Huawei's Ally: IBMs Ally IBM.pdf10/13/12 Huawei's Ally: IBM ‑ WSJ.com...
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10/13/12 Huawei's Ally: IBM ‑ WSJ.com 1/4 …wsj.com/…/SB10000872396390443294904578046872036296296‑lMyQjAxMTAyMDEwMDAxODA3… Subscribe Log In U.S. EDITION Wednesday, October 10, 2012 As of 3:27 PM EDT Video Stock Quotes Comments (29) MORE IN ASIA » Powered by Taboola Most Popular 1. Opinion: Jack Welch: I Was Right About That Strange Jobs Report 2. Justices Clash on Affirmative Action 3. U.S. Scientists Win Chemistry Nobel 4. Toyota Issues Global Recall 5. Armstrong Blamed for 'Doping Culture' Most Read Articles Feed Don't Miss More in Asia Telecom Industry Watches China Fears of New Bali Threat China Car Sales Fall Singapore's Push for Preservation Singapore Looks North for Expansion Latest Headlines U.S. Security Cut Before Libya Raid Race Tightens in Two States Romney Outspends Obama Justices Clash on Affirmative Action Armstrong Blamed for 'Doping Culture' ASIA BUSINESS Updated October 10, 2012, 3:27 p.m. ET Huawei's Ally: IBM U.S. Giant Has Been a Key Partner of Controversial Firm Asia China Hong Kong Japan India SE Asia Europe U.K. Russia Middle East Africa Canada Latin America World Markets Censorship Inc. 1 of 12 Silver Lining in Spain's Ratings Cut 2 of 12 Iran Economy Seen Worsening 3 of 12 EU Puts Squeeze on Iran Regime Cri Fru Pac Article Huawei Technologies Deemed National Security Threat 03:24 Apple, Huawei and Sprint all make news in this week's top tech stories. 06:38 How IBM Is Helping China's Huawei 18:33 Read Emailed Video Commented Home World U.S. New York Business Tech Markets Market Data Opinion Life & Culture Real Estate Careers TOP STORIES IN World More on Huawei Huawei Grows in Canada Huawei Report Could Harm U.S.China Relations By SPENCER E. ANTE Congressional critics allege Huawei Technologies Co. relied on state support and stolen technology to become the world's secondlargest provider of telecom equipment. Another factor has been crucial to Huawei's rise, say the Chinese company's executives: IBM IBM +0.99% . 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 telecomequipment 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." 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 Congressional critics say Huawei relied on state support and stolen technology to become a major telecomgear provider. Another factor has been key to Huawei's rise, say the Chinese company's executives: IBM. Andrew Dowell reports on digits. (Photo: Getty Images) Email Print Tweet Tweet 162 News, Quotes, Companies, Videos SEARCH
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ASIA BUSINESS Updated October 10, 2012, 3:27 p.m. ET
Huawei's Ally: IBMU.S. Giant Has Been a Key Partner of Controversial Firm
Asia China Hong Kong Japan India SE Asia Europe U.K. Russia Middle East Africa Canada Latin America World Markets Censorship Inc.
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Silver Lining inSpain's Ratings Cut
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Iran Economy SeenWorsening
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Article
HuaweiTechnologiesDeemed NationalSecurity Threat03:24
Apple, Huawei andSprint all makenews in this week'stop tech stories.06:38
How IBM Is HelpingChina's Huawei18:33
Read Emailed Video Commented
Home World U.S. New York Business Tech Markets Market Data Opinion Life & Culture Real Estate Careers
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World
More on HuaweiHuawei Grows in CanadaHuawei Report Could Harm U.S.ChinaRelations
By SPENCER E. ANTE
Congressional critics allege Huawei Technologies Co. relied on state support and stolentechnology to become the world's secondlargest provider of telecom equipment.Another factor has been crucial to Huawei's rise, say the Chinese company'sexecutives: IBM IBM +0.99% .
Huawei has long denied claims of bad behavior. But its practices have risen to the foresince it emerged from obscurity in the past decade to become a potent force in thetelecomequipment business.
U.S. government concerns culminated this week in a report by the House intelligencecommittee that labeled the company a security threat and warned U.S. telecomcompanies against doing business with it.
Huawei has pointed to its relationshipswith companies like InternationalBusiness Machines Corp. to explain itsexpansion. In an interview earlier thisyear, Huawei's senior vice president forthe U.S., Charles Ding, said his companyhad worked closely with IBM since 1997,and that the U.S. company has played akey role in Huawei's success. WithoutIBM, Mr. Ding said, "We could not havehad the Huawei of today."
In its report, the House panel saidHuawei only provided a vague descriptionof the advice it got from IBM and otherconsultants, rejecting Huawei's claim thatits success was due in part to thoserelationships. IBM declined to discuss its
relationship with Huawei in detail, saying only that it provides consulting for thousandsof clients across the globe.
On Tuesday, China's commerce ministry said the report's conclusions were groundlessand could hurt relations between China and the U.S.
IBM helped teach Huawei Western management techniques and packaged itstechnology with the Chinese company's products, helping Huawei evolve from a local
Congressional critics say Huawei relied on statesupport and stolen technology to become a majortelecomgear provider. Another factor has been key toHuawei's rise, say the Chinese company's executives:IBM. Andrew Dowell reports on digits. (Photo: GettyImages)
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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 itwith 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 in2011 accounted for about a fifth of the Chinese company's revenue.
Huawei says it also has hired consultants from Accenture ACN 0.00% PLC, the BostonConsulting 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'tdiscuss client relationships. Accenture and Hay Group didn't respond to requests forcomment.
Stephane Richard, Chief Executive of France Télécom SA, FTE.FR 1.11% a Parisbased telecom carrier with operations in 33 countries, said Westernstyle managementand customer relations have made Huawei a tough competitor. "They are quiteimpressive at research and development," Mr. Richard said. "They have very strongmanagement."
U.S. companies have aggressively targeted China over the past decade in search offastgrowing markets for their products and services. But close ties between theChinese state and commercial activity have created some hard choices for multinationalcompanies.
Companies such as General Electric Co. GE 0.13% and General Motors Co.GM 0.89% have had to contribute valuable assets and technology to participate inmarkets such as aviation and automobiles that China considers critical to its economy.Google Inc. GOOG 0.90% lost market share after moving its Web search and otherservices to Hong Kong to avoid complying with China's censorship policies.
Huawei's main business is selling the gear that keeps telecom networks like cellphonesystems up and running. The House panel's fear is that China's military could tamperwith 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 itsgear to inspection by third parties, but the allegations have been hard to shake. InMonday'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 5.15%
The report caps a year of strained trade relations between the two countries. China'strade practices have become an issue in the election race between President BarackObama 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 toacquire a U.S. company.
China's statement Tuesday was its strongest yet about the congressional report. ShenDanyang, a spokesman for the commerce ministry, said the report was "merely basedon subjective conjecture and untrue foundations, and made groundless accusationsagainst China."
White House spokeswoman Caitlin Hayden said the administration is reviewing thereport, and has been "working closely with the telecommunications industry to identifynationalsecurity risks."
"We are committed to being vigilant to ensure that our national security interests areprotected," she said.
The political debate obscures the complexities of globalized business, wherecompanies have to juggle a variety of interests.
Early in Huawei's development, Huawei founder Ren Zhengfei hired IBM for help settingup core functions, including research and development, productdevelopment, supply
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chain and financial management, Mr. Ding said. IBM sent around 200 consultants to thecompany 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 globalservices giant.
Huawei, meanwhile, was one of several Chinese companies focused on selling phoneequipment in rural areas. In 1998, it expanded to China's cities. In the next two years, itestablished research centers in Bangalore, India, and in Stockholm, a classic IBMtechnique that helped Huawei get closer to potential new customers.
In September 2000, IBM announced an agreement with Huawei to "accelerate theintroduction of Huawei's highperformance network communication systems." Under thedeal, IBM provided computer chips and other sophisticated technology for Huawei'srouters, and opticaltransmission systems. The two companies also set up a joint R&Deffort to make their technologies work more closely together.
The agreement helped to speed up Huawei's product development and win orders fromEurope, Mr. Ding said. In 2001, Huawei won its first contracts with telecom providers inSpain and Germany.
Between 2003 and 2005, Huawei established itself as a top player in the globaltelecomequipment market, competing against established incumbents such asEricsson and Alcatel SA, ALU.FR +6.80% which later merged with Lucent.
Huawei scored deals with major telecom operators in Brazil, South Korea, LatinAmerica and Europe. By 2006, international sales represented 65% of the company's$11 billion in revenue. Western consultants are now helping Huawei expand into newlines of business. In 2010, Huawei said it teamed with IBM and Accenture to design anoutsourcing business process aimed at managing networks for telecom providers, agrowing industry trend.
Last September, Huawei hired consultants from IBM for advice on branding its nascentcellphone business, part of a consumer unit that accounted for 21% of the company's$32.4 billion in sales last year.
In February, at a big wirelessindustry trade show in Barcelona, Huawei announced astrategic partnership with IBM Global Business Services in China to develop technologyallowing workers to access email and business software over their mobile devices, afastgrowing new line of business in corporations.
Trevor Healy, a former executive at Spanish telecom operator Telefónica SA,TEF.MC 0.54% said that Huawei's adoption of modern management techniques fromWestern companies puts the U.S. government in a slightly awkward position.
"You cannot teach people how to go to market and then complain when they go tomarket," said Mr. Healy, now CEO of wireless advertising firm Amobee.
—Siobhan Gorman and Paul Mozur contributed to this article.
Write to Spencer E. Ante at [email protected]
A version of this article appeared October 10, 2012, on page B1 in the U.S. edition of The Wall StreetJournal, with the headline: Huawei's Ally: IBM.
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