standards in respect of cultivation of the domestic market and service. There- fore, the marketing competence of Huawei was improved greatly. With fast expansion in Huawei' s global market and deepening of the process of -- 11 of 362 -- internationalization, the marketing situation will continue to change, thus we can forecast that the marketing system of Huawei will be reformed and perfected to a higher degree. In conclusion, such a strong marketing system is undoubtedly the main basis that ensures Huawei to win every war in the business battlefield. 1. 2 The strategy of core technologies As a high-tech company by which is constituted "a marketing team plus a R&D center", Huawei is engaged in researching and developing as well as selling the prod- ucts up to the most-advanced IT and telecommunication technologies in the world. As a result, the core technology and R&D are the most significant systems to protect Hua- wei' s success. It is one of the four strategies to guarantee Huawei to own the world leading technologies because Huawei believes that the competence of the products is based on the core technology. The investment in research and development reaches world-leading level 48% of the staff in Huawei is put into the research and development department and there are as many as 18,000 engineers out of the total38,000 employees in Hua- wei are working in various branches of the research and development system in the company at the present time. As one of the biggest departments in Huawei, there- search and development department does not only hire the most numerous employees but also gains more funds than any other departments from the company, spontane- ously the salaries and remunerations to the employees involved in this area are much higher than those in other fields. The investment put into the research and develop- ment department accounts for the biggest part in Huawei. For the sake of enhancing the innovation ability to focus attentions on meeting the customers' demands all the time, Huawei persists in putting no less than 10% of its sales revenues in researching and developing products for a long time, especially it has increased the investment in the recent two years further. For example, in 2005, the investment in the research and development department was high up to 4. 7 billion RMB; representing 14% of the total sales in the market in the previous year, either the total amount or the rate was ranking first among the top one hundred electronic enterprises in the electronic industry in China. In addition, Huawei insists on inves- ting 10% of the R&D investments in to pre-researching with the purpose of constant researching and tracking new technologies and new fields. So far Huawei has success- fully launched solutions for new technologies and new application fields such as FMC, IMS, WiMAX and IPTV. Huawei positively takes actions to be adapted to the trend of the prospective con- vergence of networks and business transformation, from the business and application layer, the core layer, the carrying layer and the access layer to the terminal, provi- 9 ~ -- 12 of 362 -- ding a solution from end to end for the whole network, aiming at constructing a u- nique superiority for the convergence of networks in the future. Huawei has established research and development institutes in cities around the world, including Stockholm in Sweden, Dallas and Silicon Valley in the USA, Banga- lore in India, Moscow in Russia, and Shenzhen, Shanghai, Beijing, Nanjing, Xi' an, Chengdu, and Wuhan in China and so on. Huawei has also carried out a globally syn- chronized R&D strategy with the help of a teamwork crossing cultures among different nations. Bangalore research institute, Nanjing research institute, central software de- partment and Shanghai research institute have obtained CMMS level international cer- tification, indicating that the software process management and the quality control have reached the advanced level in the industry. Huawei has been persisting in plunging investment to the standards and patents with a goal to grasp the commanding height of prospective technologies. estandards: Huawei has joined in more than 70 international standardized or- ganizations like ITU, 3GPP, IEEE, IETF, ETSI, OMA, TMF, FSAN, DSLF and so on and presented more than 1,000 papers to these organizations in 2005; beyond that, Huawei has taken the positions of vice-president in ITU-T SG11, president of the technical team in ITU-R 8F, vice-president in 3GPP TSG SA2, vice-president in OMAMCC as well as OMA GS and so forth. ePatents: Huawei occupies 5% of all the fundamental patents in 3GPP, ranked the fifth position in this area over the world (till March 31 51 , 2006). Rfsearch and developnmt bas created amplete product lines with global <Dq)Ctitiveness There are two factors that lead Huawei to gain a lasting breakthrough progress in every aspect of the telecommunication field gradually and dominate a preponderating position step by step in the global market so that a product line, with an international competitiveness owning a full range of categories, abundant products, facilities up and down and an integrated supply chain is formed finally- one is Huawei' s continu- ous high investment in R&D area in the long term, and the other one is the highlighted focus and attention on the research and development work related to technologies for the company. Such an integrated and low-priced product line becomes a very key fac- tor to help Huawei get victories in the international market. (1) WCDMA. Huawei has achieved a substantial progress in the field of WCDMA and turned in- to one of the leading providers in this area by means of chronic accumulation for wire- less technologies as well as relying on the global development strategy and the innova- tion centralized on customers' demands. Up to May, 2006, Huawei has won contracts in 29 WCDMA business networks all over the world, containing Vodafone in the ~ 10 -- 13 of 362 -- Czech Republic, KPN Telecom in Holland, P4 in Poland, Optimus in Portugal, TM in Malaysia, Etisalat in the UAE (United Arab Emirates) and PCCW and SUNDAY in Hong Kong in China and so on. (2) CDMA2000. Huawei is committed to researching and developing technologies of CDMA for more than a decade. Relying on the global development strategy and the innovative concept centralized on customers' demands, Huawei has grown up to be the leader in the global CDMA market and has squeezed in the "top 3" in the CDMA 2000 1XEV- DO market. Based on many years' accumulation of technologies, Huawei launches the CDMA soft switching system on the basis of a distributional structure and a series of leading generation CDMA base stations, together with a leading solution of CDMA 2000 DffiV-DO with a high performance. And finally it makes a perfect joint of IMS and 1XEV-DO Rev. A Besides, it supplies an operational IP network solution at the telecommunication level to bring a long-term appreciation of values for its customers. Huawei provides a CDMA end-to-end solution with a high starting point and high quality, succeeding in meeting the various demands of different customers with the help of such a differentiable solution so that it can set up a mature CDMA network which could face the future trend for the customers. In addition, Huawei possesses a strong business platform and a value chain system that aid service providers to win benefits and develop themselves in an easy way. Huawei is qualified with a high- class and fast end-to-end delivering capacity and an abundant experience in the field of large network construction in terms of network planning, network optimization, lOT and network project implementation. For in- stance, it established the largest CDMA 2000 1XEV-DO network in the Southeast Asia up to date for CAT of Thailand, with 800 base stations in the phase one finished and put into use within three months with superior quality. CDMA products of Huawei have been widely used around the world. CDMA net- work of Huawei has served 40 million users and received 19 CDMA 2000 tXEV-DO business contracts by the end of March, 2006. CDMA soft switching network of Hua- wei has served more than 10 million users in the global market and set up the biggest soft switching network so far in the world in Pakistan. (3) ID- SCDMA In Beijing, there are 300 employees working in the R&D team in TD Tech, which is jointly invested by Huawei and Siemens, dedicated in developing the Chinese stand- ard 3G product-TD-SCDMA At present, the product has passed all the business tests organized by the National Ministry of Information Industry and has acquired bus- iness qualification. This product will create an extra benefit for Huawei and Siemens 11 ~ -- 14 of 362 -- because it meets the domestic standard while the government is working hard to push forward the utilization of the 3G technologies. Relatively speaking, the number of 1D patents owned by Siemens tops in enterprises at home and abroad, on the other side, the number of 1D patents owned by Huawei is also quite a lot. So it can be con- cluded that the number of 1D patents in Huawei- Siemens is much higher than that of Datang-Alcatel, ZTE-Ericsson and Putian-Nokia. In addition, the core network of ID-SCDMA can share the technology of WCDMA (UMTS) , and Huawei has a huge R&D team with 8, 000 employees working for WCDMA as well as it owns more than 5% of core patents in the world with a powerful ISC. Therefore, the 1D products produced by Huawei-Siemens do not only hold a leading position in term of technology but also occupy a strong competitive edge in terms of cost in the market. (4) GSM&GPRS. Huawei sticks to comply with the innovative principle on which focuses the de- mand of the customers all the time. With the support of the global development strat- egy and lasting investment in R&D, it turns into the mainstream provider with the highest growing speed in the field of GSM all over the world. By March, 2006, Hua- wei' s GSM technologies have got an access to use on a business scale in more than 80 countries around the world and have provided services for 120 million users. It suc- cessfully offers GSM solutions to 22 out of the world's top SO GSM service providers and partners with some leading service providers, such as ORANGE, KPN, MTN, MTS, STC, ETISALAT, MIC, TM, MAXIS, OT, 1ELEMAR, China Mobile and China Unicorn, etc. Huawei has deployed GSM base stations with more than 0. 5 mil- lion carrier frequencies on a global scale and accumulated an abundant experience in constructions and maintenances for large networks and networks in urban areas. At the same time, Huawei has got a board range of working experience for its mobile soft switching in the areas of the complex network pattern, project implementation and multi- vendor cooperation. Pursuant to the principle of persisting in investing and innovating without any breaks, Huawei provides the EnerG GSM solution meet the future demands, which will continue to evolve for a long time. The EnerG GSM solution can effectively re- duce the cost in terms of network construction and maintenance and will maximize customer value. The next generation GSM dual-density base station has a great advan- tage in comprehensively improving the performance of network by adopting designing of 3G technology. With more than ten years' experience in constructing and maintaining the mobile network and a wireless service team with more than 5, 000 employees all over the world, plus many local service institutes in more than 80 countries, Huawei is capable ~ 12 -- 15 of 362 -- of providing specialized services and fast delivery for the whole network with high quality. (5) The mobile core network and soft switching technology As the leader in producing mobile soft switching, Huawei holds the greatest share in the global market. It is the first company who established R4 mobile soft switching commercial network in the world, the first provider for a 2G-3G combined soft switc- hing solution as well as the first provider for CDMA 2000 soft switching solution. Now soft switching technology has become the main trend in respect of constructing mobile core networks. The mobile soft switching supports distributed networks and IP bearings and it can enhance the carrying efficiency in the network transmission im- mensely and reduce the cost in operation sharply. Additionally, it supports a smooth evolution of the network to protect the investment of the service providers in an effi- cient way. There are many service providers get benefits from the high- perform- ance, high-reliability and steady maturity of Huawei' s mobile soft switching control devices. Huawei has built the world's biggest soft switching network for China Mobile and the world's biggest CDMA 2000 soft switching network for PTCL in Pakistan It has also constructed the biggest soft switching end office in the world-Mecca end of- fice with a hand of STC from Saudi Arabia. In addition, Huawei has constructed the first soft switching business network in Latin America and Russia separately and be- came the unique supplier for KPN' s core network in Holland. By the end of March 2006, more than 100 networks in over 60 countries have been set up by Huawei' s mobile soft switching and those networks are providing serv- ices for more than 100 million users in the world, accounting for 35% of the total global mobile soft switching market, making Huawei number one in the world in terms of the market share. The PS domain solution of Huawei supports abundant high-speed data traffic business and it is sufficient to meet the need for the core net- work for both current and long-term developments. By June, 2006 the PS domain so- lution of Huawei has widely served for more than 40 million users in over 40 coun- tries, that is to say, such a solution has been used in commerce in a global scale. (6) Wireless network planning. Huawei has over 1, 500 wireless network planning engineers located in more than 60 countries worldwide. Besides, Huawei has more than 40 partners and around 1,100 partner employees specialized in network planning and optimization projects. On the other side, Huawei sets up technical assistance centers in 9 regions respectively- the headquarters in China and branches in Europe, Commonwealth of the Independent States, Middle East and North Africa, the Southern part of Africa, the Asia-Pacific, the East-Pacific, North America and Latin America to ensure the customers' demands 13 ~ -- 16 of 362 -- will get responds timely with high- quality of services. The planning team, providing services for more than 140 million users in over 70 countries around the globe in busi- ness networks such as WCDMA/ CDMA and GSM/GPRS/EDGE, has gathered wealthy experience in network planning and optimization, established a whole set of network planning and optimization solutions which is adapted to multiple scenes. (7) NGN- the next generation network. As the first manufacturer who is capable of implementing the intelligent NGN network for large- scale business use, Huawei pays much attention to the needs of customers and provides diverse end-to-end NGN solutions to meet different customers' expectation in the cause of bringing new business opportunities and creating new val- ues for customers in successions. For instance, U-SYS of Huawei has successfully stepped into markets in no less than 50 countries and regions across the world, inclu- ding the UK, Germany, the USA, Canada, Russia and Brazil and so forth by the end of 2005. (8) PSTN System. As one of the digital PBX products up to the telecommunication level, c&co8 switch was developed successfully by Huawei at the early age of the 1990s. As a core device of the domestic communication networks, c&co8 PBX has found its application on every layer within the network and has been widely used in the range of interna- tional office toll office, relay station, GMSC, local terminal exchange and private network as well as commercial networks, etc. Huawei c&co8 switch has achieved a splendid sales result up to 140 million wires in over 55 countries and regions in the global market by the end of 2005, which is an outstanding contribution to the con- struction of the global communication network. (9) Access Network System. Huawei eyes on customers' demand and help them to achieve success in their bus- iness. The full set of solutions -ADSL, ADSL 2 +, VDSL2, and PON and the like provided Huawei, can meet customer's tactics to allocate bandwidths between stages and offer customers an access network solution that are easy to operate and manage. As the front runner in communication field in the IP era of accessing network, Huawei has a strong power in R&D and long- term innovation ability and has been be- ing committed to providing advanced and future-oriented end-to-end solutions for its customers all the time. The total shipment of IP DSLAM/ MSAN in Huawei has ranked the first place in the world for three years continuously since 2003. As the first supplier who launches ADSL2 + for commercial use worldwide, Huawei is holding the first position in terms of shipment of ADSL2 + on a global scale. The cooperation be- tween Huawei and chip manufacturers, service providers as well as terminal manufac- ~ 14 -- 17 of 362 -- turers in the industry offers a hand to push forward ADSL2 + , VDSL and GPON' s global commercial use. Up to now, the products-DSLAM and MSAN of Huawei have been deployed in more than 60 countries around the world and the users in these countries are sharing their successful experience. (10) Optical network transmission system. Regarded as one of the leaders in the field of transmission networks in the global market, Huawei is devoted to become a strategic partner, who owns distinguished val- ues, with global telecommunication service providers in terms of transmission network planning and constructions, equipments supply, bandwidth operations and mainte- nance operations. The optical networks products of Huawei can be divided into four series, including Long-haul and Metro WDM(Wavelength Division), NG SDH (next generation Synchronous Digital Hierarchy), OCS (Intelligent Optical Core Switch) and SO-NET, together with a full set of network management system catering for di- verse construction demands in raised by all sorts of service providers. According to statistics calculated by Ovum-RHK, a consulting company with a high reputation, Huawei ranks the second position in the optical network market share and takes the first place in the Long-haul Wavelength Division market share in the world in 2005; what's more, it has been staying at the top among the optical net- work market share in the Asia- Pacific region for five years continuously. Further- more, there are more than 410-thousand sets of OptiX series products of Huawei have been put into use in the world and have got a scaled application in more than 80 coun- tries and regions by the end of 2005. (11) Data communication products. As the second largest manufacturer in the field of data communication in the world, the joint venture invested and shared by Huawei and 3COM earned as high as up to RMB 10 billion of sales revenues in 2005. One year later, Huawei completed the acquisition for the main product lines and technological team of Harbor comprehen- sively in June. As a result, it is granted to believe that the parent company of Huawei is likely to rebuild another data communication line, which is completely separated from 3COM in near future. Besides, employees in the entrepreneurial team of Harbor are original senior executives and technological elites of Huawei before. So making the deal of purchasing the most parts of Harbor will play an important role in terms of strengthening Huawei's own power in R&D of data communication. Harbor is committed to researching and developing its products and technologies in the field of data communication and has been competing with 3COM of Huawei fiercely in the past few years. Its technologies as good as 3COM of Huawei and its product lines, which are all in readiness and integrity, are similar to 3COM of Huawei 15 ~ -- 18 of 362 -- as welL It is believed that this acquisition adopted by Huawei is in preparation for consolidating its leading position in this area in the long term. On the other side, it is widely reported and speculated on the media that Huawei has sold out 49% stock right of 3COM owned by itself to JUNIPER. So it is more and more convincible that Hua- wei will rebuild its position in terms of data communication with Harbor's technolo- gies and R&D team. Research and development has enabled internationally advanced prices As mentioned above, the "full-scaled product line" and "low-price" are two key factors to ensure Huawei to win in the global market and advantages in price are as the same as they are in the product lines, they are being realized in the wake of re- searching and developing the products. ( 1) One of the big advantages in cost of Huawei-a relatively low cost in R&D Facing with the same situation as any other high-tech enterprises in the world, Huawei finds that its cost in terms of R&D occupies a big part in Human Resource sec- tion, around 48% of employees are put into the R&D system. Furthermore, the re- search personnel are paid with the highest salaries and the best remunerations among all staffs in all departments in the company. As a result, labor costs in R&D depart- ment will be the most dominant component to make up the cost structure of Huawei. In all, it is shown that the expenditure in respect of research and development de- pends on the cost in labor to a large extent for a company. Although there is a general statement saying that salaries and remunerations in Huawei are much higher than any other enterprises in China, but they are quite low compared with those of West counterparts in the same line. For instance, a junior IT engineer is probably deserved for about 80,000 dollars in Silicon Valley in the USA in total annually, while the number of the reward usually comes down to only RMB 80, 000 for one in the same position in China; a senior technical expert is likely to be paid as high as 150,000 dollars for one year while the salary for the same position may be down to only RMB 250,000 in China. On the other side, it is likely to be a standard for a successful professional manager to get an annual salary of one million RMB in China, while it has been more likely to be a standard for a common professional man- ager to get an annual salary of one million dollars in the U.S. A As far as it men- tioned above, even referring to such companies as Huawei, who is considered as a high- paying company in China, it is more obvious to see its relative advantage in terms of human resource cost comparing with its peers in the West. In addition, costs in other aspects in human resource are also relatively low. So cost advantage is a main cause leading to competitive edges of Huawei's products in the international market. However, both Z1E and Huawei are Chinese companies, why is Z1E not as com- ~ 16 -- 19 of 362 -- petitive as Huawei? For example, employees in Huawei are paid not too much higher than those in ZTE and the products prices for the 2 companies are similar, but why does Huawei have sales revenue several times higher than ZTE? Why are Huawei' s profits, taxes and employees' bonuses much higher in Huawei than ZTE? Why can Huawei make a better profit while ZTE make less when they sell products at the same prices? Therefore, we cannot simply consider the relative value of expenditures for salaries but also compare the efficiency and benefit in terms of products in research and development in different companies. The efficiency of R&D is defined as the amount of R&D workload completed at per unit cost invested by a company. Suppose a company has high efficiency in R&D, its employees in will develop more products than others with the same investment, so the cost in terms of R&D will go down relatively. The benefit of R&D is viewed as marketing benefit created by the product that a company invested and developed through R&D. The higher the benefit of R&D a company gets, the more economic benefits it will create than other companies considering the investment involved in R&D. To some extent, the differences between Huawei and ZTE can be resulted from many causes, but it is mainly embodied in the differences in terms of both the effi- ciency and the benefit of R&D. There are so many factors determining the efficiency and the benefit of R&D while the main insuring factors are tied to the structure and the process of R&D sys- tem. IPD (Integrated Product Development) and ISC (Integrated Supply Chain) of Huawei are regarded as the main tools to guarantee both the efficiency and benefit of R&D. It costs Huawei a lot of money to invite more than 200 experts from IDM, the USA for the process system, spending two years to draw the process system particular- ly for Huawei. Being the core process for R&D operation, the system is running on every segment of the operation and management systems in Huawei from end to end. Neither of the two systems can be seen in any other counterparts in China and they en- able Huawei to develop much faster than its domestic counterparts and to defeat its in- ternational opponents as well. (2) Product cost is constructed during its R&D process First of all, it is known that even for the same type of products, there will be dif- ferent technical standards set on them; and even the same technical standard is cho- sen, there will be different roadmaps or paths; and third, even with the same path, the production engineering could be different; and at last, even if the production en- gineerings are the same, there will be different BOMs (bill of materials) which result in different supply chains in production. While each of the segments forming these factors has a direct impact on the cost, it can be summed up that the cost of produc- 17 ~ -- 20 of 362 -- tion is accumulated in the process of R&D. For such companies with no manufacturing plants like Huawei, all productions and material supplies are all provided by sub-contractors or suppliers. Thus, whether the cost of product is superior or not in the competitions depends on the supply chain management in a significant measure. The management of supply chain should be set- up in the entire process, ranging from research and development to production rather than just a castle in the air. Export processing manufacturers like Foxconn in Shenzhen and Galanz in Shun- de, win their profits mainly relying on their production processes, for the reason that they hire tens of thousands of workers and invest much less in R&D so that they can only choose the way to gain profits by controlling their labor costs. As far as Huawei is concerned, the labor cost is not merely a cost, but also a "fi- nancial capital" or an "intellectual capital", which can accrue values for the company. If it is always under a proper operation, it will turn into the source bringing in profits for the company rather than a burden on the shoulders. A dominant position in terms of cost can be established structurally by a leading R&D instead of reducing or even freezing salaries of employees. Oppositely, with high payments and high bonuses, the employees will be in a cheerful frame in mind, which will encourage them to work hard so that they can make out more products with an edge of competitions spontane- ously. And thus a positive circle is formed. R&D insures the position of outputting technologies West giants choose to merge or abandon some products to shrink their product lines in the international market where is full of fierce competitions. However, it is very difficult to for an incomplete product line to meet the demand of the market, so western enterprises have to complete and make their product lines perfect through strategic cooperation. But what kinds of enterprises are they looking for? The selec- tion standard is very clear : (1) Products made by cooperating with OEM (Original Equipment Manufacturer) must have much lower cost than the self-made products. Products made by Chinese companies are up to this standard. Huawei, Z1E, Pu- tian and Datang are all provided with this kind of advantage in terms of cost which could satisfy this requirement. While cost in manufacturers in India is much lower too, even lower than that in China. Some other developing countries also have strong competitiveness with respect to cost of production, however, please do not forget, this standard is not the sole standard to comply with. ~ 18 (2) Technical level of cooperation partners must reach to the world-class leveL Only a few countries who can reach to the world-class level in the fields of IT and -- 21 of 362 -- telecommunication, while China and India are the two main options. Both of them are capable of satisfying the requirements in terms of cost mentioned above in the first standard at the same time; and they are two big powers in the field of IT industry in the world, but industrial advantage in Chinese manufacturers is different from that in Indian ones. (3)The product line should have a complete string of products and a whole series of supporting facilities as well as a closed supply chain. It is known that only Chinese telecommunication enterprises can reach up to the standard of the three requirements at the same time in the field of IT and telecommu- nication equipment manufacturing. The industrial advantages of Indian enterprises are mainly embodied in the aspect of software outsourcing, so they can be the "big broth- er" in this area in the global market lies in two factors to a large extend-one is that English is the official language in India and the other one is that labor force in India is very cheap. Therefore, enterprises in India could easily get most of software out- sourcing contracts from the customers from the USA and Europe. On the contrary, e- ven the software experts are also paid at a low price in China and they are fairly tal- ented in technologies too. it is a pity that they are weak in oral English in general making it very hard for them to communicate with customers from foreign countries for getting software outsourcing orders. As a result, Chinese enterprises are such "world factories", no matter in the field of producing goods of telecommunication or making IT hardware products that Indian enterprises have no way to compete with due to the latter's very backward and weak foundation of infrastructure. Since I have been to India for several times that I have no words but to describe it as "very back- ward" for the reason that it would hardly see any infrastructure in India as long as it is measured using our Chinese standard. Although all of these matters should be under- taken by their government, while due to the limitation caused by "democratical" insti- tutions, government is lacking of resources and decision-making rights to make it hap- pen. In brief, India cannot catch up with China in the area of telecommunication manufacturing in a short time, and besides there is a long way for it to go in other in- dustrial areas. As a matter of fact, Chinese software' production value is no less than India because the production value of the firmware (or namely "embedded" soft- ware), which is burned into the chips on the hardware product exceeds much higher than the production value of software outsourcing in India. There are only some breakthroughs India gets on some individual products in terms of telecommunication facilities or IT hardware products and it is still far from forming a complete product line to compete with China. ( 4) Enterprises are obliged to get independent intellectual property rights and 19 ~ -- 22 of 362 -- self-independent core technologies. As we all know that Putian caters for the requirements of the three standards mentioned above too, unfortunately it cannot reach the forth one. Putian has cooper- ation with almost all the western giants to build joint ventures, but it has not got any real core technologies from the process of building these joint ventures according to my inferences, no more than some reassembling of SKD and SKD components, by which are "divided" western giants before allocating the products to China. Putian has hardly got any its own core technologies or self-independent intellectual rights in hand except for 1D-SCDMA for which has been being developed many years. All technolo- gies and intellectual properties are in the hands of foreign cooperation partners. Pu- tian is not capable of completing the task by itself. These western giants will find no need to seek for Chinese enterprises for partnership if a solid technical background is available in Putian. However, the situation in Datang is quite different because it pos- sesses both the core technologies and even one of the 3G standards up to the world lev- el. Datang' s problem rests with its oversimplified product line and it has few other products which meet the world standard except for 1D-SCDMA which comes up to 3G standards in China. In conclusion, Datang cannot meet the third standard above and it is not a strategic cooperation partner in the eyes of western giants on the whole ei- ther. That is to say, it seems that Huawei and ZTE are likely to be the only two op- tions for western giants at last. (5) The enterprise must be internationalized up to a very high degree. Both Huawei and ZTE are dedicated to internationalization, but yet there are many big different results between the two companies during the propelling progress of internationalization. One of the crucial aspects to examine how far the internation- alization goes is focused on how widely the overseas market is expanded and how high the market share rate stays. Huawei has more than 10,000 employees overseas, scat- tered in over 80 countries and regions all over the world at present. It reached at USD 4. 75 billion in terms of sale revenues in the overseas market in 2005, accounting for 58% of the total sale revenues as much as USD 8. 2 billion in the global market, and the sales from the overseas market increased up to 108% on a year-over-year basis. During the first six months in 2006, the global sales contracts valued USD 5. 2 billion, 65% was from outputting business. The rate exceeded the overseas contracts rate in the previous year, and the overseas sales revenues was beyond that in the domestic market once again, which came down to turn the company into a de facto internation- alized enterprise operated in the global market. While it is estimated that there are a- bout 3, 000 employees in the overseas market in ZTE at present time and besides its profit was high up to USD 0. 97 billion from its overseas market in 2005, which occu- ~ 20 -- 23 of 362 -- pied 36% out of USD 2. 7 billion as the total sales revenue in the global market in the same period. So regarding to the scale of the international market, Z'IE faces a very long way to go when it is inclined to compete with Huawei. So many products of Hua- wei have been qualified to challenge those from the western giants in respect of their market shares while it seems that Z'IE has not formed a climate in this aspect at all. By the way, IPD and ISC processes in Huawei are completely geared to the interna- tional standard in terms of R&D function and management of supply chain. In conclu- sion, western partners tend to choose Huawei as their cooperation partner in respect of OEM strategically without any doubts. The thing is true in fact. Compared with a good deal of strategic cooperation projects of Huawei, Z'IE's performance seems not so good obviously. On the other hand, as a private enterprise, although Huawei does everything in a very low-profile way and gives out information as few as it can, people run across to hear and get to know it because of its outstanding accomplishment. Op- positely, as a listed company, for the sake of investors and regulations made by stock exchanges, ZTE has to open its strategic cooperative projects out, moreover, it is the performance, and ZTE will not be unwilling to public it? But unfortunately, we have hardly found any reports on this side. Huawei meets all the five standards mentioned above, so it can be the first option to be a strategic cooperation partner for western counterparts. For example, Huawei has cooperated with many grand companies, such as MOTO, 3COM, Alcatel-Lucent, Siemens, NEC and NOR'IEL and the like through strategical projects, acting as a sup- plier to offer technologies almost all the time. The alleged "technological supplier", that is to say, other companies sells Huawei's products through OEM. And the lead- ing R&D ensures Huawei to become the technological supplier in strategic cooperation with foreign partners. However, most of enterprises in China were technology im- porters in the past, among which are some classical cases as a group of projects with joint ventures in Putian. Huawei sets up an epoch-making landmark for Chinese enter- prises by its international cooperation realized in terms of exporting technologies on a large scale. There will be more and more cooperation emerged in future in the wake of more and more breakthroughs in respect of core technologies and independent in- tellectual rights in Chinese enterprises. Huawei, a pioneer in this aspect, has gathered a lot of successful experience in the field, to which is regarded act as an example ref- erenced or a model showed towards every other Chinese enterprise (regardless of whether it belongs to IT or telecommunication industry) who is devoted to joining in the internationalization trend in the field. 1. 3 The strategy of employee stock ownership During the developing history of Huawei, the unique stock ownership system that 21 ~ -- 24 of 362 -- the company is owned completely by employees has played a great role once upon a time. Neither being survived nor developed up to now as far as Huawei is concerned without operating the system. Therefore the strategy of employee stock ownership scheme in Huawei is one of the four strategies resulting in Huawei's success. Regard- less of its success, it is both the most popular issue that causes many disputes in public and it is one of the focuses that all the society concentrates on all the time. The most successful incentive method of "hatching chicken by drawing eggs" in the world As known to all, if there is no capital, we will neither have any chance to unify or maintain a talented team without money nor find any way to encourage our team to develop or sell our products at full spirit. As a result, we cannot obtain any capitals to go further in our developing process. The relationship between capital and talents is as close as that between eggs and chicken. Chicken cannot be hatched out if there is no egg, contradictorily egg cannot come out if there is no chicken either. At the early stage of establishing Huawei, the boss had no "eggs'' or "chicken", so he could only draw "eggs" on paper to make up the number and he drew many of these "eggs" so that an array of "chicken" were gathered together to join in the "hatching" team, it was hardly imagined that the "eggs" which were used to "hatch" were happened to be produced by these "hens" themselves, and they were just attracted and driven by "eggs" drawn by the boss, then produced many real "eggs". Huawei had only 20,000 RMB of venture capital at the very beginning, so it was too hard for it to attract or maintain such a good team via money, instead, the boss made a promise of its future, which would be the internal stock rights and the high bonus system. The method cannot only give employees an expectation and a promise of high returns in the future but also a sense of belonging and a host's sense of respon- sibility, all of which spur on and encourage everyone in Huawei to work hard for the sake of its survival and development. At that time, everyone in Huawei was paid mea- gerly and lived in simple farmhouses, what is more, they often worked for extra shifts and hours, and even worked nights and days for Huawei in order to get allotments, rewards and bonus as well as equity limits from the company at the end of each year, even though all of these remunerations were nothing but just some figures lying on the paper. But they all knew that if the company could not operate well, these figures would be lying on the paper and turning out to be real "number games" for the rest of their lives. On the other side, what gave the employees in Huawei full of confidences for the future are the charming and trustworthy personalities of their boss. Both the boss and Huawei have never made any employee disappointed at all without any doubts, "doubling" performance year-on-year, hasn't failed at any time. The "eggs" ~ 22 -- 25 of 362 -- drawn by the boss are being changed into real "eggs" more and more, along with more and more "chicken" "hatched" out constantly. Consequently, the market is expanded wider and wider, the products are developed more and more and the technologies be- come more and more advanced, as well as the wealth is accumulated more and more by this way in Huawei. In 2000, Huawei's sales revenue exceeded RMB 10 billion and it started to increase salaries, rewards as well as bonuses for employees by a large mar- gin in a bid to change the figures lying on the paper in the past into real cash. It is not originally created by Huawei to offer employees internal stock rights; for we are often told that some bosses are likely to offer some certain proportion's stock rights to professional managers or supervisors before or after Huawei did that, howev- er, such a case on the condition that one company bestows stock rights on tens of thousands of employees and nearly 100% of them hold the stock rights cannot be com- monly seen in big enterprises at home and aboard, let alone it can be operated success- fully to a higher degree. It is very lucky for Huawei to gain successes, at least as far as I am concerned. It comes down to two reasons: first and foremost, Huawei is in the wave of developing telecommunication industry at a high-speed and it is fostered and created to be a large-beneficial company due to the unconventional increasing rate of telecommunication industry in China and the huge demand in telecommunication mar- ket. With a high rate of profits returned from the market, Huawei has been the na- tional NO. 1 enterprise of all nationwide electronic enterprises in terms of paying tax for eight years without a break. Huawei is able to pay all bonuses for employees with- out delay due to its huge profits, so the internal stock right has a great incentive effect on employees all the time. Secondly, it is attributed to the attractive personality and honest morality of Huawei's boss. Huawei has never defaulted salaries, rewards, bo- nuses or stocks paid for its employees so that every employee in Huawei has a very deep trust sense towards the boss as well as the employee stock ownership scheme run- ning on them. From my point of view, it may be not suitable to transplant the scheme of em- ployee stock ownership in Huawei to other companies, due to different industries and their different bosses. Huawei' s success ought to be regarded as a special case, which is a product coming out at that particular time. A good way of raising funds directly from the employees The employee stock ownership scheme of Huawei reflects its effects on two sides- on one side, it aligns and drives its team to work harder and better; and on the other side, it is a good way to accumulate capitals. The scheme is actually a system to collect money from employees to a very great extent too. At the early beginning of its foundation and even during a long period of time later on, the employees in Huawei 23 ~ -- 26 of 362 -- just got very basic wages, while their rewards and bonuses were "rolled" into a system to buy new stock rights. And thus the profit created by employees in the company was actually rolled into operating capitals to the greatest extent regardless of its distribu- tion taken in name. Hardly would Huawei survive or develop itself at that time and e- ven there would not have today' s Huawei if there was no scheme implemented in practice like that. The government has been always monitoring and restricting all kinds of fund- raising activities in the society as we all know, and it draws on the machine of justice to crake these activities, to which has caused losses the interested parties, down with- out any hesitation. The fund-raising activity of Huawei has no significant differences in the form when it is compared with other types of such activities in the society, but it is quite another thing in essential definitely. The differences between them will fall into three major aspects. First, Huawei' s aim to collect money is to raise capital for the company who is engaged in legitimate business and operation and all the parties are internal employ- ees, so everyone in the company is very familiar with its actual operating situation that there is little chance for them to be taken in. Second, the company strictly abides by its credibility and shares out bonus or withdraws equity capital in full on time. Never has a fraudulent conduct occurred in Huawei. Besides, Huawei's management is operated in a very strict way according to a well-organized set of financial monitoring system to guarantee the safety of its cap- itals. Third, the employee stock ownership scheme has been improved consecutively and integrated with the international conventions step by step. On account of pushing forward its internationalizing progress so quickly, Huawei was strapped into financial crisis once again in 2003, so it launched the MBO plan to all general supervisors and elites at all levels, which meant to ration stock rights to employees in light of the book value of stock rights of the company. And employees would only need to pay 10% of the stock right value in cash and the rest capitals were bought from banks under the guarantee of the company. It was said that Huawei fi- nanced a capital around 5 billion to 6 billion RMB in a short time, which met the cap- ital demand of the company and supported its investment in the international market rock-solidly, which led to a large-scale breakthrough and harvest in overseas markets in recent two years. When it realized the function in respect of gathering funds, the MBO scheme put a pair of bigger "gold handcuffs" on all supervisors in the company too because all the money to buy stocks were borrowed from the banks by themselves and were mortgaged at the costs of all their families' properties, which would be un- ~ 24 -- 27 of 362 -- der risks if there was a risk emerged in Huawei. So everyone should work harder and harder to ensure Huawei' s performance can stay in a favorable level all the time. Huawei gained huge profits, stood up to its financial pressure, increased the incentive effect and improved the situation of its balance sheet (the reason was so simple that it increased the equity part by increasing the capital rather than increasing the indebted part by borrowing money from the banks), which was such a good method that re- solved multiple issues. Process evolution to keep pace with the times Huawei has a very complicated stock ownership structure and covers it under- neath in a very strict way so that the outside world knows only a little information a- bout its true situation. All the data recorded in this book are collected from two ways. Some of them are the first-hand information gained and accumulated by myself during my eight or nine years' working experience in Huawei and the others are collected from Huawei people whom I know very well in the circle. I believe that all the infor- mation is in accordance with the facts in the general level. It is said that Huawei collected RMB 20,000 in registered capital at the very first stage and was subordinate to the innovation service center of Shenzhen Technology Bureau under the name of the collective ownership system in 1988, and it didn't get rid of the "red cap" according to the national policy or changed to registered as a indi- vidually-run enterprise, which namely a private company, once again until1997. The so-called internal stock right in Huawei was not registered at the Administrative Bu- reau for Industry and Commerce over the period, because there were no correspond- ing regulations to guide the employee shareholding scheme of Huawei. While there were so many employees in Huawei, as many as tens of thousands, who were always flowing dynamically on their positions because many of them were going in and out of Huawei almost everyday. So there would be no way to manage them if all of them were registered as shareholders in the company. It could be perceived that the em- ployee shareholding scheme running in Huawei at that time was an "internal system" indeed. Without registration in relevant government departments, the scheme was just a staff-funding system without any protection from the government in terms of shareholders' rights of its investors in the strict sense. 70% of Huawei's fixed rate of profits returned from investments could not keep on moving in a long term either, so Huawei hired Hay Group, one of the most famous HR consulting companies in the world, to make some reforms and standards on the employee shareholding scheme of Huawei in a bid to help it catch up with the international convention and strengthen its maneuverability and survivability simultaneously. Huawei carried out a revolution on the ownership structure itself with a goal to 25 ~ -- 28 of 362 -- transform Huawei's stakeholders to a natural person plus a juridical association, fol- lowing the suggestion from Hay Group from 2000 to 2001. The natural person was the boss of Huawei (later it was transferred to Ji Ping serving on the position of CFO) holding 0. 98% stock right of Huawei; while juridical association was the committee of shareholding employees of Huawei, holding 99. 02% stock right of the company. Huawei's juridical association was an employees' foundation that consists of Huawei' s employees (almost everyone in Huawei was involved in). Only the god knows how much the boss shares in, the rate of stock right was the top secret inside Huawei, which was always kept under the table seriously towards the outside world and was not allowed to discuss among employees either. Every shareholder was fully aware of his or her own stock right and bonus but knew nothing of other colleagues' situations in the company. Even for a supervisor, he or she merely knew the direct subordinates without knowing the conditions of other employees in the same or a higher level. When the company wanted to communicate with employees with respect to their allot- ments of shares and dividends, the company would take back notice letters directly in front of the employees after that and did not permit employees to copy or backup these notice letters. It is definitely unreasonable to do so and I wonder whether it is an idea from Hay Group or not. At least for me, it is too unbelievable to come up to the international convention and it violates the Chinese laws to some extent. Despite it does not conform to the laws or conventions, it works very well in controlling Hua- wei' s employees. All supervisors at all levels have mortgaged their properties being worthy of millions RMB to the company without receiving any receipts, all depending on the credibility of the company, which can be ensured under the precondition that the employees must be absolutely loyal to the company. In fact, employees do not know very clearly whether the employee stockholding committee has been officially registered or not. The information about it is always in veil and employees are usually asked to sign some blank documents or forms, whose purposes are not mentioned at all or employees are even not allowed to ask it in de- tails. Such an employee stock ownership scheme has brought a great deal of profits for Huawei and has been in operation for many years of such a "chaos" situation. Another significant reform is that the company breaks the promise of 70% de facto fixed dividends ratio running for many years, while allow annual stock rights to add value according to their book values and allocate some certain dividends for em- ployees, thus it can relief financial burden on the company to a large extent and go closer to the international convention. No matter purchasing stock right of the com- pany through share options or credited limits of MBO, employees have to buy it in line with its book value of the previous year, somehow it is more likely to be an in- ~ 26 -- 29 of 362 -- vestment in real, there is not only a return from the investment but also risks the em- ployees may be exposed to. Another change concentrates on reducing allotment quotas of grass- roots staff so as to change the notion of the employee shareholding scheme and let the new staff possess a sense and an identification of being "hired''. On one side, now Huawei has been able to pay for human resources in line with their market price so that it is no need to promise the future of everyone in Huawei; on the other side, it makes clear for the staff that they will have the chance to gain stock rights from the company only under the precondition that they work hard with good performance, therefore stock rights are getting more and more inspirational on employees. Intrinsic defects and endless disputes Concerns and disputes on the employee stock ownership scheme of Huawei have never been ceased, both inside and outside the company. The scheme has made a "crucial contribution" to Huawei, but it is needless to say that there are some obvious intrinsic defects as follows: First, consecutive cost is unbearable. The employee stock ownership scheme drives great results on unifying and en- couraging Huawei's team and collecting funds, however, it has brought in continuous high cost coming with a huge financial burden and spiritual pressure from many as- pects. Even if for a loan borrowed from usury, its principal plus interest is limited so it can be completely paid back soon. In the 1990s, the interest rate of the so-called u- sury was no more but around 15%, which has been lowered as 10% to 12% nowadays. Regardless of being "shade operations", as long as your project is well-running, it is not difficult to find capital from markets. But Huawei's employees shared 70% values of dividends basically before 2000. Even after the reform of share-holding system car- ried out by Hay Group in Huawei, every dividend was kept above 1 RMB with are- turn rate still beyond 25% due to the appreciation of bonus and stock rights in 2004 and 2005. Huawei paid the dividends at such a high price for two reasons: first, the profits were high enough to support the allocating system; second, it was driven by a psychological expectation which had formed in employees' minds for a long time. However, from financial perspective, the cost of collecting capital in this way is too high to bear for a long term for the company. Supposing the company reduces divi- dends, it will hurt employee's confidence on it and the company will encounter a big personnel change that a lot of backbone members may leave Huawei Cit has happened once in 2003). It is the most horrible thing for a high-tech company, to suffer a brain drain problem, which leads Huawei to be involved in such a dilemma that it cannot find ways out within a short time. 27 ~ -- 30 of 362 -- Second, system caused unfair distribution and unbalance incentive system. The proportions of stock rights that allocated to employees were formed in histo- ry, so some young employees with short-time working experience have to share fewer proportions of the stock rights accordingly. As a high-tech enterprise, Huawei assigns all main tasks to the young staff that will soon become a backbone force in daily work covering all departments in the company in accordance with the real nature of the in- dustry. The old employees who have been working in Huawei for many years own much more stock rights than the young ones so that they are paid higher and serve on higher positions. As a result, they can easily enjoy high dividends (the income of me- dium and high-level supervisors is mainly from their dividends in Huawei) no matter whether they are still willing to "sacrifice their lives for work" or not. Some young employees with outstanding performance make great efforts in work, but they benefit much less from their stock rights than those "old Huaweis" in practice for the reason that stock rights they are holding are not as much as the older ones. The system caused unfair distribution model and the unbalance of incentive effects, have big impact on functions and incentive effects of the employee shareholding scheme to some extent. Third, problems caused by unidentified property rights. The external world claims that the property right of Huawei is not very clear be- cause the ESOP Association, an organization with strict confidentiality to its employ- ees, has an internal stock structure which cannot be explained clearly by anyone in the company. Strictly speaking, the stock rights in the hands of its employees are just held by a foundation rather than the company directly. It is no more than an internal foun- dation which has never been listed or delta in Exchanges in public, or even never un- veils its details of registration process to the outside world. Except for the rights of sharing dividends and withdrawing stock rights, employees have no way to enjoy any other legal rights which ought to be shared as normal investors. When resigning from Huawei, the employees must sell out their stock rights back to the company. This is also against the law and international conventions. As a shareholder, employees have no rights to supervise and make any decisions on the scheme in reality. Members in the board of directors of Huawei are executives designated by its boss, which makes it very hard to define the property right of Huawei clearly. Some international invest- ment banks also care about the problem and hold a suspicious attitude on two sides- on one side, it is could be the big barrier that stops Huawei to be listed on the stock exchange. On the other side, it could be the main reason that made some upper ad- ministrative managers to leave Huawei in succession, aiming at changing stock rights that they are holding to money on hands by leaving the company because they worried about of the safety of their stock rights. ~ 28 -- 31 of 362 -- Fourth, root cause for legal disputes. Complaints or even legal disputes are widely spread among employees because of some intrinsic defects of the stock ownership scheme inside Huawei as well as all sorts of non-regulated and unfair behaviors emerged during the process of executing and op- erating it. The former director of Beijing Institute of Huawei- Liuping sued Huawei with one other supervisor of Huawei for great financial losses they had suffered be- cause Huawei hadn't repurchased the stocks held by the departed employees in line with market value of the company at that time. The case made an enormous noise in the whole society and even absorbed so many attentions from people on the network and the media. Beyond all questions it was a disastrous wave blowing Huawei and it would lead to a big impact on the employee shareholding scheme, one of the founda- tional systems in Huawei on the whole, if Huawei failed in the case at last. Dramatic- ally the accuser Liuping didn't show up in court on the term day and finally Huawei won the case for sure. Regardless of the victory that Huawei wined at last, the case it- self aroused a big shake on Huawei. Moving a further step to regulate the employee shareholding scheme to be more complied with relevant laws and to align with the in- ternational conventions is one of the significant issues that Huawei has to solve as ear- ly as possible. Otherwise, who can dare to say there will be no new dispute in future? Served as one senior supervisor in Huawei who was holding a substantial quantity of initial shares, virtual restricted shares, and shared options once upon a time, I am both a real beneficiary from the scheme and I am a real victim of it at the same time so that I have a heartfelt feeling on both advantages and disadvantages of the scheme in my mind. 1. 4 The strategy of internationalization Only by realizing mutual matching, mutual adaptation and mutual supporting be- tween different aspects, ranging from the management system, process, supply chain, manufacturing, R&D, human resource, etc. one company could realize the interna- tionalization on the full scale at last. Internationalization of supply chain Generally speaking, internationalization of supply chain is compelled to choose but not selected in a willing way spontaneously as far as the enterprises in developing countries are concerned. The more backward the country's economic is, the more passive they will be in its progress of internationalization. The situation is as the same in foreign companies as in China. Huawei, a local enterprise in China, also started its internationalization process from supply chain. Although the boss possibly hadn' t heard of the word "internationalization" before, he knew it very clearly that China was lagging far off behind foreign countries in respect of technologies and products 29 ~ -- 32 of 362 -- while the market in China was so large that the only way to resolve the conflict depen- ding on bringing in foreign products and sell them in China. At the beginning of starting up Huawei, the boss was confronted such a situation in 1988 and seized the dealership of subscriber switches in China as an agent from one company in Hong Kong at that time. From the later 1980s to the early 90s, the tele- communication market in China was still a high monopoly market and the telephone circles were very busy in use while China's economy had just been taken off at that time, so communication requirements cannot be satisfied for many enterprises. PABX, which is called as a "group telephone" now while was named as "small tele- phone switch" at that moment, emerged catering to the market's demand and was sold in a full flourish in China. Many people could share certain limited exterior lines in the same company by taking advantages of this equipment. One advantage was to enhance utilization ratio of the lines, and the other one was to ease telecommunication problems of the company in another way. Chinese enterprises could not exploit or produce their products by themselves, so all products in the market were imported from foreign countries at that very moment. Huawei attained its first pot of gold via buying and selling these PABX so that it accumulated its original capital and trained its initial professional team in terms of telecommunication and built up its initial mar- ket relationship with customers later. Because of it, Huawei had the opportunity to invade the market and became involved in the telecommunication industry in a formal way later. Huawei came down to internationalization from the outset of its founda- tion; at least it was so in terms of supply chain. Of course, the whole process was per- haps not pushed on under a conscious sense or even just a way out to which we were forced choose when Huawei was facing a high pressure for surviving at the very begin- ning of its establishment. Till now, Huawei has walked out of the dilemma for many years; however, the boss still has a strong feeling about it and says: "we set foot into the enigmatic telecommunication industry without any awareness of it". Huawei starts its internationalization from supply chain and then realizes its lo- calization of production step by step by following the same way that developing coun- tries are walking along. After the first pot of gold earned by being authorized as the vendor to sale PABX subscriber switches, Huawei was driven to build its technological team to research and develop its own products by the huge market capacity in commu- nication industry and high profit returned from the market. And soon it began to re- search and develop products under its own brand and mastered production technolo- gies to produce PABX bit by bit, finally, it took its first step to make products at service provider-level (which mean "local area PBX" referred in the industry) with a higher capacity and a bigger market. ~ 30 -- 33 of 362 -- Huawei made its plan to start its business from producing rural telecommunication switches for the reason that rural telecommunication network was inferior to that in urban areas in respect of technologies and quality requirements of products. Huawei occupied the whole market of rural telecommunication switches soon with the help of its marketing strategy which was showed as "surrounding the cities from their sur- rounding countrysides" at the first stage, and later it moved to produce switches at a high level, such as universal switch-c&c08, for top national networks bit by bit and got its success till 1994. All supply chains for Huawei were from the international market at this stage because there was no domestic enterprise mastering the major pro- duction technologies in terms of material components. As a matter of fact, there was no exporting business at all in import&export department of Huawei, which acted as an import department in charge of putting in material components and clearing cus- toms during that period. As early as in 1995, import&export department of Huawei started to make some preparations to set up its branch office in Hong Kong, Hong Kong Huawei namely, being responsible for businesses of the international supply chain for Huawei in espe- cial, including solving some headaches with respect to settling foreign exchanges. Huawei dispatched its vice president Zhang Yanyan to fill the post of the first general manager in Hongkong Huawei in personal. Besides, some relatives including the daughter of its boss were also sent to work for Huawei in Hongkong soon. It is obvi- ous to see how seriously the company regards on the work connected with supply chains from these personnel transfer activities constantly. The production at that time was no more than a process of expanding the localiza- tion of its products. Electronic enterprises in China tied to the "ecological chain" be- gan to be able to produce and supply products gradually and other international suppli- ers began to invest and build plants in China one after another. Most of material com- ponents Huawei needs are obtained from the domestic market now, which lowers massively the cost of purchasing, namely that the supply chain of Huawei underwent a natural transformation process from "internationalization" to "localization". It is re- garded as one successful example showing the international industry transfer that de- veloping countries have achieved. "Localization" of production was a fruit produced by Chinese enterprises, relying on their actual strengths under competitively interna- tional conditions, and it was totally without any resemblance to the administrative monopoly that all supply chains must be purchased in the domestic market before the Reform and Opening policy had been put into practice in China. Internationalization of management system Huawei has teamed up with some first-class management consulting companies, 31 ~ -- 34 of 362 -- such as IBM, Hay Group, PwC, and FhG and overhauled itself in terms of IPD, SIC, human resource management, financial management and quality control to a deep ex- tent so as to set up a system based on IT management since 1997. Known as a world-famous consulting company specializing in human resource management, Hay Group has been a consultant for many big companies in the world and designed many human resource systems for many multinational companies as well. The employee stock ownership scheme running at that time is identified as a very suc- cessful strategy to unite talented employees, encourage talented teams and release high pressure with respect of financial crisis in Huawei. However, how well it works is determined by high dividends the company shares with its employees. It seems to be an impossible promise Huawei made to its employees from the angel of the external world, but it has been operated in Huawei successfully for almost 12 years in view of two main historical reasons: In the first place, Huawei has been growing at a skyrocketing speed with a "mira- cle" of double profit each year, which has been penetrating through the history of it for more than a decade. The profit margin of Huawei was so high and the material components cost were just around 8% of those on the list price, the high profit re- turned from markets provided Huawei's extraordinary high-share of its stocks with a sufficient financial support. Secondly, although Huawei provided employees with a high rate in bonus amount and dividends, most of them were used to purchase new allocated stock rights of the company by employees, there was no need for the company to take out money as cash to pay for the annual bonus of its employees at the end of every year temporarily. Thanks to the high economic interests of the company and high rate of sharing, em- ployees were so active to buy stock rights in order to earn more that there was no phe- nomenon of "running on a bank" happened ever in Huawei. However, the situation cannot last for a long term. In the wake of the interna- tional competition getting sharper and the sales price falling down, as well as the hu- man resource cost getting higher and higher annually in China, one severe problem that the profit of products is going to be narrowed and the growth of development is going to be decelerated is irresistible to show up in front of Huawei soon or later. The company could not be able to keep the promise to give employees 70% of dividends permanently while the latter could not be satisfied with their dividends seen on the pa- per but they would raise the requirements to change them into cash. So Hay Group was hired by Huawei to make the internal ownership scheme more innovative and specified. And finally it came down to be "virtual restrict shares" system we can see now, in other words, it means to change the fixed sharing scheme into synchronizing ~ 32 -- 35 of 362 -- the value of stock rights with the book value of the company, the employees will get their dividends and appreciation of equity but not fixed dividends promised by the company every year; also, the company will never allocate stock rights to employees for free and all share options or MBO system are compiled to the international con- ventions so that employees with allocated stock options are obliged to exercise their rights and buy new stocks in accordance with the book value of the stock rights. This is not just one significant innovation on Employee Shareholding Scheme of Huawei, but also one time of internationalization from the bottom of the stock right system, protecting Huawei' s primary internal equity system from the destiny that it may col- lapse one day in the future. On the other side, Hay Group designs a new human resource system integrated with international conventions for Huawei, including job descriptions, management system of supervisors in five levels and KPI Appraisal System. All the managers in Huawei are classified into five levels: president and board chairman are supervisors at the highest level, belonging to the fifth-class managers, vice presidents and general directors are classified to be the fourth-class managers. There were about 40 senior managers identified as the fourth-class managers in all in Huawei from 1999 to 20001 all of whom belonged to core supervisors working in every part of the company (I am one of the lot batch of fourth-class managers who passed the company's authentica- tion). Some certain requirements are needed for the managers to join in the authenti- cation and there are a plenty of strict qualifications and requirements in terms of the positions for every level, besides everyone who are inclined to enter the area must un- dergo a rigorous process to get permission and authorization of the management sys- tem. Not only do managers in every level need to get through authentications, but al- so specialized technicians need to meet requirements in respect of qualification, name- ly authentications in line with the positional qualifications and professional levels. Key Performance Index (KPI), a key standard of Huawei' s evaluation system, has attracted much attention from supervisors at all levels in Huawei after it were in- troduced to Huawei by Hay Group, furthermore, it has achieved a satisfactory result in application effectiveness available in practice in succeeding years later on. Conse- quently, the system is widely adopted by many enterprises in China at present. But it is more important to consider about how to draw up a scientific KPI target and how to deal with the evaluation results in a scientific way than the form of KPI itself. The result-oriented Huawei links up KPI evaluation system with employees' promotions and demotions 1 increased or decreased wages 1 more or less bonuses they will share 1 the allocation of their stock rights directly 1 so no supervisor in any level or employee in any department has the courage to look down upon the evaluation system referred 33 ~ -- 36 of 362 -- to themselves and their subordinates in that their evaluation results are related to their or subordinates' own vital interests directly. lSD and ISC processes designed by IBM for Huawei are closer to mark the signs of the internationalization of Huawei' s core process. The two are presented as the re- sources of Huawei' s competitive edge on the whole and ensured Huawei to step into internationalization on the full scale. It is admitted that it is a milestone in the process of internationalization of Huawei to introduce in the two processes for its management successfully. By working in cooperation with PWC (price water house coopers) and IBM in re- spect of financial process, Huawei has brought in a financial management system with its operational progress linked tightly to the international standard. The sophisticated IT managerial platform of Huawei is running perfectly and has basically realized its paperless offices by handling official businesses through electronic process to enhance efficiency of office work and save expanses of them as well. The NOTES system in- side the company is one of the main platforms to deal with electronic flow and realize paperless offices. With stringent secrecy and authorization system, it is realized to be linked with the internet safely so that employees can easily work and communicate with each other on the internet even they are scattered in different countries or differ- ent regions over the world. Huawei is an exemplary model of internationalization leading Chinese enterprises. Internationalization of the market One of the vital indexes to evaluate the internationalization of an enterprise de- pends on how far the internationalization of the market it moves on. In my opinion, enterprises have to realize the localization of its supply chain when they are involved in competitions in the international market prior to carrying out the internationaliza- tion of its markets. The more localized their supply chains are, the easier the interna- tionalization in respect of the market will be as well as the higher degree the interna- tionalization of markets will reach as far as the developing countries are concerned. Some enterprises, for example, PITC Group find it very hard to realize the interna- tionalization of their markets for the reason that they have not realized the localiza- tion or domestication in terms of supply chain in a real sense. Their productions as which are regarded being produced by cooperating with foreign companies from their angles are no more than foreign products which are simply assembled in China , and it is reported that the depth of processing is merely rested on differences between SKD and CKD of products. All of the products labeled as "made-in-China" like them have no any competitiveness compared with other products in the international market fun- damentally. On the other hand, it is impossible for their foreign partners to allow ~ 34 -- 37 of 362 -- them to sell their venture's products in the international market either. The reason comes down to two sides. it is not what Putian experts in and on the other side, the foreign partners feel anxious that the market would possibly be shaken because of Pu- tian and their aims to cooperate with Putian are just on conditions of occupying the domestic market in China. In May, 2006, the general manager of international de- partment of PITC Group poured out his grievances to me in a talk and complained that Putian did hardly present any own products to be showed off in the international market. He highlighted enterprises like Huawei and Z1E in that the latters were com- pletely holding their independent products with intellectual properties. In the era of highly internationalized supply chains, the only way we can go was just to open up the domestic market as Huawei followed shortly after its establish- ment. As soon as realizing the localization in respect of production and supply chain, it is possible for Huawei to stride into the international market. In other words, Hua- wei achieves a big success in the process of internationalization at present, to which is not only ascribed to fostering and cultivating of the huge telecommunication market in China, but also thanks to the comprehensive improvement in terms of the production level of its supporting industries in China, which made it possible for the localization in respect of supply chain for Huawei. Viewed from this angle, it is based on pro- found economics to offer a proposal that Huawei needs to "be kind to cooperation partners, be friendly to the whole ecological chain', be active to build up a harmoni- ous environment" at present. The book is committed to reviewing the process of internationalization of Hua- wei; with most of the cases cited in the book are connected with the international market of Huawei accordingly, I will not go into details in discussing the issues about internationalization of the market any more. It is necessary to emphasize on one issue that the internationalization of the market plays as an important role in pushing for- ward the internationalization of the majority enterprises and it is even a vital target that should get during the whole process of internationalization because any behaviors of the companies are serving for the marketing objects in any conditions. Only by re- alizing mutual matching, mutual adaptation and mutual supporting between different aspects, ranging from the management system, process, supply chain, manufactur- ing, R&D, human resource, etc. one company could realize the internationalization on the full scale at last. After ten years in cultivating the international market, Huawei has set up a pow- erful marketing system on a global scale, containing eight regional departments set up overseas and more than 80 agent offices overseas with more 5, 000 foreign employees in the marketing department, realizing the localization and internationalization in 35 ~ -- 38 of 362 -- terms of human resources in the marketing system. Huawei's sales revenue in the in- ternational market in 2005 was up to USD 4. 75 billion, accounting for 58% of its global total revenue, in addition, in the first half of 2006, the amount of exporting contracts reached 65% of the marketing sales worldwide and once again exceeded the gross sales in the domestic market in China during the same period, which made Hua- wei to realize the internationalization of its market prior to any other national tele- communication enterprises. What is more, Huawei copied the methods the western gi- ants used to seize the Chinese market, through its strategic cooperation with OEM, SKD, CKD or joint ventures and the like, to realize the internationalization of mar- keting partners and channels, not only did it "transform enemies into friends", but al- so makes up complements for its direct sales model to a large extent as well as nudged the progress of internationalization of Huawei' s markets. However, compared with the international standard, the internationalization progress of Huawei is just a start and there is still a long way to go with a plenty of challenges waiting for the boss of Huawei and his whole team. Internationalization of R&D Huawei highlights self and independent researching and developing. Instead of making products behind a closed door, it adopts a very open strategy via cooperation with the world first-class partners and teaming up with them strategically, ensuring Huawei to catch up with the advanced world level soon in such a short time, or even surpass it later on and win some advantages in certain technological fields with limited researching investment and team resources. All of these successes Huawei gained ought to be ascribed to its internationalization strategy in R&D. Huawei started its internationalization for marketing and R&D at the same time: on one hand, it set up joint labs with western peers or suppliers through their strategic cooperation(cooperation partners mainly contain some western giants such as SUN, Intel, Microsoft, Qualcomm, MOTO and so on), thus the products of Huawei are guaranteed to make use of the most advanced research outcomes leading the world technologies in respect of communication synchronously and the way is cleared to keep the pace of Huawei' s products up with the world trend too so that Huawei can win high profit back from the market of "a window of the opportunity". Huawei built up strategic cooperative relationships with some world-famous companies in terms of R&D, including bringing in technologies, key material components, standard of tech- nologies and patents authentication in succession many years ago. Today' s Huawei is not only getting technologies from foreign companies as needed, but also granted the power to put out technologies and has got the access to two-way authorizations for ad- vantaged patents with western giants in so many territories so far. Huawei has trans- ~ 36 -- 39 of 362 -- formed its external cooperation model with foreign companies from simply inputting technology before, into a bilateral cooperating model focusing on outputting technolo- gy now. Changes within the strategic cooperative method mirror a qualitative leap of Huawei's ability for independent R&D and also bring in a huge marketing profit to it. On the other hand, Huawei has built many R&D institutes around the world. It has set up R&D centers in many places scattered all over the world, covering Stock- holm in Sweden, Dallas and Silicon Valley in the USA, Bangalore in India and Mos- cow in Russia and so on successively. There is a universal fact that Sweden is the hometown of Ericsson who is a tycoon in telecommunication area in the West, with a large number of telecommunication talents gathered together there, especially the technological talents in the field of mobile communication, which is probably the rea- son for Huawei to settle on the site and decide to invest in Sweden and built up there- search institute there to make sure that Huawei could keep on synchrony with the world leading technologies in respect of 3G. Silicon Valley in the USA seems like an engine driving IT technologies in the world and Huawei establishes an institute at the place to safeguard Huawei to develop its technologies with the world advanced level neck to neck in the field of IT simultaneously. In addition, by virtue of taking the champion of software outsourcing business in the world with a great quantity of IT and software talents with high quality and low labor cost in the country, the Indian Research Institute of the company is able to make full use of international division of labor, reduce the cost in terms of R&D, enhance the efficiency of R&D, above all, it plays an important role to promote the international level of Huawei' s R&D team to a higher degree. Huawei's research institute in India is a vital unit which occupies max- imum quota in personnel with the largest number of employees and works most effec- tively in Huawei. And it is reported that more than one thousand Indian employees are working there. Also, Huawei earns a lot of profits from the practice in India, therefore, it announces that it will invest USD 0. 1 billion to build the office block for Huawei's institute in India in the near future. On the other hand, Radio frequency technology of Russia is very powerful in some aspects benefited from the original mili- tary technologies from the former Soviet Union; this is likely to be one of the main reasons that Huawei establishes its Russian Research Institute there. Besides, thanks to the collapse of the former Soviet Union and shortage of funds in military industry of Russia, many talents in telecommunication field are out of work in their local places, Huawei secures talents of great value at a low cost consequently in an easy way. By all means, the gravity of Huawei's global R&D center is rooted in China; oth- erwise the superiority in respect of human resource cost in China cannot be exploited 37 ~ -- 40 of 362 -- by Huawei, who has set up many R&D institutes spread all over China, including Shenzhen, Shanghai, Beijing, Nanjing, Xi' an, Chengdu and Wuhan. These R&D centers in China build an interactive working relationship with those in overseas stra- tegically and establish strategic cooperation with international giants at the same time. Additionally it is responsible for the main R&D tasks of Huawei and it imple- ments its R&D strategies across the world via transcultural teamwork between research institutes at home and aboard. The strategic cooperation with foreign giants is a key point Huawei emphasizes on and its process of R&D is highly internationalized and standardized. Huawei takes part in many international organizations of standards in telecommunication industry and joins in the work on researching and drafting the relevant international standards. On the other side, the Indian Research Institute, the Nanjing Research Institute, the Central Software Department and the Shanghai Research Institute all have passed in- ternational authentication of CMM Band 5, which is the world's highest certification level in software industry, and there only a few enterprises and R&D research institu- tes have passed tests on this authentication whose requirements are extremely exacting to meet. It can be presented that Huawei has reached at the advanced level in the in- dustry in terms of process management and quality control of softwares. ~ 38 -- 41 of 362 -- Chapter II Ten Secrets Leading to Huawei' s Success 2. 1 Only customers are the Gods The boss have once warned employees in an unostentatious way: "the only one who gives money to Huawei under the sun is the customer. Who else shall we serve under the assumption that we do not provide services for the customer? The customer is the only reason for us to live!" Customer reception is the core of all tasks As one of the most important tasks in Huaweit customer reception is not only just a task for the customer engineering department in special, but also a daily task for all supervisors in different departments that no one dares to take it carelessly. No any other enterprises could surpass Huawei in respect of emphasizing on receiving custom- ers. The efficiency and quality linked with customer reception of Huawei leave a deep impression on everyone who has visited Huaweit no matter you are government offi- cials or corporate clients; Chinese or merchants from aboardt all are the same. As the same as other tasks t work of customer reception in Huawei is being carried out according to the process in a good order. The customer manager from customer engineering department is mainly in charge of receiving customers in practicet and the customer managers or marketing supervisors of Huawei, who invited the customer in their regiont will accompany with the visitors. While maybe the leader of Huawei- the vice president may attend some reception activities of great importance some- times. With so many customer representatives visiting Huawei and more than one hundred groups of them showing up every day t so it is impossible for the president and the chairman of the board to receive or meet every group of customers. Without any doubt, the supervisor of marketing department becomes the main force to receive cus- tomers every day. During my working period in the headquarters of Huaweit I was one of the supervisors who were in charge of reception on behalf of the leader of Hua- wei in the international marketing system; hence basically there were several recep- tion tasks every day. As a result, I have received many high-ranking delegation groups, for instance, heads of states and heads of governments overseas, the ministers of PTT, and the directors of national telecommunication, CEOs of service providers and presidents of foreign countries' banks. 39 ~ -- 42 of 362 -- Tasks related with reception as which are regarded a very crucial activities in Huawei for marketing and expanding markets are designed elaborately rather than a simple entertainment or feast or a travelling plan for its customers. They cover a wide range of information about customers, for instance, what kind of background the cus- tomer has, what we should emphasize when we are communicating with customers, which level the supervisor of the company is needed to welcome customers, what kind of name card the receptionist holds, what standard of the travel and accommodation we should provide, what kind of city we should arrange customers to visit, what type of sample points we should show to our customers and so on, all of which should be well planned ahead of the schedule. All that Huawei counts in during the visiting time of the customer who is invited mainly aims at reaching the marketing target in a pre- concerted schedule, neither is it a simple nor vulgar dining or drinking, playing or en- tertaining or even a travel for free. Of course, it is also very important to take care of customers considerately which is up to the customer manager who ought to prepare for it with his heart when receiving customers. The customer manager has gone so far as to collect and comprehend these information before the time, including the religious taboos and manners and customs of the customer coming to visit, and the customer's dietary habit, personality preference and physical condition, to look after the custom- er meticulously in every side that we could think out. As soon as arriving in China, customers are usually invited to see the "New Silk Road" in the first step with a purpose of opening a door to the customers to know something about Huawei, to see the whole flourishing and prosperous China and to know the telecommunication industry' s high speed development in China as well as the leading position of Huawei in the industry at home. And next, they will be ar- ranged to visit Huawei' s luxurious Bantian Base, aiming at seeing modern factories, looking around the exhibition hall which is full of modern telecommunication products with an exquisite decoration and listening to its technological employees' introduction of the technologies and products of Huawei via multiple languages. The last step comes to technical discussions. Huawei's technological and marketing employees will introduce and explain some products and technologies concerned by using projectors and electronic films, as well as answer questions to the customers and look into the specific needs customers ask for in the luxurious meeting room. Suppose that it hap- pens to meet the high-ranking delegation group, it will be the senior executive who is arranged to present and give a report of the products to the customers. For the sake of gaining more cakes from the market, sometimes Huawei will spare no efforts to receive customers; for example, it may rent a helicopter and busi- ness private plane to receive high-ranking customers. Regardless of over-luxurious ~ 40 -- 43 of 362 -- scene it seems to be, nevertheless, as long as the customers invited beforehand can show up in Huawei, it is worthy of the cost, at least Huawei takes it for granted. The capacity to receive customers is ascribed to one part to make up for the com- petitiveness of Huawei so that the company attaches great importance to it. So the senior supervisor with abundant marketing experience is always engaged in the posi- tion of chief inspector in the customer engineering department in Huawei. The pres- ent chief inspector is Ren Shulu, brother of Huawei's boss and a member who has dedicated to founding the marketing system for Huawei with very rich experience in marketing. Serving customers is the only reason we exist Enterprises will survive as long as they get profits, which are derived customers only. The boss have once warned employees in an unostentatious way: "the only one who gives money to Huawei under the sun is the customer. Who else shall we serve under the assumption that we do not provide services for the customer? The customer is the only reason for us to live!" Since it is only the customer who has the right to decide whether the company can survive or not and it is only the customer who offers survival value for the company, there is no doubt that the companies are obliged to provide services for their custom- ers. Competition between enterprises now has been evolved to that between supply chains. The supply chain of an enterprise can be viewed as an ecological chain; the fates of customers, partners, suppliers and manufacturers are all tethered to the same boat. Only reinforcing mutual cooperation, paying close attention to the interests of customers and partners, pursuing multi-win, can enterprises live for a long time and find its position on the interest chain. Customer needs are the driving power of development We are living at the time that IT products are over produced, which is not ac- cordance with the law of development of the material society. Relatively speaking, the human beings' demands and desires for materials are endless to satisfy, but the natural resources are limited to use. Information is just on the opposite side, the de- mand that human beings seek for information is limited (people need to sleep and it is impossible for the population to grow limitlessly ... ) , while the resource to make infor- mation products is infinite to use. It is very controversial that we cannot exalt people' s demand for materials because the resource cannot cater for the demand; and we have no ability to stimulus the demand in terms of information interminably because people have to sleep... since technologies have been being innovated till now, many people have been hurt because of it so deeply, why? By virtue of the huge progress in terms of the internet and chips, the equivalent 41 ~ -- 44 of 362 -- weight of human brain grows as many as thousands times. There is only a population of 0. 3 billion in the USA, while the number is extended to be equal to 300 billion brains. All the brains are running together to produce new technologies, new knowl- edge as well as new culture, which will surpass the demand of human beings in real world gradually. Because the demand of human beings is moving forward along with the progress of their physiologies and psychologies, which are advancing very slowly, some companies adored technologies as the same as worshipping the religion blindly in the past would be bankrupted on the full scale inevitably. Which stage do technologies work most effectively and play its role best? We are required to see the customers' demand clearly and we must do what customers need. Something that can be sold out at last or some products that lead the market a little will be the right and real technological demand of customers. Beyond all doubt that the technologies which lead too far ahead of the time are the treasure for human be- ings, but we have to sacrifice ourselves to complete it. The fortune that is worthy of billions of dollars is evaporated soon in the wake of the collapsing tide of the IT bub- bles. It can be calculated from the statistical data that those bankrupted enterprises are not able to sell their products out because their technologies are too advanced to be known or recognized by general public rather than their technologies are not advanced enough. Many technologies leading the world trend as the leaders in 10,000 meter race, but they are not always the final winners; on the contrary, they pay much for "clear- ing up saline and alkaline land'' and expanding new technologies. While it is impossi- ble for the enterprises to survive without holding advanced technologies. In Huawei's opinion, we should maintain our technological leadership in technological innovation of products, but yet just a half step ahead of the competitors, due to three steps will drive us to become "martyrs". We have changed the technology-oriented strategy into customer demand-oriented strategy by proposing solutions and guiding to exploit low- cost and high-appreciation products by means of analyzing the customer' s demand. Technology is nothing but a tooL New technologies must meet the requirement to be superior in quality and excellent in service as well as low in cost; otherwise it will lose its commercial sense totally. The world will have no lack of high technologies while our natural resource will run out one day in the future. Perhaps it will become a truth in the eyes of the public. During our meeting with Bell Labs from the USA, the A- merican experts asked Huawei for our reason to get success, the answer came down to Huawei' s understanding of the demand of Chinese customers indeed, Huawei' s boss said so. Moreover he borrowed a saying that the mother-in-step had always talked to her daughter-in-law in ancient times in China as "three new years coming, three old ~ 42 -- 45 of 362 -- years going, sewing up and piecing up the clothes for another three years" to illustrate the view of Huawei in terms of the relationship between technologies and products. Huawei takes it for granted that customers are generally inclined to improve the functions of the fixed facilities furthermore but not to cast away the existing facilities because of the appearance of new technology. Therefore Huawei still persisted in in- vesting in researching on traditional switches without any shakes at the time when the world main manufacturing factories in of the area of communication equipments transferred to research on the next generation NGN switches and abandoned the re- searches and developments of their existing switches comprehensively. It is lucky that all service providers around the world have the same point of view as China Telecom does after the collapse of IT bubbles and they do not run after new technologies blind- ly and aimlessly any more, instead, they pay much more attention to find out the way to optimize the network with its cost of constructions, Huawei ranks the first place in terms of supplying traditional switches by that means. As the bubble economy got busted totally in the West, the western companies be- gan to worry about the next generation NGN switches they had praised highly in the past and they were so confused about the direction of the next trend in the world, ad- ditionally due to their bad financial conditions, they had to begin to lay off employees in a large number so that they were too exhausted in energies to compete with Hua- wei. Different from these western companies, Huawei has been pushing its way straightly in researching and developing the next generation NGN and it caught up with the West and leaped into the front rank of the world in respect of next genera- tion switches. Huawei takes up 16% of the total number in traditional switches while it will probably have the chance to get 28% share in the next generation switches. The result of a great profit Huawei gets from the world market reflects Huawei' s belief that it really understands what the customer's needs are and takes the customer de- mand into account seriously. Huawei was deeply convinced that developing countries had to go along this way at that moment; somehow developed countries are going the same way at present. At the same time, Huawei does not sparkplug to create anything new without any consideration at the same time. However, in the past, Huawei was such a company who desperate for innovations as others and praised its worship on technologies re- gardless of the customer's demand and introduced good things to customers as soon as they are developed, once and once again while turned a deaf ear to the customer' s words, so finally it was once driven out of the Chinese market in respect of the next generation NGN switches. Afterwards Huawei realized its mistakes and adjusted itself to the situation in time, consequently it has caught up with the line now and its prod- 43 ~ -- 46 of 362 -- ucts have been widely used at home and aboard. High-end DWDM ensures Huawei to keep its advanced or leading position in the world. Optical transmission technology in Huawei doesn't need any optical repeater to link up sites at a distance of more than 4, 600 kms. And the world longest optical ring network is offered by Huawei, regardless of the fact that the technology is bought from the USA at the cost of USD 4 million. Some big companies in the West were reluctant to throw away their new technologies even when they were bankrupted and they were not willing to see that their inventions would vanish from the world someday but they can stand a chance to be researched and developed by later genera- tions in succession. Hence Huawei took part in auctions and picked up them in less than 1% of the previous investment cost. I am inclined to illustrate here that technol- ogy cannot solve all the problems as opposed to some people' minds while the custom- er resource is of great importance to us so that we cannot get success unless we comply with the customer's demand. In case of no resource or market for us to use, every- thing will be no use no matter how many good words you decorate yourself. In sum- mary, it is the only reason for Huawei' s existence to offer services to customers, which is called for by tens of thousands of employees from the bottom of their hearts and is put into actions rather than just one slogan to shout out. Customer-oriented constructions of organization, progress and culture Generally speaking, customers are always keeping a watchful eye on information over five aspects when they are purchasing wanted products: high quality, reliability and stability of the product; leading technologies and meeting their demands; in time, effective and high-quality post-sale service; the sustainable development of the prod- ucts, the technology and the company; powerful functions of the product, in addition to meeting the customer's demand with a competitive edge in terms of price. It is likely to be very easy for other companies to satisfy one point of the five requirements showed above, but it is not easy to meet the all demands simultaneously, however, Huawei attaches concentration on the five aspects customers care about tightly and make all the contents penetrate into every task in the company from top to bottom. (t)Organizational construction are customer's demand-oriented For the purpose of making sure that the whole company can reach the goal of "offering services to customers" under the leadership of the board of directors and Ex- ecutive Management Team(EMT) with which is equipped the executive committee of strategy and customer in special and for which is mainly responsible for discussing ide- ological guidelines and adjusting the working direction of the company by executing these ideological guidelines and then sending it to the executive department to make the final decision. The committee provides decision-making supports for EMT to ac- -- 47 of 362 -- complish its obligation in terms of the strategy and the customer and helps EMT meet the customer's demand and even drives the whole strategy and its implementation of the company. In the frame of organizational structure of Huawei, we set up a strate- gic and sales system, concentrating on understanding and analyzing customer's de- mand, as well as make investment plan and development plan of products catering to demands of customers so as to ensure customers' demands can drive the implementa- tion of Huawei' s strategies accordingly. Additionally, we build up many marketing organizations interpenetrating through each product line and regional department, fo- cusing closely on the customers and listen to the customer's demand attentively, with a aim to ensure that we can get feedbacks of the customer's demand to the company as quickly as possible and make customer' s demand collected as the guidepost to lead products' development in the wake. In the meantime, Huawei confirms clearly that the organization tied closely to the customer is the "leading class" of the company and also it is the original power to push forward optimizing the operational process and organizational structure of the company. Where there is Huawei' s facility used, there will be a servicing agency built, Huawei is adhered to keep close to customers and is determined to offer excel- lent services for them as well. Huawei establishes service agents in over 30 provinces and cities and more than 300 prefecture-level cities in China so that the company is in a position to know more information about the customer's demand and answer it more quickly, meanwhile the company is able to collect some specific opinions in respect of application and operation of the equipments from customers simultaneously. Huawei has set up institutes like this over more than 90 countries around the world nowadays, information on what the customer needs and what problem may emerge during the op- eration of equipments and what new improvement we need to do, all can be sent to the company immediately. There are over 38,000 employees scattered over the whole world engaged in Hua- wei, more than 5, 000 employees of them are in foreign nationalities and more than 33,000 employees of them are in Chinese nationality, how does Huawei grasp all their information and situations? Everyone in Huawei is asked to write a working diary eve- ryday and then send it to examine and approve by competent supervisors and then these diaries are going to be reserved in the database for checkups at regular intervals. Employees show no signs to fudge on it because they cannot know the situation that the market will go after three months at all, that is to say, they have to build a way to communicate with customers directly or what they do will count for nothing. Employ- ees related to finance are also obliged to write self-examining reports everyday, three months later, every supervisor responsible for it has to promise that all his or her re- 45 ~ -- 48 of 362 -- portorial data are real to the company. Huawei will check the data on line occasional- ly so that overseas employees don't dare to look down upon it either. (2) Decisions involved in investing and developing products are customer's de- mand oriented. Investment decisions made by Huawei are established on a foundation of analysis and comprehending of customer's demand after discarding its dross and assimilating its fine essence, eliminating the false and retaining the true of it, proceeding from the one to the other and from the outside to the inside to determine the possibilities to in- vest and the rhythm of investment else. Whether we should keep on developing, or stop, or speed up or slow down the progress of products which have been projected is determined based on the customer's demand in every stage of the development process up-and-down. (3) We are dedicated to building quality, cost, serviceability, availability and manufacturability of the product that the customers are always keeping watchful eyes on during the process of developing the product. At first, PDT consisted of the employees from different departments ranging from marketing, development, service, manufacturing to finance, procurement and quality, manages and makes decisions on the whole process of developing the product as soon as a product is projected, ensuring the customer's demand of the product will be satisfied with the advent of the product in the market. On one hand, we take every side into consideration and embody the demand related to the abilities of installation, maintenance, manufacturing, cost as well as return on investment at the stage of de- signing the product by means of involving backend departments such as service, manu- facturing, finance and procurement and so on in advance. On the other hand, as soon as the product is launched to the market, we must get prepared for it at any part through the whole process. Therefore, we get rid of the separated situation that the development department is in charge of developing products, the sales department is responsible for selling products, and the manufacturing department is working in making products and the serving department is engaged in installing and maintaining products respectively and also we get out of the situation that every department does neither know what the other departments do not confirm whether others in the whole process are ready or not after the product is launched. (4) Human resource and management of officers are based on customer's de- mand. Customer satisfaction is viewed as one important index to evaluate performances of officers from the president to those at all levels. The degree of satisfaction of ex- ternal customers is entrusted to Gallup Organization who assists Huawei in the whole ~ 46 -- 49 of 362 -- investigation. Orientation on customer's demand and services for customers are con- tained in hiring officers and employees, selecting system and training and evaluation system in Huawei, who strengthens attention on contribution towards customers and draws a designation of a competency model for selecting and training officers and em- ployees into which is solidified the formwork of interviewing the potential talents. A classical case-"who kills the contract" is presented by Huawei to every new employee in training sessions, all details are likely to be identified as possible causes for the col- lapse of the company. Huawei attaches much importance to talent selection; howev- er, it takes no account of the students who are ranked on the top of prestigious univer- sities for the reason that they are often self- centered and unable to focus their atten- tions on their customers as Huawei asks them to do. Many people emphasize on tech- nical abilities when selecting employees today, in fact, willpower is much more im- portant than it and moral character is much more important than willpower and board-mind is much more important than moral character in recruitments. The wider your mind is, the vaster the sky will be. (5) Customer's demand oriented and high-performance corporate culture is as quiet as still water on the surface while as flowing as undercurrent beneath it. Corporate culture presents in a series of fundamental value judgments or value proposition of the enterprise. It is ought to be rooted in organization, process, regula- tions and policies of the enterprise and thinking model and behavior pattern of its em- ployees rather than just a slogan to propagandize itself on its mouth. Huawei has been stressing on the point that natural resource will be used up one day but only the culture will be growing and multiplying in successions. There exists so little natural resource for Huawei to depend on that it can only rely on spiritual resource by digging out its big oil fields, big forests, and big coal mines out from human brains ... Spirit can be transformed into materials and correspondingly material civilization is in favor of con- solidating spiritual civilization. Huawei has been adhering to drive up the material civilization by virtue of the spiritual civilization as its guideline. The culture I mention here contains not only knowledge, technologies, management, and sentiment and so forth but also all invisible factors which have a great impact on promoting the devel- opment of productivity as well. Huawei's culture bears and reflects its core value, ensuring Huawei's customer's demand-oriented strategy to be resolved layer upon layer and embodied into every task assigned to its employees. For instance, Huawei is always deepening the concept of "serving customers is the only reason for Huawei to live" in order to encourage em- ployees to be more conscious of customer service and plant it into the bottom of their hearts straightly; besides, it makes all targets focused on the orientation of customer' 47 ~ -- 50 of 362 -- demand by reinforcing the result-oriented evaluation system of its value and operating the good incentive mechanism; and also it aims at meeting the customer's demand with the assistance of a series of flowing organizational structures and normalized working specifications and so on. In conclusion, the corporate culture which is as qui- et as still water on the surface and as flowing as undercurrents beneath it, based on customer' demand, comes to be a culture of high-performance and a culture of suppl- ying services for customers from heart and soul. As an organization seeking for benefits, Huawei expands all its service work a- round commercial interests for the reason that commercial interests can only be drawn from services. Services involve in many aspects, not only post-sale services but also a very wide scope ranging from researching, producing to optimizing and upgrading the product when it comes to end of life cycle, as well as ideological consciousness of em- ployees and their family living and the like are all contained. Huawei aims at con- structing its team with the help of service because everyone in Huawei is clear that in order to win customer' s trust, we must provide excellent services to them and the power embodied in such kind of trust is endless to use and it is also the source which is inexhaustible in supply and always available for use. The living principle of Huawei is to help customers enhance competitiveness and prof- itability Huawei is really aware of the requirement that "good quality, excellent service, low operating costs and giving priority to meet customer's needs" is absolutely the key to enhance customer' s competitiveness and profitability and the surviving principle for it to depend on. The telecommunication industry that Huawei involves in, belongs to an investment market, the telecommunication network equipments that the custom- er buys ought to be used as long as ten to twenty years, unlike the relative short life of common consumption products in other industries. In consideration of the long-term life cycle of the product, customers are inclined to select their partners rather thane- quipments themselves in the first place when they are purchasing equipments, since they realize clearly that they need to team up with partners to offer services for users over a very long period as soon as the two sides form a cooperative relationship to- gether. When it is the time for the customers to determine their cooperation partners, they will focus on the following points required for their partners: first, the partners should be holding the leading technology with high-stable and reliable products; sec- ond, they can respond to customers' needs in progress quickly; last but not least, they must offer high-quality services. Such enterprises with these merits can promote their competitiveness and profitability at the same time and own the potential ability to sur- vive from grim competitions for a long time. ~ 48 -- 51 of 362 -- How does Huawei improve the customer's competitiveness and ability to make profits? Let's go to see the case of AIS Company in Thailand. At the beginning when Huawei cooperated with AIS, the latter was just a small-sized mobile service provider in Thailand in 1998. Huawei took quick reactions on AIS's requirements and supplied products with good quality and service as well as solutions to assist AIS to become the biggest mobile service provider in Thailand and the largest company in terms of mar- ket capitalization in Thailand later on. AIS and DTAC launched prepaid businesses at the same time in June, 1999. Huawei provided products, solutions and services pro- vided for AIS, and equipment expansions for eight times successively, to give a hand to AIS to successfully throw away its competitors far behind; besides, Huawei finished equipment installation and testing within 60 days and met the requirement of AIS in a short period of time, which was shortened greatly compared with the average period of the industry and played an important role to help AIS to take the lead over its com- petitors and seize the market rapidly; moreover Huawei developed as many as eighty features specifically for AIS (new requirements raised by AIS in its development), which raised up its ARPU index and greatly improved its profitability and competi- tiveness. We can find more cases like it in Huawei. In fact, pre-paid technology of AIS WIN project in Thailand was initially applied by China Mobile. GSM pre-paid busi- ness card, as which was called "Easy own" and based on wireless intelligent network technologies, was firstly introduced to China Mobile by Huawei. The business has brought in a great success for China Mobile and it has been already widely used by nearly 0. 2 billion users, which grants China Mobile the power to occupy a huge supe- riority in the competition with China Unicorn. During the time that China Mobile earned huge benefits returned from the market, Huawei garnered a high marketing profit in the wake too. So it is well founded that "improving competitiveness and profitability of customers is the surviving principle for Huawei" as Huawei considers. 2. 2 Strategic cooperation and the united front The strategic cooperation of Huawei concentrates on building the united front with customers in the first place. It was started from Huawei' s first joint venture named as Huawei Electric, which was sold to Emerson Co., a network energy compa- ny in the USA later on. Mobeck offering stocks for teleconununication bureaus Huawei Electric, which is named as Emerson now was called as "Mobeck" be- fore, is a subsidiary company of Huawei specializing in producing communication power supplies under the leadership of Li Yuzhuo, who was the former vice president of Stone Corporation and a professional manager, as its first president at the begin- 49 ~ -- 52 of 362 -- ning. Due to the same customer bases, all of which were telecommunications bureaus from place to place around China at that time, products were all sold together on the same sales platform of Huawei. As other communication products of Huawei, commu- nication power supplies made a very high profit margin with a rapid growth by a double speed year-on-year in sales at the middle and later 90s in 20th century. Pursuant to the policy as "unifying the government and enterprises" in telecommunications in- dustry system in China at that moment, every single telecommunication bureau in dif- ferent regions in China was absolutely the only monopolizing institution to dominate the market. On one hand, the telecommunication bureau held an enormous invest- ment budget every year; on the other hand, officers and employees were paid so low because the functions of the government and enterprises were mixed up. Thus all kinds of "tertiary industry" companies under a multitude of names set up by telecom- munication bureaus in various regions emerged to gain welfares or interests (which was corresponded to the policy at that time) for officers and employees in these tele- communication bureaus. Huawei took out Mobeck Co. and invited these "tertiary in- dustry" companies, belonging to telecommunication bureaus in different places, to buy the shares of it so as to build a united front with them in the form of joint invest- ment in that Huawei wanted to make friends and build a good and friendly coopera- tion relationship with telecommunication bureaus in different places to encouraged them to buy more equipments from its hands. The "tertiary industry" companies of these telecommunication bureaus also gained excellent ROI (return on investment) on account of such a very high dividend supported by Huawei. "Tertiary industry" com- panies were founded in the form of collective ownership companies by collecting funds from the employees in telecommunication bureaus in many cases and were run specif- ically by the relatives of the telecommunication bureaus' employees, in other words, these officers and employees gained benefits by sharing out dividends from Mobeck in a roundabout way accordingly. The strategy worked very well, it boosted Huawei' s products selling to a considerable degree. Interests had a great power to drive people and the operation is legitimate at that time. It was not until the time that China tele- communication system was under the reform that the government and enterprises were separated apart as well as "tertiary industry" companies were unhooked from service providers, did Huawei withdraw stock rights by compensating their owners in the light of regulations related to national policies at last. "Small Huaweis" jointly built with telecommunication bureaus in each province in China Huawei benefited a lot from the market in the operation of Mobeck in the middle and late 90th in the 20th century. Later on, Huawei was set to extend the experience of ~ 50 -- 53 of 362 -- Mobeck to the whole China and built up joint ventures in main markets around China under the cooperation with "tertiary industry" companies of telecommunication bu- reaus. For the sake of completing the work well, Huawei built a cooperative depart- ment of joint ventures, leading by the vice president Li Yuzhuo who had a great abun- dant experience in this domain as the chief inspector. More than 10 joint ventures were founded, such as Shenyang Huawei, Hefei Huawei, Chengdu Huawei, Hebei Huawei, Hunan Huawei, Shandong Huawei, and Beifang Huawei in succession. All of these enterprises worked as the business agents for Huawei, helping Huawei sell products, outsourcing engineering installation and post-sale services. As far as Huawei is concerned, it is essential to impel customers to buy Huawei' s products more and more by giving benefits to co-investors. In the meantime, ZTE who had been always implementing follow - up tactic to- wards Huawei was about to join in the competitions and establish joint ventures with "tertiary industry" companies attached to telecommunication bureaus in each region. Objectively speaking, the strategy is definitely a very good roll booster for national enterprises like Huawei and ZTE to take off just at that time. As a matter of fact, it was not invented by Chinese enterprises, while western companies have ever built up many joint ventures with PTIC (China Post and Telecom Industry Corp) (the former name for China Putian Group) with the purpose to cater to the policy as "exchanging technology for market" formulated by the Chinese government in and to enter China' s telecommunication market. China Putian Corporation, who represented Chinese government to bring in technologies, was confronted with a closed door to attain core technologies, but just some assembling of SKD and CKD only; however, these multi- national corporations gain the access to the market in China successfully. At the time of entering the new century, China telecommunication structure un- derwent two reforms of great importance, service providers to operate completely un- der the market-oriented regulations, and "tertiary industry" companies were cleared up thoroughly. That is to say, such joint ventures built up by Huawei and ZTE with "tertiary industry'' companies in different places were completely withdrawn from the stage quietly and ended their performances one after another. Joint-ventured coopera- tive department of Huawei was dismissed, whose key members were merged into the management department of international joint ventures and partners, where I served as the general supervisor at that time, to manage and operate international joint ven- tures in 2002. Li Yuzhuo, the professional manager who had made significant contri- butions for Huawei in the past time with a lot of respects from Huawei' s employees, departed from Huawei beforehand. Referred to various kinds of joint venture's pro- jects of China Putian Corporation, they are getting harder and harder to live in the 51 ~ -- 54 of 362 -- telecommunication market which is standing at such a circumstance with a high degree of marketization, openness and transparency in China nowadays for the reason that these projects are both the result from the original structure and "gifts for the first meeting" presented by multinational enterprises with a purpose to enter Chinese mar- ket, it is impossible for Putian to live through the whole life relying on these projects only. Become a shareholder of Sunday Telecom by sharing holdin~ of the listing service pro- viders in Hong Kong As the same as giants in the telecommunication industry over the world, Huawei makes a huge investment in terms of 3G and is well known as owning 8, 000 engineers specialized in researching and developing WCDMA (which is 3G in European Stand- ard: UMTS), attaining outstanding achievements on this point, and also it has been reported that it has filed and owned 5% of worldwide 3G patents. Somehow it is not easy to initiate 3G for the global-scale use because not many service providers have started business use of 3G. Even if in fact so caused, 3G is the hope that the global telecommunication industry lies on. And we must gain and accumulate experience in business use when we are intent to sell WCDMA in the international market. As one of the main mobile service providers in Hong Kong, SUNDAY wasn't op- eration in a good situation. In order to get out of such a dilemma, the board decided to implement 3G project immediately. But SUNDAY was so short of money that it was too hard to start up the project right away. Around 2004, Huawei turned into a strategic partner towards SUNDAY by offering buyer's credit as many as hundreds of millions of HKD to help SUNDAY out of the trouble. Huawei obtained the primary supplier position in respect of WCDMA project and created opportunities for 3G prod- ucts of Huawei to sell in a business scale in the overseas market correspondingly. SUNDAY was capable of launching UMTS project which had been too difficult to ini- tiate before accordingly. Of course, all were not the lunch for free. Shareholders of SUNDAY are obliged to provide warrant of the equity pledge to Huawei in return for this buyer's credit. In fact it was a win-win strategic cooperation that two sides found their places and attained their proper profits respectively. The subsequent development is that SUNDAY didn't repay the loan on schedule which gave Huawei the chance to obtain about 10% of stock rights of SUNDAY on the basis of the pledging agreement bit by bit. With a good reaction 3G won after it was put into the market, SUNDAY was settled on by the son of Li Jiacheng-the "lit- tle superman" Li Zekai in 2005 later. PCCW (Pacific Century Cyber Works) in Hong Kong under the control of Li Zekai adopted the strategy of taking over and privatizing SUNDAY, whose stockholders got excellent returns from investment on it. Huawei ~ 52 -- 55 of 362 -- took back its loans and made a great margin from investment, above all, it was more important that it grasped the precious opportunity to use 3G project on a business scale in the vital market of Hong Kong, at the same time it accumulated first-hand experi- ence for Huawei to attempt to share service providers from the strategic cooperation with SUNDAY. "Easy own": a strategic cooperation with China Mobile The product involved in WIN (Wireless Intelligent Network) is one of the best products dominating the market in accruing profits in Huawei, and its usage and scale of business use in the market at home and board are expanded through a strategic co- operating with telecom service providers. China is a leading mobile phone market ow- ning the most mobile phone users in the world, as large as nearly 0. 5 billion totally, which is a miracle created on the wireless intelligent network. Up to several hundreds of functions operated in the wireless intelligent network, the most practical and key function is no more than Pre-Paid. Before that, mobile phone users had no other choices to pay the bill than deducting fees at regular intervals every month through bank accounts. Obviously deducting fees through banks is fit for high-end customers, while threshold made by service providers is relatively high towards this kind of cus- tomers for protecting from producing more "bad debts" yet. Because of high threshold and high fee, it is hard to expand the market towards low-end customers. By virtue of the Pre-Paid function of wireless intelligent network, a variety of Pre-Paid cards be- come more and more popular among mobile phone users. Pre-Paid card users account for 70%~ 80% of all mobile phone users at present. So we come to a conclusion that without wireless intelligent network, there would be no popularity of mobile phone market in China nowadays. The first Pre-Paid card brought in the market was "easy own" card, produced by Huawei and China Mobile in their strategic cooperation. The project has created as much as tens of billions RMB of economic benefits for China Mobile on one side and Huawei has shared a huge cake back from the market by prof- its sharing on the other side. Zhang Laifa and Shuai Jinyu, leader and vice-leader of the project team of the wireless intelligent network of Huawei attained rewards and promotions correspondingly. Pre-Paid: a strategic cooperation with Thailand Mobile Huawei sums up the experience of strategic cooperation with China Mobile and copies it to the international market successfully later on. Especially in the market in Thailand, strategic cooperation with Thailand service providers such as AIS in terms of WIN clears up the way for the wireless intelligent network to use commercially on a large scale in Thailand and also produces nearly a hundred million US dollars for Hua- wei and makes sure that wireless products of Huawei break through the market in 53 ~ -- 56 of 362 -- Thailand comprehensively. Due to Huawei' s annual sales revenues of contracts in Thailand, which surpassed 0. 1 billion US dollars in both 2000 and 2001 respectively, Thailand was viewed as the main "producing field" and "high yielding plot" in the De- partment of Asian-Pacific Region. Wang Shengli, as the representative standing for the representative office of Huawei in Thailand, was nominated as vice-president up to president of the Department of Asian-Pacific Region in Huawei for his excellent work in planning and implementing the strategic-cooperating project successfully. The service provider working in cooperation with Huawei has adopted the strategic-coop- erative model of "sharing the profit", which not only saved a lot of money in terms of construction investment, but also achieved substantive profits from the market of Pre- Paid card mobile users who were increasing at a high speed as well as increasing its market possession rate, thus AIS leaped into the biggest service provider in Thailand. Huawei gained the opportunity to sell a great batch of products in the wake of the service provider's fast growth. This was the power of united-front strategy. The ex- perience accumulated in Thailand was copied to other countries and regions soon af- terwards. Aligning with customers as strategic-cooperative partners is a tactic and method which is never out of fashion. In 2004, Huawei set up a strategic-partnership with British Telecom (BT) , taking the place of the telecommunication giant Marconi Com- pany in local Britain which led Marconi Company to be merged into Ericsson. In the next year, Huawei captured another target and became the strategic supplier for the well-known British telecom giant Vodafone Company for 3G products. In general, Huawei connects with its customers as a united front and aligns itself with international giants in telecom manufacturing who are competitors to Huawei, forming a modern "competing and cooperating" relationship. It is stated that the boss of Huawei is a strategist who studies strategic thoughts of Mao Zedong most thorough- ly and puts them into use. The numerous successful cases mentioned above are contrib- uted to confirming the sort of legends. 2. 3 Distinguish friends from enemies, and defeat competitors to death Huawei takes force-out policy on its domestic competitors, no matter if it is in the domestic or international markets, because they share something the same or similar to each other and they have no enough space to complement for each other as. Force out competitors of homogenization Huawei takes force-out policy on its domestic competitors, no matter if it is in the domestic or international markets, because they share something the same or similar to each other and they have no enough space to complement for each other. Competi- tors are both similar in many aspects, for example, resembling product lines, almost ~ 54 -- 57 of 362 -- the same customer bases, basic same cost and price position, very close engineering levels, the same national preferential policies enjoyed and even the identical models shared in terms of searching strategic-cooperation partners, above all, the two sides copy each other in terms of sale strategies and ways to expand the market, learn cor- porate cultures from each other, use extremely identical methods to encourage their employees. Therefore, all contract orders of one side are regarded as "rice" rapped from the "bowl" of the other side from their points of view. In this way, competitions between opponents are often very fierce, or even brutal, sometimes they may not care about rules of the game very much. The competition between "Ju Da Zhong Hua" (which is the Group made up of Great Dragon, Datang, Huawei and ZTE) and Shanghai Bell is of this kind. At the era of 1990th, Huawei and ZTE acquired equipments available in the network of China telecommunications from Great Dragon, Shanghai Bell and the like, who have lost their dominating positions in China telecommunication network little by little in suc- cessions, then Huawei and ZTE became dominant enterprises in Chinese national communication industry. Entering 2000, the Great Dragon Group began to go down- hill bit by bit, even with several rounds of strategic registering capital and restructur- ings, it cannot change its fate at last that its performance had kept on slipping by a large margin till it was sold by its main stock holder Putian Corporation at RMB 4, 500, a rock-bottom price out of surprise in public. The Great Dragon was out of the a- rena of history completely. It is luckier for Shanghai Bell to be acquired and con- trolled by Alcatel to get strong supports in terms of international technologies and capitals than Great Dragon. Nonetheless, inevitably its shines were covered by Hua- wei and ZTE in the domestic market and its digital SPC switch, used to be considered as "the first brand" and "the number one of market share in the network market'' was replaced by Huawei. Except for researching and developing ID - SCDMA Standard with all its strength, hardly did Datang do anything meaningful to change its hard sit- uation in telecommunication market in China, to say the least it "lived" very uneasily even if it has gained great supports and helps from MilT (short for the China Ministry of Industry and Information Technology). Even for ID-SCDMA project to which Da- tang did nearly devoted its own life and all its fortune, its so called "national team" of China telecommunication called had to fight and strive for its position with Huawei and ZTE in the "harvest war" of the market once again. Unfortunately Datang was likely to stay at an inferior position in terms of the marketing system and market-op- erating experience. So "rice" cooked by Datang was possible to be swallowed up by Huawei and ZTE immediately, moreover, it depends the abilities of the two parties to decide which side could share more. 55 ~ -- 58 of 362 -- It is needed to reiterate that such a life-to-death competition between Huawei and ZTE "fighting" from domestic market to international market looks like a replicate of the strategy "being friendly with rivals far away while being belligerent to rivals near- by" mentioned in the military book in ancient China. While the essential reason lies in some necessary complements which they are short of for each other because of many homogenous factors existing in both sides. It is not their unilateral faults to be reluc- tant to team up with the other side, because there is no way for them to drive up their growths without any hurts to each other indeed, unless they could be merged into au- nited conglomerate one day through equity acquisition, as the same as that happened on other counterparts abroad. Alliances with complementary competitors Western giants with huge complementary spaces for Huawei are alleged as de fac- to "friends in business" by Huawei itself. Huawei is obviously superior to western gi- ants in respect of R&D cost and is basically staying at the same level in terms of tech- nologies with western peers. So it would be very pleased to output its products or tech- nologies by means of OEM to western peers who have strategic requirements of this kind. Selling products and technologies in this way has been gradually developed into a marketing channel for Huawei, which is contributed to removing the hostilities from western rivals to a large extent. The strategic cooperation works in a bidirectional way, Huawei outputs technolo- gies and inputs them accordingly. Huawei and its western rivals authorize patents to each other in some areas involved mutually, for instance, it aligns itself with Siemens in the field of researching and developing 1D and builds the joint venture 1D Tech with Siemens where the two sides put their patents and technological achievements re- lated to 1D field in to reduce the investment and risks in this field for themselves and create a jointed team with excellent technological edge to protect the project running successfully. Based on OEM cooperation for many years, Huawei teamed up with Motorola to establish a jointed R&D center officially in 2006. It is likely a sign to indicate that the two parties have formally created an ally on 3G project and a signal to show that it has been a strategic layout of the two parties to deal with the tide of merging and recombi- ning world telecoms, the strategical meanings will be getting clear. From the point of my view, ZTE adopts the similar strategies as Huawei does, in respect of force-outing homogenous opponents and the strategies are working no worse than Huawei. But as far as strategic cooperation with complementarities are con- cerned, there seems to be a long way for ZTE to strive for, no matter how to realize strategies or operate it in actual combats. Perhaps ZTE needs to learn some successful ~ 56 -- 59 of 362 -- experience in this aspect from Huawei. In summary, I've observed that Z1E doesn't do it as successfully as Huawei in terms of strategic planning in market operation. Looking back to the marketing performance of Z1E at the first half years in 2004, 2005 and 2006 respectively, it paced up and down around 10. 2 billion, 10. 3 billion and 10.4 billion Yuan separately so that it is necessary for Z1E to rethink and fix the position of its strategies again. On the other side, the sale revenue of Huawei rose by 48% year-on-year drastically in 2006, reaching a new peak noted at 26 billion RMB, export proportion increased from 58% in 2005 to 65% in the first half year of 2006 further, which showed that it leaped further in the progress of internationalization. All these achievements are confirmations for Huawei's superiority in strategies. Strangulate "Huawei-originated" entrepreneurial companies A plenty of high-level supervisors and technological backbones have resigned from Huawei in successions in a bid to establish their own high-tech enterprises for re- alizing their dreams in recent years. Since these people have been working for Huawei for a long time, all their knowledge, experience and skills accumulated are connected with telecommunication and IT industry, driving most of them to choose the industry as their entrepreneurial directions. As a result, they will hinder and cause a lot of worries and time bombs to their "old master" inevitably. All these people were back- bones of various departments and domains or even firm rocks in midstream in some re- spects at the early stage of starting up Huawei, some of them used to be assumed to take some core positions such as standing vice president, senior vice president, execu- tive vice president, president, CTO, minister and so on, to some extent, Huawei would not be as strong as it is now without the contributions they made at the outset. All energies and potentials embodied in them are deeply watched in the boss's eyes, so Huawei built defenses against them by all means. Even these entrepreneurial companies haven' t competed with Huawei in real temporarily, Huawei will undoubtedly limit or prevent from sharing outsource busi- nesses to them. There seems that these companies will be engaged in the line of tele- communication industry after they get ground enough, thus they will have to meet Huawei in competitions one day. They are meant to use the relations with Huawei to outsource some businesses from their old master, while soon they find that the old master does not take care of them but even adopts limitation or forbidden policies on the cooperation like this. Huawei has one another reason to carry out such a discrimi- natory policy in that it must avoid these entrepreneurial companies obtaining orders backed by trading on the conveniences of being familiar with Huawei's progress and decision-making chain to corrode employees of Huawei sometimes. I need to restate that the two reasons mentioned above seem to be established on a 57 ~ -- 60 of 362 -- good ground but there is no fact to back them. There are two reasons as follow: First, many employees of Huawei carving out regard themselves as professional sub-contractors for big enterprises and fix their main work on serving Huawei, never think about to compete with Huawei' s major businesses. Since they are acquainted with the products and technological process of Huawei, they can supply better service for Huawei, in favor of improving the competence of Huawei in terms of ISC in turn. Therefore it will cause losses to the enterprises in case of carrying out limiting or pro- hibiting policies on such cooperation and it is nothing good for Huawei either. On the contrary, it will create a bad image of Huawei as a bully in the eyes of its founders. "Huawei's complex", which was full of love for Huawei before, is mixed with both love and hate now. Second, these entrepreneurial companies have some close relationship with the ones in leading-layer of Huawei, so the basic-leveled supervisors dare not to ask for commission or benefits from entrepreneurial companies hastily. Not only does not in- crease corruptions, but also reduce corruptions effectively by starting up such entre- preneurial companies as a result. Maybe that is why some supervisors at basic levels create some fairy tales like "entrepreneurial companies are easier to produce corrup- tions" for their private interests. And all sorts of signs indicate that Huawei's leaders seem to trust this fairy tale and lay down the current policy in response. The entrepreneurial companies operating the same or similar products as Huawei are called as "Huawei-originated" entrepreneurial companies in the eyes of the outside world because of their founders' identities as senior supervisors of Huawei before and the similar strategies and mechanisms to Huawei they adopts in management. As their existences will pose a risk and bring in competitions in the way of Huawei's develop- ment, more or less some conflicts are between the two sides when we refer to talented troops and intellectual properties, bringing in a big challenge to Huawei, so the policy Huawei poses on these "Huawei-originated" companies is getting more and more strict, or even somewhat "bloody" on the surface. Huawei picks up the legal weapon as one of the methods to "deprive" the entre- preneurial companies' opportunities in strategic investment and venture investment as well as sentences the parties into prison under the crime of "stealing intangible assets" from itself. As one of entrepreneurial companies created by SDH technological back- bones, Shanghai Huke launched its own products soon after it was established, it is al- so reported that UT Starcom in the USA had some intentions to invest it. Huawei could not bear any challenges threatening its hegemonic position in optical network market and it was more intolerable to see violations on its intellectual properties, Huawei immediately sent out lawyer's letter toUT Starcom in the U.S to compel it to ~ 58 -- 61 of 362 -- cancel the strategic investment plan to Shanghai Huke, and sentenced the several par- ties into prison through judicial actions at last. We can see the determination of Hua- wei to protect its intellectual properties from this case, which also opened a precedent in intellectual property disputes in addition with criminal proceedings in China, taking a very good alerting action to "execute one criminal as a warning to one hundred" in- side Huawei. As far as Harbor is concerned, it has absorbed more than hundreds of millions U. S dollars of venture capital so that it is impossible for Huawei to put the entrepre- neurial teams such as Li Yinan, Huang Yaoxu and so on into prisons as easily as it treated Shanghai Huk:e. But at the key stage to collect capitals for Harbor, the law- yer's letter Huawei sent blocked the progress for Harbor to be listed in NASDAQ and made the strategic investment from Siemens being "wiped out in a very short time", at last, the Harbor team was obliged to establish "a treaty signed under coercion" with its "old master" and accepted to "surrender" to Huawei, and Li Yinan and his core team had no other choices but returned to Huawei's arms regrettably. By that time, Huawei has killed almost all "Huawei-originated" entrepreneurial companies with the strength to compete with Huawei in the market directly. Regarding to these supervisors or backbones in-service in Huawei, something of more importance lies in that they will not choose to create their new lands easily by leaving the arms of Huawei when they witness that most of the entrepreneurial com- panies have not gained the returns they were expecting, no matter if they competed with Huawei or not. 2. 4 Apply the carrot and stick judiciously and be strict and fair for re- wards and punishments Huawei is not only one of the companies who pay employees highest in China, but also it works very well in its way in terms of rewarding and stimulating its employ- ees at home. Equally the company punishes its employees who make mistake much more severely than others. The military pledge Huawei's supervisors at all levels are so busy at the beginning of each year. All representatives from representative offices in different regions and countries and di- rectors of different agencies will gather together in the headquarters of the company to attend marketing training. The company will make some slides to show the latest development of products and technologies, which is also a good opportunity for these "Zhu Hou" (regional political leaders in ancient China) from different markets get "recharged". As a matter of fact, training is just an overcoat; the more important purpose is aiming at informing everyone about experience and lessons got from the 59 ~ -- 62 of 362 -- previous year, sales targets, new strategies and tactics to be used for the next year, which are concluded by the company and its marketing headquarters at the beginning of each year. The overall strategic index drawn by the company ought to be distribu- ted and be committed on the shoulders of regional departments in every country and every place in that the sales target for the next year is the most important thing for ev- ery marketing supervisor to concern about. The designed assignment for next year, which is named as KPI target , will be signed between Huawei and every regional department affiliated. In a sense, it has another name of "the military pledge" by everyone in Huawei for the reason that whether it is done well or badly has an immediate effect on everyone's award and a powerful impact on deciding their promotions to higher posts and salaries increases, and even a direct influence on how much shares will be allocated to them for the next time. "Black gauze caps" (which represents their positions) will be likely to be picked off by the company or they may be demoted or removed to another position if the tar- get isn't reached on time. There is one another important thing for marketing directors to summarize their work and evaluate how the "military pledge" is accomplished in the previous year in the training meeting. They will be awarded according to their performances in accom- plishing their tasks and evaluations on them. Someone will laugh and someone will cry. Everyone has a strong feeling of serious and deterrent force of the " military pledge" in the meeting held by the company so that they will not take the next year's "military pledge" slightly. Every marketing supervisor is committed to distributing local sales target to his or her product department as well as systematic department responsible for customers, whose ministers or directors will redistribute the sale target to the customer manager and product manager again, and then finally it is imposed on "the head of everyone" from top to bottom in the marketing department. In return, Target from every de- partment in the local place are gathered together to make up the total KPI target of the local market and indexes from every customer manager are collected together to form the total KPI target of the department and indexes of every region are brought together to form the total KPI target of the company finally. That is to say, the com- pany's total KPI target is finally fixed after going "up and down" and "down and up" through the marketing system for several times till the time. When the KPI target is signed into the "military pledge" in the annual training meeting of the market opened by Huawei, the index has undergone many rounds of discussions "up and down" in ad- vance, so the aim to sign the "military pledge'' is no more than wearing a superficial form to enhance the "fighting" atmosphere of the meeting. ~ 60 -- 63 of 362 -- The KPI target in Huawei means that it does not only care about whether "the rice in its bowl is increasing more and more or not", but also makes a promise that ((the rice in other bowls are getting less and less". It is the equivalent of saying that it ought not only guarantee the absolute quantity of its market to keep on growing, but also ensure its competitors are getting less and less share in the market. It is the har- dest factor for every supervisor to control on this point, which is full of challenges and is difficult to accomplish, for the competitors are hard nuts to deal with and they probably carry on the same tasks on their backs, staring at Huawei in the market. E- ven so, this is a tough target fixed by Huawei, no way to discuss or bargain. Everyone has to find a way to accomplish it no matter how hard it is. The evaluation system How to fulfill the "military pledge"? The key is how to operate the evaluation system. What is Huawei's unique evaluating system? In light of the Hua-wei Basic Law and some other human resource systems related, it may fall into several parts as fol- lowed: (1) The evaluating target. The evaluation acts is traction and a driving force. It plays an important role in determining the scope of expanding encouragement in the company while the process of evaluation itself is an efficient way institutionalized to encourage and spur on employees to work harder and better. The evaluation doesn't aim at measuring or screening employees but acts as a management process in Huawei. The aim of evaluation in Huawei concentrates on passing on the core value concept of the company to employees via this management process with a goal that the employees will see comparison between them and learn something from others and find own shortages intuitively in line with the evaluating system, thus it will clear the way for them to find out their directions leading them to strive for. (2) Contents of the evaluating system. The evaluating system is mainly central- ized on the working attitudes and working performances along with working qualifica- tions of marketing employees. First, employee's working attitude consists in the working spirit and compliance with working regulations promptly and normatively, mainly referring to the sense of responsibility, the professional dedication, the devo- ting spirit, the team spirit and the basic code of conduct; secondly, employee's work- ing performance represents the final result of his or her work, consisting of sale, profit, market and public relations; thirdly, employee's working qualification is a be- havior expressed for the sake of making a great achievement, whose main standard centers on successful behaviors in the process of completing working activities in a cer- tain scope, reflecting employees' capabilities to be qualified to the position in work by taking their knowledge qualities and experience into consideration in the meantime. 61 ~ -- 64 of 362 -- The evaluated objects will be decided by their evaluating results checked by the com- pany in terms of wages, bonuses and share capitals issued to them and their opportuni- ties to be promoted to a higher position. (3) The hypothesis of the evaluating system. The Huawei Basic Law sets up thee- valuating system for employees in accordance with the hypothesis below: CD The overwhelming majority of employees in Huawei are willing to take charge and work for Huawei with high self-esteem and strong desires to get successes. ® Gold cannot be pure as men cannot be perfect, so someone with outstanding advantages usually has apparent disadvantages as we know. ®Working attitude and abilities should be embodied in the improvement of per- formance in work. @ The failure paves the way for the success, but it is unbearable to repeat the same mistake continually. @ The manager is also responsible for employees' mistakes on the assumption that the latter cannot meet the requirements made according to the evaluating stand- ard. The achievement the employee gets is equal to the achievement the manager gets. (4) Ways of evaluation. Huawei makes it clearly in the Huawei Basic Law that e- valuation of employees and officers is no more than a regular evaluation and assess- ment related to the working performance and attitude of each employee and officer in line with the specific target and requirement of them. The evaluation on working per- formance focuses on its improvement, which is better to be detailed than general; while the evaluation on working attitude and abilities particularly emphasizes on per- formance in a long term, which is better not to be stick to some tiny things. Evaluated results will be recorded down and the evaluation factors will be emphasized on dispa- rately along with the changing requirements in the wake of the company's growth in different times. The periodic reporting system should be built between superior and subordinate executives in each layer. Favorable communication relationship must be built to link up the executive with the subordinate in each layer in order to strength mutual understandings and mutual trusts. The communication results will be listed into the evaluation of executives at all levels. (5) Concentrating on that we ought to regard responsible results as the value ori- ented, the performance management of Huawei is striving to build a mechanism of self-motivation, self-government and self-discipline for employees. Improvement of performance and advancement of employees' abilities will come true by means of keeping on setting a target, coaching, evaluating, feedback between managers and employees all the time. ~ 62 -- 65 of 362 -- (6) Huawei makes its special evaluating standards for different contents respec- tively, which has become very operatable after a long term of standardization and sys- tematization. And the evaluating process is systematic, covering all aspects and all marketing employees. First, the marketing personnel should submit evaluating appli- cations to the assessor who will examine them later for two times, communication be- tween the one who is under the evaluation and the assessor (normally the direct supe- rior) is the evaluation at the 111l evaluation, which covers three aspects: making work- ing plan together, being diligent in asking for advice from superiors, and self-evalua- tion. The 200 evaluation is around reviewing the evaluating results got in the first time, checking whether it is complied with the standard and how high the credibility is and so on. (7) At present, Huawei adopts the ways of evaluating employees in each quarter and commenting them at the end of each year. The evaluated results of employees on their working performances are mainly classified into different grades on the basis of the evaluating standard, focusing on their job objectives in each quarter and the a- chievements got in the course of accomplishing these targets; while the evaluated re- sults of employees on their working qualifications are based on authenticating whether the applicant reaches the standard or not according to the evidences, focusing on the standard of conduct. Award employees according to their contributions to Huawei The company will award the salesmen, especially every chief director of the mar- ket department according to their performances evaluated via KPI which shows how the "military pledge" is completed in that year. As one of the companies who pay em- ployees highest in China, Huawei does it very well for bonuses distributions and in- centive methods in other aspects. The distributional way Huawei adopts is comprised of distribution on the basis of employees' work and according to their capitals. Em- ployees get their remunerations in kind in these forms: wages, bonuses, security pen- sions, medical securities, stock rights and extra dividends. Distinguished from other enterprises in China, salesmen in Huawei do not have commissions out of sales reve- nue for their performances are tied to the performance of the teams they are in. Hua- wei makes the design for the purpose to avoid opportunistic behavior occurred in the marketing team members, ignoring to keep the close relationship with customers for a long term. Salesmen get high income in Huawei, taking the undergraduates newly hired for example, the basic salary is 5000 ~ 6000 RMB/ month for each with the allowance of 800 RMB/ month, bonuses and extra in dividends will be allotted in the end of every year; in addition, there will be allowance of communication, allowance on business 63 ~ -- 66 of 362 -- and subsidies for working aboard, in all, the final number of the income is quite con- siderable to the young people. If the newcomer is qualified after three months of trainings, his basic salary will increase at a certain rate according to his individual per- formance. Generally speaking, if the newcomer could get outstanding performance, he or she will get final income as much as 100,000 RMB to 150,000 RMB in all at the end of the first year after his graduation from the university. It takes for granted that employees in Huawei are always viewed as the strongest group in term of their consu- ming abilities in Shenzhen, leading many high-grade restaurants and hotels are pleased to offer Huawei's employees a favorable discount on condition of showing their badge and salesmen try their best to scramble for attracting the eyeballs of Huawei employ- ees, who are their targets of "buying in groups" by favorable measures in upscale resi- dential communities and automobiles-sale 4S shops. Huawei takes it very seriously when it comes to cashing the material distributions to employees. It has been scarcely happened that wages, salaries and bonuses as well as dividends are delayed to distribute to employees in Huawei as yet. The company will pay full, without anything missed even if employees depart from Huawei. Besides the guarantee of the Huawei ' s Basic Law, there are many concrete systems and processes to ensure the implementation on this point. As far as the "old Huaweis" who entered the company before 1997 are concerned, they enjoy comfortable lives by virtue of a lot of dividends and bonuses they get every year in general in Huawei while their wages accounting for only a small fraction of cash income every year have already no longer been their main incomes anymore, Regardless of the cause to leave the company, Huawei is willing to buy the stocks in employees' hands in cash and will never set up any barriers on their ways to leave the company on the condition that they have not seriously damaged the legal advanta- ges of the company. Although the employee stock ownership scheme has aroused a lot of disputes in and out of the company, no one could deny the encouraging effects of the distributional system to the marketing personnel of Huawei; especially the mar- keting backbones who have been working in Huawei for a long time. In the next place, it is an effective way to encourage employees to promote of- ficers' ranks in Huawei. It is well-known among people who have worked in Huawei that Huawei sets so many ranks under different titles that it is probably impossible to find a second duplicate enterprise in China. There are titles of positions in the troops, for example, class monitor, headman, team leader, minister of the officer depart- ment, battalion commander of the second training battalion; and tittles of positions like in the government, such as chief of personnel propaganda minister, principal staff member, commissioner, director, expert and consultant. In addition, you can ~ 64 -- 67 of 362 -- find all the titles seen in enterprises here. So many titles are set for promoting more backbones in Huawei. Employees in Huawei are high-leveled talents with high ranks in education, so the boss tries every means to encourage them to work hard for the company. It is one of secrets to set some official positions that Huawei has been using effectively for many years. We can classify these titles of positions dazzling eyes of outsiders into five levels. Except for the business personnel at the basic level, employ- ees at the other four levels are all authorized with certain functions and powers, which will drive employees at all levels to work harder in spite of their level. For in- stance, suppose one sale person wants to sell products solely, Huawei will give him or her chance to initiate his or her career from the bottom as a sales representative of of- fices in a certain area up to the customer manager of this area. There are three ap- proaches for the customer manager to develop his or her career: international or do- mestic sales experts, international or domestic senior sales experts and international or domestic advanced sales experts. As soon as he or she is inclined to be management staff, the company will be glad to adjust his or her position to serve as a manager and he will be provided with a bigger space to develop and a stronger power to use mean- while. Many positions are available for employees to elevate themselves, such as di- rector, representative, minister, chief inspector and vice-president and so and so. Middle and high positions which are open to everyone freely in Huawei can be used by the boss as prizes rewarded to the marketing backbones that contribute to the compa- ny. Management positions are classified into five levels; president and chairman of the board are managers at the fifth-level while vice president and chief executive are managers at the fourth-level in Huawei. Something is of great importance lies in that Huawei binds employees' positions with incomes together, for example, wage, bonus, quotas and rank of rationed shares are linked up with positions employees are staying in closely. The one stays in a higher rank will be paid as a number of times as the one works in a basic level. In conclusion, promoting officers is not only an encouragement of their spirits but also means materi- al awards down-to-earth in Huawei. The punishment system of "real gold and silver" Admitting that everyone in Huawei has bonus, wage and stock rights, but quota distributed to them is quite different in quantities. Some senior executives are paid as high as several million RMB or even up to ten million RMB while basic employees are paid as low as around 100,000 RMB in all per year. 100,000 RMB as annual salary has been high enough for basic employees in other enterprises; however, it is just a figure for employees at the starting line of their careers in Huawei. In theory, every employ- ee will walk smoothly and meet a lot of chances in their career paths and also they will 65 ~ -- 68 of 362 -- be probably awarded with the remuneration which is seemed out of reach far away at present after a number of years of hard working and striving of themselves. Every employee is driven to work like a horse by the system of Huawei, expecting for acqui- ring a higher position and a richer reward. If not, you may not pace up with others in your career life. A few of my friends, who cannot go in for the forefront of the mar- ket because of their families they had to take care of, have been still staying at the headquarters, serving as employees in offices after ten years passed, compared with the ones of the same qualifications and experience that had the chance to join in the forefront of the market at that time, regardless of their positions as marketing staff, the formers are paid and given positions lagging far behind the latters. Moreover one step is behind, every step will be defeated. Everyone must keep on "running" after others at every step. Others make big progresses while you are still staying at the place where you used to be without any obvious advancement, which will encourage you to get rid of the situation as quick as possible. A hidden rule in Huawei is conducting as "no matter what mistakes you have made, do not lose your orders to ZTE or Harbor", or a rigorous punishment from the company will be right there waiting for you. One of my friends who had even been Huawei's chief representative in a certain country in Southeast Asia obtained a quite good accomplishment in sales in 2004, and it took granted that he would be awarded heavily by the company, but unfortunately another communication company from China also signed a nice contract in this country, finally he was transferred out of the country in that he did not complete the task of smothering his opponents to death. It can be concluded from the fact that Huawei carries out its force-out policy towards op- ponents without any hesitation or ambiguousness in despite of no demotion or material punishment on him on this matter. The company punishes some employees who make mistakes far more brutally. Huawei lays down a very strict standard of behavior and rules and regulations, no matter how high the employee's position stays or how deep qualification the employee has, no matter who the employee is, no one will stand a chance to escape from being punished severely as long as breaking these rules or regulations. For example , one of my best friends, being one of the founders to cultivate the domestic market for Hua- wei, was praised as the "Number One" in terms of sales performance and broke the highest record in terms of provincial sales at 1 billion RMB once upon a time and was regarded highly as a fighting champion in the eyes of the boss therefrom. He played Mahjong with colleagues during the break time under the table for only one time, which unfortunately reached to the boss' ears, so everyone who participated in the game was criticized in the form of a circulated notice and asked to cut the wages di- ~ 66 -- 69 of 362 -- rectly. The principle Huawei has been always persisting on is that you are tolerated to make mistakes when you are cultivating the market, but you are obliged to sum up the experience in time to avoid making the same mistakes anymore; furthermore, you are allowed to "lose and fight for many times until you get your final win''. Without any punishments on misses in the normal daily work, employees will get their rewards ac- cording to their performances in Huawei, aiming at encouraging them to do it better next time. However, Huawei does not indulge the employees who have violated the rules or regulations which are regarded as professional ethics and moralities for em- ployees to follow and are acceptable for them to obey in general. When Huawei was embarking on the work involved in "information security" in spring and summer in 2006, some extraordinarily rigid rules and regulations were an- nounced and implemented straightly. Everyone in the company did not take it serious- ly at the very beginning, but soon a few models of offenders were seized by company. Soon information security department of the company reported the records of some senior executives who had broken the management regulations to the company directly and the boss made the warning decision to criticize them in a circulated notice and cut their wages immediately. One of my friends, an executive vice president of the com- pany, was punished at that time because of such a tiny mistake he made that he viola- ted the so-called "known to the least" principle as forgetting to delete some dealt files stored in the laptop before he left the office. It can be concluded that everyone really owns equal rights in front of the "law" laid down by Huawei. From that on, no one dares to look down upon the information safety system any more. In Huawei, wages are cut down in the form of "real gold and silver" which has been implemented seri- ously, so the company does not worry about whether you do care about the rules or not due to the loss of your wages every month. Huawei encourages and pushes forward employees according to their perform- ances, "rewarding them and punishing them under fair rules and regulations", which is proved as a very effective way in practice. 2. 5 "The military camp is as strong as iron while the soldiers are as flowing as water'', management VS methods Walking into today's Huawei, you will meet all kinds of business processes which are so brilliant to dazzle your eyes or even too hard for you to understand. Huawei spends over 200,000,000 HKD and more than two years as well as more than 200 sen- ior consulting experts hired from lliM in the USA to make these management proces- ses, for which are tailored for Huawei according to the operating experience of IBM and the features of Huawei. Almost all departments and backbones of the company 67 ~ -- 70 of 362 -- have joined in this huge process reconstructing project, which mainly include two parts as follow: IPD, short for Integrated Product Development and ISC, short for Integrated Supply Chain. IPD is the core process to ensure cutting-edges in technologies IPD puts strong emphasis on management of the product line as an integrated process, ranging from market research, demand analysis, advanced research and pro- ject approval, system design, product development, intermediate experiments, manu- facture and production, marketing, sale, engineering installation, training and serv- ice to feedbacks from users of products. Every product line is asked to be responsible for whether its own product as well as its sales performance meets market demand or not, overcoming the R&D department's pure technological viewpoint of being ab- sorbed in pursuing technologies solely and ignoring feedbacks from the market, and also surmounting the shortsighted tendency of the marketing department who cares a- bout the current sales solely but not for the strategy of products. GMs in charge of the product lines are only entitled to evaluate "referred scores" on employees in other de- partments before the processes being reconstructed, no hurt nor itch, they are turned into the supreme senior executives who are entitled to determine the "fates" of all members related to the product line after the reform of processes unawares, no matter which department the members are subordinated to in terms of administration. Sala- ries and remunerations, reward allocations, distributions of share options and stock rights of employees on the product line will be hooked with the marketing perform- ance of the product directly. Besides, functionary preferment and career's future of employees are linked with the fate of the product line tightly on the same rope. For instance, the first knock-out product Huawei pushed into the marke- c&co8 SPC switch, as a meritorious product contributing an output value of ten billion RMB for the company, has created sales revenue of hundreds of billions Yuan since it was introduced into the market. And wireless products followed such as soft switching, NGN, access network, even GSM, GPRS, CDMA,3G all share the benefits from ac- cumulation of experience and technologies in researching and developing SPC switch. Backbones team members in this project are all promoted to the highest level in their positions by Huawei. For example, the team leader who was in charge of the project, Zheng Baoyong,has been entitled to be the first CTO and first executive vice presi- dent of Huawei as a reward, and next comes the developing team leader-Li Yinan has been lifted to be the second CTO and one of the executive vice presidents of the company and backbone-Hong Tianfeng has been turned into the third CTO and one of the executive vice presidents of the company (who is COO and president of human resource department now), as well as another two backbones of the project team-one ~ 68 -- 71 of 362 -- is Xu Wenwei who has been transferred to be the fourth CTO and one of the executive vice presidents of Huawei later (who is president of European Department now) and the other one is Fei Min who has become one of executive vice presidents of Huawei and the present (fifth) CTO later. Another example, the second hit product in Huawei, the product line of optical network products SDH/ DWDM is one of the flagship products conducting both the international and domestic markets and brings in benefits most above all in today' s Huawei. Hundreds of millions of sales revenue has been rolled into Huawei along with the extrusion of the product. Additionally Huawei becomes the biggest supplier in providing optical network products and shares the most part of the market in Asian- Pacific region. Before the product was launched on a large scale in batches, the pro- ject developing team leader Huang Yaoxu was just one of several thousand of develop- ment engineers in Huawei at that moment; but he was fortunately promoted to be sen- ior vice president immediately by the company after the product was introduced to the market successfully in 1998. Furthermore, Zhang Laifa, the team leader in charge of the intelligent network project was elevated to be senior vice president by the company due to his efforts to a- chieve successes in the market and gain a lot of profits back from the market by virtue of the developed intelligent network running on the "Easy own" project of China Mo- bile and WIN project of Thailand Telecom. Another leader of project team who has successfully researched and developed wireless product-ETS-450 and built solid foun- dation for wireless products for today's Huawei is Chen Zhaohui. Now that ETS-450 has created several billion of benefits for Huawei and led the wireless products to win benefits surpassing half of the total amount of the sales revenue of Huawei, Chen Zhaohui has been also appointed as senior vice president and president of the product line finally. The fate of unsuccessful products which did badly in the market is "surrounded with ice and fire at the same time", being gotten down from the market and their pro- ject teams have to be dismissed, and relevant employees have to be transferred or fired too. Because "the winner will become the king while the loser will become the bandit" and never will these losers be remembered within living memory. People are not aware of aborted projects in Huawei for this reason. In fact, Huawei had invested a computer company and been involved into PC industry but redeemed shares of stock at last due to the failure of project d. There was a terminal business department during 1995 to 1999 in Huawei, in which was mainly engaged producing PSTN and ISTM tel- ephone sets, and was compelled to kick out in the wake of losing RMB 0. 2 billion in- vestment on it Huawei takes no advantages and no experience in consumer electron- 69 ~ -- 72 of 362 -- ics; this is the reason why it has always been holding back to start the project of mo- bile phones. Huawei has started its business in mobile phones by producing PHS, GSM, CDMD, UMTS, but its main channel to sell these products is still the service providers through its representative office, in the same way of selling switches. It is still weak in the distributing means used by other terminal manufacturers. Standing at the frontline of telecom technologies in the world, Huawei could no longer show the same face as it was ten years ago, imitating and running after success- ful counterparts and their technologies. Huawei has to make its own judgment and prospection independently and bear the risks, as the western giants do, in respect of the market tendency and technological trend which are constantly changing. Huawei draws in IPD process in order to ensure the company to face the severe challenges competently in terms of organizational structure and operating system. Several hun- dred of projects in various sizes set up by the pre-research department in Huawei are under the management of IPD process, no matter large or small, these projects might become competitive products like the switch, optical network, GSM, CDMA, 3G and the like nowadays, and these projects' managers who are unknown to the public now will be likely to become CTOs or vice presidents one day. However, more project teams and their managers will inevitably be faced with the fate of being dismissed like Huawei' s projects of telephone set and PC before. ISC is the key procedure to determine competence ISC process has taken a more dominate position in respect of transforming Hua- wei from a manufacturer, to a company who does not own any manufacturing lines or workers today. The concept of ISC progress means that competitions between enter- prises are attached to the competitions between supply chains in reality. Huawei focu- ses its core competence on leading technologies and edges of the market according to researches and demonstrations stated by IBM experts. During the process of managing the supply chain, it is necessary to only grasp its core competitiveness firmly while it is acceptable to outsource other none-core parts out to those professional companies in the field. In the light of suggestions proposed by IBM experts, Huawei combines man- ufacturing department, planning department, procurement department, shipping de- partment, warehouse and import & export logistics department to establish a supply chain management department during the process of reconstructing the process. And then the supply chain management department is responsible for outsourcing the links such as manufacturing, shipping, logistics, packaging and storage to professional companies via bidding in public. The duties the management department of supply chain taking on in Huawei have been changed into making plans and approvals as well as managing the whole process. There are hundreds of subcontractors in different si- ~ 70 -- 73 of 362 -- zes, big or small, are specialized in offering services for Huawei in Shenzhen. In this way, Huawei develops its strong points in specializing division of labors, reducing the cost and lowering the degrees of difficulties in management, together with enhancing the competence of its supply chain comprehensively. So far Huawei has basically real- ized zero inventory management and possessed the quick-reaction ability to deliver goods within one week. By now you probably attribute the successful reconstruction of the process to IBM. As a matter of fact, Huawei has already brought in a series of processes prior to IBM experts team marching into Huawei in 2000. For example, ISO 9000 process launched in 1996 was approved and completed under the participation of every em- ployee in Huawei within two years. It is different from most of the enterprises in Chi- na that Huawei's boss paid a close attention to the approving course of the process and asked every senior executive to join in the program. I can still remember that the company held meetings about authentication every weekend and the boss would pre- side at the meetings by himself frequently in Huawei. The boss emphasized again and again that formalism or "going through the motions" was definitely forbidden in Hua- wei, and we ought to make our company operated in accordance with the routine, standardization and internalization in a real meaning other than merely targeting at passing the authentication. Processed management is like "a military camp as strong as iron and the employees are soldiers as flowing as water" It is not surprising that the boss lays stress on the processed management beyond common people. As a man who has served in army for 17 years, he understands a truth clearly- "the camp is as strong as an iron and the soldiers are as flowing as wa- ter" in the army. He is regarded as a militarist more than an enterpriser, an ambitious hero leading one generation to capture cities and seized territories, exploiting new lands and monarchizing a new kingdom and building up his empire in the business wars of the telecom market. The boss usually preaches to employees about one old story that "takes away stones and builds up a church" happened in the Old Roman Empire , showing that "the solider who is not willing to become a general is far from being a good solider". The boss stayed at the troops for 17 years and he was born at a wrong time to run into "the Cultural Revolution" in China. Before he was transferred to ci- vilian work at his middle age, he had "undergone" all sorts of ordeals to be an officer in the regiment level which broke his dream to be a general. But thanks to the policy of Reform and Opening-up initiated by Deng Xiaoping, he grabbed the opportunity to be transferred into Shen Zhen SEZ (short for special economic zone) and set up Hua- wei, where is the camp for the boss to realize his dream to become a general. 71 ~ -- 74 of 362 -- In fact the boss embodies the quintessence of the military management in Hua- wei' s corporate culture and organization chart consciously when building the compa- ny. The idea has been always running through every aspect in operation and manage- ment of Huawei even before these principal processes like ISO 9000, IPD, ISC and the like are introduced in. The benefits of processed management for enterprises In accordance with the boss's experience with his real feelings in the troops, this kind of processed management is good for the companies in at least several aspects as followed: (1) Keep on moving forward, or you will fall behind, just like sailing against the current. In obedience to the principle in army that "the camp is as strong as iron, while the soldiers are as flowing as water", everyone in Huawei has no "territory" to live on for the whole life but a temporary "position". Every solider is obliged to gain accom- plishment and fulfillment as well as promotion within a prescribed age, if he or she cannot do so, he or she has to accept to be transferred to do some civilian work or dis- charged from the army. No one in the army is an exception, so everyone cannot af- ford to a little relax in spirit. Just like sailing against the current, keep on moving for- ward or you will fall behind. Perhaps the dynamic management in respect of human resource and eliminating system of the bottom performer built by Huawei get some in- spirations from this point. The employees with "D" of evaluated result every year in succession will be persuaded to leave the company of Huawei, and adding in some em- ployees who voluntarily resign from Huawei, the turnover rate of Huawei 's employ- ees is probably far above the figure of 10% published by the company itself. The rule takes important actions on encouraging and spurring employees in two aspects-on one side, it is useful to prevent old employees from being "precipitated" in the company and on the other side, it is helpful to promote new bloods emerged continuously. (2) Flowing water never becomes putrid. Executives at all levels find it hard to form its own "territories'' due to the flow- ing operating posts, they are always on the way to exchange their posts just as the same as the system of exchanging positions of commanders among major military re- gions in the military. Their troops under their commands cannot go with them to new areas according to the rotating system, which is available to guard against some cor- ruptions happened now and then. Besides, lateral communication builds a bridge to connect departments and regions to create a chance for them to share experience and lessons with each other. (3) Prevention of "warlords" emerged. -- 75 of 362 -- The Liberation Army ended the state that our country had been divided separate- ly under the armed occupation of different warlords in the old China after defeating the army of the Nationalist Party. For fear of new "warlordism" coming into being in new China, Chairman Mao Zedong asks commanding officers stationed in different military regions to exchange their posts, so there is no possibility for any military commanding officer to form his clique for pursuing selfish interests or developing his separatist force which is a big threat to the unity of our country. The rule institution- ally guarantees the absolute leadership of the Party over the army. Huawei grants huge autonomous rights and decision-making powers to representa- tive organizations stationed in various countries or regions. And it is essential for the company to approve these rights in the course of expanding the market, just like in the army that "the field commander far away may have to make decisions by himself even against the kings orders sometimes". These marketing senior generals carve out a way when they come to a hill, build a bridge when they run across streams, and many strategic and tactical problems such as how to win the victory over enemies are all set- tled by these marketing representatives who are acting as "field commanders" and making decisions as quickly as possible under different conditions in business wars. The senior executive on the marketing frontline will accumulate some customer rela- tions and marketing channels as the time flies. Although these marketing resources are both belonging to Huawei as well as themselves so that these marketing senior execu- tives are likely to take "own strongholds" into shape, which will be evolved into "sep- aratist forces of warlords" in the past if there are no rotations over their posts in the company. It is frequent to see reports like this in the media that the marketing direc- tor in some company whirls away the whole marketing channels to carve out his or her business, or the chief representative in a certain country jumps to other places so that the company is completely annihilated in the market and leave the country unwilling- ly. The scene will not happen in Huawei because our processed management and rota- ting mechanism over positions enable us to not reply on any individual professional manager, an individual employee's leaving or hopping will not have any great impact on market operation in our company. Consequently, you cannot see any sort of re- ports in the media that job-hopping of senior executives in Huawei will cause a shake in the company, which is a distinct contrast to other enterprises. (4) Fighting ability is primarily created from the process and system rather than individuals The fighting ability equipped in today's Huawei is primarily from successful oper- ations of IPD and ISC processes rather than relying on individuals. Similar as the US army who is regarded as one of the most powerful troops in the world, however, its 73 ~ -- 76 of 362 -- strong power is derived from its entire system other than its soldiers as individuals. The more backward the troop is, the more attentions it pays on individual martial arts and physical abilities of soldiers. It is all the same to compare ancient troops with modern troops and also it is not an exception to compare troops in a developed country with the troop in a developing country. For example, Americans would certainly have no confidence to win in competing bayonet with other nations, since they rarely take training classes on this subject while some countries who attach importance to rifles surely do pretty well on this side. To say at least, it is no need for the modern troop which is composed of air force, navy and strategic missile to compete with you by u- sing rifles long ago, you will be wiped out easily due to the powerful war system of the modern troops. There are more or less some accidental and fortunate factors helped Liu Bei meet Guan Yu, Zhang Fei, Zhao Yun and Zhu Geliang in the flames of wars in the Three Kingdom Time, however, the processed management of Huawei ensures Huawei to supply new blood by itself and renew generations on and on, creating go- getters who are good at fighting batch by batch. Following description of the Ro- mance of the Three Kingdoms, it is impossible for Liu Bei to build his empire without the help of Guan, Zhang, Zhao- three brothers and Zhu Geliang, his military coun- selor. Differ from that, Huawei does not rely on any go-getters or professional man- agers, its processed management trains, complements and alters new go-getters in line with the system and institution. These go-getters may not be more outstanding than professional managers of competitors individually, but as soon as they are absorbed into Huawei, which is a war machine, they will burst out infinite powers and win all and overcome all in business wars. (5) The system and process are built depending on the able men. Huawei has been becoming more and more independent of the able ones up to now, but there is no gainsaying, even Ren Zhengfei involved confirms that we must still depend on able ones to do groundbreaking works and we still need them to realize the processed and institutional management even after we set up our empire. It is proved to be true according to our practice in the past, from now on, without the pro- fessional manager of great ability, Huawei cannot do so many groundbreaking tasks ranging from entering the new field, researching new issues, developing new prod- ucts, expanding new markets and bringing new processes. I have experienced the "strongman time" in overseas market of Huawei as the founder of the overseas market and the core senior executive during the time that everyone was displaying his or her special prowess to open the market for Huawei. Referring to myself, I have built up Hong Kong market, the joint venture with Russia, Brazilian Department, North Af- rican Department and North American Department for Huawei. I often played a lone ~ 74 -- 77 of 362 -- hand and went to a strange country in the dark with a laptop along. And next I rented the place to work and live, settled the problem of working visa, decorated the office, registered the representative office, built the relation with the government and cus- tomers and marketing channels, opened up pilot network of products, gained the "ac- cessing certification" to enter the net, held exhibition, obtained the admittance to en- ter the market and qualification of bidding, and began to sell products in a business scale as well as hired and trained hundreds of employees in the local places. If there were no "real abilities", it would be impossible for anyone in the street who was Jack of all trades and master of none to get the ball rolling in the course of building up an overseas market. What's more, we these people are successful in constructing the global marketing system for Huawei by our own hands and systemizing and standardizing the system in operation, forming the outline of organizational structure and operating process of the international market with great power in fighting and competing with rivals. At the present, the super skill is no longer needed for chief representatives or general manag- ers of regional departments in Huawei, what they need to do is concentrating on oper- ating the projects and markets within the framework of the company's process. It is so easy for them to pick up the required sources from the process of the global market- ing system which has already been made completely systematical. The right places to show the boss's greatness are separated into two sides. First, he is good at making full and free use of professional managers-" able men" with open minds and second, more essential is that he takes advantage of these able men to make the system adhere to standardization and processed management after breaking the path to start our careers so that the company can get rid of its dependence from the "able men". Almost all enterprises' bosses are desperate for winning the support from the wise, expecting for finding out the able men and making full use of them, and yet we will become passive and dependent on them if we use them in an improper way or the system is not proper to follow. The way Huawei's boss has selected to uti- lize is quite suitable to help Huawei out of such a weak point. It is out of question that there are many bosses with black hearts whose styles in work are just like these behav- iors that dismantling the bridge after going across the river by it, discharging the mill and killing the donkey as soon as it finishes its work, or stewing and eating the hound after it has capture hare for you. In my view, these black-hearted bosses ought to learn from Huawei's boss that they need to compensate more to these sacrificial lambs ahead of jumping to the decisions to "kill the donkey" and ''cook the hound" as soon as the both have completed their tasks, otherwise, no "hounds" are willing to "hunt for hares", no "donkeys" are ready to "grind with the grindstone" for you anymore. 75 ~ -- 78 of 362 -- The marketing system and operating processes which were erected depending on these able men who spent their blood on them in the past will be broken up and collapsed down because these able men are sacrificed so viciously that their successors will be scared away immediately. Huawei's processed management is originated from the military style of Huawei' s boss, catering to the requirement of operating the management system standardized and catching up with the international conventions. In addition, it is a powerful method to reinforce the management of the company, cast off over-dependence on professional managers and achieve a lasting peace and stability instead. Management of an enterprise must keep a watchful eye on absolute controlling the enterprise itself with its backbones from the angle of a "strategist". As an enterpriser, no matter from the positive side or the opposite side, you will learn a lot of experience, at least you will know how to control your own enterprise, especially how to use and control the able men- professional managers who have been striving for establishing every brick and tile for your enterprise so long as you make some researches on Huawei. 2. 6 "Keep a near distance if we stay too far while keep a far distance if we stay too close" with the government Since it walked into 2000, Huawei has initiated to sell its products in a regular way, aiming at gaining trusts and supports from service providers by virtue of adver- tising the power of the company in many aspects, including the advanced managing mechanism, leading edges of technologies, excellent service system and customized so- lutions and so on. The tactic meets the demand of combating corruption and building a clean government The economic system of China has undergone the Planning Economic Era for sev- eral decades and it didn't bring in the marketing economic system until the Reform and Opening-up policy was carried out and it took a long time to go through the whole transforming process. Ten years ago, the telecommunication network in China was monopolized under the control of National Ministry of Posts and Telecommunications, in other words, it was bestowed in double identities-one was identified as the su- preme ministry who was in charge of telecommunication industry, representing the government; the other one was identified as the telecommunication service provider who monopolized the domestic market, which was usually regarded as the system in- tegrating both government and business by the public. It seems to telecommunication manufacturers like Huawei that it possesses a kind of crowning power over others' lives and properties in the market in this way. Suppliers rack their wits to build a friendly relationship with service providers following the system. Tracking back to over ten years ago, service providers were ~ 76 -- 79 of 362 -- state-owned units, whose officers and employees were paid lowly but were offered a great power to control the construction budget over tens of billions or even hundreds of billions RMB per year. Undoubtedly the system offered a chance to some employ- ees or officers of service providers to secure gray incomes. Some were really in gray, for example, service providers invested together with suppliers or cooperated with them as a tertiary industry in order to offer some welfare for their employees collec- tively. What is more, a few officers or employees "were full of guts" and they made demand of rebate or commissions from suppliers and put the money into their private pockets directly, which was no longer gray income but corruption. On the other hand, suppliers were compelled to be involved in such gray or even "black" deals for living and competing with peers in the fierce market. Huawei has been walked along with the course of reforming the national system and has undergone the marketing system over ten years ago together with other peers at the same period. The problems it met in practice were similar to others inevitably. If we say Huawei has never done the similar things which are almost operated conven- tionally in the industry, no one will believe it or accords with the fact of historical materialism. However, Huawei was deserved to be praised by noticing that operations in this way would probably jeopardize the company greatly and cause legal risks under the table, so it adjusted marketing strategies in response without any delay. Huawei considered that it could be very effective in this way to cultivate markets in the past, however, along with the government getting stricter and stricter on legal requires related to anti-corruption, it would not sit aside watching business corruption of this sort to continue. As soon as some officials were involved into cases referring to corruptions, enterprises tied up closely to them would be definitely implicated. As the process of reforming the national system going deeper and deeper, marketization will dominate the economic activities, so the marketing ways in low-grade in the past will have less and less effect in the market. Consequently Since it walked into 2000, Hua- wei has initiated to sell its products in a regular way, aiming at gaining trusts and sup- ports from service providers by virtue of advertising the power of the company in many aspects, including the advanced managing mechanism, leading edges of technol- ogies, excellent service system and customized solutions and so on Formal marketing methods mean that we should keep a proper distance with the government officials as follows "Keep a near distance if we stay too far while keep a far distance if we stay too close", to maintain the long-term stability for the company. It is a proper decision made by Huawei to propose the strategy in a bid to respond to the government's re- quirements in respect of anti-corruption as a warranty to operate the company accord- ing to the law and maintain a long-term interest for the company. 77 ~ -- 80 of 362 -- The tactic meets the demand of internationalization It is well known that Huawei has successfully entered the markets in over 90 countries. Referring to most countries with deep marketization, we cannot use the old ways as entertaining customers, inviting them to dinner or sending gifts to them as be- fore. Moreover, these ways are not only out of date but also forbidden among custom- ers nowadays. Especially some countries, which prejudice or discriminate against Chi- nese enterprises, are reluctant to offer proper economic positions in the market for us. Or even they will exaggerate the supports or funds the government offers to Chi- nese enterprises, which come down to constraining opportunities for Chinese enterpri- ses to participate in marketing competitions. Some medias in the U.S "hype evilly" Huawei's military background on the internet, according to the perjury that Huawei' s boss is a demobilized soldier from the Chinese army, which is obviously hype with ulterior motives. Moreover they have ulterior motives to identify our constructions of civil communication networks in some sensitive countries as constructions of weapon systems. All above reveal that "the hawk" power in the West opposing to Chinese en- terprises' rising in the industry instinctively. Nonetheless we should not look down upon the political power. When Huawei sets to open the market in the West, it tries the best to avoid conflicts by desalinating the flavor of government and emphasizing on the point that it is a 100% private enterprise which uses completely-marketized methods for formal sales and expanding the market step by step. The enterprise living on the government is looked down upon by its peers not only in developed countries in the West but also in some developing countries, all of them appreciate the winner backed by real strength in the competition in the market rather than supports from the government. It is the marketing principle that "keeping a near distance if we stay too far while keeping a far distance if we stay too close" as a tactic Huawei adopts to meet the demand of its internationalization strategy. The tactic is the demand of marketization Along with two of vital innovations in Chinese telecommunication system took place around 2000, two PSTN fixed network service providers--China Telecom and China Netcom emerged and two mobile service providers-China Mobile and China Unicorn turned up in successions. They competed with each other and were listed in the stock exchanges at home and aboard early or later. Although it was the govern- ment who held the four service providers who sailed on their bottoms and assumed sole responsibility for their profits or losses respectively, the four were listed companies provided with a modern management mechanism. The principle showed as "open, righteous, fair and transparent" was obliged to adopt through the process of biddings in respect of these service providers' construction projects which were valued as much ~ 78 -- 81 of 362 -- as hundreds of billions RMB per year in order to adhere to legal supervision on the lis- ted companies by the government and meet the investors' requirements of the listed companies' performances. As a result, the gray operations which had been popular at one time in the past, is very rare even if not completely disappeared. Consequently, Huawei had to adjust strategies and marketing methods in time. It made up its mind to say goodbye to those marketing methods and began to advocate the formal ways to sell products vigorously in the entire company up and down after 2000. Our service providers' friends may still remember that Huawei began to invite a lot of leaders and experts of service providers to visit and inspect management and constructions of the process and corporate culture, attracting customers by soft power from that time on. Service providers were busy in transforming their structures and getting prepared to be listed at that time so that they were so interested in researching and studying Huawei' s experience involved in business management. The scheme Huawei designed has produced favorable results in the market. Service providers changed their minds a lot after reconstructions. They began to take the pressures from their competitors into consideration, besides caring about how to reinforce their managements. As manufacturers supplying equipments for service providers, it is more useful to help service providers increase their sales revenues and enhance their competitive powers than inviting them to dinner or sending presents to them, which were effective in the past time. In case the service provider runs effi- ciently, wages and bonuses of its employees will turn to be fairly lumpy, for they are paid and treated as the listed company in Hong Kong. Quite different from state- owned enterprises before going on the list, it is reasonable and legal for them to get higher incomes according to their business performances. Huawei aligns with service providers to form a community with mutual benefits, cooperating with them on an equal basis for the first time. As long as the solutions Huawei provided could get positive benefit from the market for the service providers, Huawei and the service providers will achieve double win For instance, Huawei pushes forward the first Pre-Paid card "Easy own" in China via cooperating with China Mo- bile, which makes pots of money for China Mobile with more than 20,000,000 users up to now on one side and Huawei gains big rewards from the market in return on the other side. Consequently the static stated as "keeping a near distance if we stay too far while keeping a far distance if we stay too close" is a product of marketized operation, which manifests that the market-oriented economy in China has been developing more and more maturely and the society has been becoming more and more progressive as people say, "seeking for the market rather than asking for the mayor" when we want 79 ~ -- 82 of 362 -- to build a company. To be the nationwide champion in terms of paying taxes is loyalty to the country In 2006, Huawei continued to hold the position as the national champion in terms of its tax turned over to the government, amounted to RMB 4. 93 billion ranking the first place among the top 100 enterprises in electronic industry nationwide (the 20th session) and it was the eighth time that Huawei won the title in a row with the tax in- creasing by nearly 30% than the previous year of RMB 3. 8 billion. Lawful operations and more taxes to the government are the biggest returns Huawei dedicates to our country and society, as which are regarded the best results the governments at all lev- els are looking forward to seeing most. In return, state leaders inspect Huawei almost every year; besides offering some guidelines, they usually help Huawei settle some problems and difficulties in practice. As a matter of fact, Huawei could not get suc- cesses without the supports from the governments at all levels. Apart from huge taxes turned over to the government, Huawei keeps in mind to make donations to the socie- ty all the time. For instance, In July, 2005, a devastating flood in Guangdong Province, employees in Huawei donated a total of RMB 3. 8 million to help victims in disaster area to recover andre- construct their homes. In 2004, Huawei donated emergency telecommunication equipments which were worth of over RMB 20 million to people who were suffered from the tsunami in Thai- land, Sri Lanka, Indonesia and Bengal in the Southeast Asia, in addition, the compa- ny and its staff donated RMB 20 million in cash to support victims in the disaster area to rebuild their homes. In 1998, our country was suffered from a severe disaster of flood, Huawei dona- ted telecom equipments equaled to 25 million Yuan in value and 15 million Yuan tore- build the schools which had been destroyed in the flood. In 1998, Huawei donated RMB 25 million to set up the "foundation for humble students" (a scholarship for poor students), aiming at helping these poor undergradu- ates finish their studies in universities. Huawei contributed and subsidized to build up 5 Hope Primary Schools and 1 Hope Middle School. Not only creating independent telecom technologies for the country but also re- turning a big fortune to the society on and on, Huawei is committed to answer its re- sponsibility and obligation as a corporate citizen. If you want to learn something from Huawei, you should attach your emphasis on the market-based operation and the law- abiding marketing as well as a strong sense of social responsibility it insists on. ~ 80 -- 83 of 362 -- 2. 7 Attach importance to virtues of candidates while screening employees A large number of competent and up-to-standard managers are needed in develo- ping and strengthening the company in the view of Huawei. There are three standards for Huawei to measure whether an officer is excellent or not, as shown blow: first, does the officer possess professional ethics or be serious with and responsible for his work; second, does the officer have a dedication spirit with a magnanimous mind; at last, can the officer take on the burden on the shoulder in developing the enterprise with a strong sense of responsibility and the sense of mission. Huawei' s standards for selecting employees It seems that "the ways to select and employ persons" in different companies va- ries, but they share the same point in essence, which is about to focus on evaluation on moral integrities of the candidates. The master of business management- Kono- suke Matsushita in Japan explained it as: "the one with virtue and talents is qualified to be appointed even breaking the rule; the one with virtue but no talent is available to use after fostering; the one with talent but no virtue ought to be limited to use, the one without virtue or talent is no need to use". Most of the enterprises pursue the principle as "paying a close attention on the virtue of the candidates when selecting employees", Huawei is no exception. The boss has emphasized several times in the of- ficers conferences that Huawei should concentrate on whether the candidate "posses- ses with both moral integrity and professional competence and regards the virtue of the candidate as the first option" when selecting officers and managers. The market is the battleground. The competitions among enterprises in the competitive environment of marketing globalization come down to the competitions among talents, it is impos- sible for enterprises to gain persistent competence and sustainable development in the future if they are lacking of excellent officers, whether the staff at all levels are admi- rable in virtue acts is the base for enterprises to decide whether or not to employ and put them in important positions. A large number of competent and up-to-standard managers are needed in develo- ping and strengthening the company in the view of Huawei. There are three standards for Huawei to measure whether an officer is excellent or not, as shown blow: first, does the officer possess professional ethics or be serious with and responsible for his work; second, does the officer have a dedication spirit with a magnanimous mind; at last, can the officer take on the burden on the shoulder in developing the enterprise with a strong sense of responsibility and the sense of mission. The evaluation system of the enterprise is not always fair in the absolute sense. Dedication spirit plays an im- portant role in examining officers, if a manager cares about too much or is too selfish, he or she cannot team up with subordinates harmoniously, thus he or she cannot do his or her 81 ~ -- 84 of 362 -- work well. The one without dedication spirit had better not to do any management work These standards reflect Huawei's requirements and emphasis on "virtues". There are some concrete principles for Huawei to select its officers: First, working ability, sense of service and responsibility are needed as an of- ficer. Huawei thinks that managers must be practical and do work seriously. The one who is of words but not of deeds or works for appearance sake will not be promoted or favored in Huawei. All managers in Huawei are asked to do some specific tasks by themselves; the ones who cannot find work to do or have no idea about how to do it will face the fate to be laid off. The company will adjust officers without practical ex- perience to the positions below the section-level. If you cannot do the work well at the basic level or if you have no dedication spirit, you will never be promoted to a higher position in Huawei. Any officer who makes fake figures, or works with exaggerating style, cannot escape the fate of demotion and payroll slash. The medium and high-level managers are asked to be able to improve themselves and be adaptable to meet the demands of the society and the enterprise's development quickly in Huawei. In addition to that, managers must fully understand the core val- ues in our enterprise thoroughly and be capable of making some self-criticism. Moreo- ver, they must care about their subordinates and be good at pricking up their ears at- tentively to hear different opinions and make friends with someone holding different opinions and offer some necessary analysis and helps: first, managers should help their subordinates transform their minds and methods of work, second, managers should assist them in moving to different positions, avoiding conflicts with direct managers face-to-face. To be a sincere friend to employees is of great importance for a manager. When employees are open to talk with you heart-to-heart, can you settle the problems in work as soon as possible? This is the only way out, no shortcut. Sec- ond, excellent art of leadership and style of work are also necessary for an officer. Unity and communication are both regarded as the eternal theme in the manage- ment work in Huawei. Managers need to unite not only the ones who agree with them, but also the ones who hold different opinions; they will never be qualified to be managers or get superior promotion if they cannot do this. Criticism and self-criticism working styles are emphasized on from the senior level down to the grass roots level in Huawei. Employees are allowed to criticize superior officers and also subordinates in the company; otherwise if everyone acts as "a nice person", considering influence on others, we would not be able to know how to improve business management of our company. Managers need to be strict with themselves as well as with subordinates and they must keep their hands clean and do work with hearts and souls to set a good ex- ~ 82 -- 85 of 362 -- ample that the employees will be willing to follow. Only if the whole quality of a team gets enhanced, does it demonstrate that the management goes up to a new level for managers. Third, we should screen officers selflessly by standing in the interest of the com- pany. The potentials to be a manager, hidden in a certain person, is up to his or her quality and ability, regardless of the seniority, Huawei takes it for granted and gives permission to someone with different opinions to work in it, implementing the regula- tion of officers being responsible for issues but not persons. The system of being re- sponsible for persons will provide a fertile ground for some unhealthy ways and gray custom and a series of problems will result, such as telling lies, promising high posts and other favors, giving unethical protection to someone, classifying different people into different grades, and so on. Huawei has some disciplines: managers must express their opinions in their own names, forbidding using the method of joint signature. Mangers are allowed to send their opinions over issues to a private email box by emails solely, no permitting for them to send the emails onto the bulletin board without au- thorization. All the opinions will not be shown in the public until the company makes confirmation. No matter whether they are positive or negative, it is all wrong to de- clare one's opinion on the bulletin. Fourth, it is required to reach the realm of fostering our successors who can sur- pass us. To Huawei, if there is no predecessor paving the way for later generations, there will be no chance for talented people to appear from generation to generation. Pro- vided that talented men come out in succession and we persist on continuing with the past and opening up the future, the career will be flourishing. So managers must pre- pare for both promotion and demotion all the time and connect personal development with the development of the enterprise tightly so that they will integrate into the cor- porate culture of Huawei in real sense. Revolution of enterprises is always hindered by their own management, for this reason, managers of enterprises ought to face the situation with proper attitudes. Revolution is moving from an old benefit distribution model to a new benefit distribu- tion model step by step, and the balanced cyclic process can impel to enhance the core competence and increase benefits of the enterprises. Managers' benefits will be dam- aged during this process; great masters will be likely to turn into small ones, and the temples in the past will be likely to be pulled down. At this time point, managers should treat it with the right mentality in view of corporate development. Just like Huawei, who is in the revolutionary period in terms of its organization, many officers 83 ~ -- 86 of 362 -- at the senior-to-medium levels will be altered in positions and the company is willing to hear managers' voices carefully, who are obliged to obey the revolution rules, if not, the revolution cannot keep on. Managers will not be readjusted according to the requirements of the operating posts and their own wills until the revolution comes to an end and the company is restored to the normal order. Fifth, it is necessary to look into and communicate with officer candidates to a deep extent. Some enterprises do not deeply conduct background check for the candidate' s working experience when they are screening potential managers, which may lead to many unexpected situations. So increased transparency is enforced at the time of ex- amining the personal resume of each manager in Huawei, and it is contributing tore- solving the corruption problem of the management. Huawei sets another principle to select officers which is shown as below: the employee without real managing experi- ence at the basic level, or has no working experience as a grass root worker, a basic- level secretary or a common salesperson is not supposed to be elevated to the manage- ment level regardless of the doctoral degree he or she may have. Because Huawei be- lieves that the one would not become a qualified manager if he or she has no practical experience, no matter how excellent his or her educational background is. The systematization of officers' training Huawei trains its talents by itself in most conditions except for bringing in "air- borne troop" from the society when it needs some special talents in a hurry to enter a new area. I was one of the main members to make up the "airborne troop" Huawei has brought in. Before I accepted the invitation to join Huawei, there were no profes- sional overseas marketing employees in the company who had to import external tal- ents in a move to enter the international market and push forward internationalization of its business. Because it was very expensive to hire senior talents on one side, and the invited talents should adapt to the unique corporate culture and military manage- ment system in Huawei on the other side, so Huawei had not brought in a great num- ber of "airborne troop" in its history. Many talented teams in Huawei were formed via cultivating and training employees by the "airborne troop" which had an impres- sive impact on training Huawei's employees. This did not only lead Huawei to touch another new business or enter a new field, above all, it acted like a "seed" or "mas- ter" to foster echelons made up of talents who were "born and had grown up locally". Basically the "airborne troop" would finish their historic missions as soon as a set of systems were built up completely, including a new business process, organizational systems, strategical schemes and talented teams. "Most of you will go off from your supervisor positions several years later. " said the boss straightforwardly in front of ~ 84 -- 87 of 362 -- our initiative team in the overseas market once in the past. Although the boss said these words to encourage us to keep on learning, however, several years later, most of the initiative supervisors changed their positions or left Huawei. No matter if you are the "airborne troop'' or senior backbones, all those people are responsible for training new employees of Huawei. This kind of training was systematic at a high lev- el and safeguarded by a series of sophisticated rules and regulations stipulated by Hua- wei. All new enrolled employees are required to take preliminary trainings before get- ting the tasks based on some relevant policies of the company. The training process is no other than an experience of rebirth for employees. Huawei has built its university, named as Huawei University and a training base in Shenzhen in which all employees are asked to take training courses there and take up their jobs after passing tests to show their qualifications. Besides that, Huawei has a school on the Internet which trains their employees scattered around the world via this virtual school on line. As an IT enterprise, Huawei makes full use of its edges in technology and trains tens of thousands of employees by utilizing network techniques. Trainings of employees and officers in Huawei are composed of pre-post training, on-job training and post-shift training, which constitute a complete and interactive training system covering every program. (1) Pre-post training Most of employees accepting pre-post training lessons are newly employed under- graduate. The training process goes across a long period of time and is enriched in contents and strict in terms of evaluation. It is almost a torturing experience for those new undergraduates. The pre-post training contains four main parts- military train- ing, corporate culture training, product technology training and marketing training. CD Military training The military training is aiming at changing the spiritual outlook of new employees and shaping their bodies. Requirements are detailed as shown below: first, employees are required to form a good habit to be organized and disciplined as well as intensified in a sense of team spirit. Second, the training will enhance their working responsibili- ties. The leaders in the company take a strict and serious attitude towards the work related to the military training, reflected in responsibilities at a high point and re- quirements of high standards of the central guard regiment's instructors. Our leaders and instructors influence every employee deeply, encouraging everyone to cultivate a strict working style at their working posts. Third, employees are demanded to foster a spirit that everyone is not afraid of hardship and should overcome difficulties bravely. It is essential to possess these qualities as far as the marketing employees are con- 85 ~ -- 88 of 362 -- cerned. In fact, the military training is not just a pre-post training for new employ- ees, even battle-scarred supervisors at all levels in the marketing department have to attend the military training for one week when they are having the annual training meeting in order to keep high spirits in light of Huawei's conventions. As a veteran, the boss himself has close eyes on the military training. It is proved in practice that this sort of training is very effective. Marketing supervisors at all levels in Huawei seem to have imposing manners and lofty sentiments of soldiers after training and drilling in the business battlefields for many years although most of them have no ex- perience in serving in the army. Perhaps it is the secret to show that the marketing team in Huawei is much more powerful than others in business wars. @ Corporate culture training The purpose to make training lessons for Huawei's corporate culture for new em- ployees aims at letting them accept Huawei's values through a comprehensive under- standing on Huawei. The company asks new employees to discard their original con- cepts and modes solidified in minds and accept Huawei's concepts completely with the aid of training. After trainings, the marketing employees are inclined to believe that their products are the best and are willing to open up markets in the most difficult and remote regions by their own volitions. Undergraduates who have just walked out of the universities' gates usually do bet- ter than the one who is rich in marketing experience and life experience in the mar- keting team of Huawei. These young people seem like a pile of blank paper with new knowledge and full vigor, and they are easier to accept corporate culture and values of Huawei comprehensively in that they have no working experience in this area. Assum- ing that the boss steers the boat adeptly and "hardcore" supervisors at all levels lead them in a wise way, the group of student-employees will move forward and never look back in business wars at home and aboard. Undertaking hard work for several years, the outstanding ones of them will be fostered to be "hardcore" backbones and supervi- sors of a new generation. "I need to ensure that the employees fighting in the fore- front line are full of passions and vigor all the time. " The training of corporate cul- ture plays such an important role like this according to the boss. @ Technical training It is helpful for the marketing employees to understand Huawei' s products and technologies, including product categories, performances and so on through technical training lessons. The link is very unbearable for undergraduates who are majoring in the arts. Because the training course contains too many things which are high in densi- ty, what is worse, the contents are never seen or known before and the tests are very strict, these undergraduates of arts will be kicked out easily in case they do not study ~ 86 -- 89 of 362 -- hard enough. However, the posts of marketing experts in Huawei must be taken on by engi- neers. Quite different from other competitors, Huawei's employees who are engaged in marketing management are obliged to be related to the undergraduates majoring in science and engineering with proficient skills at Huawei' s products and technologies. The requirement does not only apply to new employees before taking up their duties, but also applies to experienced employees. Because technologies are always on renova- tion and new products will never stopped emerging, we ought to compel marketing employees to take classes in respect of products and technologies, keeping pace with the times rather than getting them done once and for all. The marketing technology department is specialized in taking charge of organizing every R&D department to col- lect and compile relevant information of the latest products into teaching materials, to be used for training marketing employees on purpose. @Marketing training Employees newly enrolled in Huawei are usually graduating students of science or engineering, majoring in telecommunication or IT from universities. It is essential for them to get training lessons for marketing theories, covering a wide range of customer praxiology, marketing psychology, position theory, integrated marketing communica- tion, brand image theory and the like. These new graduates will get rid of bookish- ness and prepare well in psychologies and mentalities for going to the frontline of the market after the trainings. Huawei imitates the way that the .. teaching team" in the liberation army uses to constitute .. the second camp for marketing" in a bid to foster the group of childish graduates who are young and intelligent to grow into valiant gen- erals with "wolves' nature" in the market. They will be graduated .. out of the camp" and take up their quarters only after passing a series of strict examinations in train- ings. Marketing training is very practical and operational for most of the employees majoring in science or engineering and it is regarded as the most important training course for freshmen in Huawei. (2)0n-job trainings Huawei' s training classes are not limited to per-post training, but also on-job training which is built for marketing employees. In order to stimulate the whole sales force full of passions and energies at any time, a set of a complete development plan for individuals has been formed inside Huawei, focusing on charging and training em- ployees designedly and persistently in order to open a door for employees to get ac- quainted with the newest advancements achieved in communication technologies, the new methods used in marketing and the sales strategies adopted in the company. The training combines part-time training with full- time training, self-development with 87 ~ -- 90 of 362 -- educational development, traditional education with network education. Constructing a learning team is the goal Huawei has been pursuing all the time. The people who worked in Huawei before all have a deep feeling that the knowledge and experience learnt in Huawei is much more than that in universities. Huawei provides systematic and convenient learning and training resources as channels for employees to develop their careers. Distinguished from other companies, no one in Huawei will attribute the learning cause to the company, on the contrary, they are willing to regard the participations in various kinds of business trainings as a cherish remuneration or a chance for themselves to step forward. Everyone is pleased to join these trainings vig- orously and takes them seriously. Everyone involved in the trainings will receive suc- cessful experience sharing from others and improve own skills in actual combats with the purpose of improving their own performances, which will expand the opportunity to increase salaries, allotments of shares and preferment accordingly. (3) Rotation training Some employees in the marketing department may not be suitable to stay at their positions due to various kinds of reasons so that Huawei offers trainings for these em- ployees to change their posts. The main content in the training lessons is focused on learning skills and knowledge required in the new positions. Supposing that the em- ployees are still inadaptable to the new positions after trainings, Huawei will provide another time for them to learn new skills and knowledge of another new position, helping them keep growing along with the time. Furthermore, Huawei deals with the laid-off employees or officers in humanity, although it is rather cruel to be laid off ac- cording to the institution. Huawei successfully avoids contradictions between employ- ees and employers from being intensified and stabilizes employees' hearts by transfer- ring their positions after trainings. The institutionalization of employee selection Marketing employees will be equipped with the basic qualities to be business per- sonnel after a systematic training and what they are lacking of is nothing but practical experience. Huawei will send these people directly to practice in agencies scattered in different regions in China, giving them the opportunity to show their talents in the forefront of the market and take the test from the market. They will be sent to mar- keting agencies spreaded in different regions all over the world after they accumulate a certain quantity of marketing experience and marketing skills in the domestic market in the wake. The market in China is viewed as the testing ground for new products, new technologies and new businesses and also is regarded as the main base to foster and train talents related to the market and technologies systematically. Almost all marketing supervisors overseas in Huawei at present are senior-level ~ BB -- 91 of 362 -- employees who have established its domestic market. These senior-level employees have learnt how to swim in the sea of the international market from the "airborne troop" who faded out of the stage from the overseas market after completing their tasks to teach these senior-level employeest following with policy guidelines of the company. The group of these elites in the domestic market makes an impressive per- formance in the overseas market t relying on their rich experience accumulated in the Chinese market after they adapt themselves to the international conventions and rules of the game. Neverthelesst no one can deny the fact that the large-scale breakthrough in the global market goes hand in hand with solid foundations laid in respect of explo- ring new areas, accessing into the market, constructing base areas, building the mar- keting system and so on by the first generation of "airborne troop" at that time and the successes in these practices support Huawei to maintain its fixed personnel system available further. There is a thorough system to guarantee the appointment of officers in accordance with principles and standards of Huawei. The law to a country is the same as the rule to a family in effects. Huawei has been devoted to making its marketing system more and more completed step by step in the course of building up its marketing team. Sales staff in Huawei strived for orders and managed customer resources relying on the understandings towards sales by them- selves in the early stage of building the company. But along with the expansion of marketing team and the extension of sales regionst how to manage the expanded mar- keting team and customer resources becomes a problem that is urgent to be solved in Huawei's consideration, because unsystematic codes of conduct and codes of ethics cannot meet company's requirements in the process of its development fundamental- ly. The principles of behaviors for Huawei People and The professional codes of ethics for Huawei 's employees were pushed out as a rule to regulate the basic behaviors of marketing staff in Huawei at that time. However t there are still quite some limita- tions in these rules and regulations. The management system of human resourcet the management system of finance and fundt the management system of the process and the management system of marketing were setup, ensuring the marketing system in Huawei to become more and more completed day by day, but all of these systems are independent of each other, lacking of a unified idea as the soul to dominate these sys- tems in the company. The basic law of Huawei born in 1997 was a sign to reflect that construction of the company's system became mature further more. And Huawei spent a large amount of money in hiring the famous human resource consultancy Hay Group from the U.S to make a complete set of management system in terms of human resource tailored for Huawei, leading Huawei to be more and more consummate in screening employees 89 ~ -- 92 of 362 -- in 1998. Huawei's return to humanity One of Huawei's employees named Hu Xinyu who was as young as 25 years old died of viral encephalitis on the night of May 28th, 2006. I was wondering why Hu Xinyu's death was absorbing such a wide attention among the society very soon. The reasons were various; maybe Huawei had been so unyielding in style and "arbitrary" in image in the long run that aroused particular resentments among the companies in the same line or maybe due to instigations created by competitors or probably because of the force-out policy towards entrepreneurial employees who wanted to establish their own companies after leaving Huawei. Many netizens attributed the cause of Hu' s death to Huawei's corporate culture and the event was exaggerated to be a "death due to overwork" and was "speculated evilly" on the internet too quickly to control, Huawei's corporate culture of "wolves' nature" was called in question again in the media. As lucky as it would be that it just came at the right time that the book named Cooperation and conflicts between business leaders and me written by the former vice president Mr. Li Yuzhu was just published out, "if happiness cannot find its way in work, the work will lose its original meaning" which Huawei's boss had ever said was mentioned by him in the book. And it was just in May, 2006 that Li Yuzhu published an article called" Why do I leave Huawei" in his blog. The Huawei theme was chased by many netizens on the internet and Li Yuzhu' s new book was being sold like hot cakes followed with domino effects creeping the press world, some nose parkers con- nected Hu Xinyu's incident with Li Yuzhu's new book and blog on purpose, leaving many people who don't know the truth an impression that Li Yuzhu did write the book and blog for responding to Hu Xinyu' s incident. In fact it was injustice to Li Yuzhu. Regardless of the attitudes from the external world and Hu Xinyu' s family members and friends concerned with the incident, there was no possibility for Li Yuzhu to join into such boring or tiresome discussions in the society or on the internet from the view of the ones who were so familiar with him, let alone to break Huawei' s image in the society. In all fairness, it is a very common thing to undergo birth, senility, illness and death through one's life. It would probably happen in any country or any company that someone dies of a medical emergency in the working time, Huawei is no excep- tion. Why did the public define it as "death due to overwork" so firmly? It is unfair for Huawei; at least in my mind. As a matter of fact, no other companies in China would compare with Huawei in respect of the remuneration and the working environ- ment for the staff. The Staff engaged in IT and communication industries have to bear ~ 90 -- 93 of 362 -- more workloads than other industries even in the American enterprises that highlight their humanized management, so does Huawei. Therefore employees in the industry always retire and change careers earlier than others relatively. A series of disputes and self-examinations in terms of the culture of "wolves' na- ture" jumped out among the society and media due to Hu Xinyu's incident. In fact af- ter 2000, Huawei no longer mentioned the conception of "wolves' nature" any more in its internal files and leader's speeches, replaced by process management and pro- fessional talents. But the culture of "wolves' nature" existing for many years has im- pressed a deep mark on Huawei' s body beyond doubt. Huawei is digesting conse- quences left by it painfully and difficultly after achieving unprecedented successes de- pending on it. When a clump of contradictions broken out in Huawei' s culture, "wolves' na- ture" in it has been called into questions by more and more people, who doubt that "wolves' nature'' advocates to beat opponents to death while our harmonious society ought to emphasize on coexistence and double wins instead, on the other hand, the culture of "wolves' nature" advocates to hit the mark by fair means or foul and any rules can be trampled on and everything can be destroyed for meeting bestial de- mands, but social rules require us to comply with them together. Besides, "wolf's na- ture" is a substitution for a theory of original evil in human nature, while virtuous hu- manity is the virtue for enterprises and the society should persist in. The boss has learnt a lesson after the series of matters happened and realized the harms that the culture of "wolves' nature" brought to the company. Huawei did not evade its responsibility on Hu Xinyu's incident. "Although there is no direct causal-relationship between overwork and the death of Hu Xinyu, there is a coherence, our executive leaders have paid much attention on it and our company has restated the policy of overtime working that the one who wants to work overtime after 10 o' clock at night must get the permission from upper managers, in addition, it is forbidden to pass nights by making a bed on the floor in the company," alleged by the new spokesman Fu Jun in response. As a matter of fact, the employees at the basic level who work overtime will get their allowances according to Huawei' s policy, which attracts some new employees to apply and strive for the chance to work over- time in a bid to get allowances compensated on the most conditions. So far as to re- duce unnecessary overwork and enhance work efficiency of eight hour's working sys- tem, as well as cut down expenses in terms of overwork, Huawei issued some specific related regulations to keep a tight control on overwork and did its best to reduce the chances for employees to work overtime many years ago. That is to say, the company does not force employees to work overtime but controls it strictly on the contrary. 91 ~ -- 94 of 362 -- "Our company was deep in sorrow on this matter." Fu Jun expressed his sadness in this way, facing the Media's concerns and questions about Hu Xinyu' s incident. According to my deduction, Hu Xinyu's family members must get a proper economic compensation and spiritual comforts on the basis of Huawei's policy and convention. It is in recent years that Huawei created the position of news spokesman. Huawei was an extremely low-profile company in the past, anyone in Huawei was forbidden to talk with others about the company randomly, or would get a severe punishment from the company. One of female department managers who had worked with me before was very talented, but the company took disciplinary action against her behavior to accept and present in an interview of a Media in the Hong Kong Telecommunication Exhibition in 2000 and gave her a punishment by cutting her salary because she had vi- olated company's policy in spite of her original idea aiming at introducing Huawei to the outside world. Eventually she left Huawei in with great anger. The news spokesman in Huawei knows the company's disciplines clearly and al- ways abides by the principle and style of the company as keeping a low - key tone so that many people do not know there is a news spokesman in Huawei. Both the first and second news spokesmen are the vice presidents and propaganda ministers (Fei Min and Zhu Jianping), much higher in ranks and qualifications than the present spokes- man. Fu Jun is the third news spokesman of Huawei and a senior executive of propa- ganda ministry in the company, witnessing the developing process that Huawei goes out of the door and opens its mind to the Media in public, becomes the most spotlight- ed news spokesman in IT and telecommunication industries around the world today. As the boss said at that time, Huawei was not a listed company without the need to be open or transparent, no need to explain anything to the public neither. But now the boss changes his view from the bottom of his heart, Huawei is coming into public view irresistibly, it is necessary for Huawei to live on friendly terms with the Media and the public harmoniously. Huawei has opened its door and cooperated with the Media in a wide scope now, it is not only to meet the demand to establish brands for consumer goods such as mobile phones, but also to build up a harmonious and synergetic circum- stance and reshape a friendly image in public. It is said that the boss was afraid of turning to another extreme point when he ad- vocated the culture of "wolves' nature". So the boss advocated to embody "wolves' nature" on marketing employees' in the front line and "jackal's nature" on the em- ployees in the second line in a move to stimulate them to help each other indeed, as a matter of fact, it means to "act in collusion with each other"-a balanced system of businesses expanding and managerial supports simultaneously. The boss has provided a "jackal" being good at management as an administrative assistant for the director of ~ 92 -- 95 of 362 -- the office who is full of "wolves' nature" and able to fight in every provincial market at home since 1998. It was not until the recent years that management has been scientific in Huawei indeed. In 2003, Huawei began to speed up innovations on management such as end- to-end IPD (Integrated Product Development) and ISC (Integrated Supply Chain) to a depth longitudinally, leading the management of Huawei to be mature little by lit- tle. Huawei's R&D system has already implemented C:MM management. In addition, Huawei spent hundreds of millions of HKD in inviting IBM consulting corporation to establish a process management system of enterprises for itself. The former dictator- ship culture has been taken edge off sharply after these management systems were set up. Whereas as the foundation Huawei builds on, Huawei 's Basic Law has been un- dergoing some adjustments in the operating process in practice every year and it is said that it is in the course of modification at present. The new vision of Huawei 's Basic Law is believed to be more humanized. Huawei has initiated strategic cooperation with international "friendly partners" on a large sale in an effort to eliminate resistance and hostile sentiments from the in- ternational market to the maximum limit. Also Huawei attaches to the international conventions closer and closer in terms of managing on-the-job employees and pays more and more attention to respect their humanities and human dignities in the com- pany. It is expected that Huawei will change its ways towards its competitors in the domestic market and its view on its former employees who has left Huawei and crea- ted their own businesses, and also be easier to treat them and create a more harmoni- ous and amicable cooperative environment in the near future indeed. Changes of the boss open a window for us to welcome the first light of the future. Only by returning to and insisting on the theory that people are virtuous and surpassing but not indulging in the theory that people are evil, it will create a real enterprise and entrepreneur of greatness. Hoawei' s innovation on human resource management Innovation in terms of human resource management in Huawei has been carried out through the partnership with Hay Group and built up a positional system, pay- ment system, qualification system, performance management system and model of employees' qualities stage by stage from 1997. Based on the innovation, screening, fostering, using and remaining principles of employees as well as selecting and promo- ting, training, appointing and evaluating principles of officers were coming into shapes in Huawei. Hay Group has begun to examine and verify work of improving hu- man resource management and found out some existing problems in Huawei's manage- ment and handed them over to Huawei to solve year by year since 1998. Thanks to 93 ~ -- 96 of 362 -- Huawei' s persistence in improving human resource management for many years, a team of officers serving customers sincerely were created out. Huawei cooperated with Hay Group once again and cultivated its leading power, opened up and built up the model of leadership's quality, aiming at fostering leaders for the company to ex- pand its global market in 2005. (1) Leadership style is necessary for officers. Huawei always selects and promotes the officers with excellent morality, good ac- countability and leadership style to hold the top position in all departments at all lev- els. The one without good accountability could not be promoted to be the officer no matter how good he or she is. According to Huawei' s opinion, such people will create false scenes of prosperity and the team would lose fighting capacity if they were placed at managerial positions in the company. So they are changed to get ordinary posts and their good qualities are changed to be good abilities, realizing their good ac- countabilities in the wake of a series of specific tasks. In other words, no matter how skillful you are or how competent you are, you must work in practice first and make good results then, you cannot be declared to own high-quality if you have nothing to show for. Quality is usually regarded as an ability of cognizance in many people' s eyes, whose focuses are concentrated on whether the one has a doctoral or master's degree in terms of their educations. While the quality of employees Huawei lays stress on is not on the table but morality and working ability, which means performance and result reflected on their own. The officers without good accountability or quality will be dismissed out of Huawei undoubtedly. Huawei classifies officers into three grades, 30% of them go into the reserved team and are offered the chance to study and take trainings in Huawei University, some of which with excellent marks will get the opportunity to get promotions in terms of their positions while 20% of them lagging far behind will become backward employees who are on the top-priority list when the company wants to lay off some employees. It is quite normal that the ones in backward team are eager to get rid of the situation to be dropped back, so they squeeze towards the middle class, which makes the latter unbearable to stay at the same place and will squeeze forwards corre- spondingly. Huawei emphasizes greatly on the principle that practice is the sole criterion to test truth. It selects and promotes officers in light of their performances from prac- tice, regardless of your own remarks on yourself. According to the performances you achieved in the past, you will be chosen to take the post of officer provided that you are regarded as the one wearing a leadership style with an ability of team management by the company. Huawei is opposed to obtain a position by ways of democratic recom- ~ 94 -- 97 of 362 -- mendation or fierce competitions, which will mess up the whole evaluating system. Huawei has been devoted to regulating the evaluating structure brick by brick in re- cent years and formulated a system consequently. Education background is important but not the sole standard to evaluate employees in Huawei. There is no column for employees to fill in the education background in the personnel evaluating table of Huawei, all information in the table are concerned in evaluated results of employees' job performances. Huawei hopes the employees who are very responsible but not very good in qualities learn more, improving their self-qualities further more. The ones who are very responsible and talented will be provided with more chances to get train- ing classes while the ones who cannot improve their own qualities all the time will be asked to accept some general work in placid moods. (2)Policy towards officers is oriented in: three priorities and three ways to en- courage employees. Three priorities: first, Huawei gives priority to the excellent team when selecting officers, offering promotions to the team with excellent performance when selecting officers. The senior supervisor who cannot fulfill the managerial target continuously will be removed from the office, the vice ones cannot be lifted up to take principal posts on even ground. Second, the company gives priority to the employees who are full of accountabilities or working at the frontline and overseas under harsh conditions to enter the officer reserved force and to take training classes. Third, it gives priority to the officers who are of great accountabilities with self-criticism spirits and leader- ship styles to sit in the top position at all levels in the company. The so-called leader- ship style falls into four parts: high quality, team leadership, clear target direction and managerial rhyme to reach the goal. Three encouragements: first, Huawei encourages officers to go on the forefront line, especially the forefront line overseas and regions under harsh conditions over- seas. And encouragements and rewards will be shifted more to the employees on the forefront line and especially the ones in the hard regions overseas to a deep degree. Second, it encourages specialistic talents to walk into the career path designed for ex- perts in technologies and businesses. Third, it encourages officers to adjust themselves to be more international and more professional in work. All officers are committed to filling in the officer evaluating forms with applications to go to work in the hardest regions overseas of their own accords, or no matter how excellent you are, you will not be taken into consideration to use in employment, this is the oriented policy to- wards officers in Huawei. Huawei specifies the required standards of officers' qualification in many aspects ranging from morality, quality, behavior, skill, performance to experience. There 95 ~ -- 98 of 362 -- are two approaches offered for employees to realize their career plannings-one ap- proach is leading to become managers and the other one is leading to be technological experts. But the managers and technological experts at the same level enjoy the same remunerations in Huawei. Supposing that you are not suitable to be a manager but skillful in technologies and businesses, you will develop your career heading for tech- nological or business experts, enjoying the same remunerations as managers at thee- quivalent level. Training and selecting mechanism of officers in Huawei aims to embed the cus- tomer-oriented soul into employees in terms of the institution, working method, process, planning to daily evaluation. Huawei gives a veto to the liberalism that em- ployees realize individual values. There are only two ways for employees to change their fates-one is to make arduous efforts and the other one is to make great contri- butions to the company as a whole. Contributions are sometimes under the table while sometimes on the table, sometimes for a long time while sometimes for a short time, sometimes they are hidden in the shade, or even are misunderstood. Huawei pays em- ployees according to their contributions plus working abilities else but it never pays them rewards in accordance with their education backgrounds, length of service, the titles of technical posts as well as good interior "public relations". In the developing process of internationalization, Huawei advocates to train of- ficers at all levels in "Shang Ganling" (a famous battle used to take place in there). These employees are of gracious moral sentiment and strong sense of responsibility and sense of mission and professional dedication as well as excellent competence in tenure and high performance. Besides, they are also loyal to the company, regarding customers as parents who offer food and clothing to work in hard regions and endure hardships and stand hard work and shoulder the responsibility doughtily. These em- ployees will be selected and promoted to join in the group of officers in Huawei. At the same time, Huawei will take the proportion of female officers into consideration and care about their growths in light of institutions. Officers with leadership styles and high qualities as well as team leadership, and officers with clear heads on target directions and good knowledge of managerial structure as well as strong fighting abili- ties after a series of tests are more likely to get trained to be successors in different levels in Huawei. (3) The elimination system for officers who are lagging behind Huawei sets up an innocent metabolic mechanism and insists on bringing in a batch of excellent employees,forming a steady flow of resource for reserving officers in successions. Additionally Huawei imports senior talents full of experience in inter- national operations and paces up the international process of the officers' team at the ~ 96 -- 99 of 362 -- same time. Apart from these points, Huawei stresses on strengthening ideological and moral education, honesty and trust education on officers and employees and persists in it all the time. It objects strongly to corruption and gambling of officers. All officers joining in gambling cannot escape the fate of being fired by the company absolutely. At last, Huawei establishes the personal file system for employees, recording their in- formation, including praises, punishments, promotions, qualified abilities and per- formances and so on. Huawei has been always adhering to one word forged over ten years: loyalty, which means to be loyal to customers, to be loyal to the society in ad- dition with to be loyal to employees. The elimination system for officers is carried out on the basis of the values and the evaluating system in terms of their performances. (4) Qualification attracts Huawei's attention most when selecting officers. When Huawei is selecting and promoting officers, the candidates are ready for going through authentication set in according with the requirements of the position and standard of qualification, focusing on employee's morality, quality and perform- ance of accountability. And then Huawei will perform 360-degrees inspection of the officer, focusing on evaluating the officer's office performance by the senior superi- or, the subordinates and the common people around. No democratic recommenda- tion, no competition will be taken into consideration but a mature system is adopted to select officers from these candidates. The mature system is made up of the follow- ing parts, containing the system of position, the system of qualification, the evalua- ting system of performance, principles of selecting and training officers, procedure of selecting and appointing officers and evaluation of officer's performance. Evaluated results will be put on the bulletin for half a month in the wake and officers will be placed under the supervision of the employees who have the right to show their com- plaints to the company within half a month. An adaptive phase after officers being appointed is available for them to learn from tutors arranged by Huawei. They will get their posts formally after getting qualified commitment from the tutor and rele- vant authorities at the end. In addition, the system of non-fixed posts is used in Huawei in a bid to ensure that officers can get well prepared for both promotion and demotion at any time. Some will get off their positions if they cannot reach the goal. The system of "separa- tion of three powers" is adopted to select officers, nominating vote is controlled by the business department, and appraising and deliberating votes are under the control of the human resource and officers system as well as vetoing vote is in the hand of the Party Committee separately. Evaluating mechanism of officers in Huawei came down to the following three sides: one is the evaluating mechanism based on results of re- sponsibility orientation and evaluation on individual behavior in key matters, the oth- 97 ~ -- 100 of 362 -- er one is relying on reports of officers in different layers classified based on corporate strategies, in other words, it is a mechanism of performance management containing officers' promises of individual performance and the principle that the ones falling behind at the last will be kicked out of the officer team. The third one is the promo- tion mechanism for technological and business experts in accordance with authentica- tion of qualification standard based on their ranks in positions. The one who takes professional route is technological expert or business expert, he or she can apply for approving by referring to various standards for position activities, if he or she can pass it, he or she will be lifted to a higher rank. Performance is not the only key fac- tor to evaluate employees during the whole evaluation process of officers in Huawei, because performance can only declare that you will not be kicked out but not illustrate that you will be promoted up, the key to evaluate is in line with individual behavior in the process and takes all factors into account comprehensively. In the light of strategies of the company, Huawei uses overall-balanced score cards to evaluate officers' performances. The overall-balanced score card acts as a tool in putting the integrated strategies into effect and its core idea is to fulfill Hua- wei' s strategic targets by mutual-driving causal relationships among four sides-the fi- nance, customer and interior-operating process as well as learning and growing of Huawei. The key of overall-balanced score card lies in balances in five aspects: the balance between the short-term target and the long-term target, the balance between the goal of accruing profits and the goal of potential profits, the balance between the financing target and the none-financing target, the balance between the outputting target and factors driving performance and the balance between the external market- ing target and performance in the internal key process. In other words, all stages of the process, from strategies to the index system and then individual performance in- dex of every officer in practice, make use of the overall-balanced score card to reach the balances on each side, such as the long-term and the short-term targets, the finan- cial and the non-financial targets. Huawei has concrete evaluating judgments to evaluate the behaviors of officers in the course of key matters too, linking these evaluated results up with payments of of- ficers directly. Senior-to-middle managers will be demoted from their principal posi- tions to vice positions or removed from the principal positions on the assumption that they only complete the target less than 80% by the end of the year. And superiors at all levels will be demoted or transferred to other positions and not be promoted from vice positions to principal ones under the condition that they do badly in individual performance (the bottom 10%). Officers cannot be selected from the team with bad performance and managers with gross negligence will be relieved of their posts on the ~ 98 -- 101 of 362 -- spot. Officers with punishments cannot get promotions within one year, especially promotions across departments and officers unqualified in the evaluation of the process of key matters cannot be promoted either. As the result of the innovation car- ried out in terms with human resource management in Huawei, the forming of the whole human resource management system provides its employees with rules to follow and law to abide by. 2. 8 To be extravagant as the royal family while to be frugal as the house- hold As a point of the boss's view, employees in Huawei should spend money at the right place as generously as we can, for example, the headquarters base is regarded as first-class worldwide and courteous reception is considered as extravagant as we cannot imagine. While on the other side, we must save money as much as we can at the prop- er places. The boss asks employees to cut down costs, out which are carried by actual efforts of himself and his families earnestly. Do you want to know how luxury Hoawei is? When we talk about extravagance of Huawei, we can hardly find any companies at home and abroad to match up with it in this respect, even foreign merchants who have visited headquarters of western telecommunication giants like Motorola, Erics- son, Alcatel-Lucent and North telecom cannot help praising Huawei' s headquarters which is situated in Bantian, Shenzhen, acclaiming that these office buildings of high grades even seem to be more luxury than the headquarters buildings of Microsoft and Cisco in the U. S. A Huawei purchased a stretch of land covering an area of 1 square kilometer in Ban- tian village, LongGang District, Shenzhen at a very favorable price and set to build its Bantian Base in 1997. It is said that investment added up to nearly 10 billion RMB was used to build the production center, machining center, Huadian scientific research building, Baicao Garden dormitory, IT center, training center, Chinese researching center, Chinese experimental center and administrative center one by one. Huawei had started to move all departments affiliated to the headquarters to Ban Tian Base in turn successively from 2000 and all were moved to Ban Tian completely up to 2002. Except for some buildings in the section of administrative center which have not been finished, the other projects have been finished as scheduled and put into use. Foreign businessmen who have ever visited Bantian Base of Huawei highlight the achievement Huawei got, but some of them are still so confused about luxury and ex- travagance side of Huawei's headquarters, they will ask: "are these investments nec- essary? Western giant companies who are richer than you usually build their headquar- ters more simplified and practical, differing from you, they will put the money into 99 ~ -- 102 of 362 -- research and development parts." They will even say: "compared with the average level of China as a developing country, these royal palace stylish architectures go too far to some extent, or even just waste of money." Taking it for granted that it is not very good to tell these foreign businessmen that we decorate ourselves just for nothing but meeting the demand of the market directly. Whether a family is rich or not, we will know the answer by just seeing what kind of house they live in in accordance with Chinese traditions. Chinese people are consid- ered as the nation who like purchasing houses best in the world. No matter living in poverty-stricken areas, saving money to build the house is still regarded as the thing of the first importance in a Chinese family. Housing property or non-housing property is an unchangeable index to judge whether a family is rich or not in consideration of our culture. Consequently, peasants are willing to build a house by borrowing money all a- round no matter they are too poor to buy clothes or food for their basic survival condi- tions. According to the reports from Sina, the rate of homeownership in China has reached the leading level in the world at present. House is a mark standing for a suc- cessful career and a symbol signifying a status as well as a sign representing a family's fortune in urban areas in China. Enterprises follow suit. Enterprises that are weak in powers are afraid of being looked down upon by their customers, because investors are not willing to cooperate with the one with few powers and consumers are reluctant to buy products produced by small manufacturers, so enterprises have to package them- selves for surviving and developing. Huawei is engaged in telecommunication industry where competitors are extraordinarily strong and all are transnational tycoons with annual volumes of business high up to tens of billions dollars, which enforces Huawei to package itself. The most efficient way it adopts is to build a luxury official base. Plus, we have got supports from the government and banks to buy lands and our annu- al sales revenue are nearly ten billion Yuan at that time, there is no problem with cap- ital and it will save a lot of money in renting offices in the wake of the office base be- ing built. On the other side, this group of office buildings is a huge fixed asset which is estimated to be worthy as high as 20 billion Yuan, compared with 10 billion Yuan of investment at the beginning, we have obtained enormous return from our investment and improved company's balance sheet to a great extent and provided very excellent guaranteeing conditions for financing as well. Most important of all, luxury decora- tion sets up a very nice stage for Huawei to show its products and technologies to cus- tomers at home and aboard. The exhibition hall of Huawei's products, situated on the fourth floor of the pro- duction center in Bantian Base, is a place for displaying and selling products and never ringing down the curtain for 365 days as a whole year and provided with technological ~ 100 -- 103 of 362 -- personnel who are skilled in different languages and specializing in explaining and publicizing technologies and products of Huawei to customers. When foreign business- men with suspicious thoughts of Chinese products come to Huawei, we will lead them to look around, following along with Huawei's "New Silky Road", and take a look at the headquarters base of Huawei, they will walk out their worries immediately and sit down at the table to sign contracts with us with satisfaction. In the course of breaking through the international market across-the-board for these years, our headquarters base plays an equally influential role. Among many cases to show Huawei's favors in ostentation and luxury when culti- vating the market, Hong Kong Telecom Exhibition in 2000 plays the most outstanding role in this aspect. It is said that Huawei spent HKD 0. 2 billion in Hong Kong Tele- com Exhibition, mainly were used in preparing for the exhibition, making stages, in- viting customers and delivering gifts. Huawei invited more than 2, 000 telecom offi- cials, service providers and resellers from over 50 countries all over the world just at that moment. Traveling expenses for arriving and departing, board and lodging ex- penses for customers were all concluded to Huawei's account, round-trip tickets were all for first-class cabin or business class, and we arranged customers to live in five- stars hotels, more than one thousand laptops were prepared to send to customers as gifts, in which had pre-installed the propaganda materials and DV films of the compa- ny without doubt. In spite of complains that some people thought it cost the company too much and became a mere formality later on, Huawei still left a deep impression on customers from different places all over the world at the exhibition and also it was the first time that Huawei was in high-profile to show its power to the international tele- communication industry. Huawei sets another example to show its luxury by chartering military helicopter to carry officials and customers. It happened in the autumn of 1998, the product GSM had come out just at that moment and its experimental site was selected in Inner Mon- golia where was wide in land but scarce in human beings. Huawei organized an ac- ceptance conference on the spot and invited leaders and experts from the National Ministry of Post and Telecommunication and officials of telecommunication bureaus of every province and city to visit the site in a move to pass tests and checks made by the General Telecommunication Management Bureau of the National Ministry of Post and Telecommunication and get permission to access to the network subsequently. The Inner Mongolia Autonomous Region was weak in transportation conditions and the experimental site was as far as 600 kms from Hohhot, besides, experts and leaders were too busy to waste too much time on the bumpy road, so we were inclined to rent helicopters to carry our customers at that moment. There was no private helicopter a- 101 ~ -- 104 of 362 -- vailable for business use at that time, so we wondered to get supports from local air force. The boss assigned the task to me and Beijing agency, asking me to connect with the air force of Beijing military region positioned at Hohhot Base in the name of com- pany's leaders. Then we succeeded in getting contact with the leader in the Base through a relative of one military chief and the leader decided to offer supports as soon as he learnt the specified situation on the matter after getting the permission from Air Force Headquarters of Beijing Military Region. And later, the Beijing agen- cy obtained special permission of Beijing Airline Controlling Ministry so that we com- pleted the special flight mission resoundingly at last in spite of large amounts of money Huawei spent for the event. Since all problems in respect of transportation were solved, a large group of officials, experts and customers across the country were pres- ent on time, we received very good effects on the spot and Huawei passed the test without a hitch and gained the network accessing permit for the product GSM issued by the Ministry of Posts and Telecommunications at last. Thanks to the success of this experimental site, it laid the foundation for wireless products to make a huge success later on. At present, the sale of wireless products has accounted for more than 50% of the total sale in Huawei. There is another case that Huawei rented a business private plane of Hainan Air- lines to carry its foreign customers. I received the director of Mexican Telecom Ad- ministrative Bureau from the gangway ladder of the plane and led him to sit inside our company's car for receiving YIPs at Shenzhen Baoan International Airport on behalf of company's leaders one day in summer in 2002. It was not a unique example, at that time, CEO of foreign service providers or ministers of the Ministry of Post and Tele- communication or chief directors of Telecommunication Administrative Bureau all en- joyed the same standard of reception. Reception of customers in Huawei is through processed management, for there is a standard and policy for receiving guests in every period accordingly, what levels the customers stay match to what kind of courteous re- ception they will receive as well as what ranks of company's leaders arranged to meet in light of the process. Some officials from foreign countries who have no idea about China or Huawei's power before will be satisfied and glad to enjoy such high-profile receptions which are likely to change their tunes towards Huawei, at least Huawei a- grees with the point of view. Huawei becomes more and more convinced of correct- ness to receive customers in this way and more and more confident to increase invest- ment in this respect due to successes it has achieved in the market at home and a- broad. However, in the eyes of people in the outside world, Huawei is regarded as more and more lavish and the scene of its reception is more and more extravagant, leaving people such an illusion that "Huawei is so wasteful," or "Huawei is too exten- ~ 102 -- 105 of 362 -- sive in business model '' Do you want to know how "stingy'' Hoawei is? Huawei's boss agrees the principle that money should be used without any hesita- tion where it is needed while it should be saved without any doubt where it is needed. He does not only require employees to save cost, but also earnestly practices what he advocates together with his families all the time. There are so many cases to prove it , let's start with something happened around me. In March, 1996, our boss leading a team of a dozen of employees in person checked in a five-star hotel- Shangri-La in Belgrade in a bid to talk over joint- ven- ture investment projects with customers from Yugoslavia. We booked a presidential suite for the boss, which cost us nearly 2,000 dollars per day in order to be decent on purpose. We calculated carefully and budgeted strictly the cost in a move to make full use of several rooms in the presidential suite by making beds on the floor for us to sleep every night. We got up very early and asked housemaids to clean the room so as to meet guests in daytimes. As the chief negotiating representative of Huawei with a working period of less than a year in Huawei at that moment, I witnessed the scene that the boss worked hard with his heart and mind and shared happiness and woe with us and got to understand what time we should spend money as much as we feel limp on our hands but not feel tremble at hearts and what time we should make a sustained ef- fort to carry out the saving policy on economics resolutely. First, on some weekend in 1997, the boss traveled to the Amazon tropical rain forests with us at our own expenses. When we went to buy some pairs of sneakers in the shop before setting out, we found that the sneakers were classified into three grades and the prices were 35 Real, 45 Real and 55 Real per pair (at that time 1 Real equaled to about 1 dollar). As we have 75 dollars as allowances per day, my colleagues and I picked up the famous brand- Nike, 55 Real for one pair and bought them, but our boss gave the option to a nameless common sneaker at 35 dollars per pair. "I came to Brazil for business, different from you residential personnel, I just wear it for one time and I will throw it away later, so it is no need to buy such sneakers in a famous brand," The boss said, responding to our doubts. Nevertheless, we ran across the view that our boss was cleaning the pair of shoes at the price of 35 dollars with a brush in his hand in the rest room at the ending of the journey when we returned back to the settlement, and he took the pair of shoes back to Shenzhen when we returned home to our surprises. We were deeply touched on this matter. It was hard to imagine that Huawei's boss, Ren Zhengfei who was so frugal, ranked at the second place in "Hur- un Rich List" in those days. Second, one day in October, 2001, I, being in charge of international financing 103 ~ -- 106 of 362 -- business, took part in the meeting of Import & Export Bank of China in Beijing to- gether with Zheng Yi (the boss's sister), senior supervisor of capital planning depart- ment at that time. After the meeting was over, we went to look at Chairman Mao's remains with reverence in Chairman Mao Memorial Hall and then strolled on the stalls beside it in convenience. I found that all clothes Zheng Yi picked were priced within one hundred Yuan each to my amazement. Readers may feel puzzled why Zheng Yi is so frugal regardless of her identity as the sister of the boss and the middle-level officer of Huawei herself with a very high salary. But as employees who are very familiar with the boss and his family members, we are so accustomed to it because our boss and his families are very low-profile and frugal Along with improvement of overall remu- nerations by a large extent for Huawei's staff in recent years, the boss and his fami- lies have changed their house and car thoroughly, but they are still living in simple and unadorned conditions compared with other senior supervisors in Huawei. Either the one who loves Huawei or the one who hates Huawei has to admit that it is deserved to praise the frugal tradition as a cherish morality in Huawei who is de- served to be learnt by everyone. Do you want to know how does Huawei lower the cost? In respect of corporate governance, Huawei establishes many rules and regula- tions to restrain employees to save cost and many strategies and methods to realize its aim to reduce cost in terms of the structure. Strategy one: outsource non-mainstream business. As we all know, being a famous enterprise with high salaries in China, Huawei's cost in terms of human resource accounts for the most part of its total expenditure. According to the estimation, a junior engineer in Huawei is paid high up to hit 200, 000 RMB every year, including basic wage, all kinds of subsidies, bonus, travel ex- pense, communication expense, cost allocation of office pool and so on, super beyond the average level in IT industry in Shenzhen. Not only are engineers paid so high, other auxiliary posts are floating up in the wake of their rises, but also a trend to vie with each other is emerged among different departments and posts in Huawei. For instance, the security guard are in favor of comparing with the drivers, or even with undergraduates assigned newly as complai- ning, "why are they paid more than us as soon as they come here, while we have been working here for five years, we are old Huaweis." Since the company cannot deter- mine employees' remunerations according to their working years only, unnecessary troubles will occur in the course of management in our company. Although the em- ployees on auxiliary posts earn much more than their counterparts in the society, they are still unsatisfied. In 1997, the guards who had been "soldiers to guard the national ~ 104 -- 107 of 362 -- flag" before, stirred a disturbance collectively due to their dissatisfactions to their re- munerations. Huawei began to realize to make some changes in management from the practice: for the sake of keeping its competence, it must draw closer to "business outsourcing" and "resource outsourcing" of the western peers in a hope to reduce cost in respect of operations by a wide margin and release senior supervisors at all levels from multifari- ous tiny things bothering them, as well as centralize energies and resources to manage the core business of the company. Innovation in Huawei began from back offices such as canteen, guards, cleaners, hospital, groceries and printing department and such- like from 1998. Zhu Jianping, senior vice president and chief inspector of administra- tive management department of the company, was assigned to take the position of the director of Huawei' s innovation commission of the logistic system established in the wake, in charge of opening public biddings of these businesses to the whole society. Some former employees in these departments were transferred to other positions and some were dismissed with proper compensation while some were recommended to new contractors after a series of evaluating and screening by the company. As a very glam- orous and powered woman, Zhu Jianping pushed forwards innovation on management boldly and resolutely and thus the company tasted some pleasant flavors from out- sourcing business soon, not merely a dramatic decline in terms of operating cost but a huge decrease in respect of management difficulties as well. Huawei "cut down" non-core businesses further via the help of outsourcing busi- ness around 2000. This time it mainly involved production links, containing manufac- turing, assembling, packaging, shipment and logistics. Preferential policy and finan- cial support were unveiled by Huawei for the sake of transiting smoothly and dividing and arranging employees in former departments properly and encouraging managers and backbones in former departments to carve out inside the company in the form of registering EMS factories or other service providers specialized in offering services to Huawei, which were under the management of the supply chain management depart- ment of Huawei in terms of businesses but were independent in terms of economy. The employees hired by the internal venture factories have the average cost of the ones in the society without the identities of Huawei's employees. As far as the ventu- ring teams are concerned, they would be transformed to be shareholders and managers after successful transitions smoothly. On the other hand, quality of Huawei ' s prod- ucts produced by EMS (produced for the original equipment manufacturer) would get safeguarded and also the cost of manufacture in terms of the structure would be cut down after the innovation. At present, Huawei has been changed into a model in ISC management without 105 ~ -- 108 of 362 -- manufacturing shops or inventories indeed. Only two core businesses are reserved, one is the marketing and the other is R&D. 38% of the company's human resource has been put into the marketing department in that Huawei views the market as its lifeline all the time. Regardless of the idea, so many businesses are jobbed out in the opera- tion of completing Huawei' s marketing orders, for example, businesses in terms of installation of projects, operation and maintenance of equipments, receptions of cus- tomers, trainings of customers, and investigations of marketing and so on are usually sub-packaged to those professional medium-sized and small-sized enterprises. It is a big help to cut down cost in respect of paying wages and control travel expense which was hardly to be lowered before in this way. Cost in terms of market operation will be reduced largely and service quality and efficiency will be improved greatly as well by division of labor based on specialization and public biddings on the basis of fair princi- ples in Huawei. Although R&D business is also a core business and Huawei has put in 48% of its human resources, Huawei still outsources pure software business which wastes a lot of its time and labors to "gray-collars of software" who are qualified to do it at least. Huawei offers outsourcing wage as 8, 000 to 10, 000 RMB per month for "practiced- hand" engineers with working experience of more than three years while it spent 200, 000 Yuan as average cost in employing junior engineers by itself before innovation, so Huawei saves nearly half of the cost in terms of human resource in this section via out- sourcing businesses to others. It is estimated that the figure of outsourcing engineers is beyond 20, 000 so that Huawei saves 2 billion RMB due to innovation in this time on- ly. Perhaps R&D department of Huawei will evolve into a department without posi- tions for software programmer, which is difficult to imagine that there will be few software program engineers in the biggest "embedded software" manufacturer in Chi- na one day. What Huawei reserves are "core businesses out of core businesses"- sys- tem analysts, architecture designers and product project managers who are the key factors to enhance advanced edge and competence of the products. At the same time, work regarding to software programming is changed into "non-core business of core businesses", which can be consigned to "grey collars of software" in "software plants" with the strengths of quantity production and lower cost. Strategy two: Huawei makes a clear distinction between public and private inter- ests. In view of high salaries from the company, Huawei's employees are forbidden to take extra advantages from the company absolutely. The company lays down a set of strict rules and regulations that is regarded as a benchmark to measure the levels of employee's professional ethics according to corporate culture of Huawei. One cannot ~ 106 -- 109 of 362 -- be put on an important position or get trust in case he or she breaks the rule by taking any extra advantages from the company. As a result, Huawei's employees, especially senior supervisors at all levels, attach much attention to the rule and restrain them- selves to obey the rule strictly. Complying with rules formulated by the company, employees are willing to set a- side their private telephone fees from the telephone bills of the company and their pri- vate consumptions will be deducted from their wages at the beginning of every month. No one ruins big events for these tiny profits. Consequently the company controls its cost in terms of communication effectively. Huawei's vehicles are all used for receiving customers and no one uses them for personal affairs, even our boss, unlike the other companies, it is impossible to see someone who has the experience of using them as their private cars, driving them in commuting time in Huawei. In contrast, senior superiors of Huawei usually attend meetings or go on business in their private cars with no allowances for them at all from the company, During the time holding the post of senior executive of the international market in Huawei, I was always in need to entertain customers. So the company conferred special rights to me to sign bills in more than 30 luxury restaurants for convenience in work, however, I didn't entertain my families or friends for even one time by abusing the power. Not only me but also other senior executives in Huawei follow suit, which mirrors the fruit of Huawei's corporate culture fostered in the long run and effective results of fulfilling rules and regulations Huawei made. In contrast with the phenome- non in state-owned enterprises that senior managers spend money excessively by dip- ping into the public's pocket for private interests, Huawei's rules end the unhealthy ways and custom of waste and corruption, and control operating cost in an effective way as well. Strategy three: Huawei embodies consciousness of cost in every link of the process up to down. As the same as successful enterprises at home, Huawei approved the theory long ago: cutting down expenses is not the only way to depend on in terms of controlling cost, which is determined by many factors comprehensively, including R&D in respect of road sign guiding, structural design, production technology, material cost and sup- ply chain management. Different design ideas and products' structures may lead to create products lacking of competence in terms of costs inherently. Cost in terms of production will be lowered to a deep extent and quality of products will be improved to a high level due to the improvement of the production technology. Scientific man- agement of supply chain ensures to control material cost effectively and then sharpen 107 ~ -- 110 of 362 -- the competitive edge of products in price furthermore. In the course of carrying out "rationalization proposal activity" launched by Hua- wei for many years, the TQC (short for total quality control) team who aims at low- ering the cost and improving the quality of products has been working actively across every department of the company. Distinguished from the methods that other compa- nies adopt, Huawei puts forward the principle of "small suggestion, big encourage- ment; big suggestion, no encouragement" rather than make the task be formalistic on a grand and spectacular scale without any actual effects, leading the company to re- fine and tamp the whole work in every link. So it can be seen that Huawei's huge ad- vantage in terms of cost is comprised of dribs and drabs accumulated in specific work. Readers ought to have understood the profound meaning of Huawei's principle, which is "to be extravagant as the royal family while to be frugal as the household" by the time you read here. 2. 9 "Propose a toast to celebrate if we win while fight desperately to save partners if we lose" and "wolves' nature". No matter at home or abroad, "propose a toast to celebrate if we win while fight desperately to save partners if we lose", which is a popular principle Huawei has been followed for many years in the marketing system, and summarizes Huawei's corporate culture of "wolves' nature" in best words. "Wolves' nature" is illustrated as team spirit Brilliant performance Huawei has been achieved is mainly created by its market- ing team. The large number of marketing headcounts, the height of their qualities, the extensiveness of their distributions and the largeness of their incomes in Huawei are unprecedentedly seen in corporate history in China. Employees engaged in the marketing area are more than 14,500, 38% of our overall headcount, spreading in more than 90 countries and regions over the world. The vast majority of them are young people graduated from prestigious universities at home and aboard, over 70% of them are in possession of master's degrees or above. Every year hundreds of em- ployees who have just graduated from universities are delivered to the frontline of the market groups by groups after a long time of almost militarized trainings. "Huawei's products may not be the best one, but so what? What is the core com- petence? I am selected while you are not, that is the core competence. "said the boss as a warning to us ten years ago. In Huawei, market is regarded as core competence and it is grabbed by soldiers who fight against enemies dashingly ahead regardless of their own safeties in the frontline. In Huawei' s history, it has created the first-class market even with the use of third-class technologies, and then it has attained a great deal of profits returning from investment and forged the first-class products step by ~ 108 -- 111 of 362 -- step from the outset till now. Competitors from the western world have made contras- ting performances in the market in China. They have made the third-class market e- ven using the first-class technologies. For this reason, Huawei promotes the model to each main "battlefield" all over the world and recopies the road to success there. Someone may say that marketing strategy is the core competence of Huawei and the core of marketing strategy is to own a marketing team constituted with "wolves". As a result, "wolves' nature" is viewed as a symbol to reflect Huawei's corporate culture. In recent twenty years, Huawei has achieved astonishing performance, not only rarely seen in China, but also seldom found in the history of telecommunication indus- try in the world. Huawei is in need of one kind of spirit to unify the fast-running team and make the enterprise full of vitality, which is the team spirit as mentioned above. Huawei advocates the culture of "wolves' nature" very much due to three specific characters of wolves: first, a favorable sense of smell; second, a quick reaction; third, a collective attack on preys discovered. "Wolves' nature" is regarded as a role model for enterprises to learn in Huawei' s mind. No matter at home or aboard, "propose a toast to celebrate if we win while fight desperately to save partners if we lose", which is a popular principle Huawei has been followed for many years in the marketing system, and summarizes Huawei's culture of "wolf's quality'' in best words. This type of training of "wolves' nature" can be seen in Huawei in every hour and every minute. From the winter of Huawei to how long does the red flag of Huawei fly, all reveal Huawei' s strong awareness of something may happen unexpectedly in the future. The boss is of the opinion that "wolves' na- ture" hidden in some secret place in wolves will be burst out to the largest extent as long as "wolves" are told to get less and less food so that they will capture more chances and hunt for more preys shoulder-by-shoulder as soon as possible. So aware- ness of unexpected things happened in the future is absolutely awakening greater "wolves' nature" of the team in a bid to create more fortunes instead of the complaint of being pessimistic. The matrix management model Huawei adopts requires every functional depart- ment in interior of the company to work together and gets response to any questions quickly through mutual-assistance networks, or else the model will expose its biggest weakness: multipoint management, ambiguous duties and responsibilities. Huawei' s marketing staff work so efficiently in quick interactions that customers are all aston- ished sharply while opponents are scared bitterly, because Huawei shortens its time from signing the contract to supplying the goods down-to-earth within four days. Hua- wei hits the acme in managing cooperations among each department and regards all links outside the company while on the whole supply chain as an organic integrity as 109 ~ -- 112 of 362 -- well, ensuring outsourcing personnel to be an organic component of Huawei's team according to the company's main management process ISC. Huawei becomes a "war machine" made up of "wolves" running efficiently, reaching the peak of efficiency and hitting the acme of cooperation, which is very hard for other opponents to exceed and triumph over now. Huawei takes an early lead in receiving customers as the world first-class stand- ard, which astonishes customers at home and aboard deeply. The customer service system is a systematic project under operation in Huawei for nearly all departments in the company will be involved in rather than just customer engineering department which is working alone to receive customers. All tasks are completed "easily" in an or- derly way under the strictly organized process while the team spirit plays an important role in ensuring the process to go smoothly. "Wolves' nature" is safeguarded by the culture Wolves' nature is the team spirit embodied in Huawei's marketing system, but it is very easy to distort human nature if we emphasize too much on "wolves' nature" it- self. A security system is needed to protect "wolves' nature" from going off, which is the corporate culture of Huawei, especially the marketing culture. In light of the Huawei Basic Law , Huawei' s corporate culture can be summarized into five words: team, devotion, study, innovation and fairness. ( 1 ) Huawei highly praises the team spirit "Corporate culture of Huawei is established on the fine traditional culture of Chi- na. The staff must hang together and struggle together. '' said the boss once in a meet- ing to welcome new employees. Huawei hates individualistic heroism very much and advocates collectivism and team work to compete with opponents as a whole squad, "propose a toast to celebrate if we win while fight desperately to save partners if we lose". In the work reports of senior executives at all levels in Huawei, they are pro- hibited to render their own contributions but attach importance to emphasize the role the team plays. KPI target is also an evaluation on performance of the whole depart- ment. Supervisors should pay more attention on achievements created by their subor- dinates but seek for more weaknesses on themselves. Only in this way are they accept- able by the main stream values of the company and gain more chances to make pro- gresses. ( 2 ) Huawei devotes particular care to the spirit of contribution. "Dedication" is divided into three layers, according to the Huawei Basic Law: In the first layer, Huawei devotes its values to employees, driving the team to be more outstanding. In the meantime, the company offers them favorable channels and professional passage ways for individual development, impelling employees to make ~ 110 -- 113 of 362 -- contributions to the company with all hearts and souls. After realizing their values in this layer, the company will gain intellectual impetus and sources from employees as returns.. In the second layer, Huawei devotes its values to customers. On one side, Huawei creates values for customers embodied in its products: on the other side, the methods Huawei adopts in marketing at present are complying with relevant laws, adding with consultation service, providing customers with customized solution operated by tete- com, supporting service providers to increase sales revenue and promote their compe- tence, or even giving a hand to offer training lessons and pass on managerial experi- ence to customers, enhancing management standards of customers in order to win the comprehensive acceptances and understandings from customers. Realization of the values in this layer ensures Huawei to stand at the same battle line with customers and create values for customers by placing itself on customers' position as well as create the basis and resource for its own survival and development. The third layer lies in devoting Huawei' s own values to the whole society and community. The values realized in this layer have three purposes: first, Huawei pu- shes forwards the development of the core communication technologies with inde- pendent intellectual properties for our country, helping our country walk out of the dilemma that we relied on technologies and equipments from foreign countries; sec- ondly, the company pays more taxes to the nation and ranks the champion of taxes a- mong the top 100 electronic enterprises at home; third, the company has donated much of its earnings to disaster areas, the Hope Primary Schools and poor undergrad- uates every year by many means, returning to the society and acting as a model corpo- rate citizen in China. These philanthropic behaviors of Huawei witnessed by the pub- lic, not only fulfilling its responsibilities and duties as a corporate citizen but also cre- ating a base and resource to get ratification and supports from the government and the society for itself. (3) Huawei constructs a learning team. Huawei always thinks highly of creating a learning team as the most important work to do, especially director of the board Sun Yafang who pays much more atten- tion on it. She hands over her work related to the market to other executive vice pres- idents and goes into work in two main aspects, one is in responsible for human re- source and the other one is managing the training center (which is called as "Huawei University" now and Sun Yafang is the first headmaster). Particularly referring to trainings of middle-to-senior supervisors, she practices what she preaches. As long as she is free, she will join in the training classes, and she really lives up to her name as a "training fan" as well as a "learning fan". In telecommunication industry of high 111 ~ -- 114 of 362 -- and new technologies, technological innovation is growing so fast and the competition is becoming so fierce that none of other industries can compare with it . The team of Huawei will be kicked out of the market in event of being inferior in learning ability. So Huawei has been turned into a learning organization after nearly 20 years' devel- opment. If interested in becoming a member in the marketing team, you must master nec- essary knowledge showed below: product's knowledge, professional knowledge, mar- keting theoretical knowledge, marketing-skills knowledge and communication knowl- edge and so on. There is a thorough training system provided for the staff that re- quires them to be excellent in learning ability and be accustomed to favorable learning habits in Huawei. It is the same and even more in the international market, it is de- manded for a qualified international marketing employee be as skillful as the one at home and ought be proficient in foreign languages and cultures, with a good knowl- edge of international conventions as well as knowledge and experience mastered in many aspects, such as international trade, international finance, international laws and suchlike. The people in Huawei have to keep on learning and make great efforts to enhance their comprehensive qualities, or how can Huawei make the promise toes- tablish itself in an impregnable position amidst the wind of changes and increasing fu- rious competitions in the international telecommunication market at present? ( 4) Huawei advocates the sense of innovation. Huawei has been advocating innovations and has formed its original view in the recent two decades: first, it is the biggest danger to keep a blind eye to innovation for Huawei who is lagging so far behind foreign counterparts in terms of R&D abilities at the moment that it is obliged to do its best to innovate technologies harder than west- ern giants accordingly. It files patents at the speed of ten per day on average, which shows Huawei' s emphasis on technological innovation. Second, demands of customers and excellent performances of competitors as well as tenacious struggles of Huawei' s employees are viewed as impetuses to call for the innovation. The point of view solves the problem for finding out the source to push forwards Huawei' s innovation and seeks out the key to open the door to innovation for Huawei. Third, innovation is not only embodied in technologies but also reflected in management. A series of interna- tionalized IPD, ISC process and KPI system brought in Huawei are concentrated re- flections to realize innovation of Huawei' s management. Fourth, Huawei asks for making the focal points to stand out and centralizes strength to fight a war of annihi- lation by adopting the principle of pressing the stronger and crushing one by one in the form of innovation. Huawei centralizes its limited resources to provide a safeguard to make sure that innovation will go on successfully. Regarding to R&D, it is the basic ~ 112 -- 115 of 362 -- principle to "do something more important by leaving the others undone" In Huawei' s management. (5) Huawei compliances with the fairness doctrine. "Corporate culture rooted in Huawei aims at building up a fair, reasonable system of value evaluation and allocation," our boss has ever said, "we uphold Lei Feng and Jiao Yulu spirits and mirror them in value evaluating and value allocating systems, do not make the ones like lei Feng and Jiao Yulu suffer any loses in the least, definitely do not give broken socks to Lei Feng to wear, do not make Jiao Yulu suffer in hepati- tis, on the contrary, we offer reasonable rewards to the dedicated ones in return. " The boss does as he has ever said. Huawei's employees are paid highest both in Shenzhen and among counterparts nationwide for the belief Huawei persists that noth- ing is more effective than high payment to stimulate the staff at work. Huawei's em- ployees are out of over caution and indecision when they are dedicated into their work, for Huawei has told them in practice that a penny paid out will be a penny earned. "Wolves' nature" dominates the core position of corporate culture, especially marketing culture in Huawei. And corporate culture sets a solid foundation to forge "wolves' nature" of employees in the marketing team. "Propose a toast to celebrate if we win while fight desperately to save partners if we lose" as the team spirit is under the protection of Huawei' s corporate culture and according operating mechanism. 2.10 Corporate culture: the camp mixed with campus As a military officer in the past, Huawei's boss has gained a lot of help in plung- ing into the business arenas later on due to the long term of military service. Someone says that he builds Huawei's team as the same way as building a troop, so the team is holding full of super power in fighting business battles naturally; he makes full advan- tages of military thinking of Mao Zedong to draw strategies, so Huawei succeeds in all attacks and wins in all battles in business wars. In Huawei, the boss is the commander in chief to dictate and lead his armed forces while superiors and employees are bridle- wise officers and soldiers to obey his rules. That is to say, Huawei's boss is a militarist and strategist rather than an entrepreneur anyway. In accordance with the statement, Huawei looks like a military camp more than a company. The tactic of building the base is the guiding ideology to establish Huawei' s marketing system It is well known that it is one of vital strategies for Chinese Communist Party to meet with success by building the military base. After establishing Huawei, the boss designed and built a marketing system covering Huawei' s characteristics by building marketing agencies and representative offices on the forefront line of the market, 113 ~ -- 116 of 362 -- which is exactly "military base" of Huawei by virtue of learning from the military thought. As early as 90th in 20th century, Huawei built marketing agencies or representative offices in all provinces and cities at home, containing 33 provincial representative of- fices and 35 provincial post-sale service branches in all. Customer managers of Huawei take responsibility of customers in the level of counties and cities directly, which were telecommunication networks in C3, C4 level as said before. Post-sale service and per- sale service in Huawei all cover customers in every county and city level, offering guarantees to promote the market and develop sales work in a favorable way. Each marketing representative office in Huawei is equipped with director, vice director and administrative assistant. The director of representative office is the su- preme executive, being responsible to marketing headquarters of the company direct- ly, just like the commanding officer in the provincial military district who is responsi- ble to the Central Military Commission in the army. The marketing headquarters of the company is as the same as the Liberation Army, adopting a commission system called "marketing commission". There is no regional marketing management adminis- tration across provinces in the domestic market at present for the former regional or- ganizations were cancelled due to the flatting reform in terms of institutional frame- work the company carried out several years ago. A product department is subordinate to each representative office, in charge of marketing planning and promoting products, as General Staff in the army, different products are like the difference forces in the army. The user service center is compared to the equipment department in the army, of- fering technical and engineering services for sales and marketing. Because of heavy weight Huawei attaches to qualities of projects and standards of services, the chief ex- ecutive of user service center dominates a high position in representative offices with a concurrent post of vice director of the representative offices in the meantime under common circumstances. The work of administrative assistant in the representative office involves in public administrations, logistics supports and daily operations of the representative office, occupying the same position of importance as logistic minister in the army. In the first several years of 21"1 century, telecommunication industry in China un- derwent the second round of innovation on structures under the surrounding that four service providers were competing side-by-side in the domestic market, two were mo- bile service providers and the other two were fixed-line service providers. The scope of telecom market's construction has been expanding wider and wider year by year in the meantime. In a move to respond to the change and challenge quickly, Huawei ad- ~ 114 -- 117 of 362 -- justed its domestic marketing system in time. On one side, Huawei transformed pro- vincial agencies into provincial representative offices in the domestic market and set systematic departments specialized in supplying servicing for four service providers as customers under the representative offices, every superior of systematic department was upgraded as directors. Four systematic departments were in charge of different client bases, acting like four "red fronts" in the Long March. On the other hand, Huawei established long-term marketing agencies for customers at urban level (C3), equals to "military subareas" under the "provincial military region" in each region. It is concluded as an important experience to win business wars in the market continu- ously by means of pushing 38% of the total employees onto the forefront line of the market in Huawei. Thanks to the abundant human resource, Huawei could press close to customers beyond limitation, explore customer's demand, capture changes in the market, collect information from the market, improve technologies and products and accelerate the speed of upgrading products for the purpose to build a solid relationship with customers at every level. These structural changes in Huawei have been cancelled or weakened due to the trend that the decision-making power of telecom service providers in China was cen- tralized day by day. Organizational structure in the international market of Huawei is a replicate of' that in the domestic market by making use of the "huge-crowd strategy" to build its bases everywhere. There are eight regional departments of Huawei scattered in the in- ternational market over the world (like great military regions at home) , each regional department leads and governs agencies subordinate to their nations directly (similar to provincial military regions at home). Huawei has set up more than 50 national agen- cies in different countries all over the world and many regional agencies in Russia, Brazil, Mexico, India, Pakistan and America, (like military subareas at home). There are more than 10,000 employees working in overseas for a long term, out of 38,000 of the total are registered in Huawei at present. Same as employees at home, they are all committed to keeping in close proximity to customers beyond limitations, attacking and occupying markets in cities and seizing and establishing territories in countries as well as making contributions and building careers in foreign countries for Huawei. "Exchanging garrisons' officers" is the prototype of processed management theory It is an effective system in practice to exchange garrisons' officers between mili- tary regions due to its advantages in terms of preventing officers in different military regions from forming their own powers in order to completely eradicate "warlords to split the country into several parts" which will lead to block the way to pass on policies 115 ~ . -- 118 of 362 -- and decrees from the government to each region and hinder the way to centralize the power. In addition, the system promotes communication and generalization of experi- ence in respect of commanding troops among various military regions in a move to guarantee the fairness of regulations to lift talents and promote military officers. Personnel system of Huawei found according to the theories above takes all op- portunities away for supervisors to develop their own powers, build their own territo- ries and set up "their own mountains" and "build their own groups individually" from the hands of every executive for the sake of protecting Huawei's brand which is a key point in the company. "The military camp is as solid as an iron and the soldiers are as running as the water", which is a saying for the system of the army. got a full under- standing and left a deep impression in the hearts of marketing supervisors at every lev- el in Huawei. Almost every superior in Huawei has undergone the experience of "exchanging his garrison in turns" in working shifts, so they are very accustomed to exchange their working places or departments. Maybe you need to be transferred to take another po- sition and a new "general" will replace you in the event of your poor performance missing the KPI target; or perhaps you need to be transferred to take another position in order to expand and promote your experience if you have got good performance ac- cording to the KPI evaluation system: or even sometimes you need to take another po- sition for no reason at all. Huawei needs to systematize and regularize the institution to encourage its teams to be more and more activated. Furthermore, the institution is the main factor Huawei depends on to train employees and promote officers systemati- cally. "The superiors with no related working experience cannot get promotions," the boss has told us before, "the ones haven't assembled machines or made a trial network will have no idea on how to open the market. " There will be a long time for gradua- ting students to learn Huawei as soon as they are entering in it, including half a month of military training to learn Huawei's corporate culture and then half a year of prac- tice in customer engineering department with a goal to learn and accumulate working experience related to customers and half a year in learning installing machines and o- pening an trial network in customer service center of the forefront line in marketing, aiming at getting familiar with and getting to know the products and technologies of the company and strengthening awareness of service as well. These new employees will be given their formal assignments after they pass the evaluation. Some of them will be engaged in R&D tasks in R&D department and some of them will be devoted to working with customers in the marketing department. Technological backbones sourced from R&D department are able to join in marketing team in the product de- ~ 116 -- 119 of 362 -- partment due to their good skills in technologies, unraveling why the marketing em- ployees in Huawei are skillful in technologies. Some excellent employees in the prod- uct department are promoted to be customer managers because of their good skills in technologies and great abilities in marketing. Something is more special that the com- pany makes a plan to select excellent ones from the product department in the fore- front line of the market and backbones in customer service center to "return back" to R&D department for the purpose of grasping and excavating market demand and im- proving its technologies and developing a new generation of products step by step. Transferring of positions goes on many directions. It could be transverse or longi- tudinal or even up and down, and has been formed as a system in Huawei. The one in the position of "army commander" will probably be sent to take a temporary post as a "company commander" at the basic level for the sake of expanding working experi- ence at the basic level. The one in the position of a "captain" will be likely to be transferred to play the part of a "pilot'' for the purpose of training him to become a captain steering the "aircraft carrier". And the "minister of logistics department" will be possible to be turned into the "chief of staff" in turns. Job transfer and communi- cation between various functional departments are very common, so that it is rarely seen any senior supervisors without working experience in multiple departments in the company. For example, I have ever assumed the offices of general director in nearly all functional departments in the international marketing system in Huawei. In the past, Huawei's "senior generals" in the market had to travel through all over China to cultivate the market; however, at present, they are adventuring across the five conti- nents and four oceans to expand the international market. As far as I am concerned, I have held the post of chief representatives of two foreign countries and general man- agers of three regional headquarters before. I am not a special case in Huawei and there are so many similar cases in Huawei. Li Yinan had assumed the posts of CTO, CMO, president of electrical depart- ment and institute director of Beijing Research Institution in his tenure period in Hua- wei and these cherish experience established a solid foundation for him to build up Harbor Corp. in the following years. Huawei' s third CTO Hong Tianfeng has been transferred to take the posts of president of central research institution, CMO as well as the head of the human resource commission in succession. And the fourth CTO Xu Wenwei has been changed to take the posts of CTO, president of product department and president of European department in turn. The CTO in Huawei is Fei Min at pres- ent, who had even been vice president of central research institution, propaganda minister of the company, chief news spokesman, director of information editorial board, vice chief inspector of the overseas market (who had worked with me in the 117 ~ -- 120 of 362 -- same office for two years and taken charge of work relevant to overseas markets to- gether during that time), chief inspector of marketing engineering department, in- spector of international products, president of product department separately before taking his final post of CTO two years ago. All chief inspectors above are holding the title of "executive vice president", dominating the first top ten places in senior man- agement team in Huawei. Certainly the mechanism may take little action on members of the standing com- mittee in charge of the market in Huawei, because the CMO position in Huawei are u- sually taken by several members of the standing committee by turns like "bankers" in playing pokers. As the "chief of staff" in this year, you are likely to take the post of "minister of logistics department" in the next year while the "minister of logistics de- partment" will be the "chief of political department" by turns. At last it is evolved in- to a commission system under the leadership of the marketing committee collectively whose members dominate the position of director in turn. On one hand, members of the standing committee are rich in experience, competent for the positions; on the other hand, they are not willing to allow new emerging forces join in their "clubs" be- cause they are the ones with vested interests to some extent. However, they are in the neighborhood of each other in terms of knowledge backgrounds, working experience and vocational skills. They were all "soldiers from schools" who joined in Huawei o- ver ten years ago and obtained their positions after a long time of trainings and prac- tices, so it is undisputed that they agree with corporate culture of Huawei and they are loyal to the boss totally. The boss understood it clearly that the team is lacking of ex- ternal blood to hybridize and improve itself while the members in the team are instinc- tively reluctant to accept elites from the "airborne troop" to participate them, but he still puts them in important positions as the same as in the past. People in Huawei are clear to know that the "club" made up of members of the standing committee in the marketing system are teamed up as a solid block made of iron, neither swords nor spears can penetrate in. Most of the elites from the outside world join in Huawei are victims of such a sort of culture. Even if some can break through the enemy's lines and build some outstanding contributions for Huawei, they could not make themselves integrated into the "club" with these members. After their technologies and cultures are absorbed and assimilated by Huawei, they will lose their values in use and say goodbye to Huawei with sadness. The purposes of transferring employees' posts are not all for training officers. Many people are neither as lucky as members in the "club" of the standing commission nor as me, no matter how to transfer my position, I am still senior superior of inter- national market in different regions or senior superior of different functional depart- ~ 118 -- 121 of 362 -- ments, accumulating experience as a series of continuous curves which form a sort of exercise to lead my professional career to develop towards a forwarding direction. Many positions that many employees transferred to have no logical connections, their professional careers are cut into various sectional slices by the force of the company artificially, many "breaking points" appeared reluctantly on the curve of their lives, or even some "yielding points" to the adverse direction. Knowledge, skills, experi- ence and customer relationships in different positions are "sets" isolated from each other and scattered on employee's living curves because they cannot coincide togeth- er. As far as both our company and employees are concerned, it is a great waste of human resource and the biggest problem arousing disputes in and out of the company. Another problem confusing superiors at all levels emerged as a result of imple- menting the institution of transferring positions and rotating duties as well as process- ing management. Along with perfecting and optimizing the process of the company, every employee or senior superior is becoming a "chessman" replaceable at any time on the chessboard bit by bit. No matter you are the general or the soldier, you will lose all military values as soon as leaving the military camp. Officers and soldiers are committed to building and perfecting the military camp as professional managers are devoted to improving and completing the process for the company. The closer the processes to be perfect, the easier the professional managers to be replaced, and the more they will depend on the company as the "military camp". Maybe it is the ideal target our boss is pursuing for. Hoawei also has a "field anny" The business war system of Huawei comes down to consist of not only "military base" but also "field troop" or even a "strategic missile troop" on some conditions as in the army. Furthermore, Huawei sets its organizational structure as a matrix structure. The vertical lines, also called as "strips'' constituting the corporate organizational structure running through product lines, functional systems, customer group system, supporting system in all levels in the company from top to bottom; while military ba- ses make up the horizontal lines, also called as "blocks" of the corporate organization- al structure. The company's organizational structure consists of "strips" (vertical lines) and "blocks" (horizontal lines) as a managerial matrix which looks like a chess- board and every employee acts as a "chessman" standing at the crossing point between horizontal lines and vertical lines. The marketing core is concentrated on the "base" in general in light of localized management Huawei implements, each "strip" is serving its "block" accordingly. Commanders in "military regions" or "military sub-regions" are in full charge of bat- tles in war zones under their jurisdictions while the "field troops" as "strips 11 coming to 119 ~ -- 122 of 362 -- support them from the headquarters must submit to the "commanders of war zones" to follow their orders in dispatching and conducting completely. The "war zone" will never take credit for the "field troop"'s achievement, because the victory in the "air battle" in the frontline is attributed to both the "air force" as "strips" and the war zone as "blocks" after the battle ends with success. Similarly, "strips" and "blocks" cannot succeed in escaping from their responsibilities and all of them will get punish- ments from their superiors after the battle ends with failure. The "field troops" are mostly under the control of regional departments in the in- ternational market of Huawei. There are eight regional departments overseas, where there is a "mobile force" reporting directly to the headquarters, they are "strips" in the company and the "field troops" fighting in overseas market for Huawei. Every re- gional department is equipped with different product departments, which are respon- sible for supplying supports of marketing technologies for the whole national market that the regional departments are located in, containing various kinds of work, such as making technical proposals, tenders and price quotations, promoting vital technol- ogies, making preparations for exhibitions and exchanging technologies. In addition, they are responsible for sales performance in the range of all regional departments of its own product line. Besides, the major project department set in the regional depart- ment takes charge of supervising and monitoring on planning, bidding, scrambling tenders, and business operation of major projects belonging to representative offices in different countries directly. The marketing financial departments of regional departments are responsible for businesses of export credit and loan recovery in all the countries' markets subordina- ted to the regional departments. The experts and managers is this department are o- bliged to fly wherever to provide supports on projects. Barring to the qualification to be skillful at business in terms of international finance, international settlements and English, they ought to be familiar with special circumstances in finance of telecommu- nication industry's market. The "field troop" is not only an assistant power making up for the "principal force", but also it will be changed into an "unexpected troop" domi- nating success to break through the last line of the "enemies" in business wars. As the associate director engaged in bringing in international financing, I was lucky to em- bark on reconstructing financial planning department for the company and built the first array of international financial team by working together with another associate director Zheng Yi in 1997. I served as the director of financial department affiliated to the international market, offering supports to the market in the Asian- Pacific re- gion later on. Hence I was too well aware of the significance of financial work in re- gard to the market deeply. Huawei establishes most of its foreign markets in poor de- ~ 120 -- 123 of 362 -- veloping countries, whose users are always under bad financial conditions therefore. If the company loosens the requirement in terms of payment for pursuing quantity of contracts and orders merely, a lot of potential risks will slip into the company unex- pectedly; nonetheless, if the company shows a hard attitude to make terms of pay- ment, many chances in the market will slip away, ceding these opportunities to its competitors in this case. As a result, favorable strategies in finance in regard to the market and methods in terms of financing capitals from the international market are able to solve the problem that the customers are short in money, accelerate the speed to conclude the transaction, withdraw the loan back in time and avoid some unneces- sary risks in a bid to obtain "triple wins" for the customer, the bank and the company indeed. The headquarters and regional departments of the company set TURNKEY pro- ject management departments, whose duties are managing the supply chain of out- sourcing and subcontracting tasks for Huawei and taking charge in managing the en- tire project from the angle of supply chains, including the progress, engineering, in- stallation, logistics, imports and exports and coordination management between the sub-contractor and the supplier. Almost all of the projects in the overseas market are turnkey projects, which make them very different from the ones in the domestic mar- ket. Practices has proved that Huawei's building of TURNKEY project management commission is a key move to be adapted for the international market and enhanced the whole competence of bidding projects and improved the successful rate. It happens to me who gave the proposal to Huawei' s boss. As the first deputy director of TURN- KEY project management committee, I aid Hui Chun, the senior vice president and director of the committee draw the programming and fix the position of the organiza- tional structure, as well as the process and duties of the committee. The system plays an important role as a "field troop" in supporting projects operated under representa- tive offices of the company in different countries. In addition, the headquarters of the company is equipped with secret weapons, which are groups of battle-scared veterans on the battlefield, who are guiding business wars all over the world beyond time and space, or landing on the battle field of the marketing frontline suddenly because the business wars are getting more and more in- tensive. They are fighting in the business wars as a mobile "strategic missile troop" and are viewed as the "2nd Artillery" in Huawei, covering the whole global market. Members in the international marketing committee of the headquarters in the compa- ny are abundant in smell of powder, which enables them to offer strong and timely guidelines and aids for the frontline and provide sufficient authorization of policies and resource support when needed. Managers of the administrative department of in- 121 ~ -- 124 of 362 -- ternational agents in the company are also like them. Most of them are managers in Level Four, having assumed the offices of the company's vice presidents or presidents of the regional departments, rendering cogent guiding and policy supporting to the forefront line in terms of dealing public relations with customers and making policies towards agents. Experienced experts in the product department of the company' s headquarters are the same as them too; some difficult problems in terms of technolo- gies that could not be overcome in the forefront line will be easily solved one by one under their specific guidance and practical assistance. During the period from 2001 to 2003 when I serve in the headquarters as chief inspector of the administrative depart- ment of international joint ventures and agents in Huawei, the "strategic missile troop"' s power has left deep impression in my mind. The last thing to point out is that the "base" always comes later than the "field troop", because "base" is taken and built by the "field troop". The overseas market of Huawei is cultivated after completing the task referring to "enclosing the market by riding on a horse" and "expanding the market by breaking national boundaries'' by the team dispatched from the headquarters and devoted to open up markets around the world. As one of the core members in the team inbuilt on the purpose of opening up the overseas market for Huawei before, I took part in planning and operating every main "battle" in the business war as not only a commander but also a solider full of practical experience from actual combats. In today' s Huawei, a relatively complete international marketing system has been formed in the world, possessing a managerial matrix and a business process made up of completely functional "strips" and "blocks" that are built by the first array of its "field troops" after a long series of fierce compe- titions in the business wars. "Award employees according to their contributions; urge them to join the Party at the battle line" Huawei' s management is result oriented. Its executives must fight in the business battles as commanders with swords out of sheaths in the real wars. We are under the same conditions as soldiers in the army that it is not always nee- ded to wait till the end of the battle to award employees according to their contribu- tions. Promoting employees to "join the Party at the battle line" is also necessary. For an arduous war, it could encourage officers and soldiers in the forefront line to make contributions and build careers further by promoting them to join the Party and pro- moting them to get the title of officers in the battle. Wherever the hard point the company is assaulting for, wherever the most impor- tant place the company is focusing on. The next direction the company will assault for are usually on the vulnerable link, attracting special attentions of the boss in Huawei. ~ 122 -- 125 of 362 -- Due to sharp growth of orders, material supply was out of touch with production, a serious phenomenon that supply shortage broke out and frequent complaints or even order cancelling from customers were aroused in the wake in 1998. The planning sec- tor affiliated to the purchase department ranked very low with only several employees so that it was too difficult to push forward and improve the process as well as solve the problem to the backbone. As soon as the boss knew the situation, he appointed chief of the planning sector Lao Zhou as executive vice president of the company, expan- ding headcounts of the planning sector, upgrading to planning commission and the sector's chief filled the post of the director. At last, Lao Zhou had succeeded in car- rying out the assignment and solved the problem that material supply was separated from production thoroughly after a few months of process reconstruction, and similar phenomenon that goods cannot be delivered, has never happened again in the compa- ny since then. Learning from Lei Feng in Huawei' style It is well known in China that Lei Feng is a model in the army and a God-given man in the society. The Party Central Committee appeals all Chinese people to learn from Lei Feng, but unfortunately many people just rest the slogan on their mouths, deeming that they will suffer losses to be a good man without benefits back for them but only contributions to the society. On one side, Huawei advocates learning from Lei Feng and his dedication spirit, on the other side, it speaks highly on "learning from Lei Feng while protecting Lei Feng from suffering losses or wearing broken socks" in the meantime. Huawei' s corporate culture encourages its employees to be good men, protecting them from being taken any beatings based on the institution, ensuring corresponding benefits and rewards will be received so long as they make contributions to the company. So Huawei does not bear employees to bargain with it at any time. Interests of the company must be regarded as the supreme consideration by its employees , without haggling over individual gains or losses, and employees are obliged to make great ef- forts to finish their tasks. At the same time, it requires employees to carry on team spirit, giving assistance to other colleagues or departments to finish the tasks if it is needed. It takes for granted that senior supervisors at all levels should try their best to guarantee justice and fairness when they are evaluating performances of the employees and confirming payment distribution plans based on their evaluated results, in a move to ensure employees who have made huge contributions to the company are able to ob- tain rewards and returns deserved. It's never been easy to be fair on this point in that KPI appraisal accentuates bus- iness performance while many working results cannot be embodied in performance di- 123 ~ -- 126 of 362 -- rectly. That is the reason why we add the item "working attitude" into the assessing index column so that good people who learn from Lei Feng will be rewarded eventual- ly, forming a favorable atmosphere that "everyone is pleased to learn from Lei Feng and everyone is glad to make contribution". The importance and exactness of the cultural strategy have got proved in practice in Huawei and reflected in the supreme military institution of higher education in the USA as well. During my studying period in the presidential class in Harvard Universi- ty in the USA, one instructor with the title of brigadier general in West Point Military Academy in the USA told us that meritorious story of Lei Feng had already been writ- ten into the teaching material of West Point as a case to teach students to learn the valuable trait of Lei Feng. Learning from Lei Feng in Huawei's way opens a new win- dow to innovate traditional education at the contemporary era undoubtedly and acts as a new application of political and ideological work in the military used in the modern enterprises up to the minute. All mentioned above reflect one side of Huawei' s corporate culture as a military camp, which is only a half. As a matter of fact, corporate culture of Huawei has an- other side as a campus culture. In all, corporate culture of Huawei is comprised of both military camp and campus on the whole. Hoawei is a "military school" consisting of tens of thousands of teachers and students Huawei is a great attraction to young people who have just graduated from uni- versities just, not only on the account of good remunerations it offers, but it is more important that Huawei looks like a campus in the university in which students could continue their studies without ending. So you can see that Huawei is full of energetic young people. Since the 90th in 20th century, it has been publicizing proudly that "95% of employees in Huawei possess bachelor's degrees or above, 70% possess master's degrees or above, and more than 1000 employees with doctor's degrees or post- doc- toral degrees. In addition, the company set the earliest flowing workstation for post doctorates nationwide", "the average age of Huawei's employees is 26 and the chief engineer is only 29". These data, which perhaps are a little exaggerated from the view of the outside people, however, do not take any exaggerated elements due to the fact that the company hires university graduates as many as several thousand every year. For instance, the company hired more than 7, 000 employees who had just graduated from the universities in 2001, and after 5 years of cultivation, they have become back- bones in every area. The "29-year-old chief engineer" mentioned above was Li Yinan, who was granted the position of central research department's president of Huawei when he was less than 29 years old. One of the executive leaders in Huawei unveils the key factor of Huawei to a- ~ 124 -- 127 of 362 -- chieve the success as saying, "what we depend on is the group of employees who are graduating students just left universities" when he is receiving an officer of a certain government sector once. Why is Huawei bound up in making use of "students" who are reluctant to be used by the common companies for having just walked out of the school gate? In fact Hua- wei is so smart that it uses graduating students for the reason in a deeper level rather than an ostensible one "to relieve the bitterness of undergraduates in terms of hunting for their jobs". First and foremost, graduating students are as pure as Chairman Mao described, "they are like some blank paper that we can draw the best pictures on. " graduating students are easier to model and be "brainwashed" to embed corporate culture of lfuawei on the whole than social employees from other companies. In addition, they are easy to comply with managerial regulations and be loyal to the company. Huawei is not willing to use social em- ployees unless it needs to "dig out" some "airborne troops" from the society for the sake of obtaining marketing channels, technical information and managerial experience from them The "airborne troops" often find it hard to acclimatize themselves to lfuawei' s corporate culture completely and difficult to move into upper management of lfuawei As soon as their knowledge and skills are copied and assimilated completely, they have to leave lfuawei in the wake of accomplishing their historical missions in most instances. It is out of lfuawei's original intention to show them the door, but they know their own minds and thoughts clearly so that they like to consider things and put forward their own proposals and views, as which are usually regarded disharmonious "noises" on the side of the dominant culture of lfuawei, therefore they are not the cups of tea for their superiors. A majority of senior su- pervisors at all levels are original graduating students like "soldiers from schools" grown up in lfuawei, who recognize Huawei and its boss at a high degree with absolute obedience and they cannot allow the existence of any disharmonious "noises". It results in the phenomenon that it is not easy to manage or keep the "airborne troops", gradually a vicious circle is formed and it is getting harder and harder for lfuawei to hire or place employees originated from the society on important positions, while the "airborne troops" are complaining that lfuawei is eager to "get rid of them as soon as they have done their jobs". Huawei' draw- backs in corporate culture have exposed on the point Secondly, graduating students are just graduated from the universities, mastering knowledge up-to-date, and Huawei is engaged in IT and telecommunication industries which are being changed and upgraded every day and night. It compels Huawei to be devoted more in pursuing new knowledge and new technologies than relying on experi- ence in the past time. Differences between traditional industry and IT and telecom in- dustry are obvious in this regard. The employees engaged in IT industry walk in the 125 ~ -- 128 of 362 -- same way as soldiers in the army. If you cannot be promoted to get the title of regi- mental commander when you are forty, you will have to be transferred to do civilian work since you have been out of energies to work in the basic level. The thing is the same in IT industry. When you are forty, as with that you are of no use in program- ming, you are unable to keep pace with changing technologies or energies; you will retire or change your profession on the condition that you have not been promoted to get the title of senior superior at that time. Consequently there has been a saying pre- vailing in the IT industry in the West: "Finish at Forties", which was published on the most famous magazine in the U.S. A It is true in the America and the same in China, nothing but the law in America is too strict to allow companies to set a targeted age in respect of recruiting new employees, or the elder candidates will write to state or even sue the company under the name of "age discrimination", in that way the company with bad lucks will be confronted with an astronomical fine as its punishment. Third, graduating students are so young and strong that they can adapt to highly intensive pressure from their work. Working in Huawei, who is running businesses in terms of IT and telecommunication manufactures, employees are often needed to work overtime and go for business trips in other places constantly catering to extreme- ly fierce competitive circumstance in the line. Above all, employees have to overcome differences of time zones and conquer differences in cross cultures and span obstacles in various languages and put up with new dietary habit and living environment when they are working overseas for a long time or on business trip aboard. Someone in bad physical conditions is not qualified to adapt the new surroundings. In conclusion, these young graduating students are in good health, energetic and adaptable, which are a perfect staff group to meet the requirements of Huawei. Forth, the last point dominates the most importance, it costs Huawei least to hire these graduating students. Especially in the recent couple of years, it is very difficult for these students to find jobs and it is more difficult for them to find such a good company like Huawei. From this point, Huawei has found its way to hire a large num- ber of graduating students with high-qualities at a low cost. Compared with opponents full of competence in the West, Huawei gets an upper hand in controlling its cost re- markably. The strategy of Huawei relieves the pressure off graduating students who are hard to find jobs from an objective point of view, so Huawei is awarded praises and sup- ports from the government and good reputation from schools, students and their par- ents. On the other hand, Huawei accrues supports from every side and favorable so- cial benefits besides economic benefits in the meantime. ~ 126 -- 129 of 362 -- Chapter III Huawei is More Splendid in the Real World- Analyzing Two Misunderstandings from the Out- side 3.1 Does Huawei know how to operate capitals? In the minds of a plenty of people, Huawei, whose success consists in marketing strategy and strong operating ability, is weak in operating capitals. Someone has gone so far as to say "Huawei does not know how to operate capitals". I think the reality is laid on the other side; Huawei is both an expert of the market and a master in operat- ing capitals. "Employee stock ownership" is honored to be a successful model of operating capitals As we all know that the capital market always "despises the poor and curries fa- vor with the rich" and likes to "add brilliance to its present splendor", but never "sends charcoal to others in snowy weather". At the beginning of building up its ca- reer, Huawei was poor in three aspects with no capital, no products and no market, who was willing to offer capitals to Huawei at that time? Let alone to say that there was no VC (venture capital) in China in 1998, even if there was, it is hard to say if they would supply capitals to Huawei, because VC was only willing to "add brilliance to its present splendor" rather than help others in a dilemma. Without help, Huawei' s boss began to persuade all employees to accumulate valuable original capitals for Huawei via the employee stock ownership scheme under such a circumstance. It is es- timated conservatively that Huawei has accumulated tens of billions of capitals from the hands of its staff since it was built up by granting interior stock rights to the staff in many forms, including "initial shares", "virtual restricted shares", "share options" and "MBO", which were of great importance to Huawei with a background of a pri- vate enterprise, especially at the preliminary stage since its establishment, it was just like "a charcoal sent to the company in snowy weather" indeed. People usually focus on incentive effects of the employee stock ownership scheme on human resource but ignore impact on financing aspect of the scheme. Frankly speaking, the scheme ought to count as a successful model of capital operation In China. It is much more worthwhile to sell Huawei Electric Company than letting Z'IE become a listed company Among the people who laughed at Huawei as it did not know how to operate cap- itals before, may be a great many of them are working in ZTE telecom, because ZTE 127 • -- 130 of 362 -- has been on the list in the stock exchange at home successfully while Huawei has not taken any action on it till now. Let alone to say whether Huawei is willing to come in- to the market or not, it is more successful than ZTE in operating capitals even it is re- luctant to come into the market, which can be demonstrated by selling Huawei Elec- tric to Emerson as a simple but strong example. "Mobeck", the original name of Huawei Electric, was changed to "Huawei Elec- tric", and then changed again to "An Sheng Electric" before it was sold to Emerson. As a subsidiary corporation specialized in producing communication power supplies in Huawei, it was developed from a project team to the biggest manufacturer of commu- nication power supplies in China under the leadership of its first president Li Yuzhuo. Huawei made the decision to strip off the subsidiary corporation in a bid to highlight its core business in 2001. Since the sales revenue of contracts in the company had been valued as nearly 2 billion RMB in the previous year, Emerson had to pay 0. 75 billion dollars, equaling to 6 billion RMB in total for purchasing it. Huawei attained 6 billion RMB at the cost of selling such a relatively small and non-core product in return. As far as ZTE was referred, it was reported that it attained only 2 billion RMB when it entered the A-stock market. So we have no reason to complain that Huawei has no i- dea on capital operation at all. Huawei 300M and its legendary acquisition As a joint venture built under the cooperation between Huawei and 3COM, Hua- wei 3COM has absorbed an investment of 0. 16 billion dollars from 3COM and gained products, technologies and employees from Huawei separately. The company sets its headquarters in Hong Kong, China, but most of its businesses are established in Hang Zhou, researching and producing Internet Protocol based Ethernet switches and rout- ers, which are for enterprise market. 3COM has entered the domestic market which has been growing at a high speed and speeded up researching and developing enter- prise products via the deal. Huawei 3COM has been grown as the second largest data communication supplier in the world till now. 3COM and Huawei came to an agreement that 3COM would purchase 2% stock shares of Huawei 3COM joint venture at a price of 28 million US dollars in October. 2005. The deal was closed soon after it got the green light from the Chinese govern- ment on Jan. 27th, 2006. Thus 3COM raised its shareholding from 49% to 51% in the joint venture while Huawei slipped to 49% after the deal, which meant Huawei lost its real right of controlling the joint venture, and later the gossip was rumored that Hua- wei would sell its shareholdings in Huawei 3COM to other enterprises. In addition, Huawei purchased Harbor telecom, another network company under the leadership of Li Yinan, at the cost of 0. 14 billion dollars in June, 2006, leading people to speculate ~ 128 -- 131 of 362 -- the prospective cooperation between Huawei and 3COM and even start to doubt that Huawei would throw away 3COM in a bid to set up a separate company by making ad- vantage of the team and product line of Harbor. No matter what has happened, Hua- wei will show its real efforts to operate capitals to the whole world once again if it could really sell out its shareholdings in Huawei 3COM to others at a high price. It is reported that negotiation in respect of purchasing stock rights of Huawei 3COM has been on the way, and the third largest network equipment manufacturer in the world- JUNIPER will spend 1. 5 billion dollars in buying 49% stock rights of Huawei 3COM from Huawei' s hands. Because 3COM is competing with JUNIPER face-to-face in the market, the latter is inclined to hold the full stock rights of the for- mer after Huawei withdraws capitals from it. It is relying on my view that Huawei will win a plenty of money and returns from its investment by means of selling stock rights of Huawei 3COM in the near future. Huawei costs a little in closing the deal, or even more cost-effective than the deal that it sold "Huawei Electric" to Emerson in 2002, for the latter drove Huawei out of the market in researching and producing tele- communication power supplies since then while the deal this time helps Huawei win more profits as well as ensures Huawei to possess the whole set of product lines of data communication and intellectual properties Harbor used to own. Just judging from the sides of technology content and cost advantage, I believe that Harbor's product lines of data communication may dominate a more competitive edge than Huawei 3COM. No matter purchasing Harbor or selling Huawei 3COM, either way of "sending out cards violating against the rules" Huawei did is highlighted by the outside world and is praised as real models in terms of operating capitals! Huawei and Siemens invest together to establish TD Tech Huawei signed the contract with Siemens in Beijing formally to establish a joint venture- TD Tech together, concentrating on TD technologies and products develop- ment, production, sales and service in a move to propel the development of TD fur- ther in Feb. 2004. The joint venture received more than 0. 1 billion dollars of invest- ment in total and it was under the control of Siemens and Huawei, who were holding 51% and 49% shareholdings separately. It is well admitted in the industry that TD technology and its products have been already become mature. The Ministry of Infor- mation Technology and Telecommunications in China allocated 155 MHz frequency channel to TDD, to which created prerequisite for the use of TD standard in China in October, 2002, showing that the relevant national departments are in favor of China' s 3G standard very much. On one side, Siemens and Huawei brought an abundant of their own experience in the field of telecommunications accumulated in a long time in the joint venture. Si- 129 ~ -- 132 of 362 -- emens set out to research and develop 1D technology as early as 1998, and has put $ 170 million in investing the technology till now. A plenty of tested networks in Chi- na have demonstrated that 1D technology has been as mature as being used in com- merce at the moment. Siemens has put technologies and products as well as about 200 employees which are related to the business of 1D in the global market into the joint venture in addition with another 100 employees from Huawei. It seems that Siemens dominates the investment in terms of capital and labors while Huawei dominates the investment in respect of marketing resource which is Siemens short of exactly. Sie- mens is willing to team up with such a cooperation partner as Huawei, aiming at mak- ing full use of strong marketing network and marketing ability Huawei owns in China and creating the success of utilizing 1D widely in the domestic market as well with Huawei, and achieving the final realization that Siemens can supply both technologies of ID-SCDMA and WCDMA for Chinese service providers at the same time and be- come one of the leaders in the Chinese market .. On the other side, Huawei will reach the goal to launch 1D solution of commer- cial application rapidly, and reduce costs in terms of R&D for both two sides at the same time, through cooperation with Siemens, the leader in 1D technology. In this way, it will save the huge investment in terms of 1D standard for Huawei, who could centralize its energies to improve the 3G standard of WCDMA to a higher degree. It helped Huawei form a completely closed 3G product line at the cost of a relatively e- conomic investment so that Huawei is able to supply three 3G products which meet the international standard simultaneously. lsn' t it a very favorable capital operation? Now the 1D product made by the joint venture has obtained the national testing cer- tificate and becomes one of national screened products in China, moreover, it is being pushed forward to use in a larger scale in the wake of commercializing national3G. It is believed that 1D products will win a favorable benefit from the market and return from investment for Huawei. Sunday TeleCOM, Huawei has gained a lot from its first attempt In order to expand commercial use of WCDMA in the overseas market, Huawei provided export buyer's credit for Sunday by accepting the condition proposed by Sun- day whose stockholders would use their own stock rights as its credit guarantee and be- gan to build 3G network by using WCDMA for Sunday in 2004, and then officially un- veiled 3G service and became the third service provider rendering 3G service in Hong Kong in June, 2005. Taking advantage of the bad business circumstances Sunday was suffered, which could not return credited loans in time, Huawei became a shareholder of the telecommunication company listed on the Hong Kong Stock Exchange accord- ing to the treaty finally. Pacific Century Cyberworks took over Sunday comprehen- ~ 130 -- 133 of 362 -- sively after Sunday had launched 3G business in the market. Along with a series of fierce competitions, Huawei agreed Pacific Century Cyberworks to purchase Sunday at last. Huawei will obtain a huge profit from investment as nearly 200 million HKD af- ter selling its stocks as many as 296,414,000 shares with a price of HK $0.65 per share offered by Pacific Century Cyberworks. 3G business of Sunday in Hong Kong has adopted the equipment supplied by Huawei. Even if Huawei sells its stocks to Pa- cific Century Cyberworks wholly, the position of Huawei as the equipment supplier of Sunday 3G will remain unchanged, so it is just a tactic other than a strategy whether Huawei sells the stocks on its hand originally or not. Distinguished from 2G businesses, 3G businesses needs an intimate coordination between the equipment and business, Huawei realizes the experiment of 3G in Hong Kong via the cooperation with Sunday, which is obvious as a fact to all of domestic service providers, whether holding stocks of Sunday or not has been no longer impor- tant for Huawei. Thanks to the investment, Huawei has not only built model spots of WCDMA in Hong Kong successfully, pushing forward the marketing of 3G products in the global market, and also won nearly HK $ 200 million profits back from the in- vestment, accumulating experience in respect of managing the listed company in Hong Kong as a shareholder, as a consequence, it could be viewed as a successful capital op- eration of Huawei. The deal was finally reached an agreement at the end of 2005. 3. 2 Cannot Huawei be listed in the stock market? Without pressures or demands for capitals or other objective requirements, to go into the stock market, why does Huawei need to "mire itself into the muddy water in the stock market"? Huawei hasn't come into the stock market because it is not lacking of money at all There are many reasons to explain why Huawei hasn't come into the stock mar- ket, but the main one lies in that Huawei is not short of money at all at present, which can be demonstrated in its good situation in assets and liabilities, and abundant cash flow as well Let me take two financial years of 2004 and 2005 as examples, the profit before tax was around RMB 15 billion, extra dividends amounted to about RMB 5 billion, tax was totaled to RMB 5 billion, net profit after tax reached RMB 5 billion separately in each year. Moreover the return rate from the market was as high as over 80% in Huawei. Due to the export credit used in a wide scope, the period of goods payment recycling was comparatively short and the recovery rate was relatively high accordingly. The situation was even better in the domestic market. Unlike other en- terprises coming into the stock market for financing or even "enclosing money", Hua- wei will not appear on the market for this reason as it has no pressure or demand for 131 ~ -- 134 of 362 -- capitaL It is more worthwhile to collect money via other ways Huawei has built up many high-class office blocks in different places such as Shenzhen, Shanghai, Hangzhou and Beijing and suchlike, which come down to enor- mous real-estate assets for it accordingly. With the addition of tens of billions of set- tlement of amount and five billion RMB of profits every year in Huawei, as well as 4. 5 billion dollars of foreign exchange earnings from export, consequently, Huawei is absolutely regarded as a "high-quality customer" catching eyes of numerous banks at home and aboard. As a result, Huawei has got the privilege to gain special loans for projects, flowing capital loans, export credited loans and so on from various banks fa- vorably, and somehow it is so different from other enterprises that these banks need to compete with each other to get loan business from Huawei who may view the way of financing is more economic than coming into the stock market for itself. The internal stock rights are not the real barriers Disputes about the employee stock ownership scheme in Huawei are commonly argued by people in the outside world, considering that the main reasons in the way for Huawei to come into the stock market are complex stock rights and unclear prop- erty rights. In fact, in my view, although some historical factors created because of the interior stock rights in Huawei are likely to set up a barrier on its way to come into the stock market to a certain extent, it is not the overriding cause in that Huawei will find a way to get over the difficulties if it is really intended to be listed. For example, its stock rights can be transformed or restructured, or to be simpler, it can divide product lines into several parts and put them into the stock market one by one, and thus Huawei will turn into a holding group corporation controlling several subordinate listed companies. Or we can turn back to purchase the property of the parent company after one product line coming into the market, for instance, we can drive the wireless division to go on the list and return to buy the parent company next. Such an invest- ment bank using the method to collect capitals is so easily to find that we have faith in Huawei's ability to find out the best one in the world. As a conclusion that it is wrong to regard the employee stock ownership scheme as the real reason to explain why Hua- wei has not come into the market anymore. There are such "special" methods in management that there is no need to be regulated through the way to become a listed company Many kind-hearted experts have advised Huawei's boss that Huawei could resolve the problem in respect of financing and jointing the capital system, what is more im- portant, optimizing its corporate managerial system through the process of coming in- to the market. However, it comes into my brain that Huawei has no driving impetuses ~ 132 -- 135 of 362 -- in this respect because Huawei has already realized internationalization and standardi- zation on all sides basically, including the internationalization of the managerial sys- tem, which has been integrated into the international convention almost in every as- pect that are all designed for Huawei by some well-known international consulting companies such as IBM, Hay Group in accordance with the actual situation of Huawei after ten years of Huawei's hard work. So it is not the only way to normalize our cor- porate managerial system via coming into the stock market. Huawei will never choose to come into the stock market just for improving its managerial quality solely. As the water can bear a boat, it can swallow the boat too From my point of view, one true reason in Huawei's way to come into the stock market may be its anxiety about the stock market. As a private enterprise, Huawei made a fairly flexible mechanism that ensures Huawei to capture opportunities in the market and collect resources as well as take a quick response to the market incisively, which come down to key factors to help Huawei get victories in business battles at home and aboard. Suppose that Huawei comes into the stock market, in one aspect, the company has to accept supervisions from the China Securities Regulatory Commission, the Stock Exchange, independent directors and investors in the other aspect, the company is obliged to accept a serious Information Disclosure System while Huawei rarely an- nounces these financial information in public which are such business secrets veiled in Huawei that it must protect them from being used by its competitors. Why should Huawei bound itself and come into the stock market since there is no pressure in terms of capitals or considerations on other respects? In addition that the stock market is always on rising and falling, which may create impacts or hurts on Huawei. At the time that the enterprise gains a big amount of returns from investment and added values through coming into the market, it has been placed in the teeth of the storm with its core team wholly, which can be explained in one old saying "as wa- ter can bear a boat, it can also swallow the boat too". Since Huawei has found no de- sirability to come into the stock market, is it really worthwhile "miring itself in the muddy water"? 133 ~ -- 136 of 362 -- Chapter IV The Five Miracles to Overturn the Image of Pri- vate Enterprises 4. 1 The national champion in tenus of paying taxes for eight continuous years It is reported according to information of the top 100 electronic and information enterprises in 2006 (20th session) published by the National Ministry of information Technology and Telecommunications in China that Huawei has been ranked the cham- pion in terms of paying taxes and total profits of the national top 100 enterprises ac- cording to its profit amounted to 5. 15 billion RMB and tax added up to 4. 93 billion RMB for the eighth time to win the honor continuously. Huawei got sales revenue totaled as RMB 46. 97 billion, increasing by 49% than the previous year, and ranked at the fifth place in total sales leading the top 100 en- terprises in the field of electronic industry nationwide in 2005, with the first two posi- tions were placed by Lenovo and Haier whose output value were equal to over 100 bil- lion RMB separately. Regardless of their huge output values, Lenovo gained net prof- its valued at only 2. OS billion RMB, with only a profit margin of 1. 9%, which was far lower than the 11% of Huawei; meanwhile, Haier got net profit as low as 1. 32 billion RMB and its profit margin was also as low as only 1. 27%. Compared on the side of revenues, Haier paid tax at 2. 45 billion RMB and Lenovo paid at 1. 29 billion RMB, both were far below 4. 93 billion RMB of Huawei. Huawei has been holding the title of the champion in terms of paying taxes, lead- ing the first top 100 enterprises in electronic industry in China for many years on ac- count of a long-term investment in R&D. Huawei keeps on putting 10% of its sales revenue of the previous year into scientific research and development of its products, boosting Huawei to make breakthroughs on its technologies embodied in products and catch up with the international advanced level in many fields, which creates a "win- dow of opportunities" for Huawei to win a huge profit and supports Huawei to develop at a high speed and maintains the top position in terms of paying taxes at the same time. Let's turn back to view the situations of the top 100 electronic enterprises in re- spect of investing in R&D and we may find and understand what kinds of causes lead to the sharp differences between Huawei and Lenovo, Haier. Huawei invested as much as 4. 75 billion RMB in terms of R&D in 2005 and became the one who invested ~ 134 -- 137 of 362 -- the most in R&D area among the top 100 electronic enterprises. Besides, Huawei filed for 3,824 patents, including 3,212 patents of invention, 294 patents of utility model, and 318 patents of design, its ratio of patents of invention reached up to 84% up to June in the year of 2005. The patent applications of Huawei in the same period were also ranking the first among the top 100 electronic enterprises. Haier Group invested 4. 54 billion RMB into R&D field, but taking up 4. 4% of its gross sales solely, the vol- ume of patents filed in the same time was 2,358, patents of invention were only 158, the ratio of patents of invention was only 6. 7% and most of patents were in utility model. Let alone to say the situation of Lenovo Group, which is not even as good as Haier in terms of investment in R&D. Lenovo Group invested 1. 5 billion RMB into R&D field, only accounting for 1. 4% of the annual gross sales, patents filed in the same time was 1,469, containing 576 patents of invention, the ratio was only 39.2% in the year of 2005, far lagging behind 84% of Huawei. It can be concluded from the comparisons in invested funds in terms of R&D and innovation abilities among the top 100 enterprises in electronic industry mentioned a- bove that it is not a coincidence for Huawei to win strong earning power better than other enterprises in the industry in China. In July, 2006, some relevant ministries and commissions such as the Ministry of Science and Technology confirmed Huawei as one of the first model national innovative enterprises and moved forward to offer supports to it in public, which demonstrated the government's recognition of Huawei's inno- vation ability on another side. Lenovo and Haier are star enterprises in China, but there is a deep gap between the two and Huawei in these aspects. As far as other com- mon Chinese enterprises are concerned, the gap will be deeper. At present, some prejudices or misunderstands towards private enterprises in Chi- na are rumored in public, deeming that private enterprises are either hard to make money because they are keeping running by painstaking efforts, or they will evade or try to pay less taxes even on the assumption that they earn money, it is impossible for them to rank the champion in paying taxes nationwide and let alone to say stay on the position for many times. Huawei's success is overturning the image of the private en- terprises in the eyes of the public. 4. 2 The most patents in China It is calculated by the National Bureau of Intellectual Property that Huawei is the unit who applies for the most patents in China at present and breaks through 3,000 in terms of patents in total annually, having possessed up to over 14,000 filed patents and established research institutions in many places crossing China, America, India, Sweden and Russia. Huawei puts no less than 10% capital of sales revenue into R&D every year and 135 ~ -- 138 of 362 -- lays emphasis on accumulating and protecting the intellectual property in the long run. Depending on independent research and development, Huawei launches products and solutions using its own intellectual properties, which is the source to keep develo- ping itself for over a decade. Huawei has been turned into a focal point that the Medias at home and aboard kept a watchful eye on due to Cisco lawsuit in 2003. All circles in the society changed their views and regarded Huawei with special view for a very short while. Everyone o- ver-concentrated attentions on Huawei's ability in price in competition as a danger to Cisco, neglecting of a greater key fact- Huawei was the "dragon's head" of patents leading high-tech enterprises in China, and its volume of patents of invention ranked the first place at home, its PCT international patents and foreign patents amounted to be the top one among the enterprises in developing countries. Huawei has been open- ing up itself to compete with multinational corporations comprehensively in the global telecommunication market depending on more and more patents of core technologies it creates. The general strategy of core technologies Huawei was settled down to start developing digital PBX by itself when it was just a vendor of small-sized switches imported from foreign countries in 1991. This kind of technology was one of the cutting-edge technologies at that time. Huawei's idea filled the blank in PBX switches market at home and found a particular path for the compa- ny to develop. Huawei found that every multinational corporation could be called as a patent giant in terms of technologies for nearly all of them are holding several hundreds of technical patents in some certain area and these patents seemed like some impregnable fortresses, closing the door and leave the late-comer outside. If the new coming company wants to produce switches independently, it will be forced to confer with different "masters of patents" to get authorization of patents separately and pay for expensive license fees for patents if both sides reach an agreement. The trouble was very obvious to see, once we took license fees of patents into account of the cost, products of Huawei would raise in price insanely, losing our competitiveness in price. Facing with one difficulty after another, Huawei did not shrink back but estab- lished patent strategy in order to break out of the encirclement by making use of core technologies on the contrary. Huawei embarked on making breakthroughs in respect of technologies in full sail and received multiple achievements of patents in the end as it wished. It developed C&C08 SPC switches successfully in 1994, which was consid- ered as a remarkable product at the outset of Huawei. After we reached success in tests this time, Huawei increased its investment in technologies, especially in core technologies uninterruptedly. Patents applications have been keeping on with over ~ 136 -- 139 of 362 -- 100% of growth rate annually in the following years. Nearly 3 billion RMB was inves- ted into R&D by Huawei, containing the cost in terms of patent applications for over 10 million RMB solely in 2002. According to the statistics from the State Intellectual Property Office, Huawei's patent applications added up to 2,154 and the patents of invention stood at the first place in the list of domestic enterprises and applications of PCT international patents and foreign patents were 198, which showed that Huawei was one of the companies who filed for the most PCT patents in the developing coun- tries up to 2002. The most cutting-edge technology of communication network is in the third gen- eration(3G); Huawei also takes its place in the front rank of the industry in respect of core technologies related to it. Huawei set out to research and develop WCDMA as early as 1998. And now there are over 3, 500 research personnel engaged in 3G over the world, adopting distributed development model and realizing cooperative work a- mong the U.S research institution, Sweden research institution, India research insti- tution and research institutions at home. As an independent member in 3GPP, Hua- wei took an active part in studying and drafting standards for the industry of 3G and submitted more than 30 proposals to 3GPP in the first half year of 2002 and most of these technical proposals were written into the standard. So far Huawei has filed for 455 3G patents in total. In return, core technological patents have brought in tremendous economic bene- fit for Huawei. For example, in addition to that the SDH interface technique origi- nally created by Huawei has promoted the performance of SPC switches to a large ex- tent and saved a large number of engineering cost for customers, the ASIC chip de- signed by Huawei itself for special purposes lowered the cost to a dozen dollars while it cost Huawei for 200 dollars to buy it from foreign countries, all in all, Huawei low- ered its cost enormously by using the technology as a result. The base for research and development is the market Dealing with concrete issues in practice is another distinguishing feature Huawei shows in strategies of patents. Huawei is researching and developing products with the purpose to reach the apex in technologies in the world and is pursuing for patents that can be used as tools to help Huawei prevail over others in the competitive market rath- er than world-leading scientific technologies which seem to be attractive but with no use in practice. Huawei's boss has called researched and developed achievements which could not be sold out as "luxurious waste" before. And he has pasted up receipts of airline tick- ets and accommodation used by engineering technical personnel on business trip in dif- ferent places and "awarded" these receipts to research personnel, illustrating that 137 ~ -- 140 of 362 -- these expenses ought to issue out to them as bonus in his original mind. He also said: "researched and developed achievements are just some failures if they cannot be trans- ferred into commodities in the market!" In 1999t Huawei spent a lot of money to bring in research and development process system of mM and changed the process of researching and developing prod- uctst which were completed by R&D department independentlyt into a team operation pattern that all departments, such as R&D, marketing and customer servicing and so on, who should cooperate with each other. The operating system shows its feature in considering the real and potential demands of customers prior to forming the scheme of research and development of products. All departments should join in the whole process from researching and developing to producing and selling the products as a whole together, realizing synchronization of research and development of products and the market indeed and enhancing the probability of making R&D of products match the demand of the market one time. At the same time, Huawei proposed a slogan as "responding to customers' de- mand quicker than any rivals". Before China Mobile proposed Pre-Paid business to meet the customer demand in 1999, it was Huawei who had already been aware of it at the first time and had reserved relevant patents under the table. As three main routes, huge investment, talents mechanism and market orienta- tion ensure Huawei' s strategies in terms of core technological patents to get wins in the market: The C&C08 switches of Huawei operated on the internet ranks in the ninth place in terms of volume in the global market at present; the long-distance opti- cal network market share of the global market ranks the fifth position; the intelligent network product becomes one of the leading brands in this area in the world; the growth rate of data communication products has kept an increasing rate over 100% for three years continuously. In 2005, the annual sales revenue of communication network products of Huawei reached 46. 7 billion RMB, 4. 5 billion dollars from export and its revenue and profit were high up to 5 billion RMB respectively every year, which helped Huawei rank the champion in terms of paying tax among the top 100 electronic enterprises in China for eight years continuously. How do the 10 patents come out everyday? In one of Huawei's advertisements, it is stated, "we respect intellectual proper- ties of others and pay attention to protect our own intellectual properties as well. We are fully confident of values of cooperative-partner relations, opening cooperation and fair competition with others and implement the belief in practice. The volume of Huawei's patents is increasing at the speed of ten applications everyday on the aver- age at present. .. " These words and sentences have aroused great interests from people ~ 138 -- 141 of 362 -- in the exterior world. As far as Chinese companies are concerned, especially for pri- vate enterprises, it is rare to see such a high number of patent applications with first- class qualities. Nearly 84% of patents Huawei filed are classified into inventions. Why does Huawei rank the first place in terms of the quantity of patent applications among the domestic enterprises? What goes on behind the reconciliation of patent in- fringement case that Cisco litigates Huawei in the end? One of my old friends and the Minister of Ministry of Intellectual Property Song Liuping has witnessed the development history of work related to patents in Huawei. It was not until establishment of the Ministry of Intellectual Property under his leader- ship in 1995, did the company put intellectual property on the agenda in 2000 indeed. "Why must we protect intellectual property? The answer is for surviving! In the over- seas markets, especially in the developed countries, intellectual properties have been accumulated a lot; multinational giants are taking intellectual properties as tools for blocking late-comers to enter the market. "From this point of angle, intellectual property means as the most important factor to decide whether you can sell products in this area or not. " Song Liuping alleged. The achievement we have obtained till now is sufficient to comfort Song Liuping and nearly 200 brothers under his leadership: domestic patent applications of Huawei have been increasing at an outstanding speed, turning over one time almost every year from 2000. Huawei has obtained issued patents up to 1,900 by March 31"1 , 2006. Re- garding patent applications in overseas, a substantial step forward has been taken by Huawei, and its PCT applications or foreign patent applications have accumulated as more than 1, 765 up to now, applications for trademarks at home and aboard have been amounted beyond 600. In all, the overall number of patents filed has reached a- round 14,000. Referring to R&D of 3G which absorbs a lot of Huawei's investment , we can see that Huawei holds 5% of 3GPP basic patents over the world, ranking the fifth place in the world. As a whole, Huawei has got a great progress in light of pa- tent applications which are more in number than European and American manufactur- ers while less than Japanese and South Korean manufacturers a little, having led Hua- wei to enter in the forefront of the industry all over the world. As patents filed by Huawei are increasing sharply, foreign manufacturers are get- ting more and more cautious in competitions with Huawei. Intersecting-permission of patents via negotiations and consultations has become one important work that the Ministry of Intellectual Property of Huawei focuses on. At present, joint patents fil- ing agreements with some leading manufactures, such as Qualcomm, Ericsson, Nokia, Siemens, Motorola, 3COM have been reached by Huawei already. Vice Minister of Huawei's Ministry of Intellectual Property calculates and says : 139 ~ -- 142 of 362 -- "in spite of the gap between Huawei and foreign counterparts in respect of absolute quantity of patents, foreign manufacturers know their futures clearly and optimistical- ly, so all of them are very active to talk with Huawei. As for intersecting-permission of patents, even if Huawei pays 5% for them while foreign enterprises pay only 1% for Huawei as return because of their bigger profit scales than Huawei, it is calculated that ultimately Huawei still gains value from patents." The work related to intellectual property in Huawei has undergone an acid test in the "case of Cisco law suiting Huawei over patents", which came down to a final re- conciliation due to the important role the accumulation of patents plays in it. It is dif- ferent form people view, Huawei actually has started to cooperate with 3COM before the "case of Cisco law suiting Huawei over patents" as early as 2002. Cooperation be- tween the two is widely spread on all sides containing the core technologies; as are- sult, 3COM sent senior experts to investigate Huawei from top to bottom and hundreds of patents of data communications Huawei contributed got the nod in the wake, which was an evidence to induce the three parties to reach the final agreement. It has been an obvious trend to get benefits by ways of combining patents and standards together in Huawei. Wang Xuemin, minister of the Ministry of Standard considers that the international standard has been used as a powerful tool to consoli- date foreign manufacturers' monopoly positions in intellectual properties day by day due to its mandatory feature in the industry, so every manufacturer is obliged to com- ply with the international standard if it wants to produce international products while the international standard is bound to protect foregoers' patents inseparably as we all have known. So far there have been over 200 full-time and part-time employees are committed to dealing with the work related to the international standard, from attending inter- national conferences to holding them, following the tracks of the international stand- ard to drafting and compiling the international standard, and acquiring the positions of vice and principal team leader of the standard team at last, "all are captured by vir- tue of defeating others in competitions!" Wang Xuemin sighed with emotions and spoke out its hardships hidden in the competitions. Meanwhile the development histo- ry of Huawei's patents and standard illustrates that companies in China have absolute- ly possessed the ability to catch up with foreign giants and become the power to hold the balance in terms of patents and standard. Leaps in terms of patents and standard Huawei has got, are all profited from the strong power of R&D undoubtedly. Senior vice president of Huawei, Ai Wei said that more than half of the employees in Huawei are engaged in R&D work and the way to invest more than 10% of sales revenue into R&D every year Huawei goes along helps ~ 140 -- 143 of 362 -- Huawei come from behind at a rapid speed in respect of research and development ca- pabilities of technology; what's more, 10% of investment in R&D is put into ad- vanced research of technology every year so that Huawei begins to surpass its rivals and walk towards inaugurators who initiated the leading-edge technologies in the in- dustry; On the other side, improvement of R&D capability boosts the intensity of par- ticipating in work regarding to intellectual property and international standard. All mentioned above have accelerated the promotion of its core competence in the mar- ket. The great success in respect of R&D of core technologies in Huawei, especially the first place to possess patents in number in China, is undoubtedly a good lesson to teach the people who take it for granted that "private enterprises have no technologies but only imitation", besides, the fact changes some people's views on Chinese private enterprises to a deep degree. 4. 3 The enterprise owns the highest diploma nationwide When graduated students with bachelors' degrees, masters' degrees or doctors' degrees are terribly troubled by looking for jobs every year, there are few enterprises like Huawei will "open their mouths widely" and employ thousands of God' s favored ones who "have been driven into a corner" every year. There are 38,000 employees with an average age of 27 and more than 95% of them possess bachelor's degree or above, 70% of them possess master's degree or a- bove, as well as thousands of them are granted with doctors' and post doctors' de- grees, 48% of all employees are senior research personnel in Huawei. It set up its flowing work station for post doctors a decade ago, attracting a large group of post doctors to practice and make scientific research in Huawei, and a majority of post doctors chose to continue staying in Huawei and working for it when they left the work stations after graduation and turned to be a multitude of senior technological tal- ents finally. Although undergraduates are facing the severe situation when they hunt for jobs in recent years, Huawei does not take advantage of their precarious situation or seize talents at a low price, instead, it makes a promise to offer them fat salaries in recruit- ment. As long as being enrolled in Huawei after the strict employing screening tests, a newly recruited undergraduate can get a fat income as high as 100,000 RMB in total at the end of the first year. On one side, sufficient source of undergraduates provides Huawei with more room to select; on the other side, the remuneration being full of attractions also draw amounts of talents with high education backgrounds at home and abroad to join in the company. Apart from employing large quantities of undergradu- ates from universities directly, Huawei hires the "airborne forces" with abundant 141 ~ -- 144 of 362 -- practical experience in and out of China on the understanding that Huawei offers fa- vorable remunerations to them. Besides, Huawei persists in "capitalizing knowledge", providing employees with the rights to share the company's stocks. Huawei asks Hu- man Resource Commissions at all levels to offer employees with quota of stocks after evaluations according to employees' talents, responsibilities, contributions, working attitudes and risking promises, and then asks employees to buy or use their stock rights by ways of virtual restricted stocks, share options, MBO and so on. "The only thing Huawei can depend on is the staff, Huawei views employees who are responsible and serious to work and efficient in management as the most cherish treasures, employees are staying at positive positions which are important in the grow- ing circle of the enterprise," Huawei's boss has ever said. So he insists on that appre- ciation of human capital must be growing faster than appreciation of financial capital This is the most basic principle in the economics: supposing that an employee creates 100 Yuan of value, the company will pay for him 10 Yuan back as reward, the rest 90 Yuan will go into the company's pocket; but if the employee creates 10,000 Yuan of value, the company will ought to pay 3,000 Yuan as award instead of 1,000 Yuan for human capital which is calculated according to the same rate. Employees will be en- couraged to create 10,000 Yuan and the enterprise will get more back in this way, by all means 7,000 Yuan is much greater than 90 Yuan obviously. If the leader of the en- terprise considers that the company should get 9,000 other than 7 ,000, the final result is likely to remain 90 Yuan only. The boss has a strong belief in the theory: at the era of knowledge economy, it is the knowledge who hires capital, intellectual property and secrets of technology sur- pass capital in terms of value and dominator. Only does capital attach to knowledge, it can maintain and appreciate its value all the time. With strong eagerness to dig out talents, Huawei's boss realizes that the weakest point young students expose out is that their ideas are over-ideal, so he makes an irony rule accordingly: first, opposing against employees' empty ideas; second, demanding them complete their own tasks; third, the employee without work experience in the basic level will never be promoted. The boss has done what he said in light of the rule. Everyone's education background will fade away automatically after entering in- to Huawei while experience in practice is the only thing you can depend on to capture promotion chances. Such an upgrading institution for talents is alluded to as "making use of doctors as workers": "let them know what commodity is indeed and transform their responsibilities on achievements of scientific research to products. " Doctors who have worked as workers still have access to get the positions matc- hing to their education backgrounds after passing a series of evaluations of qualifica- ~ 142 -- 145 of 362 -- tions. Huawei invites Hay Group from the U.S as its consultant, improving itself lit- tle by little via digesting and assimilating, and forms a unique evaluation system of qualifications with special features ultimately. At the same time, Huawei distributes wages to employees in light of the functional wage system based on their competences. Every employee in Huawei has the possibility to become the successor. Successors do not only occur aiming at leaders in high levels, but also in every hour, every mi- nute, everything, every position and every process. The people around your position are staring at you all the time, they will replace you immediately when you are out, which is called as "the system of replacing positions among all employees". The boss passes on consciousness of crisis and imposes pressures on every employee via such an idea so that the interior mechanism will be kept under an activated state eternally by imposing independent pressure on employees. Instead of lifetime employment system, Huawei set up a free recruitment system which can encourage employees to become stronger with self-improvement, self-independence and self-respect. On the other hand, the boss imbues with such a conception to each employee that either to be the front runner or to be replaced by others, there is no other way to go. Just because of this point, Huawei has to keep a very high volume of talents in and out at all times. The turnover rate of talents in Huawei is always beyond 10% every year. Despite of being so cruel, objectively, the mechanism ensures the quality of the tal- ented team and effective role of the incentive system plays for the company. By virtue of the mechanism, Huawei created its outstanding performance in light of paying taxes as the champion amid the top 100 electronic enterprises for eight con- secutive years. Huawei basically realized internationalization on the whole in 2005 and it was of historic significance that its sales revenue in the international market surpassed that in the domestic market for the first time, leading Huawei to be turned into a multinational communication enterprise in the real sense. Huawei also outsources the businesses containing lower technologies to other pro- fessional sub-contractors, such as logistics service outsourcing, manufacturing out- sourcing and software development outsourcing. Huawei has reached the goal that there is no worker engaged in making products or logistics service on the whole by outsourcing these businesses and the proportion of employees with undergraduates' education background is nearly 100 percent nowadays. Huawei is deserved to be praised as the major enterprise with the best education background in China. 4. 4 The well-paying enterprise makes "sweatshops" feel too ashamed to show their faces As an exporting giant in China, Huawei gained US $4. 75 billion of sales revenue from the international market, accounting for 58% of the total sales revenue of US 143 ~ -- 146 of 362 -- $8. 2 billion from the global market in 2005. Distinguished from overwhelming ma- jority of export-oriented manufacturing enterprises in China, Huawei does not win in- ternational orders or foreign exchanges by means of a vast supply of cheap labor forces like other enterprises. On the contrary, Huawei is such a well-paying enterprise that is famous for its high salaries. A well-paying enterprise in China Depending on high-tech embodied in products and powerful marketing measures, Huawei hits new climaxes in terms of economic benefits for the years running. It is calculated that Huawei has gained about 15 billion Yuan of gross profit in the recent two years; approximately 1/3 of the profit has been distributed to employees in the form of stock dividends. Almost 80% employees in the company are holding 100% stock rights of Huawei Corporation and it is no doubt that the longer the experience you have and the higher the post you stay, the more stock rights you will get and more dividends you will share accordingly. Stock rights shared out is a main source for em- ployees' earning in Huawei, especially professional managers or technical experts holding the positions of supervisors at all levels will get quite considerable incomes which are rarely seen even in the western companies. By the way, their basic wages in Huawei are comparatively higher than other enterprises, whereas it cannot attract employees' eyes in Huawei for the reason that their basic wages are merely small por- tions to form their whole remunerations. The employee who often goes on business trips overseas in Huawei has another considerable income as subsidy for their expendi- tures in foreign countries. I still remember that standard of subsidies for going on bus- iness trips in foreign countries reached to 50 ~- 90 dollars, which was just food allow- ance several years ago. Bonus gained from the annual profit probably stands at 50% of employees' total wages every year, or even more, which is determined in accord- ance with their performances in the market. Huawei's boss stresses credibility very much and never defaults to pay for em- ployees even one buck, and their wages, subsidies, dividends and bonuses all will be paid on schedule by the company. After taking off individual income tax on the basis of the tax policy, the rest will go into the banking accounts of the employees timely. Employees in Huawei make up a group of high-consuming customers with a strong purchasing power in Shenzhen and the majority of them are willing to buy housing es- tates of large-scale projects, and even launch group purchases on the intranet of the company because employees usually get some obvious discounts due to negotiations held with property developers in groups. On the other side, with numerous employees in Huawei and their strong powers to purchase estates, property developers are defi- nitely "respecting them". The community I am living in sets as a good example; it is ~ 144 -- 147 of 362 -- the biggest top-grade apartment building in Shenzhen, including 5,000 apartments, a- mong which more than 800 were bought by employees of Huawei. In addition to buy houses for themselves and their families to live, Huawei's employees are wild about investing real estates. One of my colleagues has brought seven or eight apartments and shops in Shenzhen and Shanghai. It is very common to see this way of investment used in the middle and high supervisors in Huawei. So long as showing working cards to demonstrate their identities, automobile dealers are willing to render extra discounts to Huawei' s employees too, the situations are identical in automobile insurance and automobile repair that Huawei' s employees are enjoying the "privilege" for extra preferences. By providing working cards, Huawei's employees will enjoy discounting privileges in many middle and high grade restaurants as well. Huawei is a name representing high-salary to some extent in Shenzhen and it is o- verturning the negative image that private enterprises embezzle employees' wages which ought to be issued and squeeze employees which comes across into people' s brains now and then, and making those business owners of "sweatshops'' blush with shame or embarrassment. Huawei offers high wages as well as a beautiful environment This is a feedback from a foreign customer who has visited Huawei, from which we will find that the successes Huawei has won up to now are changing negative views of foreigners towards Chinese manufacturing in depth. "The headquarters in Huawei left people a deep impression, for example, the R&D center is extending its area for about three or four acres and is rich in harmonies of neoclassicism as Monticello, a national holy land in America. Arriving at the main building, we found that glasses and steels have forged the great symbolic architecture of high-tech. " "Frankly speaking, our group were dying to see a 'telecom sweatshop' before we came to Huawei- the scene could be a row of buildings made of concretes being grilled under the burning sun and labors under age being busy with work around the printed circuit boards in the buildings, working for 18 hours every day and having a rest for a while only at the time when they need to go to toilets. " "No, this is not a plant like Nike. Huawei is so brilliant. Having entered into the exhibition hall with many elaborate decorations, one of my partners and I were so at- tracted in every tiny thing Huawei made at once ... " The comparison between Hoawei and Foxconn Regarded as a local high-tech enterprise possessing an ability of self- dependent innovations, Huawei writes its story to positively spread knowledge and innovated val- ues to others. Shenzhen, a city who built up its fortune at the beginning on the basis 145 ~ -- 148 of 362 -- of processing customers' materials and export trade began to think over and examine itself due to Huawei's success and its model. Foxconn, another manufacturer which is not far from Bantian Base of Huawei in Shenzhen, was settled in Shenzhen in the early 1990s and became more and more es- sential to support the enormous economic output of Shenzhen from the past to the present. The value of export in Foxconn was equal to US $ 10. 04 billion in 2005, al- most accounting for 1/5 of electronic products exported in the whole year in Shenz- hen, in addition, the annual production value in China created by Foxconn is as high as 200 billion Yuan, holding the champion of exporting in China for several years continuously, regardless of the point, such an exporting giant has raised public's anxi- eties about Shenzhen's economic development. Behind its huge production value every year, Foxconn takes advantage of various privileges in terms of export processing in China with only 1. 6 billion Yuan as taxes to the government in 2005; compared with 200 billion Yuan of production value yielded by Foxconn, Huawei created only 46. 97 billion Yuan as total in production value while paid 4. 93 billion Yuan as taxes to the government in the same year. The backbone to support the huge production value of Foxconn is no more than a huge quantity of cheap labors. According to incomplete statistics, there are two hun- dred thousand employees in Foxconn in Shenzhen, over 170 thousand are workers on the assembling lines, technical personnel share a very low proportion of the staff in Foxconn; moreover, with very low wages and strict management system, employees are always coming and going in fluctuation. Consequently the human resource depart- ment dominates the most important place in the company as the busiest department, engaged in hiring and training employees everywhere every day. In spite of such a high staff turnover, the enterprise is able to develop into such a tremendous empire thanks to abundant labor force resources in China. A lot of employees working on as- sembling lines in Foxconn spend much time in overtime working or working for extra shifts while they are paid for only a little more than 1,000 Yuan each in return so that there is no much left for them after taking off living expenses every month as reported via the internet and Media. So it was called as a "sweatshop" on the internet and Media in 2006 and involved into a big storm which aroused the local governments' cares and rethinking of it profoundly. What is more, it was reported that customers from Europe and the USA were bowing to the public pressure to express their concerns over it in public. At last it deteriorated into a lawsuit causing a sensation throughout the country between Foxconn and the journalist of the First Financial Times in Shang- hai in August, 2006. A great many people take it for granted that Foxconn has hardly help China up- ~ 146 -- 149 of 362 -- grade technologies of the industrial chain via its enormous scale of production because most of the upgrades of technologies are ongoing in the internal circulation in Taiwan- owned enterprises. With less and less lands available in Shenzhen, its GDP is even e- valuated in accordance with its production value per square kilometer, therefore pro- jects or investments similar to "sweatshops" of Foxconn will no longer gain supports from the government of Shenzhen from now on. High-tech and innovative enterprises like Huawei will be targeted as inevitable objects to win supports from the government at all levels on the contrary. Is Galanz a successful work? Galanz is also an outstanding representative leading Chinese manufacturing to walk out as the same as Huawei, nevertheless it conducts another form of representa- tives. Looking backward to those years, Galanz reached at 78% of market share at home and 25% in the international market at its peak. It was highly praised to be written into MBA courses in Peking University as one of successful cases among Chi- nese enterprises, but it was not the case in fact. Without core technologies or proprie- tary intellectual property right, Galanz could only sell its products which were short of favorable profitability by means of lowering down the price to enlarge sales vol- ume, which was a simple method to win the market share depending on the produc- tion scale. So liable to be complained or even attacked by foreign enterprises in the same line, the method is so easy to lead the enterprise to be attacked by opponents un- der the table as soon as it gets sanction under the accusation of dumping. Galanz adopted the low-price strategy at that moment that the gross profit of each microwave oven was only one dollar. Similar to the situations in other exporting manufacturing enterprises in China, even the only one dollar of gross profit is very likely to win at the cost of overtime work or more shifts work or overloading work by employees. It is not hard to imagine what level of wages can be provided by such a plant and such a benefit it gets. No wonder there are many westerners lash out at these manufacturing enterprises as "sweatshops", whereas the enterprise is very tired in doing so. The plants seem very prosperous on the surface, running at full steam and even for extra shifts and hours, but it is possible to "earn flourish on the face at the cost of sustaining losses in business", due to the big production value with small prof- it, enterprises find it very hard to conduct technological innovation or increase invest- ment in R&D, as a matter of fact, they are unaware of being involved in a strange cir- cle that everything is getting worse and worse. Ever since LG and Samsung from the South Korea entered China, Galanz's mar- ket began to shrink at home and aboard bit by bit. Because the microwave ovens pro- duced in the three companies are sold at the same price of 300 Yuan while the technol- 147 ~ -- 150 of 362 -- ogies adopted in the three are not at the same leveL Maybe there are some people worrying about that Huawei is possible to meet the similar problems due to the same low-price strategy to capture the international mar- ket Huawei has ever used before. However, it seems to be needless to be anxious be- cause the biggest difference between Huawei and Galanz lies in their technology con- tents. Huawei is an innovative enterprise engaged in developing and using high tech- nologies with more than tens of thousands of patent technologies at home and aboard while Galanz is a manufacturing enterprise occupied in assembling electrical equip- ments industry with low technology contents yet. It is assumed that Galanz owns the same technologies; intellectual properties of these technologies are never in its own hands. Accounting for a certain percentage of patent fees, the money paid for those foreign giants who supply intellectual properties for Galanz are higher than gross profits manufacturing enterprises obtain. If we intent to lower the price merely de- pending on cost-saving in the production process, nothing but only a "sweatshop" will be produced in that way. Compared a lion's profit Huawei makes and a little profit Galanz gets, in spite of the same low price they fix on their products, the sharp difference between the two lies in essential distinctions in their methods to control and cut down costs separately. Judged from the angle of the view, Galanz is probably a failure case. Maybe Ga- lanz has realized the point too; therefore it is transformed to produce digital micro- wave ovens in a bid to enhance technology contents of its products. Being a successful model, Huawei has set up a successful example in front of enterprises in China. 4. 5 A Chinese private enterprise that arouses the waves of transnational giants' amalgamations The main telecommunication equipment manufacturers in the world are bound up to merge or cooperate with each other recently because Huawei suddenly rises as a new force to a great degree from the common view shared by most people in the industry in the western world. In the wake of extension in emerging markets and Western Euro- pean market of Huawei, the spring tide of integration in the telecommunication mar- ket will be more and more intensified. Tracing back to over twenty years ago when China was at the first step to imple- ment the policy of Reform and Opening-up, Chinese enterprises either stroke on rocks or got sunk under the circumstance of grim international competitions and suffered in the strong wind and big waves caused by the market-oriented economy since they were lagging behind in terms of structures and low in technological levels as well as weak in marketing abilities. Even some outstanding ones who had landed on their feet could master how to swim after they drunk enough bitter water in international competi- ~ 148 -- 151 of 362 -- tions. We often hear or see that many Chinese enterprises are reluctant to be shut down, closed down or acquired and merged in that they are not able to withstand competitions with foreign counterparts. Standing at a relatively vulnerable place, Chinese enterprises feel very embarrassed, helpless or even painful. As the time flies, this kind of feeling of embarrassment and pain that the Chinese enterprises undertook for a long time "calls on" western enterprises rudely and abrupt- ly, including transnational telecommunication giants whose annual sales are high up to ten billion dollars. It is no other but Huawei who is becoming more and more power- ful to hold the balance in the world is overturning the framework. On one side, Hua- wei has changed the framework of global telecommunication market; on the other side, it has overturned views on Chinese enterprises from foreigners. At the same time, it has changed people's impressions on Chinese private enterprises from the bot- tom of their hearts. Many years engaged in the process of internationalization, Huawei popped up in the global market as a strong force on the ground of its technical ability and interna- tional marketing ability. On one side, it benefits from skyrocketing of the telecommu- nication market in China; on the other side, it benefits from the strong supports from the Chinese government. Huawei is planning to expand its product lines to a wider range and pick up the speed to march into the emerging market now. Huawei obtained gross sales of US$ 8. 2 billion from the global market, including the sales revenue from the overseas market which wrote a record at US$ 4. 75 billion in 2005, increas- ing by 108% year-on-year. Products of Huawei were sold out to more than 100 coun- tries and regions in the world, with an over 50% increasing rate of sales revenue than the previous year. Huawei attained more sales revenue from the international market than the domestic market for the first time in 2005 and received orders from many heavyweight telecom service providers such as British Telecom, Vodafone, Spanish Telecom and KPN in successions. As a result, customers and counterparts from the West had to admit that Huawei was no longer an imitator following the low-price and low-quality strategies but it has been equipped with the power to stand up to competi- tions with main manufacturers in the western countries as an equal competitor. Hua- wei has products and technologies with a leading edge as well as a complete product line with a series of products, facilities and supply chains, posing a threat to western counterparts in the real sense. Western counterparts have to conduct studies on Huawei and take it seriously to deal with the challenge and threat from Huawei when they are confronted with such a situation that international competitions are becoming more and more drastic and their performances are decreasing fast which has caused a heavy pressure on their fi- 149 ~ -- 152 of 362 -- nances. They are compelled to fix their positions of product lines again or cut away some uncompetitive business divisions or products or drag down some R&D projects which are transformed into OEMs for Huawei as well. In the past double years, Alca- tel has sold its business division of mobile phones to TCL and Siemens has sold its product line of mobile phones to BenQ to solve their financial problems, which cannot be settled down by other western telecom giants from the roots in the same way. The two mobile phone giants Sony and Ericsson are obliged to get merged to establish a joint venture named as "Sony Ericsson"; while the British telecom giant Marconi lost its strategic position to supply products to British Telecom because of Huawei, and e- ventually it was acquired by Ericsson. On the other hand, there is still no sign of re- covery after Siemens' product line of wireless system has sold out its terminal business of mobile phones and it is said that it has already been taken over by Nokia because it has no edge to win Huawei or Z'IE in fierce competitions. While another French tele- com giant Alcatel is making arrangements with the biggest telecom manufacturer Lu- cent who bears a huge loss in America on their consolidation. Moreover, the Ameri- can wireless communication giant Motorola is trying to lower R&D expenditures via building a strategic partner relationship with Huawei. North American communica- tion giant Nortel finds it hard to pay no attention to other counterparts and chooses to engage with Huawei on strategic cooperation projects. Different from these western and American giants, the American data communication company 3COM, leading the merging tide, has teamed up with Huawei to build the joint venture named Huawei 3COM several years ago and has ascended to the second place in the data communica- tion market with a favorable benefit from the market accordingly . Main manufacturers engaged in supplying telecommunication equipments in the world have been committed to merging and cooperating with others, it is believed by the western counterparts in the industry in general that Huawei's sudden rise like an irresistible force is the cause at some extend. As Huawei is going on expanding its market to the emerging market and Western European market, the merger wave in the global telecom market will be more and more violent. ~ 150 -- 153 of 362 -- Article H Global Huawei fll....•lllo+"'JI+~II+•• ....,· ....~~~~...... ~ ....I,...I~+•tl•+....•lllo.......~II+"'JI+•II....,..................~....I,...,,Jto+,ljlo.....lljlo+"')I+•III+"!J....,.....,.............I,...fJto+•l l•......lljlo~ t Huawei has been changing the franework of the telecoms in- J f dustry worldWide deeply, and its rapid rise arouses the spri ng t ide I t of transnational gia-~ts' amalgamations. Do you want to know how! l.~~~~~~,.~.~~..~.~~.~-~.~~:.~...., .._ ..__,,,,_,_.,,_,_,,_,...,.., ...._. .__. ,. ._.,,_J Chapter V Eight Surprising Magic Weapons in Overseas Market 5.1 The tactic of building a base A successful example of Huawei in the domestic market is establishing firm home bases nationwide, just like the Communist Party of China setting up a wide range of revolutionary home bases in rural areas in those old years. The tactic of building a base is stemmed from the successful experience at home Most of Huawei' s international market strategies are formulated from successful experience from the domestic markets, given that China is the biggest telecom market as well as the most competitive marketplace worldwide. The communication giants from all over the world are all actively participating in the Chinese market, and they once even monopolized the Chinese market for a while in the past. That was the so- called "seven countries, eight models". However, Huawei tries its best to explore a successful "road" in China through its home base strategy. This strongly helps it re- gain the controlling right over the Chinese market back from western giants. A successful example of Huawei in the domestic market is establishing firm home bases nationwide, just like the Communist Party of China setting up a wide range of revolutionary home bases in rural areas in those old years. The founder of Huawei is a person who learns and uses Maoism flexibly. It is certain that he has made a thorough study of Mao's strategic arts. Huawei has established a complete market system in the 151 ~ -- 154 of 362 -- domestic market: it has built up provincial market offices and an engineering service system in each province, municipality and autonomous region respectively. Huawei's customer managers are serving clients in each region, city and county of the country. And Huawei' s Chinese market consists of a big marketing team with about 7 or 8 thousand employees, and Huawei turns out an annual business income of 20 to 30 bil- lion RMB. Its customer managers are also working closely with all relevant depart- ments of each telecommunication service provider in China, for example, the plan- ning department, the operation & maintenance department, the general engineering office etc. and some other departments associated with project construction. You can see Huawei's marketing professionals and technicians are in these departments almost at any time. A fundamental guarantee for Huawei to win customers is providing me- ticulous pre-sale and post-sale services to them by way of using its home bases. At the same time, it continuously deepens communication with customers, which guarantees Huawei would be able to meet customers' requirements promptly, and provide them with timely, high-quality and customized solutions. These all guarantee that Huawei will win out in the fierce competition. Huawei's international markets are built exactly on the basis of this way of think- ing. In the process of internationalization and globalization, Huawei has successively established 8 overseas regional departments and one joint venture. At present, Hua- wei has established representative offices and engineering service networks in over 80 countries and regions. The Chinese market, which was the domestic marketing de- partment parallel to the international marketing department, has been degraded to the Chinese Regional Department and becomes one of nine parallel regional market- ing departments in its international marketing system. This indicates that Huawei' s home base strategy has made a great achievement in the international market, and its internationalization and globalization also have made an initial victory. The tactic of building a base is an inevitable choice of the direct sale's model The products produced and sold by Huawei are the telecommunication systems used by service providers. This system belongs to the capital goods of infrastructures, which is directly purchased from customers by inviting tenders. Huawei just owns a limited number of customers; the main four customers in China include China Tele- com, China Netcom, China Mobile and China Unicorn. The number of service pro- viders in the telecom industry is even much less in some unopened and privatized coun- tries and regions. In general, the national telecommunication agencies and ministries of posts and telecommunications are the only monopoly service providers in these na- tions. Thanks to the characteristics of the telecom service industry itself, in highly opened countries, it is monopolized by a few of companies. For the time being, the ~ 152 -- 155 of 362 -- number of main customers that Huawei has developed is not more than 100 companies in the international market. Therefore, it is impossible for Huawei to adopt other marketing models except for the direct sales model, because of business characteristics of this sector. In fact, this kind of model is rightly the one Huawei is good at. Just like all of us have known, Huawei is relatively not skilled in the construction of distri- bution channel systems. Only after its cooperation with 3COM, it gradually becomes familiar with the application of channel strategies. The direct sales model requires a high gross profit which is affordable to cover high marketing fees and the operation costs of a big marketing team. Actually, Hua- wei's gross profit ratio is very high. Although products were given 80% discount be- fore, there were still some profits for Huawei since the costs of some raw materials were just around 10% of the list price. Around 1999, Huawei sold an integrated light transmission product named SDH155H, which is merely of a normal VCD player's size and consists of several circuit boards and chips, but its selling price in the interna- tional market was as high as $10,000 compared with $100 of an ordinary VCD play- er. Therefore, Huawei's products are qualified enough to sustain the survival and op- eration of its strong marketing team and home base. However, the only thing that VCD manufacturers could do is exporting their products to foreign distribution chan- nels for sales. Although the fierce international competition and higher raw material costs keep the international telecommunication market far away from excessive prof- its, Huawei's net profit rate still remains as high as 11. 1% and its pre-tax profit mar- gin to be distributed reached up to 35% in 2005. The fact that Huawei has been profit and tax champions of China's top 100 electronics enterprises for continuous 8 years is a great illustration of the aforesaid. Huawei' s strong profitability certainly can help sustain the operation of its huge international marketing system, but the efficient op- eration of marketing home base with a complete organizational system and complete functions guarantee Huawei's access to sign more contracts, create more profits and enter beneficial interactions with markets and clients. Huawei has formulated a clear channel policy, that is, dealers are not permitted to approach "mainstream products" or "mainstream markets"-the "cheese cake". For Huawei, its service providers' market is its mainstream market which can't be put in- to the hands of dealer or intermediaries. If Huawei has to find out a partner for some projects, this kind of partner probably belongs to "project dealer" or "relationship dealer". It is impossible for Huawei to authorize the regional dealership or short-time dealership of a certain customer to any agent, instead, what it adopts is an "expedi- ent". While Carrier Class Equipment is called "products for local use" by Huawei, and it is also Huawei' s leading products which include switch, access network, optical 153 ~ -- 156 of 362 -- transmission, mobile products, 3G, NGN, etc. These products can't be sold be deal- ers, and their customers are telecommunication service providers in different coun- tries. The purpose for Huawei to formulate this policy is to ensure its fat profits will not to be diluted. There are still large medical equipments and power grid equipments which belong to capital goods that are similar with Huawei' s. Their customers are medical opera- tion units in hospitals or electric power network service providers, both of which are close to telecom service providers. Since these two sectors are regarded high-tech in- dustries, with handsome profits and relatively centralized customers, it is suitable to adopt the direct sales model in these sectors. My suggestion for employees engaged in these two industries is to learn successful experience from Huawei' s home base strate- gy and improve their sales networks, just as a saying goes, "by looking into other's faults, wise men correct their own mistakes". The tactic of building a base is a magic weapon to ensure Huawei' s success Under an attack of emerging equipment manufacturers represented by Huawei and ZTE, western companies retreat one after another, and they have to pull prod- ucts from shelves, shorten their frontlines, lay off their employees and be taken over, which result in a "merger wave" among international telecommunication giants. Western giants believe that the reason why they lose in the competition is that China uses the "price war" strategy. Although we have to admit that Chinese manu- facturers have great cost advantages, this is not the whole reason resulting in the fail- ures of western companies. We know, in terms of the construction of marketing sys- tem, there are some significant differences between western companies and Huawei as well as ZTE. Generally, in the Chinese market, western giants just have less than 10 marketing employees in 1 province, while sales and service teams that Huawei and ZTE own are at the number of one hundred or hundreds of persons. Maybe there are still some other reasons causing the failures of western giants. From a historical per- spective, since western countries have strong brand awareness, they don't need to spare much effort to access fat contracts as what Huawei and ZTE have done. Huawei has to start with small things. It is also because of Huawei and ZTE' s method of working, they have gained strong market relationship, at the same time, their prod- ucts are gradually improved and becoming mature under customers' support and un- derstanding. The most important points are that they are at a faster market reaction speed when compared with western companies, and their customer-tailored solutions are much closer to customers' requirements. In this way, Huawei and ZTE gradually take back the controlling right of the Chinese market from the hands of western com- panies. Along with the globalization of Chinese enterprises, their successful stories ~ 154 -- 157 of 362 -- are also spreading to and repeated in the international market. Western companies also have their own unspeakable pains. Their high costs of human resources prevent them from imitating Huawei and Z1E's home base strategy and the "human wave tactictt. The countries with the highest HR cost performance ra- tio in the world are China and India. To compete with Chinese enterprises, it would be much better for western companies to employ more Chinese talents, especially peo- ple who are graduated from Chinese universities. Besides, they must change their atti- tudes from expatriate-based employees who have studied in the US, because on one side, the costs for these employees are as high as their American counterparts, on the other side, their understanding about the Chinese market and competitors is not better than a person who graduates and works in China. It is not only economical to employ professional managers graduated from Chinese universities who have rich practical ex- perience, but these persons also have better performances. Only by employing more talents of this kind can western giants enhance their competence. Only after they can compete with Huawei and Z1E in human resources would it be possible for them to build market home bases and international marketing systems like those of Huawei. Then they would be able to curb the declining tendency in the international market. With further promotion of the internationalization process, Huawei and Z1E must lay their emphasis on employment, training and use of local talents in foreign markets. Because with the rapid development of Chinese economy and the apprecia- tion of RMB, human resources costs in China are also rising rapidly. Although there are some obvious cost advantages at present when compared with western talents, the high cost that is relevant with each employee in the international market also offsets and weakens this advantage to a great extent. Therefore, Huawei should not be afraid of using talents abroad. Not only should the number of local talents abroad be in- creased, Huawei but also should provide more different senior positions to them. Now, more than 50% of Huawei' s overseas employees are permanent residents dis- patched from China, so the costs of subsidy, travel expense, accommodation and traf- fic are very high. Huawei should reduce the percentage of expatriates from now on, and leave more posts and jobs to local employees. At the moment, jobs that local em- ployees undertake are still of a limited number. Only after changing this condition thoroughly, could Huawei continue to keep its advantage and the construction of na- tionwide home bases-acting as the basis of Huawei' s marketing system to achieve suc- cess. 5. 2 The marketing competition is the competition between the supply chains ISC process is tailored for Huawei. ISC requires considering each step of a com- 155 ~ -- 158 of 362 -- pany' s operation as a part of the supply chain. No matter in internal company or the external partners, in order to improve work efficiency of the supply chain and realize economic benefits, the company must make an efficient management in each step. The supply chain is the key to guarantee cost advantage The competition between companies is the competition in the arena of supply chain. However, the cost of products for a company is not only a reflection of pro- duction costs; bust also a reflection of cost and efficiency of the supply chain in exter- nal links beyond the company. After adopting ISC process, Huawei makes some relevant adjustments of its insti- tutional framework, merging its previous production department, the planning de- partment, the purchase department, the import and export department, the authenti- cation department, the external coordination and cooperation department, the deliv- ery department and the storage department into one, thus establishing a department called "the Supply Chain Management Department" to take charge of making unified management of the supply chain businesses. The company's senior vice president acts as its department head. The establishment of this department is absolutely not just simply merging different departments scattered in different systems into one or just changing its name, but considering the supply chain management as an efficient means to lower costs and stock, improve quality of goods, turnover rate of funds, supply speed and engineering quality. In contrast with "sweatshop"- making profits from "squeezing" its workers, companies mainly gain cost advantages from supply chain op- timization. This is the fundamental reason why employees in Huawei earn much high- er salaries and bonuses than others; however, its production cost is much lower as well. The tight authentication systems for technology and business that Huawei owns guarantee its access to suppliers with a most favorable price, super quality and the fas- test goods supply speed. Besides, Huawei' s "high salary for probity" salary system and its unique employee stock ownership program ensure the transparency and effi- ciency of its supply chain system. Also, Huawei's cadre rotation system forms another efficient constraint mechanism to prevent corruption. Basically, it is impossible to oc- cur in Huawei that purchasing cadres betray tens of millions RMB corporate interests just for less than a million RMB personal interests, which is likely seen in a state- owned company. Because supervisors at different tiers own high salaries, and they al- so hold company shares, so they would not be impressed by this lure. This kind of transparent and efficient supply chain management fundamentally guarantees Hua- wei's huge competitive advantages in terms of production cost. ~ 156 -- 159 of 362 -- The supply chain acts as the effective means to guarantee the core competence The ISC process requires extending management scope to each link of supply chain beyond the company. So seen from the whole picture, companies don't need to do every link of product development and manufacturing by themselves. On the basis of ensuring their core competitiveness, they can outsource some peripheral links to professional contractors according to their practical situations. In this way, companies can centralize resources to highlight their core businesses, reduce production costs, shorten management frontline and keep leaders concentrate on technical research and development and market exploration by work division and large-scale production. After 2000, Huawei gradually outsourced most links of the production depart- ment, the logistic service department, basic training, and installation and debugging of engineering, software development, etc. This not only saves a lot of money, but also decreases the stock volume, and even realizes the so-called "zero inventory". At the same time, lead time is also shortened to several days and market reaction speed is accelerated obviously. At present, most of Huawei' s energy is put into the technical research and development and market exploration. About 48% employees are working in the research and development department, which keeps Huawei' s predominant technical advantage ahead of its competitors. And about 38% employees are engaged in marketing and service system in domestic and foreign markets, which keeps Hua- wei' s marketing competitiveness sharpened too. It is no wonder that people in the same industry abroad consider Huawei as the "design house&marketing team", that is to say, Huawei is consisted of designers and marketers. In fact, this statement makes sense. In Shenzhen, there are hundreds of companies that work for Huawei and act as its subcontractors or suppliers. The complete localization of Huawei's supply chain is the basis for entering into foreign markets and an important part of its international competitiveness. As a leader of this industrial chain, Huawei has created opportuni- ties for upstream enterprises to "indirectly" participate in international competition. Correspondingly, these upstream subcontractors and suppliers make great contribu- tions to help Huawei form its core competitiveness by providing the high quality but cost-effective products and supply ability. Therefore, competition between compa- nies, in the final analysis, is the competition in terms of supply chain. The key factor for a company to stand invincible is developing, maintaining and managing a compe- tent supply chain. The competitive advantage of supply chain is regarded as the capital for Huawei' s price war Although price war is not good for a company' s reputation, it is an effective 157 ~ -- 160 of 362 -- means for a company to gain more market shares. An old saying also says, "To kill one thousand enemies, one may lose eight hundred soldiers". Because price war is not only destructive to competitors, the company itself also must pay dearly for it. That is to say, price war both swallows competitors' profits and devours one's own space for making profits. Therefore, the company must know its strength and capital before beginning a price war. If its cost is as high as or the same as competitors' , the price war strategy can just be considered as an expedient. The company has to use the low price strategy to defeat its competitors by virtue of its financial resources and then re- instate its normal price. The competition between Huawei and Harbor is rightly a one like this, the final result of which is that Harbor is taken over by Huawei. While the one knows clearly that its cost is not lower than competitors and its financial resources are not better than others, but it still uses the price war strategy, is like committing suicide. The price war between ZTE and Huawei is a good example. According to a report, Huawei is well ahead of ZTE in last two years when it comes to international market. This is not only shown in sales volume, but also in to- tal profit and profit margin. We can see that the price war hasn't brought great mar- ket growth for ZTE; on the contrary, it results in obvious drop of its profit margin. In the rank of national top 100 electronics enterprises in 2006, Huawei gained a step further, while ZTE obviously stepped back, which is its first time in the history that ZTE fails to be on the list of top 10 in terms of sales. Seen from the first half year of ZTE's achievements released in late August, 2006, its sales volume was 10.4 billion RMB, which has a slight increase compared with 10. 3 billion RMB and 10. 2 billion RMB of the same period in previous two years. This retreat makes great contrast with Huawei's rapid growth. The worse thing is that ZTE's profits had fell from 0. 66 bil- lion RMB in the first half of 2005 to 0. 35 billion RMB in 2006, with a 47% year-over- year decrease. In my opinion, there are many reasons for ZTE' s temporary lag behind in this round of competition, one of which is the backwardness in its supply chain manage- ment. As to this issue, I had made a special report to ZTE' s chairman, Mr. Hou Weigui. I sincerely hope "binary stars in Shenzhen" could bright and glitter forever, not only in China, but also all around the world. The setup of Huawei' s "TURNKEY project management committee" is mainly aimed at solving problems of supply chain management of "Turnkey projects" in the international market, and the purpose is to control subcontractors' costs, improve en- gineering quality and solve problems occurring in logistics, testing, acceptance and in- spection, commissioning, settlement of accounts, etc. Huawei is the main equipment supplier and prime contractor of TURNKEY projects. Thanks to that Huawei's prod- ~ 158 -- 161 of 362 -- ucts just occupy about 30% of contract value; it is unquestionably that an efficient supply chain management system is the guarantee for gaining profits of the whole pro- ject. Because of different efficiencies in supply chain management practices, at the same price level, one may make profit, while another may lose money. Besides, Hua- wei has a larger procurement scale than Z1E, so its raw material costs are relatively low. Therefore, price wars turn out much more destructive for Z1E. For western companies, the result of price competition is much more obvious and efficient, so they suffer from widespread losses, massive layoffs and merger waves follow. But these things don't happen to Huawei, because it successfully achieves the localization of supply chain. 5. 3 The strategy of occupying the rural areas in order to encircle the ur- ban areas The key to Chinese revolution success is that China have found out a right revolu- tionary road, namely, transferring its foothold from cities to rural areas in which home bases are built, then carrying out a long term revolutionary war with farmers as the main fighting force, developing and strengthening revolutionary armies, and fi- nally capturing cities and gaining national victory. Huawei's national market is estab- lished referring to this strategy of taking over towns and villages to encircle cities. The overseas version of Chinese experience Since Huawei's technical force and product strength were very weak at the begin- ning of startup, its founder formulated the strategy of taking over rural areas to encir- cle cities. First of all, Huawei uses subscriber's machine PABX to accumulate experi- ence and strength, then wins out rural exchange bureaus, and upgrades it to C4 net- work in counties and towns, C3 network in prefecture-level cities and occupies C2 net- work in provincial level cities; in the end, it makes efforts to conquest national back- bone network Ct and becomes the main supplier for Chinese nation-level telecommu- nication networks. From its career startup in 1988 to successfully getting into national core networks in 1995, Huawei had gone through a complete long march which lasted for eight years. Although others often hear inspiring news from Huawei and believe it achieves success step by step, Huawei still pays huge painstaking care and makes hardy efforts. In the process of exploiting overseas markets, Huawei also adopts a similar strate- gy. Firstly, it goes into the less developed countries in terms of telecommunication in- dustry development. Since in these countries, the technological entry threshold is rel- atively low with less technical barriers, their requirements for products are also not so strict. After making great breakthroughs in scope in developing countries, Huawei gradually gears up to step forward developed countries. Through ten years of interna- 159 ~ -- 162 of 362 -- tionalization, the strategy of taking over rural areas to encircle cities gains an initial victory in the international market. In 2005, 58% of 46. 97 billion RMB turnovers of Huawei came from the international market. According to the latest news released in 2006, Huawei ranked the first in export volume among China's top 100 electronics en- terprises. Huawei has successfully stepped into European and Japanese markets, now it also has opened the "door" of the American market. It suggests that Huawei not only makes good achievements in markets of developing countries, after ten years of prac- tice and test in these countries, its products, technology, team, service, etc. are gradually getting mature, which makes itself qualified enough to compete with the most developed countries and western giant players. Today, Huawei is no longer the small company as ten years ago in the international telecommunication market; its new emerging force even could drive western giants out of marketplaces. In one sen- tence, Huawei' s success stems from formulating a practical and realistic marketing strategy. The development of technologies determines that we should do the easier things before the harder ones The "easy things come first" strategy is determined by Huawei' s technical level and the current state of products ten years ago; to some extent, we can say it is a nec- essary strategy under extreme conditions. In 1996, except for Huawei's level in SPC switch was proximate to western giants', its other products were not mature and Hua- wei even didn't form its own complete production line. So Huawei had to put a lot of time and energy to solve this problem, given that technological entry threshold is very high in western telecommunication markets. It had to make breakthroughs by choo- sing developing countries that are not difficult to conquer to solve this problem. A saying goes, "The world is so big, when it is dark in the east, it is still bright in the west". When multinational companies in Europe and US eat fat meat in its mar- kets, Huawei could only eat bones in Latin American market. One could go from oth- er side if it is difficult to go directly from the frontal side. In 1996, Huawei began its long and painstaking journey of expanding its international market, with starting points targeted at some third world countries like Africa, the Middle East, Asia-pacif- ic, the Commonwealth of the Independent States (CIS) and Latin America. Huawei have made a serious study about international situation before its journey started: it is impossible to make profits if a country is too poor to pay; the richest ones seem to be giant companies in Europe and US who are too rich to choose Hua- wei's products; only countries who are poor currently but have great potential in fu- turistic economic development are the appropriate targets. ~ 160 -- 163 of 362 -- Keep on persevering and we will get the great achievement at last Although strategic thought is very clear, it is not easy to take into action. Hua- wei's virtue lies in its perseverance and the capacity of "repeatedly fought and lost, always hurt always battling". Since 1996, Huawei had achieved initial success through five years efforts. In 2000, Huawei's products were sold in Africa, the Middle East, Asia-pacific, CIS, Latin America, etc. Its annual turnover exceeded $ 0. 3 billion, and its brand was gradually known by the third world countries. In 1996, I once led my team to Ethiopia for bidding; in 1999, I received instruc- tions of establishing the local department for Huawei in North Africa and acting as the General Manager, working in Africa for many years. It was rather difficult in the beginning of market exploration. At that time, no one learned about Huawei. In their eyes, Chinese companies could just produce cheap clothes and toys which could be seen everywhere. Their worship of western countries and dependence on technologies were much more serious than what we imagined. We spared no efforts to invite gov- ernment officials and service providers' experts to China, and walked along the well- planned "New Silk Road" and actively organized technical report meetings and inter- national exhibition. All these things were used for propagandizing China and Huawei and gaining support from local customers and opening up experimental bureaus freely in the service providers' networks, and doing access tests. The final purpose was to gain network entry license or entry qualification for model selection. Only after basic jobs like these were done in one or two years, could we have the chance to sign big commercial contracts. On one hand, the success of this strategy relies on a company's continuous invest- ments; on the other hand, the strategy-oriented support of its policies is also a neces- sity. In the early days of entering a country, the KPI target that a company assigns to its local office to achieve is mainly the "market" target, rather than the "sales" tar- get. That is to say, only by solving the problem of market entry and establishing mar- ket foundation at the first place can the front-line team avoid behavioral haste for quick success and lay a solid foundation for its subsequent development. When soil is loosened and fertilizer and seeds are prepared well, do you need to worry about the growth of crops? The hard work that Huawei has done in developing countries has fostered and trained an international marketing team. In addition, its products and technologies al- so have gone through a severe test. What Huawei gains is not just big contracts worth several billions USD each year from developing countries, its maturing technology and elite team promote Huawei to make a big step into markets in developed countries as well, and finally achieve its overall strategy of taking over rural areas to encircle cities 161 ~ -- 164 of 362 -- in global market. 5. 4 The strategy of friendly business partnership, as means competition coexists with collaboration In today's world, Chinese government is leading the Chinese people to establish a harmonious China and a harmonious world. Setting up a harmonious competition and cooperation relationship is another new issue that Huawei is facing now. Competition VS collaboration, "profit" owns the saying right In the explanation of Chinese "ice-thawing trip", former US sectary of state Henry Kissinger quoted a motto---"there is no friend forever or enemy forever, only interests forever". As a matter of fact, relationships between countries are composed of both competition and cooperation. To be whose enemy or friend is determined by a country's practical and long-term interests. Besides, it should be different in different times, situations and environments. The relationship between companies, especially those in the same industry, is just like this. To be honest, no matter it is competition or cooperation, both are used to develop and strengthen the power of a company itself for the sake of gaining more in- terests. Huawei had to make strategic cooperation with western giants in its career star- tup, because it was lacking its own independent research and development ability back then. At that time, the main purpose for Huawei's foreign cooperation was to obtain leading technologies and core devices from western giants. Once upon a time, Huawei had established joint laboratories with TI, HP, IBM, MOTOROLA, etc. These labo- ratories guaranteed Huawei to introduce new technologies and devices from western giants and promoted its overall progress in technologies and became its propaganda theme for marketing campaigns. Huawei' s cooperation with foreign companies in the same industry turns into "output of technology" after its independent research and development ability is ma- ture in one area. An example is Huawei' s cooperation with MOTOROLA since 2002. MOTOROLA purchased products and technologies from Huawei by way of OEM, for supplement of production line and lowering the high research and development costs. In the first half of 2006, their cooperation stepped forward: both companies made joint investments to build a joint R&D center. Judging from this phenomenon, we can see both companies indeed tasted pleasant flavor from their mutual strategic coopera- tion, so they expanded their cooperation scope. Of course, this decision was made on the basis of mutual interests. After the establishment of Li Yinan' s Harbor, Huawei set up a special agency named "Dagangban" Can office for cracking down Harbor) to force competitors who ~ 162 -- 165 of 362 -- were born from Huawei. And this kind of work even becomes a "political mission" for Huawei. In June, 2006, the "war" between these two companies was finalized by way of strategic cooperation: Harbor's production line and core team were acquired by Huawei. Then Li Yinan went back to Huawei, working as Huawei' s CTO again. Whether to compete or to cooperate? Well, the choice still depends on the core inter- ests of shareholders of both companies. As is known to us, Huawei has a deadly competitor in the international market, and that is Z'IE. The two companies are honored as "binary stars in Shenzhen". You can see their rage competitions against each other in both domestic and international markets. Interactions between them were more of competition, even cutthroat com- petition. Despite this, they still had the moment for cooperation, for example, they ever called on the state government to draw up more industry supportive policies, "en- large scope and lower threshold" of export credit. They also took concerted actions to strive for state's clear up for wireless video segment with 450M and approval for CD- MA450 project. Moreover, cooperating with telecommunication enterprises home and abroad such as Datang, Putian group, they established the TD-SCDMA industry alli- ance, with 3G standards of Chinese intellectual property right, to promote the minis- try of information industry to issue 3G license as early as possible. All of them are countable but important cooperations between Huawei and Z'IE. The only factor that determines their cooperation is still their common interests in marketplace. Cooperation couldn't be replaced by competition; it is still decided by mutual in- terests. After state's ratification of the "plate of export credit", Huawei and Z'IE have to spare no efforts to compete with each other for occupying more market shares. If the ministry of information industry really opens CDMA450M, they will compete fiercely in the domestic market, just like in the international market. In fact, both of them are member enterprises of TD industry alliance, but their market shares are decided by market competition. As a result, even though Chinese 3G hasn' tissue license officially, ID's commercial test war is already very fierce. If there really comes one day that Huawei purchases Z'IE' s shares, you just won't feel surprised. This form of strategic cooperation is just a means for competi- tion; after all, takeover by the opponent is a necessary result of business competition, widely seen worldwide. Keep a friendly ecological chain to pursue interaction of competition and cooperation Huawei' s rapid and powerful rise in domestic and international market, strong position it owns in the industry chain and predominant status in ecological system of the whole industry lead to western giants' rapid recession, even bankruptcy, merger and layoffs. Furthermore, they also result in relative disadvantages, even extinction 163 ~ -- 166 of 362 -- of domestic competitors, such as Great Dragon Telecommunication. The competitive strategy that Huawei applies to Z1E and Harbor leaves a deep impression on players in the same industry. Besides, the "forbidden to work for the same industry after re- signing" clause used for pioneering and resigned executives, the more strict restriction for their career choice cause a negative effect in external world and among its employ- ees. As far as I am concerned, Huawei should set the pursuit of a harmonious ecologi- cal environment as its main target in the process of mutual competition and coopera- tion, which not only meets the requirements of business ethics, but also conforms to Huawei's best wish for long-term interests. If one day that Huawei is surrounded by competitors full of hatred and enmity, then the day of Huawei' s victory will be its time for its downturn. In 2006, Huawei changed its logo, aiming at purposefully transmitting an appeal for constructing a harmonious working environment to the outside world. But this is far from enough: cooperation needs to be developed in a harmonious environment, and game rules also should be obeyed in the competition that also requires a harmoni- ous environment. All in all, competition should be benign, legal and reasonable. The behavior that sacrifices employees' employment rights for interests of an en- terprise is not only harmful for Huawei' s world famous corporate image, but also leads to its professional managers and people who make great contributions to Huawei begin to hate the company. Talent flow is a normal phenomenon in market economy; it is also a positive factor to promote the development of economy and industry. Hua- wei doesn't have the right to block the free flow of its resigned employees and restric- ting their future development, or else, similar cases like Liu Ping's standing out for a fight with the company will come sooner or later. "Harmony-the most precious" is the highest pursuit in dealing with interactions between competition and cooperation, just like the case that Huawei purchased Harbor. In today's world, the Chinese government calls on Chinese people to establish a harmonious China and a harmonious world. Setting up a harmonious competition and cooperation relationship is another new issue that Huawei faces as well as Z1E does. If Huawei and Z1E could rapidly and suitably deal with this issue, the day they truly rule the world will not be too far away. We sincerely hope this day will come as early as possible. Competitions boost collaborations while collaborations eradicate vicious competitions We have mentioned before, in order to highlight core competence, western gi- ants continuously decrease their production lines and cut R&D costs. The serious con- sequence of doing so is that production line is no longer complete, and it must be im- proved through strategic cooperation with other players. This is the direct reason for ~ 164 -- 167 of 362 -- large-scale strategic cooperations between western giants and Huawei. In this regard, we can say competition promotes benign cooperation. MOTOROLA is a company which is mainly engaged in wireless telecommunica- tion business. Since it didn't have the ability to win out in the labor cost competition in the Chinese market, it had to give up the 3G research and development work, and slashed its relevant business departments and teams. It had to choose strategic cooper- ation under the new condition that it didn't have competitive advantages to develop all by itself. Then Huawei became the most desirable company to cooperate with. In 2002, both sides began their OEM strategic cooperation. In the process of joint devel- opment, according to MOTOROLA's own development route and its whole strategic vision of 3G, it made specific requests for Huawei which not only could export more products through MOTOROLA's sales channels, and shared a huge amount of costs in 3G development with MOTOROLA; it also improved its technical level through inter- actions in research and development and reached international standards. Of course, this process was very precious for Huawei, because it was the one that money couldn' t buy. In 2006, the two companies established a joint R&D center. Lucent and Alcatel had been rivals in the world telecommunication market for a long time. Since they were under the same great pressure from emerging manufactur- ers, they had to join hands to face new harsh market conditions. They made a signifi- cant decision to merge into one corporation in 2006. In order to put this decision into action, they had to confront with obstructions from American and French laws, be- sides, they also had to meet the challenge from Lucent that had a burden of a huge sum of pensions which was as high as $ 5 billion, and nevertheless, the merger was just inevitable. Likewise, Ericsson took over British famous communication manufac- turer-Marconi Company in 2005 in the same manner; Nokia purchased Siemens in 2006, and there was a wave of merger and restructuring in the telecommunication in- dustry in the whole world. Motorola' s choice of forming an official alliance with Huawei and their establishment of a joint R&D center was a tactic response. Competi- tion can promote cooperation as well as eradicate vicious competition. The competition between Huawei and ZTE is a life-and-death struggle. No one could make sure whether their competition will end up with merger or buyout. In my opinion, the end of this unusual desperate commercial war would turn out to be astra- tegic cooperation. That is to say, either to share with each other, or one will be pur- chased by the other. In light of the current state, it would be likely that Huawei would purchase ZTE because the latter is a listed enterprise both in mainland China and Hong Kong, anyone can purchase it as long as he has enough money. In fact, Huawei has the financial strength to do so. 165 ~ -- 168 of 362 -- 5. 5 The Silk Road, the nationwide marketing Huawei has drawn up a "New Silk Road" plan that is, inviting a lot of foreign government officials and experts from the telecommunication sector to visit China. When Huawei and ZTE "walk out" to exploit the international market ten years ago, difficulties they met were unimaginable for today's new-generation international marketers. At that time, China was not as strong as it is today, and the telecommuni- cation industry was also not as developed as now. The image of China leaving on most countries in the world stayed at the period before Chinese reform and opening-up. There was not any brand fame of Huawei and ZTE in the international world at that time, let alone their influences to the world. Besides, in many countries, "Made in China" was a representative of cheap price and inferior quality. How to make yourself known by "Vajpayees" indeed? People who had been to India ten years ago knew that India had a population nearly as large as that of China. The country was still proud to say it was the largest democracy in the world while its GDP was even less than half of that of China. You could see slums anywhere in India; there was almost no infrastructure in this country but "holy cows" ran along its streets. It was the twisted and overly democratic system that created such an India central government, which was relatively weak, controlled by parliament and incapable to make efficient decisions and implement national con- struction initiatives. No one even asked about infrastructure projects which were gov- ernments' duty to construct. At that time, India just built half an expressway. It was not until 2002 when I had another visit to India that they finished the rest half. In ad- dition, there was no subway; not enough power-every company had to prepare their own diesel engine generators. In India's most developed New Delphi and Mumbai, there were many slums made of thatch and plastic cloth and no one single decent as- phalt road existed. This kind of country still dared to look down upon China! When former Indian Prime Minister Vajpayee published his campaign speech in India's largest industrial city-Mumbai, he used words below to inspire his fellow citizens: "Compatriots, please struggle hard! Or else, China's Shanghai would keep up with our Mumbai in 20 years." Don't laugh at Vajpayee and consider him as a shortsighted person. He was not an ignorant person, instead, he could be considered as one of well-informed polit- ical elites in India. Since he didn't learn about China in the 1990s but even had a prej- udiced attitude toward China, how could you wish ordinary Indian people to know China's wellbeing? Maybe this was just a joke, but it reflected India's indifference to China in the 1990s. You could imagine the difficulties to sell Chinese high-tech prod- ucts in such a country. ~ 166 -- 169 of 362 -- The Ethiopians who are "too poor to wear pants'' may not trust you, either I had once worked in Ethiopia for three months in 1996. Ethiopia was a country which was much poorer than India; it was never too much to describe it as " beggary". This country's economy was completely destroyed by many years of wars and civil tur- bulences. Many people even did not wear clothes. The whole country was living on in- ternational assistance; China was one of these countries that provided aid to Ethiopia. So there were many cheap Chinese clothes and daily goods, all of which were low-end products worth three or four dollars in the Ethiopian market. It was difficult for local people to buy medium and high-end brand products. Therefore, Chinese products left the local people an impression that all of them were cheap and of low quality. Most officials and experts in Ethiopian Telecommunication Administration Bu- reau were students who studied and graduated from American or British universities, at first, they hardly believed that China could make such great achievements in high- tech areas. They insisted that our products adopt introduced technology by organizing joint ventures with western companies. Hence, they announced directly: they would rather directly buy western products than purchase made-in-China. It was not until we invited senior delegations from this bureau to visit China for an on-the-spot investiga- tion that they changed their mind definitely. They not only changed their attitude to- wards Chinese products; their views about the whole contemporary technological strength of China were also totally altered. Author and Huawei's Vice President Yan Weimin (the first person from the right side) in Africa Even "the hero of anti-America" Saddam has a blind worship of western technologies In 1998, Iraq was under the rule of the former president Saddam, besides, it was under sanctions and economic blockades imposed by western countries, with the US as their head. The country, ever rich in oil in the world, had gone through ten years of wars and hardships. Poverty, starvation, unemployment, out of school, even air at- tack tormented Iraq people day and night Depending on troops and military police, Saddam's government used the severest repressive policies in the world to keep a firm hand on the country and its people. The government tried its best to propagandize and encourage the anti-American and anti-western mass movements. However, Huawei' s marketers were surprised to find that, in this country, in this special period, the fa- vorite film that Iraq people loved to see was still from Hollywood, the currency they loved most was also the US dollar. Maybe they just furiously participated in anti-A- merican demonstrations, but once they went back to bomb shelters; they had to kill the dull, needy and boring time by watching American movies. Iraq people had complex emotions towards America, with both love and hatred. 167 ~ -- 170 of 362 -- But spontaneous massive movements like that Chinese people boycotted Japanese goods for Japan's invasion of China never occurred in Iraq. On the contrary, the most painful thing they felt was that they had no access to western products under se- vere economic sanctions from western countries. Their worship of western technology was deeply rooted in their hearts, so it was a tough matter for their experts to trust Chinese high technology products. Brazil with few self- technologies also views you with a skeptical eye In 1997, Brazil's GDP per capita had reached $5000, while China just had one tenth of Brazil's at that time. However, Brazil didn't have its own national industrial system. To encourage Foreign Direct Investment (FDI) , Brazil gave foreign investors national treatment. In this way, investments from multinationals almost monopolized all industrial sectors in Brazil. The Federation of Telecommunications Industry in Brazil was totally consisted of local subsidiaries set up by multinational corporations. Brazil had undergone economic boom and continuous development from the 1970s to 1980s. But after reaching "Latin American Bottleneck'', it couldn't move forward an- ymore and went through a stagflation period of twenty years with "low growth accom- panied with high inflation". On the contrary, the industry policies of Chinese government protected and de- veloped its national industries as well, especially that some national industrial prides that owned proprietary intellectual property rights like Huawei and ZTE had grown up. However, Brazilians knew nothing about the road that Chinese high-tech indus- tries went through and the achievements they had made. They were even dubious of technology seminars that Huawei held in Brazil. Therefore, Huawei invited Brazilian telecommunication experts to China for on-the-spot investigation and observation. Without doing such things, it would be rather difficult for Huawei to explore the Bra- zilian market. The "New Silk Road " opens a window to the world to understand China who is develo- ping triumphantly at a rapid speed The bitter experience that Huawei' s marketing teams encountered around the world made Huawei realize that if you want to sell your products, you must let the world learn about the overall development of Chinese high-tech industry; if you hope the world to trust Chinese high-tech products, you must let them learn about Chinese rapid development in the process of reform and opening-up; if you wish to build Hua- wei' s brand, you must build the brand of China in the first place. Therefore, Huawei has drawn up a "New silk road" plan, inviting a lot of foreign government telecom of- ficials and experts to visit China. At first, Huawei invited them to visit Chinese cities, such as Shanghai, Beijing, ~ 168 -- 171 of 362 -- Xi'an, Dalian and Shenzhen. The guests would surprisingly find that, the degree of modernization in these cities were rare all over the world. After that, Huawei showed them our Chinese landline phones and mobile phones; they would find that the speech quality and universality rate of these phones are close to the advanced world levels af- ter they used them. Then, they were arranged to take a look at Huawei's telecommu- nication equipments used in China Telecom and China Mobile's machine rooms. Serv- ice providers would tell them Huawei was the largest telecom equipments supplier in China. Finally, these officials and experts would be invited to go to the head office of Huawei in Shenzhen and visit its modern workshops and scientific research bases which were as good as those of western companies in the same industry. Huawei's founding teams of overseas markets all admit that the "New Silk Road" have played an important role in the exploitation of the international market. Al- though Huawei has already firmly built its own brand today, the "New Silk Road" still plays an irreplaceable role. To some extent, 10 billion RMB that was invested in "Bantian base" was spent for this "New Silk Road" campaign. Unquestionably, it made the campaign valuable and appealing. When western customers or cooperative partners came to this luxury head office for a business negotiation, would they still look down upon Huawei? Author (the fourth person from the right side) receives customers in Huawei' s exhibition hall 5. 6 "Outputting revolution and communizing the whole world" After seeing this title, you may ask, why do you use a slogan initiated in the Great Cultural Revolution period? Actually, what I want to say is that Huawei' s in- ternationalization is duplicating successful experience from the Chinese market tooth- er countries around the world. Huawei was born in the Chinese market as well as grew up here, so it was an in- digenous "Chinese kid" who ate Chinese rice and read Chinese books. In the last 20 years, the rapid development of Chinese economy and the unique advantages of China telecommunication market fostered Huawei, which developed from an infant to an a- dult, weak to strong, and learned to "ride on the wind" in cruel market practices. The most important thing was that China telecommunication market was already a fully opened international market before Huawei's born, at that time, what China's tele- com networks had used were western equipments which were known as "seven coun- tries, eight models". So Huawei, "eating Chinese rice, reading Chinese books", at- tended the same class with foreign "top students" as soon as it went to school. It had fully understood the fierce competition with western giants without stepping out of the country. Doing market development in China was rightly "snatching food from the 169 ~ -- 172 of 362 -- jaws of a tiger" from western powers, and improving the market share of "made in China" brand equipments from zero to No. 1. Actually, everyone knows that the Chi- nese market is the largest international market in the world. Competition with western powers in China-an international market, enables Huawei to cultivate the ability of going out to participate in international competition at the very start. The successful experience that were accumulated in the Chinese mar- ket must be a valuable reference in overseas market; the marketing strategy formula- ted in the Chinese market must be useful in overseas market; the effective flow and framework in the Chinese market must be a reference for the establishment of a global marketing system; the talent teams forged and fostered in the Chinese market must be the one--"call to come, come to fight, fight to win" in foreign countries; and the technologies withstanding many trials in the Chinese market must gain popularity in other countries. Stones from other hills may serve to polish jade There is a domestic listed company which is an automaker engaged in passenger car production. In early July, 2006, the chairman of this company consulted me about how to explore the international market. I told him the international market was not so mysterious, and you just need to copy your successful experience in the Chinese market to the foreign countries according to their practical local conditions. In the be- ginning, he could hardly believe what I said; then I asked him, "Are you successful in the domestic market?" His answer was that the domestic market share of its products ranked the third in the business sector, it turned out an annual turnover of 10 billion RMB, with a 25% annual growth rate, but considering the domestic market was near- ly close to its full capacity, they were ready to "go out" to explore the international market. I asked, "You must have gained many experience in domestic business opera- tions?" He said, "It is close to perfect, so there is not much potential for further growth in the home country." "Who are you mainly competing with in the Chinese market?" I asked again. He answered, "All of them are foreign brands of Sino-for- eign joint ventures or imported luxury cars." Then I told him, the competition in the Chinese market was true international competition. Besides, China was the second largest international auto market in the world, which was totally controlled by joint ventures and full of imported cars, since you were able to stand out in the market seg- mentation, you also could create a new world in the international market once you "go out". Your successful experience in the domestic market, such as product positioning, market segmentation, targeted customers, pricing strategy, marketing strategy, chan- nel strategy, promotion means could all be considered as applicable references. Of ~ 170 -- 173 of 362 -- course, the "copy" was not the simple inflexible follow-up; you just need to "combine the universal truth of Marxism with the concrete practice of local revolution". In the end, this chairman believed my words and was ready to adopt my sugges- tion, after he listened to my introduction of Huawei's successful experience, especial- ly the several true cases stated below. The marketing tactics at home are also useful in the overseas market "Made in China" telecommunication equipments had undergone a hard process, growing out of nothing, from small to big. Each "ground" was taken back from the hands of western powers. While once they entered a new country, it seemed that they went back to the very beginning and everything had to be started from scratch. You don't need to feel overly pessimistic. We had owned successful experience accumula- ted from the domestic market and gained technologies and products that almost could compete with those western giants. We were all engaged in the familiar telecommuni- cation industry and facing nearly the same customer groups. Maybe their developmen- tal situations were similar with ours back to ten years before. Therefore, you could borrow ideas from successful experience in the Chinese market, especially the market- ing strategy, such as "taking over rural areas to encircle cities", "establish military home bases", "unified frontline strategy", and "ISC strategy''. Huawei just did such things that helped it achieve good operation effects and market performance. The process and frame tempered at home create the global marketing system The company process systems (including IPD and ISC) of Huawei were tailored by IBM in the process of Huawei' s large scale international exploration in 2000 to 2002. And the necessity of Huawei' s internationalized operation was already fully taken into consideration. In 2005, Huawei' s revenues from the international market surpassed the incomes generated in the domestic market for the first time in the histo- ry of Huawei. The Chinese market became the 9th Regional Department of Huawei af- ter the establishment of eight overseas Regional Departments, and Huawei turned out to be a true multinational corporate which was operating in the whole world. It was not until that time did IPD and ISC flows truly fulfill their potentials. Huawei' s eight overseas Regional Departments were established completely ac- cording to the former "District" organizational system established in the domestic market: each overseas Regional Department took charge of its several neighboring countries. There was no difference between the international market system and the domestic counterpart, all of which did share work based on the "customer line" and the "product line". The "customer line" was in charge by representative offices and took on the development and maintenance of market relationships and channels. It was the principal for "sales" and belonged to the "block" model. The "product line" 171 ~ -- 174 of 362 -- was responsible for product promotion and marketing, taking "marketing" tasks and belonging to the "strip" model. The decision-making power and capital scheduling right of a company in the overseas market were centralized in the chairmen of each Regional Department, just the same as the "District" system in early periods in the domestic market. We could find out models or prototypes of administrative regula- tions, organizational framework and job titles in early periods in the domestic market system, too. They made some adjustments to overcome the problem of "unaccustomed to a new environment" according to local specific situations, for example, establishing TURNKEY departments and relevant processes, obeying foreign laws, and employing local workers. The team trained in the Chinese market is also invincible when it works in the overseas market When Huawei began to exploit the international market ten years ago, it had no international talents and experience in market exploration. At that time, Huawei was just a pure "domestic" company that had not dealt with any export business, what it could do was absorbing talents from society. Facts had shown that Huawei's decisions and actions were right. Thanks to this group of talents, Huawei established its origi- nal overseas market system, finished the work of "horse race to encircle the ground" and "opening of new territories", setting up representative offices ("military home bases") in fifty main countries in the world, opened the "experimental bureau", gained the network access license, solved Huawei's market entry problem in the glob- al market, achieved Huawei's large-scale sales of products in parts of overseas mar- kets, and exploited the global markets. The most important thing was that this foun- ding team of overseas market had fostered a large number of overseas marketing tal- ents. Enterprises would pay high costs to introduce senior talents, so companies should foster their own talents. Huawei had organized a large group of overseas marketers who were rich in practical experience to write large numbers of successful cases that succeeded in the overseas market. Different departments also compiled training cour- ses for exploiting the international market, organized supervisors or experts to teach lessons to selected excellent backbones in the domestic market. In this way, domestic talents were transported to the international market continuously. Maybe their spoken English was not so good, but they were famous university graduates who had received undergraduate education or postgraduate education, so it would be easy for them to make breakthroughs in language once they took it into practice. Because they had gained rich technical knowledge of products and market development ability, their market senses were relatively good and they also possessed great potentials. Generally ~ 172 -- 175 of 362 -- speaking, their performance in the overseas market was quite good. Having gained benefits, Huawei's boss began to drive a group of its senior super- visors from domestic market to go abroad; these people were elites in the domestic market, among them were executive Vice Presidents, Senior Vice Presidents, Chief Inspectors and office directors. They worked as Presidents, Vice Presidents, Chief Inspectors and representatives of representative offices in Regional departments. In fact, they were good at turning cultivated grounds that forefathers had opened up into "high yield fields", and gained an overall harvest, because they had already accumula- ted successful experience for turning incomes from one billion RMB to ten billion. Be- sides, Huawei's founding team had already solved the problem of market entry before entering the international market; plus, the mature marketing system also laid a good market basis for Huawei. These senior supervisors would not meet so many difficulties and troubles as those the founding team had encountered; they didn't need to worry about the future or di- vert their attention away, so they could put all their energy into exploiting markets and reaped high-yield "crops" in the fertile fields that the founding team had exploi- ted. Products which have undergone the business wars at home can "take cities and seize territories" overseas China telecommunication market has already developed to be the largest telecom- munication market in the world. According to statistics from the Ministry of Informa- tion Industry, at present, the number of mobile phone users in China is around 0. 5 billion and PSTN fixed mobile phone users reach 0. 4 billion. China has already sur- passed the United States and become the genuine world No.1. The number of Chinese Internet users had reached 0. 129 billion by June 30th, 2006 and ranked the second place worldwide, just lagging behind the United States. China owns one of world' s three international standards of mobile communications, that is, TD-SCDMA Just Huawei alone has about 14,000 patent applications in telecommunication technology around the globe. The big Chinese market fosters Huawei. Its first knock-out product is the C&C08 switch; without this product, Huawei would not become what it is today. The first main product for Huawei's entering overseas markets is also the C&C08 switch. After Chinese national enterprises have made thorough breakthroughs in digital SPC switch, western giants lose their monopoly positions and cost advantages, and they quit devel- opment and manufacturing in this area one after another, so Huawei quickly gains greater space for development in the international market. So far, the c&c08 switch has turned out over $ 1 billion annual revenues in international sales, and it is still one 173 ~ -- 176 of 362 -- of Huawei' s main products in the global market and rolls out a new higher version for soft switch and NGN technology. Huawei' s optical network transmission products, including SDH and DWDM, were introduced into the international market after winning sensational successes in the domestic market. By far, optical network transmission products have occupied the largest market share in the Asia-pacific market, and they have made a contribution of 25% to Huawei's turnover in the international market. The experience of selling telecommunication products which occupies 50% of Huawei' s overseas total sales also come from the success of the domestic market. Without successful experience of developing ETS-450 product with FDMA technology in 1996, it is impossible for Huawei to own the whole wireless product line today; without Huawei' s successful development of GSM in the domestic market in 1998, it is unlikely for Huawei to develop three 3G standards; without the large scale commer- cial use of Pre-paid that WIN pushes out in China Mobile, it is impossible for Huawei to sign the WIN program contract in the Thai market. A more crucial point is that Huawei's products earn a good return in the Chinese market, and Huawei gets most of its costs covered. As a result, Huawei' s products can join in the competition without any concern, and they could become more com- petitive in the international market arena. ZTE follows suit ZTE's performance in the global market obviously lags behind Huawei-"the big brother". Maybe there are many reasons for its sluggish performance; one main fac- tor should be that ZTE fails to apply its successful experience gained the home country to the international market. When I was Huawei' s General Manager of its North Africa Regional Depart- ment, I met the third secretary of the commercial counselor's office in Chinese Em- bassy in Algeria, whose surname was D. He was a senior cadre's child who just gradu- ated from university. He was very kind and provided many work conveniences and help for Huawei's representative offices. In a short while, we became good friends. The surprising thing was that half a year later (in early 2000), ZTE wished to hireD as its chief representative in Algeria. Although D and I were good friends and we had set up a good friendship, I had to doubt ZTE's overseas talent strategy. D was very smart and ambitious; in addition, his French was also excellent, but he was just grad- uated from university for a short time, so he had no practical experience in telecom- munication products and technology, and he never did marketing work before. In fact, if a listed company gave D the power to take charge of partial markets, it not only irresponsible for the company, but also no good for young people to start their ~ 174 -- 177 of 362 -- careers, such as D. When D told me this piece of "good news'', I really appreciated his trust in me (After his took office, we began fierce competition in the Algerian market) , and I told him directly that he was not suitable for this position. But D didn't follow my advice; he gave up his current "golden bowl"- the civil servant in the Ministry of Foreign Affairs without any hesitance and cheerfully went to work in ZTE. One year later, I went back to China. One day, I received an international phone call from D; he told me that he lost his job and he hoped to find a job in Huawei. But it was too late for me to ask the reason why he left office; I just thought D didn't per- form welL In general, representatives in Huawei' s overseas representative offices were talents who had undergone a lot of hardships, it was impossible for "new students" likeD to deal with all issues easily. To my regret, I didn't realize his wish of working for Huawei when he met difficulties in his career life. When I sent D's re- sume to Huawei's marketing department, its leader told me that it was rarely possible forD to work as Huawei's chief representative, even if he could accept to be a sales- man, he still need to receive training for three months. Later, I had been to other countries for a long time, I lost contact with D, so I didn't know anything about him. I hope he could draw some lessons from this frustrating story, and I wish he has al- ready grown to be a true professional manager now. Seen from another point of view, to some extent, he was a victim of erroneous human resource policy. I heard that, there were many marketing supervisors and cadres, who used to work in the Foreign Ministry and Ministry of Foreign Trade and Economic Coopera- tion, were employed like D by ZTE. There were also international trade talents in other industries lured by ZTE. This was the way that ZTE formed its own backbone force in overseas markets. Because of their lack of technical, product knowledge and practical experience in the telecommunication industry, it was not easy for them to do international business in this high-tech sector. As to this issue, Huawei did in an abso- lutely different way which came in sharp contrast with ZTE. After experiencing a sharp drop of profits in 2005 and the first quarter of 2006, ZTE had to reassess and review its policies, and start to study Huawei's more applica- ble experience: How to put resources and decision - making rights into the interna- tional market as Huawei did? How to follow Huawei' s steps of driving backbones from the domestic market to overseas markets to finish important missions and copy Huawei's successful experience in the domestic market? On July 15th, 2006, a media made a relevant report about ZTE' s new marketing measures, quoted as below: "Before July 8th , 2006, ZTE' s sales system was divided into five camps : the first, 175 ~ -- 178 of 362 -- fourth and fifth camps are subordinate to the overseas sales system. The first camp took charge of markets in Southeast Asia, Middle East and Russia, the fourth camp was responsible for markets in South Asia, Pakistan, Eastern & Western Europe, and the fifth camp was in charge of markets in South & North America and Africa. While the second and third camps are subordinate to the domestic marketing system, the sec- ond camp was aimed at China Telecom, China Railcom and Private Network (rail- way, electric power and army private network) , and the third camp is aimed at China Unicorn, China Mobile and China Netcom." In July 8th, 2006, ZTE announced in a market system meeting held in a training base, which was located in Da Meisha, Shenzhen, that: "After the merger of the sec- ond and third camps, each sales district should surplus out a cadre at the manager lev- el, who would be transferred to the overseas market." ZTE's officials showed that an important consideration for the merger of the second and third camps that the compa- ny would try its best to exploit overseas markets. 5. 7 It is more important to "choke" domestic counterparts than defeating foreign companies "Cutting the throats" of domestic rivals is much more significant than defeating foreigners in the mind of Huawei's management. Although this word doesn't show in a written form, it is indeed a principle that Huawei's marketing supervisors at all dif- ferent levels are aware of. Huawei consortiwns with ZTE? Does anyone believe it? In July, 2006, Chen Jinqiao, a Deputy Chief Engineer of telecommunications re- search institute in China's Ministry of Information Industry, and Deng Zhicheng, a Chief Consultant of BYNA Telecom Consulting Company, presented at a program made by Sina and suggested that Huawei and ZTE form a consortium. In fact, it was just the best wishes of experts who barely knew about a slice of the practical situation. Deng Zhicheng heard words from Huawei people: "If there is just Huawei in the globe, we would feel lonely; but if ZTE joins us, we could at least have dinner togeth- er when we have time." We didn't know who said these words, actually, there was no need to know where the saying came from and whether it was true or not. What we were sure was that this was just a strategy for Huawei's external propaganda. In reality, experts' suggestion was difficult to put into action. The main reason was that there were more homogeneities than complementarities between Huawei and ZTE. Besides, over ten years of fierce competition between the two made a lot of mu- tual grievances and hatred. Therefore, it was impossible for them to go ahead to the "gentlemen's cooperation" unless Huawei was willing to purchase ZTE and made ZTE become a subsidiary under its control. ~ 176 -- 179 of 362 -- Huawei has been pursuing a "harmonious relationship", unfortunately, it is not a- daptable to ZTE Strict disciplines always exist in Huawei. Firstly, verbal attacks or insults to com- petitors are not allowed, especially to the direct "enemy" like ZTE, in case of media hype, which may cause unnecessary disputes and then undermine corporate image. Secondly, employees in Huawei should call their competitors "friendly businessmen" instead of "competitors"; when meeting them, they should be polite and show Hua- wei's "gentleman" image of a big company. This discipline was not only used to treat with outsiders; it is also applicable for insiders. And it had been used for six years. In June, 2006, Huawei changed its logo which had been used for over ten years. The new logo had undergone a series of changes on the basis of its former "Red Sun"; an obvious change was that harmony was put into the core place. Below is a statement about the new logo, coming from Huawei's official website (http://www. huawei. com). "Some light and shadow elements are added to the new logo, which keeps overall symmetry at the same time. So it looks much more harmonious. This indicates that Huawei will persist in seeking cooperation, constructing harmonious business environ- ment and realizing its own healthy development." "Harmony" and "cooperation" become the real goal that Huawei pursues today. Maybe Huawei is merely responding to the state government's call to build a harmoni- ous society, or wishing to calm down the dissatisfaction of Huawei' s strong position from its competitors. Anyhow, for different competitors, the meaning of this goal has different interpretations. For western competitors, Huawei's words are sincerely coming from its deep heart and Huawei has already conducted strategic cooperations with them for many years. You may ask, why Huawei sincerely hope to cooperate with foreigners? The answer is that the cooperation between them is in essence output of technologies and products. Thanks to the big difference in labor costs, of which Huawei is just one eighth of that of U.S and European companies (it is much more ex- pensive for U.S and European companies to conduct research and development than the OEM-Huawei), therefore, Huawei considers these cooperative partners of stra- tegic cooperation as "friendly businessmen". On the other side, competition between Huawei and U.S and European global gi- ants is differentiated. Huawei' s advantage lies on medium and low-end products, while multinationals depend on high-end products; Huawei' s marketing advantages are mainly centralized in developing countries, while multinationals' are in developed countries; Huawei's production lines are comprehensive, which covers all main sec- tors of the telecommunication industry, ranging from wired PS1N to wireless GSM, CDMA, GPRS, PHS; from 2G to 3G, including the current three 3G standards in the 177 ~ -- 180 of 362 -- world (WCDMA, CDMA2000, ID-SCDMA), the latest soft switching and NGN, da- ta communication and optical network products. By contrast, western competitors continuously cut or sell their production lines because of years of performance decline or even losses. To provide complete technical solutions for markets, western competi- tors have to improve production lines by cooperation with OEMs like Huawei. From their cooperation, Huawei not only gains profits, market shares and decreases its ex- clusive investment in new products research and development; owing to the involve- ments of western giants which make Huawei's road map and technical solutions much more rational and closer to western thoughts, it also obviously improves technical su- periority and technological contents of Huawei' s products. For this kind of beneficial cooperation, it is impossible for Huawei not to actively participate in. Huawei bene- fits a lot from several years of strategic cooperation of this sort. It is estimated that Huawei has sold many products worth $ 1 billion to $ 1. 5 billion through strategic co- operation with western giants, including Huawei's 3COM. The ferocious battle between Huawei and ZTE results from lack of complementation Huawei's attitude toward ZTE, a company also located in Shenzhen, is totally different. Although ZTE also belongs to the so-called "friendly businessmen", inside Huawei, ZTE is "the first enemy" in business sense. "Cutting the throats" of domestic rivals is much more significant than defeating foreigners in the mind of Huawei' s management. Although this word doesn't show in a written form, it is indeed a prin- ciple that Huawei' s marketing supervisors at all different levels are aware of. Their competition can't be called "brother-against-brother", but you also couldn't find out a true reason for being true "friendly businessmen''. In March, 2006, I met Chairman Hou Weigui in ZTE's office building located in Shenzhen Science and Technology Park. When we talked about the "friendly business- men" strategy, Hou sighed, "There was rarely cooperation between Huawei and ZTE. Only when we strive for national policies on behalf of our industry, did we get united together. For example, we once had a good cooperation on the state's export tax rebate policy for the telecommunication industry. " Why there is only competition instead of cooperation between Huawei and ZTE? The reason is that there are too many similarities instead of complementarities be- tween them. They are both Chinese enterprises and all located in Shenzhen, and are nearly equipped with the same strengths and weaknesses of Chinese enterprises; the two nearly have the same development history. Some people even think that ZTE' s development route and production line follow up Huawei closely. Because Huawei is always in the leadership status in the domestic market, so Z1E adopts a "follow-up" strategy- following Huawei closely. It not only doesn't allow Huawei to cast off, but ~ 178 -- 181 of 362 -- also is ready to surpass Huawei at any time. We can see, "leader" wants to gain exces- sive profits through "window of opportunity", but it may fail because of choosing a ''wrong way" or a "wrong pace", so their "follower" could have the chance to surpass it. It's easy to understand that leader wants to wipe out "follower". As a result, from switch "war" to access network, SDH to DWDM, GSM to CDMA, 2G to 3G, PSTN to soft switching NGN, from China to overseas, the two "dead enemies" are fighting with each other all the time. The most unbearable thing for Huawei is to lose orders to ZTE Huawei's assessment of marketing performance is very strict. It not only checks sales volume (the "absolute value"), but also checks the growth rate (the "longitudi- nal relative value"); the market share (the "horizontal relative value") is also the one that must be examined. It is not called good performance if you just have large sales, Huawei will also scrutinize your growth rate, and even market shares. Especially, it requires that there is no increase for ZTE in the same market, better nothing at all. My friend, a country's chief representative for Huawei' s Asia-pacific Depart- ment, had experienced one thing, which was seen as a typical case for Huawei. In 2004. he made great breakthroughs in the market under his responsibility; the sales volume nearly reached $ 1 billion. However, Huawei heard that ZTE also won a con- tract, although the contract value was much smaller than Huawei' s, my friend was transferred from his position in this country as a "punishment", because he failed to finish the task of "cutting the throats" of the diehard competitor. If this contract was not signed by ZTE, but any western competitor, the situation would be totally different. because previously market belonged to western corpora- tions; Huawei came just for "grabbing" contracts. The government resource is viewed as one focus for which both Huawei and ZTE fight against each other When I was working as the General Manager of Huawei's North Africa Regional Department in Algeria, I never hesitated for a moment when competing with ZTE. We set up a good work partnership with the embassy, commercial counselor's office and military attache's office in Algeria. We proposed that the Algerian market was small; it couldn't bear vicious competition between many companies, so we suggested the Foreign Ministry and Ministry of Foreign Trade and Economic Cooperation make some coordination. We argued strongly with them on justified grounds, and at last, we won their support. At the same time, we did a good job in this country's adminis- trative departments and customers through our agents. In this way, Huawei had suc- cessfully stopped ZTE outside this market for several years. But ZTE didn't give up easily. In Tunisia, it did as what Huawei had done: by 179 ~ -- 182 of 362 -- convincing the relevant departments of Chinese government, Huawei was temporarily excluded from the list of companies that were supported by Chinese government to en- ter Tunisian market. The electromechanical chamber of commerce, which was re- sponsible for coordination, was an administrative coordination agency setting up ac- cording to spirits of the Foreign Ministry and Ministry of Foreign Trade and Economic Cooperation, for avoiding vicious competition of domestic counterparts in foreign markets. But to the chamber's surprise, this process of coordination became a tool for vicious competition between Huawei and ZTE. In my opinion, the final decision should be made by market. Enterprises would not accept and obey this kind of admin- istrative order originated from the old planned economy. Instead, it would turn out to be a tool for vicious competition. Huawei forbids the employees who resign from it to join ZTE Huawei keeps a lookout upon ZTE in many sides. The clause of "forbidden to work for competitors in the same industry after resigning" is one that mainly aimed at ZTE. Each employee who wants to resign must sign a severance agreement "voluntari- ly" before his leaves the company. The severance agreement is a standard form of contract, employees merely have the right to sign it or not, they don't have the right to discuss about its clauses. The agreement is printed by Huawei's powerful "Depart- ment of Legal Affairs". Employees can choose not to sign this agreement, but they couldn't get bonus, dividends and stock rights for the previous year. Generally speak- ing, these benefits in the first year can be claimed and acquired in the second year in Huawei. Therefore, nearly all its employees "voluntarily" sign the confidentiality a- greement with clause of "forbidden to work for competitors the same industry after resigning". The purpose of this clause is to prevent Huawei's talents from being taken away by ZTE, and of course in the last two years, Harbor was also included. So there were few people resigning to work for ZTE. Huawei and ZTE had competed with each other for over ten years. Competition itself is not bad, although some onlookers believe this is vicious competition. Objec- tively speaking, it is good for the long-term development of the two companies. If ex- ternal environment is hostile, one must improve itself from inside. Without ZTE' s continuously chase, it is impossible for Huawei to gain a rapid development. It is ex- actly the fierce competition that creates "binary stars'' today in the Chinese telecom- munication industry, and lightens the whole world. 5. 8 Fade the color of the government; pierce the barrier of the West Huawei' s static of "keeping an appropriate distance" with government is fully used in the process of internationalization. ~ 180 -- 183 of 362 -- There are some untold difficulties to fade the color of the government In the process of internationalization, Huawei had once undergone a period of ((cultural understanding" embarrassment. Government's role getting lesser and lesser suggested Huawei was gradually going toward maturity and becoming an international enterprise. What promoted this significant strategic transformation were a series of critical incidents. During the Iraqi War in 2003, American media reported wantonly that, Huawei was the "wing" of Chinese People's Liberation Army, who helped some countries up- grade their weapons depots (according to the Wall Street Journal report in 2003, Hua- wei openly denied the claim that some companies violated the arm embargo regulation of the United Nations, and sold equipments to Iraq to help it improve air defense ra- dar system. ) . There were many reasons for coming out of this negative report. Maybe western competitors wanted to bring shame to Huawei; maybe western "hawks" wan- ted to contain China' s rapid rise; maybe there were some misunderstandings about Huawei's low profile and opacity; maybe the background of Huawei's boss and the military style management of Huawei Corporation caused suspicions from the outside world. Anyhow, for Huawei, a company which was under the process of aggressive internationalization, this was a crisis in a true sense. The reason was quite simple: what Huawei was engaged in was the communica- tion and IT industry, while the origin of high-tech industry in the world was American Silicon Valley. Many technologies and key parts in Huawei were provided by its A- merican partners, and a considerable number of Asics applied to Huawei's equipments were designed by Huawei through ODM but assembled and produced in America. Many American giants, such as Intel, AMD, IBM, TI, and HP were Huawei's part- ners in Asic, the core of communication and IT equipments. If media made continu- ous followup reports, American Congress would put Huawei on ('the black list" which was under American sanction, for its violation of arms embargo. If so, it was impossi- ble for Huawei to sell products in America, plus, the most important point was that Huawei would have no access to gain sophisticated high technologies and key raw ma- terials from America. This equals to sentence Huawei to death, because worldwide IT companies or communication manufacturers had to rely on American Silicon Valley. If a company was put under embargo by America for one year, its technical level would completely lag behind the world leading level, causing it lose most of market fragments. If the embargo would last for two years, a company may go bankrupt. Re- ality was so cruel; the US Congress could decide life or death of a foreign company. Whether you liked it or not, the US was practicing extraterritoriality (although all governments of other nations opposed it). And this was the reality, you had to face 181 ~ -- 184 of 362 -- and accept it, because you would "ask America for help". We all knew, it was our freewill to do business on the basis of mutual benefits and no one need to beg another. Besides, we were buyers, and Americans were the seller; we paid money, and they received money and earned US dollars through foreign exchange regime. If we had to talk about "one is begging another", it was conventional that Americans should "beg" us, because the norm in the world was sellers "begging" buyers. Please allowed me to call your attention; the situation we talked about was the buyer market in which sup- ply exceeded demand. But if the American government was involved, they would ob- viously prohibit all American companies and foreign companies doing business in A- merica to sell any product or technology to Huawei by legislation. Then, the buyer's market would turn into the seller's market. Seen from this aspect, it was still we "begging" them. Why America is so strong, so powerful and so bullish? The answer is quite sim- ple, without America, we couldn't develop high technology on our own at present. Because we couldn't find out any other supplier that can substitute for America, for only America owns this technological capacity. Only after we build independent re- search and development systems in every area, will we not feel deprived in the world. Now, the most urgent thing for Huawei is implementing lesser governmental interven- tion in the international society, especially in western world; another overwhelming issue is rebuilding the market image of private enterprises. Only in this way could Huawei avoid similar crises; or otherwise one company not only couldn't make break- throughs of American and European technical barriers, instead, its survival would face a great threat. People who learn about Huawei' s history all know that, Huawei was set up by Ren Zhengfei and other six partners with 20,000 RMB. At first, Huawei was subordi- nate to the Innovation Service Center of Shenzhen Science & Technology Bureau be- cause of the special political condition and market environment at that time; the cor- porate registration category was "collective ownership enterprise". This kind of "hon- or" provided many conveniences and helps to Huawei, and it even solved the problem of market entry, because during that time, there were many economic areas that pri- vate companies couldn't take part in. It was not until the year 1997 that Huawei was forced to give up this "honor" according to Shenzhen' s business policies. Although Huawei was quite unwilling to do that, its business license was still changed into "pri- vate-owned enterprise". During the period between 1997 and 1998, when Huawei did reception work for Party and governmental leaders, Huawei's leaders always emphasized that our shares were hold by all employees, so we achieved collective ownership in the true sense. It ~ 182 -- 185 of 362 -- was certainly that Huawei aimed at gaining more approvals and supports from the Chinese government. Why Huawei wanted to do that? The answer was that Chinese private enterprises had met different forms of discrimination in regard to market ad- mittancet financing policyt governmental backupt etc. Of courset today Huawei al- ready does not need that "honor" to make it more competitive. In customers' mind, the words "Huawei" rightly represent brand and credit; they would pay special atten- tion instead of show discrimination when hearing "Huawei". From the Iraq issue, Huawei quickly learned that in most cases, any government background or involvement would not help a company exploit markets; instead, they would give an excuse for western powers to drag the company into unfavorable situa- tions. The military communication systems of the Chinese People' s Liberation Army were provided by special military communication enterprises or research institutes. The civilian communication systems (Huawei call them "military network") used by armies, such as switch, SDH, IT system were achieved through market-based opera- tions and public bidding. Any supplier could participate in this bid. The number was so few that they were not the key point of Huawei's target market. In recent years, Huawei didn't take part in the bid of "military network" directly; instead, it allowed its agents to join the bidding. Since the scale of "military network" was not big, its annual sales volume would not surpass 1% of Huawei's total sales. Therefore, we can conclude that reports from western media are fake gossips, even full of some other special purposes. In fact, because of Huawei' s lack of products and technologies in the military communication field, it was impossible to participate in any "military program" both in foreign countries and China. Huawei had begun to explore the Iraqi market before the Iraqi war occurred. What Huawei cooperated with the Iraqi Ministry of Information and Communication was the construction of a civilian communication system, including GSM and SDH Owing to strict sanctions from America and western countries, the Iraqi people were very poor and they even could not afford to food and clothes, let alone to purchase foreign equipments with foreign currencies. Only UN Program of "Oil for Food" al- lowed the Iraqi government to export a limited number of petroleum for foreign cur- rency, which could be used to buy food and other daily necessities (communication products were included in the permission range. ) . However, UN Program of Oil for Food was executed under strict supervision, and procedures were very complicated and would take too much time to finish. So Huawei merely installed a few "experiment bu- reau" test equipments in Iraq instead of making dramatic breakthroughs in this mar- ket. 183 ~ -- 186 of 362 -- Just like other Chinese enterprises, Huawei believed that it was a heaven- sent chance for itself when America announced embargo, but the result was just the oppo- site: it didn't make profits. Huawei put a lot of energy, labor and money into the I- raqi market, which nearly caused a survival crisis. From then on, Huawei changed its strategies thoroughly, except for possible less- er governmental participation; it also fundamentally changed the marketing strategy of the so-called "rogue states" list which was announced by the American government. First, Huawei completely withdrew from the Iraqi market even after America' s cap- ture of Iraqi capital Bagdad, and this strategy was still kept alive. On one side, Hua- wei didn't wish to involve in foreign military conflicts, on the other side, it had to take Huawei employees' security into consideration. Another strategy was downplay- ing the operation in sensitive national markets. Once there were some conflicts occur- ring between these countries and America, it would drag Huawei again. A main change was using sales agency instead of Huawei itself to distribute products. In this way, if something wrong happened, there would be some room for Huawei to make strategies of reaction. Another strategy was "action instead of speaking": Huawei would not do any propaganda or public relation announcement; instead, they would strictly keep confidential to the outside world. Actually, Huawei had already begun to exploit Iran and Libya markets in 1999. Some other projects were related to Burma, Cuba and North Korea. In Iran and Cu- ba, Huawei had made breakthroughs in markets at an early time. On Huawei's bro- chures written in both English and Chinese and Huawei' s official website, Huawei would not propagandize that it had built representative offices in sensitive countries such as Burma, Libya, Syria, North Korea and Iran any more, it also would not talk about its details of market operations in these countries. Washington was not the only one who felt uneasy about an active Huawei. Ac- cording to the reports from foreign news agencies, in October, 2005, Foreign Promo- tion Bureau of India Investment (FIPB) made some barriers for Huawei, which planned to invest $ 100 million to set up research base in India for the development and manufacturing of wireless communication products. However, Huawei failed to gain the ratification from the Indian government. In fact, FIPB had destroyed Hua- wei' s similar projects carrying investments of $ 40 million four years ago. This was followed by Huawei's plan to set up a small software development center (Huawei-ln- dia research center) in Bangalore, India in 1999. It was not until two years later was this center officially opened to do business. During my business trip to Huawei's representative office in India in December, 2002, I heard many reports about restrictions that the Indian governments had set for ~ 184 -- 187 of 362 -- Chinese enterprises to invest and do business in India. It was said that ZTE also met similar troubles in India. In order to reduce obstacles, ZTE was ready to adopt the strategy that forming joint ventures with local Indian enterprises and making a com- mitment to transfer its technologies to India, but this big investment plan has not been approved by FIPB till now. To fade the color of the government does not mean that Huawei does not need its sop- ports In 1996 to 2000, Huawei responded to the state's "walk out" strategy and actively exploited overseas markets. At that time, Huawei raised its own slogan: keeping up with the state's foreign affairs route. It was the very time that Chinese government transformed its functions and put economic construction into the central place of gov- ernmental work. When the country's leaders went to a foreign country for a state vis- it, they would bring a large group of entrepreneurs' delegation to promote interna- tional cooperation and the development of economy and trade. In October, 1999, on behalf of Huawei, I was lucky enough to join the entrepreneurs' delegation led by Chairman Jiang Zemin and visited Algeria. I met Chairman Jiang himself, and then met the Algerian President Bouteflika; this greatly promoted the exploitation of the local market. In the beginning of 2000, I visited many African countries along with Vice Premier Wu Yi. Our purpose was to promote market developments in these are- as. The result of these visits was that we gained trust and substantial support from lo- cal governments. Especially between 1996 and 1998, the main purpose for Huawei's accompany to state's leaders was to "exploit and expand its markets" and "occupy its territories". At that time, the planned economy was still predominant, and the Chinese government often adopted administrative measures to prevent vicious competition among Chinese companies from the same industry in foreign markets. Government had the final say about where you should go. The main principle for government's coordination was protecting those companies which came earlier and had greater strength. Four compa- nies, whose first Chinese pronunciations of company names were "Ju Da Zhong Hua" (Great Dragon, Datang, ZTE, Huawei), were considered as the four most powerful companies in China's communication sector. Then "First come, first served" became a main principle for government to settle disputes arising between Chinese enterprises in overseas markets. Accompanying to state's leaders could be easily seen as a compa- ny's permit to exploit markets approved by Chinese embassies and domestic compe- tent authorities. It was also an "operable" norm for embassies to judge a company's capability. This was one of the true reasons why leaders of "Ju Da Zhong Hua" were enthusiastic about "exploit markets and enclosing fields". 185 ~ -- 188 of 362 -- For Huawei, this was not the whole reason. Huawei clearly knew that it simply couldn't do everything; the ones who paid real money were neither the Chinese gov- ernment nor foreign governments but private enterprises, because countries that made telecommunication service providers the private ones and have the governments' mo- nopoly position broken in the world were very few. When a company really entered a foreign market, what really made sense were the company's strength and its operation that was totally depending on market efforts. It seemed that Huawei had learned a- bout this very well. Today, Great Dragon has disappeared; although Datang is still a- live, it is having a hard time and it barely has gone through internationalization; also, ZlE's international maneuver can't be seen as a successful one. Huawei's true purpose of "exploit markets" in early times was conducting market research plus collecting market and products information. Before that, Huawei even didn't know what the technical norms in different countries were, and what entry test procedures were adopted, and what conditions and qualifications for market entry were, how many service providers were living in that country and how many users each of them owned, and at what technological level the local network stood, how many suppliers were available, what was the way to achieve contracts, was it inviting tenders or negotiation, and what was the population of that country, which currencies the citizens were using and whether they could be exchanged freely or not, how many foreign exchange reserve that country had, whether service providers had the capacity to make payments or not, etc. Huawei's leaders made full use of the chance of accompanying China's leaders for state visit, examined and experienced foreign markets in person. After they came back to China, they organized specialists to make research and planning about exploi- ting the international market by combining more detailed information obtained from consulting companies. This process was professional and practical, including which country to enter first, what's the main product in each country, which products were suitable for internationalization, which products needed to be improved, which prod- ucts were not suitable for the international market, how to adjust and ensure Huawei' s road map for internationalization, how to adjust and set the marketing system, re- search and development system, engineering service system that supported overseas markets, what talents should be introduced or what kinds of teams should be fostered to exploit the international market, how to make relevant adjustments and set about processes and organizational frameworks, etc. Answers for these questions were coming from leaders' valuable investigations and past experience. These leaders had undergone a lot of hardships and were full of experience and had acute market sense; in addition, plans formulated by specialists also made this scheme feasible. If other ~ 186 -- 189 of 362 -- competitors entered overseas markets without doing above-mentioned researches and plans meticulously, their failure was almost inevitable. After 2000, Huawei finished the initial task of market exploitation and formed a relatively complete global market system and product system, so there was no need for it to "enclose fields" anymore. But Huawei was in great need of support from the Chi- nese government to grant export credit. Just as ZTE, Huawei actively joined entre- preneurs' delegations led by China's state leaders. The only difference was that this kind of visit was becoming more and more practical. Huawei had promoted the imple- mentation of export credit policy that Chinese government used to promote bilateral cooperation between countries and expand the sales of products made by Chinese en- terprises, of which the major cooperation projects were the key form of government support. So Huawei and ZTE became the biggest beneficiaries. Recently, Huawei ob- tained export credit funds from the Chinese government. Under the official support from China Import and Export Credit Insurance Corporation, Huawei successively got $0. 6 billion export credit funds from Export-Import Bank of China to expand its o- verseas businesses. In addition, it also gained $ 10 billion line of credit from China Development Bank. All these operations were in accordance with international conventions. America was the first country that built export credit banks. One of them was US Exim Bank, which was used to inspire American enterprises to conduct export business in interna- tional markets. Later, El.Jrope and Japan followed suit and set up similar banks or credit a- gencies to establish special export credit funds. According to international conventions, Export- Import Bank of China and China Import and Export Credit Insurance Corpora- tion were set up in the 1990s with reference to American successful experience. The two institutions were Chinese official agencies that were responsible for granting ex- port credit and insurance. As one founder of Huawei's export credit and international financing business, I and Zhen Li rebuilt Huawei's capital planning department and cultivated professional teams in 1997, which suggested that Huawei officially embarking on this business. Since this work had obtained excessive financial support from the Chinese govern- ment, especially official credit agencies, so Huawei had to maintain good relationship with these entities. In fact, this was the thing that Huawei was unwilling to do, be- cause it violated Huawei' s principle of "keep a certain distance" from the govern- ments. If Huawei was too close to the government, other people would whisper be- hind Huawei's back, especially western countries would charge Huawei of "govern- ment background" and "official support". There was even some time that our boss re- quired us to try our best to seek other financing channels of export credit, especially 187 ~ -- 190 of 362 -- commercial banks which were market-based. We had sought opportunities for cooperation with many international banks and domestic commercial banks, such as Industrial & Commercial Bank of China, Bank of China, Hong Kong and Shanghai Banking Corporation, Standard Chartered Bank, western bankers such as Swiss Bank Corporation and the Deutsche Bank. Mter a se- ries of painstaking efforts, we found that it was completely impractical. Because the export credit covered policy-related businesses, while commercial banks were profit- seeking enterprises, it was basically impossible for them to involve in this business without insurance. The import and export credit insurance agencies just provided ex- port credit guarantees for domestic enterprises, so it was also impossible for them to use limited home resources to provide credit guarantees for foreign exporters. So as a Chinese enterprise, what Huawei could do was to plead Chinese export credit insur- ance agencies for insurance. Except for giving up export credit insurance, there were few other possibilities for Huawei to keep a certain distance from the government. Anyhow, what we had done in these several months was not in vain. We let our com- pany understand the important role that the government played in this business, plus, we achieved some surprising results. First of all, if there was some insurance for export credit, any bank would like to get involved, including commercial banks in China, banks in Hong Kong and western banks. Export-Import Bank of China was not the only one which monopolized busi- ness. Therefore, only if you strived for gaining support from China Import and Ex- port Credit Insurance Corporation could you gain better loan conditions through com- petition between banks. Secondly, in the condition with no big commercial risk, there were some finan- cial products or operation tools for commercial banks to help competent enterprises to collect payments in advance, and to set about project financing, for example, buy out business, including factoring and forfeiting bills, which belonged to "wonderful" busi- nesses without taking any risk. For markets in developed countries, these businesses could function as actual financing; besides, they could speed up loan recovery and capital turnover. It was fortunate that Huawei's market was getting bigger and bigger in developed countries. For markets in developing countries, which occupied a pre- dominate place in Huawei, what Huawei needed was "providing timely help". As to high-risk financial support, what Huawei could do was resorting to our own home state. In addition, it was an international convention for governments to grant export credits which the US government initially created and soon spread to all over the globe. Therefore, there was not any political risk for Huawei to expand this business ~ 188 -- 191 of 362 -- in foreign countries and to promote Huawei' s development in overseas markets. A- mericans also couldn't oppose and criticize Huawei for any reason or excuse. After finding out that its tactics were not ideal, Huawei made a timely adjust- ment-changing its international financing strategy, enforcing its connection with the government which made it possible to gain good market returns. It turned out that lesser governmental participation did not necessarily mean giving up support and a- bandoning government resources. Huawei obtains the returning awards from the Western market by fading the color of the government In the recent two years, lesser governmental participation has received obvious results in the process of Huawei' s internationalization. It has turned out that this strategy is a wise one, especially in those countries and regions where there are many misunderstandings of and even malicious discrimination against China and Chinese en- terprises. Huawei has already owned the research and development capacity of 3G, NGN, soft switching, optical network and DSR; it is gradually playing the role of market subversion. In 2004, Telfort, a Dutch mobile service provider, chose Huawei as its exclusive WCDMA network supplier. So far, Huawei has provided 18 commer- cial WCDMA networks for the global market. In November, 2005, it became Vodafone's global WCDMA equipments supplier. This was the first time for a Chi- nese enterprise to obtain qualification awarded by the world biggest 3G mobile service provider. Huawei' s internal data shows that, since 1998, Huawei has already invested $ 725 million in the research and development of 3G projects. About 695 million peo- ple in Europe have already had access to WCDMA and GSM network service. This means that there is not much market space for growth in Europe. However, Europe is the origin of GSM and WCDMA technologies and the most developed region in terms of world telecommunication technology, so the meaning of Huawei' s acquisition of a tiny space in this market is far beyond the market itself; it is a great example of global market promotion. Once Huawei reaches the "commanding height", it will be easy to "rule the world". Huawei's chairman, a strategist, understands this truth perfectly. Huawei's chairman appointed Xu Wenwei, Executive Vice President with CTO background, as the President of the European Regional Department. With CTO back- ground, Xu was skilled in technology instead of those "conventional practice"-recep- tion, dinner, gifting and flattering. This enabled Xu to talk with western CTOs and CEOs who valued technology and looked down upon "unusual" practices. Their com- munication was very convenient and deep. They depended on their strength to com- pete with each other, and made market - based operations. What they emphasized 189 ~ -- 192 of 362 -- were price advantage, technological level, product quality, business function, techni- cal support service, service commitment and commercial conditions, in one word, true strengths were what really mattered in their mind. There was no bribery, no darkroom deal; everything was open, fair and transparent. There were also no inter- est-based relationships, no corruptions such as commission, kickback which were widespread in third world countries. Indeed, there were well-planned technical ex- change and products promotion seminars held one year after another; and a series of telecommunication exhibitions with huge investments held in developed countries ev- ery year, thoughtful and complete pre-sale and post-sale services. The most useful thing was the special attention to customer requirements and quick response to their requirements and product customization. The research and development of products, manufacturing process and standard internationalization are spotlights for Huawei to attract customers. Huawei's mature and advanced technology makes it impossible for western customers to find substitutes for Huawei in China. Of course, what impresses western customers most is that they can get good technologies and products at very competitive prices and commercial con- ditions. What Huawei has done is totally market-based operations in compliance with international conventions, no government intervention or exceptional subsidy, so there is no excuse for other people to say anything, even Americans. Huawei's chairman has a unique eye: when he discovers capable people, he puts them in appropriate posts. It is certainly a wise decision to choose CTOs to be the President of the European Regional Department and the North American Region De- partment. In fact, this decision has brought a profitable market return to Huawei. In April, 2005, Huawei became one of eight preferred suppliers of British Tele- com and took responsibility to provide upgrade service for the next generation net- work, such as voice, data and IP network for this old brand telecom service provider' s business of "21"1 Century Network" project, the total value of which was $ 1. 8 bil- lion. About 50 equipment suppliers participated in this tender, so competition was rather fierce. But Huawei achieved two contracts: the first one was the access net- work. Huawei, along with Fujitsu, were mainly responsible for connecting the exist- ing network of British Telecom to the 2111 Century Network; the second one was the transmission system, Huawei, along with giant Ciena, took charge of supplying opti- cal electronic devices for converting core nodes' and access nodes' signals. Matt Bross, CTO of British Telecom, gave this comment: "The partners we chose in each area are world-class ones. " Huawei's competitive strategies are not only concentrated at price levels. "In the Malaysian, Dutch and some other international 3G projects, we win bids, but prices ~ 190 -- 193 of 362 -- are not the lowest. " Deng Tao, my old friend said. He was also one member of Hua- wei' s overseas market founding team like me, and now he is working as Huawei' s Senior Vice President. We should notice that, Huawei' s series of great breakthroughs in the European market show that it has already ranked on the list of world class suppliers. This is of great significance to Huawei. It also indicates that Huawei has command of substan- tial financial resources, so there is no need for it to make more recessions in pricing disputes with clients. It was a pity that Huawei still achieved nothing in the American market. The di- rect reason was that in 2003, the American telecommunication giant Cisco instituted legal proceedings in an American local court; it charged Huawei, as the largest Chi- nese telecommunication equipment manufacturer, claiming that the latter illegally used Cisco's operation software, while Huawei persisted that the core IP code was based on its own independent research and development. When this lawsuit went on like a raging fire, 3COM joined in and established a joint venture with Huawei and began their cooperation in the area of corporate network equipments. Bruce Claflin, former CEO of 3COM, said, "This case caused smoke, but it didn't result in fire. However, you need to know where smoke is coming from. We should know that, most Americans firmly believed that Cisco was right while Huawei was wrong, be- cause a deep root bias toward foreign competitors had misled them." It cost Huawei's huge labor, money and energy in this lawsuit which shocked the world telecom industry. Huawei hired the most famous American lawyers to defend this case, and it even invited 3COM's CEO as authority from the same industry to act as the witness. This lawsuit ended up with reconciliation; however, Huawei lost the opportunity to directly exploit the American market within a short period of time. The only thing Huawei could do was adopting strategic cooperation such as distribu- tion channels or OEM, and entering the American market through its partners. Lat- er, Huawei made further cooperation with 3COM; the aim was also to fully achieve this strategy. The OEM cooperation with MOTO in the area of GSM, GPRS, CDMA, 3G, and the OEM cooperation with Lucent's optical networks were also targeted to enter the American market indirectly. Since 2006, the joint venture or OEM coopera- tion between Nortel and Huawei, which aroused wide attention in domestic and for- eign media, was to sell Huawei's products in the US market indirectly. It was said that main products chosen were broadband access network, such as DISLAM or DSL. Between 2001 and 2003, Huawei launched its strategic cooperation with interna- tional "friendly businessmen" in all fronts. Facts had shown that this was a completely right decision, which not only defused hostility and political resistance from American 191 ~ -- 194 of 362 -- local competitors to a large extent, but also helped Huawei enter the American market indirectly and also gain satisfying market returns. But seen from another perspective, this was forced by the severe situation, to some extent, Huawei had no other choice but to do so. This was not totally in conformity with Huawei' s common completely independent style, enjoying all the benefits in telecom "supply chain". Anyhow, any- one must agree that, in fact, the lawsuit with Cisco greatly impeded Huawei ' s pro- gress in the American market, enlarged the complexity and operational difficulties of development in the future, and at the same time, it decreased Huawei's market prof- itability in this region. Terry Albertstein, the director of corporate affairs in the Asia- Pacific Region of Cisco, said later, "As a competitor and peer, Cisco respects Huawei. " But in this case, Cisco indeed impeded Huawei's steps forward in a considerable extent. It seemed that British Telecom barely cared about these doubts and disputes. Its CEO pointed out, "What we need are those suitable products which conform to stand- ard requirements, not just for money-making purpose" In recent years, thanks to Huawei's suitable strategies, it has gone through great developments milestones in the international market. The wireless business is a good example. In 2005, Huawei achieved contracts covering 19 wireless networks; old brands like Nokia and Ericson secured 22 and 25 contracts respectively; by contrast, Ericson gained 58 contracts in 2004, followed by Huawei with 30 contracts. While in the GSM network market, Huawei inarguably ranked No.1 with 13 contracts, then it was Ericson-9 and Nokia-5. Let's take a look at Huawei's overall global market performance; it is much easi- er to give illustration. Huawei's overseas sales hit $244 million in 2001, accounting for 11% of total sales; while in 2004, its sales hit $2. 28 billion, accounting for 41% of total sales of $ 5. 58 billion. In 2005, Huawei grew to an international player, whose $4. 75 billion overseas sales accounted for 58% of the $8. 2 billion total sales, at a 108% annual growth pace. In the first half of 2006, good news came from Hua- wei one after another. According to Huawei' s estimates, in 2006, the sales volume would rapidly grow 30% on the basis of sales in 2005. Western markets in developed countries comprise one main locomotive for economic growth of Huawei. Lesser gov- ernmental participation and the western market exploitation strategy are yielding more and more profits for Huawei. ~ 192 -- 195 of 362 -- Chapter VI The Twelve Firsts to Initiate the History of Hua- • wei 6. 1 Win the first "big order'' of Huawei in the oversea market In March 1996, the Hong Kong Hutchison Telecommunication program was the first contract that Huawei won in the overseas market, with contract value as high as US$ 36 million. This was the largest order Huawei had ever obtained since its estab- lishment. In 1995, Huawei began to take shape in Chinese domestic market, and its sales volume hit 2 billion RMB. The contents and functions of C&C08 digital SPC switch which was rolled out successfully were close to the advanced international level. At that time, Huawei's boss believed that it was time to enter the international market. Then Huawei began to hire "parachuters" with international marketing experience home and abroad and established its international marketing team. It was rightly at that time that I joined Huawei. In a job fair held by Shenzhen talent market, I, as the General Manager of an industrial and trading company in Shenzhen, was recruiting employees when a nearby company's lively scene with a huge crowd of people attracted my attention. This "Huawei Technology Co., Ltd . " occupied a large area in the job fair with decent decorations; besides, there were a lot of pictures which showed many state leaders' inspecting Huawei in the display win- dow. So Huawei's showcase attracted many people, by contrast, its nearby showcases were silent and lonely. During the lunch break, many applicants left, and the rest were corporate working staffs. When I was chatting with a Huawei person, Zhang Yanyan, Huawei' s Vice President, came by. She looked like a typical professional manager, dignified and experienced, so I thought she was trustworthy. After learning about my experience, Zhang said she hoped me could join them, since they were re- cruiting talents of foreign trade to explore the international market. After several months of contact with Huawei, I made the final decision of giving up my current job and joining Huawei in 1995, with employee number 2500 (Because I was the 2500th employee of Huawei. ) . Then I was assigned to work in the Import & Export Department under Zhang Yanyan's leadership, and my position was "senior business manager"; later I was promoted to "General Manager of the Import and Ex- port Department" and mainly took responsibility for exploring foreign markets. 193 • -- 196 of 362 -- Before my joining Huawei, its Import and Export Department which was subordi- nate to the General Procurement Department was merely responsible for importing materials for Huawei, at that time did not have any export business. And the main raw materials used by Huawei were all imported from other countries. Every year, Huawei would give an import quota worth hundreds of millions HK dollars to the Im- port and Export Department which was responsible for specific import programs. Since there was no marketing channel, no experience, it was rather difficult for Huawei to exploit overseas markets. It also didn't know where to start from, and whether it would be successful in the end. The only foreign partners that Huawei had were foreign suppliers. However, these suppliers were upstream manufacturers; that is to say, they were component suppliers instead of manufacturers of whole telecom- munication equipments. But they came from foreign markets and had rich experience in international practice, and they were quite familiar with the rules, so Huawei still should keep in touch with them. We hoped to find out the right methods and channels in the international market with reference to their experience. After making efforts for some time, we made some initial achievements. Mark Chen, a supplier working in TI, provided us a chance to approach a Hong Kong program. During that time, Hong Kong's telecommunication market started to conduct monopoly deregulation. The situation that Hong Kong Telecom was exclusively mo- nopolized by Cable & Wireless of Britain was broken: three new basic telecommunica- tion business licenses were issued, one of which was to Huchinson Telecom which was an enterprise under the investment and holding of Huchinson Group ran by Li Kash- ing. However, as a fixed network service provider which had been engaged in business in Hong Kong for nearly one hundred years, Hong Kong Telecom's "natural monopo- ly" resources and advantages accumulated in Hong Kong would not naturally go away due to new service providers' involvement. The main reasons included: firstly, the loyal customers of Hong Kong Telecom might worry about business losses caused by the changed phone number; secondly, it would bring inconvenience and trouble to friends and relatives if their phone number was changed. Therefore, Hong Kong citi- zens would not choose to change their telecom service provider. In order to break the monopoly situation and promote benign competition, Hong Kong government's telecommunication management authority initiated a notice in the end of 2005 , requiring the four service providers that owned business licenses in Hong Kong to develop the NP technology which allowed customers to change service provid- ers without changing their phone numbers. Otherwise, they would be punished or their business certificates might even be revoked if they did not succeed. ~ 194 -- 197 of 362 -- The NP technology is an intelligent function provided by switch which allows cus- tomers to change service providers and move to a new house without changing their phone numbers. This kind of technology is widely used in China today. However, at that time, it was a technical innovation; most manufacturers had to put a lot of re- sources into redevelopment, so the required labor costs and financial costs were huge. Western companies charged very high price for this technology. Except for Hong Kong Telecom, other three service providers in Hong Kong including Huchinson were at the initial stage of startup and had no scale or their own customer groups, so it was impossible to gain active response from big western companies. Then, Mark Chen in- troduced us to Huchinson and promoted the establishment of our partnership. Huawei paid excessive attention to this project, and its founder appointed three important persons to take charge of this project together: Executive Vice President was responsi- ble for the strategic cooperation; Vice General Manager Zhang Yana took charge of the import and export business; and Vice President Sun Yafang was responsible for the marketing department. The Central Research Department and the Import and Ex- port Department formed a project team to make specific plans and launch operations. At that moment, I was appointed as a project manager; Tang Xinbing, Vice President of the Central Research Department, was appointed as the technical manager and Zhou Gengsheng, Vice President of customer service center was appointed as the en- gineering manager. For Huawei, this project was both an opportunity and a challenge. The first difficulty was the technical barrier. Since the main technical standards used in Hong Kong telecommunication market were European standards, the rest were American standards, while the ones used in China were the European standards. Hua- wei hadn't been engaged in exploring the international market before doing this pro- ject, so it knew nothing about the American standards. For example, the signaling standard that America used was a rate, while China used was u rate; China used e1 instead of America's t1; in terms of transmission, China used SDH rather than A- merica's SONET. After obtaining the bidding document, Huawei's technicians began to surf the Internet seeking standard and data information. Under this condition, whether Huawei could complete products development in due time was a big challenge, even a big risk! The Central Research Department de- cided to set up the Hong Kong project development team, exclusively taking charge of product research and development for Huchinson. In order to win out in this project and show our capability and self- confidence, we clearly made a commitment to Huchinson about the delivery time and delivery date of the NP project, and guaran- teed that we must finish all tasks before October 1st, 1996-the deadline that Hong 195 ~ -- 198 of 362 -- Kong government stipulated. We promised to get through the official inspection made by Hong Kong government management authority smoothly. This commitment played an important role in persuading Huchinson' s board of director making up its mind to sign the contract with Huawei. The second difficulty was about quoting. Huawei never had any experience in the international market and it didn' t make the situation of the international market clear; besidest this was a brand new productt so there was no suitable object as refer- ence. The project team made an analysis of the price level that foreign products sold in the Chinese market: generally t the price was eight times higher than that of the same products made in China. It was just as same as what people said, foreign prod- ucts and Chinese products were of the same price, the only difference was that one priced in RMB and another priced in US dollars. The project team also estimated re- sources and material costs that were required for developing products t and then sub- mitted to the Executive Vice President Zhen Baoyong for his final approval. In my memory t the offer we provided for Huchinson was around US $ 275 per subscriber line (according to the exchange rate at that momentt it was equivalent to 2500 RMB). Because Huchinson network was a newly- built system, and it just had a few users, and its main configuration was relay frame, with only a few subscriber boards. At that time, the price of Huawei's switch sold in the Chinese market with complete configuration (filled with subscriber board) was priced at merely 400 to 500 RMB per line. For Huawei, this offer was profitable, while it was also competitive to ward off other western suppliers. The fact turned out that this offer was a wise one! The third difficulty was data. Just like other domestic enterprises, Huawei' s technical documentation management was random and not standardizedt which couldn't completely meet the requirements of the international standards for develop- ment process. Besides, main documents were written in Chinese instead of English, and most of them, such as technical solutions, design specifications, customer re- portst test specifications, operating instructions and maintenance manual needed to be compiled and translated. Since the data might reach one million words, the work load was substantial. The project team suggested that this kind of work be taken over by special agencies. To assist the Hong Kong project and support the development of Huawei's overall international markett Huawei's boss decided to establish the docu- ment proof-reading committee, with Vice President Fei Min as its head, and Wang Chonggong as the manager of the overseas editorial committee. After setting up the committee, he organized developers from the Central Research Department, test en- gineers of the Central Test Department, and maintainers of the Customer Service Center to compile technical and marketing data needed to explore the international ~ 196 -- 199 of 362 -- market and translate them into English. The substantial painstaking work that the committee did was an important guarantee for the success of the Hong Kong project and other ones. Although many years had passed by, when Wang Chonggong and Tian Fangzhong, who had migrated to North America, talked with me about the en- trepreneurial experience that we did in exploring Huawei' s overseas market, we still remembered them clearly and found our feelings were quite mixed! The fourth difficulty was engineering and maintenance. Huchinson was a new service provider, with weak technical capacity of engineering and maintenance. How- ever, Hong Kong was under British governance for over a hundred years, and it had advanced technologies, so customers required much higher in terms of project imple- mentation process and project quality. Huawei's engineering technicians were never engaged in overseas projects, and language communication was a barrier for them. There was also a lack of capable technicians who were good at English or Cantonese. Zhou Gengsheng was one member of the project team as well as an engineering manager; he was dedicated to his work and was serious about this opportunity that this project brought to them. He was skilled at summing up experience in the process of engineering installation and debugging, and he also finished these work efficiently with high-quality. After finishing his work, he wrote an article--Talking about Pro- ject back from Hong Kong, which systematically summed up experience and lessons of the Hong Kong project in the process of engineering installation and debug implemen- tation, as well as proposed some practical and reasonable suggestions. Huawei' s boss appreciated his ideas very much, and then he got promotion and praise. The Hong Kong Huchinson telecom project was Huawei's first contract in the o- verseas market which was achieved in March, 1996 with value of US$ 36 million. It was the largest contract that Huawei ever gained since its establishment. The success of the Hong Kong Huchinson telecom project laid a good basis for the development of Huawei's overseas market and enhanced its Chairman's determination to further de- velop overseas markets and his confidence in substantial investments in resources. During the month when the contract was signed, Huawei's boss decided to establish the special overseas marketing department, parallel to the domestic marketing depart- ment, and appointed Chairwoman Sun Yafang as the department director, and I was appointed as the deputy chief business officer to manage routine work. 6. 2 Lead Huawei to get the first bid overseas In July, 1996, employees in overseas marketing department received a call from the embassy of commercial counselor's office in National Foreign Trade and Econom- ic Cooperation Department in Ethiopia, which told us a piece of good news that Ethi- opian telecommunication administration bureau would invite tender of 420 thousand 197 ~ -- 200 of 362 -- lines switch project Then the overseas marketing department quickly entrusted the embassy to help us purchase the tender document. After that, they organized Hua- wei's Central Research Department, the bidding office, the product department and the Commercial Department to study and review this tender document. Besides, they also made an investigation of the technical standards, current network resources, tele- communication development level, political & economic development level, competi- tion condition, time limit for the project, capital source and financing requirements, etc. in Ethiopia. Ethiopia was one of the relatively poor developing countries; it had already built a friendly relationship with China. Besides, its projects gained loan supports from the World Bank, therefore, leaders of overseas marketing department suggested Huawei go to Ethiopia for the biding and be engaged in this project. Huawei's boss approved our suggestion quickly and appointed me as the leader of project team to take the lead to make plans and lead team to Ethiopia for the tender. Under the Overseas Marketing Department's coordination and each department' s active cooperation, in August, 1996, the tender document was rushed out by the bid- ding office a day before project team's left. This tender document was the first one that was truly applied for the foreign markets. It was not easy to formulate this docu- ment, for example, lacking of experience and relevant data (at that time, there was no different kinds of models and existing module-style databases for reference), the toughest thing was that nearly all documents were needed to be translated immediate- ly. Difficulties were unimaginable, but what Xu Xubo, the director of the bidding of- fice, finally submitted to the project team was a whole set of high-quality tender. We had to admit that Huawei' s "pressure principle" was indeed very useful. Our four members of project team boarded on a plane and headed toward Addis Ababa on the following day. After more than 10 hours of flying, we smoothly arrived at the destination. When we stepped out of the airport, Wang Yongzhong, a zealous secretary of the embassy, made a further introduction about the current situation of Ethiopia. The country had undergone several years of civil war, its economic environ- ment was seriously destroyed due to war and political turmoil, and people here lived a rather poor life. Then secretary Wang highlighted that, Ethiopia was the head office of the Organization of African Unity as well as an important political center in Afri- ca, it also established a traditional friendly relationship with China. As a result, its government valued and supported its cooperation with Chinese enterprises. For the convenience of work, we chose to stay at a small restaurant near our a- gents. The restaurant owned dozens of rooms, and seen from the general local stand- ard, they were very tidy. The worst thing of all was about communication. Ethiopia ~ 198 -- 201 of 362 -- was a less developed country in communication and there was just one connecting line in the restaurant; besides, it could be used only through front desk dial-up. It was for- tunate that our agent was an IT enterprise founded by a British-born Ethiopia. It mainly engaged in selling PABX tiny switches and group phones; therefore, it had built a close relationship with local government, especially the Communication Ad- ministration Authority. After learning about Huawei' s capability, this company sincerely hoped to become Huawei's general agent in Ethiopia. Due to our lack of un- derstanding about its genuine marketing strength, we only signed a project agency a- greement with this company. Our commitment was that once this project achieved success in the tender. we would promote it to be our state general agent. With the assistance from our agent, we visited the director and the Chief Engi- neer of Ethiopian Telecommunication Administration Bureau. In addition, we also held technical report meeting in Shangri-La-the only one five-star hotel in Ethiopia. The director, the Chief Engineer and each department director of the Communication Administration Bureau presented at this meeting. To make the scene much more spec- tacular, we also invited Chinese ambassadors, commercial counselors and military of- ficers of the embassy to present at this meeting. To our surprise, Chinese ambassadors invited Ethiopian Minister of State who was responsible for foreign cooperation to show up in the meeting. The atmosphere in the meeting was quite lively and friendly, and the result was also very good. Then we began our intense and orderly investigation. After learning about infor- mation about our competitors, we advised our company making some adjustments in price to ensure that our offer was the lowest in the tender. We also made a further study about Ethiopian requirements and the long-term plan of products and projects. The following step was making some urgent modifications and adjustments of the ten- der's technical link so as to meet Ethiopian specific needs. There laid a good basis on bid evaluation for us in the respect of customer response. Thirty minutes before the expiry time stipulated in tender, we submitted our ten- der and tender guarantee to our price information was safe and secret. We were excit- ed about the opening of tender: Huawei ranked the first with a $ 42 million offer; Ericson ranked the second with $57 million; the rest offers were much higher. We were clear that, although the offer was the lowest, it didn't mean we could win this project in the end. Because tender results were determined by holistic index, so the offer was just one part of all factors; besides, there were technical score and fi- nancing score. The final result was weighted average of each factor. The Ethiopian Minister of State, taking charge of foreign cooperation, was a doctor graduated from Peking University, who learned about the current Chinese situ- 199 ~ -- 202 of 362 -- ation well and built a friendly relationship with Chinese government We introduced him about the great achievements of China's reform and opening up and China's rap- id economic development in recent years, especially the surprising development of Chinese telecommunication industry and Huawei' s leading position in this industry. We hoped Huawei could leave him a deep impression and strengthen his confidence on Huawei in this way. At the same time, we promised, once we won out in the tender, we would provide export credit through the Import-export Bank of China. This Minis- ter of State showed his supports to us. Since he was not only a member of bid evalua- tion committee, but also the head, the reason why we did this work was to gain high score in financial terms. Because the offer was the lowest one, financing was ready and we succeeded in gaining supports from the minister, the rest key part was about technical score. We submitted an application letter to Huawei's head office and hoped it invited the direc- tor of Ethiopian Communication Administration Bureau to lead its delegations to visit Huawei and make a further study of Huawei' s technical strength, so that Huawei could gain high marks in technical cores. Huawei' s boss approved that the company would bear these costs. It was a sensitive issue to invite Ethiopian delegations to visit Huawei during bid evaluation. So the director of Ethiopian Communication Adminis- tration Bureau hesitated for a long time. At last, with help from our agents and Chi- nese ambassadors, they visited China and Huawei. And the director of Ethiopian Communication Administration Bureau, the Chief Engineer, and main members of bid evaluation committee were all representatives of the delegation. When I and the delegation arrived at Hong Kong airport, I received highly praise from my leaders. Chairwoman Sun Yafang said, "During the bid evaluation, success- fully inviting this senior delegation to Huawei equals to a half success." We arranged this delegation to pay continuous visits to Beijing, Shanghai, Xi'an, Shenzhen and C&C08 equipments installed in China telecommunication network, Hua- wei's factory and research and development center. In Huawei's New Year evening party, we invited the delegation to celebrate with us. Qiao Xiaoping, who was good at both singing and dancing and worked in the overseas marketing department, per- formed African dance with a lady from this delegation. Later, the Ethiopian Telecommunication Administration Bureau told us that we ranked the first in comprehensive evaluation, and Ericson ranked the second. Since Ericson gained government support of $27 million free grants and $30 million inter- est-free loans, it had obvious advantages over Huawei in price level and financial terms. The project was finally given to Ericson because of the high-profile interven- tion of Swedish government. Huawei's first tender of overseas project ended up with ~ 200 -- 203 of 362 -- a failure. At that moment, the Chinese government was too poor to grant financial support and export credit guarantee as western governments did. Huawei drew lessons from this tender, and made an important strategic decision: building home bases in the overseas markets and gradually setting up overseas market- ing systems in foreign countries, and transforming "guerrilla warfare" of pursuing each project into deep market exploration one country after another and develop cus- tomers. This was a significant change of Huawei's understanding of the overseas mar- ket. 6. 3 Establish the first joint venture of Huawei overseas Russia was the first country where Huawei established the representative office. After the collapse of the former Soviet Union, China gradually turned its diplomatic focus on Russia and the Commonwealth of the Independent States, so its political re- lations were greatly improved, economic and trade relations also became better and better stage by stage. In order to open the door to the international market as soon as possible, Huawei formulated a strategy, namely, following closely with state's diplo- matic pace to gain state supports and assistance. In 1996, Huawei's overseas market department dispatched market exploration personnel to Russia and established Hua- wei's representative office in Moscow. At the beginning of market exploration in Russia, Huawei met great difficulties and pressures. Although the former Soviet Union collapsed, Russian "big brother" style, conservative and closed ideology, as well as low-efficient government operation mechanism still widely impeded the process of contacting with the external world of Russia. If Huawei wanted to sell its products in Russia, it had to gain network access license form Russian Ministry of Posts and Telecommunications firstly. While the pre- requisite for gaining this license was to establish the joint venture with local enterpri- ses in Russia for cooperation and production. In early 1997, Huawei made a decision to establish a joint venture in Russia. It set up project planning team taking responsibility for building the joint venture and appointed me as the leader of project team. The overseas market department was re- sponsible for leading a serious of pioneering jobs: organizing the Central Test Depart- ment, Central R&D Department, procurement department, Customer Service Center, Commercial Department, Editorial Committee, Department of Law, etc. to compile SKD/CKD technical solutions and commercial solutions as well as proposals for the project, feasibility study report, joint venture contract, articles of association of joint venture which were necessary for joint venture program. Materials needed were both English and Russian version. Since we learned nothing about Russian legal system; moreover, Russia was in rapid revolution and its old legal system was being broken, 201 ~ -- 204 of 362 -- and new one was not completely established, all of which increased excessive difficul- ties for our work. Time was so limited, and the negotiating group must arrive at UFA, Russia be- fore April1"1 , 1997, and ended negotiations within two weeks. Therefore, the project team and relevant departments had to work day and night to compile all documents. Finally, they successfully prepared document well before setting out. On March 30th, 1997, the negotiating group arrived at UFA, where BETO was located. This team consisted of Li Li-Vice President, translator, whose surname was Shen, and me, the negotiator. Shen was the former technical counselor of Chinese embassy in Moscow and good at Russian. I supposed that we had made full preparations for documents and few changes would occur in the negotiation. To our surprise, Russian who were famous for stubbo- rnness and seriousness modified more than 60% of the legal document- almost one million words. Due to the condition limit, we didn't bring our secretaries and assis- tants, so we ourselves must modify these words on the computer. Worst of all, there was no Russian who was good at English; they could just understand the contract in- stead of negotiation and communication in English. What we could do was asking Shen to negotiate with them in Russian, and then modified the existing English ver- sion and verify with them. Language barriers added difficulties to the negotiation and slowed down the pace of negotiation. To finish all kinds of things on time, we had to work day and night. In general, we could merely rest three hours per day. To guaran- tee the interests of China, we insisted in signing legal documents in both Russian and English version and the former shall subject to the latter. Under my insistence, the opposite side made a compromise at last. The last problem was also the toughest one; no one would make any concession: BETO didn't want to invest enough money, but it required a higher share. Until the night before the signing ceremony, both sides still couldn' t reach an agreement on this issue. But our boss arrived here in advance. After listening to our report about developments, difficult points and proposals, he decided to make the last negotiation with the chairman of the opposite side. After several hours' negotiation, both sides reached an agreement on the rest issues and the negotiation ended in the early morn- ing. However, our work was still not finished, we needed to modify negotiating re- sults and prepare for the signing ceremony on the next day. This was another all night long evening. At 10:00 am on the next day, we observed the grand opening signing ceremony. Both Russian government and Chinese embassy paid close attention to it. Leaders of the Russian republic of local autonomy, leaders of Russian federation Min- istry of Posts and Telecommunications and Chinese ambassadors in Russia all came to ~ 202 -- 205 of 362 -- the ceremony for congratulations. This was the first overseas joint project for Huawei, as well as the only one pro- duction-oriented overseas joint venture project by far. Its establishment played an im- portant role in Huawei' s gaining network access license from Russian Ministry of Posts and Telecommunications. At present, this joint venture occupied a big share as high as $ 1 billion in Russia and the Commonwealth of the Independent States annual- ly. I, as the leader of project team, main negotiator of the negotiating group, as well as the first member of board of directors, participated in and witnessed the planning, construction, negotiation and establishment of this historical project. Even by today, I still feel infinite proud. 6. 4 Establish Huawei' s regional market in Latin America According to the strategy of "taking over rural areas to encircle cities", the over- seas marketing department kept their eyes on relatively developed Latin America, which had a large population. Brazil owned a population of 170 million and its GDP per capita reached more than $ 5000 per year. In addition, its vast land, rich prod- ucts, free economy and opening up made it possible for Brazil to become one of the important countries for Huawei (under its overseas marketing department's sugges- tion) to explore first. In August, 1997, Huawei's boss made a decision: sending marketing teams to ex- plore the Brazilian market. I was appointed as the leader, went to Brazil with a team of experienced technical experts like Yu Dong for market exploration, and established representative offices. At that time, Brazilian telecommunication system was under state's monopoly. Telebras was the only telecom service provider, as well as the governmental telecom- munication administration bureau; we could see it was an institute integrated with both politics and business. And Telebras was considering introducing the competition system and broking up the monopoly situation. That is to say, it was on the eve of change. Since this was our first time to go to Brazil, we were not familiar with this coun- try, so we adopted our usual practice-asking embassy for help. Before our coming to Brazil, we got in touch with Chinese embassy in Brazil through Americas Division of Chinese Foreign Ministry and Ministry of Foreign Trade and Economic Cooperation. We came to visit our ambassadors, commercial counselors and technical counselors as soon as we got to this country, and introduced Huawei's products, strength and its ex- ploration plan of Brazilian market to them. We gained supports from ambassadors, who finally designated Gu Fengxiang, a technical counselor, for taking charge. Gu was a director of the international cooperation department of Ministry of Science and 203 ~ -- 206 of 362 -- Technology, who had worked in Brazil and Portugal for many years. He once took charge of a telecommunication project that China cooperated with Brazil, so he estab- lished a friendly relationship with Brazilian communication field and it was time for his retirement. Therefore, we made up our mind to invited Mr. Gu to work as our marketing consultant in Brazil. After being approved by his leader, Mr . Gu handled retirement formalities and joined Huawei. Later, he became one of important found- ers for Huawei's Brazilian market. With Mr. Gu's assistance, we quickly built partnership with Telebras. We also visited its relevant officials and held a report meeting with this bureau. It arranged us to carry out technological exchanges with Brazilian telecommunication research insti- tute, which was located in Sao Paulo. In this way, we learned about Brazilian tele- communication market profile, network structure and suppliers, especially the appli- cation and test process of network access license. After that, we continuously visited some Brazilian manufacturers to seek for potential partners. In a survey, we found that Brazilian GDP per capita reached as high as $ 5000, but its telecom popularizing rate merely occupied a share of 14% at that time, so Brazilian market had a big po- tential The most important point was that national industry in Brazil was very weak, most industrial enterprises were some local sole proprietorships built by multination- als. Telebras sincerely hoped to introduced technology and develop Brazilian national communication industry. Huawei' s successful establishment of joint venture with BE- TO provided a good reference for exploiting Brazilian market. However, Brazil was the second country for directly exploiting after Russia; it was a critical decision to de- termine whether to establish a representative office or joint venture in Brazil. We se- riously made a planning report of exploiting Brazilian market, and then sent it to our head office for decision-making. At the meantime, we suggested our boss to pay a vis- it to Brazil for rapid official approval of establishing Brazilian representative offices. Our boss got to Brazil quickly. Under our arrangements, our boss visited the di- rector of Telebras-Fernando and the director of the Brazilian Telecommunication Research Institute. In addition, he also visited and inspected some Brazilian scientific research institutes and manufacturing enterprises. We also accompanied our boss to visit Brasilia, Sao Paulo and Rio de Janeiro, learning about their local economic posi- tions and market demands. Finally, our boss agreed to establish Brazilian Regional Department, including three representative offices in Brasilia, Sao Paulo and Rio de Janeiro. These agencies were under my leadership for establishment. Another main task was to invite the director of Telebras-Fernando to visit China. Because Fernando was a senior government official of minister level in Brazil, it was certainly inappropriate to invite him under the name of a company. Seen from ~ 204 -- 207 of 362 -- this point, by virtue of Chinese ambassadors and commercial counselors, we asked China Foreign Ministry and Ministry of Foreign Trade and Economic Cooperation for help, the final goal was to gain supports and helps from Ministry of Posts and Tele- communications. However, things turned out to be quite complex. In particular, in- viting another country's minister for a visit under the name of a private enterprise was certainly rather difficult. Then I harried to go back to China to handle this issue. E- ventually, Fernando, the director of Telebras, came to China for a visit in early 1998. We accompanied Fernando to visit our well-planned "New Silk Road", Beijing, Xi' an, Shanghai and equipments that we used on the network. Chinese economic and technical development left a deep impression on Fernando; he made it clear that he would try his best to promote the cooperation with China and support Huawei to ex- plore markets in Brazil. Soon, Huawei established the Brazilian Regional Department, which later be- came Huawei's Latin-American Regional Department. I also succeeded in finishing my mission, and then I went back to China, continuing to work in the head office of Huawei' s overseas market department and taking responsibility for exploring the o- verseas markets all over the world. Brazil was the first market that Huawei explored in Latin-America. As one founder of Brazilian market, I felt quite satisfied when wit- nessing a $ 500 million to $600 million output in this market. 6. 5 Create a myth that Huawei receives 80 million Yuan back in full be- fore delivering goods After four months of planning, operation and efforts, we signed a sales contract which valued 50 million RMB in the end of October, 1998. With coordination with our market and Finance Department, we completed bank loan procedures. This pro- ject loan was fully transferred to our bank account without delivery of our goods, which created the first model of achieving large-scale money collection in domestic market by virtue of buyer's credit. To accumulate more experience of international marketers in the telecom indus- try, our boss demanded overseas marketing supervisors going to the domestic markets for on-the-job training. As the leader of the overseas market department, I also ac- tively responded to this training course. According to our company's unified arrangement, I was dispatched to the Inner Mongolia Office for on-the-job training in June, 1998. Since I was a level-4 adminis- trator and supervisor of the chief director level, the boss himself drew up a notice of appointment to achieve the aim of up-to-standard training. The notice required me working for half a year as the customer manager at the frontline. After arriving at In- ner Mongolia, I was assigned to work as the customer manager in Chifeng, which was 205 ~ -- 208 of 362 -- a place that Huawei had difficulty in exploiting and was a "blind area" for its sales. Before my coming here, Huawei almost sold nothing in this area. After getting to Chifeng, I made a lot of investigations. I found that Chifeng was an area with both grasslands and mountainous areas and it was suitable for the promo- tion of Huawei' s current wireless product ETS-450. Then I decided to take ETS-450 as the major product to promote so as to make a breakthrough. I quickly wrote a plan- ning report and an operation proposal and submitted them to the Inner Mongolia Of- fice and Huawei' s relevant departments. Finally, I gained substantial supports from Zhang Sen, the director of the Inner Mongolia Office. "Speed decides the result of a war. ", we quickly sent technical experts and network planning experts to formulate the network planning and construction scheme for the telecom bureau for free. In order to gain this project, we took the following four steps: (1) We won over 2 million RMB from the northeast Nenjiang disaster relief fund- raising budget and used this money to Chifeng, an area belonging to Nenjiang river basin as well. In this way, it showed Huawei's attention to Chifeng. The person who took charge of disaster relief project budget allocation was the Vice President Wang Cheng. After hearing our planning report, he approved this scheme. It has given us confidence to stick to this project. (2) Chifeng was a poor area, besides, and the telecom bureau's financial position was not so optimistic. Even if this bureau agreed with this project, it was impossible for them to take out so much money to pay for loan. If we wanted to succeed in fin- ishing this project, we had to put ourselves in our customers' position to solve the loan issue. Because I had some experience in supervising the international financing, so I was familiar with buyer's credit on export projects. I used my work experience in for- eign trade for reference and tried to apply them into domestic projects. Then I pro- posed a set of buyer's credit scheme for customer, namely, the telecom bureau asked for bank loan and Huawei provided guarantee for it. The telecom bureau nodded after a brief consideration and study. (3) To arouse the telecom bureau's initiative, we proposed subcontracting engi- neering installation to the bureau's the Tertiary Industry Company. During that time, the Tertiary Industry Company, of which each unit was an operation platform used to solve its enterprise's welfare issues. Therefore, the result of subcontracting business to the Tertiary Industry Company was far beyond cooperation and interest conces- sions. (4) We arrange leaders and experts of the telecom bureau to visit Huawei's mod- els in other provinces. By inspecting practical operation of Huawei' s products, the telecom bureau had nothing to worry about and it also strongly increased their confi- ~ 206 -- 209 of 362 -- dence on these products. After four months of planning, operation and efforts, we signed a sales contract of 50 million RMB value in the end of October, 1998. Under coordination from our market and Finance Department, we completed bank loan procedures. This project loan was fully transferred to our bank account without our delivery of goods, which created the first model of achieving large-scale money collection in domestic market by virtue of buyer's credit. Later, we transferred our "battlefield" to Tong Liao. By using the same strategy, we signed another contract of 30 million RMB value. During my training in Inner Mongolia, I achieved sales value of 80 million RMB in total, which accounted for 50% of the Inner Mongolia office's annual gross sales in 1998. At that time, this office was merely a subordinate agency with about one hundred em- ployees. Considering the outstanding achievements, my boss sent three documents to praise me. The last time, he uploaded my work report in 1998 on the column of Hua- wei' s NOTES system file bulletin board. This work report was considered as a best practice for employees' reference and study. The boss paid much attention to this case, because among Huawei's level-4 and level-S administrators at that time, I'm the only one who received this award. 6. 6 Establish the North African Department of Huawei and French Bid- ding Office In the end of December, 1998, I received a phone call, going back to company from Inner Mongolia as soon as possible. Since I was appointed as the General Manag- er in North African Regional Department as well as the representative in Algeria, my boss designated me to accompany Chairwoman Sun Yafang to Egyptian telecom exhi- bition in Cairo, and then worked in Algeria. Just the same as my work experience in other countries, I carried my notebook computer and my packages, came to Algeria alone to meet another challenge in my career life. In the following year, I established the North African Regional Depart- ment and French bidding office, most of whose employees were the local people, to explore local markets. Besides, I also established a competitive marketing team. Algeria, which belonged to one of Arab countries, was under France's govern- ance for several hundred years. The population of this country was more than 40 mil- lion; besides, Algeria was a Mediterranean country rich in oil. Its official languages were French and Arabic. Particularly, French was the most common used one in the technical field. Moreover, Algeria had built traditional friendship with Chinese gov- ernment. 207 ~ -- 210 of 362 -- We asked help from Chinese embassy for beginning market exploration as early as possible. In addition, we also set up friendly relationships with Chinese ambassadors, commercial counselors and military officers. They also learned about Huawei' s strengths in the domestic market and its determination and confidence on exploiting Algerian market. With the help of Chinese ambassadors, we quickly built partnership with PTI. Ambassadors, military officers and commercial counselors accompanied us to visit the Minister of PTT, which greatly promoted the process of our cooperation with PTI. To meet the long-term needs of exploiting market, we officially registered the representative office and recruited local employees. Because local laws, businesses, tenders and technical documents were needed to be written in French, besides, it was impossible to find out enough French technicians in China; we decided to make full use of local people to establish the French bidding office. On one hand, it can serve Algerian market; on the other hand, it could provide technical supports in French for other representative offices. This office was the first French bidding office that Hua- wei had established. Now it still supports the formulation of Huawei's global French tenders and technical solutions. To gain network access license, we had to open the experimental bureau as early as possible. However, the telecom bureau still didn ' t believe in our technical strengths; western competitors also made a lot of barriers for us; so we must do a number of painstaking and meticulous work. By using our own money, we invited Al- gerian department chief and division head to visit China and "New Silk Road" (Shanghai, Beijing, Xi' an, Shenzhen, Hong Kong) to inspect our equipments and technologies, and to visit Hong Kong Telecom exhibition. Through our continuous ef- forts, we almost opened the experimental bureaus for all the products of Huawei, in- cluding switch, access network, SDH, WLL and GSM on PIT's core network within half a year, and gained network access license at last. In order to take part in the tender of big projects in the future, we built friendly relationship with senior government officials in Algeria. Since this country was a mili- tary government, we even set up relationship with its military. Chinese embassy of- fered substantial help for promoting cooperations between the two countries. Algeria had undergone many years of turmoil; its economy had experienced great blow, so it was in desperate need of construction funds. We had participated in sever- al major bidding projects, and we had an advantage of ranking first in the bid evalua- tion, but PTT project had to be postponed because of the failure of gaining state budg- et. In the first year, we achieved a surprising sales value of $5 million after painstak- ing efforts. This was the first breakthrough that Huawei made in French-speaking ar- ~ 208 -- 211 of 362 -- eas. In the following several years, the political situation of Algeria was gradually sta- bilized. Thanks to the price surge of oil (petroleum, the lifeline of Algerian national economy) in the globe, it also brought huge financial revenues to Algeria. Then com- munication construction began on a large scale, Huawei also got quite satisfactory re- turns. As the general manager of North African Regional Department, I also exploited markets such as Tunisia, Morocco and Libya; established three representative offices for my company. So far, these markets turn to be Huawei's most important markets. After my transferring to North America and being appointed as the General Manager in May, 2000, I left Algeria. Later, North African Regional Department and Middle East Regional Department merged into one (the current Middle East- North African Regional Department). Now this department developed to be one of Huawei's over- seas Regional Departments of the highest sales volume. 6. 7 The first senior executive who made the plan to establish offices in the Europe and USA In May, 2000, I was appointed as the chief inspector of Huawei's overseas office- setup department. This was a "sole unprecedented" department and post. Because there never existed a department like this before and there was also no one who was given the post like that of mine. This was Huawei' s characteristic: the boss would create a special post for the special need to finish a special task. To plan the layout of Huawei's global overseas market, I went back to the head office in Ban Kou, Shenzhen from Algeria's North African Regional Department. I witnessed the grand and spectacular Bantian base which was full of modem flavor. Considering that Huawei's technical and economic strength had made great progress, while Huawei just put its main resources and energy into market explorations in devel- oping countries, I believed it was the right time to suggest my boss exploiting markets in developed countries. We all knew the population of developed countries just occu- pied 30% of the world, but their consumption needs took up as high as 70%. There- fore, I advised my boss exploiting North American and West European markets in due time. Only competing with western giants face-to-face in developed countries, could Huawei rapidly boost its technical level, strengthen product development and improve its comprehensive competence. In addition, we meet some multinational service pro- viders in business in developing countries, and their head offices were built in devel- oped countries. Unquestionably, developing European and American markets would promote the market development in developing countries. Then I set about doing in- vestigation, making feasibility study and writing planning report. My boss approved 209 ~ -- 212 of 362 -- my planning proposals and decided to establish European Regional Department and North American Regional Department. He appointed Deng Tao, the former General Manager of South African Regional Department as the General Manager of European Regional Department as well as the representative of British representative office, I as the General Manager of North American Regional Department as well as the repre- sentative of Mexico representative office. The fact turned out that it was a wise decision. It indicated that Huawei's strate- gy had gone through a significant transformation: from the former developing coun- tries to the developed countries. So far, this strategy has achieved obvious success. Huawei has succeeded in entering into markets in the developed countries such as Brit- ain, Germany, France, Dutch, Italy and Spain. It has become the main supplier and strategic partner of multinational service providers, including British Telecom, Vodafone, Dets Telecom, French Telecom and Telefonica. Besides, it has achieved large-scale sales, for example, the contract signed with Dutch Telecom valued as high as 0. 4 billion Euros. Although Huawei's market exploration in America was impeded by "Cisco-Hua- wei lawsuit", after building a joint venture with American 3COM, Huawei's sales vol- ume still reached $ 1 billion in 2005. The rumbling cooperation between Huawei and Northern Telecom were also continuing. This strategy would continue to be used in North America no matter by virtue of joint ventures or agency sales. 6. 8 Establish the Northern American Department of Huawei In order to make a rapid breakthrough in the markets, on one hand, we en- hanced technical exchange with service providers; on the other hand, we boosted our work load. With help from our agents, we invited client executives and experts to vis- it China. We determined to establish the representative office and North American Region- al Department in Mexico. North America Free Trade Area consisted of America, Canada and Mexico. The main reasons why we chose Mexico were listed as follows: First of all, these three countries had signed the North America Free Trade Agree- ment , so it owned a considerable fluidity in terms of people and goods, but no duty was charged in these countries. If Huawei was able to sell its products in Mexico, it would be easy to enter into the rest two countries. Secondly, America and Mexico were hometowns of capable multinationals such as Cisco, Nortel, Lucent and Motorola. If Huawei started from these two countries, it may meet great pressure even be forced out. Thirdly, Mexico owned a population of more than 100 million. It was the second largest country in Latin America. Besides, its GDP per capita was over $ 3000, so ~ 210 -- 213 of 362 -- this country owned a relatively strong purchasing power. Mexican telecommunication market was quite open, but its installed rate of communication equipments was only 10%, which was far lower than that of China, so there was a big potential in Mexico. Fourthly, cost in Mexico was relatively low. When considering the budget, it was an affordable place for Huawei to build office at that time. In Mexico, TELEMEX' s monopoly position was broken, because American gi- ants such as AT&T, NEX1EL, VERISON, Telefonica in Europe and Hong Kong Huchinson Telecom all made investments in this country. However, the one that oc- cupied the highest market share was still Mexican TELEMAX. Although it had under- gone privatization, by virtue of network resources formed through a hundred years of substantial investment, TELEMAX almost monopolized PSTN. Other companies were mainly engaged in the investment of CDMA or GSM mobile communication networks. Therefore, we kept our main target locked on PSTN of TELEMAX, while mobile networks on other mobile service providers. In order to make a rapid breakthrough in market exploration, on one hand, we enhanced our technical exchange with service providers; on the other hand, we boos- ted our work load, and invited client executives and experts to visit China with the as- sistance of our agents. We succeeded in inviting a senior delegation, with the chair- man of TELEMAX, to visit China; later, we also invited the director of Mexican Telecom Administration Bureau to visit China. These work played an important role in promoting market exploration in Mexico, soon we signed the cooperative agreement on GSM experimental bureau with VERI- SON, DWDW cooperative agreement with PROTEL and the network access testing contract with TELEMAX. To support market exploration, we officially registered the representative office, and recruited local employees. When we came to Mexico in June, 2000 for the first time, there were just two employees working in the representative office, namely, myself and my assistant Ruan Feng. Three months later, this representative office de- veloped to a scale with more than 40 employees, and built two offices in Mexico City and Monterey. The follow-up work was to prepare for Mexico Telecom exhibition. According to the practical condition in Mexico, we designed machine types and models for exhibi- tion, and made a name list of invitees to the exhibition. We booked an exhibition stand of 280 square meters, which was a relatively big scale in Huawei's overseas ex- hibitions. Due to the decentralization but large quantity of Mexican service providers, the work difficulty and work load of inviting customers were imaginable. In order to do well in relevant propaganda for exhibition, we invited a Mexican public relations 211 ~ -- 214 of 362 -- firm to hold the seminar and press conference. Besides, we also asked help from Chi- nese embassy to invite the Mexican President and other senior officials such as the Minister, and the director of Mexican Telecommunication Administration Bureau. The exhibition was turned out to be a successful one. During that day, the main Mexi- can media made wide coverage of reports about Huawei. In addition, the director of Mexican Telecom Administration Bureau, the chairman of 1ELEMAX and other service providers also came to the exhibition and attended the seminar. We also found some potential agents. When the exhibition ended in March, 2001, I received a new notice and I had to leave Mexico, where I had struggled for 9 months, for Huawei's Asia-Pacific Region- al Department. Work was just like this in Huawei: "the military camp is as strong as iron while the soldiers are as flow as water" 6. 9 Plan and establish Huawei' s TURNKEY Committee In July, 2000, I submitted a written letter to my leader, suggesting establishing an inter-departmental TURNKEY committee for our company. The main duties of this committee were managing the Engineering Procurement Department (responsible for supporting cooperation) , the Project Management Department (responsible for project management), and the Engineering Financial Department (for settling ac- counts) , reforming different kinds of organizational and business process reconstruc- turing. Huawei was a company growing up and fostered in Chinese telecom market. When entering into international market at the beginning, it may not quickly get used to the environment. Besides, it also may meet different kinds of troubles. If Huawei wished to win out in the international market, it had to conform to the international conventions. There was a big difference between the domestic and foreign telecom market. Chinese telecom service providers had a strong ability to provide the auxiliary items by themselves, so manufacturers merely needed to sell their products to service providers who would make their own configurations. While in the international market, most of service providers' tender items were TURNKEY items, and manufacturers' products just occupied 50% in the contract. If one company wanted to gain markets, its major product, the ability of supply chain management and project management must be competitive. At that time, Huawei's organization structure and business process were not competitive enough to support the implementation of the overseas TURNKEY project. I remembered that this kind of case always happened: to make tender offers much more competitive, we gave products the lowest discount on the basis of our max- ~ 212 -- 215 of 362 -- imum extent of power that our company granted us. However, we discovered that our overall price is higher than others at the bid opening. This case was rare in Chinese market. After investigation, we found that it was not us who raised the price, but other relevant subcontractors pushed up their prices. Even if we won the tender, most of our profits were eaten by subcontractors. Furthermore, the project management was also a big question. Since Huawei was the general contractor, it should take re- sponsibility for the overall project quality and process. If there was something wrong with subcontractors, it not only caused troubles for these subcontractors; it also would lead to customers asking for compensations from Huawei. As to the engineering man- agement of subcontractors and partners, Huawei had no experience; moreover, it didn' t establish special processes and departments for the management. In fact, it was far from enough to just manage items after signing contract with subcontractors. Huawei should own a standing body, which could be used for technical certification and business authentication for potential, qualified partners in advance. Besides, it also should establish a qualified POOL so that it was able to make a high quality sched- ule and quick reaction while going to forefront markets for tender. In light of this case, in July, 2000, I submitted a written letter to my leader, sug- gesting establishing an inter-departmental TURNKEY committee for our company. The main duties of this committee were managing the Engineering Procurement De- partment (responsible for supporting cooperation) , the Project Management Depart- ment (responsible for the project management), and the Engineering Financial De- partment (for settling accounts) , reforming different kinds of organizational and bus- iness process reconstructuring. This suggestion was quickly adopted by my company, and I was appointed as the part-time leader of this committee, participating in plan- ning and implementation work. It turned out that, this decision strengthened Huawei' s competitiveness in TURNKEY international items and its overall capacity in the international projects, increased its economic benefit in international project cooperation to a large extent. It fully indicates that competition in the international market is the competition of sup- ply chain management level. The brilliant achievements that Huawei have made in the international market today are closely linked to this important decision. 6. 10 The first marketing executive who expostulates for "Huawei 's Win- ter" with respect to control the cost When the global telecommunication market met bubble bursts and misfortunes at that time, in contrast, Huawei's marketing supervisors were still practising extrava- gant behavior. In September, 2002, I wrote a specialized analysis report and raised improving countermeasures as well. I advised Huawei controlling cost and practising 213 ~ -- 216 of 362 -- strict saving, which were approved by my boss. Later, Huawei formulated a serious of rules and regulations for "accumulating coats" to "get through cold winter of IT in- dustry", aiming at advocating saving, and a mass movement with the same aim hap- pened in my company, which laid a good basis for Huawei' s healthy development. When Huawei began to exploit markets, its extravagant and unnecessary costs were incomparable with other companies. There was even someone who said that Huawei never thought how to save money in the market exploration. Marketers al- ways spared no efforts to gain achievements. While Huawei' s unusual high profit margin hid and lessened the disadvantages of this action. With bigger and bigger scale and fiercer and fiercer international competition, Huawei's profit margin became less and less. With the bubble burst in IT industry in 2000, international IT market confronted with its "cold winter". The overall condi- tion of global communication industry got worse and more and more multinationals got into trouble one after another. Huawei's boss didn't feel at ease although it was still prosperous at that time. He warned that "Huawei' s cold winter" was coming, which caused great sensations in the prosperous Chinese communication industry. However, this warning didn't cause much attention in Huawei's interior market- ing system. No one took actions to response to this issue, and marketers still took it for granted that they should go on wasting money for their own achievements. First, it showed in Hong Kong telecom exhibition. In the end of 2000, it took Huawei 200 million Hong Kong dollars to hold this exhibition. More than 2000 cus- tomers and agents in the globe were invited to the exhibition. But at that time, Hua- wei merely established representative offices in many countries, so its market relations were relatively weak, which made it impossible to invite important customers to the exhibition. However, senior marketers advocated formalism. They forcibly ordered that each representative office must finish tasks that company allocated to them. Oth- erwise, it would affect their KPI evaluation. It was possible that their awards would be taken away. In order to finish these targets, the newly-built representative offices had to ask their agents to act as government officials or service providers to come to the exhibition. All guests took plane of business class and lived in five-star hotel. In addition, they could get extra precious gifts. In fact, at that time, Huawei's reception system was not qualified enough tore- ceive so many guests at one time. This led to that the genuine important guests failed to receive deserved receptions. A group of important guests, for example, the direc- tor and division head of Algerian Ministry of Posts and Communications, who were invited by North African regional department, met this problem. Huawei's reception system severely exceeded its capacity, so escorts from relevant representative offices ~ 214 -- 217 of 362 -- had to solve this problem by themselves. It took Huawei a lot of money to hold Hong Kong telecom exhibition, but the practical effect was limited. The second one was about the reception problem of M project. At that time, Huawei was talking about the strategic cooperation with American communication gi- ant M company. They were discussing that Huawei gave its WCDMA (UMTS) as OEM to M company, for selling Huawei' s 3G products through M company's sales channels in North America. The thing itself was good, but the only problem occurred was in the process of reception. A senior marketing supervisor's extravagant action surprised all of us. In order to promote this cooperation as early as possible, the Vice President, who took charge of M project, gave VIP treatment to customers when they came to visit China. Besides, every time, the meeting places were chosen at beautiful places of in- terests, for example, Dalian, Xi' an, Qingdao, Hangzhou and Suzhou. He also brought his whole project group, with tens of people, and office facilities to these meeting places. Even if when the negotiation was in Shenzhen (Huawei's head office also was located here), he arranged them to stay at the most luxurious five-star hotel in Shenzhen- Wuzhou Guest House. The meeting room was also the most luxurious and splendid one, whose rent was as high as 7000 RMB per day. As far as I am concerned, whether a negotiation is a success or failure is not de- termined by Huawei' s reception work, but whether it could find out the common ground to achieve mutual benefits. If Huawei hopes to show its host position, it can arrange professional tour guides who work in the travel agency to accompany its guests after the meeting is over. There is indeed no need to let tens of employees accompany them. In fact, Huawei's meeting room is more expensive than that of Wuzhou Guest House. Therefore, there is also no need to spend money in renting meeting room. It is not because Huawei is not affordable for this, but it should think this question- how could Huawei get through "cold winter" if each department and each project do like this. It is said that this kind of action is very common in Huawei; the only differ- ences lie in degree and form. The third one was showed in the reception of a country's director of Telecom Ad- ministration Bureau. I had gone back to work in Shenzhen in 2002, where Huawei' s head office was located in. Since I had worked in this country, I was designated to go to the airport to greet this VIP on behalf of my boss. In fact, Huawei had begun to rent commercial planes of China Hainan Airlines for the reception work at that time. On one hand, it was to show Huawei's attention to this guest; on the other hand, it was also a way to show Huawei' s strength. However, it was very expensive to rent commercial planes, with cost of about hundreds of thousands of RMB for each trip. 215 ~ -- 218 of 362 -- For Huawei, which itself said that it was under "cold winter", we had to admit it was a huge burden and cost. When the global telecommunication market met bubble bursts and misfortunes at that time, in contrast, Huawei's marketing supervisors were still practising extrava- gant behavior. In September, 2002, I wrote a specialized analysis report and raised improving countermeasures as welL I advised Huawei controlling cost and practising strict saving, which were approved by my boss. Later, Huawei formulated a serious of rules and regulations for "accumulating coats" to "get through cold winter of IT in- dustry", aiming at advocating saving, and a mass movement with the same aim hap- pened in my company, which laid a good basis for Huawei's healthy development. 6. 11 Submit the "Wanyanshu" (a long written paper full of opinions) when Huawei is in a dilemma, and reconstruct the Public Relationship Depart- ment Thinking of Huawei's failure in CDMA project tender of China Unicorn's second phase and competitors' outstanding performance, we had to rethink Huawei's public relations. When I was on a business trip in Beijing in March, 2003, I saw a report on a web- site: the supervision department sent a notice that service providers in all areas should not use 450M CDMA technology to develop Personal Handphone System (PHS). In fact, industry insiders learned that clearly, it directly aimed at Huawei, because at that time, only Huawei used 450M CDMA technology to develop PHS. Thinking of Huawei' s failure in the second phase of CDMA project tender of China Unicorn and competitors' outstanding performance, we had to rethink Huawei' s public relations. Therefore, I drew up an analysis report and submitted it to my boss. Below was the whole report: Several Introspections and Proposals for Huawei' s Public Relations --Thinking from the force-out of 450M CDMA PHS by the supervision depart- ment in recent days. 1. Several heart-breaking cases 1. 1 The failure in the second phase CDMA project of China Unicorn. Although there were many objective reasons that caused the failure of this pro- ject, for example, pressure from America's WTO negotiation, product shortage in the first phase of project. However, we had already embraced the ability of providing a whole set of products in the second phrase, furthermore, commercial environment was also not bad. Justly speaking, it was impossible to lead to our complete failure. While other domestic manufacturers such as ZTE and Jin Peng gained a lot of profit. I believed our public relations work was not enough to support this project, no matter ~ 216 -- 219 of 362 -- seen from our efforts or levels. This was one important factor. Don't complain that state and service providers didn't provide supports for you. It was because you didn't work harder and failed to communicate with them well, so they learned nothing about your strength. Besides, competitions were fierce home and abroad, so this result was inevitable. 1. 2 The force-out of 450M CDMA PHS by relevant department in recent days. It was reported that, the supervision department sent a notice in recent days that service providers in different cities should not use 450M CDMA technology to develop Personal Handphone System (PHS). In fact, industry insiders learned that clearly, it directly aimed at Huawei, because at that time, only Huawei used 450M CDMA tech- nology to develop PHS. What UT Starcom and ZTE used was PHS technology or CD- MA 1900, which were excluded from the scope of this ban. In recent years, the Su- pervision Department didn't give too much attention to develop PHS. Quote the orig- inal words released in early this month: "We neither encourage nor prohibit develo- ping PHS." Why other companies could gain vast development, but we were forced out immediately when stepping out? In fact, they had gained "supports" in the whole process of planning and promoting a new product. This kind of "support" can't be reached merely by depending on the market relationship; instead, its meaning was much deep. So this was what we lacked of. 1. 2 A comparison between friendly businessmen's successful international fi- nancing and our company's work. In recent years, Z Company didn' t invest too much labor power 1 material re- sources and financial resources like what our company had done, but just as a word says, "different approaches but equally satisfactory results", it also gained a satisfac- tory market returns. Z Company's victory was closely related with its success in the international financing strategy. While the success of financing stemmed from its close cooperative partnership with Chinese government (Ministry of Foreign Trade and Economic Cooperation and Foreign Ministry) and National Policy Banks (Credit Insurance Company 1 Export & Import Bank). On the basis of this important work, Z Company successfully achieved Pakistani project (of $90 million value, in 1997), Yugoslavian project (of $300 million value, in 1998), Kongo project (of $20 million value, in 2000), Indian DWDM and CDMA projects (of total $50 million value, in 2002), Nigerian GSM project (of $56 million value, in 2003) and Russian GSM pro- ject (installed 50 thousand lines, in 2003). (All data came from online reports.) These projects were achieved by financing, which truly promote sales and money collection. Z Company sent a resident chief inspector in Beijing. This man was in his 30s, with doctor's degree and competitive advantages. We could see Z Company had 217 ~ -- 220 of 362 -- invested a lot in public relations. Now take a look at what our company had done. Our financing representatives in Beijing were two common salesmen, whose employee numbers rank beyond 20 thousand, besides, they had already left Huawei. Persons substituting for them were new employees, whose job numbers even rank more than 30 thousand. Therefore, no matter seen from experience or levels, they were not qualified enough to communicate with customers and senior government officials. It was also definitely impossible to gain good financing achievements. 2. Changing market environment rendered us new challenges. 2. 1 Telecom restructuring didn't change the highly regulated characteristics of Telecom industry. Taken an overall view of the world telecom industry, they still subordinated to highly regulated industry, no matter they had gone through privatization and deregu- lation or not. For example, the relevant supervision department still controlled the network access test and license, the adoption of new technology and new standard, the allocation of wireless spectrum resources and business licenses, etc. For manufac- turers and service providers, this suggested a battle of "life and death" . As a result, these relevant administration departments unquestionably became targets for public relations to convince and gain supports. Every company knew this point quite clearly. However, not everyone could do this welL The key points for this work included: which strategy to be adopted; how to use this strategy and who were qualified to do this work. Due to different strategies and implementation measures adopted by differ- ent manufacturers, the results were certainly different. The three possible results in- cluded: 2. 1. 1 By virtue of regulatory policy, manufacturers defined their own standard as the industry standard. Or they might enter into market quite earlier and rapid, and get the monopoly position, even attack competitors and drive them out through the Supervision Department. The final goal was to develop them and make them much stronger. This could be called the best plan. 2. 1. 2 "Catch up with the bus, and gain a piece of land", in this way, they would not be excluded from market. This is a good plan. 2. 1. 3 With the supervision departments' intervention, they would be forced out by competitors. This is a bad plan. 2. 2 Telecom restructuring made decision-making right shift to a higher leveL After restructuring, decision-making right of C3, C4level, controlled by counties and cities, gradually shifted to provincial company C2 and the head office Cl in Bei- jing. Besides, more and more service providers' head offices in Beijing would control budget and procurement. With the deepening of integration process and the shift of ~ 218 -- 221 of 362 -- business models from extensive form to intensive mode, especially under the warning of current western telecom industry's crisis, this centralization trend would be more and more obvious. The decrease of construction plan and tight budget, the process of centralization would speed up. Therefore, the core place for manufacturers to do public relations would shift to Beijing and centralized here. It was not difficult for manufacturers to realize this point, but how to get it done well? Of course, this needed guarantees from relevant organization structure and human resources. It was certainly that markets could be gained through strength competition. How- ever, if two companies had the same or similar strength, public relations work could change the market pattern, it even played an important role in determining the "life and deathn of a company. Furthermore, to some extent, public relations work also re- flected one side of a company's strength, because it reflected a company's capability to influence the market, even to lead market. 3. The existing problems of our company. 3. 1 Relations with top leaders are relatively weak. Our relationships with top leaders should not just stay at the operation level; we must take it into action and promote it to the decision-making level, even to a much higher level. Otherwise, it is impossible to win out the important projects. Under pressure that American company exerted pressures on Chinese government by virtue of WTO negotiation, American company won in the second phase CDMA project of Chi- na Unicorn. The public relations work with politics involved can be considered as the best public relation. So it is impossible to fail to promote the implementation at the operation level. Just as a word says, "Pull a tiger's leather as the banner". 3. 2 Frequent reassignment of supervisors, lack of long-term strategy. The reassignment of supervisors in our company is too frequent. So supervisors are not stabilized. However, the target of public relations work is people. Personal relationships between supervisors and customers, officials would pose a great influence on public relations with companies and customers, government departments. No mat- ter you like it or not, personal relationship could be retained for tens of years, and e- ven exceeds the work relationship. Frequent reassignment of supervisors will make customers feel uneasy; moreover, it is impossible for supervisors to keep a long-term planning and outlook, instead, it would be easy for them to have a tendency of quick success. Japanese companies usually formulate the long-term training and employment plan, it achieved good market results. When I studied in a presidency class in Harvard Business School, I met European Regional President of Itochu. He said that he had been designated to work in Britain for 15 years, and this kind of things always hap- 219 ~ -- 222 of 362 -- pened in his company. 3. 3 Employees hired are not all suitable. Now, our working targets have shifted from C3 and C4 these "fair-weather friends" to masters, doctors, even returnees; from section chiefs , division heads to CEO, CTO, COO, CFO, even government or department heads. If you just graduate from universities, or your experience, knowledge, even age are not enough or quali- fied, how could you communicate and exchange with client executives? Shall public relations just be lower level work such as entertaining, dinner and presenting gifts? Is it so easy to settle public relations targets? How much knowledge do you know about them? What are their interests and hobbies? What do they love, hate, disgust or con- cern about? Do you know their ambition, short-term and long-term plans? Therefore, we should improve the personnel system and employment standards to get used to the changing market environment. 4. Several pieces of suggestion. 4. 1 Shift focus of work in domestic market to Beijing in a true sense. We should not only do well in each service provider' head office, but also in rele- vant government departments. Keeping in touch with them, reporting to them about our relevant work frequently, gaining supports from relevant national industrial poli- cies, making a widespread propaganda of our company, building image of the national industry, propagandizing our contributions to China communication industry (for ex- ample, proprietary intellectual rights and core technology that we have mastered) which could be elevated to the drive of whole industry chain and relevant enterprise groups, the output value and tax revenue they created directly and indirectly, foreign currency that is saved, the introduced foreign investments (Ahn Sung, 3COM), job opportunities for senior talents, its contribution to the nation and its community, etc. are all what we should do. Only when your target groups learn more about you can they provide sincere help to you. Huawei' s career is a part of the national career. 4. 2 Choose right persons and foster them. My suggestion is choosing a group of high education, high quality and high level talents, with rich marketing experience to work in Beijing. Only qualified persons can do high-level public relations. We should not consider public relation as a lower-grade and vulgar one, or just consider it as the routine work to build and keep relations with others; instead, we should try our best to make it strategic ones. Public relations should not only plan some important activities to meet company's marketing and stra- tegic needs, but also can help coordinate government and political work when necessa- ry. We have no other ways, so do other friendly businessmen home and abroad. Un- der high-regulated market environment, we must rely on government supports. In ~ 220 -- 223 of 362 -- fact, government is also willing to support our national industries; the key point lies in how to convince them. As a matter of fact, only high level talents could plan and finish this kind of work. Moreover, these talents must grasp professional knowledge as well. For example, if you plan to appear on the market, you need to communicate with China Securities Regulatory Commission, Ministry of Finance and State Development Planning Com- mission. If you learn nothing about listing and financing, how do you communicate with customers and how to cooperate with investment bank? 4. 3 Try our best to improve and make breakthroughs on the basis of the current public relations level. For some national major projects, it is neither service providers' division head nor President, CEO who have the final say. Sometimes, some states need to check and approve, because they have to take diplomatic and political factors into consider- ation. How do you gain supports from your state? First, you need to let them know you and understand you. You need them know your leadership position in the national industry, your importance to China telecom industry, even the importance to drive China economy. Only in this way would they think of you when making decision. These things should be done in advance, this is much more important. We shouldn't begin to do these things only after projects come, accumulation is more important. We also should make a strategic plan about writing and giving reports and own long- term perspectives and specific goals in terms of public relations. 4. 4 Relatively stable in employment. It is difficult for customers to get used to different employees if they are changed frequently. Moreover, benefits are not as good as what we expect. When new em- ployees are allocated to new positions, there is always a process of studying and adap- ting to new environments. But when they just adapt to the new position, they may be assigned to another new position. This results in that they are always new employees on one position, which greatly influences their achievements. In addition, Due to the instability of employees, who have chances to practice in different departments for a short time, there exists a high talent wastage rate. Employees would feel that they are just passer-bys and it is not a real career to work in this company. So they would jump to other companies once they get a chance. It is impossible for them to own a long- term plan and overall concept. 4. 5 It is never too late to take action. Anybody may make mistakes! There is not an enterprise that could guarantee all what they have done is right, nor could it predict what will happen in the near future. But if you can draw lessons and gain experience from your own and others' failures 221 ~ -- 224 of 362 -- and successes all the time, you are able to make the right decision and stand invinci- ble. I heard a story happening in Harvard Business School. It talked about competi- tions in browsers between Microsoft and Netscape. At first, the latter occupied a mar- ket share as high as 80%, while the former merely owned 10%. However, by using its strong strength such as research and development, financial resources and markets, Microsoft developed IE browsers as quickly as possible after making a thorough study of Netscape's products and commercial model. The later comers surpass the formers, Microsoft defeated Netscape. Today, Microsoft has occupied 90% market share of IE browsers in the world. Cisco is another example. It didn't own too many products invented or developed by the company itself, but it always studied from new competitors, or defeated them or followed them closely then surpassed them. We should not despise our competitors, no matter large or small. Since they have succeeded, they must own something that we can learn and study seriously and then surpass them, defeat them. There are many things to learn from friendly businessmen home and abroad, whether they are large or small. In terms of the topic of this article, it is never too late to carry out public relations for our company from now on. We are still the lar- gest telecom manufacturer in China, and we own incomparable strengths and advanta- ges. If we hold the right view and make the right strategies, we can do much better than anyone else in the world. By Zhang Guanjing March, 28th, 2003 Huawei leaders gave profound attention to my report. The boss took relevant measures according to my suggestions. Later, I saw company files about adjustment and enrichment of Huawei's public relations department. It also gave an adjustment of the Vice President who was responsible for government relations. In fact, public relations were not my duty. However, I love my company with my professional ac- complishment; I still put forward my suggestions. It was surprising that these sugges- tions were adopted so quickly. 6. 12 Initiate a comprehensive cooperation between Huawei and the west- em giants In the end of 2001, I was appointed as Huawei's Chief Inspector of the Interna- tional Joint Venture and Agent Management Department, which consisted of the for- mer International Cooperation Department, the Agent Management Department and the Joint Venture Cooperation Department through merger. The duty of this depart- ment was conducting the international strategic cooperation of Huawei. While in the ~ 222 -- 225 of 362 -- past, these businesses were scattered to different business systems. This was the last system under my responsibility before I resigned from Huawei. During that time, I witnessed and took charge of Huawei's all-round strategic cooper- ation. This strategic transformation had a deep influence on Huawei and the industry. In late 2002, I was sent to the presidency class in Harvard Business School by Huawei due to my outstanding performance. Due to the lawsuit filed by American communication giants Cisco, Huawei had to transform its strategies used to treat international communication giants. It issued a document, which required Huawei' s employees call opponents of communications home and abroad "friendly businessmen" instead of "competitors". This was a major strategic inflection point. The main purpose of this strategy was to get rid of strong resistance from western giants. Huawei' s competitors always denounced Huawei' s "playing cards without observing rules" because of its powerful attack and "fatal" price competitiveness. At the same time, they also felt a great potential threat. So they called Chinese enterprises like Huawei "plunders" or "predators". Cisco's bloc- king action to Huawei was a good example. It was also a strong signal sent by western competitors to show their resistance. The strategic cooperation instead of blindly head-on "confrontation" with inter- national giants turned out to be one important strategy of Huawei. Let me explain it from the tough data communication products. On one hand, Cisco's lawsuit to Hua- wei was very urgent, only by making more friends could Huawei own more chances to win out. On the other side, there was a difference between Huawei' s main products and data communication products which belonged to distribution channel products. However, Huawei didn't own too much successful experience in the establishment and management of distribution channels. After introducing western companies, by virtue of their distribution channels in the international market, Huawei's products were a- ble to enter into the international market. Besides, Huawei could build and improve Chinese channel network through learning from experience of western partners. In fact, Huawei was never engaged in these things before. It ever tried to set up its own distribution channel for its data communication products through the internal business startup. However, Huawei failed. Furthermore, it leaded to a serious consequence: the "betray" of Huawei's general agent-Harbor run by Li Yinan. At last, Harbor developed to be the competitor on which Huawei had a headache. In light of this situation, cooperation with 3COM was very natural for Huawei. What 3COM valued was Huawei' s low-cost research and development capacity, be- cause Huawei's products were not only competitive in technology, but also had low- cost advantage. Cooperations between the two companies shape a complementation of 223 ~ -- 226 of 362 -- each other's advantages. So Huawei signed a joint venture contract with American 3COM very soon and decided to establish Huawei-3COM in Hangzhou, China. Hua- wei took charge of providing technology and talent teams, while 3COM was responsi- ble for providing capital and exploring markets in developed countries, joint venture was responsible for exploiting Chinese market. In the critical moment of lawsuit between Huawei and Cisco, American 3COM's CEO showed up in court to testify for Huawei. At last, Huawei received satisfactory result from this lawsuit concerning about intellectual property. Three years after the establishment of Huawei-3COM, it achieved surprising business performance and cre- ated a substantial market returns for both companies. At this development stage, Huawei began to cooperate with Motorola, Siemens, Lucent, NEC, Ericson, etc. one after another and also achieved satisfactory progres- ses. In 2002, Huawei and Motorola started to cooperate in the mobile communication area. Motorola provided many OEM products for Huawei, including GSM, GPRS, and WCDMA At that time, Motorola sold many wireless products in the internation- al market. Although these products were sold at Motorola brand, maybe they were actually Huawei' s OEM products. In order to expand further cooperation between the two, they built joint research center in China in 2006. This was considered as a major strategic measure of powerful alliance to cope with the merger wave happening in the global communication industry. The cooperation between Huawei and Siemens beginning in 2003 was mainly a- bout 3G projects of Chinese edition. Both sides established a joint venture named TD Tech Ltd, responsible for YD-SCDMA products research and development. Current- ly, products made by this company have already gained approval from the Ministry of Information Industry, and they are under large-scale commercial tests. Chinese 3G li- censes are continuously appearing on the markets. I believe Huawei and Siemens would gain profitable 3G achievements in China-the biggest mobile communication market in the world. I graduated from a presidency class in Harvard Business School in May, 2003. In the end of this year, I left Huawei and ended my nine years of career life in Huawei. To realize my dream, I established my own information technology company. From my entering into Huawei in 1995 to my resign in the end of 2003, I partici- pated in and played an important role in Huawei' s process of internationalization, created Huawei's global marketing system and went to more than 40 countries in the world. No one could fully understand the hardships I met in this process. However, this career life would be my life-long pride and treasure. Besides, my "Huawei com- ~ 224 -- 227 of 362 -- plex" was also formed in these nine years of struggle and hard work. My achievements were not only changing Huawei's internationalization process profoundly, but also ex- erted a deep influence on my life. 225 ~ -- 228 of 362 -- Article ][ Huawei as an Opponent fl~.....~....·~·l•...,l~lfll·......·lll•...'i!l ...~l•................,......., .....l..... l~··l·......·lll•......•lll~l ...~l.....,...........,..,..... ~.l·...,· ~...·lll•......•""-+'~~' ...'111...'1!............,.... ! 01 one hand, Huawei strengthens itself in collooorations ; on l J the other hand, it conQJers q)ponents in canpetitions. Wi II 1--llaw ei J t purchase ZTE? How does 1--llawei armesty Harbor? How do HJaw ei t f and Cisco perform "war" and "peace"? Are you inclined t o realize f ; more lowdown md truths? f '--•I~.......IQII.........•II•+<tl....•l~jllo+tii!...J•.......tl~+l!l-+!lll•.......oJII!+<tl....•ll~l .....~..............,....p.+lll•......oJII!.......•II•+-<tl...•ll ....t~ l llo....J•.....I'*I II•+IJ Chapter VI[ Huawei and Six Domestic Counterparts' Destinies 7. 1 Huawei VS ZTE Both Huawei and ZTE considered each other as the biggest competitor; however, they also considered each other as the example and model to research and learn from. Their competitions extended to foreign countries from the domestic market and they gradually became the "binary stars" in global communication market. The "Binary Stars" in Shenzhen In the late 1980s and early 1990s, Chinese national communication enterprises- Great Dragon, Datang, ZTE and Huawei rose up dramatically. They were given the title "Ju Da Zhong Hua" by the minister of Ministry of Posts and Telecommunica- tions. After 15 years of hardships and tests in the domestic and foreign markets, only "Zhong Hua" CZTE and Huawei) still stand towering today. In 2005, Huawei realized its global contract sales of $ 8. 2 billion, among which $4. 75 billion came from the international sales, which accounted for 58% of total revenues. This was the first time that the international sales surpassed the domestic sales for Huawei. From then on, Huawei turned out to be a genuine multinational. At the same year, it achieved the profit margin of 5. 15 billion RMB. After keeping the profit championship in Chinese top 100 electronica enterprises for several consecutive ~ 226 -- 229 of 362 -- years, it won this great honor once again. While in 2005, sales volume for ZTE were $ 2. 7 billion; the overseas sales vol- ume was around $ 1 billion, accounting for 35% of total sales volume. In the same year, ZTE achieved a profit margin of 1. 91 billion RMB, ranking the third in Chi- nese top 100 electronics enterprises, merely lagging behind Huawei and Lenovo. It was rightly this year that Huawei and ZTE made historic progresses after 10 years of international market exploration. In 2005, the overseas gross sales approxi- mated to $6 billion, surpassing SO% of overall revenues. The core of competition be- tween Huawei and ZTE began to walk toward the international markets from the do- mestic markets. For Huawei, Chinese market evolved into one of its nine regional de- partments in the globe. While for ZTE, Chinese market became one of its four mar- keting business units in the globe. Therefore, the competition between the two was al- ready put into the background of international competition. At the same time, on the Chinese top 100 electronics enterprises list of high gold content, Huawei and ZTE profoundly took the first several places: Huawei won the first place for tax payment in 2005, with a total of 4. 93 billion RMB tax; the second one was ZTE, with 2. 52 billion RMB. While on the list of Chinese top 100 software enterprises, Chinese top 100 enterprises in research and development investment, Chinese top 100 enterprises in patent application and Chinese most creative enterpri- ses, Huawei always ranked the first, while ZTE also ranked in a relatively stabilized position, the second or third. In April, 2006, Huawei showed up in a financial analyst meeting held in Shenz- hen, and it predicted that its growth rate of sales volume and orders would exceed 30% in 2006, with sales volume of $7. 8 billion, 32% increase when compared with $ 5. 9 billion in the previous year; besides, its total contract sales would hit $ 10 . 7 billion. ZTE also predicted in an early time, in 2006, its overseas sales volume would possibly increase 200% compared with the figure in 2004, reaching 40% of its corpo- rate gross business income. Huawei and ZTE were called the "binary stars'' in Shenzhen by industry insiders , because they were geographically the same; they complemented, cooperated and com- peted with each other in terms of resources, markets, technologies, management and marketing, etc. However, they were also two completely different companies, with different corporate cultures and management ideas. Although there were many differ- ences and similarities between them, they had the same dream. They learned from each other, competed with each other, and also achieved success together at last. Both of them considered each other as the biggest competitor; however they also con- sidered each other as the example and model to research and learn from. Their com- 227 ~ -- 230 of 362 -- petitions extended to the foreign countries from the domestic market and they gradu- ally became the "binary stars" in the global communication market. Huawei and ZTE are models that they can learn from each other In the process of interaction and competition between Huawei and ZTE, the for- mer was always the "big brother" and a model for ZTE to research and learn from. At least, this was a general idea that most Huawei people held. The reason for ZTE's research and learning from Huawei was that the former's ownership structures decided it had no choice but to do so. ZTE was a "state-owned private-run" high-tech company, the controlling shareholder of which was Shenzhen ZTE Holdings, with 44. 1% state-owned legal person share in hand. ZTE New Com- pany was set up in April, 1993. It was a joint venture of Shenzhen Aerospace Guan- gyu Industry Corp, Xi' an Microelectronics Inc and ZTE WXT, with respectively 17%, 34% and 49% shares in hand. Shenzhen Aerospace Guangyu Industry Corp sub- ordinated to China Aerospace Science and Industry Corporation ( CASIC), a state- owned enterprise. Xi' an Microelectronics Inc subordinated to China Aerospace Elec- tronics Corporation, a state-owned large-scale scientific research institution. While ZTE WXT was a high-tech private enterprise built in October, 1992, with Hou Weigui as its legal representative. It was rightly the unique "state-owned private" management mechanism that created ZTE. In fact, "state-owned" was not a unique feature, instead, its drawback of traditional mechanism turned to be objects of refor- mation and change. While "private" was the unique one; it suggested using mecha- nisms of private enterprises to manage this state-holding enterprise and using the pri- vate system to reform the state-owned system. Therefore, objectively speaking, ZTE had to seek for one private enterprise to research and learn from. Huawei was established 5 years earlier than ZTE Holdings. It was unquestionable that the former would be the target learned by the latter in the early time, because ZTE had made some progresses in communication area. Most of outsiders believed that studying, catching up with Huawei and surpassed it were the target since ZTE's establishment. However, Huawei always did quite good jobs, which left no chance for ZTE to surpass it in most cases. This was not misfortune for ZTE; on the contrary, it was a big fortune, because it found out the right target so that ZTE could follow Hua- wei closely and make progresses. In the commercial war, the "follow-up" strategy was indeed an effective strate- gy, which could not only avoid big mistakes, but also could keep up and share prey when leaders were in the right direction. Although they had no access to be the big- gest one, it was rather worthwhile from the perspective of harvest and investment. When they found leaders walked into the wrong direction, they could turn round in ~ 228 -- 231 of 362 -- time, without bearing a huge loss like leaders. In addition, they gained a chance to catch up with even surpass competitors and establish their leading position. Although Z1E didn't catch up with Huawei to be the "big brother" in Chinese market, it suc- cessfully stood out in many Chinese communication manufacturers by following Hua- wei and became one member of "Ju Da Zhong Huawei'' in the 1990s. Besides, it suc- cessfully surpassed Great Dragon and Datang after 2000 and grabbed the second place after Huawei. Every year, Huawei' s contracts and sales volwne were two times more than Z1E's; besides, the former's profit was three times higher than the latter's. Moreo- ver, Huawei's patents far exceeded those of Z1E. Especially in the overseas mar- ket-the core of Huawei and Z1E's current and future competition, ZTE obviously lagged behind Huawei. In 2005, Huawei achieved $ 4. 75 billion of contract sales in the overseas market, which accounted for 58% of its total contract sales. While Z1E just gained around $ 1 billion revenues in the overseas market, which only occupied 35% of its total sales. Therefore, Huawei's successful experience and its strategies and tactics in the o- verseas market are the key points that Z1E currently needs to research and study. No matter it was purposeful or accidental; Z1E merged its two marketing business units in the domestic into one, just like what Huawei had done. Moreover, ZTE also sent its market supervisors with rich marketing experience to the overseas market. This strategy was the same as Huawei' s-"Outputting revolution and communizing the whole world". Anyhow, there were also sometime that Huawei learned from ZTE. Concerning the CDMA and PHS markets, ZTE was the biggest beneficiary, while Huawei lost market opportunities because of its poor decision. At that year, UT Starcom took PHS technology to China and persuaded China Telecom and China Netcom to develop PHS. Since this technology was abandoned by Japanese market; Huawei believed PHS technology lagged behind the advanced world level, besides, state imposed a strict su- pervision on PHS, so Huawei gave up it since it thought there was no much potential to develop PHS. While at this critical moment, ZTE, which was considered as a qualified follower of Huawei, made a complete opposite decision decisively-develop PHS program im- mediately. The main reasons were as follows: First of all, China Telecom had an urgent need of wireless access. Secondly, PHS price owned a big advantage when compared with that of China Mobile. Thirdly, users of China Telecom had variable demands. 229 ~ -- 232 of 362 -- Fourthly, it was impossible to start up 3G quickly. If entering into mobile mar- kets through PHS, we could develop our own potential customers for 3G business in the future. Fifthly, PHS had gained wide use in Japan, so there was a big technological guar- antee. Among these five reasons, technology was the last aspect taken into considera- tion; while the first four were about market demands. It was imaginable that what de- cision Hou Weigui would make when he heard opponents' explanation-PHS was a kind of technology to be abandoned. However, this PHS-facing with the destiny of being abandoned, became a cotton jacket for ZTE to get through its "cold winter". In 2002, ZTE achieved more than 3 billion RMB of business income in PHS, which ac- counted for one third of its main business income. While in 2003, Z1E gained surpris- ing sales volume of more than 7 billion RMB in PHS. It was also Z1E that took the lead of developing mobile phones which created satisfactory market returns for Z1E in both domestic and foreign markets. Since Hua- wei was restricted by The Basic Regulations in Huawei (the first edition) , it devoted itself to become "the excellent systematic equipments supplier of service provider-lev- el", so it disregarded the research, development and production of mobile terminals. After seeing the substantial market returns that ZTE gained in PHS and mobile phone from year 2002 to 2003, Huawei began to rethink and made a decisive decision to learn from Z1E. Since 2004, Huawei set out to produce PHS and other mobile phones. So far, it has gained the leading position in 3G mobile phone area. Competitions promote the growth of both Huawei and ZTE In recent two years, global telecommunication industry still couldn't step out its "cold winter". You could see from the following aspects: 3G's performance was not good in the international market, which made it impossible to execute wide-spread commercial use; Telecom manufacturers and service providers were heavily in debt because their big investment in 3G project couldn't be drawn back in a short time, this even resulted in a restructuring and merger wave in the world telecommunication industry. While Chinese 3G market, from which the world supposed to gain help, didn't issue licenses in time. Therefore, telecom equipments manufacturers in the world have a hard time to get through. However, Huawei and ZTE not only kept their good development trend, and stand stabilized in the world telecommunication e- quipment market, they also gained a great potential to catch up with telecom giants and surpass them. So their every action caused worldwide attention and study; their interaction and competition also became the focus of academia and business circles to conduct research. ~ 230 -- 233 of 362 -- Although Huawei and ZTE were quite different in corporate culture, manage- ment idea and ownership structure, etc. , their production lines were nearly the same, so their businesses were rather similar. It was inevitable that they had to compete with each other fiercely. They not only "fight" in domestic market, this fierce competition even extended to the global market. In fact, this kind of competition was rather fierce sometimes; there was even someone who was worry about that the both sides might face failure. However, it is rightly this fierce competition that creates their success today. Maybe Huawei' s leaders had already predicted this result. Just like Huawei said in a comment on purchasing Harbor, objectively speaking 1 the competi- tion between the two promoted Huawei' s developments and progresses in data com- munication area; besides, competitions from ZTE promoted Huawei's improvements as well. I believed ZTE's leaders also hold a similar view: thanks to the existence of strong competitors, it couldn't relax, so its progress for stepping toward was much faster. Seen from several years of competition between Huawei and ZTE both in the do- mestic and the international market, no one was completely defeated by another. On the contrary 1 they promoted each other for progress and gained a rising position in the international market. The current situation is: in the domestic market, ZTE en- ters into PHS and CDMA network and terminal markets, while Huawei makes dra- matic breakthroughs in cooperating with China Mobile and keeps its leading position in fixed network; in the international market, both Huawei and Z'IE occupied a large number of customers in Asian, African and Latin-American markets, Huawei has made large-scale breakthroughs in European market and is heading toward America 1 while ZTE is closely chasing after Huawei. Thanks to this competitive environment, two companies grow to be the mainstream communication equipments suppliers in the world. Now, Huawei has already successfully gained trusts from British Telecom 1 Vodafone, Telefonica, France Telecom, Deutsche Telecom and KPN, and became the strategic supplier for these multinational service providers. ZTE has also made a big progress in developed countries, it is expected that ZTE could make a break- through in scale soon. This pair of "binary stars" in Shenzhen are "lighting" the global communication market now. It is certainly that competition would lead to the decrease in transaction price. However, thanks to the active cooperation between both sides, Huawei and ZTE gain their current positions and prevent the third party-some famous international equip- ments manufacturers entering into competition in some projects in advance. Although the winner is only one, the rest one also plays an important role in protection. This fierce competition leads to either shut down or merger of western giants, the other so- 231 ~ -- 234 of 362 -- lution is making strategic cooperation with China to lower cost by OEM Since Chi- nese market owns obvious cost advantage, so price competition for Huawei and Z1E is just a strategy of "small profits but huge sales volume" and it doesn't affect compa- nies' life. While for multinationals, price competition is closely linked with compa- nies' life and death. In recent years, the phenomena of a series of restructuring and merger of communication giants happened one after another, for example, Lucent was purchased by Alcatel, Siemens sold its mobile phone business to BENQ, Sony and Ericson's merger in mobile phone program, Toshiba mobile phone retreated from Chinese market, etc. They are dazzling. International industry insiders believe that the main reason for these phenomena comes from competitions between Huawei and zrn. If market is monopolized by one company or state just gives supports to one enter- prise in one area, its progress would not be better than supporting two or more enter- prises. The reason for American Silicon Valley's show up is not that American gov- ernment gave assistance to one enterprise, but that an area owning overall competi- tiveness is far better than any other area. American MacDonald and KFC, Boeing and Airbus, Coca-Cola and Pepsi are all models for mutual competition and promotion. Recently, many articles about Huawei and Z1E emerged in media throughout the world. It is very beneficial for improving the images of Chinese telecom enterprises. In August, 2006, China Mobile succeeded in listing in NASDAQ and became a world- wide mobile service provider with the biggest market value. Along with competitions between China Unicorn and China Mobile in the international market, the two must arouse worldwide sensations just like Huawei and Z1E. Hoawei will probably purchase ZTE Maybe Huawei' s dream of purchasing Z1E is merely a false statement. Howev- er, it is a rather serious issue to defuse their cutthroat competition. Would it be possi- ble for Huawei to purchase Z1E? When their cutthroat competition is still fierce and extending to the foreign markets, would stock acquisition and industry integration be the preferred solutions? Once this statement appeared on the Internet and media, it encountered denials from Huawei and academia. Anyhow, it aroused my infinite in- terest. On the list of the 20tb Chinese top 100 electronics enterprises held in 2006, Hua- wei ranked the fifth place with 46. 97 billion RMB of business income. Huawei grew at a sharp 49% speed and raised one place forward on the list compared with year 2005. However, Z1E ranked the 31ot with 21. 6 billion RMB of business income, with a slight decrease when compared with 2. 27 billion RMB of business income in 2005. It was Z1E' s first time to fail in getting into top 10 places. ~ 232 -- 235 of 362 -- With the same price war, why it was much destructive for ZTE than Huawei? The answers were quite simple: First of all, Huawei's sales revenue was twice more than ZTE's, so the former had an advantage over expense allocation. Secondly, Huawei's material purchase quantity was also twice more than ZTE's, so the former could enjoy the benefit of "scale economy" and get better discounts and terms of payment from suppliers. Thirdly, Huawei used IPD designed by mM, which made Huawei's supply chain much more competitive. Besides, it also widely used EMS to produce and develop out- sourcing businesses, which lowered production and manufacturing costs to a large ex- tent. Fourthly, Huawei established the TURNKEY management committee and pro- fessional working teams to make a professional management of the international busi- nesses, including tender, subcontracting, engineering and settling accounts, which made it possible for Huawei to be much more competitive in ISC management process in the international market. With the same price, Huawei would not lose money; however, ZTE was not sure whether it could achieve such a result. Therefore, it was not enough to merely compete in price; it must improve its strength continuously. We often saw this on the paper and internet: Huawei and ZTE always adopted "price war" to win orders in the domestic and foreign markets. It was said that, ZTE gained a contract of GSM network construction with 1 million lines from Nepal Tele- com in the end of April, 2005. This was the largest GSM network construction project in the Nepal communication history. However, Huawei felt quite unsatisfied with ZTE's carrying off this order by using low price strategy, so it took this matter to the commercial counselor's office of Chinese embassy in Nepal. In fact, similar cases happened not just once, no matter Huawei charged ZTE or the opposite. It was said that on this Nepal issue, ZTE used a tender price of $3. 9 million to win out instead of Huawei's $ 12 million. Huawei believed Z1E participated in the tender by using a price below cost, which was suspected of illicit competition. While ZTE argued that even if it couldn't win out in this tender, it was also impossible for Huawei to be the winner, because Siemens' tender open price was $9. 7 million. It was five years earli- er for Huawei to enter into Nepal market than ZTE, but the latter defeated the for- mer for continuous twice. The previous one happened in 2004, ZTE defeated Huawei with a tender price of $29 million instead of $42 million that Huawei used and gained Nepal project of COMA national network. Because there were many similarities between Huawei and ZTE, for example, both companies adopted "taking over rural areas to encircle cities" in the process of 233 ~ -- 236 of 362 -- internationalization; their production lines were similar to a large extent; besides, there was an as high as 70% similarity in their main businesses. So their fighting with each other was inevitable. Because growth of Chinese domestic telecom market slowed down and the issuing of 3G license prolonged again and again, they promoted Huawei and ZTE to speed up their process of internationalization which had begun 10 years before and largely expanded their investment of labor power, material resource and financial resource in international markets. Huawei broke into the Hong Kong market in 1996, Russia in 1997, India in 1998, Middle East and Africa in 1999. In 2001, it expanded markets to 50 states and regions such as Southeast Asia and Europe and entered into the American market in 2002. However, ZTE chose less developed countries in the communication industry such as Mexico, Ethiopia and Algeria, and then entered into some emerging markets such as India, Indonesia, Brazil and Russia, so their collisions were unavoidable. Huawei and ZTE once fought with each other in the Indian market. In 2003, In- dian state-owned full-service telecom service provider MlNL held the engineering tender. During that time, Z1E denounced that Huawei was not qualified enough to participate in this tender; while Huawei announced that ZTE tried to damage its cor- porate image in the Indian market. Finally, Huawei won out the tender with the low- est price of 3. 45 billion rupees. Z1E ranked the second. It was not long since MTNL tender, BSNL-the largest Indian state-owned telecom service provider, also held the engineering tender. Huawei and ZTE met again on the narrow road. This time, ZTE defeated Huawei with the same strategy-low price. Huawei criticized Z1E for using the ultra-low price in this competition. What made Huawei upset was that MTNL con- tacted with ZTE in a secret way, with the hope of Z1E supplying goods at the same price for BSNL. In the early 2004, MTNL paid a secret visit to China and made an in- vestigation of Huawei and Z1E's scales. Later, MTNL required Huawei decreasing e- quipment price to 2. 8 billion rupees, which made Huawei involved in a rather passive situation. In fact, competition itself is good. However, the only question lies in cutthroat competition, which not only makes companies fight with each other and lower their profits, but also severely affects the image of Chinese equipment manufacturers in the process of internationalization. "I don't know whether cutthroat competition will de- crease or not in the future. But it is difficult to say companies won't unite together in the tender." Huawei's spokesman Fu Jun explained. "For Huawei, what customers emphasize are not only our price, but also our innovation, quality and service, and the long-term relationship between both sides. Huawei is always in a predominant po- sition in high-end products for a long time, so price war is not so important for it." ~ 234 -- 237 of 362 -- If we merely saw from the perspective of academic, purchasing ZTE may be the most thorough means for Huawei, a company which is always in a predominant posi- tion in competition and owns a relatively strong capability. But is there any possibility to reach this purchase agreement? In the end of 2005, no one would believe if some- one said Huawei would purchase Harbor. However, this deal was indeed reached, which surprised a lot of people. Although this fact shocked the financial circle and communication circle, they had to admit the foresight of Huawei's boss. Sometimes, the secret of commercial business is turning impossibility into reality; this is quite en- chanting. Although Huawei hasn't listed yet (As far as I am concerned, it is impossible for Huawei to do so in the near future. ) , it still owns enough power and financial re- sources to purchase ZTE. Let us make an estimate, what resources Huawei has that could be considered as its capital to purchase ZTE. First of all, Huawei owns enough cash flow and cash reserve. According to media reports, Huawei's cash reserve had reached 10 billion RMB in the end of 2005. Be- sides, it is estimated that Huawei's immovable property of office buildings and tech- nical plants which formed in Bantian base values as high as 20 billion RMB. Moreo- ver, Huawei has purchased Harbor, so it owns the independent and complete data communication product line. It is likely for Huawei to sell its 3COM stock rights and property, which is estimated of value $ 1. 5 billion. It is said that Huawei is negotia- ting with JUNIPER now. If it is true and they reach an agreement at last, Huawei al- so would extract substantial cash reserve. Then, let us calculate how much money is needed to purchase ZTE. It is not dif- ficult to make an estimate since Z1E is a listed company. We could estimate by virtue of PE ratio. According to Chinese top 100 electronics enterprises information released in 2006, we learn that in 2005, Huawei achieved profit margin of 5. 15 billion RMB instead of ZTE's 1. 91 billion RMB. Let's suppose PE ratio is 10 to 15 times and we temporarily get the middle number 12. 5. Then, it is estimated that ZTE owns about 23.9 billion RMB market value. In the same way, Huawei's market value is about 64. 4 billion RMB. If Huawei wants to purchase ZTE, it only needs 8 billion HK dollars or 9. 7 billion RMB to get Z1E's 100% listed out- standing shares. It is affordable for Huawei to pay this cost, no matter relying on its own capital or bank supports. If Huawei hopes to buyout such good capital like ZTE, it is certain that banks would give Huawei substantial supports. Let alone that Hua- wei's balance sheet is in good condition, besides, it has large immovable properties behind. Before printing out of this book, I made another estimate of Z1E's market value 235 ~ -- 238 of 362 -- and also made a relevant adjustment according to its performance and stock market quotation in 2006. By December 291h, 2006, ZTE's general share capital was 959. 52 million shares, among which, A stock occupied 487. 11 million shares, H stock occu- pied 160. 15 million shares, circulation A share occupied 31.48%, circulation H share occupied 19. 69%, and total outstanding shares occupied 51% of total share capital, namely, 489.36 million shares, which valued 19. 1 billion RMB (For the convenience of calculation, we assumed the price of A stock and H stock were the same. ) . In 2006, Chinese stock market underwent a bull market, so ZTE's share price was highly estimated. In fact, ZTE's performance in this year was just average, and it main business almost experienced no increase. So it was incomparable with Huawei' s rapid development in the international market. Put 15 billion RMB gross profits that Huawei gained in the end of 2006 aside, it also gained more than 10 billion RMB cash by selling its 49% 3COM share rights. Therefore, this is not difficulty for Huawei to take out 19. 1 billion RMB to purchase all of ZTE's outstanding shares even at the peak of Chinese and Hong Kong stock market. Anyhow, the final decision is still made by Huawei. 7. 2 Huawei and Putian Most of Huawei' s resigned senior supervisors were professional managers with true skills and genuine knowledge. In fact, these people could form a "dream team" for core management. This team could make a systematic and thorough reconstruction for Putian's products R&D, marketing, human resource, internationalization, etc. Who is Putian Putian was created in 1980, the full name of which was China Putian Information Industry Group Corp whose predecessor was China National Posts and Telecommuni- cations Industry Corporation (PTIC) and subordinated to Industry General Corpora- tion. At that time, the Ministry of Posts and Telecommunications authorized PTIC to manage almost all posts and industrial enterprises. The latter PTIC was different in name when compared with the Industrial Bureau of Ministry of Posts and Telecommu- nications, but their systems were the same. Great Dragon Communication, a member of famous "Ju Da Zhong Hua", was under PTIC's holding. However, in June, 2006, Putian sold Great Dragon at a price of 4500 RMB, which caused great sensation in the same industry. There were many similar industry general corporations in China, for example, A- luminum Corporation of China, Sugar Corporation of China, both of which were products of planned economy. With deepening of market economy, these industry general corporations had faced problems of where to go. Putian was a large company. In 2002 and 2003, it ranked first on the list of Chi- ~ 236 -- 239 of 362 -- nese top 100 information industry enterprises. Besides, its Capitek and Eastcom were the important communication equipment manufacturers. So Putian's reform caused a wide attention in the industry. It was the former Chairman Ouyang Zhongmou who raised Putian's quick fame around the world. His integration and reform of subordi- nate enterprises revealed different kinds of historical problems in these industry gen- eral corporations. It was from that time that Putian began its road of reformation. Putian Stock Company was established under this background. Other Industry General Corporations such as China Petroleum and Sinopec all executed share-holding system reform first, and then set up joint- stock companies and prepared for a public listing in the overseas countries. At first, Putian also made a same planning. In June 18th, 2003, the 1 51 Putian Stock Establishment Conference and the 1 51 Shareholder Meeting in 2003 was held in Beijing. In July 23m of the same year, Putian Stock an- nounced its official registration; in September 29th, it officially revealed its brand and Putian allocated its most excellent subsidiary companies such as Capitek, Eastcom, Putian Taili and Putian Lingyun to Putian Stock. However, three years had passed, Putian almost finished its share- holding sys- tem reform, but the nature of Putian as the administrative industrial corporation hadn't gone through fundamental reform. There were not too much difference of or- ganization structure between Putian and traditional state-owned enterprises, so it was completely different from what we see today. When Huawei, which developed from private-owned enterprise, met Putian, the former would feel both familiar and strange. We called it familiar, because enterprises like Putian was the product of his- tory. So when they met for the first time, they would feel something similar. We called it strange, because what the impression Putian left us was totally different from that of modern enterprises. Export technology VS import technology In the beginning of our reform and opening up, we didn't master modern com- munication technology with proprietary intellectual property rights. The Posts and Telecommunications Equipment Factory, which subordinated to the Ministry of Posts and Telecommunications, could only produce differencing step-up switches of the for- mer Soviet Union system. Besides, national communication network almost consisted of semiautomatic or manual motive switches, so it was too inefficient to satisfy the need of modernization and it also became a bottleneck that impeded the national in- frastructure construction. Therefore, the Ministry of Posts and Telecommunications hoped to make a large-scale construction and transformation to the automation and digitalization of communication network through introducing advanced foreign com- munication technology. 237 ~ -- 240 of 362 -- To master modern communication technology, our states implemented the strate- gy of "exchanging technology for market", with the hope of producing modern com- munication equipments in China through joint ventures built by international commu- nication giants and the Ministry of Posts and Telecommunications. International com- munication giants also made a commitment to transfer their product technologies and produce products in local China by virtue of SKD/CKD. At that time, the enterprise on behalf of Chinese government for negotiations was PTIC. With the speed up of construction in Chinese communication industry, our state continuously introduced many technologies such as switches, optical network, GSM, CDMA and 3G. Further- more, it also built a series of joint ventures with foreign enterprises. All these joint ventures became Putian's subsidiaries. It was said that Putian had cooperated with all international communication giants about certain joint venture programs on some products. It was generally agreed that Putian, without exception, depended on intro- ducing foreign product technologies. However, what foreign partners valued was Pu- tian' s special position in the Ministry of Posts and Telecommunications, which not only solved their market entry problem, but also provided advantages for largely cap- turing markets. It was impossible to gain genuine core technologies no matter by way of introdu- cing technology or establishing joint ventures. Although Huawei, as well as Putian, had conducted a lot of strategic cooperations with foreign giants, Huawei's coopera- tive model was just opposite to Putian's. The role what Huawei usually played in the strategic cooperation was the technology output party. Now, Huawei is following the example of foreigners' methods of entering Chinese market and exploring the interna- tional market. The pain of Putian' s internationalization One day, I talked with the General Manager of the International Department of Putian Group. He said what Putian was in desperate need was internationalization, but he also couldn't think of some useful methods to handle this issue. Although Putian's product lines were rather complete, it didn't own the core decent products with pro- prietary intellectual property rights, and most of its products were introduced by joint ventures. Generally speaking, Putian' s partners were international giants that had built complete sales networks around the globe. The aim of transferring their technol- ogy to Putian was to take advantages of the special relationship between Putian and the Ministry of Posts and Telecommunications and sell their products in China. Currently, Putian is conducting a joint cooperation with Nokia to develop 3G standard TD-SCDMA This kind of products belongs to an innovative development; maybe only Chinese service providers would use them. Therefore, it is less likely for ~ 238 -- 241 of 362 -- Putian' s international department to export them to foreign countries. It was also impossible for Putian to explore the international markets independ- ently, just like what Huawei and Z1E had done. This was an embarrassing situation that Putian met in the process of internationalization. By far, what Putian's interna- tional department could only be engaged in was the import and export trade. It could do nothing else unless one day in future it could own core products with proprietary intellectual property rights. There were many similar cases like Putian' s in many industries. For example, most of Chinese automobile brands were joint venture products, so they couldn't be used for export. In 2005, our national automobile brand Chery QQ became the biggest exporter in Chinese automobile industry. Independent research and development is the only way out Putian was always keen on shareholding system restructuring and listing, introdu- cing strategic investment, selling non-performing assets, purchasing enterprises' high- quality assets and hypostatizing company. In fact, Putian's efforts are in the right di- rection. As far as I am concerned, compared with pure capital operation, the most important thing for Putian is strengthening the independent research and development ability: trying its best to develop its knock-out products with proprietary intellectual property rights as well as its own independent brands in a short period. For Putian, this was by no means out of the question. First of all, Putian owns sufficient financial resources. It was not long ago that China Development Bank offered 20 billion RMB of preferential support loans for it. If Putian uses most of this huge sum of assets in the research and development of core communication technology, there would be no indestructible technical barrier. We all know that Huawei has invested a large proportion in research and development, which is not less than 10% annual sales revenue of the previous year. Let me illustrate it in detail: if Huawei's annual business income was 46. 79 billion RMB in 2005, its research and development investments would be 4. 7 billion RMB in 2006 . Therefore, according to Huawei' s investment standard, 20 billion RMB is enough for its four years of research and development expense. So far, Huawei owns 16800 research workers, which means Huawei could use these funds to pay for four years' research cost for 16800 engineers. This development team with 16800 Huawei engineers just needs four years to make a thorough update for all of Huawei' s current technical pa- tents. Secondly, Putian has gained supports from the Ministry of Information Industry. So it owns advantages of market resources and government relations. If it develops its own independent core products, state and service providers would offer substantial 239 ~ -- 242 of 362 -- supports. Today, the initial problem that Putian faces is getting rid of its heavy dependence on technologies provided by western giants. Along with continuously deepening of communication system reform and the establishment of market-based and transparent cooperation, Putian could participate in market competition only with the status of an enterprise instead of the special position-"a family member of the Ministry of Posts and Telecommunications" that it depended on before. Service providers' care for Pu- tian would be more and more limited and foreign businessmen's reliance on Putian in terms of markets also would be less and less. Therefore, western giants' cooperative demands with Putian would be decreased. Although they still cooperate with each oth- er, Putian would not get too much practical benefit from their cooperation. Just as Wu Jichuan, the former minister of the Ministry of Posts and Telecommu- nications and the Ministry of Information Industry, figured out during his visit in Pu- tian Information Technology Institution, "As a communication equipments manufac- turing enterprise, Putian should consider independent research and development as its basis. Putian's thinking and direction of persisting in independent research and devel- opment and supporting industry development are right. " Now, Putian is taking the opportunity brought by 1D-SCDMA of exploring its independent research and devel- opment route. Putian Group may "steal" Huawei's teams (2) The value of "previous Huawei employees". Most of Huawei' s resigned senior supervisors were professional managers with true skills and genuine knowledge. In fact, these people could form a "dream team" for core management. This team could make a systematic and thorough reconstruction for Putian's products research and development, marketing, human resource, inter- nationalization, etc. Putian is not in short of capital, what it lacks of are an excellent team and a com- plete management mechanism like Huawei. If Putian merely introduces a few of sen- ior supervisors, I am afraid it would not help solve practical problems. On the contra- ry, they would be assimilated by Putian' s inherent system and its original corporate culture. So it would be difficult to achieve the expected results. In Huawei's entrepre- neurial team, most members have left Huawei for pursuing their own dreams. While due to the restriction in capital and some other factors, their career roads are not so smooth. They hope to find a more capable platform to support and realize their entre- preneurial dreams. The value of "previous Huawei employees" is not only that they have conducted or participated in Huawei' s process of startup business (Without their predominant ~ 240 -- 243 of 362 -- contribution, Huawei couldn't achieve its current excellent performance.), but also that they aren't satisfied with their current states and enjoy high income and vested interests; instead, they choose to start their careers once again and realize their career dream. The hardships and difficulties they met make them much stronger and more mature and foster their practical and steady style. If this "dream team" could cooper- ate with Putian, the latter's prosperity could be expected soon. Whether these "previ- ous Huawei employees" could be convinced to join, it depends on Putian' s decision and policy. (3)Candidates of "previous Huawei employees". CDAs to the research and development team, my suggestion is to dig Li Yinan and Huang Yaoxu. Li Yinan once created a miracle in Huawei: after getting the master's degree at 23 years old, he joined us. In short two days, he was promoted to be an engineer. Two weeks later since then, he was exceptionally promoted to a senior engineer be- cause he solved a tough technical problem. Half a year later, he was elevated to the vice President of Huawei central research department, and two years later, he turned to be the President of this department and Huawei's chief engineer. At the age of 27, he became the youngest Vice President in Huawei. Among all of Huawei' s CTO, maybe Li Yinan made the largest contribution to Huawei's technical progress. As the head of research and development team, he developed Huawei's first knock-out prod- uct---c&c08 digital switch. Without the successful rolling out of this product, it may be impossible for Huawei to gain its current achievements. After Li Yinan working as Huawei's CTO, Huawei successfully rolled out Honet access network, WLL system of ETS-450, SDH optical transmission system, GSM mo- bile communication system, all of which laid a solid basis on Huawei's current product system. Later on, Li Yinan worked as the President of Huawei Electrical, the direc- tor of Product Marketing Committee and part-time director of Data Communication Institution. After that, as the national agent of data communication products, he set up Huawei' s national channel distribution network for data products through internal entrepreneurship. Then, he established Harbor independently and gained approxi- mate $ 0. 1 billion venture capital. It didn't take Harbor too much time to reach an approximate $ 0. 1 billion of annual sales. It was almost listed in NASDAQ. Finally, due to the fierce competition and heavy pressure from Huawei, Li Yinan had to sell its major product lines and teams to his "former host" Huawei and went back to work as Huawei's Vice President again. However, this couldn't conceal Li Yinan's talents in technology. If Putian could pay several sincere visits to Li Yinan, provide favorable condi- 241 ~ -- 244 of 362 -- tions for cooperation and invite him to join, then it could solve this problem-find the leader candidate for the independent research and development. If resources and con- ditions are permitted, Putian would develop to be an independent, innovative and high-tech enterprise within several years under Li's leadership. Huang Yaoxu was also Huawei's Vice President who was responsible for there- search and development. As the head of research and development team, he devel- oped SDH and DWDM optical network transmission system, which helped Huawei create sales revenue of tens of billions of RMB. Now, they have become the first brand of optical transmission products in Asia-Pacific markets. Several years later, he left Huawei for pursuing his own dream. He established his own company and devel- oped products with proprietary intellectual property rights. Later, his company and Li Yinan's Harbor merged into one, and he worked as Harbor's Vice President, re- sponsible for the research and development. If he could be invited to join, Putian would own another appropriate CTO candidate and at least, it may catch up with, e- ven surpass the current level of Huawei in optical network and data communication areas. Moreover, if investments are enough; it wouldn't take Putian too much time to achieve this goal. @As to domestic market team, I advise digging Huang Can and Li Xiangting. As the experienced person in the domestic market, Huang Can had worked as Huawei's director of market office, the Chief Inspector of the Sales Administration Department, so he was an excellent marketing talent with rich practical experience and team management capability. Huang Can had also worked as Huawei's Chief In- spector of Wireless Products Department and created the miracle of "market plan- ning, demands creation and large-scale sales". It was surprising that in the digital communication age appearing around 1998, he's sales revenue of FDMA analog com- munication products reached tens of billions of RMB, and these products were even exported to the international markets. Since I cooperated with him about the opera- tion of these products in both domestic and international markets (thanks to Huawei ' s matrix management), I truly learned about his marketing ability. He could be con- sidered as the most outstanding talent in Huawei, a company filled with numerous tal- ents. In 1999, Huang Can worked as Huawei' s supervisor of the Middle East regional department and made a breakthrough in Iran and some other markets. One year later, he, along with another two Huawei's marketing supervisors, resigned and established their own companies. Due to various reasons, later, he worked as the professional manager again. Now, he is a CEO of a Japanese high-tech company. If Putian could successfully invite Huang Can to join, it would gain an appropriate CMO candidate for ~ 242 -- 245 of 362 -- its market headquarters. Under Huang's management, Putian would create a modern marketing system which also conforms to the international convention, and formulate the suitable market strategy. Li Xiangting was also the Vice President of Huawei' s marketing department, as well as the director of market office, an office with the most excellent performance and the highest sales volume. Besides, he also worked as the Chief Inspector of the mobile products department of Huawei, so he was good at the operation of mobile markets. If he was convinced to join Putian, it would gain another "courageous gener- al" who not only "fought fiercely in the battlefield", but also stood out in Huawei's market system with his "brilliant record". If he joins, Putian would get a rare market talent in developing its knock-out products like TD-SCDMA In fact, TD is Putian's most promising and potential product today. Unquestionably, it is also Putian's stra- tegic focus, marketing target, as well as the core of China 3G competition. Li Xian- gting could be considered as an excellent candidate for Putian in this area. ®As to the international markets, I advise digging Liang Guoshi. Liang Guoshi was an experienced talent in Huawei's international market and the first chief representative of Huawei's overseas market offices. Besides, he was a ma- inlander who gained MBA degree in America earlier than other Chinese students. Un- der his leadership, Huawei established its first overseas market office and exploited the Russian market. He also set up a joint venture BETO-Huawei along with me, so we had built deep friendship. Later, he established Huawei' s international financing department, Latin-America financial department and Romania representative office. Liang Guoshi was a marketing expert, who was good at exploring the internation- al market and international financing; besides, he had mastered profound theory. In 2004, he published a book name Aardwolf Breakout , which is still the best seller to- day. In the end of 2003, Liang resigned from Huawei and established his own compa- ny; he also successfully developed automobile audio hand-free mobile communication system. In 2005, investors succeeded in purchasing his company; then he worked as CEO of American Amoi Cell Phone Company. If Putian successfully recruits him, its process of internationalization would be more promising. @As to HR management, Putian could dig Zhang Jianguo. Zhang Jianguo was an experienced leader of Huawei's market department. Fur- thermore, he was also one of Vice Presidents in Huawei; he had served as CHO for a long time and established human resource system for Huawei. This unique human re- source system not only guaranteed Huawei' s performance management, but also solved its tough problem of incentive mechanism successfully. Later, many domestic companies were scrambling to learn from Huawei. This was a typical case that con- 243 ~ -- 246 of 362 -- suiting companies and EMBA used for reference. Then, Zhang studied in MIT and got MBA After his coming back to China, he established HR management consulting company. Now he is CEO of China's biggest human resource website. He also promo- ted the successful strategy transformation of ChinaHR. com. We all know that Chi- naHR. com is one of the most influential human resource websites and it also gains strategic investment from the international giants. If Putian could recruit Zhang Jianguo-the management elite, it is quite possible for Putian to establish the most competitive human resource system and introduce at- tractive talent management mechanism. In this way, Putian could attract more people to join and organize a big and vigorous team, the influences of which would be much further than that of two leaders. If you own sound talent management mechanism, you would not worry about introducing capable leaders; on the contrary, without guarantee of good mechanism, a company could not live for a long time although with senior leaders join. ®As to the process optimization, Hu Hongwei would be an appropriate people. Hu Hongwei was one of Huawei' s vice presidents, and he had served as the chief inspector of Huawei' s administration engineering department for a long time. He in- troduced a series of management processes and modern management systems, for ex- ample, KPI assessment system, qualification authentication system, ISO 9000 certifi- cation, information management system, FMIS. Later, he set up a management con- sulting company which was specialized in business consulting of the communication in- dustry. Hu Hongwei was a rare management expert, who owned rich experience in corporate management and consulting industry. He also gained rich practical experi- ence and profound theory foundation of management system, organization structure, process optimization, information management, KPI assessment system, salary sys- tem, qualification, incentive mechanism. If these management elites join Putian, its management system would indeed be optimized one day. If it fails to persuade Hu Honwei to join, Putian would still gain a lot if Hu gives it a diagnosis. @There are also some other CEO candidates such as Li Yuzhuo, Yang Hanchao, Nie Guoliang. Besides Li Yinan, there are also some other management elites who were resigned senior supervisors of Huawei could be considered as appropriate CEO candidates. Li Yuzhuo graduated from Tsinghua University and once worked as Stone's Vice President, Huawei's Vice President and President of Huawei Electrical and President of Beijing Aihuafude Company, so among Huawei's senior supervisors, he was a pro- fessional manager and entrepreneur in a true sense. He successfully developed Hua- ~ 244 -- 247 of 362 -- wei's communication power supply project team into an independent subsidiary, with an annual production value of 2 billion RMB, which was also Huawei's first business unit that was operated as an independent enterprise. Later, this project was sold to A- merican energy giant Emerson and Huawei gained 6 billion RMB cash from this deal. It provided enough "cotton clothes and cotton quilts" for Huawei to safely get through the "cold winter". Besides, it also offered a solid financial backup for Huawei's huge investments in the international markets. After leaving Huawei, he joined an electric power supply company which was op- erating at loss, and he expanded the business income from 20 million to 2 billion RMB. We can see he had made excessive profits for this company and occupied the first place in terms of market share in China. Besides, he successfully duplicated Hua- wei's excellent experience in the field of weak current to the field of strong current e- lectrical. In May, 2006, a book named My Conflicts and Cooperation with Business Leaders written by Li Yuzhuo was published, which caused a great sensation in the in- dustry. Yang Hanchao was the Vice President of Huawei' s R&D Department, and also worked as the Chief Inspector of the Product Department, CMO, and Executive Vice President, and President of the European Regional Department. In Huawei, there were not many senior supervisors who were capable of research and development, products marketing and CMO as well as rich experience in the international markets. His unique management style was releasing team strength and incenting team members to play out their own initiatives, instead of doing everything himself. His staffs gave him a rather high remark. Currently, Yang Hanchao is running a big e-commerce website. Nie Guoliang was the founder and first president of Maubec which was the prede- cessor of Huawei Electrical. Since he was good at finding and recommending persons who were more capable than himself, he gained appreciation from his boss and set a good example of Huawei culture, and boss called on all supervisors to learn from him. He also gained high scores in terms of moral integrity and personality. We all agree that he was an entrepreneur who was skilled in putting team members together. He once worked as the President of the General Procurement Department and Executive Vice President of Huawei, and was also a member of Huawei's core team. Now, Nie Guoliang is running a software company. It is said that his company is the longest life and best performance among companies established by Huawei' s resigned senior su- pervisors. ( 4) What kind of mechanisms and programs can attract "previous Huawei employ- ees"? 245 ~ -- 248 of 362 -- How to attract "previous Huawei employees" to join Putian? I boldly made a planning scheme for Putian: "previous Huawei employees" form an entrepreneurial team and Putian invests it by way of venture capital. For example, Putian invests 1 billion RMB to register a new company (give it a new name such as "New Putian") and occupies about 60% shares and the entrepreneurial team holds about the remai- ning 40% shares. Putian would authorize New Putian to completely manage Putian stock. It is just the same as an operational mechanism of "state-owned but private op- eration" that ZTE performed before. The New Putian itself would gradually purchase Putian's assets with its own money. In this way, within one or two years, technolo- gies and products developed by New Putian would rapidly get mature and form its own strength that makes it possible for competing with Huawei and ZTE. Since the com- pany owns its products and technologies with proprietary intellectual property rights, so it could promote its internationalization process and compete with competitors all over the world. It is predicted that New Putian would become a public company listed on NASDAQ within three to five years. New Putian would be a new high-tech company, so it can adopt mechanisms proved to be successful in private-owned companies and make a shake-up of the corpo- rate culture, human resource policy and incentive mechanism, research and develop- ment process, and ISC process, etc. of Putian Stock. Then it would develop into a high-tech enterprise on the basis of independent innovation. Besides, introducing Huawei's marketing culture would make New Putian's marketing team stay excellent and invincible. In addition, the employee shareholding system would initiate employ- ees' enthusiasm on work, because only when a company successfully goes to public can they obtain expected high returns in proportion with their investments. This planning is just a theoretical assumption. If Putian is sincere to do this, it must formulate more detailed implementation rules. The reasons why I suggest Putian inviting "previous Huawei employees" are that: firstly, old Huawei employees have gone through a lot of hardships and they are re- spected senior supervisors, so their rich experience are very important and precious to Putian; besides, they have resigned from Huawei, so their opportunity costs are not as high as Huawei's current vice presidents. It is estimated that the comprehensive in- come of Huawei's current vice presidents is at least several million RMB, even tens of millions of RMB every year. Furthermore, they hold Huawei's share rights, honestly speaking, it is impossible for any company to convince them to leave Huawei and work for it. While in order to realize "previous Huawei employees" dreams of establishing their own careers, they left Huawei although they had gained high salaries. The hard- ~ 246 -- 249 of 362 -- ships and efforts they met would not conceal their competences; instead, they would become a valuable treasure in their life, because experience accumulated in the process of their career life are valuable and they can't be bought by money. As to above suggestions, I apologize for my not asking for relative people's opin- ions. I sincerely hope "previous Huawei employees" could put their strengths into full play and create another "Huawei" in China, and help Chinese communication industry make an overall breakthrough in the global markets. At last, they not only realize their own dreams of building their own careers, but also make a great contribution to Putian' s prosperity. 7. 3 Huawei and Great Dragon Great Dragon was the special historical product generated in the process of China reform and opening up. It was also an important part in China national communica- tion development history. If you want to learn about the overall development history of Chinese modern high technology, you must study the development history of Great Dragon. Wu Jiangxing, a hero in the national industry When it comes to Great Dragon, we must talk about its founder, who was not on- ly the leader of the core R&D technology of Great Dragon, but also the founder as well as the CEO of Great Dragon. Without him, IUD 04 model high-capacity SPC tel- ephone switch (also called 04-switch) was impossible to emerge. It even happened that an overall breakthrough of China national communication industry would be pro- longed for several years. Are you curious about his name? He is Wu Jiangxing, born in September, 1953. Now, he is working as the director, professor and doctorial tutor of NDSC, the head of general major project team of China high performance broadband information network that was listed on state's "863" plan, the former chairman and CEO of Great Dragon Communication Equipments Co. , Ltd. In 2003, he was elected as an academician of Chinese Academy of Engineering. Under Wu's leadership, some major engineering technology projects in our com- munication technology area were created, including the first big Chinese digital SPC switch in 1991, the first Chinese intelligent network in 1996, the first whole distribu- ted mobile exchange system around the world in 1999, China's high-speed broadband information demonstration net in 2001. He was given many titles such as the national outstanding technical worker, the state-level young and middle-aged expert with out- standing contribution, Ho-leung-ho-lee science and technology progress prize. Be- sides, he also gained four national prizes for progress in science and technology with the first, second and third level and more than ten first and second awards above pro- vincial and ministerial level. 247 ~ -- 250 of 362 -- Since 1984, Wu Jiangxing led his team to develop six models of SPC telephone switch one after another successfully. A typical model was 04- switch which had gone through the authentication made by the Ministry of Posts and Telecommunications in 1991 and also gained the first national prize for progress in science and technology in 1995. This switch was equipped with unique design and advanced technology, which reached world advanced level in the end of 1980s. There were also some innovations in system structure and switched network of 04-switch, whose call processing ability was in the leading international position. The successful developments of 04-switch helped China enter into the rank of a few limited numbers of countries in the inde- pendent development of large unscreened SPC switches. It indicated that China had made a big breakthrough in our telephone switch technology. With the deepening of 04-switch technology development, Great Dragon also turned this major high-tech a- chievement into the practical production force since 1992. After painstaking efforts, Great Dragon Communication Equipment Co. , Ltd. which was built in March, 1995, developed to be a modern industry group that had owned eight complete machine fac- tories, more than 20 of 04RM factories and some supporting equipment factories. By the end of 1995, it had already sold more than 600 lines in total, with gross output of 4 billion RMB. We could see it achieved both social and economic benefits. In the middle of 1990s, Great Dragon, Datang, Z1E and Huawei were collec- tively known as "Ju Da Zhong Hua" in Chinese national communication industry. At that time, Great Dragon's 04-switch was one of main machine types which were de- veloped quite early and used in China telecom network. Thanks to the first technical breakthrough that Wu achieved in 04 high-capacity digital SPC switch (another name: door machine), Huawei, Z1E and Datang could spring up in digital SPC switch tech- nology. Only when we achieved business success in switch technology, could we foster different kinds of communication development groups and business talents rapidly and gain the overall development in modern communication industry. Thanks to Wu' s im- portant role in switch, China could have owned the ability to build the world largest communication network with first-rate world advanced technical level today. There- fore, it is never too much to call Wu Jiangxing the "national hero" of the communica- tion industry. However, great scientists are not always great entrepreneurs. Thanks to different kinds of reasons, Great Dragon vanishes in the communication markets today. But no one would deny Wu's great contributions to Chinese Communication Industry. 04 machine, a myth in China's telecommunications industry Before 1996, Chinese telecom network systems all depended on importing eight different models of products from seven countries such as America, Britain and ~ 248 -- 251 of 362 -- France. It was known as the so-called "seven countries eight models" given by commu- nication industry. When considering China's IT technical level and research capabili- ty at that time, foreign competitors affirmed that it would never become possible for China to develop SPC switches. It was rightly at that time that Wu Jiangxing who was working in the PLA Infor- mation Engineering University began to move into developing SPC switches and work as a young professor in 1978. Within five to six years, Wu developed 04-switch whose performance was much superior to the similar products invented by western countries. His great success came from that he transplanted the computer scheme that had been tested for 500 million times into the development of 04-switch. Wu went a different development road when compared with technical principles that western competitors adopted. To our surprise, this kind of original technical innovation brought about a series of magic chain effects. Since then, China communication network lines underwent a thorough process of localization. Today, that China could establish the world largest communication net- work stems from the breakthrough of 04-switch. The successful development of 04- switch not only pushes our national communication industry forward directly and makes group breakthrough, but also greatly encourages China's confidence in strugg- ling and competing in high - tech communication area. Many people in this industry who have learned about the history believe, Huawei, which have already developed to be today' s international communication giant, also gained important illuminations and encouragements from the successful development experience of 04-switch. After referring to the experience, Huawei developed C&C08 SPC switch with better per- formance. We could make a conclusion that without C&C08, Huawei could not a- chieve what it has achieved toady. ZTE' s development progress of switches was also similar with Huawei's. Generally speaking, 04-switch was a fairy tale in China Tele- com Industry in the 1990s. And this fairy tale was still inherited by beneficiaries of 04 - switch. Now, we see China Mobile becomes a mobile service provider occupying the highest market value and the largest users in the world, we also see "the binary stars" in Shenzhen plays an active role in worldwide market, and we still would witness the large-scale commercial use of 3G standard ID-SCDMA which is developed independ- ently in China. For short, all of these achievements come from the breakthrough of 04-switch. "Falls" which cannot be stopped by reconstruction Great Dragon Group was congenitally deficient since its establishment and it was rather a loose enterprise association than a company. After Wu's development of 04- switch, Great Dragon decided to perform large- scale industrialization by relying on 249 ~ -- 252 of 362 -- some communication equipment factories of the PLA Communication Institute and the Ministry of Posts and Telecommunications. However, most of these factories were subordinate to the predecessor of Putian-PTIC. In the 1990s, corporate governance structure was still not clear at that time. In fact, these communication equipment fac- tories which were established in different cities were under independent operation and management. They competed with each other instead of carrying out cooperation. Their relationships with PTIC were that these factories' businesses were subordinated to PTIC. They considered Great Dragon as the technology transferring party, but they considered their brother factories as competitors instead of partners. Besides, the relationship between the PLA Communication Institute and Great Dragon was also subtle. Wu Jiangxing was the professor in the PLA Communication Institute as well as the chairman and CEO of Great Dragon. However, Great Dragon's main shareholde- rs were from PTIC. So it should pay the cost of technology transfer and sales commis- sions to the PLA Communication Institute. And this university still took charge of subsequent developments. That was to say, at that time, Great Dragon neither took charge of technology development nor participated in production and sales directly. Sometimes it even couldn' t completely control the personnel power because of the complexity of property rights. This kind of company was not qualified enough to compete with Huawei, "a war machine" consisting of "wolves". They also couldn't contend against ZTE, which fol- lowed Huawei closely and belonged to a state-owned private company. Although the Ministry of Posts and Telecommunications provided their utmost protection, Great Dragon's performance still glided backward rapidly after 2000 with significant re- structuring of China communication system and the rapid boost of marketization. Lat- er, Great Dragon reformed its systems in production, supply, sales and personnel, but it was too late to achieve the expected results. Mter seeing this situation that Great Dragon faced, relevant national authorities had to set about restructuring of Great Dragon Group and introduced strategic investors as well. In fact, a mystery woman named Wang Ying had made several restructurings for Great Dragon at that time. She tried her best to help Great Dragon go public so as to gain development capital; how- ever, she still failed after several months of efforts. The establishment of Great Dragon Information was also considered as one part of restructuring of Great Dragon Group at that time. It was said that in July 30th, 2002, Great Dragon, a member of "Ju Da Zhong Hua", signed an equity transfer a- greement with Taiguang Telecom. They reached an agreement that Great Dragon pur- chased 19. 83 million legal persons shares (accounting for 24. 24% of total share cap- ital) of Taiguang Telecom and became the second largest shareholder of Taiguang ~ 250 -- 253 of 362 -- Telecom; this suggested that Great Dragon began its third time restructuring. Later, board of directors of Shenzhen Taiguang Telecom reached an agreement that it would establish a joint venture with Great Dragon and gave it a new name Bei- jing Great Dragon Digital Technology Co. , Ltd. They decided to register 10 million RMB capitals for this joint venture. Taiguang Telecom invested 1. 9 million RMB and held 19% stock rights in its hand. Besides, Taiguang Telecom also took out 8. 7 mil- lion RMB to increase its investment to Beijing Great Dragon Oriental International Information Corp. While Great Dragon Information invested 11. 3 million RMB to this company and held 55% share rights. After that, Great Dragon Digital and Putian invested together and established Great Dragon Communication. However, this re- structuring still didn't prevent Great Dragon's continuous drop of performance. Great Dragon is kicked out in a tragical way in the wake of being sold at RMA4500 In June, 2006, a piece of surprising news appeared on the Internet and media: Great Dragon was sold at a rather low price. We said it was "surprising" because as to these persons that had struggled in the communication industry for more than 10 years, they learned about Great Dragon's ever glorious past and its contributions to our communication industry. While as to persons who merely worked for several years in this industry, they may never feel surprised. It was even that this piece of news couldn't cause their attention, because Great Dragon was fading from people's eyes and had been died out for several years. According to the report, Putian sold 95% stock rights of Great Dragon Communi- cation Technology Co. , Ltd at a price of 4500 RMB. Registered capital of Great Dragon was 10 million RMB. Putian held its 95% stock rights and the rest two share- holders owned respectively 4% and 1% stock rights. Besides 4500 RMB of transfer price, Putian also required buyers paying off around 770 thousand RMB of employees' salaries and social security funds that Great Dragon owed and 2. 3 million RMB of debts. By the end of March, 2006, Great Dragon was merely a company that owned 43 employees and 7. 9294 million RMB of total assets. However, its debt was as high as 7. 9227 million RMB and its equity interest was just 4700 RMB. In 2005, Great Drag- on achieved 8. 05 million RMB of main business income; however, its deficits had reached as high as 4. 45 million RMB. No one would have thought that Great Dragon hoped to be purchased at a price of 4500 RMB. But no one was sure whether there was someone who was willing to pur- chase and take over it. Great Dragon was the special historical product in the process of China reform and opening up. It was also one important part of China national communication development history. If you want to learn about the overall develop- 251 ~ -- 254 of 362 -- ment history of Chinese modern high technology, you must study Great Dragon's de- velopment history. Today, when you study Huawei, ZTE and Datang these star en- terprises, please don't forget the historical role and effects of Great Dragon, a com- pany that was once a member of "Ju Da Zhong Hua". When we enjoy the modern life that China this world largest and most advanced communication network gives us, please do remember the significant contributions that predecessors of Chinese national industry have made at the beginning. 7. 4 Huawei and DaTang In the past ten years of the domestic and foreign commercial war, Datang didn't achieve any surprising performance and its economic benefits were not so satisfying, but if TD was successfully used in a large scale in China, it was certain that Datang, as the core enterprise engaged in TD standard, could enter on a new historical footstep. Zhou Huan and his "national team" When we talk about Datang Group, we have to refer to TD-SCDMA-Chinese 3G standard. However, when it comes to TD standard, we have to refer to Zhou Huan, who was the first advocator of 1D standard. And he officially retired in June, 2006. In August, 1998, after Zhou Huan was transferred to work as the director of Na- tional Telecommunications Science and Technology Research Institute and the head of Datang from his current position as the department chief of the Ministry of Posts and Telecommunications Technology Division, he made a profound analysis and a right es- timate of the development trend of communication information technology and manu- facturing industry as well as the coming opportunities and challenges. With great de- termination and ambition, he made a series of strategic adjustments and drew up the strategic decision of making an overall system transformation of institution and trans- forming it to be a group. He proposed Datang's core values-"establishing a glorious national team and becoming a proud Datang people", made the "unconventional and leaping'' development strategy which was "a combination of technology, industry, trade and economy". Besides, he also formulated the basic working principles: united development, virtualized manufacturing and entrustment operation. All of them laid a good basis and pointed out the development direction for the reform and development of Datang Group. Under the positive advocating of National Telecommunications Science and Tech- nology Research Institute with Zhou Huan' s leadership, and great supports from leaders of the Ministry of Posts and Telecommunications, our state decided to make some breakthroughs in the third generation global mobile communication field. With the united efforts of Chinese government, service providers, manufacturers and scien- ~ 252 -- 255 of 362 -- tific research institutes, TD broke up different kinds of obstructions and became an international standard. In 2002, it was also under the initiative guide and coordination of our government, TD industry alliance was established. This was the first time that Chinese most capable communication enterprise stood proud in the same industry throughout history. Later, Chinese 3G spectrum planning scheme came out and TD was tested of 155M frequency, which helped the whole world learn about the vast po- tential of TD in the near future. At the same time, after rigorous and meticulous anal- ysis and comprehensive research of global3G industries, our Ministry of Information Industry made a decisive policy for the development of Chinese 3G, which could be summarized of 16 Chinese words-"active following, initial test, fostering markets, supporting development". In 2003, under the leadership and arrangement of National Development andRe- form Committee, TD industrialization special fund was set up. People began to realize that 3G had already become a national strategy. In January 20th, 2006, TD was offi- cially established as a standard of Chinese 3G communication industry. It indicated that TD standard was already mature and relevant enterprises could begin to develop, manufacture and produce products on the basis of this standard. TD went into a rapid way to commercial use. Furthermore, TD commercial tests organized by the Ministry of Information Industry began in different places in China one after another; national 3G license was sure to be submitted on the agenda of relevant departments with the maturity of TD. Compared with Huawei and ZTE, the scale of operation and financial resources of Datang were much less. When we talked about Datang's scale, we saw it was really disproportionate to compare such a core TD standard enterprise with another two western giants that were also engaged in 3G standard development. However, people still witnessed Datang's painstaking and continuous efforts to be an ambitious "nation- al team" of technical innovation of China telecom industry, and the vast potentials and market returns these efforts could achieve. In the past ten years of domestic and foreign commercial wars, Datang didn't a- chieve any surprising performance and its economic benefits were not so satisfying, but if TD was successfully used in a large scale in China, it was certain that Datang, as the core enterprise with TD standard, could enter on a new historical footstep. ID' s historical position and dispute In June, 2006, the Telecommunications Science and Technology Research Institu- te of Datang Group were on the list of first 103 national innovation-oriented pilot en- terprises. It indicated that Datang Group gained wide recognitions in the development and innovation of TD standard from relevant national departments. 253 ~ -- 256 of 362 -- With gradual maturity of the third generation mobile communication technology and products, as an international 3G standard with Chinese own proprietary intellec- tual property rights, 1D attracted more and more people's attention. In addition, as an epitome of "independent innovation and key across" in the high-tech industry, 1D still aroused people's deep and long-term thinking, because it involved in a series of global problems such as substantial economic interests, proprietary intellectual proper- ty rights and upgrade of national information platform. With the coming of knowledge economy and the continuous shortening of trans- formation period of the global scientific and technological achievements, the develo- ping countries met precious opportunities for catching up with and surpassing others in high-tech area. The development of 1D showed that in a new century, our country had yielded some good results of comprehensive thinking in the strategic field. Datang set a good example of Chinese enterprises actively taking part in the research and de- velopment of major international technical standards. When I thought a cruel fact that happened in 2006, on the list of the 20th top 100 Chinese electronics and information enterprises, 80% of which had no patent of in- vention, from this point of view, I really appreciated and admired Datang' s efforts. Although Datang Group didn't own the strong financial resource like top 100 enter- prises, scientific and technological innovations must bring it new competence and pro- ductivity. After 1D gaining large-scale commercial use, maybe Datang would rank in the first several places on the list of Chinese top 100 electronics and information en- terprises; however, as to those enterprises without core technology, maybe they could crowd on this list in recent two or more years, if they paid no attention to the scientif- ic and technological innovations, it was inevitable that they would disappear from the world arena soon or later. Putian was indeed a good example to illustrate this issue. Before 2003, Putian ranked the first on the list of Chinese top electronics enterprises with more than 70 billion RMB of output value, but in 2006, it vanished silently. The main reason for Putian's disappear was that it lacked of independent technology; it was impossible to gain core technology only by setting up joint ventures and introdu- cing technology from other countries. But as to the dispute over 1D standard, people's heated discussion never stopped in the industry. On one hand, was 1D an "international standard" developed by Chinese? What 1D industry alliance adopted was an open innovation system, so foreign countries that were involved in 1D development and owned 1D patents were not less than Chinese enterprises. According to the report, Datang Group, as the core enterprise in 1D re- search and development, owned merely a little bit more than 7% of 1D patents. So ~ 254 -- 257 of 362 -- you could imagine situations that other Chinese enterprises had met. In fact, the current 1D research and development was undertaken by Chinese- foreign joint ventures. Not one company could finish it independently. From the es- tablishment of 1D industry alliance to the emergence of joint ventures that devoted themselves to 1D research and development, from Datang-Siemens joint R&D team that was set up in 1998 to the current "four plus four" joint development alliance (Huawei-Siemens, Z'IE-Ericson, Putian-Nokia and Datang-Alcatel) in the domestic and foreign countries and the Qualcomm corporation was trying to charge 3G enter- prises of CDMA basic patents, we could conclude that seen from this point of view, although 1D had made large beneficial explorations and efforts in China ' s participa- tion in research and development of international standards, the real content of inde- pendent technology was still debatable. On the other hand, would it be possible to follow the same disastrous road in 2G standard that Japan had stepped? In order to protect its local telecom manufacturers, Japan chose PHS standard which was totally opposite to GSM and CDMA standard in developing 2G mobile com- munication standard. The final result was that Japan turned out to be a "lonely island" in mobile communication network. It was rather difficult to cooperate with interna- tional telecom networks since other countries didn't use this standard. At last, the telecom administration authority of Japanese government had to give up this standard and adopt the general international standards. So when developing 3G standard, Ja- pan learned lessons from its previous failure and decided to adopt WCDMA and CD- MA 20001X instead of developing its own new standard. The fact showed that it was a right decision. China 3G standard 1D also would meet similar difficulties and challenges. As far as I know, in other countries, no one is deciding to develop 1D standard as soon as possible by far. Therefore, their disputes over developing 1D are continuing and nev- er come to an end. Anyhow, the situations between China and Japan are quite differ- ent: China has a population which is almost ten times of Japanese, although only Chi- na one country adopts TD standard at last, Chinese large market demands would bee- nough to support its survival and development. The rice that Datang cooked may be eaten by others as soon as they pick up the bowls According to the report, in May, 2006, Datang Mobile and Fiberhome Group signed a cooperative agreement that both sides would set about the strategic coopera- tion in terms of ID area so as to promote the process of ID's commercial use togeth- er. Tang Ru' an, the President of Datang Mobile, noted that as the advocator of 1D standard and the main driving force of industrialization, Datang Mobile always devot- 255 ~ -- 258 of 362 -- ed itself to promote the successful commercial use of 1D in China even all over the world. This cooperation between Datang Mobile and Fiberhome Group would be a powerful complement for the overall strength of 1D industry alliance. Both sides would give full play to their strengths to further speed up the large - scale commercial use of 1D industry. As a matter of fact, it was not difficult to deduce from these diplomatic parlances that what Datang valued was Fiberhome's market systems distributed in China. As one of the main suppliers in domestic communication area, Fiberhome had established good cooperative relationships with service providers in optical communication area for a long time. It also built a marketing network and service team that covered 31 provinces, cities and autonomous regions. Datang gained a lot of experience in the field of wireless network construction, so its wireless coverage system equipments owned irreplaceable advantages in the domestic market. Fiber home' s cooperation with Datang Mobile would not only continuously keep its advantages of transmission, broadband access, and wireless coverage and so on, but also greatly expand their products to the 1D industry by taking full advantage of Fiberhome's deep-rooted mar- keting and service network in the domestic market. In fact, Datang just wished to use Fiberhome's sales networks to sell its own 1D products. We all knew, among the management principles that Zhou Huan formulated for Datang Group, there was one called "entrustment operation". In my opinion, it means by taking advantage of others' sales networks and channels to sell one's own products through the strategic cooperation. However, the core issue lied in who to co- operate with and who was willing to sell Datang's products. In China, only Huawei and ZlE owned the strongest market power and the most complete marketing net- works. But they all had its own 1D products, so it was impossible for them to sell Da- tang's products. Let's take a look at Putian; its market operation ability was not much stronger than Datang. In the past, Putian usually depended on government pro- tection policy to make money. Recently, it began to cooperate with Nokia to develop its own 1D products by virtue of joint capital. So it could be considered as Datang' s competitor. Therefore, only Fiberhome was likely to cooperate with Datang and sell the latter's 1D products. The main two reasons were as follows: first of all, Fiber- home didn't have its own 1D products; secondly, Fiberhome's corporate system was almost as same as that of Datang, namely, it was also an enterprise created through reformation of the National Research Institute of Posts and Telecommunications; the only difference was that it was a little bit stronger than Datang in terms of market ca- pacity. In fact, when compared with Huawei and ZlE, the "binary stars" in Shenzhen, ~ 256 -- 259 of 362 -- Fiberhome was not sure whether it could win out or not since it was in shortage of marketing, planning and operation ability; moreover, Fiberhome was basically in the rank of companies that were specialized in selling optical network products, so it was not certain that it had already owned enough marketing experience in TURNKEY projects of mobile network system products. Therefore, Datang tried to strengthen its marketing ability through its independent efforts and strategic cooperation, but it was still inevitably in a relatively bad position when compared with Huawei and Z'IE. Ac- cording to my judgment, although Datang, as the advocator and core enterprise of de- veloping and promoting ID standard, had made a lot of painstaking efforts, after the issuing of Chinese 3G license and the large-scale startup of this market, it may be im- possible to gain the largest market interests though it had made the greatest contribu- tion. Neither would it be Putian that have gained substantial supports of special loan of 20 billion RMB, the ones benefit most would be Huawei and Z'IE which own out- standing market ability. Since today's world is the one that market is in the dominate position, it is quite possible that other companies that own strong abilities would take Datang's achievements away. Of course, Datang and Putian also could gain relevant market returns in proportion with their capability. Although the quantity may not be as large as what Huawei and ZTE would gain, it is still enough for them. 7. 5 Huawei and Fiberhome Different from the tragedy of Great Dragon, Wuhan Post has achieved successful enterprise restructuring and becomes a listed corporation thereafter, which is regarded as a much greater success than Great Dragon. A meritorious man in respect of developing optical transmission in China Fiberhome Communication Science and Technology Co. Ltd. ( Fiberhome for short) was founded in the year 1999 as a main provider of information and communi- cation equipments and network solutions, which was approved by the Ministry of Sci- ence and Technology of China as the only base in the area of optical communication for industrializing the research achievements of the Plan No. 863 (a national science and technology research program) and listed as one of the leading enterprises in "Wu- han-Optics Valley of China". In the year 2001, Fiber Home had its A-share listed in Shanghai Stock Exchange. As the main founder of Fiber Home, Wuhan Research Institute of Posts & Tele- communication, used to be a research center of optical fiber communication engineer- ing in China and home to China's optical communication technology, where the first optical fiber, the first optical communication engineering project and a series of major scientific and technological achievements were made. Fiber Home is a master of a great number of core technologies in the field of opti- 257 ~ -- 260 of 362 -- cal communication, which enable it to rank among the top at home in terms of scien- tific research foundation and capacity, transformation rate of scientific research a- chievements and profit yield. It has participated in formulating over 200 items of na- tional standards as well as industry standards. In recent years, Fiber Home has been in charge of research and development, as well as industrialization of many key pro- grams, including the research of "40Gb/s SDH optical communication equipment and system" and "automatic switched optical network" as listed in the national key science and technology programs of the 10th Five-Year Plan period, and the "Research of Tb- ps DWDM Transmission System" as listed in the national Plan No. 863, helping China to catch up with foreign competitors in the international market of the latest technol- ogy. With three major product series, including optical fiber, broadband data and op- tical fiber cable, Fiber Home is the main provider for national development of infra- structure network in China. It has the greatest share in the domestic optical transmis- sion equipment and optical fiber market in China, with over 100,000 sets of equip- ments running steadily on the Internet and over 500,000 kilometers of optical cable e- quipped as the trunk network of the national infrastructure optical cable line. It has provided the systems, including ULH WDM, 3. 2T DWDM and ASON, which repre- sent the highest technological achievements, to telecommunication service providers and put them into use as the primary trunk network. It is the first to put FTTH into commercial utilization as a mature technology. Fiber Home has constantly created long-term value for clients with its innovative network equipments, well-developed customer services and individualized solutions. Sticking to the path of sustainable de- velopment, Fiber Home has made eye- catching achievements in the fields of infor- mation and network security, billing software and integrated businesses etc. Wuhan Posts & Telecommunication Research Institute, the predecessor of Home Fiber, was a national technical team directly under the Ministry of Posts and Tele- communication of China for taking charge of research and development of the optical network transmission technology. Although it fell far behind Huawei and Z1E in the international market, it can never be denied that leading academic research and the technical influence of Wuhan Posts & Telecommunication Research Institute have played an inevitable role in helping China's telecommunication industry to make a sig- nificant group breakthrough in the field of optical network transmission. The contri- butions and the role of Wuhan Research Institute of Posts & Telecommunications to the optical network transmission industry in China could match with that of Great Dragon and Wu Jiangxing, the founder, to the program-controlled switch technology in China. Many people believed that without the leading breakthrough of Wuhan Post ~ 258 -- 261 of 362 -- in SDH technology, the large scale group breakthrough made by Chinese enterprises in this field would have been totally impossible; and China would, by no means, have successfully built the largest optical transmission network that the world has ever seen with such low costs and advanced modern functions in such a short period of time. As optical network is the most basic infrastructure of all telecommunication technologies and IT network, Wuhan Post is undoubtedly a real contributor to the development of telecommunication networks in China. Different from the tragedy of the Great Dragon, Wuhan Post has achieved suc- cessful corporate restructuring and becomes a listed company thereafter, which is re- garded as a much greater success than Great Dragon. The single product hinders market internationalization For some historical reasons, Home Fiber had long been concentrated in develo- ping optical fiber transmission products. However, the heat of telecommunication construction in China gradually cooled down and the issuance of license for 3G prod- ucts was delayed for a long time. Thus telecommunication network construction in the domestic market was slowed down obviously, leading to shrinking market demand and stronger competition. All these factors led to the decrease of both product price and profit by a large margin. Under this circumstance, Fiber Home, which mainly depen- ded on its optical network products as the source of profits, was trapped in great re- cession and was struggling hard to find a way out. The first way possible for Fiber Home was product diversification so as to prevent it from overdependence on optical network products, but it was proved by facts that Fiber Home was unable to strive its own way out of this trouble due to its lack of ca- pacity to seek any expansion in the field of mobile telecommunication (especially on 3G products) and shortage of a strong finance and a highly professional technical team to back its ambitions. As for research and development of NGN, soft switch and other core networks, the same problems and difficulties might also occur to block its way out. The other way that they were thinking about was to seek internationalization in order to partially shift its sole dependence on the domestic market to the overseas market. However, there also seemed to be a vicious circle that might trap it into fail- ure. Fiber Home could never meet the demand of TURNKEY projects in the interna- tional market with its single product; thus, unlike Huawei and ZTE, Fiber Home was not able to swallow the massive sales expenses in the global market, not to speak of running a massive international market system and continuing investing in the interna- tional market. According to the financial report of Fiber Home for the first quarter of 2005 , the 259 ~ -- 262 of 362 -- main business revenues were mounted to about 300 million RMB, with a slight in- crease from the 280 million RMB for the same period in 2004; however, the net prof- its were only about 4. 79 million RMB, declining by a large margin as compared with the 7. 83 million RMB for the same period in the previous year. Recently, there is news about the alliance of Fiber Home and DTI to promote large scale commercial utilization of DTI' s 1D products and to help Fiber Home to acquire new market growth opportunities through strategic cooperation. This time, Fiber Home may cherish this precious opportunity to forge ahead to seek product di- versification and try to get its due share of the 1D market from its rivals both at home and aboard. 7. 6 Huawei and Harbor When all disputes and conflicts were settled after five years of fierce competition, Li Yinan stood with his former boss, shaking hands and embarking on a new path as if it was doomed by destiny. Li Yinan and Harbor Li Yinan was a legend who had created so many unprecedented records in Hua- wei. He was promoted to be chief engineer within two weeks, appointed to be vice president of the central research department within six months and offered the post as president of the central research department of Huawei within two years (acting as the CTO of Huawei under a different title). At the age of 27, Li Yinan became the youngest vice president, the successor to be and the second CTO after Zheng Baoyong. Just like the contribution of Zheng Baoyong to Huawei, Li Yinan's greatest contribution had been the development of a fist product, the c&co8 digital program- controlled switch, which was the first product to be granted with proprietary intellec- tual property rights. It was just this product that helped Huawei to win a sales con- tract of tens of billions of RMB. At that time, Zheng Baoyong was serving as the president of the central research department to take charge of research and development of the company; and Li Yi- nan was the leader of a development group including key members of Hong Tianfeng, Xu Wenwei and Fei Min, who all became CTO in Huawei in succession later. While making a tremendous success in the market with its c&c08 switch, Huawei started to invest the huge finance resource yielded from the switch market into optical network, access network, GSM, data communication and other fields. Li Yinan, acting as CTO then, was just the one that led the research and development work in that period of vital importance to Huawei. I personally believe that Li Yinan has the deepest insight in predicting the technological trend in the telecommunication market, which has not been matched by any other CTO in Huawei up to now. ~ 260 -- 263 of 362 -- After the year 1998, Li Yinan was called from the post of CTO by his boss and was successively appointed as the director of the product marketing board, president of Huawei electrics, director of Beijing research institute, etc. Although he was still at the post of executive vice president of the company, he gradually lost power over the research and development strategy of the company. This was the result of a very important human resource strategy of Huawei, known as "fixed barrack, shifting sol- diers", which meant that Huawei forged its strong technical foundation with frequent- ly changing talents. Li Yinan was also working under this talent strategy inline with Huawei's policy. This was possibly the way that Huawei helped Li Yinan to grow, or it was just the general way that Huawei exploited human resources. No matter what, Li Yinan had no other choice but to quit his beloved post as CTO in Huawei. But for him, as an IT elite, it must be the most painful experience not to have his technical dream come true. This must be part of the reason why Li Yinan preferred to leave Huawei and started his own business years later. Some media and correspondents who were not clear about the facts reported that Li Yinan quit when he was at the peak of his career development in Huawei, but the truth was that Li Yinan was trapped in great distress and misery at that time. Due to the work shift strategy of Huawei, Li Yinan had quickly gained rich man- agerial expertise and experience at different work positions in just about three years. He was once director of the product marketing board, which was regarded as a posi- tion without much power as the domestic marketing department and the international marketing department in Huawei. However, Li Yinan still learned a great deal and obtained rich sales and marketing experience at that position. But it was such a short time that he seldom had any opportunity to have a try in real term practice. When he took the position as the president of Huawei Electrics, Li Yinan gained precious expe- rience in running a company as a whole, which provided him with a real stage of prac- tice and laid a solid foundation for him to start his own business. Despite that Huawei Electrics was only regarded as an industrial department of Huawei by the company leaders; it was a subsidiary company with all functioning departments and had inde- pendent registration. Serving as the director of Beijing research institute of Huawei was a direct prelude for Li Yinan's business startup later. Beijing research institute was a center taking special charge of research and development of data communica- tions, which was the point where Li Yinan started his own business. To better compete with Cisco, Huawei decided to develop and cultivate its own marketing channel of data communications in the year 2000. However, Huawei had not much market competiveness at that time as its own data communication products were not as well developed as they are today. One of the reasons of such market dis- 261 ~ -- 264 of 362 -- advantages of its products was that the core products of Huawei were mainly network products for network service providers. The main marketing strategy of Huawei at that time was to set up direct sales offices at different areas. Huawei was not very good at selling data communication products through distribution agency channels. One day Huawei suddenly came to realize the importance of distribution channels, but only to find that most of the big and competitive agents were not willing to cooperate with it. Therefore, the boss had no choice but to summon some of the senior back- bone personnel to start intrapreneurship, with the company providing a series of fa- vorable measures to encourage old employees to start their own business to sell data communication products for Huawei as agents. In this process, Huawei also sought reference from Cisco and learned from its distribution experience, establishing an a- gency structure with both regional distributors and sectional distributors. It was at this critical moment that Li Yinan and Nie Guoliang, once president of Huawei Electrics and also executive vice president of Huawei, took quick response to the new market- ing strategy of Huawei and decided to embark on intrapreneurship. Later, the two of them did very well and were dubbed the honor of "Best Agents"; and it was only the two of them that were authorized to act as general agents at that time. Based on the favorable policies offered by Huawei, Li Yinan pooled the equity, dividend and the favors together and acquired a first batch of communication equip- ment of about 2000 Yuan as his initial investment, with which he established a compa- ny named Harbor. At the beginning of his business, Li Yinan got powerful support from Huawei in various aspects as a result of both his own relations with the company and Huawei's own desire to develop a huge data communication marketing network. As a partner, Li Yinan kept his own promises as not to develop products of its own brand to com- pete with Huawei. However, the desire to fulfill his technical ideal was growing ever stronger day by day as a result of the introduction of venture capital. Although sales record of Hua- wei's products as the general agent mounted to hundreds of millions a year, but it was still far from satisfactory to him. Unlike ordinary businessman, Li Yinan had always been dreaming of developing and selling his own products other than just acting as product agents for others. From this perspective, it can be said that it was fund com- panies that gradually pushed Harbor afar and turned it into a threat to Huawei. Huawei even believed that it was the venture capital from western countries to blame. After the American IT bubble burst, these fund companies turned to China to seek a way out of their own distress by stealing the immaterial wealth accumulated by Huawei through all these years. ~ 262 -- 265 of 362 -- The rapid development of Harbor at the early period benefitted a lot from ven- ture capital. In May, 2001, after one year of establishment and operation, Harbor was granted a total venture capital of 61 million USD from Warburg Pincus, a business investment company backed by Swiss bank, and Shanghai Dragontech Ventures, a- mong which 53 million USD were from Warburg Pincus, with an additional loan guar- antee of 35 million USD. It was reported that the total venture capital and loan guar- antee obtained by Harbor was mounted to about 100 Million USD. However, along with the rapid expansion of Harbor, Li Yinan, the founder, gradually lost his power in this company. His share was decreasing to only 24%, a lit- tle lower than the 25% held by the employees, right before the core asset of Harbor was sold to Huawei, leaving the rest of 51% in the hands of the venture capitalists. Harbor was then called "junior Huawei" and regarded by venture capitalists as "a rare profitable business". How come? Why could it earn such an honor? Why did ven- ture capitalists have such great confidence in Harbor? Besides the talent and capability of Li Yinan, venture capitalists attached more confidence to the team as a whole, in- cluding Lu Xin, former general manager of the data communication department and former general manager for the North China region of Huawei, Peng Song, former vice president of Huawei' s marketing and engineering department, Huang Yaoxu, former senior vice president of Huawei and founder of Huawei's SDH products, as well as hundreds of key members from the marketing department and the central re- search department of Huawei. When Li Yinan left Huawei to establish Harbor, he gathered a great number of excellent IP elites from Huawei and took the lead to launch products of its own brand within two years, taking a significant market share quickly. Why these people preferred to leave Huawei and follow Li Yinan? Firstly, while enterprise networking division was just a marginal department of Huawei and was not given much importance by Ren Zhengfei at that time, Harbor could provide employ- ees with option of a newly established company and opportunities to research and de- velop cutting-edge products. The second reason was that Li Yinan really enjoyed great reputation and popularity among his colleagues. It was agreed at the very beginning when Li Yinan decided to start intrapreneur- ship of Huawei in the year 2000 that Harbor was to act as a distribution agent to sell products for Huawei and was forbidden from developing products of its own. But, Li Yinan failed to follow that agreement and employed personnel from Huawei to devel- op and launch its own IP products based on 802. 1 protocols. This undoubtedly pro- voked the nerves of Huawei' s boss and a brutal commercial war of five years was doomed to start between Huawei and Harbor. 263 ~ -- 266 of 362 -- Hoawei's "Da gang ban" (an office devoted to fighting against Harbor) Li Yinan firmly believed that IP would be the mainstream for future development of communication technology, which was later proved completely right by years of rapid development of IP communications in real practice. This insight that he held when he once worked for Huawei grew into the base of Harbor's product strategy. Under the wise leadership of Li Yinan, the technical team of Harbor learned and in- troduced some advanced technical ideas from foreign enterprises. In the year 2002, Harbor acquired Oubade, a technical company located at Silicon Valley of the United States, and invited Tang Pengfei, Zhu Shuangxia and other international technical elites with excellent technical background to joint Harbor. Through team work, they helped Harbor to take the lead in developing and launching a core router based on 10G platform. In 2003, Harbor even hired the founder of America's Extream Corporation to be the CTO of Harbor. Some insider experts once said that, judging from the single perspective of technical strength, Harbor had exceeded Huawei for at least three times in the past few years. Another great move of Harbor's product strategy was to integrate IP with optical network technology. Before 2003, optical communication technology seemed to be with a great potential in the market but turned out to lag far behind expectations in real market operations due to its high costs. But to Harbor, optical communication re- ally represented the trend of technical development in the future. Regarding IP tech- nology as an upgrade of the former analogue technology, then optical technology would be an upgrade of IP technology. Only when the costs of optical technology is reduced to an appropriate level, would service suppliers start optimization and inte- gration of former IP transaction to finally form an optical internet suitable for the de- velopment of future business. In other words, the value of optical network could be finally achieved only by integrating optical technology with IP technology. But for Harbor, this problem could be viewed in a simpler way as it was believed that getting optical network technology prepared when the market was still in depression can help to foresee a big fortune in the future once the market booms; and it could also help to drive the development of IP technology. For research and development of optical network, Harbor did not follow Hua- wei' s strategy. Instead of focusing on transmission products and launching main- stream transmission products like SDH and DWDM, Harbor attached greater impor- tance on the integration of optical network and IP technology. Harbor was not going to start research and development all over again independently, but was trying to take a shortcut by means of purchasing with the financial support from the investment companies. Soon after the idea was figured out, Harbor found that Shenzhen Juntian ~ 264 -- 267 of 362 -- Science and Technology Corporation was an ideal target for purchasing. Juntian had more than 40 patents on optical network and possessed a great number of network ac- cess licenses, with its technology ranking the top of the IT industry as a whole. In ad- dition, the founder of Juntian, Huang Yaoxu, had also worked for Huawei before , which facilitated the integration of the two companies as they had a lot in common. Huang Yaoxu enjoyed very high prestige in the research and development system of Huawei, acting respectively as senior vice president of Huawei and the initiator of SDH and DWDM optical network transmission products at Huawei. Optical network transmission products still remained the core products of Huawei in both the domestic and overseas markets, which even grew to be the best products in the Asia-Pacific re- gion, yielding tens of billions of RMB for Huawei. Another important reason why Harbor was so determined in purchasing Juntian was that it wanted to gain more strength to negotiate strategic cooperation with west- ern communication giants. At that time, Huawei had successfully overshadowed many transnational corporations in the optical communication market, leaving Siemens, Nortel Networks, NEC, etc. eager to find a coservice provider in the field of optical communication products. Only by purchasing Juntian, would Harbor have a chance to cooperate with western partners. Therefore, Harbor competed with an American communication giant and finally acquired Juntian at the end of December, 2003 . Huang Yaoxu led the whole team and his production line to join Harbor, adding a strong pillar to the newly established company. This acquisition, regarded as a grea- test deal by Li Yinan and the entire board of directors, turned out to be a completely stupid and devastating move for Harbor in the days to come, because this move was a real irritation to Huawei. Added to all other provocative moves, Harbor laid down a bomb that would lead to its own tragedy sooner or later. Harbor might have been saved if it didn't turn its face directly against Huawei and threatened its fundamental interests. Although Huawei had lost some market share and profit due to the competition from Harbor in the field of data communication, it was not a great lost as Huawei mainly focused on service provider network communication equipments, also known as local products and taking up 90% of the total marketing revenue of Huawei. Hua- wei, by no means, would allow anyone to share this piece of cheese easily. The aliment of Li Yinan and Huang Yaoxu sent a very dangerous signal to Hua- wei. The achievement made by Harbor over the past three years in the field of DSLAM and routers proved that Harbor had the ability to bring market price down in a short time. But Huawei would never allow any external invasion of its optical com- munication business. The year 2004 witnessed a gradual recovery of the global optical 265 ~ -- 268 of 362 -- communication market and Huawei' s optical communication business also grew ma- ture, which could help to generate a net profit of over 30% and create an annual gross profit of about 6- 7 billions of RMB and an annual sales revenue of over 10 billion of RMB. Although Huawei had started to directly compete with Harbor at some local mar- kets from the middle of 2003, it only came to realize after Harbor's acquisition of Juntian that Harbor was not merely a competitor of the so-called "price war" in a sin- gle field; it had great potential to become a real threat to Huawei in the future. What worried Huawei most was that Harbor's business was gradually developed from data communications to broadband network access and further to optical network. It was foreseeable that someday, Harbor would stretch its arms and legs to develop wireless- communication, NGN, soft switch and other core technologies of communication net- work. Just imagine, what a great danger it would be to Huawei. Once Harbor em- barked on optical network, it was bound to forge ahead in other relevant fields as they share the same group of customers, namely the network service providers. Experience from the success of both Huawei and ZTE indicated that once Harbor built up its own service provider market network, it would just be a small piece of cake to achieve product diversification. Li Yinan knew it well; and Huawei was badly scared that this possibility would ever grow into a real success of Harbor and a real threat to itself. Soon after Harbor acquired Juntian, Huawei urgently set up a special office called "Beat Harbor" to study every move of Harbor and take corresponding measures a- gainst it. It was said that this special office consisted of two divisions, namely an op- eration division and a strategy division. The operation division was formed by tens of senior backbone experts and managers, who enjoyed high status in the company and were granted high degree of authority to carry out operations by mobilizing various re- sources across different departments and regions. The strategy division of the special office against Harbor was led by Guo Ping, Huawei' s executive vice president taking charge of strategic cooperation, to make weekly report of the fight against Harbor to the boss and further discuss strategic measures against Harbor. In the following three years, the working efficiency and result of the special office was so good that even Harbor's own staff were surprised. With the efforts of the special office, Huawei was able to get clear and accurate information about every move and every detail of Har- bor's work and never lost to hire anyone it wanted from Harbor. Huawei restored eq- uity option to the returning backbone personnel from Harbor and promised promotion to them in Huawei. With its abundant financial resources, Huawei could easily recall the backbone experts from the Harbor team back to Huawei and tear up Harbor into pieces. In this way, Huawei gave a heavy blow on Harbor. Harbor, having not that ~ 266 -- 269 of 362 -- much of money to retain talents, could not take any measure to step away from Hua- wei's blow. What is worse, Harbor could not even complain as most of the personnel were former backbone talents from Huawei. Huawei also spared no effort to beat Harbor on every bid that it participated in . It was said that Huawei formulated policies to offer a lower price than Harbor on ev- ery bid to compete with it. In many cases, when the price war of the two sides came to a climax, the two sides would offer prices by giving a 70% ~ 80% discount, which forced other competitors to quit the bid. Although such price war would hurt both sides, the impact on the two sides was completely different. For Huawei, it just meant a little decrease of profit as data communication products only contributed a small proportion of the total revenue of the company and Huawei could rake in tre- mendous profit from other products. But for Harbor, it was devastating as data com- munication products were all they had and loss in data communication product meant huge loss of the whole company. This made it difficult to meet the needs of the share- holding venture capitalists as all they need was quick profits. Thus the greatest harm to Harbor by the price war was that it hurt the confidence and patience of investors on Li Yinan and the whole marketing team of Harbor. From my own perspective, I would rather say that Huawei did not defeat Harbor directly right from the start, but by defeating the confidence of the investors. It was according to the business principles of risk investment that the investors betrayed Har- bor and retrieved. The Harbor team was undermined and never had a chance to reor- ganize again. When Li Yinan started his own business, he already had tens of millions of RMB and was granted to be the general agent for Huawei. If he took advantages of his own conditions and continued to act as a faithful general agent for Huawei, he could have accumulated tremendous wealth now. If Harbor chose to start research and development in cooperation with Huawei, it might not have suffered such a tragedy. It was quite agreeable that Harbor was a victim of the venture capitalists, who were frightened to betray Harbor by the glorious achievements that Huawei made in the fight against Harbor. Huawei shattered the dream that Harbor would come into the stocking market Just as almost all high-tech IT enterprises, Harbor had always been dreaming a- bout getting listed right from the beginning of establishment. It was reported that when Harbor started to prepare for listing at the beginning of the year 20 04, it had to hire Ernst & Young to take charge of its auditing. At the early stage, Harbor only hired a small domestic public accounting firm, which could only provide limited ac- counting services, just as most of the newly established enterprises did in order to save money. But according to the standards of NASDAQ, Harbor's accounting was in a 267 ~ -- 270 of 362 -- complete mess. Although they planned to get listed in 2004, the company's finance had not been basically sorted out until the middle of 2005. After China's telecommunication reform, the original China telecom was divided into two parts, namely China Netcom and China Telecom, which had caused many troubles to telecommunication equipment manufacturers, including Harbor . After re- organization of China's telecommunication system, management of the ten provinces in the North was shifted from the former China Telecom to China Netcom. As Harbor had signed a great number of contracts with the former China Telecom before the re- form, some of them became contracts between Harbor and China Netcom after the reorganization of the telecommunication system. When China Netcom took over the management, it made great adjustment of the former organization structure and the personnel appointment and removal system, making it difficult for Harbor to get the payments back. Thus it would take a longer time and a larger investment to do accounting for Harbor under such circumstance. But Harbor was not quite willing to spend that mon- ey so it changed accounting firms. When Deloitte & Touche took over accounting, ac- counting work of the company had to be started all over again right from the begin- ning. What's worse, this was accidentally exposed to outsiders, leaving Harbor in desperate embarrassment. In about 2 -~ 3 months in 2004, various internal materials of Harbor, even including the financial data accessible only to some key senior leaders, were posted and spread on the internet. Was it tricks that competitors played against Harbor, information leakage by accountants or a release of dissatisfaction by its own employees? Harbor was totally lost and frustrated. Later on, a letter of accusation fi- nally stopped Harbor on the path toward listing in SEC of the United States. While Harbor was preparing to get listed, many directors at different regional offices were poached out by its competitors. All these events were far beyond Harbor's control that it could not take any effective response. Some news revealed that Li Yinan wrote to Huawei' s boss in May, 2005 to ask for stop of the way, but he received no replay at all. What's worse, on September 2nd, 2005, the critical moment right before Harbor was about to get listed, Harbor received a layer's letter from Huawei and it was asked to settle some problems con- cerning Huawei' s intellectual property rights; otherwise, legal proceedings might be applied to get the problems solved. One of the direct reasons why Harbor's application to get listed at NASDAQ was refused by the American SEC was related to the fact that Li Yinan had once dismissed the former accounting team. Employee dismissal might be nothing worth mentioning to ordinary enterprises, but it was a really sensitive big deal to companies preparing to ~ 268 -- 271 of 362 -- get listed. It was said that those who were dismissed by Harbor turned to joined Hua- wei soon. It was not long after that SEC received a letter of accusation about the fi- nancial problems of Harbor. Not until Harbor had the financial problems solved, it received the layer's letter, being accused of its infringement of Huawei's intellectual property rights, which would need a great amount of time, energy and money to solve and harmed the confidence and patience of investors badly. By October 2005, Har- bor's board of directors had decided to give up listing. By then, Harbor had failed twice in its effort to get listed, respectively due to its own mistakes and attacks from competitors. Harbor's effort to get listed failed and it was thinking about a way out through acquisition by western giants. As early as 2004, Siemens was trying to purchase the optical communication business from Harbor. It was of great possibility that Siemens would acquire Harbor as a whole in the future as Harbor's optical network products were highly related with other IP products. However, Siemens's acquisition plan was turned down as Li Yinan and other investors were in full confidence of getting listed at NASDAQ at that time. By the end of 2005, it was said that Siemens was offering o- ver 100 million USD to purchase the main production line and the Harbor team. This time, Harbor's investors took very positive responses to negotiate the acquisition, with both sides avoiding topics about Huawei. However, Huawei would not just wait and see this happen. Taking advantages of the intellectual property rights issue, Hua- wei successfully stopped the acquisition. It was reported that Huawei sent out a senior representative team consisting tens of senior managers and led by the Chairman of the board to negotiate with Siemens' board of directors at the Siemens headquarters. At the meantime, it also increased pressure on Siemens through the joint-venture company TD Tech, forcing Siemens to give up the acquisition of Harbor. This decision was totally in line with the western business principles as intellectual property rights highly valued by western giants. Mo- reover, as Siemens had major strategic cooperation with Huawei in the field of 3G products, it would not put the entire 3G market in China at risk just simply for the ac- quisition. In this way, Huawei had not only successfully stopped Harbor from getting listed at NASDAQ, but also cut off all its way of refinancing. Hoawei "amnesties" Harbor On June 6th, 2006, Huawei and Harbor made a joint declaration that the two companies had reached an agreement and sign a memorandum on transferring part of Harbor's assets, business and personnel to Huawei. According to the memorandum, the assets and business transferred to Huawei included routers, Ethernet switch and optical network. Besides assets, personnel and business, Huawei also took over some 269 ~ -- 272 of 362 -- intellectual property rights relevant to corresponding business. By then, Harbor, one of the strongest competitors, was integrated with Huawei. After five years of fierce life-and-death competition, Harbor ended up with inte- gration with Huawei. In the past five years, Li Yinan, one of the most prominent staff members turned to be a most dangerous betrayer to Huawei, and the previous most intimate partners turned to be life-and-death enemies. Some media described this integration as an unusual one. When all disputes and conflicts were settled after five years of fierce competition, Li Yinan stood with his former boss, shaking hands and embarking on a new path as if it was doomed by destiny. Experts who knew both Huawei and Harbor well would agree that Harbor's production line was almost overlapped with that of Huawei' s 3CX>M and it was really hard to imagine the way to keep coexistence of the two companies. As for DSIAM, it was totally unnecessa- ry for Huawei to purchase the DSIAM production line from Harbor because Huawei had already taken up the biggest share in the domestic market. Some industrial insiders e- ven believed that it was not for the purpose of development and business integration that Huawei acquired Harbor. However, judging from the recent reports that Huawei is going to sell3COM, I personally believe that purchasing Harbor was not just a rash move but a wise and worthwhile trade made after careful consideration and deliber- ation. When it started a joint venture with 3COM, Huawei contributed its intangible as- sets and its research and development team and 3COM contributed a tremendous a- mount of money. If Huawei sold out its 49% share of 3COM's stocks, it could rake in 1. 5 billions of USD, which was really a profitable and worthwhile deal. Since the in- tegration of Harbor, Huawei had won a division as competitive as 3COM with only 100 millions of USD, saving a great amount of money. An internal principle for Huawei to carry out cooperation with other enterprises was to keep dominance in the relation. Five years ago, when Huawei transferred 2% of its shareholding rights to 3COM, it must have careful consideration about the fu- ture of its data communication products. Many outsiders criticized that Huawei was a poor capital operator, but I can't agree with that. In fact, Huawei was very experi- enced in capital operation and it would never allow losing money in any business. Al- though it seemed that Huawei was taking risks in many cases, the seemingly money- losing deals would turn out to be big profit earners as they were made after careful considerations by Huawei's wise leaders. At least it is the fact for the Harbor's case, which is completely different from what those outsiders, who knows little about Hua- wei' s history, have criticized about. For Huawei, the integration of Li Yinan and Harbor was also a significant sue- ~ 270 -- 273 of 362 -- cess in its human resource strategy. In the past few years, a large number of backbone personnel of Huawei chose to leave Huawei and start their own business. Although the strategy of intrapreneurship was advocated and supported by Huawei' s boss to build up its own distribution channel, many agents, including Li Yinan and his team, chose the same operation mode and similar production line to compete with Huawei, which would be a threat to Huawei. Therefore, the integration of Harbor with Huawei had served as a reminder to warn other agents, which also indirectly ensured steady staff retention. From the failure of Li Yinan, Huang Yaoxu, Peng Song, Lu Xin and other R&D elites and senior marketing talents, those who wanted to start their own business before learned that it would be better off to settle down and work for Huawei as there was rare possibility of success for new start-ups. Since the emergence of Harbor, Hua- wei had begun adjusting its policy on intrapreneurship in 2003, taking a limiting strat- egy instead of the previous supporting attitude. Huawei also took actions to crack down those companies with disputes on intellectual property rights and those posing direct competition against it. Therefore, integration of Harbor was doomed in Hua- wei's long term development strategy. Li Yinan may takeover Ren Zhengfei' s turn After the integration, a problem that all people were concerned about was the ar- rangement of the former Harbor team. In fact, the Harbor team was a very important part that Huawei valued. Those people were all elites when they worked for Huawei before. If Huawei failed to retain them, this purchase would not be a complete success as one of the most important parts was lost. Fortunately, Huawei' s attitude toward this problem had shown that it really atta- ched great importance on the Harbor team. Once at an in-house meeting, Ren Zheng- fei told the Harbor team, "I, on behalf of the EMT team, will sincerely handle this problem. You don't have to worry if I would play tricks on you. I am planning to of- fer suitable positions to all of you, not just some of you." He was also quoted as say- ing, "There is no need to be limited by what you have and what you have experi- enced. We need to have an insight and be confident of future development. Differ- ences and divergence are normal in the development of history. We shall not view these rules as heavy burdens; otherwise we will be constrained from future success." Ren Zhengfei's attitude towards the former Harbor team was quite a great comfort to those backbone personnel and managers, who would otherwise fall into deep frustra- tion about reemployment and their future career. One thing that attracted the greatest concern was whether Li Yinan would retain to work for Huawei. Certainly, it was not an easy task to persuade him. Just as an old saying goes, "A good horse will never turn around to graze on old pasture. " This is 271 ~ -- 274 of 362 -- true for people as excellent as Li Yinan. In order to improve governance and adminis- tration of the company and have better management of human resources, Huawei would usually arranged its former senior managers, who returned after failure of their business, at some positions with little power and little importance for a period of time, perhaps one or two years, for inspection; and they would not be resumed to some important positions until they were tested qualified. Some of my friends had un- dergone such experience before and they confessed that it was really a tough time that forced many people to leave Huawei again. However, with his talent and character, Li Yinan would not retain in Huawei unless there were very favorable conditions. But things would be quite different if he would have chances of becoming the suc- cessor of Ren Zhengfei. Li Yinan was regarded as a technical genius and he could foresee the technical trend much more accurate than anyone else, which helped him to win complete trust from the boss. Rumors even had it that he would be chosen as the CEO successor, which might had turned into reality if he had not started business on his own to compete with Huawei. However, after experiencing many difficulties and adversities in the process of running his own business, Li Yihu grew to be maturer than before, this might also add to the possibility that Ren Zhengfei would choose him to be the successor. By then, there had not been many choices for Li Yinan if he wanted to remain in the field of telecommunications. The previous two years witnessed a climax of mergers and acquisitions in the field of telecommunications, with Siemens merged with Nokia, Ericson purchasing Marconi, Alcatel acquiring Lucent, Motorola forming alliance with Huawei for research and development and Norte! being trapped in the most seri- ous deficit. Therefore, there were only five places for Li Yinan to seek employment, namely Huawei, Z1E, Nokia, Ericson and Alcatel, among which Huawei was the best place to go. In the year 2006, Huawei changed a new Logo symbolizing and emphasizing Har- mony, which was expected to change Huawei's image in the telecommunication indus- trial chain. Purchasing Harbor helped to create a really good opportunity for Huawei to build up an image harmony in the industry. Ren Zhengfei also showed great sincer- ity towards this end. In a talk with Harbor's senior managers on May 10th, 2006, Ren Zhengfei said, "I, on behalf of Huawei, would like to shake hands with you again. We sincerely welcome you to return and join us. I believe, if we show our utmost sin- cerity towards this handshake, we can stand side by side and make greater achieve- ment in the future. n On September 12th, 2006, Li Yinan was appointed vice president and CTO of Huawei. By then, I dared to predicate that there was a great chance that Li Yinan ~ 272 -- 275 of 362 -- would be chosen the successor of Ren Zhengfei to become the second CEO of Huawei. This was not only because of his talent and qualification, but also a result of Ren Zhengfei' s generosity. 273 ~ -- 276 of 362 -- Chapter "VI Gratitude and resentment between Huawei and three western giants 8. 1 The war between Huawei and Cisco According to the applications from Cisco , Huawei and 3 COM, the court issued a decree to terminate Cisco's accusation against Huawei. By then, the so-called "First Case in the IT industry" between Cisco and Huawei on intellectual property rights and piracy infringement was settled after one and a half years of disputes, with reconcilia- tion between the two parties. Cisco was the largest network equipment manufacturer in the world. Huawei started to expand into the US market from 2001, established an American regional de- partment and a US subsidiary and set up marketing representative offices thereafter. Huawei sent many senior managers to the US market. Cisco had encountered with Huawei, the largest Chinese communications equipment manufacturer in China; and it knew about Huawei' s strong competitiveness well Huawei' s aggressive develop- ment in the global market posed a great threat to Cisco. What's worse, Huawei should even try to expand in Cisco's backyard, the United States. Cisco decided to protect its rights and interests by legal proceedings to resist Huawei from its interna- tional expansion and protect its own largest market in the United States. On January 22nd, 2003, Cisco instituted legal proceedings against Huawei to the federal district court in Marshall, the state of Texas in the US. Cisco accused two of Huawei's subsidiaries in the US, namely Huawei-American Corporation and Future- Wei Technical Corporation, of infringement of Cisco's intellectual property rights. Cisco raised several accusations against Huawei in an indictment of 77 pages. The infringement listed in the indictment included theft of lOS source code, which re- ferred to Huawei's theft of part of Cisco's source code and integrating corresponding technology into the operation system of its own Quidway Router and switch. The characters, filenames and program defects in Huawei' s operations system were the same as those appeared in Cisco's lOS source code. Huawei was also accused of theft of Cisco's technical documents by copying a large amount of content from Cisco's technical document that had been granted with exclusive intellectual property rights and copying all the content from Cisco's user manual to its own user manuals of Quid- way router and switch; another accusation against Huawei was theft of Cisco's Com- ~ 274 -- 277 of 362 -- mand Line Interface and the corresponding screen display, with a great amount of the main component content of Cisco's CLI and the assisting screen being used in a com- pletely identical manner in the operation system of Huawei' s Quidway routers. A more serious accusation against Huawei was infringement of at least five of Cisco's technical patents on router protocol, which had been integrated into Huawei's Quid- way routers and switches. Altogether, Cisco raised 21 items of accusations against Huawei, covering almost all aspects including copyrights, patent, trademarks, unfair competitions, etc. This was the first law suit raised by Cisco in 17 years since it was founded and the first against Huawei in 15 years since its establishment. Huawei tried hard to start overall defense against Cisco's accusation and put for- ward three claims,namely no infringement of Cisco's patent by Huawei, non-validity of Cisco's patent and unfair competition by Cisco. Meanwhile, Huawei raised objec- tion on the "initial restrictions" motion required by Cisco. On July 28tb, 2004, Huawei, Cisco and 3COM, which were involved in this law suit, applied to the court of Texas for terminating the law suit at the same time, which got approval from the judge and the law suit was terminated immediately. According to the applications from Cisco, Huawei and 3COM, the court issued a decree to terminate Cisco's accusation against Huawei. By then, the so-called "First Case in the IT industry" between Cisco and Huawei on intellectual property rights and piracy infringement was settled after one and a half years of disputes, with reconcilia- tion between the two parties. As Huawei and Cisco respectively sent applications to the court to terminate the law suit, the US court decided to conclude this case and declared that Cisco was pro- hibited from any law suit against Huawei for the same or similar conditions. It was on the same day that Cisco declared in the US that the legal proceedings it raised against Huawei and its subsidiary FutureWei were settled; and Huawei agreed to revise its Command Line Interface, user manuals, the helping interface and part of its source codes so as to eliminate all suspicion from Cisco. Before the law suit was concluded, Huawei had all its products mentioned in the accusation inspected by a neutral third party. Huawei also agreed to stop selling the products mentioned in the accusation before they got revised. Moreover, all other rel- evant products would be under inspection by third party experts. The termination of the law suit meant that none of the three parties, namely, Huawei, Cisco and 3Com, could seek legal proceedings for the same case or for simi- lar reasons, ending a year and a half's dispute on intellectual property rights between Huawei and Cisco. Although the conclusion of the case seemed a little bit dramatic, the intellectual property rights dispute between the two big enterprises really reminded 275 ~ -- 278 of 362 -- us to contemplate on relevant laws and regulations after China's entry to the WTO. It reminded us to think about the problems of rational and proper protection of intellec- tual property rights, legal control of intellectual property rights abuse, maintenance of free market and fair competition, as well as anti-monopoly, etc. Here, I would like to further analyze the problem of suspected intellectual property rights abuse in Cisco's "private protocol", and unfair limit of competition. Modern communication network is a huge and complicated system that depends on a large bunch of equipment and complex procedures to achieve its communication function. As communication network basically requires interconnection and intercom- munication, there must be common regulations and protocols for all equipments to follow, namely communication standards or protocols. There are legal standards and non-legal standards. Legal standards are approved and issued by international or na- tional standardization organizations; and non-legal standards are not approved or is- sued by any standardization organizations but are actually accepted in real practices. The actually accepted standards can be further divided into public standards and non- public standards (including non-negotiable and non-authorial standards) . Non-public standards can be considered as private standards or private protocols. The so-called private protocols refer to a set of private standards set by some companies at the be- ginning of entry into the market, prior to the issuance of relevant standards and regu- lations by international or national standardization organizations to ensure intercon- nection and intercommunication of the communication network. In other words, pri- vate protocols are non-legal standards that are not accepted, approved and adopted by international or national standardization organizations. However, private protocols are accepted in real practices and are exclusively reserved to be used by certain compa- nies, which cannot be used by any other enterprise without permission. This is appar- ently different with international or national standards which support public negotia- ble intellectual property rights. As private protocols are formulated by the enterprises and are mainly adopted on their own equipment, the details and key content of the protocols are not allowed to be released to the public and they are non-negotiable; this will cause unfair competition and enclosed market if the protocols are used in improp- er ways. If there is a great deal of private protocols on a communication network, the existing network or users will soon rely on the protocols once they are used. In this case, later manufacturers have to provide equipment with such private protocols to a- chieve interconnection and intercommunication with the equipment installed before. Only by this means, can the later manufacturers get involved in the existing network. Cisco also tried another way to take advantages of its private protocols. Along with the emergence of the international standards and national standards, Cisco ~ 276 -- 279 of 362 -- changed its policies by including both conventional standards and private protocols in their development and design. Cisco applied conventional treaties when the products were submitted for network access inspection, while it is shifted automatically into private protocols so as to achieve intercommunication among all the networks as there are other Cisco equipments installed previously on the network. In this way, other e- merging enterprises had to accept and support such private protocols (non-standard) so that they could sell their products to integrate with the existing network. The private protocols of Cisco caused a series of undesirable effects, including us- ers' overdependence on a single supplier, hindrance of fair competition and free de- velopment of other enterprises. It not only harms the interests of the users, blocking the path of development and innovation in the industry, but also damages the free and fair market competition mechanism. As the data communication network was develo- ping rapidly, Cisco took advantages of its monopoly in the market to turn its private protocols into the criteria for bidding in real practice. Cisco never agreed to give any authority to any other enterprise to stop interconnection and intercommunication be- tween different devices of the enterprises. Through setting up technical and market barriers, Cisco was saved from any substantial competition by its competitors while bidding. Enterprises would be punished through legal proceedings if they ever applied Cis- co's private protocols. Such private protocols had helped Cisco to beat three genera- tions of competitors; and Huawei, with its rapid growth, was regarded as one of the fourth generation of competitors. As a result of its long-term strong monopoly in the market place, it was hardly possible to find any network and market without Cisco's equipment, leaving other enterprises in desperate disadvantages and totally incapable of competing with it. Other enterprises would either withdraw from the competition as they couldn't adopt Cisco's private protocols, or take risks of being accused and beaten by Cisco for patent infringement or theft of commercial secrets so as to provide equipments for network building according to the private protocols at the users' re- quests. This was the case for Huawei and it was accused by Cisco for providing equip- ment with private protocols to American customers. It was mentioned a few times in some media that Cisco had once set up a special office called "Beat Huawei" in the year 2002 and built a special homepage on its intra- net for all its employees around the world to discuss ways to beat Huawei. This move of Cisco could not be defined as against the anti-monopoly law if it was just simply taken as part of an internal strategy against competitors instead of part of its abuse of monopoly (including private protocols) against external competitors. However, from the perspective of Cisco, the private protocols were part of its in- 277 ~ -- 280 of 362 -- tellectual property rights strategy. Cisco first applied patent rights for its private pro- tocols and it had indeed been granted with five patents by the American Patent and Trademark Organization. Thereafter, Cisco pushed its protocols to be standards in this field with its monopoly status in the market, which integrated the standards and the patent together and further consolidated its monopoly. Just as a scholar conclu- ded, this was the strategy of "getting patents for techniques, establishing patent standards (actual standards) and holding monopoly with the standards". Just as mentioned above, Cisco never gave authority on its patent and commercial secretes to any other enterprise so as to hinder interconnection and intercommunica- tion among equipments of different enterprises through technical and market barriers. Such behavior was defined as permission refusal of intellectual property rights. Let a- lone the legality of obtaining patents for its private protocols and other relevant intel- lectual property rights, Cisco had seriously limited competition by its intention and conduct of permission refusal of its patent rights, maintaining and strengthening its monopoly in the market. Viewed from the perspective of intellectual property rights, such behavior could be defined as abuse of intellectual property rights. Judged from anti-monopoly laws (like the antitrust law of the US), it could be taken as abuse of its market dominance or monopoly. Looking back to China, we had no laws and regula- tions that could clearly define Cisco's permission refusal as abuse of intellectual prop- erty rights or monopoly. This conflict between Cisco and Huawei further reminded us of the urgent need to formulate anti-monopoly laws and regulations since China's en- try into the World Trade Organizations. The so-called "first case" in the IT industry was settled with a win-win conclu- sion, with both sides claiming to be the winner. "Conclusion of this accusation marked a victory in the protection of intellectual property rights. " Declared by Mark Chandler, vice president and chief legal consult- ant of Cisco, "Innovation is the lifeline of science and technological industry. Protec- ting intellectual property rights is of vital importance for Cisco. As Huawei has taken actions to eliminate all our suspicions, we declare that this accusation is settled. " Interestingly, the other party of this law suit, Huawei, also declared to win this case. Relevant personnel of Huawei stated that Cisco's accusation was concluded with the legal fees charged on corresponding parties; and the content of the conclusion treaty of the accusation was confidential. Huawei alleged to be satisfactory with the results. Both Huawei and 3COM declared that the company's business was not im- pacted since the accusation was raised more than a year ago and sales at the interna- tional market and the services of data communication products were more than doub- led. ~ 278 -- 281 of 362 -- This law suit had profound influence on Huawei, Cisco and 3COM. It not only facilitated the alliance between Huawei and 3COM to form the second largest data communication manufacturer in the world, but also gave a direct blow on Huawei in the North American market and forced Huawei to adopt strategic cooperation and channel distribution so as to forge ahead in the American market. Although such stra- tegic cooperation had yielded significant achievements, Huawei did pay too much for the law suit compared with the breakthrough that it had made in the western Europe- an region. Huawei also learned a precious lesson from this event on protecting intel- lectual property rights and the way to use it as a powerful weapon against its rivals or enemies, especially those people or companies suspected of theft or infringement of Huawei' s intellectual property rights. This lesson was especially helpful in dealing with intellectual property rights disputes occurred on those enterprises founded by for- mer Huawei employees. It was also with this lesson taught by Cisco that Huawei han- dled the legal accusation against Huke and Harbor. This case also exerted great influence on the Chinese enterprise community, which helped to improve people's awareness of intellectual property rights and the importance of IPR protection. Meanwhile, it also urged the Chinese government to discuss and call for the formulation of Anti-monopoly Law as soon as possible so as to prevent other domestic enterprises from being trapped by intellectual property rights disputes with western giants. 8. 2 The alliance of Huawei and 3COM Huawei and 3COM started a joint venture called Huawei-3COM in Hangzhou, with Huawei providing technologies, marketing teams and intellectual property rights and 3COM providing cash investment, leaving 51% of the stock held by Huawei and the rest 49% in the hands of 3COM. In 2003, Cisco raised an accusation of illegal theft of Cisco's operation software at an American local court against Huawei, the largest telecommunication equipment manufacturer in China. But Huawei insisted that its core IP code was developed by it- self. In order to win this biggest legal accusation and save its market in the United States, Huawei hired the most famous lawyers with rich experience in such cases and tried to form alliance with American partners. 3COM was an ideal partner as it was one of the most famous data communications manufacturers in the United States, which had always been competing with Cisco in both the domestic and overseas mar- kets. However, as Cisco was the world champion in this industry, 3COM was con- stantly in disadvantages in the competition. Therefore, 3COM also had strong desire to seek a strategic cooperation partner. When Huawei and Cisco were fighting against each other in the law suit, a joint 279 ~ -- 282 of 362 -- venture was established by 3COM and Huawei to carry out cooperation in enterprise network equipment. As an expert in this industry, former CEO of 3COM Bruce Claf- lin used to testify at court for Huawei. He said, "This case triggered some sparks. Luckily it did not cause a fire. But we have to think about the source of the sparks. Most Americans think that Cisco was right and Huawei was wrong in this case. How- ever, we shall clarify that it was a misunderstanding because we had stronger first im- pression of Cisco over Huawei, which led us to incline toward Cisco. That's the prob- lem." Then the case was concluded with reconciliation between the two parties. "We never stopped shipping any piece of our products and never lost any transaction of a single dollar. " He said. That's the truth. There was not any serious impact on the business of Huawei-3COM Huawei and 3COM started a joint venture called Huawei- 3COM in Hangzhou, with Huawei providing technologies, marketing teams and intellectual property rights and 3COM providing cash investment, leaving 51% of the stock held by Huawei and the rest 49% in the hands of 3COM. The two parties also agreed that 3COM had the right to acquire another 2% of stock holding rights by paying 28 million of USD with- in two years. The main business of Huawei-3COM was data communications products, including switches, routers, etc. and the company had its own marketing network and independent resources of intellectual property rights. Currently, Huawei-3COM em- ploys nearly tens of thousands of staff members, forming a marketing network cover- ing all around the globe; and it grows to be the second largest data communication en- terprise in the world. By 2005, contracting sales value of Huawei-3COM had reached approximately 10 billion of RMB. However, the path of establishing a joint venture was not a smooth and easy one. On April 13th, 2005, 3COM informed Huawei of its intension to purchase part of Huawei's stocks in Huawei-3COM. Then in July that year, Huawei also confirmed that it was negotiating the transfer of the 2% stocks with Huawei-3COM. This negoti- ation was regarded as a fight for leadership, dominance and power of control of the joint venture. It was generally believed that Huawei was not intended to give up its 2% of stocks. But the fact was that Huawei sold its 2% stocks to 3COM with 28 million USD in November 2005. After the stock transfer, 3COM held 51% of the stocks of the joint venture. According to such a price level, the total value of Huawei-3COM was estimated to be about 1. 5 billion USD by the two sides. Correspondingly, the board of directors of Huawei-3COM changed along with the variation of stock holdings. Soon after that, the board of directors claimed that it hired Mao Yunan, former president of the Chinese region of Notel Networks, to act ~ 280 -- 283 of 362 -- as the vice president of Huawei-3COM, which meant that a new round of human re- source restructuring had begun in the operation of the joint venture Huawei-3COM un- der the leadership of 3COM. It was also of high possibility that Mao Yunan would take the place of Zheng Shusheng, former CEO appointed by Huawei, and became the next CEO. Although it was clarified by Huawei and 3COM that the 2% stocks had been ar- ranged long before, neither side would like to give up this 2% of stocks along with the operation of the company, because this share was of vital importance in determining the leadership of Huawei-3COM. Thus giving up this share was bound to have further impact on the interests of either side in the future. It is also reported recently that JUNIPER is intended to purchase Huawei-3COM with 1. 5 billion USD. I believe this is not pure rumor and there must be some hints of such reports. As Huawei has successfully acquired Li Yinan's Harbor, which has a complete and competitive data communications production line backed by hundreds of millions of venture capital, the integration of Harbor with Huawei will surely add more strength to Huawei in the development and cooperation in the field of data com- munications. 8. 3 JV of Huawei and Nortel "dies on the vine" Norte[ sho.ll take the main responsibility in the failed joint venture between Huawei and Nortel. Currently, it is impossible to save Nortel from its huge deficit ; and Nortel is now confronted with a gloomy future as its strategic investment plan might shrink as a result thereof. As a result of the fierce competition with emerging equipment manufacturers like Huawei, ZTE, etc. and the general poor performance of the world 3G market, the main telecommunication giants in the world started to take corresponding measures to cope with this situation, either by mergers or sales of business units, giving rise to a trend of general integration in the world telecommunication industry. A large number of traditional telecommunication companies were seeking integration or alliance with other firms so as to enlarge their business scale. For example, Ericson purchased Marconi, Alcatel acquired Lucent and so forth. Under the great pressure from the market place, Norte! was also forced to follow the trend of integration. Recently, Nortel is facing the toughest challenge since its establishment. In the first quarter of 2006, Nortel had a deficit of 167 million USD and the defi- cit was 104 million USD in the same period of 2005. It was shown in the Baerg report of Nortel that the gross profit in the first quarter of 2006 was 38%, declining by 4% compared with that of the same period of 2005. Nortel believed that it was mainly due to the over expenditure on cost. Nowadays, the company has made a series of meas- 281 ~ -- 284 of 362 -- ures to lower the operation cost and it is also thinking about what to do next to secure its strategic development. Later, Nortel declared that it was going to cut 1900 staff members in the world as part of its reorganization plan, reducing the number of employees from 90000 to 35000 in six years. Nortel also declared to readjust its pension program, hoping to in- crease the operation profit rate and save more money. It might be a right move for Nortel to cut employees. But it was really worrisome that Nortel would be left alone in the new megatrend of mergers among telecommunication equipment manufacturers as Nortel had never participated in any large-scale mergers and acquisitions. Current- ly, potential cooperation partners for Nortel include Cisco, Motorola, Huawei and ZTE. It was reported by foreign media on June 19th, 2006 that Nortel had made an im- portant plan and declared to found a joint venture with Huawei four months ago. However, this plan was canceled by Nortel not long ago. Probably the management staff would rather withdraw from this field than struggling for survival because Aka- tel and Microsoft were bound to dominate the IPTV market in the future. However, it was a very precious opportunity for Huawei to cooperate with Nortel, as it would provide great convenience for Huawei to expand the American market in a massive scale. Usually, it was very difficult for Huawei to do business in the United States as a result of the law suit with Cisco. But the failed joint venture plan had caused more negative impact on Nortel than on Huawei. In recent years, Nortel has poor perform- ance in many of the fastest growing fields including broadband access and IPTV. Initially Nortel hoped to found a joint venture with Huawei to attract some large potential customers. But it found out that it was too late and it had lost the opportuni- ty to play any big role in the broadband access and IPTV. Thus Nortel had to depend more on its wireless infrastructure business for further development. So we can conclude that Nortel shall take the main responsibility in the failed joint venture between Huawei and Nortel. Currently, it is impossible to save Nortel from its huge deficit; and Nortel is now confronted with a gloomy future as its strate- gic investment plan might shrink as a result thereof. It has been proved that the rise of Huawei and ZTE had not only changed the telecommunication industry in China but also had significant impact on the layout of world telecommunication industry. ~ 282 -- 285 of 362 -- Chapter 1X Seven major controversies surrounding Hua- wei , a star or the Tsar? It suddenly occurs to me that I shall not continue to write this chapter. I'm full of hesitation and I'm even a little bit worried, because Huawei and the boss prefer an in- conspicuous manner in handling business affairs. The boss would not like his company to be written about by others or to be the target of media hype, no matter for good purposes or as a criticism. As a former employee of Huawei for nine years and an out- sider now, especially after traveling to more than 40 countries, I feel it is really im- portant to write about Huawei with an objective and historical perspective. As it is re- quired by the methodology of case study in Harvard Business School, I shall not just pay tribute to Huawei. I'd better say something to the point, otherwise the boss would not welcome my words and would not appreciate me for such dishonest words of tribute. Thus, I will try to focus on some aspects, or the so-called dark sides, of Huawei that need to be improved. I do not worry about pointing out disadvantages of Huawei because I know that, Huawei is modest enough to welcome such criticism if it wants to become a successful and long-lasting century-old business as other famous western en- terprises. I hope that this chapter could be an alert to Huawei and the boss, Ren Zhengfei. Of course, I wish that all of my sincere criticism and suggestion would, while bringing luck to the company, not cause me any trouble. 9. 1 Zhong' Nan' Hai VS Fuji Palace VS Buckingham Palace VS White- house The so-called Zhong' Nan' Hai was just an ordinary old-fashioned residence build- ing. It was so called because almost all of the senior management personnel of Huawei had once lived there. Now, the newly built Bantian Base of Huawei is as spectacular as a grand palace. The boss was lucky at the beginning of his business because he had gathered a group of people with the highest enterprising spirit in China. All business founders shared a dream of building up their business into a business empire. Just as Bill Gates' Microsoft, the American GE, the world's catering giants MacDonald's and KFC, the retail giant Wal-Mart, as well as the enterprise emperors Li Ka-Shing (Li Jiacheng) 283 ~ -- 286 of 362 -- and Henry Fok (Huo Yingdong), Ren Zhengfei also had a dream of building a busi- ness empire of his own. Ren Zhengfei's ambition is clearly stated in the Basic Law of Huawei as the vision and strategic goal of Huawei, which is to develop Huawei into a world- class telecommunication equipment supplier. Huawei's Zhong'Nan'Hai, the first headquarters In the middle of 1990s, many senior management members of Huawei, including the boss Ren Zhengfei, Zheng Baoyong, Sun Yafang, etc. lived in an ordinary resi- dence building, which was called by people as Zhong' Nan' Hai because it was the headquarters of Huawei at the beginning. This residence building was located across the street with the People' s Hospital in Nanshan District of Shenzhen. As the top ranking leaders of Huawei lived in this building, the home of the boss became the of- fice and the meeting room where they could work extra hours or have meetings after work. Sometimes, the boss would summon up some managers to meet and discuss im- portant issues or to work out work plans. This ordinary residence building witnessed all the hardship and efforts of Huawei's forefathers and the growth and development of the company as well. By the end of the 1990s, the annual sales value of Huawei had exceeded tens of billions of RMB, for which Huawei was entitled annual profit and tax champion a- mong the top 100 electronic information enterprises in China. With sufficient finan- cial strength and cash flow, Huawei started to significantly improve salaries and wel- fare for its employees. As a result, they left shabby houses or rental houses and moved into their own apartments one after another. However, the senior managers did not dare to move out of the so-called Zhong'Nan'Hai until the boss moved to the best res- idential community then in Shenzhen. In fact, they had already bought new houses in other places and they stayed just to show respect to the boss. By then, Huawei was moved out of the former headquarters and transferred to a new place, which was just as the Nvzhen Empire left Shenyang and moved to Beijing as its new capital city back to the Qing Dynasty. The transfer of Huawei's headquarters marked the formation of Huawei Empire and its prosperity. Huawei's Bantian Base, a luxurious palace The so-called Zhong'Nan'Hai was just an ordinary old-fashioned residence build- ing now. It was so called because almost all of the senior management personnel of Huawei had once lived here. Now, the newly built Bantian Base of Huawei is as spec- tacular as a grand palace. Right before the former headquarters was abandoned in 1997, Huawei purchased nearly two square kilometers of land in the Bantian area of Shenzhen to start construc- tion of a new production base, which would include a production center, a machining ~ 284 -- 287 of 362 -- center, a science and research building for Huawei Electrics, a central research cen- ter, a central testing center, a training center, an employee apartment building named ((Bai Cao Yuan" and a most distinctive yet controversial administration center. The Huawei Bantian Base is the production base of the highest profile that I have ever seen in China. My foreign guests all told me that these grandeurs and luxurious build- ings are even unmatched by the buildings of the western giants like Siemens, Ericsson , Motorola and so forth. Fortunately, it turned out to be a worthwhile investment. The Bantian Base is now a powerful testimony of Huawei' s overall strength and it has be- come the destination for receiving foreign customers and one of the designated scenic sites for receiving foreign guests by the Ministry of Foreign Affairs and the Ministry of Commerce (namely former Ministry of Foreign Trade and Economic Cooperation) of the People's Republic of China and the Guangdong provincial and Shenzhen mu- nicipal governments. Construction of the administration center of Huawei was last completed in the Bantian Base and it can be described as the most distinctive enterprise headquarters with unique characteristics. It is a masterpiece that demonstrates the business vision of the boss. It is said that the design of the whole base integrates a lot of the boss's own creativity. The boss Ren Zhengfei was graduated from Chongqing Institute of Archi- tecture and Engineering and had worked for years in the army corps of infrastructure construction and engineering. Thus the creativity and ideas of the boss can be well in- tegrated into and demonstrated by the buildings. The administration center looks like the Ziguang Pavilion of Zhong'Nan'Hai and also has a style like the Japanese royal palace, the Fuji Palace. It is grandiose, magnificent, classic and imperatorial. Added with its strict guarding system, the administrative center takes on a sacred, mysterious and awful appearance. Besides the boss and the directors, there is still thousands of ordinary staff of the president's office, human resources department, finance and e- conomics department, etc. working in this grand building. Across the street is the building of the central testing center of Huawei. The western style appearance inlaid with white marble and the white marble pillars usually seen in western palaces are so gorgeous that they often remind people of the British Buckingham Palace or the Whitehouse, the presidential palace of the United States. These luxurious palace-like buildings and the strong development impetus of Hua- wei in the global telecommunication market are amazements to the business insiders. Some people describe Huawei as an enterprise empire, which is not just about internal conflicts between different departments, but more of a harmonious super empire good at developing new frontiers and leading the world. As far as I can see, the strong growth of Huawei, its competitiveness and its hegemony in the telecommunications 285 ~ -- 288 of 362 -- industry can even hardly be matched by the once aggressive tsarist Russia. 9. 2 Doomed to die as competitors of Huawei? Although the business competitors are intimately called " business partners" by Huawei, it does not mean anything kind and nice instead of life-and-death competitors in the market. Cruel competition among business partners Huawei stipulated that all domestic and foreign competitors are to be called busi- ness partners in Huawei so that it can be conducive for strategic partnership, dissol- ving hatred from competitors and building a sound image of Huawei in preventing cut- throat competition in this industry. Although the business competitors are intimately called business partners by Hua- wei, it does not mean anything kind and nice instead of life- and- death competitors in the market. Foreign competitors used to dominate world telecommunication market in the past and also dominated our domestic telecommunication market 10 years ago with technical and equipment monopoly by eight types of products from seven major coun- tries. However, along with the mass technical breakthrough of the Chinese telecom- munication industry led by Huawei and ZTE and depending on the absolute advanta- ges of costs on human resource in the field of domestic communication and informa- tion technology, Huawei and ZTE grew quickly to dominate our domestic telecommu- nication market. More importantly, the emergence of Chinese telecommunication in- dustry has brought about profound changes to the shape of world telecommunication industry. A hard blow on western giants with cost advantages Telecommunication and IT are not only technology-intensive and capital-inten- sive, but also labor-intensive industries, with costs on human resource being an impor- tant part to determine the general cost of telecommunication enterprises. While tele- communication is one of the industries offering the highest salary, Huawei is the one that offers the highest salary among the telecommunication enterprises. Thus, sala- ries, subsidies, bonus, incentive dividends, expenditure on business trips and other la- bor costs are decisive components of Huawei's general costs. Those who have working experience in Huawei and foreign telecommunication or IT industries, or people who know this industry well, must be clear that salaries offered by Huawei and similar western enterprises are basically at the same level, except that we pay in RMB while western counterparts pay in USD or Euro. That is to say that salary in China is only 1/8 or 1/10 of that in western countries. Though, Huawei seems to offer a very high salary in China, it still has great cost advantages over western counterparts, at least ~ 286 -- 289 of 362 -- for another 10 or 20 years. Isn't it a time of life-and-death risk for western competitors? The once promising British telecommunication giant Marconi ended up with a sad story. When the largest British service provider, the British Telecom, declared in 2005 that Huawei was listed as one of the four major global strategic partners, Marconi was doomed to be kicked out and lose tens of years of strategic partnership with British Telecom, which also sent a signal of life-threatening crisis to Marconi. Months later, Marconi was almost purchased by Huawei if there was no political influence. However, Marconi was not saved from a tragic ending and it was finally purchased by Ericsson. This world manu- facturing giant in optical communication and broadband communication finally ended up in such an unexpected way. Looking at the world telecommunication industry, we can find that except the thriving Huawei, there are few other enterprises in sound development now. Alcatel sold out its mobile phone business to our Chinese enterprise TCL after suffering from years of loss; Siemens also sold out its mobile phone business, which was almost a bur- den for it, to China's BenQ group. It is reported that Siemens is going to sell its wire- less communication business to Nokia so that it can completely withdraw from the communications industry. In October 2006, Philips also sold its mobile phone business to China's CEC and completely ended up its business in the mobile communication in- dustry. The American telecommunication giant Lucent is now working on a merger with, actually an acquisition by, the French Alcatel Corporation after years of poor per- formance. The Canadian Nortel Networks is also experiencing continuous decline of business and is trapped in huge deficit; the UT Starcom based in the US is nearly delisted by the US NASDAQ due to its huge deficit. These western enterprises are now confronted with ever growing crisis due to their poor performance in 3G business and the overall competition from Chinese enterprises in all of the low-end market, the middle-range market and the high-end market. To survive such crisis, more and more transnational communication enterprises transfer more of their production lines to China and outsource their research and de- velopment work to the enterprises in China or India. Additionally, they start introdu- cing Chinese products through OEM to replenish their production line. In this way, they can have lower cost than direct development and production on their own. By now, Motorola, NEC and Siemens have all embarked on this way; and Nortel Net- works is also planning to follow suit. Objectively, Huawei should not take the full accountability for the crisis that most transnational telecommunication enterprises are confronted with today. This cri- 287 ~ -- 290 of 362 -- sis is an inevitable result of international specialization of work under the WTO framework in the globalized world today. As it is a labor-intensive industry, China is bound to lead the telecommunication sector. Then why it is Huawei instead of other telecommunication enterprises to represent China to lead the world in this industry? Obviously, Huawei leads China in the telecommunications sector. Fierce competition with domestic counterparts In fact, Huawei behaves like a gentleman in its competition with western transna- tional corporations. Huawei fights in a quite respectful way even in life-and-death oc- casions. Why? It is because that there are more complementary interests than homo- geneous competition between Huawei and western enterprises. Thus they can achieve mutually beneficial strategic cooperation under many circumstances, which integrates both competition and cooperation as shown by their current business relations. However, Huawei fights tough and brutally with its Chinese counterparts. As all domestic telecommunication enterprises have the same cost advantages, similar tech- nical level and product positioning, the same customer groups and almost identical marketing approaches and strategies, the competition among them is a real bloody life-and-death fight in which everyone wants to beat the other to death. As China only started launching market economy for merely 20 odd years, rele- vant legal system is yet to be improved. There is malignant competition among enter- prises, leading to unnecessary loss and worsening the environment of the entire indus- try. Many people said that Huawei and ZTE were real heroes emerging in and survi- ving a very chaos period in the telecommunication industry. The chaotic survival envi- ronment helped to forge strong vitality and capacity, enabling them to become greater legends in the future. Gone the former PABX factories Huawei started its business by selling small switches PABX (Private Automatic Branch Exchange). This type of switches was also called JK1000, which had similar function with the group telephones now. In the late 1980s and early 1990s, the Chinese telecommunication industry was highly monopolized. However, as China's reform and opening up policy deepened, the original stepping analogue semi-automatic (or even manual) switch system intro- duced from the Soviet Union could hardly meet market demands any longer. Thus our Chinese government (specifically the National Ministry of Posts and Telecommunica- tions) started to purchase and introduce advanced digital program controlled switch technologies and equipment from western countries so as to transform the backward communication network CPSTN network) in our country. At that time, telecommunications service in China lagged far behind that in de- ~ 288 -- 291 of 362 -- veloped countries. Instead of driving the rapid economic growth, telecommunications in China became a bottleneck that limited economic development and investment in China. As it was too expensive (even 1000 USD for a single line) to introduce swit- ches from western countries, it was impossible to achieve the installation capacity as required by customers and it was urgent to improve the utilization rate of existing lines. Therefore, the demand for installing small switches PABX by group customers was increasing continuously. It was until the middle of the 1990s that the PABXs were replaced by the cheap and convenient direct line telephones and the virtual group tele- phone technology ( CENTRIX) provided by the Ministry of Posts and Telecommunica- tions. With the first pot of gold, Ren Zhengfei started to hire talents to form a research and development team to develop its own products and core technology. It was said that there used to be tens of PABX agents at that time, including the precursor of ZTE. But those companies and their founders entering this industry without full prep- aration have all gone after making a few years of quick money and seeking a huge o- vernight fortune. Those small companies were shut down and the founders were total- ly unknown after those few years. Thanks to a businessman from Hong Kong, who appreciated the personalities, talents, potential and unique characteristics of Ren Zhengfei, boss of Huawei, and took risks to provide line of credit to Ren. Ren, a marketing talent, used that money to buy the first batch of goods with 20 million HKD and sold it out in three months, earning a total sales value of 40 million HKD. Apart from the loan and interests for the Hong Kong businessman, Huawei yielded in the biggest profit since its establish- ment. What's more, the boss highly valued interpersonal relations and ties and he often told us the importance of gratitude. In 1998, at the celebration banquet of the 10th an- niversary of Huawei, a total of 10 personages, including the businessman from Hong Kong and other senior staff members who had ever provided sincere and great help to Huawei were awarded by Huawei' s Boss (including a piece of macro gold medal made of pure gold). Interestingly, as the PABX market shrank, the Hong Kong business- man experienced declining business performance and it was lucky to get help from Huawei and granted to be an agent of Huawei' s products. This was a really typical case of ever-changing business strength as a result of different corporate strategies and competitiveness. Tragedy of the Grand Dragon and the 08-switch of Huawei Talking about the general breakthrough of our independent core technology in the telecommunications industry of China. we cannot ignore the Grand Dragon group 289 ~ -- 292 of 362 -- and the 04-switch developed by Wu Jiangxing. It was said that the technology of the Grand Dragon group was from the PLA Information Engineering University in Henan. Through long term research and arduous work under the leadership of profes- sor Wu Jiangxing, an academic pioneer at the university and the group leader of the project, the first large capacity digital local programmable switch (also called 04- switch) in Chinese history was successfully developed, for which Wu Jiangxing gained great reputation and was entitled academician of the Chinese Academy of Engineer- ing. This was the first switch with a capacity of 10, 000 lines for PSTN public network in China and it had been put into massive commercial utilization. The 04-switch was developed to improve and achieve communications modernization of the Chinese Ar- my. The strategic transformation of our national defense industry had driven and led the general breakthrough of the civil communications industry in China. The 04 switch won awards for scientific and technological progress respectively from the army and the country. From the perspective of some experts who knew well about the histo- ry of communications industry in China, without the 04- switch, other digital pro- grammable switches with independent intellectual property rights and our own brand would not be possible. It was reported that immediately after news about the development of the 04- switch, some domestic enterprises with flexible mechanism hurried to send general hu- man resource supervisor to hold recruitment fair in the hotel across the street with the Grand Dragon Group and successfully hired some backbone technical personnel and elites from the Grand Dragon with very attractive offering. Although such approaches might possibly break relevant laws and regulations and might be illegal, it did push forward the general breakthrough of the core technology of our Chinese national in- dustry, helping to bring about the ~08 switch, which later dominated the telecom- munications network in the world. However, limited by the regulations in the military university, this scientific re- search achievement was transferred to military industry manufacturers for industrial- ized production and business operation. What's worse, the production authority was granted to several manufacturers at the same time, with the intellectual property rights of this technology still held by the PLA Information Engineering University. Thus the PLA Information Engineering University joined several manufacturers by means of technology capital stocks, forming a giant and influential enterprise, namely the Grand Dragon Group. But as the institutional transformation of state- owned en- terprises in China was yet to be deepened, the enterprise group formed by the most disadvantaged group, the military industry enterprises, was just like an enterprise fed- eration without uniform administration and mutual coordination, making it difficult ~ 290 -- 293 of 362 -- to achieve centralization of management and share resources. Such innate disadvanta- ges made it difficult for the Grand Dragon to survive the cruel and fierce competition in the marketplace, where there was fewer rules to follow. Backed by strong national policies, the Grand Dragon became the first program- mable switch supplier in the field of communications network and the first Chinese communications enterprise that was granted network access certification. It also took some high level or core positions as a result of its first-strike advantage. However, the good days of the Grand Dragon in the market place did not last long. In the middle of the 1990s, Huawei, ZTE and Datang respectively developed their own 10000 -line switch with independent intellectual property rights and brands, which marked a gen- eral breakthrough in the Chinese national communications industry. With that, the four major brands and the competition layout of the Grand Dragon, Datang, ZTE and Huawei were taking shape. Despite the form of a collective ownership enterprise, Huawei was essentially a private enterprise at that time, which gave it a big advantage over the Grand Dragon and Datang. To be strict, ZTE belonged to a state-own enter- prise of the aviation industry department; but it also had strong market competitive- ness due to the special operation mechanism of "state ownership and private opera- tion" created by Hou Weigui. In addition, as Huawei and ZTE were both located in Shenzhen Special Economic Zone and enjoyed favorable and loose business environ- ment, Datang and the Grand Dragon had no chance of winning. Huawei and ZTE strived to surpass with their strong technical advantages, marketing capacity and huge funds; and they purchased the equipment installed by Datang and the Grand Dragon on the Chinese telecommunication network in a massive scale and replaced the former equipment with their own switches. It was said that the material costs of some of Hua- wei's products was only 8% of the catalogue price. But it was still profitable for Hua- wei after deducting the costs on purchasing the old equipment, which was different from what it was told to the service providers that it was a losing business just for im- proving the network and market share. In all, the market layout with the Grand Dragon, Datang, ZTE and Huawei has gone now because the Grand Dragon failed despite all the strong backup and assistance from the government. In July 2006, the Grand Dragon was sold at 45 million RMB by Potevio and it withdrew from the field of communications industry with a tragic end- ing. The Grand Dragon failed to develop any new products after the 04 switch and it could not launch optical network transmission products and mobile products in time as Huawei and ZTE did after the climax of PSTN network construction was down, not to speak of the next generation of NGN soft switch. If it were not the state backup, the Grand Dragon, born under a disadvantaged institution, could have not existed that 291 ~ -- 294 of 362 -- long, but had been kicked out by Huawei and ZTE earlier. Datang also suffered Days for Datang were nothing easier than for the Grand Dragon. Although Da- tang was the only national communications manufacturer under the national ministry and got continuous fiscal and policy support and enjoyed favorable treatment from the government, it did not make any big achievement in the marketplace over the past few years but was trapped in huge deficit instead. It lagged so far behind Huawei and ZTE in terms of enterprise competitiveness. It was lucky that we had homemade 3G standards C1D-SCDMA) now, which brought hope to Datang again when the 3G was about to be launched in the market in 2006. But for the limited economic strength and market operation capacity, Datang might not be the biggest winner despite that it was the initiator of the 3G standards. Even if the national Ministry of Information Indus- try decided to adopt the TD-SCDMA standard in either single network or mixed net- work, and no matter which service provider would be designated by the government or voluntarily adopt the TD-SCDMA standard, it might be Huawei or ZTE instead of Datang that would yield the most from this national strategy aiming to upgrade our national industrial brands as a result of their strong market operation capacity and huge financial resources. Datang lacked massive marketing experience, a complete market system and a supportive platform to support large scale market operation as Huawei and ZTE. Added to its shortage of financial resources, Datang was bound to lose. Therefore, Datang may probably end up like the Grand Dragon after making their contribution and winning some fame, but it's hard to ensure that it can make money at all. I hope Datang can seize the great opportunity posed by the 3G project to recover and learn to survive in the marketplace. Hopefully, it can get rid of the em- barrassment of surviving by government support and grow to be a real national team with strong independent innovation capacity; and it can further develop overseas and compete with world giants as Huawei and ZTE. The fate and destiny of Datang all de- pend on its own capacity. Nobody else could save him from being kicked out by do- mestic and international competitors, including Huawei and ZTE. It is a common market principle shared by Huawei, ZTE, Datang and all other counterparts that the weak shall fall victim to the strong. The market is cruel and all parties have to keep improving their own ability so as to survive, especially in the marketplace dominated by Huawei. About Changhong When I was retaining my post and worked in the Inner Mongolia market in 1998, I met the president of the Changchun Optical Device Institution of the Chinese Acade- ~ 292 -- 295 of 362 -- my of Sciences and the president of the Shenzhen Changhong Corporation. We talked a lot about the PABX switches and felt a sense of pride when we recollected the situa- tion at that time. They said Changhong started earlier and did better than Huawei and ZTE in selling PABX. As Changhong had many employees from the Chinese Academy of Sciences, they were more professional and had better technology than Huawei and ZTE; what's more, they had PABX digital programmable switch technology devel- oped independently on its own and was preparing to develop a more advanced prod- uct, namely local switches for rural application. But Huawei and ZTE were just a- gents at that time, having no products of their own. By 1998, Changhong was basically kicked out, leaving only the four major na- tional brands, namely the Grand Dragon, Datang, ZTE and Huawei, dominating the communications industry in China. Many backbone technical employees of Chang- hong were attempted by the rocketing business performance and the high salary of Huawei and came to work there with the experience they gained through years of work. Considering from the angle of national interests, this was not completely bad things because their experience and technical skills, as well as the investment on them, were not lost but turned into fruitful results in Huawei. Although they worked for different bosses, but the contribution was also made to our Chinese national indus- try. From this aspect, many firms that thrived just for a short period and that were beaten by Huawei or ZTE in whatever way, had made great contribution to the gener- al breakthrough of the national communications industry in China. But it is a pity that the communications enterprise Changhong emerged in Shenzhen is hardly known now, either by ordinary people or even by the communications community. Tianditong Electronics VS Huawei Wireless Nowadays, there are a lot of reports about the achievements of Huawei in the field of the third generation communications, especially about its leading position in the European standards WCDMA (UMTS). By the end of 2005, Huawei had over 5% invention patents in the field of 3G and it had promising performance of its GSM, GPRS and CDMA 2000 in the overseas market. However, the twists and turns that Huawei had gone through all the way in the field of wireless communications is hardly known by outsiders. Huawei started research and development on wireless communications as early as the middle 1990s. It was said that the first technology developed by Huawei was called CT2 analogue wireless communications technology, namely the FDMA (Frequency Division Multiple Access) technology, which had poor mobility and roaming func- tion, and it was regarded as a NO.2 product compared with the most widely accepted cell phone known as the so-called NO. 1-phone. As it had lower costs on network con- 293 ~ -- 296 of 362 -- struction, it attracted many manufacturers and service providers. As time went by, this technology failed in the technical competition in the global telecommunications market and it had to withdraw from the market. This was one of the few cases of failed research and development by Huawei. In fact, Huawei gained a great deal of benefits from this project. First of all, Huawei had trained its first team for developing wireless products, which later be- came the pillar for Huawei in the field of mobile communications; and it also helped to lay a solid technical foundation for further expansion in the field of wireless com- munications product. Secondly, a more direct benefit was that Huawei successfully changed the FDMA technology into its wireless access product (WLL), namely the ETS-450, through cooperation with others, earning billions of RMB for Huawei dur- ing the period from 1997 to 2000. When I was retaining my post and worked in the Inner Mongolia office for Hua- wei in 1998, the sales value of the product amounted to over 50 million RMB and the wireless access product was very suitable to solve the problems encountered in the pro- ject of providing access to all villages in the remote and less populous areas. It was well received by the service providers and farmers in the areas like Guangxi, Inner Mongolia, Xinjiang, Gansu, Qinghai, Ningxia, Guizhou, Yunnan, etc. The first company to embark on research of such products was Tianditong Elec- tronics in Shenzhen, which was said to be an OEM (Original Equipment Manufactur- er) partner with Huawei. Besides selling its own products, Tianditong Electronics also provided original equipment to other companies, including Huawei. When I was pro- moting and selling ETS-450 products in Inner Mongolia, I often came across and com- peted with sales personnel or technical personnel from Tianditong Electronics. But as ETS-450 product was independently researched and developed by Huawei, Huawei took over 70% of the market share in the Chinese wireless network access market. As ZTE joined this industry relatively late, it could only share the rest 30% of the market share with Tianditong Electronics. Mr. Huang Can, a senior staff member of the marketing department of Huawei (actually the general manager of the wireless business department of Huawei) success- fully planned and pushed forward a national popularity campaign of wireless commu- nications technology all over China, which was regarded as a successful case of "dis- covering demands, creating demands, massive marketing and market dominance" at that time and was recognized as a miracle of Huawei. Mr. Huang Can was also known as one of the top four marketing talents in the marketing department of Huawei. Un- der his leadership, Huawei's employees were almost recognized as inborn bandits and conquerors, beating almost all competitors in this filed. ~ 294 -- 297 of 362 -- It seemed that I was linked by ties of fate with ETS-450. When I was working as the regional general manager for Huawei North Mrica in 1999, I found it very easy to get used to life in the Saharan desert area and I made efforts to push coverage of this product in the markets in Algeria, Tunisia, Morocco and other countries in that re- gion under my administration. However, Tianditong Electronics, which was alleged to first develop wireless communications technology retrieved from the Chinese wireless communications mar- ket as its product cycle came to an end. The reason for its failure might include its lack of marketing capacity, shortage of marketing talents like Huang Can, single product, lack of financial support or lack of preparation for the next generation of digital wireless products. Now Tianditong Electronics has failed and it could only seek some comfort by boasting that it was the source of the wireless technology of Huawei to some former staff members in the telecommunications industry. Despite Tianditong Electronics was the pioneer in developing wireless communi- cations product, it shall be as clear as Huawei that the winner is the king and the loser is the bandit. This is a principle not only in political and military fights, but also in the fierce commercial competition in a market without perfect regulations and govern- ance. Nobody will show any sympathy to losers like Changhong, the Grand Dragon and Tianditong Electronics or show any interest on the reason and the way of their failure, as well as the legality of such kind of competition. Bear in mind that cheers and applause are always reserved for winners. Aftermath for business startups by resigned employees from Huawei Although it appears harmonious, the commercial war today is in fact a hot battle full of cruelty. There is always one that can win to the last step, especially in the com- mercial battle with Huawei, the enterprise empire. If you don't have absolute advan- tages, you can only sigh and feel that it is not the right time for you and you are doomed to fail as a competitor of Huawei. This is best demonstrated in the tragic consequence of those resigned employees from Huawei who dared to start up business and compete directly with Huawei. In June 2006, Harbor, established by Li Yinan, was kicked off by its former employer, with all its main production line and business pioneers being acquired by Huawei. For- tunately, it was a peaceful battle with a relatively fair ending as the stockholders of Harbor got their own investment returns. But for Li Yinan, Huang Yaoxu and other leaders, their business dream was dashed by their former employer. Some former employees from Huawei, who established Huke in Shanghai, were not as lucky as the Harbor team. They were accused of theft of Huawei's intellectual property rights and could only taste the bitterness in the prison as a result of technical 295 ~ -- 298 of 362 -- theft and competition with Huawei. The case against Huke was settled in 2005, through which Huawei sent a message to the world to warn the former employees of the tragic consequence of competing with Huawei after resignation and theft of Hua- wei' s technical property. In fact, the former employees were strictly forbidden from competing with Hua- wei even if there was no theft of Huawei's property. According to the regulations of Huawei, the employees have to sign a warrant before resignation to promise not to work for any of Huawei's competitors and not to participate in any work that directly competes with Huawei within two years after resignation. It is also formulated that 15% of the salaries of the former employees must be retained as a compensation for the clauses regarding prohibition of horizontal competition. Whether rational and fair or not, almost all resigned employees signed the warrants; otherwise, they could not have their stocks in Huawei cashed. In that case, it would be a great loss for there- signed employees as that was a major part of their money after working for Huawei for years. 9. 3 Bitterness for Huawei's suppliers For Huawei, the large number of suppliers and subcontractors of the ISC are most- ly small enterprises at disadvantaged positions in their relations with Huawei. Howev- er, Huawei should build a harmonious cooperation environment and reduce negative partnership. Savior of its suppliers and subcontractors According to statistics of the contracted sales value, the global sales value for Huawei in 2005 amounted to 8. 2 billion USD, which was about 65 billion RMB (It was a little bit higher than the statistics released in the financial report. Traditionally, Huawei calculated the contracted sales value as it was a market-oriented enterprise; and the statistics on the financial report was calculated according to financial base line). This showed that Huawei had purchased parts, software, service or outsourcing services worth of tens of billions of RMB from its suppliers or subcontractors in 2005. It was said that there were hundreds of suppliers or subcontractors for Huawei in Shenzhen alone, which depended on Huawei to survive. Thus Huawei could proudly declare that it was the savior of those suppliers and subcontractors. This might not sound good to many people, but it reflected the truth from some certain angle as Huawei was a key link in the industrial chain of this industry. But Huawei shall not forget that it also depended on the small suppliers and subcontractors to keep running. Without a competitive ISC, Huawei would also have no competitive- ness at all. Of course, for Huawei, the large number of suppliers and subcontractors of the ISC were mostly small enterprises at disadvantaged positions in their interaction ~ 296 -- 299 of 362 -- with Huawei. However, Huawei should build a harmonious cooperation environment and reduce negative partnership. Difficult to be suppliers for Hoawei It was not easy to be suppliers or subcontractors for Huawei. The purchasing de- partment of Huawei was called the supply chain management department, which took charge of technical verification, business verification, supplier certification appraisal, purchasing and ordering, import and export procedures (logistics), inspecting goods and canceling after verification, auditing, accounting and accepting orders, settle- ment, etc. It was responsible for the whole complicated process. A few years ago, the production process of Huawei was almost completely out- sourced to EMS factories. There were two or three such EMS factories in Shenzhen, among which one was established by the general managers of the former purchasing department and the production department of Huawei with the assistance of the boss to handle most of the whole machine assembly business for Huawei. These EMS facto- ries had to produce strictly in line with the process procedures and manufacturing standards of Huawei; and the material shall also be purchased from qualified suppliers verified by Huawei. The management mode of Huawei was the Zero-inventory management as that of Dell's. So it was usually required that the customer shall finish production and delivery within seven days after the order was made. However, it was difficult to accurately predict the quantities of Huawei's order in advance in both the domestic and overseas market. Thus the zero-inventory management was actually setting a higher demand for both the EMS factories and the downstream suppliers and adding extra economic burden to them. Basically, Huawei could keep its zero-inventory management run- ning. But days for the factories acting as suppliers for Huawei were tough because they had to prepare some products in the inventory according to their experience and the predicted order of Huawei in case that Huawei had unexpected order. However, all the cost and burden shall be taken by the suppliers. If the product inventory was too large and the final order was much lower than the expected, then the rest products will turn to be idle stock, which was very difficult to sell to others as they were spe- cially made for Huawei. In this case, it was the suppliers to take responsibility for all the loss. A good point was that such cases did not occur frequently. Anyone who had ever come into contact with Huawei would know that Huawei was too self-centered in its relations with other companies, namely striving for maxi- mum benefit for Huawei as Zheng Baoyong was once praised by the boss. When Hua- wei was signing a contract with Hutchison in Hong Kong in 1996, I was the project manager and the main negotiator directly under the leadership of Zheng Baoyong, the 297 ~ -- 300 of 362 -- executive vice president, and we won the first overseas order worth of 36 million USD for Huawei, which was the biggest contract for Huawei since its establishment and had a high profit margin. The boss praised Zheng Baoyong at the reporting session as saying, "Mr. Zheng was a development talent and a purchase manager before and he is also a marketing leader today. He is really capable. We shall learn from him to buy at the lowest price, to sell at the highest price and also to do the best in research and development. The most important point is that he can persuade customers to pay vol- untarily.'' The boss' remarks reflected his requirements for employees. Huawei has never been short of funds because it is good at doing business with the funds of the suppliers and the subcontractors. If you carry out a survey, the suppliers may tell you that they have to allow a payment period, generally 90 days for the shor- test, for the material, parts, software or service to Huawei; and they can get the pay- ment after the period if things go smoothly. It is useless to think that you can get your payment back sooner by establishing closer relations with the people in charge of pay- ment, because Huawei has a complicated organizational structure that's difficult for the outsiders to figure out. The staff members in Huawei often take work shifts and they have line operation and procedure flow management. Even if you can establish close relations with one or two of the staff members, you still can't have your money paid earlier. In this way, a large proportion of the gross profit of the suppliers is con- sumed by Huawei as time goes by. Moreover, it is impossible for the suppliers to raise the price because Huawei usually adopts a competitive purchase manner and it chooses suppliers through public bidding or negotiation of bidding. Thus it is difficult for the suppliers to expand the amount of supply as their funds have been held in the hands of Huawei for a long time. They can only determine the amount of supply with the limited money in their hands. Huawei does not care wheth- er the suppliers can develop and growth quickly or not; and it holds that it is better for Huawei if the suppliers are kept at relatively disadvantaged positions. Among the enterprises acting as suppliers for Huawei ten years ago when Huawei had only thou- sands of employees and a sales value of only billions of RMB, some have been shut up, some have changed their business to other fields and some others are still coopera- tion suppliers for Huawei, which makes no obvious progress at all. However, ten years later, Huawei has grown into an enterprise empire with tens of thousands of em- ployees and tens of billions of sales value, respectively growing by ten times compared with the level ten years ago. There is nothing to be surprised of because it is the very capable boss, instead of ordinary people, like you and me, managing the company. Greater risks for subcontractors There are greater risks and burden for subcontractors of Huawei than for the sup- ~ 298 -- 301 of 362 -- pliers. Traditionally, subcontractors also belong to a kind of suppliers, but they are strictly separated by Huawei. In Huawei, enterprises supplying material are called suppliers, while enterprises supplying parts of the relatively independent products in the system are called subcontractors. The suppliers sell materials directly to Huawei. So Huawei, as the buyer, has the duty and responsibility to pay the suppliers for the material they get. Although some suppliers lament about the three months payment period and the complicated and slow payment procedures, they are basically saved from any risks in getting the payment back. However, things are different for the subcontractors as they have to share the risks with Huawei. It is clearly stated in the general contract that Huawei, as the general contractor, will pay the subcontractors according to the designated proportion after the service providers receive and inspect the goods and finally pay the money to Huawei. The subcontractors are just part of the whole project of Huawei. They don't con- trol the process and quality of the whole project but have to share responsibilities with the general contractor Huawei. Thus the subcontractors feel unfair and helpless. Those small and medium size enterprises may be in danger if one of their subcontrac- ting projects fails as they have limited financial and capital capacity. As they do not have the channels and funds to directly enter the international market, many of them have to depend on Huawei to get their products into the international market. In this sense, Huawei is just like a "surrounded city" as described by the famous writer Qian Zhongshu. It is not only a surrounded city that limits those professional managers and job seekers, but also sieges those companies which admire Huawei and hope to make some money through business cooperation with it. However, don't complain Huawei as you have no better choice. Instead, you shall be grateful for Huawei because it helps you to make a living; and an important lesson that we learn from the boss in this process is to show gratitude on every favor you get from Huawei. Successful or not, this may be the bitterness in acting as suppli- ers and subcontractors for Huawei. 9. 4 Less happiness with high salaries, Huawei to blame? If you take a happiness survey of Huawei 's employees, you might possibly find out that the result is not any better, or even worse, than that of the employees in ordinary enterprises. People in greatest happiness in the eyes of outsiders Many people think that Huawei' s employees are living in the greatest happiness in the world. Why? First of all, China is the fastest growing developing country in the world and Huawei's employees are lucky as they are elites of the country. Secondly, 299 ~ -- 302 of 362 -- telecommunication and information technology is developing at the fastest pace and it can provide the highest salaries for employees; it is lucky to be employed by Huawei and work in this promising industry; moreover, Huawei is the best enterprise in Chi- na's telecommunication and IT sector, which has been national profit champion for eight consecutive years among the top 100 national electronic enterprises; Huawei's e- conomic yielding capacity does not only lead the entire China, but it is also even bet- ter than that of other transnational telecommunication giants around the world. It is a blessing to be a member of the Huawei Group. Last but not least, Huawei's boss en- courages employees to earn more; and the general benefit to employees can hardly be surpassed by that offered by other enterprises. With all these advantages, Huawei is really appealing to outsiders. However, Huawei's insiders would tell you something opposite. If you are an expert or a professor studying enterprise organizational behavior, I suggest you carry out a systemic academic research on such a weird phenomenon in Huawei. If you take a happiness survey of Huawei' s employees, you might possibly find out that the result is not any better, or even worse, than that of the employees in ordinary enterprises. You may find some phenomena or facts that shock ordinary out- siders; you can further study such facts and give professional judgment, analysis and further research; or you can put forward a remedy for Huawei to solve such problems if possible. I believe, the Huawei boss will welcome your research results, or luckily, it might solve the tough problem that has been bothering the boss for years. Here I just hope that my words can help the outsiders to have a clear knowledge about the bitterness and helplessness of Huawei's employees. If the boss should take time and have the patience to read through my words and take notice of this problem, it might be possible that he could think about this phenomenon from a different an- gle. As rare elite in the world, maybe he can find resolutions by himself without pay- ing high costs to hire consultants and experts. Golden handcuffs, to keep or to abandon? Huawei designed a unique all-staff stock holding mechanism. What exactly does it mean to the staff members and what kind of mental burden it has posed on them? It is undeniable that stock dividend and appreciation are the main source of in- come for Huawei's employees, especially for the middle and high level management personnel. The basic salary only accounts for a small amount of the total income of the employees in Huawei. For them, a monthly salary of tens of thousands RMB is just regarded as a small proportion of money for daily expenses. The real payment for them is the annual bonus and stock dividend evaluated in March and April and paid in September and October. The stock quota for each employee can be viewed as a quan- ~ 300 -- 303 of 362 -- titative index to mark the value of an employee to the company. The stock dividend is what the outsiders envy most and what all insiders want to fight for. In fact, it is a pair of golden handcuffs both loved and hated by people. Each year, when the company is preparing and declaring the arrangement of new stock distribution plan, there will be a nervous atmosphere among the employees and disharmony will be caused by unfair stock distribution plans, making some people dis- appointed or even angry. However, the stock distribution plan is determined by a hu- man resource committee formed by senior leaders of relevant departments according to the overall policy and strategy of the company and based on the performance and appraisal result of the employees. Although the evaluation process is strictly confidential, the employees could al- ways get some information about themselves through various channels and they also like to compare their own situation with that of their colleagues at the same level or at similar positions in their own department or cooperative department. Once they feel unsatisfactory with the distribution plan, they would be very disappointed and upset as they have no way to complain but have to bear it all instead. The higher proportion of stocks they have the more responsibility and burden on their shoulders. So they have to work even harder to prevent declining profit of the whole company; otherwise the employees would also suffer from loss. Each employee has to be absolutely careful and prudent without making any mistakes to prevent loss so as to secure their stocks. Em- ployees have to accept all the rules and regulations, as well as the corporate culture of Huawei, no matter they are reasonable or humane or not. In this way, you can save your job and secure your long term gains from the stocks you hold. Thus, some Hua- wei employees are quite frustrated as they feel to be held hostage by the stock holding mechanism, which is just like a pair of golden handcuffs that allure you and restrict you from freedom at the same time. Despite the high income, Huawei employees do not live a happy and easy life. No easy life under boundless responsibility Huawei employees all shoulder heavy burden and responsibility, especially the chief managers at the middle and high levels. It is normal for the chief managers to shoulder responsibility for enterprises, but it's unusual that shouldering responsibility for Huawei could mean putting your stocks and property at hostage. You have a great amount of stocks in Huawei and that is almost all of your property because all the an- nual dividend and bonus are spent on buying new stock distributions since you became Huawei' s employees. You might even owe the company extra money that is lent to make up the deficiency in buying new stocks. In this way, except basic salaries, you cannot take any extra money from the company but owe the company money instead. 301 ~ -- 304 of 362 -- So you have more and more stocks year by year and more of your money is held in the stocks, which would make your "golden handcuffs" get tighter day by day. Take me as an example, I had been working in Huawei for nine years and I used to be a senior chief manager in the marketing department. I believe most of other chief managers would have similar experience with me as Huawei' s rules and regula- tions are set for the whole company but not for any specific individual. In 1998, I was sent to Inner Mongolia representative office. Once, I successfully retook a bad debt of 5 million RMB left over by a special coal mine network project for the company. But our client requested that we had to pay 10% of the engineering cost to a designated relevant company in advance and subcontract engineering installa- tion and maintenance services to that company. Although I was delighted to have col- lected a bad debt for the company, I felt really frustrated in the specific implementa- tion process. According to the regulations of Huawei, I had to pay the 500000 RMB with my own share of funds, which meant that I had to borrow 500000 RMB from the company to guarantee that I could retake the bad debt. What's worse, it was not my responsibility to retake the bad debt of this project. I, as a company leader, was just giving a helping hand as the company required since the Inner Mongolia representative office failed to get it done for years. It was good that the debt was retaken through my efforts. But how come I should borrow 500,000 RMB from the company to get the debt paid? I was really angry and did not want to get involved in that project any more. I called to consult company leaders only to find that it was the institution and conven- tional way of practice at Huawei. I had no choice but borrowed some fund from the company and urged the other party to implement the contract. The whole process took more than a month, but as I had to take full responsibility of all risks, I felt it was a long and tough time. At the end of the month, when I did routine checkup of my fund account, I was shocked because I found I owed an extra of 5 million RMB to the company besides the 500000 RMB that I borrowed before. I went to the general supervisor of the market finance department and she just gave plain explanation that as I had paid a project fund of 500000 RMB, I had to take full responsibility of reta- king the 5 million RMB back. This huge amount of fund was canceled until I got the 5 million bad debts back to the company's account. Ever since that, I gradually got accustomed to such kind of practices. In 1999- 2000, when I was the general manager of the North African regional department, the regional department and the representative office were still under construction and the organizational structure was not yet completed. Thus all expenses for the regional department and the representative office were transferred to my own ~ 302 -- 305 of 362 -- private account at the local bank. In this way, I was forced to borrow more than 100000 USD from the company on my bank account as the operation fund for the pro- ject. As the expense receipt had to be mailed back to the Huawei headquarters in Shenzhen, China, the reimbursement period often last as long as 5 ·~- 6 months, lead- ing my fund accumulated to as much as about 500000 to 600000 USD. In those times, I was extremely worried. What if my credit card got lost or stolen? What if the ex- pense receipt got missing on the way or in the company? If such cases occurred, it would mean that I had to pay all the money on my own, or even pay with all my stocks and houses. In the year 2001, I was the general manager of the North American regional de- partment and the representative to the Mexican representative office. As Huawei just entered Mexico and there was no corporate bank account, the company transferred 200000 USD into my credit card account to pay for the preparation expenses of the telecommunication exhibition in Mexico. At that time, Mexico was really chaos. There were many robbers with guns (as guns are allowed to be purchased and pos- sessed legally by all people in Mexico). Our Chinese people often tended to take cash and credit cards with them, thus they were the main targets of gang robbery, which worried me most. It was two months after the exhibition work completely done that the debt on my fund account was canceled. Thank god that I did not come across with any unexpected trouble. I am wondering whether there is any other enterprise that would have its middle and high level general managers take such great risks and responsibility for the compa- ny like Huawei. I bet that our readers would not doubt my conclusion any more after learning those tough cases for Huawei employees as mentioned above. It is true that life was not as happy as you might think in Huawei in spite of the high salary. Risking your life Huawei would spare no expense, including life, to expand the overseas market. You might doubt the truth of my words, but I swear I am not trying to exaggerate or scare you. In fact, if you have any chance to experience life in Huawei' s overseas market, or you have the patience to read through these words, I promise you would understand that the problems mentioned above are nothing compared with the life - risking dangers in the overseas market. Because life is the most precious treasure for us and it can never come back once it is gone; and moreover, life is not just a private property of ours, it is also a common treasure to ensure happiness for the whole fami- ly. However, we, a group of idealists, were summoned up by the boss' ambition to 303 ~ -- 306 of 362 -- expand market in Europe, Africa, the Pacific region and many other places around the world, risking our own lives for the development of the company. According to Huawei' s strategy of "rural areas surrounding cities", we started with developing countries to carry out our strategy in the international market. Thus, poor developing countries were the first key targeted regions for Huawei to explore the overseas market. At the beginning, we had many chances to be sent to developing countries on business trips, or even sent to station there for a long time. Generally, developing countries are economically underdeveloped, in poor public order and in long term riots, even with some of them being world famous terrorist countries. I had been spending a year and a half in Algeria, North Africa and I deeply un- derstood what a real life-risking situation was. Algeria used to be a colony of France and gained independence in the 1970s after arduous fight and cruel bloodshed. At the beginning of the 1990s, a war of over 10 years was launched by the Islamic militant group as the military government was suspected to cheat in a presidential election. Up to now, the public order is just basically stable. In the worst times, there were over ten thousand people dying from terrorist attacks each year. The government and the reactionary group kept condemning each other and there was no way to settle such problems. I worked for one and a half years in such a country, living in the danger of sui- cide car bombings almost every day. What impressed me most was that, one day, when I was on my way back with the teller Mr. Lan, I heard a huge bombing and saw a car burning 100 meters in front of us, causing serious bloodshed. The police hurried to save the wounded and keep public order. However, the civilian just gathered a- round to see the event calmly or even pitilessly as there was nothing to do with them. Such events happened almost every day and became part of people's life that all peo- ple had got used to that. Whether you liked it or not, it was part of life there. People could not change the situation and they had no way to escape from that. All they could do was just shrugging their shoulders and shaking heads, telling you that's life. Yes, that's life for them as they could not seek better life in any other places, either as refugees or migrants. But why shall we, a group of elites from a peaceful and fast growing country, put our lives in danger in such a chaos country? But these risks were completely out of our minds at that time and we were just completely focused on working. We gradually got used to those disturbs and learned to take it easy and accepted that as "life". Looking back, I am far more scared than that time when I was living abroad. Why shall we risk our lives to work there? Was it the lure of money or the ambition of the boss that drove us to live in danger? It was writ- ten by Mr. Li Yuzhuo, the former vice president of Huawei, in his book Cooperation ~ 304 -- 307 of 362 -- and Conflicts with Business Leaders that "To work is to ensure family happiness. It is not worth to make the money if your work is threatening your happiness or the happi- ness of your family. " However, we were not aware of this then and we even intro- duced more of our own staff members to work in this dangerous and horrible country to fight for Huawei. God blessed us that I myself and the whole team of tens of per- sonnel were all safe and sound during our work there; otherwise, I would not be able to look back to those days in peaceful mind. One of my colleagues and friends, Mr. Liang Guoshi, was also a senior leader of the overseas market of Huawei and the first chief representative sent to be stationed overseas by Huawei. His book Wolf Breakthrough released in 2004 was a record of the whole process of Huawei' s history in expanding the overseas market and growing to be a real transnational enterprise empire under the leadership of the first founders. Mr. Liang used to be extorted by police or gangs when he was working in Russia. Once, he was even retained by the police and was not released until other colleagues pay the fine (the ransom). My colleague Mr. Deng was once traveling on a business trip to Johannesburg in South Africa. He was followed by robbers as soon as he stepped out of the airport. Immediately when the taxi arrived at the representative office, they were controlled by the robbers with hand-held American rifles. Our employees had no way but to al- low the robbers to pick up anything they wanted. Later, officials in the commercial commission of the Chinese embassy told us that it was a great blessing that we came across relatively nice robbers, or else we might have been killed. There was also a widespread story in Huawei that the person involved was praised as a hero. The event took place in the Tunisia representative office under the North African regional department of Huawei when I was the chief manager there. At that time, an engineer, who was a technical promotion expert under the product depart- ment, was ordered by the headquarters to fly from Cairo International Airport to Tu- nisia for technical support. The plane took off at the Cairo International Airport and arrived in the air space of Tunisia after a period of normal flight. Suddenly, an engine of the plane stopped working and the plane was forced to land in the area around as the trouble could not be checked immediately. While landing, the plane hit a hill and exploded. The local employee of the representative office who was sent to pick up the engineer got the news of the air crash and reported to the representative Mao Tian- hua. The general manager of the representative office, having no experience in han- dling such occasions, reported to the regional department and the leaders of the head- quarters and started post-crash arrangements. However, it was just then that Mao Tianhua' s mobile phone rang and it was the engineer asking Mao to pick him up. Mao 305 ~ -- 308 of 362 -- was so surprised and asked, "Didn't you get on the plane?" "Yes, I was there. But I was hung on a tree!" Thank goodness! The engineer was only slightly injured and be- came a rare survivor in air crashes in the world. It was really a great blessing by god. Nowadays, business competition was usually described as wars due to their cruel- ty. If you are sent to work in the overseas market of Huawei, you really have to be ready to put your life at risk. Threatening health of more people To exploit market in those remote, poor and backward countries, we had to con- front with a lot of problems concerning public order as well as health. Those countries have poor health conditions and inadequate medical services; what' s worse, there were frightening tropical diseases, endemic diseases and AIDS in the tropical African region. In the Negro African region, including southern Africa, northern Africa and western Africa, there were about 50% ·~ 60% women with HIV virus. This is a com- mon and serious social problem in Negro Africa. It is even predicted by scientists that these countries and nations would perish in the world 20 years later without effective assistance from the international communities. Some other people said that the Afri- can people bothered by AIDS would gradually develop a kind of antibody to resist the disease, bringing the number of death down below the level that the scientists predic- ted. However, although this theory was right, it was still quite possible that the HIV carriers who hadn't show any symptoms would pass the virus to foreigners through the main channel of sexual transmission. To prevent AIDS infection to the employees through sex services, Huawei formu- lated regulations that, any treatment cost on AIDS infection through unhealthy life behavior would not be reimbursed and such behavior had to be punished as it went a- gainst the company's rules and regulations and harmed the reputation of the compa- ny. However, most of the Chinese employees working abroad were young people liv- ing far away from their families and spouse, who could not have normal sexual life with their spouse and failed to control their sexual desire with reason. Therefore, many people were attempted to take risks and find prostitutes or local mistresses. E- ven if they had taken protections, it might also be possible to catch HIV infections. What's worse, HIV infections through such channels would not be forgiven by the company, but had to be punished strictly instead. But, if, by any chance, you were one of those victims, you might blame that it was the company that sent you there and pushed you to become a victim. Was it unfair? Things would be more unjust in many other occasions. As we know, HIV could be transmitted through many other ways, including blood transfusion, dental cleaning, surgery, etc. Once I went on a business trip toE- ~ 306 -- 309 of 362 -- thiopia in eastern Africa for a huge bidding project. I spent more than three months there and had a really painful and swelling lipoma as large as an egg on my buttock. As I was the project manager and the chief negotiation representative, I could not go back China for treatment but went to have an operation in the Russian Hospital with the best equipment there instead. At that time, the civil war that had been lasting for years in Ethiopia was just en- ded, leaving the whole country in desperate ruins and wrecks. Ethiopia was the poo- rest country in the backward African region and the Russian Hospital was built by the former Soviet Union 20 years ago, which was kept in operation with the limited medi- cal fees that it collected and did not receive any funds of assistance for upgrading its facilities for years due to the desperate economic turmoil after the disintegration of the former Soviet Union and the establishment of Russia, as well as years of civil wall in Ethiopia. When I stepped into the so-called best hospital there, I found that it was just like a small clinic in the poorest towns or counties of China. What disgusted me most was that I found the African nurse making cotton balls directly with her bare hands. I could not tell whether she had washed her dirty hands before she started working. Later I was just lucky enough to witness the nurse wiping her running nose with the clean cotton ball. I was speechless and started to worry whether there was strict sterilization of the scalpels, whether there was HIV contami- nation on the scalpels, etc. As the scalpels and injectors were only disinfected in boil- ing water and used repeatedly, there was a great chance of cross-infection. Generally, HIV would be killed in tens of seconds in the air and it was safe to have the medical instruments boiled. However, I did not think so much at that time. All that came to my mind was a lofty sentiment and high aspiration of scarification as usually advoca- ted by the boss with a quotation from Chairman Mao "There will be sacrifice if there is fighting". The sense of responsibility and a spirit of dedication that I developed in Huawei prevented me from thinking about my own loss and gains. I took the operation for two hours and I was delighted that there was just a low chance of HIV infections as there was no blood transfusion during the operation. Three months later, our project group had the work task get done and we could return China safe and sound. To en- courage and educate other employees, the company had my experience compiled as a case and published it on the weekly publication Twenty-four Hours released by the Corporate Life Association of Huawei. It has been many years after that experience, but I am still scared of taking physi- cal examinations for the fear of being detected with HIVI AIDS. I was told that HIV can reside in human body for years and cause the occurrence of AIDS all of a sudden. 307 ~ -- 310 of 362 -- In fact, besides AIDS, there are still many other tropic epidemic diseases and infec- tious diseases that would be fatal to human beings. For example, malaria, which has been eliminated from China for tens of years, is still prevailing in some tropical re- gions, especially the Negro African region. A chief manager and vice representative Mr. Wu, who was stationed in Nigeria, was very venerable to malaria. In the two years that he spent in Nigeria, he altogeth- er suffered from malaria for five or six times. It was funny that I was originally ap- pointed to be the chief representative in Nigeria but I had never been there as I was soon sent to be the regional chief manager of northern Africa. So I was saved from malaria troubles, leaving Mr. Wu suffering there as a vice representative until he left. It was ridiculous that the company did not remove me from the post of chief repre- sentative in Nigeria until I was resigned. It may be because the company was expan- ding extremely fast at that time, and it would not be bothered to remove me although I had not been doing anything related to that position. However, I was not always that lucky. I was a victim of malaria in the spring of 2000 when I was traveling with the Director of the Board Sun Yafang as an entrepre- neur representative with our Vice Premier of the State Council Ms. Wu Yi to five Af- rican countries. At the arrival in Ghana, I started to have a high fever and felt alter- nating cold and heat, which could not be relieved by blankets or other usual means that we took against fever. Then I was told by the embassy officials that it was malar- ia, which might be caused by mosquito bite at the previous stop Cote ctlvoire. With the help of the embassy, I was sent by Sun Yafang and Mr. Yan, the vice president of Huawei to a clinic run by a Chinese doctor. That was a special malaria clinic with good reputation in the region. Doctor Jiang, from Beijing University of Traditional Chinese Medicine, helped to treat and got my disease healed in five days with artemisinine (the most effective medicine a- gainst malaria) made in China. It was thereafter that I learned the death rate caused by malaria could be as high as 3%, even higher for brain malaria. Thank god that I had a narrow escape from death again. I lost over 5 kilograms of weight when I got out of the clinic. Ever since that, I was living in poor health for about two years and got basically recovered lately. Tortured by malaria, my admiration towards Mr. Wu was even stronger and I felt grateful for him that he went to Nigeria to take all the suffering instead of me. One of my colleagues Yuan Yangdong was infected with dengue fever on a business trip to Vi- etnam. He was badly ill that he had to leave the overseas market and was sent back to China for treatment. A senior personnel of Huawei's marketing department used to be the vice director ~ 308 -- 311 of 362 -- at the Jinan representative office was detected with serious fatty liver after years of work in Shandong province as he had to drink a lot of liquor on various banquets or dinners so as to keep interaction with clients. Although he got a huge amount of subsi- dies from the company, the fatty liver failed to be controlled and worsened into hepa- tocirrhosis; then the employee died in Guangzhou in 2003. On behalf of the company, the CPC secretary of Huawei Mr. Cheng and I went to help with the funeral prepara- tion. Reading the obituary, I could not help feeling a freeze in my bottom heart. I felt great grieve for the sacrifice that the employees made for Huawei. Sacrificing family happiness involuntarily Employees for overseas market of Huawei often have to be stationed long abroad and sometimes they are allowed to come back to China only once a year. Although Huawei has policies to allow chief managers and employees at higher levels to live a- broad with their families, it seldom happens because those countries are generally poor and tough places and it is difficult to provide satisfactory education to their chil- dren. Some of my friends would envy me for I had been visiting over 40 countries. But the truth that I told them was that there was nothing to be envied or jealous about in my experience abroad as life there was far from anything romantic or easy as they i- magined. Simply speaking, if you were traveling there, you could take your time and enjoy yourself in visiting all the places of interests and all the spectacular mountains, rivers and many other attractive natural scenery spots. But we were not pure tourists there but working staff to fulfill our designated task there. We had burdens and re- sponsibilities on our shoulders and we hardly had any time or a leisure mood to have any fun there. We had to overcome language barriers and cultural differences; we had to show full respect to the local customs so as to keep closer relations with our custom- ers and expand market there. Sometimes we had to force ourselves to swallow down some peculiar local food and pretend to enjoy each and every dish. As the local people were always nice and kind, they often treated us with some local specialties that were the most delicious ones in full hospitality. Although the flavor of the food was not ap- pealing to our taste, or the spice was sometimes weird and unbearable, we still had to show our gratitude and keep telling them how wonderful everything was without showing any bit of insincerity and affectation, even if we didn't really enjoy it at all. What's worse was the unbearable loneliness of the heart. For example, in the A- rabian countries, all TV programs were in Arabian that we couldn't understand and all women in the street were wrapped all over by black gowns, leaving only their eyes exposed. Worse still, we were not allowed to take even a glance at them because it was a taboo by the religion there. As the overseas employees lived far away from their 309 ~ -- 312 of 362 -- spouses without having normal sexual life in a relatively young age, it was easy to cause some problems after a long period of time. Their wives at home were also con- fronted with greater pressure as they had to take charge of all housework and the edu- cation of children alone. Psychological problems were more likely to occur on their children as they failed to learn from their fathers and feel the love from their fathers. It was also quite possible that their children might fail in their study as their fathers were not available to teach them when they needed. If a couple are separated to live in different places for a long time without neces- sary care and exchange, the marital relation is easy to get fragile. If, by any chance, there is another woman rushing into their life, their family would be endangered or e- ven break up. One of my colleagues used to be sent to Russia as a chief manager and got divorced with his wife after a few years in Moscow. Another general market man- ager stationed in Tashkent also got divorced with his wife, giving up his houses and children in China and married a local Jewish girl a few years after working abroad. There was a colleague from Bulgaria, middle Europe, who used to study in Tsing- hua University, got married with a Chinese girl and had a lovely mixed blood baby boy. Later, he joined Huawei and was sent to the regional department of the Com- monwealth of Independent States as a technical promotion manager. As the baby boy was too young that he could not have his wife and baby along with him. He felt ex- tremely lonely and had no way to communicate with others and relieve his own feel- ings. As a result he became introvert and more lonely. What's worse, he got lost of any contact with all other people around. It was two years after that he appeared a- gain and it was known that he used to suffer from serious depression and went for pri- vate treatment for two years until he was basically recovered lately. There was also another typical story of an executive vice president in Huawei, which could represent a kind of general situation for the overseas employees. As the boss attached great importance to the overseas market, several executive vice presi- dents and senior vice presidents who had rich experience in the domestic market were sent to foreign countries to act as regional president there. I was offered the title of regional chief manager when I was acting as the general manager of the regional de- partment, while those vice presidents taking the same position as me in the overseas market were called regional presidents as the post had been upgraded. The executive vice president was first sent to the European regional department and later to the Mid- dle East and Northern African region. To overcome the language barrier, the compa- ny sent an interpreter to the overseas department with him. As time went by, they felt in love with each other despite that they both had got married before. This love affair soon got to the ears of their spouses and family members and they turned to the ~ 310 -- 313 of 362 -- company for help. The company had no way but to punish them. As a result, the two employees got divorced respectively and resigned from Huawei. Another heart breaking story happened on a female manager, who had been sent to work in Malaysia. When she was working abroad, her child slipped and fell from the balcony as there was no one to take good care of him. The kid was sent to the hos- pital, but it was too late and he died soon. Even until now, the manager is still quite guilty and regretful for this tragedy, which might possibly be prevented if she was sta- ying home to take care of her child. Of course, such tragedies would not happen on all overseas employees. But it' s true that misfortunes are more likely to occur to the families of those working abroad, causing more pain and sacrifice of their family members. Lastly, I would like to share with you my own story. In 2001, I was sent to Ma- laysia to take charge of the Asia Pacific regional market. As I had been living abroad for years, I planned to take my wife and daughter with me in Malaysia because the conditions there were much better than that of many other foreign countries I had stayed before and there were both English schools and Chinese Schools for my daugh- ter to study in. After the passport and other relevant procedures got done, my wife's elder sister, who had been taking care of my daughter for a long time, proposed a vis- it to Suzhou and Shanghai before they left for Malaysia. Unfortunately, they came across a car crash on the way from Suzhou to the Shanghai airport on July 1st, 2001. My daughter was badly hurt and became a vegeta- ble as a result of injury to the brain stem. Although she woke up, it cost me about 4 million RMB in the five years of treatment and it is still yet to know how long it will take to see better conditions of my daughter. To the worst, my daughter might be paralyzed and incapable of self-care for the whole lifetime. Occasionally, my wife would complain that if I were not sent to work in Malay- sia, I would not plan to have them with me and they would not choose to travel to Suzhou at that time. In that case, my daughter would be saved from being a vegetable and paralyzed for the whole lifetime. This idea might not be completely logical and reasonable, but there were some interrelations among all those events. Although Huawei had no legal responsibility on the whole event, I am now clear that it was my work that took all happiness away from my family. Huawei had done its utmost to help us, including finding the best hospitals for my daughter and paid the medical charges for us, but it was too late to find my daughter's happiness back. Just as the song goes, Huawei' s achievement depends half on the company and half on the employees. At the 20th anniversary of Huawei's establishment in 2008, the boss was suggested to prepare some honor medals for the pioneers of the overseas mar- 311 ~ -- 314 of 362 -- ket and their families, who deserved the honor better than anyone else. Lack of hwnanization, sorrow for the employees When I was studying in Harvard Business School in 2003, I got some opportuni- ties to visit some famous enterprises in America and I had deep impressions on those world-class IT companies. As an old staff member from Huawei, a company with semi-military management, I appreciated and admired their respect of employ- ees' dignity, cuitural background, ethnic groups, individualities, etc. There was harmony and natural equality in foreign enterprises instead of the strict hierarchy system in Huawei. Employees called each other directly by their own names instead of their titles as we do in Huawei. Discrimination on different genders and age groups was not seen there. All employees were treated equally according to laws and regulations and no one could be deprived of his job because of the security system. In recent years, the boss of Huawei has been spending half of his time traveling around the world and visiting many companies in different countries. I had been trav- eling to a few countries and spent a very long time with him in the short period when I was the chief manager of the overseas market of Huawei. Thus the boss has a wide horizon and he is a wise man instead of a mere short-sighted rich man. But why there is such a big gap between the most famous Chinese enterprise run by our boss and oth- er western enterprises. It was mentioned above that the corporate culture of Huawei made it like a com- bination of barrack and campus. The boss has always highlighted that a barrack with- out cultural atmosphere is a silly one; he also said that all resources in the world are exhaustible except culture, which has endless life and continuous growth. I just won- der why our boss attaches such great importance on corporate culture yet still failed to create a comfortable and easy cultural environment that all people can enjoy working there happily. Instead, the boss seemed to behave inadequately as a rude and unedu- cated man without any charm of a successful businessman. In fact, the boss has always lived at a low profile, especially to the media. Thus outsiders know very little about him, even employees at the basic level do not have chance to get close to him. By now, Huawei has tens of thousands of employees work- ing in hundreds of cities in over 50 countries and regions. Therefore, many employees have never met the boss but get to know him by reading his articles with literary ele- gance and unique insight. The true man is only known by the middle and high-level general managers. The boss is an army man, a strategist and an entrepreneur as well. Meanwhile, the boss is also a man full of human emotion and temperament. He has his unique per- ~ 312 -- 315 of 362 -- sonality, a distinctive sense of good and evil and an easily irascible temper, acting like a military leader. The boss is well known for his way of blaming employees, but he never blamed ordinary employees (he leaves an impression to the ordinary employees as a nice and homely old man, who often walks with a pedometer at noon every day) . The higher positions the employees stay at, the more opportunities they will have to work with the boss, which means that they are more likely to be criticized and educat- ed by the boss in his unique manners. But sometimes, the boss does more than blaming on some work issues. The words he said seem to be a kind of scolding or humiliation on the human dignity of the employees. Although I was not working at the highest level, I was lucky to be one of the core managers of the overseas market of Huawei, which provided me with many opportu- nities to report to the boss, meet and visit customers with him, participate in the work sessions held by the boss and carry out researches with the boss. Therefore, I was a frequent listener of his instruction. It's true that the boss is full of wisdom and great- ness in mind, but I really cannot accept and applaud on his way of criticizing and edu- cating employees. Here I would like to share with you some stories. I am not trying to defame the boss but to share some experience and lessons with other successful bosses among the readers and those who are dreaming to become a great entrepreneur as our boss. The first story happened on myself. Soon after I joined Huawei, I got a chance to participate in a negotiation on a joint venture project in Former Yugoslavia with the boss, the president and other leaders of the company. At that time, Huawei was plan- ning to transfer the technology of its program controlled switch C&C08 to the Minis- try of Posts and Telecommunications of Former Yugoslavia and establish a joint ven- ture with it to assemble Huawei's C&C08 switches there by means of SKD/CKD. I was then the chief manager of the import and export department and was ap- pointed by the boss as the chief negotiation representative to take charge of making a concrete negotiation plan. The night before the negotiation, I reported to the boss on the negotiation plan and he gave approval and made some instructions. As the boss and the president were not going to participate in the negotiation the next day, I had the negotiation with the Ministry of Posts and Negotiation of Former Yugoslavia ac- cording to the plan I prepared before. The negotiation went on smoothly and I pro- vided data about our offering on SKD/CKD at the request of our counterpart. However, it was totally out of my expectation that the boss was badly irritated after hearing my negotiation report. He blamed that we went too fast and lost control of the pace of negotiation and shouted to us, "Why not take off your underwear and show your body while dating? Isn't it much more direct and convenient?" It was far 313 ~ -- 316 of 362 -- more than embarrassing as it was a work report session attended by the whole negotia- tion team of Huaweit including two female colleagues there. As I was new in Huawei and had never been humiliated like that before, I was ex- tremely angry and threw all the documents on the desk and left the meeting room. It came to my mind that I could not stay in the company anymore. Howevert the presi- dent came and comforted me. The president told me that the boss was kindhearted and appreciated my talent; but he had a bad temper and was easily irritated; he trea- ted all his trusted staff members in such a rude manner because he took them as inti- mate friends; and people knew the boss well would gradually get used to his bad tem- per. Hearing these wordst I felt a little better and decided to stay in the company. The second story took place on one of my schoolmates in Tsinghua University, who was vice president of Huawei and took posts as director of the Publicity depart- ment and chief spokesman taking charge of exhibitions. I remembered that, during the Beijing Telecommunication Exhibition, he and I accompanied the boss to a five- star hotel to visit a foreign service provider that participated in the exhibition. When we arrived at the lobby of the hotel, the boss found that we missed a copy of an im- portant technical material. He got furious immediately and scolded my schoolmate, "You stupid idiot. Don't you have brains? How could you forget such important ma- terial?" While scolding, the boss kicked him straight onto the leg. Later, my schoolmate told me that the boss did not ask him to take that technical material along. He curled up his leaves and showed me a purple scar on his leg. I ad- mired him on his good temper and tolerance and found that the scold that I had was not a big deal compared with his injury. Looking back, I feel no surprise that he could be promoted as the executive vice president of Huawei while I had no big progress at work. One more story that I would tell you occurred on one of my work partners, a fe- male colleague who was a little bit fat and worked as a senior vice president of Hua- wei. She was very talented and well received among our work mates as she had a very nice temper. Once at a project report session, the boss thought she made a strategic mistake and scolded her in front of all the colleagues as a big pig and a useless stupid donkey. The female colleague felt badly humiliated and decided to resign. She stayed home for a month before returning to work. Such stories are too common to Huawei' s employees. 9. 5 A crime but not a credit to work in Huawei As a reader, you might think that we must feel proud and honored as we are great contributors to the company and the boss will appreciate our efforts and give back fruit- ful returns to us. That ' s what we used to dream about. However, as time goes by, ~ 314 -- 317 of 362 -- you may find that things are not that simple, but in the opposite instead under some special circumstance. Huawei was established in 1988 and had no funds, no workshops, no technology and no products; and even the temporal office was lent by others. All Huawei had at the beginning were smart people, including the boss and a group of business pioneers under his leadership. Ever since the beginning, Huawei have created nearly 100,000 job opportunities for people around the world and it is now having tens of thousands of employees worldwide. I joined Huawei in 1995 and became a core member of the pioneering team to take part in the work to build the overseas market. The total annual overseas sales value of Huawei amounted to 4. 75 billion USD in 2005, taking up 58% of the total sale value of the company and exceeding the domestic sales value for the first time in history. Meanwhile, the domestic market department was redefined as the Chinese regional department which was parallel with all the other eight regional departments in foreign countries. Eye-catching achievements were made in the first six months of 2006 as the global sales value of Huawei grew by 48% from the same period in 2005 and the overseas sales value grew to take 65% of the total global sales value. All these significant achievements stood as a powerful testimony that Huawei had already grown to be a real transnational corporation. To many westerners, Huawei's success is an unsolvable puzzle and a miracle that cannot be copied. How did they develop a company started without funds and tech- nology quickly into a real transnational corporation with advanced technology and strong capacity just within such a short period of 18 years? But for me, one of the business pioneers of Huawei, I know that it was the ef- forts and contributions of nearly 100,000 people around the world who sacrificed with their hands, sweat and blood, health, family and even life that helped to build up Huawei, the enterprise empire today. As a reader, you might think that we must feel proud and honored as we are great contributors to the company and the boss will appreciate our efforts and give back fruitful returns to us. That's what we used to dream about. However, as time goes by, you may find that things are not that simple, but in the opposite instead under some special circumstance. What's worse, some of the employees might have an illu- sion that working in Huawei was nothing to be proud of but a crime to be guilty of in- stead. Homan resource policy getting employees' spouses involved There are also problems in managing employees' spouses in Huawei. Here you must be very curious. It is enough for a company to manage its own staff. Why Hua- 315 ~ -- 318 of 362 -- wei has to care about things of the employees' spouses. Isn't it overdoing by the com- pany? In fact, regulations about spouse management were formulated in 1997 and have been used until now. At that time, the boss issued clarifying documents to forbid cou- ples to work at Huawei at the same time in order to prevent nepotism at work. If such cases occur, one of the couple have to leave Huawei, or they have to accept discrimi- natory treatment regarding to stocks and bonus; and one of them shall be arranged to work in other related firms of Huawei. Anyone whose wife or husband has been working in Huawei could not be employed by the company any more. Objectively speaking, such regulations have great significance in preventing nepo- tism, but it is not so humane in real practice. As many couples were classmates or schoolmates majoring in communications, they have been together for a long time and have deep affection with each other. It is too cruel that they have to be set apart, ei- ther breaking up or getting divorce, or have one of them change his/her profession or give up building his/her own career. If it is you to make this choice, you might taste the bitterness and the difficulty in finding a way out. When I worked as the general manager of the overseas market department of Huawei, I had a secretary surnamed Dai, who was a hard working girl majoring in telecommunications and graduated from Beijing University of Posts and Telecommuni- cation. Her boyfriend was her classmate in the university. As her boyfriend further studied for a master's degree, she started working two years earlier than him. Ms. Dai had great passion for this job as all other employees in Huawei because it was ani- deal job for her major and she could earn decent salary from the job. However, she was in great trouble when her boyfriend graduated and started to hunt a job. Accord- ing to Huawei's regulations, her boyfriend could not work in Huawei. As he was ma- joring in telecommunications manufacturing, he had to work for other communica- tions equipment manufacturers, namely competitors of Huawei. However, it was soon found out that this is also forbidden by Huawei. Huawei had further regulations to forbid employees' relatives to work for its competitors; otherwise the employees would be laid off. Ms. Dai and her boyfriend felt desperately disappointed and helpless. Finally, Ms. Dai decided to quit the job in Huawei and went to ZTE with his boyfriend, where they worked well and lived a happy life. Right before she left, we gathered together for a dinner and she told us that she felt it was like a crime to work in Huawei because it nearly forced her boyfriend to change his profession or break up with her. The world's most arbitrary clauses on human resources To prevent brain drain to its competitors, Huawei clearly formulated in its labor ~ 316 -- 319 of 362 -- contract and resignation treaties that 15% of employee's salary while working in Hua- wei must be used as a compensation for horizontal competition after resignation. It is also stated that Huawei' s employees could neither work for its competitor enterprises within two years after resignation nor work indirectly in any form for the competitor enterprises. If the employees refuse to sign the resignation treaties, he cannot get his own stock compensation and even the dividend and bonus of the previous year as the divi- dend and bonus are generally delayed to the next October. Thus no one would refuse to sign the resignation treaties, either voluntarily or being forced. No matter what, all employees believe that the treaties have some legal restrictions on them as the con- tent is clearly written and the treaties are both stamped by the company and signed by the employees themselves. Therefore, most employees will confront with many difficulties in finding jobs after resignation. Some employees had worked for about 10 years in the communica- tions industry and accumulated a lot of experience, channels, customer relations, techniques and professional skills. But they would be forced to change their profession if they could not work for any of Huawei's competitors. They had been dedicated to work for Huawei when they were young, but only to find that they could not build up their own career after leaving Huawei. Moreover, it is not so easy to change a profes- sion. Working in the communications industry for years, they have no experience in any other field and would hardly be employed by other industries. For the employees, it is hard to start from a new position at the base level and accept the low income in a new industry. Under such circumstances, you might hope to work in the upstream or down- stream enterprises of communication industry because those are not competitors of Huawei. These enterprises are generally cooperation partners of Huawei, either sup- pliers or subcontractors, which have business transactions with Huawei. As the re- signed employees are quite familiar with Huawei's employees, they can be competent for the job and the enterprises will also welcome them because they can facilitate co- operation between those enterprises and Huawei. It seems that such job opportunities are ideal for the resigned employees and Huawei has no reason to interfere with their reemployment. You guess it should be welcomed by both the upstream or downstream enterprises and Huawei. But you are wrong. From the perspective of Huawei's boss, you are threatening to undermine and cause corruption among the general managers of Huawei as you used to work in Huawei and know the internal organizational structure, procedures and staff members there. Therefore, Huawei also strictly forbids its resigned employees to 317 ~ -- 320 of 362 -- work for Huawei' s cooperation partners, including its suppliers and subcontractors; and there are concrete measures to guarantee the execution of these regulations. For the employees of Huawei, these regulations and clauses are too arbitrary and unfair. But for the boss, such worries are reasonable and complied with his vision of doing business. The former employees were taught to do marketing with Huawei's u- nique tactics, and it is quite possible that they will use the tactics back onto Huawei if they come back to cooperate with it. This is what Huawei fears and why it does not allow employees to work for its partners. But it was ignored by Huawei that the cooperation partners still have to do busi- ness with it even though they do not employ its former employees; and Huawei cannot live without the upstream and downstream enterprises because a complete and interde- pendent cooperation chain has been formed in the entire communications industry. Customer managers or marketing managers of the suppliers, who did not work for Huawei, also have their way to expand sales according to the marketing practices in China. To strike a deal by providing rebate and commission is a common marketing tac- tic, which is not solely used by employees in Huawei, but by most of marketing per- sonnel. The key to preventing employees from corruption lies in improving its internal control instead of cutting the way of reemployment of the resigned employees. Hua- wei is too selfish to secure its own benefit at the cost of its former employees. In fact, there is a deep misunderstanding by the boss of Huawei in doing so . The fact is right on the opposite. As the resigned employees are familiar with Huawei' s leaders at all levels, the corrupted employees are much more afraid of collecting brib- eries as they are worried if those former employees would expose their misconduct to the boss. On the contrary, bribery and other misconducts often take place between Hua- wei' s corrupted employees and those complete strangers with no relation with Huawei at all. As Huawei is like a miniature society with tens of millions of people, it is im- possible to completely prevent various kinds of corruption. Luckily, such behaviors are well controlled at a low occurrence rate in the company. Potential corruptions mostly happen on the basic level managers who have fewer stocks and relatively low income in the company. But they had authorities on some technical verification and project contracting. It is said that there is corruption in some of the large number of software outsourcing projects each year. Some basic pro- ject managers would sign contracts with the enterprises of which they have free shares. The corrupted employees fear most of the resigned employees from Huawei. In ~ 318 -- 321 of 362 -- order to protect their illegal interests, some basic project managers tried hard to stop the resigned employees from cooperating with Huawei on one hand and made up the whopper to blame the resigned employees as the source of corruption for Huawei. It is a pity that Huawei does not realize the truth but is now trying to take specific measures to reinforce its effort in tackling cooperation with the resigned employees. In May 2006, a former colleague who is still working in the purchase department of Huawei told me that they were working extra hours every weekend to handle issues about resigned employees working for their cooperation partners. It was said that Huawei is now appointing a consultancy corporation to carry out a third party inspec- tion of all enterprises listed as qualified suppliers of Huawei. The cooperation partners were required to list the names of former Huawei' s employees who work for them now and take corresponding measures according to the will of Huawei. In this case, the resigned employees were trapped into total bad luck. Coopera- ting with Huawei, an enterprise empire as powerful as the Tsarist Russia, the cooper- ation partners were seldom treated equally because it was Huawei that kept the suppli- ers alive, as said by employees of Huawei. Therefore, these enterprises had to obey Huawei's demand and fired all the former Huawei employees as they could not facili- tate but hinder cooperation with Huawei. What's worse, those enterprises promised not to recruit resigned employees from Huawei any more so as to avoid irritating the boss of Huawei. Now you might agree with some former employees of Huawei and recognize that working in Huawei is not a credit but a crime instead, which cuts all your way tore- employment. Cracking down business startups by former employees Originally, the boss encouraged employees to start up their own business in order to arouse the entrepreneurial spirit of some idling old staff members who had rich marketing experience to act as agents for selling data communication products of Hua- wei. At that time, competitive agents were not willing to be agents for Huawei be- cause Huawei' s products could not compete with the dominant products of Cisco in terms of both technology and brand. Thus Huawei provided a series of favorable conditions, including granting rights of agency and providing part of the products by credit to encourage experienced staff members to start up their own business. If the employees really resigned, Huawei would buy their stocks back at a low price of 1 Yuan per share with cash or at 0. 7 Yuan per share with its products. This was a typical tactic of killing three birds with one stone, achieving great effects at a low cost. This strategy went on smoothly at the beginning. However, nobody would be safe 319 ~ -- 322 of 362 -- forever. Two years later, Li Yinan started to develop its own products and hired tal- ents from Huawei as he was not satisfied to be merely an agent for Huawei, leading to a fierce competition between Li Yinan and his former employer Huawei. This event gave a hard blow on the boss of Huawei. Ever since that, Huawei star- ted to tighten its policy on business startup by its own employees, shifting from a sup- portive and encouraging attitude to a restrictive and suppressing policy. If the resigned employees start up business involving projects competing with Huawei, chances are that Huawei will take specific discriminatory policies to beat the competitor to death in the market, which is best shown in the fierce fight against Li Yinan's Harbor. At that time, Huawei founded a special office against Harbor which was jokingly called as a "beat dog" office by the internal employees of Huawei as a re- sult of the similar pronunciation. The special office was taking charge of planning policies and taking measures to compete with and beat Harbor to death; and it also co- ordinated with all departments in all regions in the fight against Harbor. The first strategy they took was the price war. As Harbor was a newly founded enterprise, it only had data communications products on its production line, which was only a small proportion of the products in Huawei. Thus Huawei was likely to sell such products at a price even below the costs. It was said that if Harbor sold some products at 10,000 RMB, Huawei would sell them only at 5,000 RMB. In this case, Harbor failed to sell its products as Huawei could provide better brands of products at lower prices. If Harbor dared to sell the products at such low prices, it would be trapped in huge deficit, which was not only an undesirable result for the investors but would also harm its listing scheme. Harbor had prominent performance in 2004, with a sales value of 800 ~-9 00 mil- lions of RMB, and it had started to get listed at NASDAQ. However, as a result of the suppression from Huawei, Harbor's performance was declining by a large margin in 2005. Consequently, the listing plan of Harbor went bankruptcy due to the suppres- SlOn. At the end of 2005, Harbor was planning to sell its stocks to Siemens. As soon as the message was sent out, Huawei immediately sent a lawyer's letter to the board of directors of Siemens to declare that there were disputes about intellectual property rights as part of the core technology of Harbor was from Huawei. For western enter- prises, intellectual property right was a very serious problem so that they quit the pur- chase plan. By then, the boss of Huawei successfully prevented a transnational merger which would otherwise be harmful to it. At the meantime, Huawei never stopped its high- pressure policy against Har- bor, declaring that it would accuse those former senior managers from Huawei of vio- ~ 320 -- 323 of 362 -- lating intellectual property rights and clauses against horizontal competition. Huawei also started to recall some former senior staff members from Harbor by providing fa- vorable treatments, including high posts, high salary and a certain share of stock ownership in Huawei, which was the most attractive part for the re-employment of those former staff members. Finally, Huawei met venture capitalists and negotiated that it would like to pur- chase the core products and the main team of Harbor at a similar price as Siemens of- fered. The venture capitalists had no way but to accept all the suggestions proposed by Huawei. In this way, Harbor was basically eliminated from the horizon of the boss of Huawei, existing only by name and having little power at all. Now, Huawei does not support staff members to start up their own business be- cause it believes that new startups in the field of telecommunications will finally turn into its competitors sooner or later. In addition, if the resigned employees act as the suppliers or subcontractors for Huawei, it is possible that they may harm the interest of Huawei by their former relations with the company. Therefore, under similar con- ditions, Huawei would rather cooperate with those enterprises having no relations with it than with the companies established by its former employees. This is required by the boss and strictly executed by the staff members at the basic level. Even it is not required by the boss, the employees at the basic level would not like to cooperate with the startups by former employees because it is not so safe and convenient for them to take any commissions. It is common to see many of the former employees from Huawei sigh that it is a crime to be employees for Huawei as they are deprived of many opportunities to do business, which are free for ordinary people after resignation. Senior executives, immigration or being exiled overseas? Job-hopping is a lawful right for professional managers according to China's con- stitution. It is good for the growth of professional managers as they can experience different institutions and corporate cultures and receive different professional training and knowledge in different fields. Job-hopping is also beneficial for enterprises as professional managers can spread management experience, better business procedures, regulations and good business models. However, Huawei only allows hiring employees from other enterprises and for- bids its own employees from hopping to other corporations. Resignation of backbone staff members is regarded as kind of disloyalty towards and even betrayal of the enter- prise. Thus it must be difficult for the resigned employees to be reemployed by Hua- wei. Even if he is reemployed, he might have been listed as a negative employee who will not be allowed to take important posts within one or two years. 321 ~ -- 324 of 362 -- The boss shall learn from the western enterprises. It is said that the president of the Chinese region of Motorola has left and returned for many times and got promoted each time because the board of directors thought that he must have learned a lot and accumulated rich experience in other companies. So he was appointed to higher posts each time and was promoted from a professional manager to the president of the Chi- nese region now. But it is totally opposite in Huawei. One of my friends used to be the general manager of Huawei's regional department and a senior pioneer of both the domestic and overseas market of Huawei. He resigned in 2001 and failed in his business startup, which was not competitive with Huawei. Later he returned to Huawei but was only appointed to a related enterprise with only about 20 employees to do some marketing work. It was said that once at a leaders meeting, the boss said to the supervisors and vice presidents, "You can resign any time if you don't work well. I am always ready to give permission. But, just look at that guy. Isn't he quite capable? But what else can he do without the platform provided by Huawei? He got nothing at all. Now he is returning, but I don't need him anymore. But for a mercy, I give him a job in the af- filiated enterprise. After all, he still has families to feed." It's easy to imagine the circumstance of that employee to be treated with such an attitude by the boss. Just as many of the returning employees, my friend chose to leave Huawei again. Later, he was soon employed by a Japanese IT enterprise as a general manager and was offered favorable treatment. Ever since the occurrence of such phenomena, the boss had come to a conclusion that all those who had ever started up business could not resettle easily and they were difficult to manage. Thus at the end of 2005, the company issued a human resource policy to require all departments to further restrict reemployment of former Huawei employees who had experience in running their own business. Actually, the boss has a wrong mindset. Those employees have working experi- ence in Huawei for years and are accustomed to and recognize the corporate culture and management institution of Huawei. As they also have experience in running busi- ness after resignation, they learned a lot to be a competent professional manager and a CEO at their own expense. If Huawei retains these employees, it will benefit a lot from them. Thus it shall not be taken as a mercy to reemploy those returning employ- ees but an effective way to retain precious human resources instead. In conclusion, Huawei's policy is to deprive the resigned employees of all rights and freedom of work and subsistence in the field of telecommunications industry. They are forbidden to start their own business; they have less opportunity to get em- ployed by either Huawei or other enterprises in this industry; and it is hardly possible ~ 322 -- 325 of 362 -- for them to change their profession. It seems that the only way out for them is to move to foreign countries if they want to stay in this field. What a poor ending for the resigned employees from Huawei. They are forced to work as a "migrant worker" in foreign countries. It is really a tragedy. This is also one of the main reasons why many of the general managers of Huawei are taking mi- gration procedures. Put it directly, this is a real cruel massacre of this group of people by Huawei, with over tens of thousands of former employees, even more people if taking the family members of the employees into account, becoming victims in this massacre. Why these main contributors for the success of Huawei shall be rewarded with such poor endings. Is it really a crime? The consequences are really fatal to a group of people. It was not just scary exaggerations but facts. Maybe the boss of Hua- wei has not realized the serious consequences to this group of people as a result of its policy. However, I believe that the boss is advisable enough and has the courage and conscience to ponder over and readjust this policy so as to give a way out for this suf- fering group of people. 9. 6 Regulations loose to the boss but strict to employees Huawei ho.s always emphasized that relatives of the employees cannot be employed by Huawei so as to prevent nepotism in the company. This regulation is strictly conduc- ted on ordinary Huawei employees. It is particularly emphasized tho.t business of the company cannot be sub-contracted to the relatives of the employees in order to prevent damage to the benefits of the company and avoid corruption. Looking at the enterprise registration data released by the Administration of In- dustry and Commerce of Shenzhen, we can find that there are two stock holders of Huawei, namely Ji Ping, the CFO of the company who holds 0. 01% of the stocks, and the ESOP (Employee Stock Ownership Plan) Association of Huawei Investment Co. Ltd that holds 99.99% of the stocks. The stock holders of the ESOP Association include tens of thousands of employees in Huawei; and it was alleged in Huawei' s pamphlet that the company would adopt whole employee stock ownership. However, even its own employees cannot figure out the structure of the stock ownership in Huawei. No one knows the total share of stocks owned by the ESOP As- sociation, the proportion of his own share, the large shareholder and his share. Even some of the employees are not sure whether they are stockholders or not, because there is not any warrant and they are not allowed to keep any copies of the provisional letter after giving their signatures. It seems that Huawei is growing to be a private company owned by the boss solely. In fact, the boss does not want to position the company as a private enterprise as perceived by the outside world. As early as the company was established, Huawei was 323 ~ -- 326 of 362 -- affiliated to the business start-up center of Shenzhen Science and Technology Bureau and operated as an enterprise with collective ownership. It was nine years later in 1997 that Huawei was changed into a private enterprise in its registration. At that time, Huawei kept emphasizing to both the outside world and its internal employees that it was a private enterprise with whole employee stock ownership. Moreover, the Shenzhen Science and Technology Bureau further explained that such a stock owner- ship mechanism of Huawei was a new form of collective ownership under new situa- tions that advanced with the times. The boss also described Huawei in similar ways when former premier of the State Council Zhu Rongji visited the company. To reduce the atmosphere of a private enterprise, the boss kept assuring that all employees were stockholders in order to encourage the whole staff to act as masters of the company and provide a sense of belonging to them. Furthermore, the boss was extremely strict to his own children and relatives, who had to be easy going and acted in a low-profile in the company. Some of them were even unknown to others despite that they often took very important posts in the company, which helped Huawei to get rid of the form of business running like other private enterprises or family enterprises. One of the boss's sisters used to be the supervisor of the fund planning division and the auditing division. The boss's daughter used to be the financial manager of the Hong Kong department and she is now the vice president of the financial management division; his younger brother was appointed to be the supervisor of the administrative purchasing division and the general manger of the customer engineering department; and the other sister of the boss used to take the post as the supervisor of the cashier's division. Objectively speaking, the boss's families and relatives are all well received in the company as they do not try to take advantages of their special status and they work as hard as ordinary employees. There are no complaints against them. I had been work- ing with some of them and I got along with them very well. For example, I used to work with Zheng Li, younger sister of Zheng Baoyong, to reorganize the fund plan- ning division of the company. She worked as the vice supervisor of domestic business and I was then the vice supervisor of the international business, and we cooperated very well with each other. The daughter and the wife of the boss both took posts in the Hong Kong department of Huawei, which was under the administration of the im- port and export department before, and I was then the general manager of the import and export department. Thus I had an opportunity to work with them as their leader. During that period of time, they worked hard, got along with all colleagues well and had very good work performance. However, they are still a group with favorable treatment in Huawei. Huawei has ~ 324 -- 327 of 362 -- always emphasized that relatives of the employees cannot be employed by Huawei in order to prevent nepotism in the company. This regulation is strictly conducted on or- dinary Huawei's employees. It is particularly emphasized that business of the compa- ny cannot be sub-contracted to the relatives of the employees in order to prevent darn- age to the benefits of the company and avoid corruption. Let's see what favors were offered to the boss's own relatives. The boss's brother was a large shareholder and the president of Shenzhen Huaxin Printing Co. Ltd. , which almost has monopoly of all the printing work of Huawei since its establishment, yielding tens of millions of RMB each year from Huawei. Ad- ditionally, it was the administrative purchase department that took charge of the printing work of Huawei; and the general supervisor of that department was the boss' s brother, who just happened to be the president of the printing firm. Smartcom (Shenzhen) Business Co. , Ltd. was registered with a billion RMB, funded by Hong Kong and with the brother of Huawei' s boss being the large share- holder as said. This firm took full charge of customer reception and software out- sourcing for Huawei; and these two businesses could generate annual revenues of bil- lions RMB. The head of the "most expensive" department was also the boss's broth- er, general supervisor of the administrative purchase department and the general man- ager of the customer engineering department. Such special treatment for the boss's own relatives caused great controversy in the whole company. On one hand, the boss required that the business of the company could not be subcontracted to relatives of its own employees; on the other hand, fa- vorable treatments were provided to the boss's relatives, enabling them to take mo- nopoly of almost all the outsourcing services of Huawei. Of course, if Huawei is a private enterprise, such special treatment, which was just like putting the boss' own money in different pockets, shall not be criticized as it all depends on the will of the boss. However, according to the registration data of Huawei in the industrial and com- mercial bureau, Huawei is not solely private property of the boss as the large share- holder is the ESOP Association. But the boss is the large shareholder of the ESOP As- sociation. No wonder it had caused so many controversies among the employees, with some people claiming that it was infringement of the interests of small shareholders by large shareholders. Just as Huawei has constantly alleged, Smartcom was a wholly-owned subsidiary. That's true as Huawei would have its shareholding temporally registered under the names of some employees. I believe the boss is full of wisdom to do so instead of mak- ing that little penny. 325 ~ -- 328 of 362 -- 9. 7 Infringement of rights and interests of small shareholders Huawei 's stock price was seriously underestimated when its employees, who were also sho.reholders, resigned and withdrew their stocks, thus the employees had evidence to question whether the interests of small sho.reholders were infringed by those large sho.reholders. According to the whole employee stock ownership institution and the stock distri- bution structure of the company, the whole staff in Huawei hold 100% of the stocks. However, the largest stockholder and his share are highly confidential. It is generally believed that the boss is the biggest stockholder of the company. The whole staff stock ownership institution is undoubtedly an unshakable basis of Huawei, which ensures the success of Huawei and receives the most controversy in the society. The employees are forced to withdraw their stocks when they resign according to the policy of Huawei, which goes against both relevant Chinese laws and international conventions. How can a company force its employees to withdraw their stocks as that should be their own rights and freedom? According to international conventions, stock withdrawal should be conducted e- qually at a price agreed by both sides. But it is not the case in Huawei. Stock with- drawal treaties are made and printed as a formatted contract in advance by the legal department of Huawei and the trade price is the so-called net asset face value. As we know, Huawei's offering is made according to the estimated market value in its cap- ital running operations. For example, Huawei Electrics was sold at a market price of 6 billion RMB. As Huawei has strong profit yielding capacity, it ranks the top in both profit yielding and tax contribution. Thus the market price of Huawei must be times higher than the net capital value thereof because market value is calculated by the net profit of each share and the market price/earnings rate. For instance, the net profit of Huawei in 2003 was about 2. 5 billion RMB while the registration capital was 3. 2 billion shares of stocks (1 Yuan per share), which meant that the net profit of each share was 0. 78 Yuan. If calculated with the market profit rate of 15 ~- 25 (taking 20 as an average) in the telecommunications industry, the market value for each share of Huawei's stock was about 16 Yuan. But the em- ployees resigned at the end of 2003 were compensated with 2. 76 Yuan for each share. Huawei's profit was created by the whole staff, thus it was natural that the employees all hope to share the benefit of stock value appreciation. This is the biggest lament that the employees have about the company. Huawei's stock price was seriously underestimated when its employees, who were also share- holders, resigned and withdrew their stocks, thus the employees had evidence toques- ~ 326 -- 329 of 362 -- tion whether the interests of small shareholders were infringed by those large share- holders. That's why Liu Ping and some other employees joined to accuse Huawei. Another troubling problem is about connected transaction. Huawei has a large a- mount of its business outsourced to related companies, many among which were inves- ted and held by the relatives of some senior management personnel of Huawei. Such special treatment violates the principles of "openness, fairness and justice"; and it might even hurt the interests of both the company and small stockholders. Therefore, this has always been a hotspot issue of complicated controversy both in and out of the company. 327 ~ -- 330 of 362 -- Chapter X Appendices 10. 1 Milestones of overseas business in the past eleven years Year 2006 1. Huawei declared purchasing of Harbor to end their five years of conflicts and competition. Li Yinan returned to Huawei and resumed the post of CTO; and Huawei obtained a data communication production line with independent intellectual property rights again. 2. Huawei and Motorola declared to establish a joint research and development center, which was thought to be an alliance of the strongest giants to resist the trend of mergers in the global telecommunications industry. 3. Huawei made a new breakthrough in the European market with its 3G prod- ucts, signing a framework agreement of 2. 5 million mobile phones with Vodafone. 4. Huawei launched its 3G products in Japan, the most successful 3G market in the world, making another significant breakthrough. 5. According to the data released by the Ministry of Information Industry, Hua- wei created revenue of 26 billion RMB in the first half of 2006, growing by 48% com- pared with the same period in 2005. The value of global contract sales exceeded 5. 2 billion RMB, with the proportion of export reaching a historic record high of 65%. Huawei continued to rank the first in national electronic information industry in terms of business profit. In terms of overall performance at the same period, Huawei showed strong advantages over ZTE mainly as a result of its great success in the inter- national market. Year 2005 1. Huawei signed a global purchasing framework agreement with Vodafone and became the priority supplier of communication equipment in the global supply chain of Vodafone. 2. Huawei signed a strategic cooperation treaty with Telefonica of France, be- coming a strategic cooperation partner of Telefonica for business innovation in the fields of 3G and broadband; and the two companies were going to expand into the Latin-American market. 3. Huawei was offered a Frost & Sullivan technical award in the Asia- Pacific Region ~ 328 -- 331 of 362 -- for a third time and was honored "Annual Best Wrreless Equipment Supplier'', "Annual Best NGN Equipment Supplier'' and "Annual Best Optical Network Supplier''. Frost & Sullivan is a global market research institution providing latest news and information about e- merging hi-tech industry and the market. 4. Huawei University was registered and founded to provide its clients, manage- ment staff and other personnel with overall and systematic training on technical skills , management and culture. 5. A mutually assisting product distribution agreement was signed by Huawei and the British Marconi. According to the agreement and the initial Memorandum of Un- derstanding, the two companies were to sell part of the products from the other party respectively. Marconi was to distribute Huawei' s carrier-level data communication products, by its own brand, to telecommunication service providers; and Huawei was to distribute Marconi's microwave devices, including the next generation microwave devices and related network services, in its wireless network projects. 6. Huawei got a contract to build a national3G network of the CDMA 2000 stand- ards for Thailand's CAT, of which the total value was about 187 million USD. 7. Huawei became the first choice of network supplier in the 21st century for British Telecommunications (BT for short), providing parts and transmission devices of multi- service access network (MSAN) for BT in its network construction in the 21't century. 8. Huawei got permission to manufacture and sell mobile phones in China. 9. Overseas sales exceeded its domestic sales for the first time in history. Domestic market was reorganized into the Chinese Region, becoming one of the nine regions in the global market. By then, Huawei was growing into a real transnational corpora- tion. 10. Overseas employees working at Huawei exceeded 10,000, reaching a record high and making Huawei a real Chinese national enterprise with the largest number of overseas employees. 11. In order to build a "global software factory", Huawei invested a huge amount of capital to establish an affiliated entity, which recruited tens of thousands of soft- ware talents and was responsible for almost all the software outsourcing services for Huawei. Year 2004 1. Huawei started a joint venture enterprise with Siemens to develop TD-SCDMA mobile telecommunication technology for the Chinese market. 2. Huawei won a major national network optimization contract from China Tele- com for optimizing 163 major networks of China Telecom in Guangdong Province. 329 ~ -- 332 of 362 -- According to the contract, Huawei had got 100% of the market share of the TSR pur- chasing contract for its advanced router NE 5000, winning two super nodes to enter major national network. Meanwhile, Huawei also won 75% of the market share in this project from its Gbit switch router NE80. Huawei signed the contract with China Telecom to build over 12 million ADSL network lines, which helped Huawei to con- solidate its position as the biggest strategic partner of China Telecom. 3. Huawei was awarded "Most Competitive Enterprise in Asia Pacific Region, 2004'' and "Annual Best Broadband Equipment Supplier in Asia Pacific Region, 2004" by Frost & Sullivan. 4. Huawei was granted a three-year loan of 360 million USD from a total of 29 banks for the global development plan of the company. 5. Huawei signed a contract on UMTS network equipment supply with the Neth- erland service provider Telfort. 6. In order to lower market operation cost, Huawei started to outsource its train- ing, engineering installation and services in the international market. Year 2003 1. Cisco accused Huawei of infringement upon part of its technical patent, but fi- nally withdrew the accusation. The two sides settled all disputes about technical pa- tent and Cisco declared no infringement from Huawei. 2. 100 million C&C08 portals were deployed all over the world, creating a new re- cord in this industry. 3. Huawei established a joint venture with 3COM to produce enterprise data net- work equipment. 4. Huawei passed through ISO 14001 certification by DNV (DET NORSKE VERITAS). 5. Huawei provided UMTS services covering the whole country of the United Ar- ab Emirates for the telecommunication company (Etisalat) , which helped Etisalat to strengthen its position as a technical leader in UAE and enabled it to become the first service provider to introduce 3G network in the Middle East and the Arabic area. 6. Huawei was confronted with operation risks and declining performance. As a result, eight senior overseas marketing management staff members, including presi- dent and vice president of the international marketing department, as well as some chief managers, left Huawei, which caused great chaos both in and out of the compa- ny. Year 2002 1. Despite the fact that investment on global telecommunication infrastructure was declining by 50% during 2001 and 2002, international sales value of Huawei was ~ 330 -- 333 of 362 -- still increasing by 68%, reaching 552 million USD. 2. Huawei passed through verification of TL 9,000 quality control system by UL (Underwriter Laboratories Inc. ) . 3. Huawei helped China Mobile to deploy the first mobile WLAN in the world. 4. Huawei further expanded investment in the overseas market, with over 2,000 permanent employees working overseas. 5. Huawei' s core products were put into massive commercial utilization in the Eu- ropean market. Year 2001 1. Huawei's 10 Gbps SDH system was put into commercial utilization in Berlin, Germany. 2. According to statistics released by the authoritative institution RHK, Huawei's optical fiber series product ranked the first in the Asia Pacific region in terms of mar- ket share. 3. Huawei Electrics was sold to Emerson Electric at 750 million USD. 4. Huawei reorganized its eight overseas regional headquarters. After the reor- ganization, Huawei had complete functional departments and about 1, 000 overseas employees. Huawei sent some executive vice presidents, senior vice presidents to lead the regional headquarters with overseas marketing strategy shifting to the regional headquarters. 5. An international marketing commission was established to carry out matrix flat organization management of the regional headquarters. 6. Overseas sales value reached 328 million USD in 2001. 7. Huawei integrated several cooperative business departments to establish an in- ternational joint venture enterprise and agency management department so as to start overall strategic cooperation with international giants. Huawei carried out centralized management of all strategic cooperation businesses, including management of agents of CKD, SKD, OEM, ODM/BOT, JV products and the management of product dis- tribution, such as the cooperation OEM Out program with Siemens, NEC, Motorola, 3Com, Lucent, etc. Year 2000 1. Contract sales value exceeded 2. 65 Billion USD, with overseas sales value ex- ceeding 100 Million USD. 2. Huawei set up research and development centers respectively at the Silicon Val- ley and Dallas of the United States. 3. Huawei started to expand into the developed markets, including North Ameri- ca, Western Europe, East Pacific region, etc. 331 ~ -- 334 of 362 -- 4. The overseas department or the regional departments were preparing for merg- ers and reorganization. A large number of domestic staff members were sent to the in- ternational market and the company started to employ local talents in foreign coun- tries , with the structure of the eight overseas regional headquarters basically formed. 5. Huawei invested a total of 200 million Hong Kong dollars to host the Hong Kong International Telecommunication Exhibition, inviting about 2, 000 clients and cooperation partners all around the world to participate in the exhibition and visit Huawei. 6. Huawei established the TURNKEY Project Management Commission to t ake charge of ISC verification and management for international TURNKEY projects, which guaranteed the general competitiveness of company bidding and ensured compa- ny performance and advancement, as well as the quality of the projects. Year 1999 1. Huawei became the main supplier of national CAMEL Phase n intelligent net- work for China Mobile. Its intelligent network was the largest and the most advanced in the world. 2. Huawei established the Bangalore research and development center, which pas- sed through CMM4 verification in 2001 and CMM5 verification in 2003. 3. Huawei developed market in more countries and regions, preliminarily forming a market system and organizational framework covering South Asia, Southeast Asia, North Africa, Middle East, Southern Afr i ca, Latin America, countries of the Com- monwealth of Independent States, Hong Kong, etc. 4. Huawei sent more senior managers and experts from domestic market to assist the overseas market , trying to develop overseas markets with the experience and the market model of the domestic market. Year 1998 1. Huawei got a patent for its digital microcellular server control switch. 2. A research and development center was set up in Nanjing and it went through CMM4 verification in June, 2003. 3. Huawei started to forge into South Asia, Southeast Asia, Middle East , coun- tries of the Commonwealth of Independent States, Latin America and Southern Afri- ca. 4. Huawei sent more marketing and technical personnel to exploit overseas mar- kets and start up overseas offices. 5. Huawei established the International Product Department to strengthen techni- cal assistance to overseas markets. ~ 332 -- 335 of 362 -- Year 1997 1. Huawei released its GSM equipment. 2. Huawei set up joint research and development laboratories respectively with TI, Motorola, IBM, Intel, Agere Systems, Sun, Altera, Qualcomm and Micro Soft, with a total of 10 joint research and development laboratories by June, 2005. 3. Huawei started to work with IBM, Towers Perrin, The Hay Group, PWC and FhG from 1997, turning to these companies for consultation on business flow transfor- mation, employee stock ownership plan, human resources management, financial management and quality control. Cooperating with these major transnational consult- ant firms, Huawei was able to know the latest business information. 4. Huawei signed a cooperation treaty with the Russian Beta to form the first in- ternational joint venture Beta-Huawei. 5. Huawei started to map out and execute its strategy in developing global market- ing, with the CEO and senior management frequently leading teams to visit foreign countries along with state leaders. 6. Huawei started to prepare construction of the Brazil regional department. 7. Huawei successfully hosted the Moscow Telecommunication Exhibition, which was the first time for Huawei to host an exhibition overseas. 8. Huawei continued to push forward its global market strategy, paying more vis- its to the international market and carrying out further investigation and planning of the global market. Year 1996 1. Huawei released its overall transaction access network and optical network SDH equipment. 2. Under the leadership of CTO and guided by CMO and the general Import&Ex- port manager, a project group was formed by the Import & Export Department, the Central Research Department and the Marketing Department. The project group signed a contract of 36 million USD with the Hong Kong Hutchison Telecom to pro- vide fixed network solutions, which was a historical breakthrough of Huawei in the o- verseas market. 3. A research and development center was set up in Shanghai and it went through CMMS verification in 2004. 4. The overseas marketing department was founded, and the overseas market ex- ploitation work of the Import & Export department was integrated into the overseas marketing department. 5. Huawei set up representative offices respectively in Russia, Belorussia and Yu- goslavia. 333 ~ -- 336 of 362 -- 6. Huawei established an overseas document editorial commission for editing and translating overseas publication material and technical documents. 7. A signaling development department was set up to collect and study technical specifications of major international signaling networks, the corresponding standards, network access testing regulations. It also took charge of secondary development of Huawei's main product, the switches and was responsible for amending and providing technical support to the overseas experiment bureaus and network access testing pro- jects. 8. The Overseas Engineering Department was formed by some backbone experts from the customer service center and the central testing department to take charge of engineering execution and customer service for the Hong Kong projects and other in- ternational projects. 9. A Bidding Office was founded to provide technical support to the bidding pro- jects in the international market. 10. Huawei sent a bidding team to Addis Ababa to compete in the switch project bidding in Ethiopia, which was the first time that Huawei bid for an overseas project. 10. 2 Brief introduction to the nine major global markets of Huawei Global market Up to now, Huawei has nine regional headquarters in its global market system, which are all under the leadership of the marketing commission of the company. The director of the marketing commission is a member of the highest policy making insti- tution (EMT) of the company and the executive vice president, who acts just like the CMO (Chief Marketing Official) in western corporations and serves as one of the most important members of management in Huawei. Huawei' s boss used to be a marketing expert and the Board Chairman was also former CMO of the company. Thus the present CMO is more of an executor that car- ries out the marketing policies made by the boss and the EMT. There are some departments and nine regions under the marketing commission. Theses departments and regions interact and coordinate with each other, forming a matrix management mechanism of the marketing system of Huawei. The departments refer to the functional departments that extend from the bead- quarters to the different regions and further to the representative offices for managing the markets and the customers and providing business assistance. The departments in- clude a product department, a marketing commission, a TURNKEY commission, a market finance system, an administration finance system, a leader department, a cus - tomer relations system, an agent and distribution management system, an engineering and service system, etc. These departments manage the representative offices or the ~ 334 -- 337 of 362 -- customers and provide professional assistance to the corresponding businesses on be- half of the company. The product department has the most complete organizational structure and the largest number of employees, which is responsible for product marketing. The prod- uct department is further divided into special sub-divisions for promoting products and technologies, making network deployment plans, product offering, compiling bidding documents and explaining relevant products on exhibitions and technical report meet- ings in the corresponding regional markets. Thus, the product department is a very important part in the marketing system. Without cooperation and coordination with the product department, the customer department can never get their work done. The customer department is responsible for building up relations with the clients, and the product department is to cooperate and help the customer department to consolidate the relations. Of course, the two departments are interdependent. Without efforts of the customer department, the product department will not have access to any pro- jects. The marketing commission in Huawei is a management department of market de- mand instead of a real marketing department as the name indicates, with the product department being the real marketing force in Huawei. The marketing commission is responsible for discovering and tracing the technical trends in the market for the re- search and development department in Huawei so that the company can adjust re- search and development strategies in time and determine the development orientation for each specific product, taking not only the current market demand but also the long -term strategy into account. Thus, the marketing commission is a strategic depart- ment involving research, development and marketing. The marketing commission is composed of just a few members, who are all marketing and technical elites. The TURNKEY commission is for managing the supply chain of turn - key pro- jects, which stretches to all regional departments (see other chapters for detail infor- mation). The market finance system takes charge of export credits and collecting payment for the marketing system of the company. It plays a big role in solving problems con- cerning the payment capacity of developing countries and shortening the payment re- turn cycle. Meanwhile, it is capable of promoting sales by refinancing. The successful development of the international market of Huawei would not be possible without the contribution of the market finance system. The market leader department is an important department for managing leaders and human resources of the company. It is also an executive institution for carrying out human resource policies and the incentive mechanism of the company in the mar- 335 ~ -- 338 of 362 -- keting system. The director of the market leader department is generally a senior manager of the corresponding marketplace. This department just consists of a few members and it takes charge of leader assignment and appraisal and making regula- tions on salaries, bonus and employee stock ownerships, as well as other affairs di- rectly related to the benefit of the staff. The customer system is the main body of the regions mentioned above and it is the core power of the marketing system. The customer system is mainly formed by repre- sentatives, directors of the customer system and customer managers. The customer system takes the main responsibility for arranging sales tasks, setting marketing tar- gets, establishing cooperation relations with customers, selling products in the region- al markets, coordinating with other departments to serve regional projects, maintai- ning market share and handling relations with competitors. Compared with other sys- tems, the customer system takes the greatest responsibility in the whole company. The distribution system is for finding proper project agents for the company so as to develop customer groups conveniently. Huawei advocates regular marketing all o- ver the world (including China) and refuses any "manipulation". Huawei always op- erates according to local laws and regulations and international conventions so as to prevent itself from legal risks. However, some customers would raise some demanding requirements which are very difficult to satisfy and would have negative impact on reaching business agreements. Therefore, Huawei needs some agents to meet the actu- al demands of the customers. Generally, Huawei does not give authority to any agents to act as regional agent or long-term agent, but establishes project agency relations ac- cording to actual needs instead. In this way, Huawei' s representative offices can dominate the leading position in maintaining its market brand and reputation and keeping good relations with customers. The engineering and service system is a department for providing pre - sales and after-sales services. The engineering and service system participates in the projects be- fore real sales to take charge of network testing and network deployment for the prod- uct department and research and development department. After signing a contract, the engineering and service system must take hands on equipment checkup, execution and management of the project, adjustment and inspection, operation maintenance, etc. This department has to deal with the customers every day. Market feedback of the products and the projects, collecting suggestions and advices, receiving and set- tling customer complaints are also part of their routine tasks. There are about 90 overseas representative offices and 33 domestic offices under the administration of the nine major regional headquarters. Here is a brief introduc- tion to the nine major regional headquarters. ~ 336 -- 339 of 362 -- Chinese Regional Market Huawei was established in 1988, with the headquarters located in Shenzhen and four research and development institutions set up respectively in Beijing, Shanghai, Nanjing and Shenzhen. Huawei established the largest service network in China, in- cluding 33 domestic offices covering more than 300 local service platforms in China. It adopted comprehensive management of CMMS and integrated product development flow; and the central software department and the research institutes in Nanjing and Shanghai have respectively passed CMMS international verification. In June, 2005, Huawei was awarded with three grand titles by Frost & Sullivan, namely "Annual Best Supplier of Wireless Equipment", "Annual Best Supplier of NGN Equipment" and "Annual Best Supplier of Optical Network equipment". Asia Pacific Regional Market Huawei started developing the Asia Pacific regional market in 2000, with the headquarters located in Kuala Lumpur. Currently, Huawei has 13 representative of- fices in the Asia Pacific region with 70% of employees being localized. Huawei set up a research and development center in Bangalore, India in 1999, which went through CMMS international verification in August, 2003. To provide efficient training to lo- cal customers, Huawei founded a joint laboratory with Polytechnic of Pakistan and set up a training center in Malaysia so as to provide customer training, product display, technical exchanges and other services. Huawei has established cooperation relations with 120 telecommunication service providers in 16 countries in the Asia Pacific region. In the year 2005 alone, Huawei won many cooperation projects in this region, including the CDMA project with CAT in Thailand, the GSM project with DIGI1EL in the Philippines and the CDMA na- tional network project with PBTL in Bangladesh. East-Pacific Regional Market Driven by the rapid economic growth, telecommunication network was upgraded in a massive scale in the East-Pacific region. In order to provide efficient service to customers in this region, Huawei set up representative offices and technical service centers respectively in South Korea and Hong Kong, with over 70% of employees be- ing localized. Huawei carried out extensive cooperation with more than 30 service providers, including PCCW, Sunday, Vodafone, Korean Telecom, Optus, Econet, etc. in the fields of IP-DSLAM, 3G, CDMA, next generation network, optical network, termi- nal equipment, etc. 337 ~ -- 340 of 362 -- Middle East and North Africa Regional Market The headquarters of Huawei in the Middle East and North Africa regional market was set in Cairo, Egypt, with 20 sub-representative offices in this region and 50% of the employees being localized. Huawei further set up a technical support center in E- gypt to provide highly efficient service to customers in this region. Additionally, Hua- wei built a well-equipped customer training center in this region, which can provide language trainings on English, French and Arabic for as many as 120 students at the same time. In December, 2003, Huawei cooperated with UAE Telecom to build the first commercial UMfS network in the Middle East and Arabic countries. Huawei's GSM, GPRS, EDGE products were widely used in the Middle East and North African re- gion, providing service to over 8 million users. Huawei grew to be the first supplier capable of providing a complete set of CDMA solutions in this region and became one of the three major network solution suppliers. In 2004, the total sales value of Huawei in this region was amounted to 446 million USD. Market in the Commonwealth of Independent States Huawei started to exploit market in the Commonwealth of Independent States in 1996. In April, 1997, Huawei established a joint venture "Beta-Huawei" in the city of Ufa. Up to now, Huawei has set up representative offices in 10 countries of the Com- monwealth, with over 80% of employees being localized. Training centers were set up by Moscow Technical University of Communications and Informatics and "Beta-Hua- wei", and there were five regional customer service centers. To develop services com- plied with the features of the network in the Commonwealth, Huawei founded are- search and development center in Moscow. Besides equipment, Huawei also provided complete solution programs including network facilities and service platforms. Since 2000, sales value in Russia increased by an annual growth of 100%. Hua- wei's products are now available in all regions in Russia. The seven major regional service providers, including the Russian "Communications Investment Corporation" and the major mobile service providers, namely MEGAFON, MrS, Vimpelcom and SKYLINK are all using Huawei's products now. Europe Regional Market Huawei entered the European market in 2001, with the headquarters located in Basingstoke, Britain. Huawei maintained persistent development in the European market, setting up affiliated institutions respectively in 26 countries. Sales value in the European market reached 200 million USD in 2004. In order to respond quickly to customer demands, Huawei established a research and development center in Sweden and set up technical training centers in the European regional market, providing qual- ~ 338 -- 341 of 362 -- ity training services to the customers in this region. Huawei's products are now put into use in 28 European countries. Major clients in this region include British Telecom, Telfort, Vodafone, Telefonica, KPN, Fiber- Net, Evoxus, Viatel, COLT, Tiscali, Neuf Telecom, FT and IZB. Southern Africa Regional Market Huawei started to expand into the Southern Africa regional market in 1998, with the headquarters located in South Africa. The Southern Africa regional market is fur- ther divided into three sub-regions, namely the Southern Africa, Western Africa and Eastern Africa, which provide services to the countries south to the Sahara desert with 50% of the employees being localized. Sales value in this region reached 486 million USD in 2004; and Huawei's prod- ucts had been successfully used in more than 30 countries in this region by the end of 2005. North America Regional Market The headquarters of the North America regional market is set in Plano, Texas. Huawei established a subsidiary in the name of FutureWei in the North America re- gion in March, 2001, to take charge of services in the United States and Canada. Fut- ureWei is mainly responsible of research and development of wireless network, optical transmission network and broadband network. FutureWei also sets up several offices in the North American Region to provide services, technical support and after-sales services to the clients; and it also makes use of OEM, ODM distribution channels to assist product marketing in this region. Latin America Regional Market Huawei forged into the Latin American Region in the year 1997, with the head- quarters located in Saint Paul, Brazil. At present, there are affiliated institutions es- tablished in 10 countries in this region, covering all over the Latin America region with 73% of the employees being localized. Huawei set up several service experience centers and call centers in Brazil, as well as the Latino training center and factory in Campinas, Brazil. Sales value in the Latin America region totaled 183 million USD in 2004. Huawei' s wireless products are widely used by 15 service providers from 8 Latino American countries now. Huawei helped to build up the first GSM soft switch MSC, the first UMTS experiment network, the first 450M CDMA 2000 1X EVDO project in the Latino America region. In the field of optical network, Huawei provides services to more than 50 service providers in nine of the Latin American countries, with the market share ranking the second in this region. Cooperating with Telemar, Huawei helped to build the first ASON network in this region. Huawei has taken up the lar- 339 ~ -- 342 of 362 -- gest market share in the fixed intelligent network in the Latin American region. Up to now, Huawei has been providing voice service to over 35% of the terminal users. 10. 3 List of Huawei Global Marketing Presence Presence in China Headquarters Address: Bantian Huawei Base, Long- gang District, Shenzhen Zip code: 518129 Tel: 0755-28780808 http://www. huawei. com Domestic offices Hefei, Anhui province Address: Jincheng Complex, No. 436, Middle Changjiang Road, Hefei Zip code: 230061 Tel: 0551 - 2820808 Fax: 0551-2817739 Beijing Address: 8th Floor, Jingdu Xinyuan Ho- tel, No. 6, Shifangyuan, Haidian Dis- trict, Beijing Zip code: 100036 Tel: 010- 63901600 Fax: 010- 63901558 Chongqing Address: 23th Floor, Tower A, Hilton Complex, Lianglukou, Yuzhong District, Chongqing Zip code: 400015 Tel: 023-63632386/89038800 Fax: 023-63633282/89038989 ~ 340 Fuzhou, Fujian province .Address: 8th Floor, GloOOl Square, No. 158, Wusi Rood, illou District, Fuzboo Zip code: 350003 Tel: 0591-83050808 Fax: 0591-83050841 Lanzhou, Gansu province ~: Century Square, No. 350, Ongyang Rood, Orengsuan District, Lanzhou Zip code: 730030 Tel: 0931- 8441616 Fax: 0931- 8441200 Guangzhou, Guangdong province Address: Rooms 1116-1133, 11th Floor, Garden Business Complex, No. 368, East Huanshi Road, Guangzhou Zip code: 510064 Tel: 020-83652008/83860680 Fax: 020- 83871168 Nanning, Guangxi Autonomous Region Address: 12th Floor, Nanning News Centre, NO.2, Jiabin Road, Nanning Zip code: 530028 Tel: 0771-2108888 Fax: 0771-2108800 Guiyang, Guizhou province ~: Fuzhong International Square, NQ 126, Xinhua Rood, Guiyang -- 343 of 362 -- Zip code: 550002 Tel: 0851-5370808 Fax: 0851-5370999 Haikou, Hainan province ~: Room 001, Wenlrua Grand Hotel, No. 18, Wenlrua Road, Haikru Zip code: 570105 Tel: 0898-68530809 Fax: 0898-68541818 Shijiazhuang, Hebei province Address: Room 2106, Yangguang Com- plex, No. 33, Sounth Ping ' an Street, Shijiazhuang Zip code: 500011 Tel: 0311-85990088 Fax: 0311-85990008 Zhengzhou, Henan province Address: Room 2112, 21th Floor, Weilai Complex, No. 69, Weilai Avenue, Zhengzhou Zip code: 450008 Tel: 0371-65612000 Fax: 0371-65618561 Harbin, Heilongjiang province ~: 11th Floor, Baoli Science Complex, NO. 93, Zho~ Road, Xiangfang Dis- trict, Harbin Zip code: 150036 Tel: 0451 - 82394808 Fax: 0451-82393808 Wuhan, Hubei province Address: 22th Floor, Jianyin Complex, No. 709, Jianshe Avenue, Jianghan Dis- trict, Wuhan Zip code: 430015 Tel: 027 - 85486808 Fax: 027 - 85486533 Changsha, Hunan province Adlress: 'Rmgcheng International Grand Ho- tel, No. 159, North Shaoshan Road, OtangWi Zip code: 410011 Tel: 0731-4191808 Fax: 0731-4191862 Changchun, Jilin province Address: Rooms 1018-1023, Shangri- La Hotel, No. 9, Xi' an Road, Chang- chun Zip code: 130061 Tel: 0431-8480808 Fax: 0431- 8964972 Nanjing, Jiangsu province Address: Jinying Complex, No. 89, Hanzhong Road, Nanjing Zip code: 210029 Tel: 025-84730808 Fax: 025-84706505 Nanchang, Jiangxi province Address: 5th Floor, Kailai Grand Hotel, No. 88, North Yanjiang Road, Nan- chang Zip code: 330008 Tel: 0791 - 8890616 Fax: 0791-8890668 341 ~ -- 344 of 362 -- Shenyang, Liaoning province Address: 5th Floor, Huaxin Internation- al Complex, No. 219, Qingnian Street, Shenhe District, Shenyang Zip code: 20063 Tel: 024-23960808 Fax: 024 - 23963068 DaHan, Liaoning province ~: Semmo Gmplex, NJ.147, ~ han Rood, ~astrict, nilian Zip code: 116011 Tel: 0411 - 83603788/83677399 Fax: 0411-83689778 Hohhot, Inner M>ngo1ia Aut:ononnli Region Address: 7th Floor, Inner Mongolia Guo- hang Complex, North Xincheng Street, Ho- bhot Zip code: 010010 Tel: 0471-6600808 Fax: 0411-4618234 Ymchuan, Nmgxia Autonomous Region Address: Room 401, Tower A, Hexin Business Centre, No. 158, East Xin- chang Road, Jinfeng District, Yinchuan Zip code: 750001 Tel: 0951- 5671828/5671808 Fax: 0951- 5671818 Xining, Qinghai province Addr~: Office Building C, Dikuang Gar- den, NO. 22, Shengli Road, Xining Zip code: 810001 Tel: 0971-6119985 Fax: 0971-6164808 ~ 342 Jinan, Shandong province ~: Yll1ZUO Office D.Iilding, NJ. 66, Luoyuan Street, Jinan Zip code: 250063 Tel: 0531-6010808/6163685 Fax: 0531 - 6011822 Qingdao, Shandong province ~: Rocm 1002, Unit 2, Rill.ding4, Fu- lruayuan Residence Ouster, NJ. 17, Yan'erd- ao Rood, Shinan District, <lngdao Zip code: 266077 Tel: 0532 - 85936603 Fax: 0532- 85936601 Yantai, Shandong province Miers&: No. 96-2, West Shangkuang Rood, 711igang District, Yantai Zip code: 264001 Tel: 0535 - 6088044 Fax: 0535-6090808 Taiyuan, Shanxi province Address: Room 12B, Jingang Grand HOtel, No. 35, North Bingzhou Road, Thiyuan Zip code: 030012 Tel: 0351-4618200 Fax: 0351-4618234 Xi' an, Shaanxi province Address: 15th Floor, Zhicheng Complex, No.2, First Gaoxin Road, West Hi- tech Development Znne, Xi'an Zip code: 710075 Tel: 029-87660808 Fax: 029- 87660718 -- 345 of 362 -- Henglong Square, Shanghai Mlress: 61th Floor, Henglong Square, NO. 1266, West Nanjing Rood, Shanghai Zip code: 200040 Tel: 021 - 52990808 Fax: 021-52990500 Jinmao Square, Shanghai Address: Jinmao Complex, No. 88, Century Avenue, Pudong New District, Shanghai Zip code: 200121 Tel: 021- 50991818 Fax: 021 - 50992502 Chengdu, Sichuan province Address: 33th Floor, Chuanxin Com- plex, No. 18, Second Section of South Renmin Road, Chengdu Zip code: 600016 Tel: 028-86195555 Tax: 028-86200321 Tianjin Address: Ping' an Complex, Building B, No. 59, Machang Avenue, Hexi Dis- trict, Tianjin Zip code: 300203 Tel: 022- 83866408 Fax: 022-83866486 Urumqi, Xinjiang Autonomous Region Address: 10th Floor, Hongfu Complex, No. 26, Huanghe Road, Urumqi Zip code: 830000 Tel: 0991-5881288 Fax: 0991-5860006 Kunming, Yunnan province Address: 21th Floor, Hongta Complex, No. 155 - 1, Beijing Road, Kunming Zip code: 650011 Tel: 0871 -3566808 Fax: 0871-3547050 Hangzhou, Zhejiang Province Address: 10th Floor, Office Building of Zhejiang Trade Centre, Shuguang Road, Hangzhou Zip code: 310007 Tel: 0571 - 87888111 Fax: 0571-87950808 Presence in the Asia Pacific Region Headquarters Address: P. 0. BOX64, level 46, Tower 2, Petronas Twin Towers, Klcc, 50088 Kualalumpur, Malaysia Tel: 00603 - 20550808 Fax: 00603-20550818 E- mail: Malaysia@huawei. com Website: www. huawei. com/ ap/ en/ Representative offices in cruntries and regions Dhaka, Bangladesh Address: RM Center (2nd Floor) , 101, Gulshan Avenue Gu1shan Model Thwn, Dhaka 1213, Bangladesh Tel: 00880- 2- 9888870/9888876 Fax: 00880 - 2 - 9884423 E-mail: huawei@httb. net. bd Colombo, Sri lanka (technical support) 343 ~ -- 346 of 362 -- Address: 2JJh Floor, West ~ , World llade Center, Colomlx> 01, Sri lanka (S&M ~) Thl: WJ4-11- 5554g)4/5554%/~ Fax: 0094- 11 - 2395903 Colombo, Sri Lanka (marketing) Address: 17th Floor, West Tower, World Trade Center, Colombo 01, Sri Lanka (S & M Dept) Thl: WJ4 -11- 2A33(£6/2433ro>/24336E Fax: 0094 - 11 - 2433607 Bangkok, Thailand Address: 1g~> Floor, Capital~, All Sea- sons Pdlace, 87/1 Wireless Rd. Pathumwan, Lumpini, Bangkok 10330, Thailand Tel: 00662-6543622/6543645-9 Fax: 00662 - 6543655 E-mail: thailand@huawei. com Brunei Address: Unit 116, Bangunan Kambang Pasang, Jalan Gadong BA 1511, BS 8671 Tel: 00673- 2422185 Fax: 00673 - 2422175 New Delhi, India Address: 411> Floor, DLF Square, Jacaranda Marg, M Block, DLF Gty, Phase- II, Gurgaon. Haryana -122002, India Tel: 0091-224-2563492 Fax: 0091- 124- 2563493 E-mail: Huawei@mantraonline. com Bombay, India ~ 344 Address: 5th Floor, C# Block, Fortune 200), Bandra - K.urla Complex, Bandra - East, Bombay- 51' M.unbai India Tel: 0091-022-30620808 Fax: 0091-022-30620816 Jakarta, Indonesia Address: Huawei Tech Investment, BR II Building, 20th Floor, Jl J end. Sudi- man kav. 44-46, Jakarta 10210, Indo- nesia Tel: 0062-21-5713188 Fax: 0062- 21- 5713178 E-mail: Indonesia@huawei. com Hanoi, Vietnam Address: Floors 7 and 8, the Military Commercial Joint Stock Bank building, NO.3, Lieu Giai Street, Ba dinh, Hanoi Tel: 0084-4-2668818 Fax: 0084-4-2668815 Singapore Address: 24 Raffles Palace, # 2604B Clifford Centre, Singapore 048921 55, Ubi Avenue 1, # 07 - 09, 4084935 Sin- gapore Tel: 0065 - 62369530 Fax: 0065-67358874 E- mail: Singapore@huawei. com Nepal Address: Alka 01arnrer Pulchowk:, l.alitilJf -3, Nepll Tel: 00977 - 1 - 5009088 Fax: 00977-1-5009078 -- 347 of 362 -- Manila, Philippines Address: Huawei Technologies Phils. , INC Unit 5302, 53PB oom Tower , Ayala ave. , cor rufino St Salcedo village, Makati, Phil- ippines Tel: + 63 2 8158808 Fax: + 63 2 8190500 E-mail: Philippines@huawei. com Islamabad, Pakistan Adlress: 11" Floor, Saudi Pak ~, 61- A, Jirmah Avenue, Blue Area, Islamal:nd, Pakistan Tel: 0092 - 51 - 2800000 - 20 Fax: 0092 - 52 - 2800019 E-mail: Huawei@pk. huawei. com Kuala Lumpur, Malaysia Address: Level 46, Twin Tower Petro- nas, Towers 2, Klcc, 5088, Kuala Lum- pur, Malaysia Tel: 00603 - 20550808 Fax: 00603- 20550818 E-mail: Malaysia@huawei. com Presence in the East-Pacific Region Headquarters Address: Bantian Huawei Base, Long- gang Distric, Shenzhen Zip code: 518129 Tel: 0755-28780808 Representative offices in this region Tokyo, Japan Addres: 10th Floor, West Tower, Otelm- chi Fiist: &}uare 1 - 5- 1 O:enEchi, Oriyoda- Ku, lOkyo 100- (ID4, Japm Tel: 0081-3-6266-8008 Fax: 0081-3-6266-8000 Hong Kong, China Address: Rnl3501- (X), 35/F.' The Center, No. 99, ()Jeen's Road Central Hong Kong Tel: 00852- 25881899 Fax: 0082 - 2- 221277241 Seoul, Republic of Korea Address: Room 2A03, ASEM ~, CXEX, Sarn;eong-dmg, Gangnam-gu, Sewl, Re{ub- lic of Korea Tel: 0082-2-34560808 Fax: 0082 - 2 - 34560888 Melbourne, Australia Address: Level 53, Rialto South Tower, 525 Collins St, Melbourne VIC 3000 Australia Tel: 0061 -3- 86131688 Fax: 0061-3-96497776 Sydney, Australia Address: Level 5 , Tower A, 799 Pacific Highway, Chatswood, Sydney, NSW, Australia 206 7 Tel: 0061-2-99283888 Fax: 0061-2-94118533 Presence in the Middle East and North Af- rican Region Headquarters Address: 3 St Number 204, Salah Salem 345 ~ -- 348 of 362 -- Square-digla, Maadi. Cairo, Egypt. Second Floor Tel: 0020 - 2 - 7057350 Fax: 0020 - 2 - 705 7380 E- mail: Egypt@huawei. com Representative offices in this region Algiers, Algeria Address: 17th F, Chemin Abdelkader Gaddouche, Hydar 16035, Algiers, Al- geria Tel: 00213-21-6080641694292 Fax: 00213 - 21 - 48409 Dubai, U. A E ~~ P. o Box 500327, Office 104-m~. niDri. Internet Qty, D.ioo.i, U.AE Tel: 00971- 4- 3915608 Fax: 00971 - 4 - 3904 766 Muscat, Oman Adderss: 1st Floor, Bait AI Khuaair Building, Muscat, Sultanate of Oman Tel: 00968-24499801124496802 Fax: 00968 - 24495804 Cairo, Egypt Address: 3 St Number 204, Salah Salem Square - digla, Maadi. Cairo, Egypt. Second Floor Tel: 0020-2-7057350 Fax: 0020- 2- 7057380 E- mail: Egypt@huawei. com Bahrain Address: Villa No.1, Mohamedia Gar- ~ 346 den, Gate No. 36, Road No. 3431, Block No. 334, Bahrain Tel: 00974-3443296 00973-9580085 Kuwait Address: House no. 14, Street No. 18, Jabria No. 10, Kuwait Tel: 00965-5356458 Fax: 00965 - 53564507 Rabat, Morocco Address: 24, Avenue Ahmed Rifai-Sou- issi-Rabat-Maroc Tel: 00212-37-6306691659247 Fax: 00212- 37- 659246 E-mail: huawei@iam. net. ma Riyadh, Saudi Arabia Address: 4th Floor, Tower B, Al-mousa Center, Olaya Main Road, P. 0. Box 295320, Riyadh 11351, Saudi Arabia Tel: 00966-1-2174393 Fax: 00966- 1- 2174368 E-mail: huawei@prime. net. sa Tunis, Tunisia Address: Rue du Lac Huron 1053 Les Berges du Lac, Tunis, Tunisia Tel: 00216- 71- 8618081861818 Fax: 00216- 71- 861850 E-mail: Huawei@gnet. tn Ankara, Turkey Address: Mahatma Gandhi Caddesi No. 26 G. 0. P. , Ankara Turkey 1e1: aro-312-4461191 I 4464850 I 4474692 -- 349 of 362 -- Fax: 0090-312- 4476560 Sana'a, Yemen Address: Apartment 48, Amman Street Djibouti Street, Sana' a, Yemen 18512 + J81 Tel: 00967- 1-447225 Fax: 00967-1-447224 Iraq ~: lblse N) 24, Lare No. Zl' SOOrish Qlarter 101' sulaimmiyah, Iraq Tel: 00964-1-7744593 Fax: 00964- 1 - 7744224 Presence in The Conunonwealth of Inde- pendent States Region Headquarters .Address: Mlsoow' Krylatskaya Str. ' 17' Bldg 2 ( B!iiT!f'SS Pdrk " Krylatsky Hlls ", bldg. B) 121614 Tel: 007-095-2340868/9568689 Fax: 007- 095-234- 863 E-mail: huawei@online. ru Website: www. huawei. ru Representative offices in the countries of Former Soviet Union region Minsk, Belarus Address: 220071 , Off. 205 , 3, Gikalo str. , Minsk, Belarus Tel: 00375- 17-2287284 Fax: 00375-17-2287285 Saint- Petersburg, Russia .Address: Saint-Petersrurg, 19alJ?' 12A, 'lllm- l:x:Jvskaya Street, office 51A Tel: 00812-718-8190 Fax: 00812- 718- 8191 Moscow, Russia .Address: Mlsoow, Krylatskaya Str.' 17, Bldg 2 ( ~ Park " Krylatsky Hlls , ' bldg. B) 121614 Tel: 007- 095- 2340868/9568689 Fax: 007 - 095 - 234 - 863 E-mail: huawei@online. ru Website: http://www. huawei. ru Ufa, Moscow ~:closed Joint Stock Company BEIO - Huam No. 134, ~jeva Street, Ufa 450022, Bashkorta;tan, Russian Federation Tel: 007- 3472- 521823/522894 Kiev, Ukraine ~: 3 str Gonchara 73, Floor 7, Office #5, Kiev, 01054, Ukraine Tel: 00380- (0)440- 4902218 Fax: 00380- (0)44- 4941854 Tbilisi, Georgia ~: 44, Leselidz.e Str., site 1, zn Hoor, Thilisi Georgia Pa;t cock: 0105 Tel: 007-995-32752662 Fax: 007- 995 - 32752662 Almaty, Kazakhstan Address: 480091, Kazakhstan, Almaty, Gogolya str. 86, office 111 - 117 Tel: 007-300714-9015 Fax: 007 - 300714 - 9015 347 ~ -- 350 of 362 -- Bishkek, Kyrgystan Address: Kyrgystan, Bishkek, 'l.D111, 191, .Abdraldnm ova street, office 1~-111 Tel: 00996-612-9008001900880 Fax: 0092-372-272307 Dushanbe, Tajikistan Address: Thjikistan' fuhanbe, Akobir Akh- madov (Pqxwa) street, House # 74 Tel: 00992- 372- 272307 Fax: 00992 - 372- 272307 Riga, Latvia Address: Bikernieku Str. 16, fl. 2, Riga, LV -1039, Latvia Tel: 00371-787390217873901 Fax: 00371- 7873908 Vilnius, Lithuania ~: Gedirnino 44-18, VIlnius, lithua- nia Tel: 00370-52496918 Chicinau, Moldova Address: 25 Bulgara str. Chicinau, Moldova, MD 2001 Tel: 0037-322- 275950 Fax: 0037-322-277018 Representative offices in the countries in East European Region Sofia, Bulgaria ~: B.ISit)fS(; Pdrk Sofia, bl 10, fl 3, MlaOOst 4, 1715 Sofia, rugaria Tel: 00359-2-8172700 ~ 348 Fax: 00359-2-8172799 Warsaw, Poland Address: Sienna Center, 6th Floor, 75 Sienna Street 00- 833, Warsaw, Poland Tel: 0048- Prague, Czech Republic Address: Vyskocilova 146112 a, WID Prague 4, CZech Rqublic El: 00420-255-701808 Fax: 00420- 255- 701809 Bucharest, Romania ~: Splaiul Unirii 76, fJh F1oor, 4th Dis- trict, 040037' lh:harest, Romania 1e1: 0040-21-3129319 I 3129318 I 3129321 Fax: 0040- 21-3313414 Ljubljana, Slovenia ~: 41, 1bpniska ZJ, tern Ljubljana, Slo- venia Tel: 00386- 1 - 4374585 Fax: 00386- 1- 4374585 Budapest, Hungary ~: H -1054 Iblapest, Sm'OO.dsag ter 51 7, Bank Center, Platina n, HUawei Tech. Co. Ud CPC: H- 1054) Tel: 0036- 1- 3542750 Fax: 0036-1-3542758 Presence in the Europe Region Headquarters ~: UNIT 4, Faraday Office Pdrk, Rankine Rood, ~ke RG 24 SQ), UK Tel: 0044- 1256-363180 Fax: 0044-1256-346468 -- 351 of 362 -- Horreplge: www. huawei. cxm/ europe/ en Representative offices in this region Dublin~ Ireland Address: Regus Harcourt Centre~ Har- court Road~ Dublin 2, Ireland Tel: 00353-1-4773937 Fax: 00353-1-4029590 E-mail: ireland@huawei. com Vienna, Austria Address: Huawei Austria~ 241h Floor~ Millen- niwn ~, Handelskai 94 - 96, A- 12Xl Vienna, Austria Tel: + 43 1 24027533 Fax: + 43 1 24027534 E-mail: austria@huawei. com Eschborn~ Germany Address: huawei lechnologies Deutschland GmbH M7genthalerallee 45 - 47 ~ D - ffi7«J EschOOrn, Germany Tel: 0049 - 6196 - 969760 Fax: 0049- 9196- 9697625 E-mail: germany@huawei. com Puteaux, France Address: Huawei Thchnologies France 100r cofonca, 6-8, Rue Jean Jaures, 92fn) Pute- aux France Tel: 0033- (0)14-9011212 Fax: 0033- (0)14- 9010794 E-mail: france@huawei. com Asterdam, Netherlands Address: Ifuawei 1fchnologies (Netherlands) R v. Karspeldreef 4 1101 CJ Amit:erdam Z- 0 Tel: 0031 - 20 - 4300808 Fax: 0031-20-4300888 Lisbon~ Portugal ..AdcJre$: FDIHOO ESPANHA, Rua Soeiro Pereira c:Jom:s, Lotel- 7B, 1«JJ- 16 US- OOA, Portugal Tel: 00351-21-7828400 Fax: 00351-21 -7828401 E- mail: portugal@huawei. com Stockholm~ Sweden Address: Haukadalsgatan 3. Kista~ P. 0 lbx 54, SE -164 94 Stocldrlm, Sweden Tel: 0046 - 8 - 4 770808 Fax: 0046 - 8 - 4770800 E-mail: SE- future@huawei. com Madrid, Spain .Addres.<;: P!n de. Ia. castellana, 95. 10rre Emo- pl. Pt. 21, 2ID16, Mtdrid, Sprin Tel: 0034-91- 7020612 Fax: 0034-91-3199613 E-mail: spain@huawei. com Athens, Greece Address: 26, Kifissias Ave & paradisru 2151 25 Paradi.o; Ama.rwsi.ou, Athens, Greece Tel: 0030-210-6879008 Fax: 0030-210-6879079 Milan, Italy ..AdcJre$: Huawei Italy S. R L, Palazro Ver- rocchio, }"i Floor, Centro Direzionale Mlano 349 ~ -- 352 of 362 -- 2, :Dro Segrate CMD, Milano, Italy Tel: 0039- (0)2- 8962881 Fax: 0039- (0)2- 89628899 Rome, Italy Addres: VIa Benedeto Ooce 30, int 6 - 100100~ Tel: 0039- (0)6- 54237628 Fax: 0039- (0)- 54275754 Basingstoke, Britain .Addre&<i: UNIT 4, Faraday afice Park, Rankine Rood, ~ke RG 24 SQ), UK Tel: 0044-1256-363180 Fax: 0044 - 1256 - 346468 Presence in the Southern Africa Region Headquarters .Addre&<i: First Floor, Rrilding 28, the Wood- lands, Woodrread, Johannesb.rrg, South Afri- ca Tel: 0027 - 11 - 5179800 Fax: 0027- 11-5179801 Representative Offices in this region Addis Ababa, Ethiopia Address: Huawei 'Rrlmologies Co. , LTD CE- thiopia) P. 0 Box 25536 code 100), Adiis Amra, Ethiopia Tel: 00251-1- 1534622/1534620 Fax: 00251-1- 1505087 E-mail: Ethiopia@huawei. com Luanda, Angola .Addre&<i: RUA MAJOR KAHANOOI.D CEx- ~ 350 Rua Direita de Luanda) N' 2'Xl3 ' Andar Luanda, Angola Tel: 00244- 2-325487/323427 Tax: 00244-2-323427 Gaborone, Botswana ~: Unit 10, S.AGG, Mtin mill., ~.~ Tel: 00267- 3166134 Fax: 00267- 3166134 Accra, Ghana Address: 38 Church Crescent, Labone, Accra, Ghana Tel: 00233 - 21 - 770594 Fax: 00233-21-769388 Harare, Zimbabwe Address: 4111 Floor, Intermarket Life lOwers, 77 Jason Mlyo Avenue, Orr. Jason ~~&SamNpmStmt, Huare, :zirrb. al».e Tel: 00263-4-791018/791017 Fax: 00263-4-791027/791028 Abidjan, Cote d'lvoire Adiress: Cocody 2 Plateaux, rue cks Jardins, Villa -417, Abidjan, Cote d'lvoire Tel: 00225-22477190 Fax: 00255-22477190 Nairobi, Kenya Adiress: Huawei lech. Investrrent 0:>. ' Ud (Kenya) 3"' Floor' Zep- Re Place Longonot Road, Upper Hill P. 0 Box 66430-00800 Tel: + 254-20-2730168 Fax: + 254-20- 2730160 -- 353 of 362 -- E-mail: Kenya@huawei. com Antananarivo, Madagascar Ad:lress: 41h Floor, 'Rm Zita.l Znne Zita.l, Akorondrano Antananarvo 101' Madagascar Tel: 00261-20-2410554 Fax: 00261-20-2410554 Malta Address: The Sentosa, Fuq il Gonna Street, Swieqi STJ05, Malta Tel: 00356-21370935 Fax: 00356-21370935 Mauritius ~: 7A1, Cyber Thwer, Cyber Oty, .Ebene, M:ruritius Tel: 00230 - 4648080 Fax: 00230 - 4648088 Maputo, Mozambieque Address: Huawei Technologies Mozam- bique Office Rua Jose Mateus No. 75 Maptuto Mozambique Tel: 00258 - 1 - 487732 Fax: 00258-1-487731 E-mail: Mozambi.que@huam com Johannesburg, South Africa Address: Flrst Floor, &ilding .28, the Wt:XXhi- l.ancE, Woodrrrad, Johanneslmg, Sooth Afri- ca Tel: 0027-11- 5179800 Fax: 0027- 11- 5179801 Lagos, Nigeria Address: Plot~ • .Adeola 03eku. Street Sooth Atlantic, Petroleum 'Rmers. Floors 8, 9 &10. l..aga> &tate-Ntgeria Tel: 00234- 1 - 3630000 Fax: 00234-1-3630001 Ahuja, Nigeria ~~ Hot 'H73, Amazon Street, Mi-nis- ters Hill, Mlltama, P. 0 Box 7030, Wuse, AWja, Ntgeria Tel: 00234-9-4138473/4138474 Fax: 00234-9-4130191 E- mail: Nigeria@huawei. com Dar es Salaam, Tanzania Address: Flat 703, Elia Complex, Bibi- Titi Rd. /Zanak.i Street, P. 0 Box 38137, nu- es Salaam, Thmania Tel: 00255 - 22- 2122553 Fax: 00255- 22-2122553 Kampala, Uganda ~: Room 314, SPEKE Aputornts <Ko- lolo). P. 0 Box 'im6, WamP"O A~, Rote No. 19, Karqu!a, Ugama Tel: 00256 - 41 - 573333 Fax: 00256- 41 - 236339 Presence in the North America Region Headquarters Address: FutureWei Technologies, Inc. 1700 Alma Drive, Suite 100 Plano, Texas 75075, USA Tel: 001-972-5095599 Fax: 001 - 972- 5435899 Website: www. futurewei. com 351 ~ -- 354 of 362 -- Representative offices in this region American Headquarters Address: 1700 Alma Drive, Suite 100, Plano, Texas 75075, USA Tel: 001-972-5095599 Fax: 001-972-5090309 Western America Address: 3255-4 Scott Blvd, Suite 101, Santa Clara, CA 95054 Tel: 001 - 408 - 9888058 Fax: 001-408-9888059 Eastern America Address: 991 US highway 22 west, Suite 200, Bidgewater NJ 08807 Tel: 00908-5952187 Fax: 00908-5952186 Presence in the Latin America Region Headquarters Ad:lress: Praca Professor Jc:l!e l.annes, n 40 Ed Berrini 500, 12 Andar, 13 andar Brooklin Novo Cep. 04571 -100 Sao Paulo SP Brasil Tel: 0055 -11- 51055105 Fax: 0055- 11- 51055100 Representative offices in this region Buenos Aires, Argentina Address: AAvenida Cerrito 1294- 4111 Floor - Glpital Federal, &eoo; Aires, Argentina Tel: 0054-11- 52179977 Fax: 0054- 11 - 48164722 E- mail: argentina@huawei. com ~ 352 Sao Paulo, Brazil .Addre.ss: Praca Professor Jc:l!e Lannes, n' 40 Ed. Berrini 500, 12' andar - BrooklinNovo Cep. 04571 - 100 Sao Paulo - SP- Brasil Tel: 0055-61-33280080 Fax: 0055 -11- 51055100 Brasilia, Brazil Address: SCN Quadra 5 bloco A sala 916 Torre Sui-Brasilia Shopping CEP: 70.715-900 Tel: 0055-61-33280080 Fax: 0055-61-33280080 Ecuador Address: Ave. Republica de El Salador 734 y Portugal. Edif. Athos, piso 7 Ofi- cina 702 Tel: 00593 - 2 - 2265662 Fax: 00593-2-2265659 E-mail: Ecuador@huawei. com Bogota, Colombia Ad:lress: Carrera 7 No. 71 - 21, Oficina: 301, 10rre B, Edificio Bancafe, Bogota, Colombia Tel: 0057- 1- 3170808 Fax: 0057- 1 -3175520 E- mail: huawei@multi. net. co Caracas, Venezuela Address: Ave. Fran Cisco de Miranda, Edif. Parque Cristal, Piso 14, Oficina TOP 14- 3, Cod. Postal 1060 Caracas- Venezuela Tel: 0058- 212- 2864818/ 2862132 Fax: 0058- 212- 2868582 -- 355 of 362 -- Santiago, Chile Adiress: Hendaya ro, oficina 1301, Las Con- des, Santiago Clille Tel: 0056 - 2 - 9508200 Fax: 0056- 2- 9508299 E-mail: chile@huawei com Lima, Peru Address: Hua\\ci DEL Im. - S. A C, Av. Rep.J.blica de Panama 3535 Of. (ill, San Isidro, lima Zl-Peru Tel: 0051-1 -7169888/4401440 Fax: 0051- 1 -7169088/4400304 E-mail: hua\\cip7U@hua\\ci. com pe Mexico, Mexico ~: Huawei lechnologies de ~co S. A de C V. Boulevard Matruel Avila Cam- acho #40, Thrre Esrreralda 1 Piso 11, Colo- nia Lomas de Olap.dtepec, Codigo furta1 11(XX), rv.kxico, Distrito Federal Tel: 0052- 55- 52333550 Fax: 0052-55-52825711 E-mail: huawei@prodigy. net. mx Lapaz, Bolivia Address: calle 24A No. 91, Calacoto, Lapaz, Bolivia Tel: 00591- 2- 2791108 Fax: 00591 - 1 - 2793066 Montevideo, U-ruguay Address: Javier de Viana 2350 esquina Acevedo Diaz Montevideo, U-ruguay Tel: 00598-2-4103860/4103861 Fax: 00598-2-4103862 10. 4 Annotation of English abbreviations 1. 2G: the second generation mobile communications technology, also called dig- ital mobile communications technology compared with the first generation (1G) FD- MA analogue mobile technology, mainly including IDMA and CDMA technical standards. 2. 3G: the third generation mobile communications technology, with higher rate and wider band than 2G and having three types of international standards . 3. 4G: more advanced communications technology than 3G, which is under re- search and development by various manufacturers now. Although these technologies are called 4G or 5G by developers, they have not been verified by international tele- communication organizations; and there is no international standard for 4G or 5G in the international communications industry. 4. ARPU: short for Average Revenue per User. 5. CDMA: Code Division Multiple Access. It is an international technical stand- ard for mobile communications, belonging to 2G mobile communications technology . It started from the United States and prevailed in South Korea and Japan, taking up a- bout 20% of the market share in the global market. It was also used in China, being one of the main networks of China Telecom. The core patent of this technology was 353 ~ -- 356 of 362 -- held by the American Qualcomm. As service providers and manufacturers had to pay a high patent cost to Qualcomm, this technology had a limited widespread application. 6. CDMA 2000: an international standard for 3G and also an upgraded version of CDMA. It is also called the American standards of 3G as it started from Qualcomm in the United States. 7. CEO: Chief Executive Officer, the highest manager of a company. 8. CMO: Chief Marketing Officer, the highest post in charge of marketing in a company. 9. COO: Chief Operation Officer, the highest post in charge of corporate opera- tion, also called executive president, a senior management member followed only to the CEO. 10. CTO: Chief Technical Officer, similar to a chief engineer, the top ranking leader to take charge of research and development and product strategy in a company. 11. GSM: short for Global System for Mobile communications, belonging to a 2G international standard of TDMA (Time Division Multiple Access). It is called Euro- pean Standard as it started from Europe. As it is a public standard, it became the most widely used technical standard for the second generation mobile communications tech- nology all around the world, taking up a market coverage of 70%~ 80%; and it is also the most important communications standard in China. Taking advantages of the GSM standard, China has become the biggest mobile service provider with the highest stock value in the world. China Unicorn has constructed a huge GSM network to se- cure its survival and profit. 12. DWDM: short for Dense Wavelength Division Multiplex, key device for vast capacity and remote distance optical network transmission and an upgraded version of SDH. 13. ETS-450: a WLL product developed with FDMA technology by Huawei, which integrates wireless transmission, fixed access and limited roaming. It solved the problems for providing access to each and every village in remote border areas and mountainous regions and yielded billions of RMB for Huawei. It is now withdrawn from the production line of Huawei. 14. FDMA: short for Frequency Division Multiple Access. It is a mobile commu- nications technology belonging to a technical standard of the first generation mobile communications technology. Nowadays, it has been basically replaced by GSM and CDMA; and it is only used in analogue talkback systems. 15. GPRS: short for General Packet Radio Service, an upgraded technology of GSM and a transitional technique between 2G and 3G, also called 2. 5G. 16. GSR: super-large router. ~ 354 -- 357 of 362 -- 17. PHS: a technical standard for mobile communications. It was from Japan and used to be widely used in massive network construction in Japan. But as it was not an internationally accepted standard, it was confronted with great difficulties in coopera- tion (mainly international roaming) with the communications network service provid- ers in other countries. As it lagged behind GSM and CDMA standards in terms of its technical level, frequency reuse effect, station coverage, transmission rate and band- width, the usage of PHS had been largely reduced in Japan and it has been replaced gradually by CDMA and GSM. However, PHS had been accidentally developed in an unexpected scale on its personal hand-phone systems, including the Little Smart and Local Call systems in China. As China Telecom and China Netcom had no operation rights of mobile communications, it had to adopt the cheap PHS technology to devel- op its mobile users. Despite that the PHS technology was backward, it did win the two fixed network service providers tens of thousands of low-end mobile users and helped them to gain experience in building and running mobile network. Meanwhile, it also helped to train an experienced mobile network team to get strategic preparation for their 3G business. 18. IPD: short for Integrated Product Development, a management procedure of Integrated Product Development, which was specially developed for Huawei by over 200 senior consultants from IBM and one of the core business procedure of Huawei. The main philosophy of IPD is that research and development of a company shall not be a close-end task only for the research and development department, but a process that integrates all links of the production line, which has to meet customer demands , serve market targets and be responsible for marketing performance. The IPD proce- dure emphasizes customer demands, which prevents production from getting lost with market demand and shortens market response time. It focuses on the market effect of the products and avoids focusing on pure technology in its development process. IPD has created very notable effect since it was adopted by Huawei. 19. ISC: short for Integrated Supply Chain, a core business procedure developed for Huawei by IBM The philosophy of ISC holds that the competition between enter- prises is actually the competition between their supply chains. The competitiveness of an enterprise is mainly determined by the effectiveness of its supply chain manage- ment. ISC is very helpful for breaking through the traditional "small and complete" or "large and complete" mode of enterprise management. It enables companies to out- source its non- core business to professional suppliers in the society according to the principle of socialized configuration of resources so as to improve the overall competi- tiveness of the whole supply chain by professional division of work and scale econo- mies of the subcontractors. ISC enables Huawei to solely focus on two major core bus- 355 ~ -- 358 of 362 -- inesses, namely marketing and development. Practices proved that the application of ISC in Huawei is a great success. 20. KPI: short for Key Performance Indicators, a target-oriented management and appraisal system most widely used in the world today. 21. NGN: short for Next Generation Network, namely broadband network. 22. NP: short for Number Portability. It refers to a technology provided by serv- ice providers in the open telecommunication market so as to enable customers to retain the same number while changing service providers. The purpose of this technology is to break the monopoly of fixed network service providers and promote free competi- tion. Hong Kong is the first to adopt compulsory NP technology to promote market completion in the region. 23. SDH: It refers to synchronous optical network transmission product, a key transmission equipment for optical fiber communication lines. 24. ID-SCDMA: a 3G standard developed by China and initiated by Datang. Nowadays, commercial products have been developed by Huawei-Siemens, Z1E-Eric- son, Datang-Korea and Potevio-Nokia and the products are about to be put into mas- sive commercial application. It is also called Chinese 3G standard as it is put forward by China. 25. WCDMA: also called UMTS, an upgraded 3G version of GSM. It is also called European 3G standard as it is from Europe. It has an unrepeatable dominance in the world and is bound to be the most promising 3G standard in the future. 26. WLL: short for Wireless Local Loop. It is a wireless access technology in- tegrating wire and wireless technologies. It first uses wireless transmission then wire transmission to provide access to the users in the same community. CDMA transmis- sion used to be the main technology, but it has been replaced by other technologies with higher rate and wider bandwidth, such as WINMAX, W-LAN, etc. 27. WfO: short for World Trade Organization. China promised to gradually open its telecommunications market to the world while negotiating its entry to the WTO. ~ 356 -- 359 of 362 -- This book is the result of a co-publication agreement between Guangdong Economy Publishing House (China) and Paths International Ltd. Global IT Solutions from China: The Huawei Story Edited by Zhang Guanjing ISBN: 978-1-84464-120-8 Copyright© 2013 by Paths International Ltd, UK and by Guangdoog Economy Publishing House (China). All rights reserved No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the publisher. The copyright to this title is owned by Guangdong Economy Publishing House (China). This book is made available internationally through an exclusive arrangement with Paths International Ltd of the United Kingdom and is only permitted for sale outside of China. 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