Being Prepared for Surprises to Happen: Huawei as a Black Swan?

By David De Cremer

In life, it’s always possible that things change in the blink of an eye. One day everything is as it has always been and the day after everything suddenly changes and your strategies and priorities need to be revised. Does it happen often? Not really. Does business know the phenomenon? Yes, they do, but they do not talk too much about it. Why? Simply imagine that the leading companies in your industry did not really notice what was happening and then one day they are confronted with the reality that one company has taken over. Doesn’t sound like something that will happen quickly. But, in fact it has happened and it did so within the technology industry. Which company are we talking about?

For many observers, it came as a surprise that Huawei moved into the position of being the dominant world player in the telecom industry. And, by taken this leadership position, Huawei not only disrupted the industry in several ways, but also became the symbol of global political disturbances. Especially the political controversies have made Huawei today a household name to many. But, before these events evolved, Huawei managed to stay outside of the public eye for many years. Even to the extent that their supposedly sudden arrival at the world stage and resulting global impact may reflect a genuine black swan phenomenon. That the company was not that known for a while, may, in part, be because Huawei is a business-to-business company and operated globally under the brand name of the telephone and internet operators that they serviced. In addition, being a Chinese company, much of their growth took place within the protected boundaries of the home country. It was in 2012 when overtook Ericsson (in terms of sales revenue and net profit) to become the world leader in the telecommunication industry and thus gained attention, but it really took until the US government more firmly started to throw allegations at and impose sanctions on Huawei that the company became a familiar name to many.

 

The case of Huawei on the world stage

Huawei is a Chinese telecom founded by Ren Zhengfei in 1987 in Shenzhen and is one of the giants in the world of telecommunication technology, infrastructure and smart devices. They employ more than 194 000 employees, operate in more than 170 countries and regions, and serve more than three billion people (excluding the US market). In the fiscal year of 2019 Huawei’s revenue reached CNY858.833 billion (US$122.972 billion) and CNY62.656 billion (US$8.971 billion) in net profit (in 2018 revenue reached CNY721.202 billion and CNY59.435 billion in net profit). As a testimony to their global presence and level of success, they are leading the telecommunication industry, are second in smartphone sales globally and rank number 49 in the Forbes 500 list.

Although these achievements can hardly be ignored, Huawei in the last few years has been recognized as a leading company that for many nevertheless seemed to have stepped into the spotlights almost immediately. Even though the company steadily developed over a period of three decades, this observation signals that the growth of Huawei over the span of 30 years has gone largely unnoticed and then in a matter of a second exploded – figuratively speaking – in the face of the world. The major event that made Huawei a household name worldwide was without a doubt the arrest of the daughter of the founder Ren Zhengfei, who was the company’s CFO, in Vancouver, Canada. An international warrant, issued by the US government, charged Meng and Huawei with bank and wire fraud in violation of American sanctions on Iran (De Cremer, 2020). Since then the suspicions that the US had about Mr. Ren’s military background and Huawei’s supposed espionage activities have surfaced and dominated the media reports on the company for the last several years (De Cremer, 2019). The most significant decision that emerged from these discussions have led to the US, Australia, New Zealand and the UK to block local firms from using Huawei to provide technology for the installation of 5G mobile networks.

 

Did Huawei arrive out of the blue?

Huawei, of course, did not suddenly appear on the surface to catch the eye of the world. Their global expansion efforts in fact took place long before the most famous Chinese economic project, widely known as the Belt & Road initiative, was launched in 2013 (De Cremer, McKern, & McGuire, 2020). In fact, by 1996, when the company entered their second stage of development where IBM was hired to introduce a management structure (De Cremer & Tian, 2015), Huawei executives were already exploring and negotiating business deals and opportunities in Brazil, Russia and Africa. For example, Huawei opened their first Africa sales office in Nairobi in 1998 and today Africa has become the company’s third-biggest sales market operating in 40 of Africa’s 54 countries.

How did this happen? With their motto that the customer is God and should be served as such in mind, Huawei was one of the first companies to globally focus on Tier 3-markets and deliver equipment and service to small rural areas rather than only focusing on the Tier-1 and Tier-2 customer in the large cities as their international competition usually did. This strategy took shape by the now famous rat example. In the desert and rural areas in China, rats were a plague for the telecom connections to customers. The multinationals did not want to devote any attention to it as they considered it to be a problem of the customer. Their job was to provide the technology and equipment, but the customer had to maintain it. Huawei decided to approach it differently and viewed the rat problem as one the company had the responsibility to solve. This strategy and the communication around it helped them later on to win several big business ac-counts in the Middle-East and Africa. So, Huawei gained a reputation to deliver energy-efficient equipment, and develop power solutions that could support telecoms networks in remote areas, which made them eventually experts in changing the economics of rural coverage.

By working in this manner, Huawei gained quickly market share quickly but also stayed under the radar to say so. At the same time, however, they invested much time and energy in penetrating the European market, which eventually succeeded after their European counterparts (Ericsson and Nokia) agreed with the EU to allow Huawei access (De Cremer & Tian, 2015). It led to a close collaboration between Huawei and many European countries in terms of delivering the necessary equipment and infrastructure for their local telecom systems. Obviously, their presence in Europe gained more attention, but it still took a while before the real impact of Huawei on the European market became visible. And, now, today, Huawei – in the light of the escalating US-China tensions, has become a primary target of the US. Critics will say that there is some irony in the fight that the White House has started since Huawei, upon closer investigation, seems to have been styled and advised over the years by foreign (and especially so US) companies, such as IBM, Hay Group, Mercer Consulting, and PwC, who all had their hands in designing, among others, the product development system, the organizational structure and finance system of the company.

In a sense, Huawei could be seen as the prime example of what old Chinese president Deng Xiaoping once said: Keep a cool head and maintain a low profile.

Given this reality, it becomes an even more pressing question of how Huawei, as a Chinese company going global, has been able to navigate their expansion efforts so effectively with the world only being vaguely aware of their presence. In a sense, Huawei could be seen as the prime example of what old Chinese president Deng Xiaoping once said: Keep a cool head and maintain a low profile. Never take the lead – but aim to do something big. And, this strategy has indeed led to something big with Huawei being a world leading company that is, for example, five times bigger than Ericsson and Nokia (who helped them obtain access to the EU market) in revenue.

 

Huawei as a black swan that surprised everyone

If one looks at the strategy employed by Huawei and the surprise uttered by many countries when the Chinese telecommunication giant removed the veil it was hiding behind, then it may well fit the idea of a black swan as identified by Nassim Nicholas Taleb. A black swan is a phenomenon that appears on stage – seemingly coming out of the blue – and it challenges the status quo (or, in this case the business order) at that moment. It seems like an unpredictable event has happened – a Chinese company being globally successful – but in reality the event was always there, but because of a lack of attention the company Huawei emerged quickly and without any notification for many. Finally, a black swan event is not only an unexpected event that disrupts the status quo, but the event is also of a large magnitude and reveals consequences that are significant in history. And this latter feature also applied to the growth of Huawei, as the scale of the company’s influence on the market is unheard of for a Chinese company – which until Huawei were not that successful at a global level (De Cremer, 2018). At the same time, the impact that Huawei has revealed in their industry coincides now with significant challenges at the geopolitical level. The trade war between the US and China put even more the spotlights on Huawei.

In conclusion, being a black swan in the telecom industry enabled Huawei to rise to the top, but in a convergence of events where industry forces met geopolitical ones, the company is receiving more attention than it ever had wished for. Will this be the defining moment for the company where it will have to adjust its strategy and ways of working for the last 30 years? If so, Ren Zhengfei, was ultimately right in that no matter how successful the company was, he kept repeating that one always needs to think about ways to survive. So, maybe the founder of Huawei may intuitively have felt that his company would one day be confronted with a defining moment like the one that is taking place now. Just as he may have regarded Huawei as a black swan, knowing that at the head quarter of the company in Shenzhen a lake exists with a black swan living in it (see picture below). We may never know for sure, but the history of Huawei seems to suggest there may well be some truth in this perspective. And, maybe one day we will know for sure.

About the Author

David De Cremer is a Provost’s chair and professor in management and organizations at NUS Business School, National University of Singapore. He is the founder and director of the Center on AI Technology for Humankind at NUS Business school; which is a platform developing research and education promoting a human-centered approach to AI development. Before moving to NUS, he was the KPMG endowed chaired professor in management studies at Judge Business School, University of Cambridge. He is named one of the World’s top 30 management gurus and speakers in 2020 by the organization GlobalGurus and has published over more than 250 articles and book chapters. He is also a best-selling author with his book “Huawei: Leadership, culture and connectivity” having sold more than one million copies. His newest book is “Leadership by algorithm: Who leads and who follows in the AI era?” (May, 2020).

References

De Cremer, D. (2018). Lessons from Huawei: when Chinese companies go global. Business Strategy Review, 3, 4-7.

De Cremer, D. (2019). Hard-Wired to survive in the UC-China trade war. The European Financial Review, August-September, 7-11.

De Cremer, D. (2020). Turning a weakness into a strength: Why leaders should never leave the battlefield. The European Business Review, July-August, 24-29.

De Cremer, D., & Tian, T. (2015). Leading Huawei: Seven leadership lessons of Ren Zhengfei. The European Business Review, September/October, 30-35.

De Cremer, D., McKern, B, & McGuire, J. (Eds., 2020), The Belt & Road initiative: Opportunities and challenges of a Chinese economic ambition. Sage Publishing.

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