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By Jeffrey Towson, professor of investment at Peking University Guanghua School of Management
President Donald Trump’s placement of Huawei on the US entity list was a body blow. The magnitude of the hit should not be understated. Being cut off from US technology so suddenly staggered the multinational. But, to its credit, Huawei didn’t go down. They took the hit and stayed on their feet.
I’m not really sure what the US government thought it would achieve with the ban. To stop Huawei’s growth in international markets? To shift 5G market share to Ericsson and Nokia? To cripple the company? Just an assertion of principle?
I think they really just don’t understand Huawei.
Yes, the US government can hurt Huawei in the short-term by limiting their access to technology (and to certain foreign markets). But, without a viable competitor, this won’t have much impact long-term. Because Huawei is fundamentally not a technology company. Huawei is a human resources company.
Huawei’s main resource is its people
And its main strength is the HR strategy that motivates them.
Huawei, like most engineering-based enterprises, has only one real resource, which is the cumulative brainpower of its people. This is the resource that creates the products and sells them to their customers. And as technology changes quickly, they must continually create and recreate the products – and therefore the value of the enterprise. Huawei’s main strength is the system they have developed for the creation, assessment and distribution of value by +190,000 people. It’s about HR strategy.
“Resources can be exhausted; only culture endures. Huawei does not have any natural resources to depend upon. What we do have is the brainpower of our employees. This is our oil, our forest, and our coal. Human ingenuity is the creator of all wealth.” – Ren Zhengfei, Huawei CEO
American capitalists (like me) usually say that shareholders are the stakeholders with ultimate say in a company. For example, Warren Buffett calls the free cash flow produced by companies as the ‘owners’ earnings’. We generally regard the holders of debt and equity as the corporate owners. You could also argue that government is just another type of owner that takes its cut of cash flow via taxes.
However, if you ask European companies about the distribution of a firm’s economic value, you will likely hear talk about multiple stakeholders, such as employees, owners and the community. And you might even hear some talk about a triple income statement (a really bad idea).
But at Huawei, the only stakeholders you ever really hear about are the employees. It’s all about the top contributing, current employees. Shareholders, providers of capital, retired employees and even the founders are all a distant second in importance.
Note how different this is to other large engineering-focused companies (say GM and Bosch), where much of the value goes into guaranteed salaries (regardless of contribution) and into post-retirement benefits (i.e., not current employees). Huawei is not only focused primarily on this one group, they are also operating much more as a meritocracy with regards to labour.
Huawei to me looks a lot like what 3G capital has been doing in consumer-facing companies like Budweiser and Burger King. They have instituted ‘meritocracy and partnership’ on a massive scale in a knowledge business. There is a lot of ownership. And you rise and fall based on your performance. Huawei’s main resource is collective brainpower and their main strength is the HR strategy, not technology.
Huawei is awesome at inspiring dedication in their top employees
The over-riding principle at Huawei appears to be that the top contributing, current employees should get the vast majority of the economic value created. And that is pretty logical. If brainpower is Huawei’s main resource, this is the group that creates that value. So recruiting and motivating this group is the biggest priority. And they don’t just want them motivated. They want them completely dedicated to the enterprise. They want them “all in”.
In practice, this is actually pretty complicated. It’s a big company. Employees are at different stages of their lives and careers. How do you get current staff, senior staff and incoming staff to go “all in” in creating value for customers – and therefore the enterprise?
My outsider’s take is that Huawei is mostly focused on motivating teams and team managers. High performance teams with aggressive and dedicated managers are the engine of Huawei. And these are mostly in sales and marketing and R&D. They make the largest contributions to the customers and therefore the enterprise. That’s pretty logical I think. You motivate at the team level and within the departments that matter most. And then you scale it up.
And this brings us back to the main point of this article. How does the US tech ban impact any of this? How does it impact an HR system for motivating the +190,000 employees that continually recreate the company and ensure its survival?
In the long term, it doesn’t.