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An Insight, An Idea with Ren Zhengfei

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(Highlights, abridged for brevity and clarity)

January 22,2015, at World Economic Forum, Davos

1. Linda: So first, a bit on Huawei. It's a remarkably fast growing company, in 24 years or so it's become the world's biggest telecom equipment vendor, and it's also China's first global brand according to Interbrand. Of course, Huawei has had its challenges, like any company would. In the session, we are going to hear the insights of Mr. Ren into why he founded the company, how he sees the company's future, and I think you will enjoy this, he's going to share his management philosophy and his views on the future.

So let me just start off by asking you: what motivated you to start and found Huawei?

Mr. Ren: I founded Huawei quite by chance. In the early 1980s, the Chinese military was being streamlined, and many of us were collectively dismissed by the state. We needed to enter society and make a living. The most visible trait of soldiers at that time was that they knew nothing about the market economy. We felt ashamed to earn money from others. How could we take others' money? In addition, we thought that people should trust one another. If we gave money to others, we thought they should then give us goods in return. However, the result was that we didn't earn any money; instead, we were cheated.

Therefore, when we first arrived in Shenzhen, we made mistakes. I was a Deputy Manager in a small state-owned enterprise made up of more than 20 employees. Some people offered to sell us TVs, so we gave them money but didn't receive TVs in return. Thus, we needed to get the money back, which was a painful process. Even worse, our supervisors didn't think we had acted correctly, and didn't provide us with funds. As a result, we couldn't hire a lawyer, and had to get the money back on our own. During this process, no one helped us. So, I myself read through many books on law and figured out two elements about the market economy: The first is customers and the second is the source of goods. In between the two is the law, which governs the transactions between them.

It was impossible for us to create customers. Therefore, we needed to find and control the source of goods. We needed to be familiar with the law and rules regarding transactions. We didn't have goods so we went to find them and began to act as an agent. Later, we launched our own R&D efforts so we could have sufficient "goods". We had a tough time throughout this process but gradually learned what the market economy really meant.

Because I hadn't done a good job in the state-owned enterprise, I wrote a letter of guarantee, but they refused to accept me. I therefore had to start my own business. At that time, private companies were not in fashion. Release of Document No. 18 from the Shenzhen Municipal Government in 1987 allowed individuals to start private high-tech companies. That was why we stepped onto this path of no return.

We started the telecom journey because we were naive. We thought that the communications market was so big, filled with plenty of products, and in any case we would have a chance to succeed if we developed small products. However, if one parameter of a communications product didn't meet the necessary standards, it would be a defective product. Communications concerns the entire network, and a defective product could result in interruptions to communications worldwide. Perhaps it was rather harsh to require a small company to meet such stringent technical standards. After all, how could a small company raise the bar for technical standards? We survived by paying a high personal cost. There was no turning back because we had no money left. We could only move forward. This was how we started upon this journey of no return.

You see, it was not as romantic as you imagined. Neither was it so wonderful. We were forced into the communications industry.

2. Linda: It must have been very difficult for a private company in China to compete against state owned enterprises. Just help us understand a little bit about the challenges a Chinese company faced and still faces and if there's something that you wish could have been different.

Mr. Ren: Huawei was founded in 1988. At that time, China was undergoing its reform and opening-up process, but still didn't have a favorable environment for private enterprises to grow. A historical problem also existed at the time: A large number of educated young people had returned from the countryside to the city. However, the government couldn't find jobs for everyone, and thus called on them to start their own businesses, for example, selling steamed buns or tea. These businesses turned out to be unexpectedly successful. Although private businesses started to grow, even I deemed it rather impossible for them to become hi-tech companies.

At that time, we didn't feel any competition or pressure from state-owned enterprises (SOEs) because we were too small and SOEs were just too overwhelming. As the world began to grow more quickly, a large amount of capital was landing in China from abroad and SOEs were downsized considerably. As a result, we had to compete with foreign companies. We never felt any pressure from SOEs.

3. Linda: Can I ask you a little bit about some of your personal challenges in starting the company? You are the oldest of seven children, and your parents have gone through quite a trying time during the Cultural Revolution. You ended up going to Shenzhen for the reasons that you described. I'd like to hear a little bit about how it has been personally for you to found and then to run such a massive company in such a short period of time.

Mr. Ren: My parents were school teachers at a place with multiple ethnicities in the countryside in Guizhou Province. I went to primary and junior middle schools in a very small county called Zhenning. I later moved to another small city called Duyun with my parents, where I finished senior middle school and then enrolled at college. I left Guizhou to study architecture at Chongqing Institute of Civil Engineering and Architecture, but I never became involved in architecture. At that time, children in remote areas were somewhat blind when it came to life choices, and could be influenced by a novel or some casual remarks from others. As a matter of fact, the life I initially lived was completely different from the path I actually wanted to take. In the Internet era today, knowledge is readily accessible to children, and their horizons are broad. They will not idle time away like we did back then. Children in rural areas are much better off today because they can learn about the world from the Internet.

The hardships our parents suffered were actually experienced by the entire society. The hardships my family experienced were not as tough as those of others.

After graduating from college, it was the time of the Cultural Revolution and many people didn't go to work. Personally, I didn't want to idle my life away, so I studied electronics myself using textbooks published by the Workers' University of Shanghai. This type of university was encouraged at that time, and we could buy textbooks from them. Later, in 1974, I took some people to Xi'an Instruments Factory for training. During this period, I was lucky enough to attend a training course at Xi'an Jiaotong University for two Yuan. It was from this course that I learned what a computer was.

At that time, I attended a lecture given by Wu Jikang, a pioneer of computers in China and also one of the developers of China's first-generation computers after he returned from a visit to the US. As the diplomatic ties between China and the US resumed, he was one of the first ten scientists who visited the US. He explained to us what a computer was, and how it could be used for management. I didn't understand a word he said during the two-hour lecture; however, he greatly inspired us and set us on the right path in life.

Everyone here at the World Economic Forum is elite. If you spend some time chatting with children from rural areas, you might change their lives. Otherwise, they will be like me, learning architecture but not taking up the profession. That would be a complete waste of time.

4. Linda: Mr. Ren, you used to be in the Chinese military and then you left the military. Just to be absolutely clear, do you and Huawei currently have any links with the government and with the military?

Mr. Ren: I joined the Chinese military by chance. At that time, the government couldn't even provide sufficient clothing for its people. It's perhaps hard for you to imagine what China was like back then. During my childhood growth spurts, I had few clothes to wear. At that time, the government issued tickets that rationed cloth at units of 1 foot and 7 inches per year. That amount was far from adequate to make a coat or even short trousers. In fact, it was only sufficient for patches. Senior government officials were concerned about this problem, and were looking at whether synthetic fiber could be produced to make clothes for all Chinese people. China then imported a set of equipment for manufacturing synthetic fiber from a French company named Technip Speichim, and built a factory in Liaoyang, a city in northeast China. The factory prepared to produce synthetic fiber that could be used to make terylene fabric at sufficient quantities for the nation.

At that time, no one wanted to work in this place. Also, the Chinese were suffering the upheaval of the Cultural Revolution. As a result, the central government deployed an army to build the factory, and assigned a batch of college graduates to install equipment there. It was at that time I joined the army. I think it was a good choice, even though the conditions were tough in Liaoyang.

When construction was completed, China began to implement its reform and opening-up policy. The country no longer needed as many soldiers, so the railway and civil engineering units were disbanded. We were reluctant to leave, but the government promised that our political credentials and compensation would remain unchanged. So, I continued to earn over 200 Yuan each month. However, when I arrived in Shenzhen, I found that even an ordinary worker could earn more than I did. So, I made the decision to enter mainstream society.

The biggest issue I faced was a lack of knowledge about how the market economy worked. Finding it difficult to fully mesh with mainstream society, I worked in the periphery of the market. Those who couldn't do a good job would be held accountable. I had yet to learn anything about a manager's responsibilities. I wasn't a good manager.

Huawei is a Chinese company. We comply with the rules and policies of the Chinese Communist Party and we love our country. These are our basic principles. Having said that, we absolutely refuse to compromise the interests of any other country. We comply with the laws and regulations of every country in which we do business. At Huawei, we have a Committee of Ethics and Compliance that requires every employee to obey the laws of the local countries in which we operate. No employee is allowed to disobey local laws.

Huawei has maintained strong momentum in the global market. People outside our company may attribute our impressive performance to our "special background". The US government believes that Huawei represents socialism and that we are actively expanding. Some people in China believe that Huawei is a capitalist bud simply because many of our employees hold shares. What do you think Huawei is? I can't give you a definite answer today. What exactly is Huawei? Huawei has over 80,000 shareholders, all of whom are Huawei employees. Not one of these shareholders comes from outside the company, and I hold the largest share at 1.4%. There are many misperceptions about Huawei both inside and outside of China; however, I believe that as long as we continue to work hard, we will ultimately prove our identity. There's no need to exert ourselves to explain who we are. Doing this will harm our business and sales. If we can't make money, how can we survive?

5. Linda: Just to be clear, you won't allow the Chinese government to use Huawei's telecom networks to listen to the secrets of the Americans?

Mr. Ren: There are two types of networks. One is for information transmission and storage, and the other is for searching. What we make at Huawei is the iron sheets used for information pipes. The "water" in the pipes is something that carriers and Internet companies provide. Why would I search for others' information? We only make the iron sheets for the pipes. What can iron sheets do? Iron sheets are neutral and impartial. Likewise, Huawei is rather simple. We have never stolen others' information. Nobody has requested us to do so, either.

6. Linda: Just a final question on this. The US has given you a difficult time in terms of operating in that market. Do you think it's unfair and could you leave that market?

Mr. Ren: First, I've never thought that the US has been unfair to Huawei. Over the past 200 years, the US has become the greatest power in the world, which, to a large extent, is attributable to its openness. This is exactly what Huawei should learn from the US. We should be open-minded to integrate into the world. Only then can we have a bright future. In this day and age, we shouldn't treat other companies as our competitors; rather, we should jointly contribute to the changes in the information society. We need to work with many companies rather than just a few, to explore ideas, theories, and architectures surrounding networks. There is still a long way to go.

We believe that the information society will become very complex, so we should work together to define the future's ideas, theories, and architectures, and figure out how we can better serve humanity. We should not make any company out to be our enemy. If a large watermelon is cut into eight slices, we only want one slice. If we try to take the whole, we would become the target of others and the watermelon might be as small as a fist. I told Japanese companies that we will never touch physics, and will just work on mathematical logic. Therefore, they can relax when cooperating with us. They have advanced materials technologies, so we can just apply them. It's incorrect to say that Huawei will begin developing chemicals such as gallium nitride. I told software companies that we will never engage in search services. So, they can relax, too.

We conduct only a small amount of business in the world, and will continue to do so in the future. As a result, we never feel too much pressure.

Second, the US has an absolute advantage in electronics and information technologies, and will continue to maintain a comparative advantage in this area over the next several decades. Huawei, like a blade of grass, is unlikely to change the trajectory of the times; but the blade is striving to grow into a small tree, and we're hoping to reshape ourselves. We're now learning management approaches from Western companies and are transforming ourselves. Will our transformation succeed? It depends on us. Therefore, our biggest enemy is not others, but ourselves.

(Linda: Now you might have no choice.)

Third, we have already focused our efforts on a very small area and our management capabilities have begun to improve.

7. Linda: I think the question that everybody would love to know the answer to is: What is the secret of Huawei's success? And could they learn from it and imitate it?

Mr. Ren: First of all, Huawei has no secrets at all. Second, anyone can learn from Huawei.

Huawei has no special background or anything else to rely on. Nor do we have any resources at hand. The only way we can obtain opportunities is through hard work, which requires a direction. For us, that's serving our customers. We have only one source of revenue: customers. If we don't treat our customers well, we won't make money from them. The only way to receive revenue from our customers legally and with their willingness is to provide excellent services and make good products.

Just now I said the market economy has two elements: sources of goods and customers. There's no reason we can't provide customers with good services. I'd like to give you two examples: When a magnitude nine earthquake hit Chile, we lost contact with three of our employees. The region asked me whether we should send people to look for them. I said no, because the people we sent would be putting their lives at risk as well, so it might not be worthwhile. I said we needed to wait and see whether these lost employees could get in touch with us. When they called the line manager after communications were restored, the line manager, without thinking too much, mentioned that a microwave device near the epicenter was in need of repair. These three employees then put on their backpacks, and headed out to repair the device, risking the danger around them to fulfill their responsibilities. We recorded this incident with a three-minute video featuring the real employees. What they did demonstrated a great sense of responsibility to our customers.

Just a few days after I left Libya, the war broke out. However, we didn't evacuate. At that time, we relocated our employees to neighboring countries, and got them counseling. After over 10 days of counseling, many were found to be fully functional, and returned to Libya. Our local employees formed into two groups — one stayed in Tripoli to maintain the government's networks, while the other went to Benghazi to maintain the networks of the opposition forces. Networks in other cities were maintained by Chinese staff we'd deployed locally. Ensuring network security and stability is our ultimate corporate social responsibility. We are not afraid of sacrifices and have demonstrated our responsibilities to our customers by walking the talk.

During Japan's earthquake on March 11, subsequent tsunami, and nuclear leakage in Fukushima, our employees headed straight for the disaster-stricken areas to repair communications equipment just as mass evacuations were taking place. I can tell you many similar stories, all of which show that we are truly customer-centric. We must protect our customers' interests as this is the only way customers will trust us with more orders.

The world economy hit a difficult period last year, as did the business ecosystem in which Huawei had thrived. Exchange rates fluctuated significantly. Despite these, our revenue grew by 20% and our profits from main businesses rose by 17% year-on-year. Our revenue is expected to exceed 56 billion US dollars this year.

8. Linda: I would have preferred to talk with you all day, but time is running out. Now we'll let our guests ask several questions.

Q1 from the media: Mr. Ren, we've met before. I would like to hear your thoughts on the mobile Internet and Big Data. Thank you.

Mr. Ren: What impact will the Mobile Internet and Big Data have on us? I earnestly hope that they will develop even more rapidly. Then, you will all need to buy pipes. Only two to three vendors produce good pipes. If you don't buy ours, where else will you buy them? I think this is good for our development. We will focus our efforts on information transmission and storage. However, we will not enter into the information search sector.

Q 2 from the media: I'm with the Foreign Policy magazine in the US. My question is, as China's economic growth slowed down to reach 7.4%, how will this new normal influence Huawei?

Mr. Ren: Even though economic indicators show a downturn, the employment rate has increased. I think China's economy is expanding rather than contracting. What is the reason for this? The decrease is a result of wasted investment. I think 2015 and 2016 will be a difficult yet necessary transition for China. Then, in 2017 and 2018, China will enjoy robust economic growth.

The deceleration of China's economic growth will not have much impact on Huawei. About 70% of our revenue is from outside of China, so it's normal that our domestic sales will decrease and our overseas sales will increase. We are poised to hit our revenue targets. The mobile Internet and Big Data will encourage demand for data transmission and storage, which is good for our sales.

Q 3 from the media: I'm with the Financial Times. People say you need to understand Ren Zhengfei to understand Huawei. Why do you keep such a low profile and remain so mysterious? Some journalists waited to interview you until they retired. Can you tell us what kind of person and entrepreneur you are? Thank you!

Mr. Ren: Am I mysterious? I didn't intend to keep a low profile. I myself can only see things in front of me. Therefore, I thought it best to limit my public appearances. I wasn't trying to attract more attention or make myself into something great — I've never thought I was great. I don't keep a low profile or remain mysterious on purpose.

In the past, we had over 300 customers when we were involved only in the carrier business, and we communicated with them individually without having to talk in public. Now we've entered the consumer business. I don't have a clue why our Consumer BG likes sponsoring football teams. People might assume I love football, but in fact I know little about it. The only thing I know for sure is that a football is round. Our business departments decide these sorts of things. I don't have to keep a high profile.

Ken Hu advised me to attend this session. He asked me, "Would you please attend a closed-door meeting during the World Economic Forum?" Since I often had closed-door meetings in our company, I accepted Ken's proposal. At the time, I didn't know that it would be an open dialogue and that this dialogue would be broadcasted live, so I didn't make any preparations. When I found out the truth, I couldn't cancel this meeting. Our Public Relations Department had made preparations that couldn't be cancelled, so I had to show up.

I also believed that I would eventually make more appearances. If others can't see me, they tend to believe that I have something to hide. Compared to other people, we drink less coffee and work harder. Yet we are no better than they are. As a young company, Huawei has yet to accumulate a great deal of experience, so we need to work harder than others do.

9. Wrap-up:

Mr. Ren: Thank you for taking the time to talk with me. Due to the brevity of this session, perhaps there are some points on which I failed to express myself clearly. I hope you can understand. Thank you again for your precious time.

Linda: So I'm just going to give a quick, I think, impression of this mysterious entrepreneur, which is, you share one trait that I think is very common among founders, entrepreneurs, and very successful executives. That trait is humility and passion for what you do, and I think that has come across extremely strongly, and I think there's going to be a lot more conversations to come to truly understand the man, and then, the company. So to agree with what was previously said, I think you understand how this Chinese company has broken into the global ranks will require more conversations of this ilk with Mr. Ren.

So let me just say thank you very much to Ren for such an insightful session and for lifting some of the veil of mystery for us. And I'm pretty sure you look great from front and the back. And thanks to all of you for your questions, for your participation, and huge thanks to the World Economic Forum for organizing this. Thanks to Stacey, thanks to Fong, thanks to Matt, and a shout out to the terrific team that Mr. Ren has. For Joy, fantastic in helping put this all together, allowing us to have this occasion to hear for the first time in a broadcast interview, on the record setting, founder of Huawei, chief executive of Huawei, the incomparable Ren Zhengfei. Thank you very much indeed.

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