Huawei, one of the largest Chinese tech companies
that has recently become public enemy number one in the eyes of the USA. This situation is understandable: Huawei’s
shadowy practices and controversial management style have made it an easy target for the
West. In this video, we’ll see all the strategies
Huawei used to go from an unknown startup to a global technological superpower in the
span of just 30 years. This video is brought to you by Dashlane. Keep all your passwords safe by registering
with the link in the description. Huawei came about in a turbulent time for
China: in 1979, the country was in many ways stuck at a major crossroads. Only a few years had passed since the death
of Chairman Mao Zedong, the founder of the Chinese Communist Party who had dominated
all aspects of China during his reign. Unfortunately, his aggressively optimistic
policies often did more harm than good and by the time his reign was over China was left
isolated, underdeveloped, and expected to enter yet another period of massive poverty
and famine. During the few uncertain years after Mao’s
passing, there was a power struggle within the Communist Party on who would be his successor. Ultimately, it was Deng Xiaoping who emerged
victorious and became the de facto ruler of China. Now, Deng was a very contradictory figure:
on the one hand he was one of Mao’s earliest allies during the revolution, yet unlike Mao
he was actually a competent economist, which allowed him to realize the shortcomings of
his predecessor. Although Deng maintained Communist rhetoric
and the structure of the Communist Party, he initiated significant economic reforms
in 1979, which to many of his fellow party members were dangerously close to capitalist
treason. Deng began decollectivization, the process
in which assets and industries owned by the state were contracted out and owned privately. The reforms were, of course, very popular
and very successful, as production around the country became more efficient. China created its own private economy, in
addition to its state-owned enterprises. The shift in Chinese policy was not just internal,
however: China also opened itself up to the world, establishing much-needed foreign trade
relationships. In 1980, the Chinese government established
the Shenzhen Special Economic Zone, which, as the name implies, is a special area carved
out exclusively for international trade that made great concessions for companies that
could not be found anywhere else in China. Unsurprisingly, entrepreneurs from across
the country flocked to the small city of Shenzhen to pursue their business, driving up the city’s
population from 300,000 to over 4 million in the span of just twenty years. One of those entrepreneurially-minded individuals
was Ren Zhengfei, a member of the Chinese military and Communist Party. He was a survivor of Mao’s mass famines
in the late 1950s who left his rural province to join the Chinese military. He was no regular footsoldier though: instead
he served as a member of the Liberation Army’s engineering unit that would build many advanced
factories for China as part of Deng’s economic policy. Ren Zhengfei would serve the People’s Liberation
Army dutifully until 1983, when his unit was disbanded and now left out of a job, Ren had
to pivot into the civilian economy. With his skills it was pretty easy to find
work, which he did with the state-owned Shenzhen Electric. He worked there for 4 years until he decided
to start his own company, Huawei, in the Special Economic Zone, thus giving a clear indication
that Huawei would be oriented towards exporting and expanding internationally. In the eyes of the Chinese government any
enterprise dealing with technology was a welcome endeavor, which is why Ren received an extremely
generous loan from a state bank to start Huawei: he got $8.5 million and hired 14 people right
off the bat. The initial plan was simple: Huawei would
import switching gears from Hong Kong and then sell them back home in China. That’s how virtually all Chinese companies
functioned back then: they’d import foreign technology, usually through a joint venture,
and then they’d do their best to reverse-engineer it and to start making it themselves. It’s pretty clear that that is exactly what
Huawei did: during its first few years it had 500 people working in R&D and only 200
in production. It should come as no surprise that one of
Ren’s first clients was the Chinese military, whose leader he convinced that owning your
own telecommunications hardware was a matter of national security. Once the government contracts started coming
in, so did the regular supply of government funding, which to Ren’s credit he did not
embezzle. Instead, he invested in expanding Huawei’s
R&D and production capacity, sometimes even operating at a loss to do so. On the market side, Ren’s priority was getting
market share, so he priced his products so competitively that just 10 years after its
founding Huawei had overtaken Ren’s former employer as the largest telecommunications
company in China. Now, there’s a lot that made Ren’s company
uniquely suited for rapid expansion: to start, he adopted a structure somewhat similar to
the capitalist shareholding we’re all familiar with by allowing his employees to invest in
the company based on their performance. That was Ren’s way of not only attracting
talent, but keeping it, although amidst the very lax labor market at the time, Ren could
enforce some pretty questionable working standards. The employees of Huawei were subjected to
long work hours and a toxic work environment, with schedules going from 9am to 9pm, 6 days
a week. In fact, in its early days, Huawei’s offices
were actually equipped with mattresses, as it was regular for employees to work late,
sleep in the office, then wake up to continue working the next morning. The almost fanatical loyalty and dedication
of its workforce allowed Huawei to excel in one particular activity: corporate espionage. Now, Chinese theft of intellectual property
is nothing new, but Huawei did take it to a new level: in 2003 for example, they copied
over a million lines of code from Cisco routers, which they then used to make their own product
line. Another example from 2007 goes even further,
when an employee of Motorola was discovered to have been sending IP directly to Huawei
executives. The nature of Huawei’s behavior is truly
systemic, not least because the company actually has an internal messaging board, where employees
can share stolen competitor secrets and depending on their value they can actually get bonuses
for them. Now, the amount of allegations vastly outnumber
what’s been proven so far, but even the amount we do know paints a very bleak picture. It is only Huawei’s extreme dedication to
competitive pricing that allowed international clients to overcome their reputation. For most clients abroad, the name Huawei was
totally unrecognizable even as recently as ten years ago. It was in 2009 that Huawei truly made it big
abroad. That was when they were awarded the contract
to build Sweden’s 4G network, which honestly came as a big surprise at the time, considering
the fact that Sweden itself is home to one of the world’s biggest telecommunications
companies, Ericsson. Over the next decade Huawei’s hardware would
become the foundation for networks across the world, especially in developing markets
where Huawei’s ties to the Chinese government were less of a concern. The extent of Huawei’s international growth
has been so rapid, to the point where they’re now earning over $100 billion in revenue from
170 countries, that the West is actively conspiring to bring them down. The recent ban by the US is just the opening
salvo in what can easily develop into a technological Cold War between the countries economically-aligned
with China and those under US influence. Since telecommunications networks form the
backbone of the modern economy, it is only natural that countries deem this a matter
of national security. Now, the fact that the US has a geopolitical
incentive to keep Huawei down is another question, but Huawei isn’t doing itself any favors
by being so secretive. In one of his few public statements, Ren said
that Huawei had never received any request from the government to provide improper information,
but nobody was really convinced by his words. Since under China’s cybersecurity law, any
Chinese company must provide the government with access to its data, it’s no surprise
that the global community is skeptical. In addition, Huawei’s employee ownership
makes it exempt from many of the more detailed public reports most other public multinationals
have to release. It is very telling that, for a company operating
globally, there is a very stark lack of diversity in Huawei’s management: all 17 board directors
are Chinese, have no degrees from non-Chinese universities, and have all been with Huawei
for over 20 years. All of these factors are conspiring against
Huawei, but it’s not yet clear whether the politics will overcome the economic incentives
for most of the world. What is clear, though, is that online security
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and to like this video if you enjoyed it. We’re gonna see each other again in two
weeks, and until then: stay smart.
