Huawei touts R&D prowess

Chief marketing officer Dr Eric Xu Zhijun says Huawei is a match for its Western rivals in terms of R&D spend and staff involvement
Written by Julian Goldsmith, Contributor

In the opinion of Huawei's chief marketing officer, Dr Eric Xu Zhijun, nothing matters more than research and development. The company boasts $11bn (£5.4bn) in sales as of 2006 — 10 percent of this goes to R&D, in which 48 percent of Huawei's 60,000 staff are involved.

The vast Huawei campus in Shenzhen, just near the Hong Kong border, covers an acreage any small metropolitan satellite in the UK would be proud of. It borders a city of 11 million people — a good one-and-a-half times the size of London in terms of population. And Huawei isn't even the biggest employer. That title goes to a supplier of parts to Apple.

One billion dollars worth of R&D spend is a sizeable sum but it pales into insignificance besides the comparative investment of Huawei's Western rivals — Cisco racked up an R&D budget of more than $4bn in the last fiscal year and Nortel spent almost $2bn in the same time frame.

But Huawei's Xu argues the cost of R&D staff is so low in China that the equivalent spend is actually more like $4bn.

Xu said: "In absolute amount, we don't invest as much [as Huawei's Western competitors] but, as R&D lies mainly in people cost, we look on that. Labour cost in China is one-sixth of that in Europe or the US. That means the $1.1bn we spend equals $4bn to $5bn."

Although Xu has a marketing moniker, he has a background in developing the business's international relationships and his views are uncharacteristically candid. He accepts that Chinese companies have an uphill struggle in persuading Western companies to take Huawei on board.

He is at pains to emphasise the core value the company's newly forged corporate identity is based on: combining Western business process with eastern "wisdom".

Certainly, within its core switching technologies, Huawei boasts a position within the top three in the world, with 60 percent of revenues coming from outside China. It has relationships with telecoms operators on every continent and is content to stick to this profile in the market, eschewing any brand recognition by end users.

However, the company now has a comprehensive product portfolio — from optical switching technology capable of maintaining tens of millions of lines through one fibre cable, to 3G and HSPA (mobile broadband) USB modems no bigger than a box of matches.

One-third of the R&D budget and staff resource is spent entirely on developing the company's mobile-data offerings, so, even though they may not know it, end users could be using Huawei kit, through carrier partnerships with operators such as BT, Deutsche Telecom and Orange.

Last year Cisco accused Huawei of marketing products too similar to its own. Xu's statement about the actual value of Huawei's R&D spend is designed to counter such criticisms but he also has a number of key contract wins since then to answer them with.

Xu said: "The most significant event in the last 18 months is the growth we have managed to achieve in the European market. One of the most important [successes] is becoming one of the eight suppliers for BT's 21CN. Another is the changes we have made to our brand and corporate identity, which will help us to develop our strategy and corporate values in the future."

Undoubtedly, Huawei is a leader in China's push to become a global player in commercial markets, but Xu doesn't accept the company is a champion for the country. He looks further ahead, insisting Huawei is an international entity, citing the employment of Western management consultancy services throughout the late 1990s as a sign the company is conducting business on an international level.

Xu said: "These services have helped us create a professional and process-based culture within the company, giving us a solid basis for collaboration with European operators. However, since [other Chinese companies] do not have that kind of investment, they face a lot of challenges. They may not be able to find a common language when they interact with their customers."

Editorial standards