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“In darkness, illuminate the paths of our comrades with the light from our hearts.”
For the past one-and-half years, Huawei has been in “battle mode.” Founder and CEO Ren Zhengfei sounded the battle cry in August 2019. In a memo to employees laden with military metaphors, Ren asked for organization-wide fortitude in weathering the deadly blows dealt by the Trump administration, which Ren described as a “live-or-die-moment.” The White House had increased sanctions on Huawei’s products, including cutting off the firm’s lifeline — chips. Semiconductor companies were restricted from selling chips that were developed or produced using United States (US) software or technology to Huawei.
Ren reiterated the firm’s survival tactics in an address made in June last year, which was only recently, and most strategically, made public after the inauguration of President Joe Biden.
Quoting Prussian general and military thinker, Carl von Clausewitz, Ren who used to be a former army officer, likens the ordeal that Huawei is going through to a military troop’s march through pitch darkness. Navigating by the dim illumination from the stars above, only the light that shines from within each soldier’s heart will guide the troop to safety.
Using this analogy, Ren recounts how Huawei’s 30-year globalization strategy has been thwarted by US hostility, forcing the firm to build capabilities for making its own chips from scratch.
“There’s a big mismatch between our ability and strategy,” Ren said. “We have been forced to start from the beginning like elementary school students. What’s more, we must quickly jump over multiple levels to reach the PhD position. Do we have such great bounce ability?”
Even the cleverest housewife cannot cook a meal without rice, so the Chinese proverb goes. Huawei is neither a clever housewife nor does it have rice, Ren says, but the firm must not surrender its globalization strategy.
“Please don’t be upset with the temporary US pressure, or give up on our globalization strategy. There is no future without embracing globalization [in development and research].”
To achieve Huawei’s long-term vision, Ren has called for the empowerment of its best frontline teams, a renewed commitment to innovation, and value creation with a focus on profit.
“I would rather die one step forward than take half a step back.”
The CEO recognizes the strength and commitment that employees have shown during Huawei’s crisis, disclosing that hundreds of senior cadres have volunteered to be demoted to ease the firm through its financial woes.
“It shows that our team is very good,” Ren said, adding that Huawei must operate as normal and find ways to motivate people despite the fact that the firm’s compensation structure will not change in the next three to five years. The onus will be on the reform of human resource policies to recognize the contribution of high calibre employees and accelerate their promotions, while removing positions that are no longer relevant to Huawei’s strategy going forward. On the contrary, the firm can re-absorb experienced but retired employees into a mentorship system to groom young cadres into the organization’s capable leaders, as Huawei plans to delegate more authority to local branches and offices.
Ren emphasizes that “battlefield commands shall be made by those who can hear the sound of gunfire.” He said, “without a central command center, Huawei can fight in a flexible way, and that is the goal of our reform.”
Caught in the eye of the storm, Huawei must find its own direction and a safe passage out.
“The desire to survive cheers us up. Our employees have said, ‘I would rather die one step forward than take half a step back’. We are not discouraged by the current crisis, nor will we resent. The United States is still the beacon of science and technology in the world. We still want to learn everything from advanced communities.”
“Breakthrough innovation will take the combined efforts of the whole world.”
Ren does not believe in independent innovation. Innovation that pushes unexplored frontiers with no precedents nor prior knowledge cannot happen without global collaboration.
“China’s scientific research cannot work without globalization,” Ren said, adding that although now is the time for China to make a significant contribution to science and technology, they must recognize the contributions of their predecessors — the US, Europe, Britain, Russia and Japan, for example — to the prosperity of the world today.
Unlike in the past when a single innovation such as the steam engine, could change the world, technological breakthroughs today have plateaued. Return on investment in technology today, and in the future, will not commensurate with the resources that are ploughed into it.
“Each year, we invest USD 20 billion into research and development (R&D). However, the income is only 40 percent of the input. 60 percent of our investment is burned like candles in the dark,” Ren said. “But we are not complaining. We can bring light to others just like leading European, American, Japanese and Russian businesses did.”
Collaborations between countries will be vital to future breakthroughs. In Ren’s opinion, it will take an entire world to produce a single product, and to shape an industry. For Huawei, this also means to focus its business and R&D strengths by simplifying product lines, such as the recent sale of its budget smartphone business Honor, in order to generate value and create a competitive Huawei ecosystem.
“We must not blindly pursue the Number One position, but we must create value.”
Since the 1990s, Huawei has built strong capabilities in electronic technology and mathematics, which have become the foundation of the firm’s successful products and services in the communication and networks industry. The firm’s R&D strategy revolves around scientific and academic research through partnerships with the world’s top universities and hiring the best talents in the fields of mathematics and electronic engineering. Huawei has always strived to be Number One.
“The times have proven that our strategy in the past was skewed and not completely correct. In fact, our capabilities are far from meeting the needs of actual survival and development,” Ren admitted.
The world of technology has evolved rapidly, where scenario-based applications have become the overarching principles in R&D. For Huawei, the challenge is to leverage its technical excellence to serve real world needs.
“We don’t know what the future will be in scenario-based applications. The road is longer and tougher. We have just taken a small step in the long march,” Ren reflected on how far Huawei has come and the unpaved path that lay before them. “This is the least familiar to us. In scenario-based applications, we must pay attention to customer needs and rely on industry experts. For example, in coal mining, we must explore a way for 5G and artificial intelligence to change society, in order to truly realize the potential of 5G for social change. It is not simply about networks or adding a connection to create a product.”
The firm’s main products must be scenario-based to achieve the best cloud service quality and user experience, so that customers can feel the value. To achieve this, Huawei must gradually shift from sales revenue orientation to increasing the weight of profit assessment in value creation.
“We must gradually shift focus from the top line to the bottom line. All product lines, every region where Huawei is present, must not blindly pursue the Number One position. We don’t have the conditions to always fight to be Number One,” Ren said. “We must create value and reasonable profits to ensure healthy growth.”
Decentralization of its operations will improve the nimbleness of local and regional offices in responding to market demands, to provide outstanding service at the frontline of value creation.
Uncertainties and opportunities under the Biden Administration
It is still early to tell if Huawei’s woes might dissipate under the Biden Administration. President Biden’s Commerce nominee Gina Raimondo recently revealed to the press that she would review sanctions against Huawei, suggesting that things could change for the Chinese technology giant under the new US administration.
Huawei is certainly not resting on its laurels. Apart from building new capabilities in chip manufacturing and designing its own operating system, HarmonyOS, Huawei is bolstering its competency in new categories, such as cloud services and connected cars. Like “a seagull in stormy weather, flying against the gale, dodging lightning, striving to advance until its triumphant cry is heard,” Huawei will march on against all odds.
A confident Ren believed, “Stars do not abandon the night, time will reward those who fight.”