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Last Updated: Monday, 31 January 2005, 18:01 GMT
China IT giant eyes new horizons
By Mary Hennock
BBC News business reporter

Huawei's staff canteen, Shenzhen, China
Nearly half of Huawei's 24,000 staff are researchers
Marconi's distribution deal with Huawei Technologies provides an important stepping stone into European markets for China's biggest maker of telecom's equipment.

Few outside China have heard of Huawei, but its reputation at home is high, seen as a showcase IT firm offering sparkling prospects to ambitious engineers.

Marconi's reputation is a bit more tarnished, a flagship of British industry that nearly sank.

With its debt crisis now behind it, Marconi hopes Huawei can help it overcome tough competition to build telecoms infrastructure in Asia from rivals like Cisco Systems, Siemens and Alcatel.

Targeting Europe

Huawei, on the other hand, has already set 2005 as the year that overseas sales should overtake domestic ones.

Marconi workers
Marconi is looking for a strategic partner in Asia

And it is aiming for a breakthrough in Europe, after an initial export strategy that focused on emerging markets like Russia, Egypt, Saudi Arabia and Brazil.

Marconi is not its only ally in this project. Huawei recently signed a similar distribution deal with Siemens, and won a contract to build a 3G network for Dutch mobile phone operator Telfort for up to 400m euros ($521m; 276m).

In China, it has close to 44% of the fibre-optic equipment market, but faces competitive pressure from US and European players.

It is outward looking and has placed itself firmly on the growing list of Chinese firms determined to achieve global name recognition.

Projecting success

Visitors to Huawei's headquarters outside the southern city of Shenzhen are left in no doubt about its ambitions.

The site, which covers about a square mile, has its own exit from the expressway. Inside, Huawei's corporate campus has clearly been designed to rival those of US commercial juggernauts like Microsoft or Nike.

Huawei's staff dormitories and swimming pool
Huawei staff dormitories and swimming pool

Acclaimed British architect Sir Norman Foster designed the international training centre, with its cream marble floors, curving beech wood stairs, signs in six European languages, and lecture hall plumbed with broadband.

Apartment blocks for single staff have a huge kidney shaped swimming pool, heated whirlpool, and gym facilities.

The design oozes eco-awareness and literary references, and the site is planted with neatly-labelled palms, ferns and bamboos and named '100 Grasses Garden' after a story by a famous Chinese writer of the 1920s, Lu Xun.

In China the cost of human resources is quite cheap and we can do more things with less money
Richard Li, Huawei spokesman

Nearby are factories, where staff in blue trousers, hair nets and white gloves work on automated production lines that can mount 23,000 semiconductor chips an hour onto circuit boards.

But production line workers make up only 12% of Huawei's 24,000 staff. The firm boasts that roughly 48% of its workforce - 10,000 people - are in research and development (R&D), and that 85% have at least a university degree.

Huawei sees R&D as central to its development strategy and ploughs back a minimum of 10% of its sales revenues into research every year.

"In China, the cost of human resources is quite cheap and we can do more things with less money," international advertising and promotions chief Richard Li told BBC News during a visit I made there 18 months ago.

Huawei staff dormitories
Huawei contrasts with some of China's bankrupt state enterprises

Marconi and Huawei are still discussing extending their co-operation to shared R&D and product development.

Since it was founded in 1998, Huawei has established two R&D centres in the US, in Dallas and in California's Silicon Valley.

There is a third centre in the Indian city of Bangalore, which employs 1,000 staff, mostly locally recruited engineers. In addition, it has labs in Stockholm and Moscow.

Cisco row

Huawei has attracted its fair share of controversy, most of it focused on an intellectual property rights dispute with global giant Cisco, or on its low-profile founder's military past.

People's Liberation Army soldiers in Beijing
Huawei denies modernising China's military

Huawei found itself head-to-head with Cisco in the US courts in 2003, sued over intellectual property (IP) violations.

Huawei admitted that some of its staff had used a third party source code, though it denied systematic or deliberate violations, and the case was eventually settled out of court.

Mr Li, who spent three months in the US as Huawei's PR trouble-shooter during the case, drew comparisons "with Japanese companies in the 60s and 70s when they tried to get into the US market".

Cisco's case was "a marketing weapon" he said, adding that Huawei expects to encounter more, similar disputes.

Privately-owned Huawei does not publish accounts. However, it does appear to be moving swiftly towards its goal of drawing the bulk of its sales from exports.

China was still Huawei's major market in 2002, accounting for 80% of revenue, and the company set itself the goal of cutting that to 35% by around 2006.

In 2004, exports made up nearly half of contracted sales or $2.28bn (1.2bn) of a total of $5.58bn.

Customers include China Mobile, China Telecom, Hutchison Global Crossing, Singapore-based SingTel and Brazil's Telemar.

It has co-operation agreements with semiconductor makers Texas Instruments, Motorola, Intel, Qualcomm, Sun Microsystems and software giant Microsoft. Huawei also manufactures equipment for US-based 3Com, which sells the items under its own logo.

Huawei is privately owned and has often mentioned the possibility of a public listing, though it has never suggested a timetable. About 80% of its staff hold stock options.

Ex-army boss

Huawei has frequently been beset by rumours of links to the Chinese military. The company denies them, but they have stuck, partly because China's overall lack of transparency makes it hard for analysts to verify the denials.

We have nothing connected with the Chinese military...we produce civilian telecoms equipment
Richard Li, Huawei spokesman

Huawei's founder, Ren Zhengfei, is a former officer in the People's Liberation Army (PLA) and Huawei's staff are required to do military-style jogging and callisthenics.

"We have nothing connected with the Chinese military...we produce civilian telecoms equipment. The PLA has its own networks," Mr Li said.

The way he told it, Mr Ren was a low-ranking civil engineer "building barracks and bridges" whose gutsy entrepreneurship makes him a modern Oriental example of the American Dream.

"He's a man of vision. He has the ability to control things from a macro point of view [and] has others control things from a micro point of view," said Mr Li.

Huawei believes it has been beset by rumours because "we're a very low-profile company", Mr Li said. One lesson Huawei drew from the Cisco case was the need for better corporate PR.

"We'll be more open from now on because our ambition is to be a global company," he said.

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