Case Study: Huawei

Executive Summary:

Huawei is currently considered a market leader in global telecommunication. The Chinese giant

is not only the world's number one smartphone manufacturer but also a front line runner in the

global 5G development race. Huawei was founded in 1987 by an ex PLA telecommunication

expert Ren Zhengfei with help of a 70M Chinese Yuan loan. Under his leadership, Huawei grew

from being a small network equipment manufacturer to a global technological giant. Initially,

Huawei reengineered foreign equipment to create their own copied version but with the passage

of time, it started to spend in its own research and development programs and became self-

reliant. Huawei started manufacturing smartphones in 2003 and by 2018 the smartphone business

contributed to 50% of its global to 721 Billion Chinese Yuan revenue. However, Huawei soon

got indulged in American-Chinese global rivalry. In 2012 the company was targeted by United

States federal agencies that accused it of spying on behalf of the Chinese government. Though

Huawei continued to deny this accusation, United States continued pressing its claim. 

President Donald Trump raised suspicion against Huawei multiple times during his campaign. In

2018, The Trump government imposed sanctions on Huawei through the defense authorization

act which restricted US government functionaries to engage in any business with Huawei. This

imposed a complete ban on Huawei’s products and technology equipment in the US government

department and their subsidiaries. United States government also forbade its allies to use

Huawei’s technological assistance in their communication networking. This advice was also

wrapped with US A’s threat to cut off intelligence sharing with states that use Huawei’s

networking or gadgets. This resulted in a similar ban on Huawei in Australia, Japan, and New

Zealand. Huawei management reacted against this ban and went to Federal court against the US
government for their action against the company without providing any legal justifications. They

also hired a lobbyist to promote their cause in Congress. However, the situation got worse when

in May 2019; President Trump issued an executive order that added Huawei into the entity list.

Huawei’s inclusion in the entity list created a blanket ban on all US companies to deal with

Huawei without government permission. The executive order gave 3 months to Huawei’s

suppliers to retreat from all deals from the Chinese manufacturer and find other buyers. Though

the government did not provide any legal proves, they claimed that this act was done under the

threat of Chinese espionage through Huawei. This was a huge shock for Huawei and the

Americans who worked for Huawei or its subsidiaries. Huawei lost its major chip suppliers like

Qualcomm, Intel, and Micron which significantly reduced its capacity to manufacture

smartphones in the future. Similarly, Huawei also lost out on its android system’s capability of

connectivity with important applications supplied by US companies like Google, Microsoft, and

Apple. As per Huawei’s CEO, this will cost Huawei 30 Billion$ in revenue cuts while its

American suppliers will also face a loss of 56Billion$ over the next five years. Though the Osaka

talks between President Trump and President Xi Jinping caused a minor relief for Huawei, it is

still in the entity list by the US federal government (Inkster, 2019). The company is currently

looking into multiple options including legal remedies and diplomatic pressure building along

with market diversity and self-sustainability. However, the current crisis has influenced the

Huawei’s credibility and sustainability for the coming years.

Immediate Results:

The actions of the United States government were not taken positively in China. Chinese

government considered these actions as a part of the United States' global campaign against

China and Chinese business interests. The Chinese government showed anger and severe
displeasure over the act by the US government (Nanaj, 2020). This further exacerbated the

already heated USA China global trade war. The US economy also faced dire consequences of

this act. Huawei buys out supplies worth 11 billion dollars from American manufacturers every

year and the ban on Huawei meant that its local suppliers will lose 56 Billion$ in the next five

years while tens of thousands of American citizens will lose their jobs. Huawei’s long-range

networking equipment was also a major source of connectivity in rural America, this ban would

cause rural carriers to remove their Huawei equipment and rebuild their networking mechanism.

The higher costs of this rebuilding will push many small service providers and carriers out of the

business. Similar issues will be faced by other countries that followed America in restricting

Huawei’s operations. Not only this impact will cost them thousands of jobs and billions of

dollars in revenue but they will also face Chinese diplomatic backlash. However, the worst

impact will definitely be the ultimate decrease in 5G development spending by Huawei and

many countries including the USA will not be able to provide its citizens with the latest

technology (Nanaj, 2020).

Huawei’s options?

Huawei has multiple options available to them. First, they can start a legal fight in US courts.

They are already in a legal suit against the federal government and have hired Morgan Lewis and

John Day firms to represent their case. The primary advantage of this action would be that a

victory in courts will give Huawei a moral edge over the US government and improve its image.

They have a strong case since the United States government has not given any evidence to prove

that Huawei is affiliated or working with the Chinese government. The judiciary in the United

States is independent and there is a chance that it may favor Huawei. However, there is a

disadvantage to legal action; it is slow and unpredictable. Legal lawsuits might take years and
this time will cause Huawei billions of dollars in loss. Secondly, there are chances that the US

government uses its national security as an excuse to pressurize courts in favoring against

Huawei.

The next step is the use of diplomatic measures. The Huawei management took President Xi

Jinping's help in the past who talked to President Trump in Osaka about Huawei. The Chinese

government can use its influence over other US allies like Britain and France to keep their

markets open for Huawei. It is possible to do that since China is a big player in global geopolitics

however, it will further emphasize the US point that the Chinese government is backing Huawei

and might weak its case in US courts.

Another option that Huawei is currently looking at is to engage in self-sufficient measures and

improve its in house software manufacturing so it does not need US suppliers. The company is

already developing “Harmony” its first smartphone operating system which will be superior to

android. It is in talks with Daily motion to counter YouTube and many more. Huawei is also

looking to tap large markets in Africa and Asia to substitute its market loss in Europe.

Best Option for Huawei?

The most important thing for Huawei right now is to become self-sufficient in creating its own

technological solutions and application software. The company should remain its focus on

building up Harmony and introducing it as a substitute to android and IOS but with better

efficiency. It must also continue its work ion 5G technology research and release its new

networking mechanism as soon as possible. This will create a market need for Huawei in western

markets and the market forces along with Chinese pressure will cause many European countries

to allow Huawei in their premises. Till than Huawei can target new Asian and African markets

that can easily provide it with a similar revenue stream. Along with these measures, they can
continue their legal and diplomatic efforts but this self-sustainability effort is the primary way for

Huawei management.

Long term Impacts:

In the long run, this dispute will further damage US-China relations. USA and China are already

in a global trade war with both countries using measures to counter each other in all global

matters. This matter will cause pressure on the Chinese government to act similarly to US

companies. China has already said that it is considering banning Ericson and Nokia if the EU

bans Huawei. Many US applications like Facebook, Google, and Yahoo are already banned in

China and many other companies can face the same consequences. This is not good for both the

global geopolitics and technological advancement, On one hand, the US ban will slow Huawei’s

research in developing 5G networking, it will also cause thousands of jobs and billions of dollars

in revenue for both countries (Mascitilly and Chung , 2019). These types of measures will

damage the attempts of globalization and will effect international free trade agreements and

liberal economical structure.

Learning Outcomes

This case study gives two important insights: first, it tells the amazing success story of Huawei

from being a minor technology company to a global smartphone leader. This growth of Huawei

is interesting to learn about and gives an idea of how post-communist society in China gave rise

to global businesses. Secondly, and most importantly, it tells that how global geopolitics may

affect business and trade, It gives the notion that whatever one argue about globalization and

international free trade, political and diplomatic factors greatly influence business interests of

multinationals and until political tensions between countries are not solved, the dream of

globalization is far away from reality.

Nanaj, A. (2020). Huawei blacklist: Τhe effect on the USA technology sector.

OOR, E., & Tao, Z. (2019) Huawei at cross road: Reacting to US equipment ban. The Hong

Kong University

Mascitelli, B., & Chung, M. (2019). Hue and cry over Huawei: Cold war tensions, security threats or anti-

competitive behaviour?. Research in Globalization, 1, 100002.

Inkster, N. (2019). The Huawei Affair and China's technology ambitions. Survival, 61(1),

105-111.