Friday, January 10, 2014

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. 

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