How times change. Back in the 1958 Mao Tse Tung espoused the principle of continuing revolution in China under the dictatorship of the proletariat. In 2012 Huawei espouses the principles of capitalism and the efficacy of having four rotating CEOs. Chairman Mao's ghost must be rotating as well. By Martyn Warwick.
Some of the gilt seems to be rubbing off Huawei. The Chinese comms equipment manufacturer has grown very quickly in recent years and made its presence felt in many markets traditionally the preserve of US and European infrastructure companies. However, Huawei's most recent financial figures show that 2011 saw its profitability slump by an astonishing 53 per cent even though revenues grew by 11.7 per cent.
And why would this be? Well, ironically, it's because Huawei is now facing increased competition from eager rivals while it is still unable to fulfill its greatest ambition of breaking in, big time, to the US market. The Obama administration is as suspicious and wary of Huawei's antecedents and intentions as was the preceding George W Bush presidency.
Other factors behind Huawei's current discomfort are the increasing strength of the Chinese currency on world markets (the Yuan appreciated by close to 5 per cent against the US dollar over the course of 2011) and the company's long-held determination to make huge ongoing annual investments in R&D. In 2011 R&D spend was up by 34 per cent to 23.7 billion Yuan. In 2010 that figure was 17.65 billion Yuan.
And Huawei continues to employ more and more staff. It took on a further 30,000 workers in 2011 and the company's global head count now stands at 140,000.
That said, Huawei's overseas revenues (at 138.36 billion Yuan) were more than double the revenues earned from its massive home market. They stood at 65.57 billion Yuan in 2011, a year-on-year increase of 5.5 per cent. In contrast, overseas revenues were up 15 per cent year-on-year.
Interestingly, infrastructure sales still make up the lion's share of Huawei's annual revenues. In 2011 these accounted for 115 billion Yuan (the equivalent of some £11.3 billion Sterling) out companywide total revenues of 204 billion Yuan.
Nonetheless, a big pert of Huawei's strategy is to shoulder its way into the global smartphone market and to this end the company has introduced (and very, very expensively marketed) its very own suite of branded handsets, the star of of which is the ultra-thin Ascend P1.
Huawei shipped 20 million of its own handsets last year and forecasts that it will sell 60 million of them in 2012.
Commenting on the figures, Huawei's current and acting CEO, Ken Hu Houkun, said, "The downward spiral in the global economy, combined with other factors like political turmoil in some regions and exchange rate fluctuations, has impacted our company this past year."
Simultaneously, Huawei's founder and former PLA officer, Ren Zhengfei, attempted to steady the ship. In an open letter to staff he provides a lengthy explanation for, and the rationale behind, the company's plan to have four CEOs (the man himself and three others, Guo Ping, Eric Xu Zhijun and the aformentioned Ken Hu Houkun)) who will rotate into and out of the hot seat every six months.
He wrote, "Due to technological dynamics and market fluctuations, Huawei has adopted a rotating CEO system in which a small group of executives take turns to fulfill CEO duties. Compared to one single CEO who is expected to handle multiple affairs each day, have in-depth insights, and set the right direction, a group of rotating and acting CEOs should be more effective.... By authorizing a group of "bright minds" to act as rotating and acting CEOs, the company allows them to make decisions within certain boundaries while they face a constantly changing world. This is our rotating CEO system."
Harking back to the glory days of the emperors (something Mao would not have permited) Mr. Ren continued, "A rotating system for leaders is nothing new. In times when social changes were not so dramatic, emperors could reign for several decades and create periods of peace and prosperity. Such prosperous periods existed in the Tang, Song, Ming, and Qing dynasties. The rotational period for each emperor lasted several decades. Some companies in traditional industries rotated their CEOs every seven or eight years, and these CEOs experienced some prosperous times in their industries. Today, tides rise and surge; companies are springing up all over the place while others are quickly being swept away. Huawei hasn't found a way to adapt well to a rapidly changing society. Time will tell if the rotating CEO system is the right move or not."
Ren Zhengfei added, “Huawei's rotating and acting CEOs are comprised of a group of executives. As they seek harmony in diversity, they can help the company adapt quickly to changes in the environment. They make decisions collectively, which avoids corporate rigidity caused by any particular individual being too obstinate and also avoids the uncertainties caused by unexpected risks to company operations.”
Obviously well-aware that he could well face severe criticism of the novel plan if things don't go well, Mr. Ren concluded by asking for time to let the strategy be properly tested. He wrote, "We must not be too critical of our rotating CEO system. Leniency will help them succeed."
Mao wouldn't have agreed with that either. There a was a man who liked to deploy the stick rather than the carrot.
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