China’s Huawei Eager To Enter U.S. Market
Tue, 04/22/2008 - 6:30am
LAS VEGAS (AP) -- While many of the high-tech goods found in U.S. stores are ''Made in China,'' most are designed and marketed by U.S. companies.
But a handful of large Chinese companies are trying to establish their own brands in the United States, including Huawei Technologies Co. While the maker of cell phones and equipment for telecom carriers hasn't hit the big time yet, it's determined to get there, overcoming early missteps with products that copied another company's designs, and a recent hurdle in the shape of U.S. national security concerns.
With the Chinese economy blossoming, Huawei could be a forerunner of a wave of Chinese companies bringing cheap products and competition for incumbent manufacturers -- in Huawei's case, companies like Alcatel-Lucent, Cisco Systems Inc. and Nortel Networks Corp.
Much like Japanese companies that entered the U.S. in the 1980s, Chinese firms are quickly ramping up their investment in the U.S. There are now 3,500 Chinese investment projects in the U.S. and Canada, more than double the number five years ago, according to an estimate by Maryville University professor Ping Deng.
But getting into the U.S. high-tech industry can be tough for a newcomer. In an interview, Charlie Chen, Huawei's senior vice president for marketing and product management in the U.S., said his company consciously saved the huge U.S. market for last, to give it time to polish its products and build a reputation.
''U.S. operators have very high requirements,'' Chen said.
Founded in 1988, Huawei became one of the biggest telecom gear suppliers in China before launching into emerging countries, where low prices are the key to sales. It then entered Europe, where it has landed orders with top carriers like BT Group PLC, also known as British Telecom, and Vodafone Group PLC.
The U.S. government raised an obstacle earlier this year, blocking a deal that would have Huawei buy a stake in 3Com Corp., a Marlborough, Mass.-based maker of networking equipment that supplies the Defense Department.
Chen said the deal, which involved Bain Capital as the main acquirer, was beset by ''rumors and misunderstandings'' about Huawei: That it was owned by the Chinese military and that it had strong connections to the Chinese government.
In fact, Huawei is fully owned by its Chinese employees, Chen said, under an Employee Stock Ownership Plan similar to the one used by some U.S. companies. Its founder is a former officer of the Chinese army, but owns less than 2 percent of the company.
In any case, the 3Com deal would hardly have been a big break for Huawei. Rather, the acquisition bid may have been a way for Huawei to get a stake back in 3Com's China-based division, which makes routers for wired networking. That division was once a 3Com-Huawei joint venture, before it was bought out by 3Com. Huawei is now a big customer of the division.
Lenovo Corp., which bought IBM Corp.'s PC division in 2005 to become the most visible Chinese company in the U.S. high-tech market, has also had to address security concerns from time to time.
Huawei first came to the attention of U.S. engineers when Cisco Systems Inc. sued it in 2003 for copying its routers, down to their programming bugs and technical manuals. Huawei agreed to settle the case and revise its products.
Now, the company is trying to build a reputation for innovation, and for standing on its own legs when it comes to design. Chen emphasized that of its 70,000 employees, half are in research and design.
From its base in China, Huawei is now using a deliberate, three-step strategy to breach the U.S. market: First get a foot in the door, then land some contracts, and last get accepted by the four Tier 1 cellular carriers: AT&T Inc., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA.
''Right now we're between steps two and three,'' said Chen. ''We see more and more trust from our customers.''
Customers of regional carrier Leap Wireless may already have had their calls connected by Huawei's gear. Two other regional carriers, MetroPCS Communications Inc., and Alltel Corp., sell its cell phones and data cards. It has a minor joint venture with Motorola Inc.
The company's eagerness to break into the core of the U.S. market was evident at the CTIA Wireless industry show in Las Vegas earlier this month. The company was one of the big advertisers at the show, with large banners, big-screen video ads in the keynote hall, and advertorials in trade publications.
X.J. Wang, vice president of Asia-Pacific research at analysis firm Yankee Group, said the company's technology is now world-class, and its relatively low-cost China-based staff means it can assign large numbers of engineers to solve problems for customers.
With all but 15,000 of its employees in China, Huawei can undercut established suppliers on price, said analyst Nadine Manjaro at ABI Research.
But low prices aren't going to bust open the U.S. market for wireless gear, the analysts said. The carriers look to the long term, and want partners they can trust to stick around and support the products.
Chen agreed. ''When big operators select a vendor, they don't select on price,'' he said.
Huawei needs to expand its U.S. personnel, Wang said. They're now less than 300 people, with a headquarters in Richardson, Texas.
''In order for Huawei or any other Chinese company to break into the market, not only do they need good technology, but they also need to understand the cultures here ... at a very senior level, at chief executive level,'' Wang said. ''You have to do it in the U.S. way.''
At Alltel, chief marketing officer Frank O'Mara said Huawei had been very eager to meet the company's requests for changes to the broadband card it buys from the company. It is now Alltel's biggest-selling laptop card.
''They could be a huge player in the wireless industry in the next three to five years,'' O'Mara said.