Since founding the firm in 1988, Ren Zhengfei has built Chinese vendor Huawei into arguably the most disruptive infrastructure player in the mobile market. When the next of the big name vendors exits the market through one route or another, and it really is a matter of ‘when’ and not ‘if’, then it won’t be an exaggeration to lay a portion of the responsibility for this at Huawei’s door.
In fairness to Western vendors, they have never had the opportunity to run a company in the way that Huawei’s founder has. With access to a huge workforce which demanded far lower rates of pay than their Western counterparts, Huawei marketed itself initially to the MNOs on price, picking up business in emerging markets from carriers with less money to spend. While this kept the firm out of the top tier carrier market during its early years in the game, the situation today is altogether different.
Now an established provider to the premier league of mobile carriers, Huawei is in an even better position to press home its advantage. While other vendors have slashed at their costs in a frantic bid for survival, Ren Zhengfei has kept Huawei’s R&D budget high.
Ten per cent of Huawei’s annual revenue is diverted into R&D. In 2008, revenues were up 46 per cent year on year to $23.3bn (with 75 per cent of those sales coming from outside of China). And that budget goes a long way in China; half of the firm’s workforce are engaged in research and development.
Couple this with enormous credit facilities from Chinese state banks that allow Huawei to offer the kind of financing that’s a distant memory to Western vendors and you’ve got a very serious challenge to the established order. At one time it looked likely that Huawei would move to acquire a Western vendor in order to build global presence. Now it doesn’t seem necessary. Ren Zhengfei heads a company that, at just 21 years’ old, threatens firms with histories that stretch back more than a century.
With Amazon and Google launching smart home initiatives, have the telcos missed out on their chance to cash in on this market?
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