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Friday, January 10, 2014

How the leading Chinese Telecommunications Companies acquire innovation capability

By EKPUNOBI Victor, UWHUMVAKPOR Uvie Larry, and CHIMEZIE Clifford C.

How did Huawei, ZTE, and all the other well-known telecomms companies achieve what they did?  We will consider the companies along four dimensions: company aspiration, marketing, innovation, and management. 
Introduction: ABOUT HUAWEI
Huawei is a Chinese multinational networking and telecommunications equipment and services company headquartered in Shenzhen, Guangdong. It is the largest telecommunications equipment maker in the world, having overtaken Ericsson in 2012.
Huawei was founded in 1988 by ex-military officer Ren Zhengfei and formed as a private company owned by its employees. Its core missions are building telecommunications networks; providing operational and consulting services and equipment to enterprises inside and outside of China; and manufacturing communications devices for the consumer market. Huawei has over 140,000 employees, around 46% of whom are engaged in research and development (R&D). It has 20 R&D institutes in countries including China, the United States,  Germany, Sweden, Ireland, India,Russia, and Turkey,  and in 2011 invested around US$3.74 billion in R&D.
In 2010, Huawei recorded profit of 23.8 billion CNY (3.7 billion USD). Its products and services have been deployed in more than 140 countries and it currently serves 45 of the world's 50 largest telecoms operators.
Introduction: ABOUT ZTE
ZTE Corporation (formerly Zhongxing Telecommunication Equipment Corporation) is a Chinese multinational telecommunications equipment and systems company headquartered in Shenzhen, China. It is the world's fourth-largest mobile phone manufacturer measured by 2012 unit sales[2] and the world's fifth-largest telecoms equipment maker measured by 2011 revenues (after Ericsson,Huawei, Alcatel-Lucent and Nokia Siemens Networks).[3]
ZTE's core products are wireless, exchange, access, optical transmission and data telecommunications gear; mobile phones;[4] and telecommunications software.[5] It also offers products that provide value-added services,[6] such as video on demand and streaming media.[7] ZTE primarily sells products under its own name but it is also an OEM, manufacturing some products which retail under other brand names.[8]
ZTE was founded in 1985 by a group of state-owned enterprises associated with China's Ministry of Aerospace.
1.    Aspiration level
 Aspiration level is a soft index which is difficult to measure—not like revenue or investment level which can be expressed clearly by numbers.

Huawei’s aspiration level leads the pack.  This company has invested heavily in research and development, as seen in the high number of patent applications – number 1 in 2009.  Ren Zhenfei, founder of Huawei, expects that Huawei’s development in future can go beyond the dependence on single competition element including technology, talent and capital; no longer rely on blind low-cost production. He expects Huawei to become a business organization with high effectiveness, and eventually grows into an international enterprise.

By comparison, ZTE’s culture is pragmatic, controllable, invisible and tangible. Like Huawei, ZTE’s investment to R&D is also about 10%, but they are more cautious about entering new areas.  Before an obvious market potential is visible, they are extremely cautious to present to market, and every further step has to be verified by visible market potential. We conclude it has a moderate aspiration level, which is also heavily rooted in the company’s history and culture.

At Datang, the high aspiration level is fulfilled through the government’s financial support, not though market. Quite a large part of the research funding of Datang is from the central government’s budget. This kind of aspiration level is not sustainable, because it is sustained largely by external funding support.

Eastcom suffers from lack of sufficient aspiration level. From the very beginning, it was an OEM factory and more than ten years later it is still an OEM factory. Even employees at the company despise its overwhelming interest in making money and shortage of pursuit of core competency.

When UTstar gained sudden ascendancy, many people envied its success.  But it declined just as fast, and many think it’s because it failed to build core competency and core product. This opportunism, coupled with a disordered management, led to its short-term success story. 

2.    Marketing Capability
Marketing capability simply means market judgment.
Huawei and ZTE go together on this one. They are both very good at marketing, in fact they are overwhelmingly skilled. We know that Huawei and ZTE are persistent in R&D investment, but they are also very careful in investing in R&D: every decision has to be verified by market demand, confirmed by market potential. The typical example is their strategy of “encircled cities from countryside”.

Around the early 1990s, the two companies perceived that although the Chinese mobile market was mostly occupied by multinationals, these big companies had no time to take care rural market and marginal region. Just because these niche markets were ignored by the big competitors, or more exactly were despised as lower end market by the MNC, Huawei and ZTE decided to develop self-owned product to meet the demand for rural telephony and marginal network. The breakthrough started from these niche markets and then based on the small breakthrough, they nibbled the rest market little by little.

With regard to the two companies Eastcom and UTstar, we have to admire their excellent market view. Eastcom was a very small telecom equipment manufacture before the early of 1990s, but they’re aware the tendency when technology evolves from fixed line to mobile, and grasped the opportunity by first working as OEM and agent for Motorola.

3.    Learning And Innovation
Learning and innovation are very crucial in all telecommunication industries, and depend heavily on R&D i.e. Research and Development. All companies willing to make progress always have a group of people or a department working on the research and development. The future of the company might not be certain with the absence of R&D.
The R&D in telecommunications can be divided into three layers. The first is the physical layer of research; they are the basic algorithm research which can make revolutionary change in telecom industry. The second layer is the software development, for example chip design. The third layer is the application development.

The latter two layers demand large amount of brain labor to test many changes of software. Whereas the high cost of R&D labour in developed countries limits their activities, Huawei takes advantage of the abundant labor resource, continuously investing in the second and third layers of development by sustained testing and adjustment, and finally realizing technology improvement again and again. 

Huawei’s hi-tech enterprise is termed “knowledge-labor intensive” by the Chinese.  Knowledge-labor refers to that labor who grasps professional knowledge. The strategy fully takes advantage of the human resource of high-tech industry in China, while also avoiding the most challenging technologies, since one has to admit that the current Chinese research level still cannot overcome the core technology.

Generally speaking, the observation and discussion with Huawei and ZTE tell me that their catch-up in technology learning is totally relying on their own development. The most common method is that they import foreign technology or product, then deploy large amount of engineers to imitate and modify. This is called “technology-borrower.”

Management capability
Management capability is heavily correlated with innovation capability. Successful R&D is absolutely not simply adding up talent and capital, neither is it an issue that can be solved by FDI. An effective and sustainable R&D demands continuous catch-up in technology, from the beginning it requires an accurate market sense, then it is going to involve an organization’s comprehensive decision making capability, finally follow-up project management and logistics management are also necessary.  Conversely, poor management will eventually neglect talent and waste capital.

Huawei learns a lot from western countries.  From 1992, Ren visited companies in the US, European countries and Japan, including Alcatel, Siemens and other leading companies. After visiting Hughs, IBM, Bell Innovations and HP in 1997, he proposed a reform plan after deliberate consideration. The proposal laid foundation for Huawei’s global operation strategy. The proposal presented by Ren was not based on the “Chinese way”, but “integrating global resource into Huawei’s network” based on global perspective.

From 1998, Huawei decided to focus on IBM as its learning model and strategic partner in the path to become an international enterprise. Huawei firstly defined its transformation from telecom equipment manufacturer to telecom total solution provider and service provider, in order to fully take advantage of full scale products line.

In the following five years, Huawei invited 50 IBM management consultants to work on the Huawei project in order to improve internal management and business procedure, by investment 50 million USD. In addition, Huawei set up a 300-employee management engineering department to handle implementation of IBM’s recommendations.

 ZTE: There are many studies about Huawei’s management, but few about ZTE. One of the reasons is that Huawei’s “wolf” culture is certainly attention-grabbing, but the “golden mean” of bull culture from ZTE is much less attractive.

Most of the ZTE employees who have been working for them are still with them since the past ten years. ZTE always steadily occupies and expands in the market. In 2000, when IT industry was suffering winter, ZTE kept it as another high speed year; from 2001 to 2003, when other Chinese companies including Huawei tried to freeze hiring or even laid off many people, ZTE still kept hiring many new employees. This shows a very high management capability.

Huawei and ZTE are quite successful when facing management transformation.  Huawei applies the western system which manages people by a regulation and proceeding. ZTE follows a Chinese Confucianism management model to manage people by relationship and bond. Both of these two systems make it possible to motivate all the people in the company to work for the enterprise by combined efforts, but not get collapse for their own interest.  Both have created a management system which is supported or accepted by most of their employees.

From the case of UTstar, we find that although they bought a handful of foreign companies, they failed to transform the external knowledge into their core competency. Companies like UTstar remained on the surface in their adoption of various technologies; they did not manage to absorb and make these purchased technologies their own. It is not because of wisdom or foolishness of the company, it is because of the management quality.

Eastcom expected FDI could bring technology improvement, and reaped tragic results. 

All those other companies, like Dragon, Huawei, and ZTE, that ever acquired core technologies mostly depended on self development.  These companies started when the Chinese market just opened, in the background of limited information and knowledge from foreign countries, they depended on their own capability and university resources to develop their own technology.

Based on the 2011 paper:  A COMPARISON STUDY OF THE CHINESE TELECOM INDUSTRY, by Hui Yan, Aalborg University, Denmark. 

The three authors are undergraduate students in the Department of Electrical Engineering at Bells University of Technology.  They studied Hui Yan’s paper and prepared this summary under my supervision  for the course CEN 302: Introduction to ICT.  - Tosin Otitoju

ICT IN CHINA: Aspiration and Innovation in Chinese telecoms companies

By IGBERAESE J. Abumere, DOSUNMU Ayomide, CHINAGOROM Y. Chinonyerem, and OLULOLA Oluwasefunmi Tolulope

The Chinese telecom companies are recognized as the most innovative industry in China.  Besides Huawei, there was also the emergence of other telecom companies such as Datang, Great Dragon, ZTE among others.

We have many questions about the emergence of these Chinese telecom industries.  The most important question is: why did Huawei and ZTE emerge as the leading telecom companies in
China rather than other companies with strong backgrounds and higher starting point like Datang and Great Dragon.  One reason is what the author calls Aspiration Level. 


Aspiration Level
Military style, high survival pressure, accurate eyesight, high efficiency
Purpose to be the first class enterprise
State owned background, but learnt to be pragmatic in the south business environment.
Purpose to overtake Huawei
Half academic, half business
Financed by the government to do R&D for a long while
Purpose to do standardisation
Originally with high aspiration level, but cannot follow further constrained by system problem.
Almost disappeared
From the beginning, it aimed to earn money
Tried to upgrade but eventually still ends up with OEM.
Aspiration level is a soft index which is difficult to measure unlike sales revenue and even investment level which can be expressed clearly by numbers. Aspiration level is an index which is difficult to measure but heavily influences the company’s employees, like an invisible power.

A company’s aspiration level can be reflected in a company’s ultimate goal---through analysis of a company’s ultimate goal, we can preliminarily identify the tone of the company’s culture. Obviously, Huawei has been recognized as the “wolf company” in the industry for a long while, it means a company with high aspiration level to be innovative and creative. 

Further, the aspiration level reflects in how entrepreneurial the company remains. Huawei has kept investing research and development - up to 10% of its total revenue - for many years.  In 2009, Huawei became the No.1 patent applicant (it was No.2 in 2010.)

Huawei’s high aspiration level may be related to the founder’s thoughts of Huawei and the background of the company.  Huawei is typical grass-roots company without any government or state background, it all developed by its own efforts. The founder Ren Zhenfei was an army man for many years, possessing soldier’s qualities – a strict, high pressure, persistent personality. As the spiritual leader of Huawei, Ren’s personality has largely influenced the culture of the company.  

Innovation is both a process and a product. It is
the organizational and social processes that produce innovation, such as individual creativity, organizational structure, environmental context, and social and economic factors
an outcome that manifests itself in new products, product features, and production methods

Huawei employed the open innovation method (the use of purposive flows and outflows of
knowledge to accelerate internal innovation and expand markets for external use of innovation

Innovative capacity and marketing capacity complement to each other. In fact, marketing capacity divorced from learning and innovative capability could only bring temporary resplendence.  A company without capable marketing capability cannot raise sufficient resource to support learning and innovation.

Huawei and ZTE are persistent in R&D investment, but they are also very careful in investing
in R&D: every decision has to be verified by market demand, confirmed by market potential.

Huawei’s catch-up in technology learning totally relies on their own development. The most common method is that they import foreign technology or product, then deploy large amount of engineers to imitate and modify. This is called technology-borrower. When Mr. Ren was invited to give a talk after visiting couple of hi-tech companies, he said something meaningful: “Founder has technology but no management; Lenovo has management but no technology; Huawei has neither technology nor management.”   

Many audiences thought that it was a humble comment from Mr. Ren. However, from Ren’s point of view, the real “core technology” should “create opportunity and lead consumption”, which is quite different from Huawei’s “seek and grasp opportunity” technology.  

Generally speaking, usually the Chinese enterprise can only notice an opportunity after it emerges from potential stage, if they can make correct decision and grasp the opportunity then they can get success.   Huawei is a successful example of this.   However those leading MNC are conducting another method by “creating opportunity and leading consumption” relying on their R&D to create opportunity.  Thus Huawei is defined as a “late comer” in the market: for late comer, it is to seek and grasp opportunity; for forerunner it is to create opportunity and lead consumption. Ren’s point is that Huawei’s technology which can only ”seek and grasp opportunity” is not the true technology, only the “creating opportunity and leading consumption” can be defined as true technology .

Technology innovation is fundamentally based on innovation talent, while talent used is heavily
relevant to capital and culture. Where can Huawei acquire these talents? Most of their employees are directly hired from university. For example, Huawei hired directly from campus less than 2000 graduates from 2002 to 2008. In the year of 2009 it reached 6000. This is called “circling talents” strategy. For example, Huawei claimed that they would hire all the engineering master graduates of the top 10 in the class from top universities.

Major source: A COMPARISON STUDY OF THE CHINESE TELECOM INDUSTRY,  published 2011.  By Hui Yan, Aalborg University, Denmark. 
The four authors are undergraduate students in the College of Engineering at Bells University of Technology, Ogun State, Nigeria.  They prepared this paper under my supervision for the course CEN 302: Introduction to ICT. 

Thursday, January 09, 2014

Business Process Outsourcing in India and related HR Challenges

Notes written by Ozodi ARIAHU and Aramide BELLO
(Based on Thite, M. & Russell, R. (2007). India and Business Process Outsourcing.)

India is a country of complete contrasts – five star hotels surrounded by slums, white-collar workers rushing past unskilled labourers using primitive technologies, new globally branded cars navigating congested roads along with antiquated models, freeways and flyovers that suddenly lead to unpaved, snarled roads and so on. 

India Country data:
·         Three times the size of Nigeria, with triple the population density
·         Economy ranked 12th largest in the world
·         From the 2011 census, 58.2% of the labour force is in agricultural production (cultivators and labourers), 4 % in household industry
·         The remaining 37.6% would include both manufacturing industry and service provision

The Indian IT/ITeS/BPO Sector

The spread of the internet, with cheap and abundant telecommunications bandwidth, has enabled businesses to parcel out white-collar work to specialist outside suppliers, with countries such as India emerging as important hubs for producing services for consumption at the other end of the fibre-optic cable (Edwards, 2004).  This type of work is classified under service provision and termed the Information Technology, Information Technology-Enabled Services, and Business Process Outsourcing (IT/ITeS/BPO) sector.  

IT services include
·         Systems integration and information systems consulting.
·         Application development and support as well as IT training services.

IT-enabled Services (ITeS) include
·         Back-office data entry and processing.
·         Customer contact services (such as complaints, tele-marketing, collections support).
·         Corporate support functions (such as HR, finance, procurement, IT services).
·         Knowledge services and decision-support (such as customer analytics, claims and risk
·         management and consultancy).
·         Research and development services.

Outsourcing is the practice in which companies move or contract out some or all of their manufacturing or service operations to other companies that specialize in those operations or to companies in other countries. 

An example would be an American jeans manufacturer that closes a factory in the United States and hires a contractor in India to produce its jeans, which are then imported and sold with the American company’s logo.  According to Forrester Research, nearly half a million computer hardware and software jobs are expected to be outsourced from the United States to other countries by the year 2015.

Corporate executives say outsourcing helps their companies lower costs, increase profits, stay competitive, and that they ultimately transfer cost savings to the consumer as lower prices.

Currently, the BPO sector appears poised on an unstable knife edge. It involves a young, highly educated workforce conducting often routine work for which, in many cases, it is patently over qualified. As a result, the explosive growth of BPO in India has also given rise to startling attrition rates and working conditions that, although perhaps (temporarily) acceptable in urban India may well prove to be far short of employee aspirations. 

A brief history of Business Process Outsourcing in India
To most Indian software companies, BPO came in handy in the face of the downturn in the IT industry. Another stroke of luck for the industry was the cheap availability of abundant and under-utilised fibre optic cables laid under the sea by western companies during the e-commerce hype generated in the 1990s and their increasing bandwidth capacity (Friedman, 2005).

While the Indian software industry took more than 10 years to mature and climb up the value chain, the Indian ITeS/BPO industry has taken just 5 years (between 2000 and 2005) to do just that. Many of the top Indian software companies, namely; Infosys, Wipro and Satyam, have now set up subsidiary companies such as Progeon, Wipro BPO, and Nipuana, which are their
ITES arms.

Today, there are around 3000 IT companies in India currently exporting to over 150 countries with an employee base of around 700,000 and the top 5 Indian IT software & service exporters are Tata Consultancy Services, Infosys, Wipro, Satyam and HCL (Nasscom-c, 2005).

In line with this growth, the ITeS/BPO/KPO industry now employs not only generic graduates, but also MBAs, doctors, engineers and chartered accountants as process executives. Even for Customer Service Representative jobs, which are relatively low-skilled, the vast majority of employees are university graduates.

Apart from its sheer size, India currently constitutes an intriguing part of the globalization story
for its pioneering of what can be termed an Export Led Services Provision (ELSP) model. Today, anybody who visits India will see that changes are everywhere and the country is well and truly on the move.

Despite the spectacular growth and visibility of the IT/ITES sector, it is still largely irrelevant to the vast majority of Indians.  Altogether, the combined IT/ITeS/BPO sector employs under 1 million workers out of a total workforce (waged, salaried and other) that is approaching half a billion workers.   Thus it is that despite the tremendous success of IT and outsourcing in India, poverty persists with 35% of all Indians living on less than one US dollar per day. 

Labour and Human Resource considerations

Although Indian IT/ITeS/BPO workers are very inexpensive by Western standards, their salaries are high by Indian standards.  Currently, the sector is devoid of trade unions, while existing unions appear to be unprepared to enter the new economy.  With respect to changes in existing labour codes, a majority of the states have either promulgated a government order or notification permitting all establishments in the respective jurisdictions engaged in IT-enabled services (including call centres) to: work on national holidays; allow women to work through night shifts; and permit offices to function 24 hours a day, all through the year (Nasscom-g, 2005), although such practices have traditionally been banned through urban Shops and Establishment Acts. 

The industry faces skill shortages, but the question here is of quality, not quantity. While it is estimated that approximately 17 million people will be available to the IT industry by 2008 (Nasscom-j, 2005), the problem relates to their employability and trainability.  Jobs in IT minimally require a tertiary degree in engineering, computer science or mathematics, while call centre and data processing operations insist upon a Bachelors’ level degree and high levels of proficiency in spoken and written English.  Most Indians are not employable in the sector, since  literacy rates hover around 65 per cent for the population as a whole and at 45% for females. 

Attrition is the biggest challenge currently facing the ITES/BPO sector. The ‘race for talent’ as one HR manager described it between BPO suppliers is fierce; the poaching of workers has created much distrust among industry participants. Top five reasons for turnover in the industry: dissatisfaction with salaries (47%), lack of career opportunities (45%), leaving to pursue higher education (29%), illness (28%) and physical strain (22%) (DQ-IDC, 2004).

Marriage and pursuing higher education were frequently quoted as the main reasons for attrition. The night shift work that most of the employees are engaged in causes them, particularly, women, to leave this employment when they get married; hence, marriage is given as the reason for attrition.  To retain those workers who would leave for higher education, some companies are beginning to explore the possibility of providing scholarships, tuition reimbursement and special arrangements with education institutions that would allow them to offer courses in the workplace.

BPO companies may feel squeezed for profits.  Clients on multi-year contracts with BPO providers expect costs to fall over the course of the tender as the provider becomes more experienced and familiar with the client’s products and markets.  They also face shortages in leadership and supervisory skills, particularly at the team/project level.

Authors are undergraduate students in Electrical Engineering at Bells University of Technology, Ogun State.  They prepared these notes under my supervision for the course CEN 302: Introduction to ICT. 

Previously on UpNaira