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China’s Telecom Industry on the Move:
Domestic Competition, Global Ambition,
and Leadership Transition
Cheng Li
China’s telecom sector has been one of the country’s fastest-growing industries during the past two decades. Recently, a number of large, rapidly expanding Chinese firms have emerged to compete successfully in the global market despite heavy competition from multinationals. As the business leaders of China’s flagship telecom companies become famous within China, their personal stories are beginning to influence the leadership styles and management practices of a new generation of Chinese entrepreneurs. This paper examines the rise of China’s leading telecom firms (such as Huawei and ZTE) and the characteristics of their CEOs. Although the senior managers of China’s telecom industry do not have significant international exposure, they have not been deterred from adopting a “Go Out” strategy for expanding their business operations overseas. China’s economic rise has been accompanied by the growing competitiveness of Chinese enterprises in global markets.^1 This trend is particularly evident in the case of the Chinese telecom industry. Gone are the days when Chinese telecom firms produced nothing but cheap, low-quality imitations; today, some Chinese flagship telecom enterprises— especially several large telecom equipment makers—have not only adopted a “Go Out” strategy to invest in foreign countries, but many have also acquired cutting-edge technologies and expanded into high-end products. The rapid growth of China’s telecom industry will further enhance China’s economic power and will thus have profound implications for the rest of the world. Three factors make the study of China’s telecom industry especially important and timely. First, China’s telecom sector has been one of the country’s fastest-growing industries during the past two decades. The competition among major telecom companies (both Chinese and multinationals) for a share of China’s burgeoning domestic market has become increasingly acute in recent years. According to the 2001 World Trade Organization (WTO) agreements, the six-year schedule for gradually opening up China’s telecom service market requires the Chinese government to end the state monopoly and allow a competitive market to emerge in 2006–2007. 2 Even more importantly, after a prolonged “waiting game,” the Chinese government is expected to launch the commercialization process of the third generation (3G) of mobile communications in the country in the near future.^3 Based on the Chinese government’s estimation, the total investment of the 3G operation in China may be somewhere between 500 billion and 1 trillion yuan (between US$62.5 and US$125 billion).^4 The Chinese government’s
decision to license 3G mobile communications, and its selection of particular technology standards, are important indicators that will allow the outside world to assess China’s role in economic globalization and the country’s trend toward techno-nationalism. Second, the intense competition will not be limited only to the telecom market within China. Supported by the government, Chinese telecom enterprises, such as Huawei Technologies and ZTE, have very aggressively competed with brand-name multinational firms. Although still in the early phase of their “Go Out” strategy, these Chinese companies have already emerged as major players in the telecom equipment business on the world stage. For example, Huawei, a private telecom equipment company that was established in Shenzhen in 1987 with registered capital of only 21,000 yuan,^5 now has total registered assets of 3.2 billion yuan and revenue of 47 billion yuan. 6 Huawei has established 85 overseas branch offices, research centers, and factories; and has deployed wireless terminal technologies in over 100 countries, providing services for roughly 1 billion customers.^7 In the first half of 2006, Huawei had total sales contracts for US$5.2 billion, and approximately 65 percent of these sales were in overseas market. 8 Huawei’s aggressive overseas expansion is causing serious concern for its international rivals. It is believed that the recent merger and acquisition deals between Ericsson and Marconi, Alcatel and Lucent, and Nokia and Siemens were at least partly designed to “fight off competition from Huawei and ZTE.”^9 Huawei’s rapid rise to international prominence is extraordinary, but its global strategy and ambition have been widely shared by other major Chinese companies. An analysis of telecom firms such as Huawei highlights the broad contours of the strategies adopted by China’s emerging global firms and sheds light on the future of the global economy. The third reason China’s telecom industry merits greater attention is that the leadership of the industry is in the midst of a generational transition—a process that has arguably occurred sooner than has been seen in all other industries in the country due to the nature of the information technology (IT) business. Young, well-educated professionals with substantial experience in this rapidly developing industry have already emerged in the top leadership of China’s Ministry of Information Industry (MII) and in the country’s six major telecom companies. Additionally, a large number of major telecom manufacturing firms will soon undergo generational changes in the top leadership as many of the founders of these firms are due to retire. The new generation of chief executive officers (CEOs) and other senior policymakers in China’s telecom companies will differ profoundly from their predecessors in terms of formative experiences, professional backgrounds, leadership skills, business behavior, and worldviews. To a great extent, the quality of this new generation of CEOs will be crucial to their companies’ competitiveness in the global market. Some recent studies show that the shortage of senior managers with international experience in the rapidly developing economies (RDEs) such as China, India, Russia, and Brazil will constrain the future development of large companies in these countries.^10 Knowledge of the biographical characteristics of top managers in China’s flagship
The number of mobile phones in China has grown exponentially over the past 15 years. Figure 1 shows the dramatic surge in the number of mobile-phone subscribers in the country, from 48,000 in 1991 to almost 438 million in 2006. China’s two mobile- phone service providers, China Mobile and China Unicom, have joined the club of the most profitable companies in the world. China Mobile’s ranking in the Fortune Global 500 has moved up continuously in recent years—from number 336 in 2001 to number 287 in 2002, to 224 in 2005, and finally to 202 in 2006. 13 Figure 1 The Growth of Mobile-phone Subscribers in China (1991–2006) *Based on data from the end of August 2006. By the end of June 2006, China had a total of 805 million telephone subscribers, including 368 million fixed-line connections and 437 million mobile-phone users, easily topping any other country in the world in both categories.^14 The penetration rate of mobile phones in the country increased from 6.7 per 100 people in 2000 to 32.6 per 100 people in 2006. The number of Internet users reached 123 million, second only to the United States. All these statistics are even more impressive if we consider the fact that 20 years ago there was no mobile-phone network and the penetration of fixed phones in China was only 0.6 per 100 people. 15 Even in the early 1990s, the installation of a fixed phone in some major cities cost almost the equivalent of an average worker’s annual salary, and use of fax machines, at least in theory, had to be licensed. 16 For most of the last two decades, multinational companies have largely been prohibited from providing telecom services in China. Economic protectionism and political concerns have led the Chinese government to exercise stringent control over foreign investment and operations in the country’s lucrative telecom service sector. It was
not until the end of the 1990s that the Chinese government seriously considered opening the telecom operations and Internet services markets to foreign companies. Although the WTO market-opening agreements have forced the Chinese government to gradually open up the service sector, fair competition has hardly ever existed in this playing field. With the aim of promoting competition among Chinese telecom companies, Chinese government regulations specify that there should be at least two companies in each major telecom sector, including long distance, data and Internet services, and short message services (SMS). In fact, however, taking an example from the domain of the mobile- phone business, the two Chinese “competitors” are anything but equal. China Unicom simply cannot compete with the gigantic China Mobile. In 2005, China Mobile had a net profit of 53.6 billion yuan, which was ten times greater than China Unicom, the other company operating in the mobile-phone business. 17 China’s telecom operations sector has been severely monopolized by the Chinese government and the major SOEs, but China’s telecom equipment sector, in contrast, has often been seen as one of the most open and competitive markets in the world. 18 While foreign firms have had little involvement in China’s telecom services sector, they have been instrumental in the development of China’s physical telecom infrastructure. Almost all major multinational telecom equipment makers have established manufacturing facilities and/or joint venture operations in China.^19 In 2003, foreign telecom equipment manufacturers (including those from Taiwan, Hong Kong and Macao) accounted for 23 percent of the total number of telecom manufacturing firms in China. 20 Not surprisingly, China has become a major revenue base for foreign telecom companies such as Ericsson (Sweden), Lucent (US), Siemens (Germany), Alcatel (France), BTM (Belgium), Nortel (Canada), NEC (Japan) and Fujitsu (Japan). 21 Motorola, for example, was one of the largest foreign investors in China (US$3.4 billion) in 2004 and had total revenues of US$7.7 billion resulting from operations in China in the same year.^22 The Chinese government has adopted many favorable policies to attract foreign telecom equipment companies. China’s intent to lure foreign telecom equipment makers to invest in the country has been no secret. Chinese policymakers have explicitly stated China’s strategy, known as “Providing market access in return for technology” ( yi shichang huan jishu ). Specifically, the Chinese government and telecom manufacturers adopted a three-stage priority plan: 1) “importing and transferring,” 2) “digesting and absorbing,” and 3) “growing and exporting” with the hope that the Chinese homegrown firms would eventually catch up with foreign companies. A recurrent pattern in the industry, as some scholars observed, was that any specific new products are initially added and imported to China “as high-end ones and then downgraded to medium-end or low-end ones over a period of time.” 23 Nevertheless, foreign companies dominated the telecom equipment markets in China for over a decade. For example, foreign-made handsets accounted for 93 percent of the 60 million handsets in China’s market in 2000. About 80 percent of them were the products of three major foreign companies (Motorola, Ericsson, and Nokia). 24 In 2004,
telecom business. Inspired by Mao’s ideas of “occupying the countryside first in order to encircle the cities” and the “mass campaign,” Ren targeted markets in small cities and county towns ( xiancheng ) in the remote provinces, areas to which multinational titans did not even bother to seek access. In 1992, for example, Ericsson had only three or four employees who worked on telecom networking systems in Heilongjiang Province. By contrast, Huawei had over 200 people who not only focused on servicing the province’s telecommunications market, but also lived and worked in county towns and small cities across the province. 31 This “mass campaign” helped Huawei build up large supply chains in the province. In addition, Huawei established joint ventures or other forms of partnership with local bureaus of posts and telecommunications. This business practice by Huawei, though controversial, was not banned. Due to their shared business interest, these local governmental institutions helped promote the sale and maintenance of telecom equipment made by Huawei. Ren Zhengfei was also significantly influenced by Louis Gerstner’s ideas of modern management in an increasingly competitive business environment, especially the “customer-centric approach” that Gerstner developed while running IBM. After visiting IBM headquarters in 1997, Ren launched a campaign at Huawei to learn from the customer-centric service ideas of IBM. He urged the employees in the company to be more responsive to customers’ needs, and argued that Huawei should continue to maintain its image of producing “low cost and low priced, but high-quality and high-tech products.” 32 Research and development (R&D) has always been greatly valued in this technology-intensive company. Huawei’s “company law” allocates at least 10 percent of revenue to R&D every year. In 2005, Huawei spent US$558 million on R&D, accounting for 14 percent of total revenue. Between 1998 and 2005, Huawei spent a total of US$ 725 million on 3G-related research projects, and a total of some 6,000 researchers participated in these projects.^33 The company established R&D centers in Beijing, Shanghai, Nanjing, Hangzhou, Xi’an, and Chengdu as well as at its headquarters in Shenzhen. In the summer of 2006, Huawei built a new R&D center in Shanghai jointly with Motorola, focusing on 3G-related projects. Huawei’s large spending on R&D is unusual among Chinese telecom firms. In 2002, for example, the top 100 Chinese telecom companies spent an average of 3. percent on R&D, much lower than their counterparts in the West such as Cisco (25. percent), Intel (17.5 percent), Microsoft (15.5 percent), and Nokia (10 percent) did during the same year. In 2005, among the 37,000 employees of Huawei, about 18,000 (48. percent) are members of the research staff, a number almost equal to the staff at AT&T Bell Labs.^34 In addition, Huawei requires each of its employees to spend 7 percent of their time pursuing job-related training every year. For many years, Huawei has attracted many of the best and brightest Chinese college students to work in the company. In 2005, about 60 percent of Huawei’s employees held MA or Ph.D. degrees and an additional 25 percent held bachelor’s degrees.^35
Huawei’s emphasis on R&D and its strength in human resources seem to suggest that this homegrown company will be even more competitive in the years to come. Huawei’s case may be unique in certain aspects, but it does suggest that some of China’s telecom equipment companies have made remarkable progress in sharing the domestic market with foreign companies during the past few years. Domestic-brand handsets, for example, represented only 2 percent of the Chinese market in 1998, but seven years later they accounted for 51 percent. 36 The revenues of China’s telecom firms and IT companies increased dramatically over the past decade. For example, among the top 100 Chinese telecom and IT firms in 1986, only one had annual sales revenues exceeding 500 million yuan; by 1996, the number had increased to 58. In 2006, 22 companies in the top 100 had revenues of more than 10 billion yuan each.^37 Domestic Chinese telecom equipment providers are expected to have an even larger portion of market share in the country after China commences the commercialization of 3G mobile communication. 38
Global Ambition: The Rise of Chinese Enterprises
Huawei and other large Chinese enterprises will certainly not stop their business expansion at China’s national borders. It is no secret that they want to have a bigger share in the global market. Even in the early 1990s, Ren Zhengfei claimed that the “future global telecom equipment market will largely be divided and shared by three major players, and Huawei will be one of them.”^39 During the past decade, Huawei established its research centers in Silicon Valley, Dallas, Moscow, Stockholm, and Bangalore. In 2006, Huawei had a total of 40,000 employees, 10,000 of whom were based outside of China.^40 Chinese enterprises’ overseas expansion has received strong support from the Chinese government. In 2000, the Chinese government made the decision to shift its trade and industrial development priorities from the policy of “Welcome In” ( yinjinlai ) to a combination of both “Welcome In” and “Go Out” ( zouchuqu ). 41 At the Third Plenum of the 16th Central Committee, held in 2003, the Chinese leadership called for the promotion of China’s overseas enterprises. In the same year, the Chinese government approved the establishment of 510 new overseas firms with a total investment of US$2.087 billion. 42 In 2004, the Ministry of the Information Industry issued an official document specifying the levels of industrial, informational, financial, and fiscal support it would provide for Chinese companies’ overseas expansion efforts.^43 Some major Chinese enterprises have been seen as emerging challengers on the world stage, which may undermine the interests of large “incumbent” multinational companies. In a recent report by the Boston Consulting Group (BCG), among the top 100 emerging global companies based in rapidly developing economies, 44 are Chinese companies, 18 (41 percent) of which are in the telecom and IT industries. These include telecom equipment makers (Huawei, UTStarcom, and ZTE), telecom service companies (China Mobile and China Netcom), computers and IT components manufacturers (BOE, Founder, and Lenovo), and consumer electronics and home appliance companies that also
including investment, R&D, project contracting, joint venture, mergers and acquisitions, and full telecom management and operation. 53 It is perhaps too early to assess the performance of the Chinese companies in these specific areas. However, the exponential growth in the overseas sales of Huawei and ZTE during the past few years is astonishing. Figure 2 shows that Huawei’s overseas sales increased from US$50 million in 1999 to US$ 5 billion in 2005, a hundredfold growth within six years. The growth pattern of ZTE’s overseas sales during the past few years has been quite similar to that of Huawei, although on a much smaller scale (see Figure 3, next page). Figure 2 Huawei Overseas Sales (1999–2005) Sources : http://xhs.anhuinews.com/system/2006/08/14/001535239.shtml and http://www.thldl.org.cn/news/06/02/5841.html It should be noted that the exponential growth of the foreign sales of Huawei and ZTE illustrated in Figures 2 and 3 stems partially from the fact that these two companies started their overseas businesses from scratch only a few years ago, and therefore this growth pattern cannot continue indefinitely. Despite the rapid growth of Chinese telecom manufacturers such as Huawei and ZTE, their overall revenues and profits in absolute terms are still much lower than those of foreign telecom giants. For example, in 2003, the total revenue of China’s top 100 companies in the information industry was US$79. billion, but this was only 89 percent of the annual revenue of IBM that year. The total profit of these 100 Chinese companies was US$3.4 billion, which was only 38 percent of the profit of Microsoft in the same time period.^54 According to the Chinese official media, the total revenue, profit, and assets of China’s top 500 companies in 2005 was only 8 percent, 7 percent, and 6 percent of those same categories in the world’s top 500
companies that year.^55 While Chinese challengers in the world market may have an advantage in terms of their access to a low-cost, high-quality labor force, a majority of Chinese companies lack both brand-name recognition and their own “core products” ( hexin chanpin ). According to a recent study conducted in China, more than 80 percent of export-oriented Chinese firms do not have their own “core products”^56 Figure 3 ZTE Overseas Sales (2001–2005) Sources : http://xhs.anhuinews.com/system/2006/08/14/001535239.shtml, http://www.thldl.org.cn/news/06/02/5841.html. At the same time, China’s flagship telecom companies such as Huawei and ZTE are determined to compete with foreign multinational giants on their own turf rather than just in China’s homeland in the years to come. According to Huawei’s strategic plan, the ratio between the company’s overseas and domestic sales after 2008 will be 7:3. 57 Of course, their future success in global market competition is by no means guaranteed. These Chinese firms have learned to thrive despite tough competition and other difficulties at home, but it should also be remembered that they are now entering into territory that is largely unfamiliar to them. Nonetheless, incumbent champions cannot afford to be complacent as the global economy undergoes a profound landscape change.
Table 2 Background of Top Leaders of the Ministry of Information Industry (2006) Position Name Born Tenure since Previous position Main experience Ed. Degree School(s) Professional title Minister Wang Xudong 1946 2003 Hebei Party Secretary (’00–02) Dir. of Research Inst. of Min. of Electronics, Tianjin Dep. Party Secty. (’91–93), Vice Dir. of CCP Org. Dept. (’93–00) B.S. Tianjin Institute of Science and Technology (part time) Engineer Vice- Minister Xi Guohua 1951 2003 CEO of China Netcom (’02–03) Head of Shanghai Telecom Bureau, Vice CEO of Shanghai Bell (’00–01) Ph.D. Hefei Institute of Technology, Shanghai Jiaotong University (part time) Professor Vice- Minister Lou Qinjian 1956 1999 Director of Research Center of the Minister (’98–99) Various research institutions in telecom industry Ph.D. Institute of Central China Technology Senior Engineer Vice- Minister Gou Zhongwen 1957 2002 President of Chinese Acad. of Electronic & Info. Tech. (’00–02) Various research institutions in telecom industry M.S. Xi’an Institute of Electronic Science & Technology Senior Engineer Vice- Minister Jiang Yaoping 1952 2004 Director of Dept. of Policy and Regulations of the MII (’02–04) Head of Guangxi Telecom Bureau, Office Director of State Internet Security Work Group (’00–02) Ph.D. Norwegian Business School of Management, Harbin Inst. of Tech. (part time) Senior Engineer Notes : Acad. = Academy; CCP = Chinese Communist Party; Dep. = Deputy; Dir. = Director; Ed. = Educational; Info. = Information; Inst. = Institute; Min. = Ministry; MII = Ministry of Information Industry; Org. Dept. = Organization Department; Secty. = Secretary; Tech. = Technology; Univ. = University. All of these senior leaders have advanced their careers in the area of telecommunications, although Minister Wang also served as deputy party secretary in Tianjin, vice-director of the CCP Organization Department; and party secretary of Hebei Province. Vice-Minister Xi Guohua, for example, began his career as a technician at a telecom lab in Shanghai in 1977 and spent his entire adult life working in the telecom sector. He played an important role in the establishment of Alcatel Shanghai Bell in 2000 – 2001, the largest merger of two joint ventures in the history of China’s telecom industry. Xi was appointed to be Vice-Minister of Information Industry in 2001, but
served as CEO of China Netcom for a year prior to being reappointed as Vice-Minister of Information Industry in 2003. Table 3 Background of Top Leaders of China’s Six Largest Telecom Operation Companies (2006) Company Position Name Birth year Tenure since Previous position Education Foreign study / work experience Main experience China Telecom Board Chair & CEO Wang Xiaochu 1958 2004 Vice president of China Mobile BS None (^) ManagementTelecom China Netcom Board Chair & CEO Zhang Chunjiang 1958 2003 Vice-minister of Information Industry BS^ None^ Telecom Management China Mobile Board Chair & CEO Wang Jianzhou 1948 2004 Board chair & CEO of China Unicom BS None (^) ManagementTelecom Board Chair Chang Xiaobing^1957 Vice president of China Telecom MBA^ None^ Telecom Management China Unicom CEO Shang Bing 1956 2004 Vice president of China Unicom MBA/MS Graduate Studies at SUNY Trade and Foreign Investment Board Chair Zhao Jibin^1953 Head of Zhengzhou Railway Bureau MA^ None^ Railway Management China Railcom CEO Zhang Yongping 1961 2004 General manager of Shandong Netcom BS^ None^ Telecom Management China Satcom Board Chair & CEO Rui Xiaowu 1960 2006 Assistant president of Aerospace Science & Technology Corp. MS None R&D in Aerospace Industry Notes : SUNY = State University of New York, R&D = Research and Development. Table 3 shows the backgrounds of the top leaders of China’s six largest telecom operation companies. In four of these six companies, the posts of CEO and chairman of the board are held by the same leader. The oldest of them, CEO and chairman of the
Table 4 Background of Top Leaders of the 15 Largest Chinese Electronics and Information Technology Companies in 2006 Name Company Position Birth year Tenure since Association with the company Ed. level Expertise & main experience Company revenue (billion yuan) Liu Chuanzhi Legend Holdings Board Chair 1944 1984 1984 (Founder) BA Management 108. Zhang Ruimin Haier Group CEO 1941 1984 1984 (Founder) MA Management 104 Wang Dongsheng BOE (Beijing Orient Electronics) Group Board chair 1958 1993 1993 (Founder) MA Accounting 54. Li Dongsheng TCL Group Board chair & CEO 1957 1997 1993 BS Marketing 52. Ren Zhengfei Huawei Technologies CEO 1944 1988 1988 (Founder) BS Management 47 He Xiangjian Midea Group Board chair 1942 1995 1968 (Founder) BS Management 42. Zhou Houjian Hisense Group Board chair 1957 1995 1994 BS Management 33. Xu Weihu SVA Group Board chair & CEO 1946 1993 1992 BS Management 29. Li Anjian Panda Electronics Group Board chair & CEO 1953 1999 1999 MBA Management 28. Wei Xin Founder Group Board chair 1956 2001 1999 MA Academic 25. Hou Weigui ZTE Board chair 1942 2004 1985 (Founder) BA Management 21. Zhao Yong Sichuan Changhong Board chair & CEO 1963 2004 1991 Ph.D. Technical Research 18. Liang Guangwei Shenzhen Huaqiang Board chair & CEO 1963 2000 1992? Ph.D. Finance & Investment
Chen Zhaoxiong Great Wall Technology Co. Board chair 1961 2004 2004? Ph.D. Technical Research 15. Liang Qingde Galanz Board chair & CEO 1937 1988 1988 (Founder) Junior College Management 13. Sources and Notes : The top 15 largest Chinese electronics and information technology companies in 2006 were based on the revenues of these companies in the previous year. For the whole list of the top 100, see http://www.ittop100.gov.cn/200605/188766.shtml.
The current CEOs of Legend and ZTE, Yang Yuanqing and Yin Yimin (both 42 years old), are often regarded as appointed successors to Liu and Hou, respectively. Both Yang and Yin have received much credit for their companies’ recent overseas expansion, largely resulting from their successful strategic initiatives in marketing and sales.^60 The much-anticipated leadership succession in both Haier and Huawei, however, is unclear as to when it will occur and who will succeed Zhang and Ren. Huawei reportedly once had as many as about 100 vice presidents. 61 Currently, there are two leaders who are seen as the top candidates to succeed Ren, who is not only the CEO but also the founder of the company. One is Sun Yafang, who has served as the chairwoman of the board of Huawei since 1998 and is generally regarded as the “No. 2 leader” in the company.^62 Sun, now in her early 50s, graduated from Chengdu University of Electronic Science and Technology. She worked in the Ministry of State Security in the area of telecommunications prior to joining Huawei in 1992. She served as director of the training department, director of Huawei’s office in Changsha, and executive vice president of marketing and human resources in the company. It is believed that she helped Ren Zhengfei obtain loans and resolve major financial crises in several critical periods of Huawei’s development. Sun’s weakness lies in the fact that she is not an expert on telecommunications. The other possible successor to Ren is Li Yinan, who is widely regarded in China as being a “genius” in the fields of technology and telecommunications. Born in Hunan in 1970, he was enrolled at the Central China University of Science and Technology at the age of 15. After receiving a master’s degree in 1993, Li began to work at Huawei. Within two weeks of his beginning work at the company, he solved a major technical problem; because of his extraordinary contribution, Li received the title of senior engineer, which usually requires many years of professional experience. At the age of 27, he was named Vice President in charge of R&D of the company and was seen by many as a possible successor to Ren. 63 Under Li’s leadership, Huawei made many technological breakthroughs in the late 1990s. In 2000, however, Li decided to leave Huawei and move to Beijing, where he established a high-tech company called Harbour Networks. A group of young technical experts from Huawei also left the firm to join Li’s new start-up company. It was widely believed that Ren Zhengfei tried various ways to lure Li back, including a legal effort to sue Harbour for violation of intellectual property rights, and an attempt to block Huawei’s financial revenue stream. In 2006, Li decided to sell Harbour Networks to Huawei, and he has now resumed his position as vice president and chief technology officer of Huawei. Ren Zhengfei’s concerted effort to have Li Yinan return to Huawei seems to suggest that Ren has seriously considered how best to effect a smooth leadership transition in his firm, although he has hardly ever discussed this issue openly within the company. This case also indicates how intense the competition for talented senior managers and top-notch technical experts is within the telecom industry, especially for those in the up-and-coming generation. Although some of the leading telecom manufacturing companies are still headed by “old-timers” such as Ren in Huawei and Hou Weigui in ZTE, the senior leadership at the vice president level has been filled by younger managers like Li Yinan.
Weimin, worked abroad for a substantial period of time, with Chen having served as the director of an AT&T lab in the United States while Ye was at one point in charge of ZTE’s research center in Europe. Despite the Chinese government’s attempts to recruit “returnees” (Chinese nationals who have studied abroad but return to China for work), the number of such returnees in the senior leadership of the major telecom firms in the country is still very small. One exception is Edward Tian, currently vice chairman of China Netcom. Tian earned a Ph.D. in natural resource management at Texas Tech University in the United States, and as a returnee has played an important role in China’s telecom industry. Very few foreign nationals currently serve on senior management teams or on the boards of directors in major Chinese telecom manufacturing firms. Exceptions include William Amelio, an American who previously worked in Dell, Honeywell, and IBM and who currently serves as the CEO of the Lenovo Group; John Thornton, former president of Goldman Sachs, who currently serves as a board member of China Netcom; and Andreas Wente, Royal Philips Electronics’ regional executive for the Asia-Pacific region, who currently serves as a director on the board of directors of TCL. Although many IT and telecom companies have recruited returnees and foreign nationals, these employees usually work at the middle levels of administrative leadership or in the technical or accounting departments of the companies. For example, about 100 accountants from Hong Kong now work in Huawei. Huawei also recently appointed a former purchasing director of IBM to be the company’s vice president, but he resigned after working there for only a few months. In the fall of 2006, Huawei appointed Mick Reeve to be its strategy advisor. Reeve is a Fellow of the United Kingdom’s Royal Academy of Engineering. He recently retired from British Telecom (BT) after working there for over 36 years. Reeve’s track record in technical innovation in the telecom industry is extraordinary. He was often seen as the “chief architect” responsible for BT's overall network and systems architectures, including optical systems, switching and intelligence, and operational support systems.^64 It remains to be seen whether this appointment reflects Huawei’s intension to more aggressively recruit leading international telecom experts in the future. But for now, this case is an exception rather than a norm. There are many reasons that major Chinese enterprises do not generally place foreign nationals or returnees in positions of high authority within their management teams. These reasons include political distrust, the concern over a large salary gap in the company’s senior leadership, and the growing difficulty of attracting foreign managers or Chinese returnees due to the localization strategy of multinational companies in China. In recent years, major multinational companies in China have generally been inclined to recruit local talent rather than send foreign expatriates to China to run their operations there as they used to do in the 1980s and early 1990s.^65 At present, China has 950 registered headhunter firms, and these firms mainly help foreign companies to find local talent. 66 Consequently, China’s homegrown companies have a tough time in recruiting and keeping the best and brightest.
Since 2003, the State-Owned Assets Supervision and Administration Commission made several global search efforts, attempting to hire some senior managers for the companies under their watch, but in the end neither foreign nationals nor Chinese returnees were hired, nor have any ever been hired prior to or since that time.^67 The jobs have usually gone to “insiders” who worked in the same company for a long time; very few “outsiders” could meet the firms’ requirements such as five years of work experience in lower-level leadership positions in the same industry.
Contrasting Perspectives and Final Thought
The shortage of senior managers with international experience among the emerging Chinese global firms will sooner or later undermine the competitiveness of their overseas operations. However, one may argue that U.S.-based multinational corporations do not have many foreigners who serve as senior managers or directors of the board either. One recent study of U.S. Fortune 100 companies found that although 85 percent of these companies had non–U.S. sales, only 20 percent had one or more non–U.S.-based director(s) on their boards. 68 At the same time, however, the study also found that the most successful global companies often expose promising young corporate managers to opportunities to work in foreign countries early in their careers. According to this report, top executives of global companies usually “have had tours of duty in overseas markets before assuming their current roles.”^69 Chinese companies expanding their operations into overseas markets seem to be particularly in need of a large number of senior managers with substantial international experience because Chinese firms usually lack what some analysts have called “global infrastructures” or worldwide economic and financial networks. Many multinational companies have established these global infrastructures over the past few decades, or even longer time periods. 70 The lack of knowledge of the foreign economic environment may partially explain why China has very few globally recognizable brand-name companies, even though Chinese-made products have spread all over the world.^71 A truly global company should not be too provincial or nationalistic in terms of its senior management team. As more and more Chinese firms expand their business operations beyond China’s borders, the thirst for globally capable managers will grow much stronger in the years to come. A recent report by McKinsey & Co. estimates that Chinese companies will need about 75,000 leaders who can work effectively in the global environment within 10 to 15 years, but also noted that at present China has only 3,000 to 4,000 managers who are so qualified. 72 From this perspective, it would appear that Chinese companies have a long way to go before they will become truly dynamic global firms capable of operating overseas as easily as they do in China. But as a matter of fact, Chinese flagship enterprises such as Huawei, ZTE, and Haier are already significant players in the global market. Although the senior managers of China’s telecom industry do not have significant international exposure, they have not been deterred from adopting a “Go Out” strategy for expanding their business operations
