Huawei

Early years[edit]

In the 1980s, the Chinese government endeavored to overhaul the nation's underdeveloped telecommunications infrastructure. A core component of the telecommunications network was telephone exchange switches, and in the late 1980s, several Chinese research groups endeavored to acquire and develop the technology, usually through joint ventures with foreign companies.


Ren Zhengfei, a former deputy director of the People's Liberation Army engineering corps, founded Huawei in 1987 in Shenzhen. The company reports that it had RMB 21,000 (about $5,000 at the time) in registered capital from Ren Zhengfei and five other investors at the time of its founding where each contributed RMB 3,500.^[38] These five initial investors gradually withdrew their investments in Huawei. The Wall Street Journal has suggested, however, that Huawei received approximately "$46 billion in loans and other support, coupled with $25 billion in tax cuts" since the Chinese government had a vested interest in fostering a company to compete against Apple and Samsung.^[9][39]


Ren sought to reverse engineer foreign technologies with local researchers. China borrowed liberally from Qualcomm and other industry leaders (PBX as an example) in order to enter the market. At a time when all of China's telecommunications technology was imported from abroad, Ren hoped to build a domestic Chinese telecommunications company that could compete with, and ultimately replace, foreign competitors.^[40]


During its first several years the company's business model consisted mainly of reselling private branch exchange (PBX) switches imported from Hong Kong.^[41][42] Meanwhile, it was reverse-engineering imported switches and investing heavily in research and development to manufacture its own technologies.^[41] By 1990 the company had approximately 600 R&D staff and began its own independent commercialization of PBX switches targeting hotels and small enterprises.^[43]


In order to grow despite difficult competition from Alcatel, Lucent, and Nortel Networks, in 1992 Huawei focused on low-income and difficult to access market niches.^[37]: 12 Huawei's sales force traveled from village to village in underdeveloped regions, gradually moving into more developed areas.^[37]: 12


The company's first major breakthrough came in 1993 when it launched its C&C08 program controlled telephone switch. It was by far the most powerful switch available in China at the time. By initially deploying in small cities and rural areas and placing emphasis on service and customizability, the company gained market share and made its way into the mainstream market.^[44]


Huawei also won a key contract to build the first national telecommunications network for the People's Liberation Army, a deal one employee described as "small in terms of our overall business, but large in terms of our relationships".^[45] In 1994, founder Ren Zhengfei had a meeting with General Secretary of the Chinese Communist Party Jiang Zemin, telling him that "switching equipment technology was related to national security, and that a nation that did not have its own switching equipment was like one that lacked its own military." Jiang reportedly agreed with this assessment.^[41]


In the 1990s, Canadian telecom giant Nortel outsourced production of their entire product line to Huawei.^[46] They subsequently outsourced much of their product engineering to Huawei as well.^[47]


Another major turning point for the company came in 1996 when the government in Beijing adopted an explicit policy of supporting domestic telecommunications manufacturers and restricting access to foreign competitors. Huawei was promoted by both the government and the military as a national champion, and established new research and development offices.^[41]