Filtrado de paso alto y escalamiento ascendente

Arrogant Multinational Giants

In the 1980s, China was at the forefront of revival. Revitalization was a buzzword in the political and media spheres in a country eager to recover from political tragedy. Revival was the shared aspiration of people at all levels of society.

At that time, economic activity had been suspended for decades and the social system was almost dead. The thundering call of Deng Xiaoping to reform and open up awakened the entire country, releasing its productive power and setting people free from rigid controls. The country had taken on a completely different appearance not long after the reform program started. Economic development was a mega trend, and speed and effi- ciency were defining the daily life of a billion people.

Lamentably, however, infrastructure projects, such as power, trans- portation, and telecommunications, lagged far behind, with telecom- munications being the most underdeveloped. In 1978, China had only a 4.05 million line switching capacity and 2 million telephone subscribers; the telephone penetration rate was 0.38 percent, ranking over 120 in the

world, and lower than the average rate of African countries. A telephone was a luxury, to which only the privileged class in China had access; this being more than a century after Alexander Bell invented the telephone!

The extreme inadequacy of communication facilities was a bottle- neck in the development of China’s national economy. It became stra- tegically imperative to build telecom facilities on a large scale; however, the country did not have one decent telecom equipment manufacturer. For this reason, the country adopted a policy of “exchanging the market for technologies,” which meant opening up its telecom market to foreign companies. Fortunately, the opening-up policy coincided with a global IT revolution, enabling China to progress rapidly with its telecom infrastruc- ture and acquire the most advanced telecom technologies.

In retrospect, the decision to exchange its market for technologies was timely and visionary. The automotive industry in China, in contrast, has suffered from market protectionism and has never really caught up with the leaders.

It is painful to open the door, of course. When foreign companies entered the Chinese market, they charged high prices but offered little to no service. For example, a private branch exchange (PBX) line is now worth US$10, but in the late 1970s was US$500. Chinese customers also had to wait lengthy periods for the product to be delivered and installed: Sellers were the lords. This is absurd logic in any Western country that boasts a long commercial tradition, but this logic prevailed in the Chinese telecom market in the 1980s. At first, there were eight companies from seven countries, and then nine companies from eight countries in the Chinese telecom market: Fujitsu and NEC from Japan, Ericsson from Sweden, Bell from Belgium, Alcatel from France, Siemens from Germany, AT&T (whose network division later became the independently operated Lucent Technologies) from the United States, Northern Telecom from Canada (later becoming Nortel after market consolidation), and Nokia from Finland. Most of them were already century-old companies at the time, and each acted like a victorious conqueror in China, selling prod- ucts at high prices.

The Destiny of a Generation

China has rapidly developed its telecom infrastructure at considerable but necessary cost, and policymakers have initiated strategies to develop the communications manufacturing industry at the right time. In the mid-1980s,

over 400 Chinese telecom manufacturers sprung up, including private companies, state-owned enterprises (SOEs), and other types.

The dominant SOEs were Great Dragon, Datang, and ZTE. Born in 1953, the former military official Wu Jiangxing founded Great Dragon, later emerging as the “national hero of the telecom sector” and “father of the Chinese large-capacity program control switch” before settling in as the Major General of a military institute. Datang was founded by Zhou Huan. Born in 1944, the former official of the Post and Telecom Ministry of China is now dean of the China Academy of Telecommunication Research under the Ministry of Industry and Information Technology. ZTE was founded in 1985 in Shenzhen by Hou Weigui, who was born in 1942, and previously served as a technology officer of the 691 Factory under the former Ministry of Aviation and Aerospace of China. There is no doubt that each of these SOEs was committed to a national mission: developing China’s communications industry to challenge Western giants!

This did not mean that private companies were not aware of this mis- sion. In 1987, Ren Zhengfei founded Huawei, with the aim of becoming the backbone of China’s communications industry.

This aim to advance the country is the shared aspiration of his par- ticular generation. Entrepreneurs born in the 1940s and 1950s embody many traits: patriotism, idealism, sense of mission, integrity, desire for leadership, and dedication. They were full of passion inside, with an incli- nation to break established rules. Whenever they were given a bit of hope, even slim ones, they would choose to challenge the reality. The founders of the four major Chinese telecom manufacturers—Great Dragon, Datang, ZTE, and Huawei—all represent these characteristics and ambitions.

Regretfully, such passion has almost died in China.

Survival of the Fittest

In retrospect, one cannot help but pay tribute to old-school entrepreneurs who acted like Don Quixote. At their inception, the four major Chinese telecom manufacturers were hungry for funding, technology, and talent. Even government-sponsored enterprises ran into difficulty from time to time, as surely did Huawei, a private company with initial working capi- tal of just CNY20,000. Each of these Chinese enterprises had to compete with the toughest rivals in the world.

Eight of the nine international communications manufacturers doing business in China were over a century old at the time. In comparison,

Chinese telecom companies were like newborn calves, far smaller than the Western elephants; however, these calves fought boldly with the elephants. Of course, the law of the jungle is brutal, and the four major Chinese telecom manufacturers grew on the backs of hundreds of smaller peers killed by the Western elephants. Even Great Dragon, the forerunner of Chinese telecom companies, eventually fell.

Nevertheless, the tables have turned. Two decades later, the Chinese telecom industry has ascended to one of the top three, alongside the United States and Europe. During this period, Chinese telecom compa- nies have grown from strength to strength and expanded into the global arena, startling the Western giants. At the same time, many Western giants have either merged or collapsed. Only a few, Ericsson for example, can compete with “Chinese ghosts” like Huawei and ZTE. In 2010, Huawei ranked No. 397 on the list of Fortune 500 companies and was the only privately owned Chinese company to make the register. In the global tele- com industry, Huawei was second only to Ericsson and the margin was a mere US$2.8 billion in sales.

“We don’t want to become the world’s number one, but we have to walk on the road to becoming number one,” said Huawei Chairwoman Sun Yafang.

Ren Zhengfei’s prediction that Huawei would become one of the world’s top three telecom manufacturers has come true. His top priority now is to slow down and create a sound business ecosystem.