Monday, June 27

Shunned by the West, Huawei explores alternative paths

By: Anton Kozyrev

With the ever-escalating trade war with the People’s Republic of China, crackdowns on Chinese companies and entities are on the rise. Technological behemoth Huawei Technologies is no different. Within the past year, many Western governments have declared Huawei an agent of the Chinese Communist Party (CCP), and have therefore taken strong stances in order to restrict Huawei’s access to broader markets. 

In fact, the BBC reported in an October 8, 2020 article by Gordon Corera titled “Huawei: MPs claim ‘clear evidence of collusion’ with Chinese Communist Party,” various European parliamentary committees have continued to assert the existence of links between the CCP and Huawei. This, coupled with forceful tactics and language from the United States, has pushed Huawei out of key markets that it dearly sought to expand into.

Not only is Huawei a major player in the consumer-electronics industry, but it is also a key force in telecommunications equipment. Specifically, Huawei has set its sights on becoming the next leader and pioneer in the expansion and rollout of 5G internet technologies over the next decade. The withdrawal of Huawei from the global stage — and the subsequent stifling of its ambitions to become the globally-dominant 5G internet provider — provides a massive opportunity for U.S. and European-led companies.

According to Forbes Magazine, Huawei’s absence from key markets in Asia, Latin America, and Europe leaves a $27 billion opening for other companies – and, of course, a subsequent $27 billion loss for Huawei. The question on many people’s minds – from Huawei leadership to top U.S. economists – concerns what the ramifications are of Huawei’s withdrawal and if Huawei has any strong, viable options.

One resource that has been integral to Huawei’s 5G ambitions is access to semiconductor chips. However, under the Trump-led U.S. administration, Huawei’s access to semiconductors containing U.S. components has been all but curtailed, effectively putting a stop in the Chinese company’s plans. In anticipation of punitive measures, Huawei had stocked billions of dollars’ worth of semiconductor chips, but Forbes reports that this will only be sufficient to last Huawei a year, at maximum.

The key for Huawei executives at this point is to try to find a way around the growing U.S. and European barriers and restrictions in order to continue to expand. However, many have doubts about a viable path forward for Huawei, particularly in the United States.

Dr. William C. Kirby is the Spangler Family Professor of Business Administration, T.M. Chang Professor of China Studies, and Chairman of the China Fund at Harvard Business School. He posed several key points concerning Huawei’s future. According to Kirby, Huawei is a “technology company caught in the crossfire of a technology war,” placing it in a similar situation to other entities such as the popular apps WeChat and TikTok. He adds that it is “a victim of declining relations between China and the rest of the world,” showing a lack of trust between China and other global powers such as the U.S., Australia, Germany, the U.K., and Canada.

“The bad news for Huawei is that their steps forward in the United States are very few. A new American administration that may want to regularize relations with China — making it more predictable —  might be able to come to some kind of an accomodation,” Kirby said.

While there is an apparent domestic benefit to pushing out Huawei — particularly from a security standpoint — it is important to consider what Western telecommunications markets are missing without Huawei’s presence. Specifically, Huawei’s lower-cost alternative to internet service may have served to democratize the internet to an extent.

“Potentially, Huawei brought real benefits by having outstanding service at a lower cost than any of its … more expensive, international European competitors,” Kirby said.

He adds that Huawei already has systems in place in rural parts of the U.S.; areas that are not always viable from a business standpoint for most telecommunications companies and would have been otherwise unlikely to receive internet service investment.

In addition, it is important to consider a key fundamental principle of competitive markets – the old adage that competition spurs innovation.Without the presence of Huawei and its massive expansion into 5G internet technologies, domestic companies such as Verizon will not be as incentivized to develop 5G technology. Of course, this doesn’t harm the company – but it does harm the consumer, and the consumer’s lack of access to innovative technologies.

And now, the big question. Does this backlash against Huawei spell the end for the Chinese company? Not likely. Huawei has delivered a strong performance with regard to its expansion into countries closer to China both geographically and politically, such as Russia, several central Asian countries, and African countries. This is, of course, to say nothing of its access to the entire Chinese market. In fact, according to Huawei’s 2019 annual report, its revenue from actual consumer electronics outstrips that of its revenue from cellular service at a rate of 2:1 – meaning that the company is somewhat less dependent on successful sales of telecommunications technologies.

What will Huawei try to do? While they try to envision a path forward in Western Europe and the U.S. — perhaps by employing more lobbying efforts to sway the minds and assuage the fears of the public — Huawei will continue to expand and focus on the markets it already has access to. In the near future, it is very likely that Huawei will intensify efforts in southeast Asia, hoping to eventually have the market share of all of Asia – with, of course, the notable exception of India for geopolitical reasons. Whether Huawei succeeds in expanding into Western economies will greatly depend on key political factors, from China’s recent assertive tone to the ramifications of the 2020 U.S. presidential election.