Huawei Technologies Co., Ltd, the world’s largest network, telecommunications equipment, and services company is once again under US government scrutiny, this time for alleged violations against US-Iran trade sanctions. Just days ago, a similar charge was leveled at ZTE, another major player in China’s telecommunications industry.
On Tuesday, the American Federal Communications Commission moved to ban US telecommunication carriers from buying and using technology produced by foreign companies perceived as threatening to American digital security and intellectual property wellbeing. Though not mentioned directly, the rule no doubt targets Huawei, which has faced numerous run-ins with American legal authorities over the past decade ranging from accusations of infringing upon U.S. patent laws, to engaging in corporate espionage, to mishandling trade secrets.
Huawei was dealt another major blow in January 2018 when the American cellular carrier AT&T backed out of a large-scale agreement to sell the Mate 10, a flagship Huawei smartphone, only days before a Huawei’s CES conference and product distribution were set to take place. By that time, the Shenzhen-based firm had invested millions of dollars in marketing and distribution logistics. To make matters worse, electronics retailer Best Buy, which historically sold unlocked Huawei phones to be used on American GSM networks, recently announced it would no longer sell the company’s devices amid mounting government pressure and growing public skepticism within the American consumer market.
A global company with government roots
Founded in 1987 in Shenzhen, Huawei has grown by leaps and bounds to become the USD $92.5 billion telecommunications juggernaut it is today. While once a domestic-oriented enterprise, Huawei has evolved into a multinational corporation employing more than 180,000 team members and serving more than 3 billions customers worldwide. Huawei is known for it tendency to recruit top talent from competitors and offer products that mimic competitors’ designs and hardware stats at more competitive price points.
Despite Huawei’s efforts to portray itself as a multinational company committed to a global vision, the firm has failed to gain a foothold in the American market where it has struggled to shake its reputation of being overly cozy with the Chinese government. To explain America’s longstanding aversion to Huawei, most point to the company’s founder, Ren Zhengfei, who is widely known as a former People’s Liberation Army officer. However, Ren and his company have always contended that Huawei is 100% employee-owned and has no compromising ties to the Beijing government.
Evidently, American lawmakers are not convinced.
Ren Zhengfei, founder of Huawei. Photo from Baidu Images.
What do the accusations mean for Huawei?
Were the U.S. to find Huawei guilty of violating U.S. trade laws, the firm could be subject to a fine comparable to the record-breaking USD $1.2 billion penalty slapped against ZTE last year for infringing upon U.S. sanctions on North Korea and Iran.
As the US moves to effectively ban large-scale Huawei operations, investors and consumers are left in doubt about the company’s future in America. Huawei has vowed to not yet give up on the US market, but a dramatic reduction to its lobbying budget and departure of 5 senior American team members including external affairs chief William Plummer, the top non-Chinese member of the company’s US operations, suggest otherwise.
When pressed about the US-Huawei relationship at the recent Huawei Global Analyst Summit 2018, chairman Eric Xu commented, “There are things we cannot change its course, and it’s better not to put it on top of your mind. In this way, we have more energy and time to serve our customers, and to build better products to meet the needs of our customers. In some cases, just let it go and we’ll feel at ease.” Many take Xu’s remarks to suggest that the company will look beyond America, a market that has also proven difficult for other Chinese cell phone manufacturers to penetrate.
For the time being, Huawei seems to be looking beyond the U.S. in its global strategy and doing so would allow the firm to allocate more resources to the Canadian and European markets. The company is the third-largest mobile phone manufacturer after Samsung and Apple, and has made tremendous strides in developing countries where consumers are opting for its products over less competitively priced offerings from Apple and Samsung.
What does the FCC’s rule mean for the United States? Many policy experts grow weary of President Trump’s increasingly combative trade stance with China. Some are going so far as to suggest the most recent skirmish signals an impending tech trade war between China and U.S. Yet many American consumers and telecommunication firms applaud the stance held by the FCC and American lawmakers, citing the need to protect and prioritize American businesses in an age of perceived growing Chinese dominance.
Only time will tell, but Huawei’s challenge is clearer than ever: it must prove to the world that it can thrive without a slice of the coveted American market.