Huawei ZTE and other Chinese MNCs have to negotiate their way into overseas markets.
The recent House Subcommittee on Intelligence subcommittee report on Huawei and ZTE makes a great case study for global marketers and cross – border negotiators. The important takeaways, however, are all about how to build an in-house action plan for international expansion.
Lesson One for Chinese corporations seeking to go global: international expansion is hard. Market research, new product development and setting up operations are the easy parts. Bureaucracy and tedious cross culture management are hard. Huawei and ZTE are just now learning what every foreign business entrant to China has already found out the hard way: You can’t ignore the bureaucrats and regulators.
Not protectionism or nationalism – this time.
Pundits and netizens trying to blow this up into a political event are off base. It’s not that nationalism and protectionism aren’t on the rise in the US (they may very well be) – but that the Huawei case is a terrible example. The House Intelligence investigation is not a criminal hearing – it never was and wasn’t meant to be. No one has to prove Huawei’s guilt, and no one is asking the company to prove its innocence. It is, however fair to ask the company to demonstrate both its intention and ability to safeguard the privacy and wellbeing of US citizens that use its services within the US. Lack of transparency is a pretty good proxy for questionable intent. It is commendable that Huawei has made more of an effort to be open, but it’s too little and too late for the industry it wants to be in. Huawei isn’t a restaurant that can open the kitchen or submit to inspections. Its stock in trade is chips and code. If you can’t trust the ownership then you don’t trust the company — and no one understands the company’s ownership structure .
Persuading regulators you aren’t a risk
The risk isn’t what the North American country head of Huawei will do tomorrow – it’s what some unknown Chinese official will instruct some unknown Huawei manager to do 10 years in the future. That’s setting the bar very high – and that’s why no one told Huawei that it has an inalienable right to own parts of the telecom and data infrastructure business in the US. (Take a look at ChinaHearsay for their view )
The timing and tone of the House report was unfortunate; and there was way too much politics surrounding the announcement – but the decision itself is a no-brainer. Of course Huawei can’t own the US communication infrastructure. The decision is legal, it’s appropriate and it’s prudent. It’s not a matter of nationalism or racism – it’s common sense. If the PRC want to negotiate treaties of friendship or alliance with the US, I think that’s great. If they want to renegotiate the terms of the WTO and abide by them strictly, then that’s fine as well. But right here right now, the US and China are not allies, and the WTO agreement that both nations signed allows member states to act to safeguard their own security. China knows this because they take a much, much broader definition.
What can Huawei do to improve its negotiating position in the US?
1. Do an internal audit and figure out if there is anything to the claims being leveled against the firm. One of the hardest things for Western managers to wrap their heads around was that ordinary practices that were considered virtuous back home were suspect in China (i.e.: policies about human rights, transparency and graft). A lot of high-ranking people in a variety of countries have looked at Huawei and no one seems too comfortable getting into bed with them. I don’t believe 90% of the headlines I look at, but even I suspect that something fishy is or has been going on. If Huawei is betting on people not noticing or getting sick of talking about an espionage story, then they need to reconsider. Chinese firms have to make sure they pass the test in their target countries – not just at home.
2 – Stop confusing politics with business. Yes, it’s terrible what people are saying and many of them are wrong. But being right doesn’t put sales on the top line nor profits on the bottom. However they meant it, challenging Congress to show how transparent they are put the burden of proof on Huawei – and they didn’t prove it. Now the company is getting pouty. Act like a business – not a debutante.
3 – Build on the successes they have. Huawei and ZTE already have some successful business in the US. Take some time, build up operations and keep their noses clean. Leverage off of past successes. Build relationships with partners – quietly, but broadly.
4 – More transparency. Talk to an IR firm and figure out what transparency really means to international investors. Ren Zhengfei is going to have to give some interviews — maybe a press conference or two – and yes, it’s going to be ugly at first. But right now even sympathetic profiles make him sound like a super villain-in-training. If Ren really has problems with the glare of the spotlight, then he should give up the post of president and make due as chairman. CEO is a high profile position in the West – a public figure.
5 – Spin off a subsidiary or consider a corporate restructure. This is a big deal and won’t be simple. It’s unfair that a firm not found to be engaged in illegal activities should have to consider this — but here we are. Two congressmen from an important committee have just publicly announced Huawei’s name and said that no one should do business with the firm. That’s pretty bad. Come up with a JV or subsidiary that: A) people can pronounce and/or remember, and B) isn’t frightening. Every American company changes its name when they go to China.
6 – Engage in less sensitive businesses. Huawei and ZTE make handsets, hardware, and cool gadgets. They should revamp their image, do little branding and let people know who they are. The Chinese firms need to build up a track record so that by the time 5G becomes the big thing, searches for their names don’t pull up “PLA” and “espionage”.
7 – Consider a series of arm’s length JVs. Don’t make a big splash with every acquisition or partnership. The beauty of Huawei’s Plano Texas plant was that it let friends of the company talk about jobs and investment. It wasn’t controversial. High profile telecom deals are political by nature – and buying into US infrastructure deals makes everyone nervous. Become a household name first – then try to move up the technology ladder.
8 – Get a public face or image. GE brought good things to life. T-Mobile has a hot model riding a motorcycle. Whatever is really going on behind the closed doors at Huawei, right now the company looks about as warm and fuzzy as a munitions factory. Soften up.
9 – Avoid the limelight. No one in China is doing Huawei favors by calling for retaliation or name calling. This is a great time to be seen loudly supporting free markets –in China. Huawei should avoid public statements or applications for highly sensitive US business unless they are 99% what the outcome will be. It is perfectly OK for US citizens to say horrible, insulting things about Congress and Washington. It’s not ok for Huawei or Chinese government officials.
10 – Stop pouting. Not because they don’t deserve to, but simply because it doesn’t help and probably hurts.
At the end of the day, the most constructive thing Huawei can do is to go away – for a while. Develop cool products, innovate, and become even bigger and more important in China and Asia. If they want to expand internationally, they must gradually let more light in to their corporate structure – without looking like they are trying.