Huawei is eschewed in West, but Chinese company might not need to be there
AT THE heart of concerns about Huawei Technologies’ expansion is the Chinese giant’s role in global telecom infrastructure. Sceptics charge that the company’s relationship with Beijing makes it a tool for Chinese espionage. That’s a valid concern.
In its 2015 annual report, rotating CEO Guo Ping made a bold assertion about Huawei’s global reach:
Our 4G equipment was widely deployed around the world and is now being used in the capital cities of over 140 countries.
At the time, Huawei had just reported revenue growth of 23 per cent in its carrier business, which supplies networking equipment. That was the strongest pace in at least five years, driven by demand for 4G networks that offer faster downloads.
Yet Huawei’s networking business has been a perpetual laggard, and its growth outside China has been lacklustre. Data from the past seven annual reports show that the company is struggling to globalise its equipment business, or even eke out growth from that division. Strong numbers in 2015 and 2016 belie an otherwise weak growth rate.
Last year, the carrier division accounted for less than half of sales, from 74 per cent in 2011, while more than 50 per cent of Huawei’s revenue came from its home country, compared with 32 per cent six years prior.
This tells us that moves to block Huawei equipment in developed countries including Australia, New Zealand, Japan, the US and the UK are unlikely to bring the company to its knees. Put simply, they were never target markets anyway.
Instead, developing markets in Asia, the Middle East and Africa are ripe for the taking. It’s no coincidence that some governments in these nations are less sensitive to privacy concerns. They’re also regions where Beijing seeks to project its position as an emerging global power.
Many such markets also have large populations. The cost of equipment to connect 200 million consumers to mobile data in a rich and a poor nation doesn’t vary in proportion to their GDP per capita, making such emerging markets as potentially lucrative as a developed market. Losing Japan or Britain due to espionage concerns is a blow, but by no means fatal.
The advent of 5G, which focuses on data and connecting machines to the internet, potentially afforded Huawei a fresh opportunity to make it in the West. But that door was merely ajar, not open.
Other nations are on the fence. India’s Reliance Jio Infocomm went all in with equipment newcomer Samsung Electronics for its 4G networks, and it is likely to tap the South Korean giant for 5G.
That opened up the prospect that Huawei was no longer needed as a cheaper alternative to European players Ericsson and Nokia, meaning the government might block the Chinese company outright. — Bloomberg