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Huawei's $1bn R&D pot 'matches Western rivals'
News analysis: It's Huawei or the highway...

By Julian Goldsmith

Published: Thursday 06 September 2007

In the words of Huawei's chief marketing officer, Dr Eric Xu Zhijun, nothing matters more than research and development. The company boasts $11bn in sales, as of 2006 - 10 per cent of which goes to R&D and 48 per cent of its 60,000 staff are involved in R&D.

The vast Huawei campus in Shenzhen, just near the Hong Kong border, covers an acreage any small metropolitan satellite in the UK would be proud of. It borders a city of 11 million people - a good one and a half times London in terms of population. And it isn't even the biggest employer. That goes to a supplier of parts to Apple.

One billion dollars worth of R&D spend is a sizeable sum but it pales into insignificance beside the comparative investment of its Western rivals - Cisco racked up an R&D budget of more than $4bn in the last fiscal year and Nortel spent almost $2bn in the same timeframe.

But Huawei's Xu argues the cost of R&D staff is so low in China that the equivalent spend is actually more like $4bn.

Talking to silicon.com in Shenzhen, he said: "In absolute amount, we don't invest as much [as Huawei's Western competitors] but as R&D lies mainly in people cost, we look on that. Labour cost in China is one-sixth of that in Europe or the US. That means the $1.1bn we spend equals to $4bn to $5bn."

Special Report: Inside India

In February silicon.com's Steve Ranger visited the Indian tech hotspots of Bangalore, Mumbai, Pune and Hyderabad. Click on the links below to see photo galleries of the cities and companies visited.

♦ Satyam's IT campus
♦ Hyderabad's tech parks
♦ Bringing tech to rural India
♦ High-tech on the streets of Pune
♦ Pune - the new Bangalore?
♦ Boom town Bangalore
♦ Bangalore's Electronics City
♦ SAP and Wipro in Bangalore

Although Xu has a marketing moniker, he has a background in developing the business' international relationships and his views are uncharacteristically candid. He accepts that Chinese companies have an uphill struggle in persuading Western companies to take Huawei on board.

He is at pains to emphasise the core value the company's newly forged corporate identity is based on, combining Western business process with eastern 'wisdom'.

Certainly, within its core switching technologies, Huawei boasts a position within the top three in the world, with 60 per cent of revenues coming from outside China. It has relationships with telecoms operators on every continent and is content to stick to this profile in the market, eschewing any brand recognition by end users.

However, the company now has a comprehensive product portfolio - from optical switching technology capable of maintaining tens of millions of lines through one fibre cable, to 3G and HSPA (mobile broadband) USB modems no bigger than a box of matches.

One-third of the R&D budget and staff resource is spent entirely on developing the company's mobile data offerings, so even though they may not know it, end users could be using Huawei kit, through their carrier partnerships with operators such as BT, Deutsche Telecom and Orange.

silicon.com visited Huawei last summer as part of a special report on the Chinese tech industry shortly after it had run up against Cisco, which accused it of marketing products too similar to its own. Xu's statement about the actual value of Huawei's R&D spend is designed to counter such criticisms but he also has a number of key contract wins since then to answer them with.

He said: "The most significant event in the last 18 months is the growth we have managed to achieve in the European market. One of the most important of these is becoming one of the eight suppliers for BT's 21CN. Another is the changes we have made to our brand and corporate identity, which will help us to develop our strategy and corporate values in the future."

Undoubtedly, Huawei is a leader in China's push to become a global player in commercial markets but Xu doesn't accept the company is a champion for the country. He looks further ahead, insisting Huawei is an international entity, citing the employment of Western management consulting services throughout the late 1990s as a sign the company is conducting business on an international level.

He said: "These services have helped us create a professional and process-based culture within the company, giving us a solid basis for collaboration with European operators. However, since [other Chinese companies] do not have that kind of investment, they face a lot of challenges. They may not be able to find a common language when they interact with their customers."