February 1, 2013
After a cold welcome for Huawei in the US, should China say “no” to Cisco? In October 2012, Congress warned American companies to “use another vendor” rather than working with either Huawei or fellow Chinese firm ZTE. Both companies, it was implied, were security liabilities to American interests by virtue of being Chinese firms. Cisco, whose own sales revenue in China is four times greater than Huawei”s sales in the U.S., lobbied aggressively against Huawei in the run-up to the U.S. Congressional report. The aftershocks of such treatment could affect America’s own networking industry abroad. Does Cisco’s behavior make the case for global networking segmented along national borders, or will competition be allowed to return to the American tech sector?
Despite Cisco’s whisper campaign against Huawei, Huawei has been a long-time trusted partner of foreign business. The United Kingdom, for one, has only seen its relationship with Huawei grow stronger; in 2012, the conservative Cameron government welcomed an additional investment of nearly $2 billion from Huawei. British consumers enjoy the fruits of Huawei’s efforts to develop innovative products, its smartphones are provided through British carriers like Virgin Mobile. Huawei invests 10% of sales profits into R&D, which totaled USD 3.14 billion in 2011; the company also possesses 15,000 patents, the highest number of patents of any Chinese company, 10,000 of which were approved overseas. By smearing Huawei, Cisco not only reduces U.S. consumers’ access to high quality products, but also constrains Huawei from creating jobs for U.S. tech workers. Huawei has created more than 800 jobs in the UK and now employs over 7,000 staff across Europe as a whole.
Huawei established itself in the 1980s helping telecom firms to sell phone systems within China. With the dawn of the internet revolution, the company succeeded despite a marked lack of support from Beijing, who favored state-run companies over the privately-held Huawei. The overriding reasons for Huawei’s expansion have consistently been market-based. Though the company only began operating outside of China in 1997, sales abroad nearly double sales within China, and increasingly rely on consumer spending on products such as smartphones, rather than government procurement. Currently, only Samsung and Apple sell more smartphones than Huawei.
Cisco and its senior management have repeatedly insinuated connections between Huawei, a shareholder-owned private entity, and the Chinese state. Cisco has highlighted concern for U.S. national security as the primary reason for its opposition to Huawei, but the company’s recent performance offers a simpler explanation: competition. Cisco has faced falling stock prices and layoffs in recent years as it has adjusted to rapidly maturing competition.
To protect its home market, Cisco has chosen to challenge Huawei with an extended PR campaign and closed-doors lobbying efforts. The end result is the same as if it had received subsidies. Cisco’s adept lobbying and use of coalitions are favored over American small and medium-size businesses relying on network services to foster expansion and job growth and American consumers looking for affordable electronics. The U.S. marketplace of ideas that birthed the networking revolution is closing itself off against fresh competition.
China’s tech-savvy and affluent consumers will approach 300 million in the next decade, which will heighten demand for advanced networking systems. Huawei, ZTE and other network carriers are taking notice of Chinese buyers as sales in struggling overseas economies lose some of their previous luster. Although Cisco’s China site highlights helping Chinese companies establish a “harmonious” business networking environments, its actions have inspired the opposite reaction. China is asking itself whether foreign networking giants like Cisco should occupy so much of its national grid. Cisco has joined the ranks of companies such as Sappi and Kimberley Clarke in the paper sector, who have positioned themselves in China’s markets, while taking action in other locations to limit Chinese growth. If Cisco wants to continue enjoying access to the Chinese market, it should play by those same rules back in the U.S.
This article appeared at Asia Trade Watch and reprinted with permission.
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