Cisco vs. Chinese military partner - Huawei Technologies

Chinese Military Partner - Huawei Technologies
Santa Monica, California based research powerhouse - RAND Corporation, prepared an interesting 332 page report for the United States Air Force titled - A New Direction for China's Defense Industry. RAND made the following 4 points about Cisco competitor - Huawei Technologies: Point 1: Private Chinese companies such as Huawei, by contrast, represent the new digital-triangle model, whereby the military, other state actors, and their numbered research institutes help fund and staff commercially oriented firms that are designated national champions, receive lines of credit from state banks, supplement their R&D funding with directed 863 money, and actively seek to build global market share. The military, for its part, benefits as a favored customer and research partner.
The Three Vertices of the Digital Triangle

Point 2: In analyzing the dynamics of the IT sector, it is first necessary to divide the defense portion of the IT sector into two related but distinct categories. The first includes those subsectors providing the PLA (People's Liberation Army) with commercial-off-the-shelf IT systems, such as routers, switches, and computers, which have become increasingly central to the digitization of the U.S. military. Key companies in this category include such red chips (the Chinese equivalent of U.S. blue-chip companies) as Huawei, Zhongxing, Datang, Julong, and the Wuhan Research Institute, all of which are private companies spun off from state research institutes that enjoy national champion preferences within the system. They are marked by new facilities in dynamic locales, such as southern and eastern China, a high-tech workforce, and infusions of foreign technology. These firms are not obligated to provide a social safety net for thousands of unemployable workers and their families in rural areas. Instead, they hire and fire staff using market-based incentives and stock options.
Point 3: The two most important categories of Chinese IT firms, particularly in dealings with foreign multinationals, are telecommunications equipment and electronics. Publicly, the major players in telecommunications; Huawei, Datang, Zhongxing, and Great Dragon (Julong) appear to be independent, private-sector actors. By contrast, many of the electronics firms are grouped under ostensibly commercially oriented conglomerates, such as China Electronics Corporation. However, one does not need to dig too deeply to discover that many of these electronics companies are the public face for, sprang from, or are significantly engaged in joint research with state research institutes under the Ministry of Information Industry, defense-industrial corporations, or the military. Indeed, each of the four tigers of the Chinese telecommunications equipment market (Huawei, Zhongxing, Datang, and Julong) originated from a different part of the existing state telecommunications research and development infrastructure, often from the internal telecommunications apparatus of different ministries or the military. These connections provide channels for personnel transfers, commercialization of state-sponsored R&D (spin off), and militarization of commercial R&D (spin-on).
Point 4:
Ren Zhengfei
Huawei Shenzhen Technology Company was founded in 1988 by Ren Zhengfei - former director of the PLA General Staff Department’s Information Engineering Academy, which is responsible for telecom research for the Chinese military. Huawei maintains deep ties with the Chinese military, which serves a multi-faceted role as an important customer, as well as Huawei’s political patron and research and development partner. Both the government and the military tout Huawei as a national champion, and the company is currently China’s largest, fastest-growing, and most impressive telecommunications equipment manufacturer.

Read the entire 332 page RAND report Since Huawei is a major global competitor of Cisco, how do you feel about its tight partnership with the Chinese military?

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Copyright © 2008 IDG Communications, Inc.

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