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Huawei's Ally: IBM
U.S. Giant Has Been a Key Partner of Controversial Firm
By SPENCER E. ANTE
Congressional critics allege Huawei Technologies Co. relied on state support
and stolen technology to become the world's second-largest provider of
telecom equipment. Another factor has been crucial to Huawei's rise, say the
Chinese company's executives: IBM IBM -0.87% .
Huawei has long denied claims of bad behavior. But its practices have risen
to the fore since it emerged from obscurity in the past decade to become a
potent force in the telecom-equipment business.
U.S. government concerns culminated this week in a report by the House
intelligence committee that labeled the company a security threat and warned
U.S. telecom companies against doing business with it.
Huawei has pointed to its relationships with companies like International
Business Machines Corp. to explain its expansion. In an interview earlier
this year, Huawei's senior vice president for the U.S., Charles Ding, said
his company had worked closely with IBM since 1997, and that the U.S.
company has played a key role in Huawei's success. Without IBM, Mr. Ding
said, "We could not have had the Huawei of today."
More on Huawei
Huawei's Business Grows in Canada
In its report, the House panel said Huawei only provided a vague description
of the advice it got from IBM and other consultants, rejecting Huawei's
claim that its success was due in part to those relationships. IBM declined
to discuss its relationship with Huawei in detail, saying only that it
provides consulting for thousands of clients across the globe.
On Tuesday, China's commerce ministry said the report's conclusions were
groundless and could hurt relations between China and the U.S.
IBM helped teach Huawei Western management techniques and packaged its
technology with the Chinese company's products, helping Huawei evolve from a
local player into a global competitor, according to Huawei executives and
public documents. Its consultants have worked with Huawei since the late
1990s and continue to assist it with important initiatives.
In 2000, the companies announced a plan to jointly develop networking gear.
Last year, IBM advised Huawei on its expansion into selling smartphones and
tablets, which in 2011 accounted for about a fifth of the Chinese company's
revenue.
Huawei says it also has hired consultants from Accenture ACN -0.90% PLC, the
Boston Consulting Group, PricewaterhouseCoopers, Mercer LLC and Hay Group,
spending $400 million over the past five years to help upgrade its
management processes.
Boston Consulting Group, Mercer and PricewaterhouseCoopers said they wouldn'
t discuss client relationships. Accenture and Hay Group didn't respond to
requests for comment.
Stephane Richard, Chief Executive of France Télécom SA, a Paris-based
telecom carrier with operations in 33 countries, said Western-style
management and customer relations have made Huawei a tough competitor. "They
are quite impressive at research and development," Mr. Richard said. "They
have very strong management."
U.S. companies have aggressively targeted China over the past decade in
search of fast-growing markets for their products and services. But close
ties between the Chinese state and commercial activity have created some
hard choices for multinational companies.
Companies such as General Electric Co. GE -1.31% and General Motors Co. GM -
0.81% have had to contribute valuable assets and technology to participate
in markets such as aviation and automobiles that China considers critical to
its economy. Google Inc. GOOG -1.81% lost market share after moving its Web
- search and other services to Hong Kong to avoid complying with China's
censorship policies.
Huawei's main business is selling the gear that keeps telecom networks like
cellphone systems up and running. The House panel's fear is that China's
military could tamper with that gear and use it to disrupt or intercept U.S.
communications.
Huawei has repeatedly denied having ties to the military and has offered to
open its gear to inspection by third parties, but the allegations have been
hard to shake. In Monday's report, the House panel recommended that the U.S.
government and U.S. companies avoid using equipment from Huawei or another
Chinese supplier, ZTE Corp. 000063.SZ -0.44%
The report caps a year of strained trade relations between the two countries
. China's trade practices have become an issue in the election race between
President Barack Obama and Republican challenger Mitt Romney.
In an Internet ad unveiled this week, the Obama campaign attempted to tie Mr
. Romney—through his former buyout firm, Bain Capital—to a deal Huawei
failed to complete to acquire a U.S. company.
China's statement Tuesday was its strongest yet about the congressional
report. Shen Danyang, a spokesman for the commerce ministry, said the report
was "merely based on subjective conjecture and untrue foundations, and made
groundless accusations against China."
White House spokeswoman Caitlin Hayden said the administration is reviewing
the report, and has been "working closely with the telecommunications
industry to identify national-security risks."
"We are committed to being vigilant to ensure that our national security
interests are protected," she said.
The political debate obscures the complexities of globalized business, where
companies have to juggle a variety of interests.
Early in Huawei's development, Huawei founder Ren Zhengfei hired IBM for
help setting up core functions, including research and development, product-
development, supply-chain and financial management, Mr. Ding said. IBM sent
around 200 consultants to the company to work on the projects, he said.
IBM was in the middle of its own turnaround under Chief Executive Louis V.
Gerstner, whose plan centered on turning the computer company into a global-
services giant.
Huawei, meanwhile, was one of several Chinese companies focused on selling
phone equipment in rural areas. In 1998, it expanded to China's cities. In
the next two years, it established research centers in Bangalore, India, and
in Stockholm, a classic IBM technique that helped Huawei get closer to
potential new customers.
In September 2000, IBM announced an agreement with Huawei to "accelerate the
introduction of Huawei's high-performance network communication systems."
Under the deal, IBM provided computer chips and other sophisticated
technology for Huawei's routers, and optical-transmission systems. The two
companies also set up a joint R |
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