Category: History

A second post about the core topic within House of Huawei: The Secret History of China’s Most Powerful Company …

How does hiring and firing work in a company that isn’t passionate about DEI?

On January 28, 1996, Ren Zhengfei held Huawei’s first “mass-resignation ceremony.” Each head of a regional sales office was told to prepare two reports: a work summary and a written resignation. “I will only sign one of the reports,” Ren said. “Dear Chairman,” the resignation letter said, “I have fought for the company’s sales development and sacrificed my youth. But in the few years that I’ve worked on the sales front lines, my technical and business ability may not have kept up…. If through the process of examination and selection, the company identifies a more suitable person for sales work, I will sincerely resign from my current position.” Huawei had started out in rural markets, and many of its early sales managers were provincial in their experience and network of contacts. As Ren sought to go national and international, he decided to make the entire sales staff resign and reapply for their jobs. “The mountain goat must outrun the lion to not be eaten,” he had told them ahead of the event. “All departments and sections must optimize and eat the lazy goats, the goats that do not learn or progress, and the goats with no sense of responsibility.” Now Ren took the podium. “Being an executive at Huawei should be understood as a responsibility, a choice to sacrifice personal happiness,” he said. The resigning sales managers were allowed to speak in turn, some choking back tears. “As a Huawei person, I’m willing to be a paving stone,” one said. “If I can’t keep up with the pace of the company’s development, I’m willing to let new people, and higher-level people, take over my job,” another offered. “My youth and ability are limited, and Huawei’s future is long,” a third said. “I can’t hold back the company because of me.”

Maybe sales will be one of the few jobs left to humans after Elon Musk gets Optimus to do everything?

Ren had grown up in the Mao years, when there was no such thing as private-sector sales. Now he presented sales to his young followers in rousing terms, almost as a mystical vocation. “Sales work is special, complex, and noble,” he told them. “You need the intelligence of a scientist, the insight of a philosopher, the eloquence of an orator, the ambition of a social reformer, and the optimism and persistent spirit of a religious man.”

Polite protocol for a business dinner involved breaking out the baijiu, a clear sorghum spirit that has an eye-watering 120-proof kick, and pouring out round after round of shots over a rotating parade of exquisite dishes. The protocol also involved getting drunker than your clients to show your respect for them. One early Huawei executive wrote about having to excuse himself for a vomit break while entertaining customers—not an uncommon occurrence. Others developed stomach or liver ailments. This seemed to happen particularly often in the far northeast, which had a reputation for heavy drinking. “The key staffer for this account is currently suffering hepatitis but refuses to come back to Shenzhen for medical treatment and insists on fighting on the front line through the ice and snow,” Ren said in 1995 about a Huawei salesperson based in Yichun, close to the northeastern border with Russia.

The story of Huawei is definitely not as simple as “it was a planned economy and the planners picked Huawei”:

Despite the interest that Huawei had received from government officials, it was only one among many contenders, and not even the most favored one. In 1995, officials had set up a state-owned switchmaking champion called China Great Dragon Telecommunication in an effort to combat the foreign switchmakers. Great Dragon was built around the military engineer Wu Jiangxing’s breakthrough 04 switch and had been formed by merging eight smaller telecom companies. The government was pouring some $2.2 billion a year into the venture. Also in 1995, the Xi’an Datang Telephone Co.—a venture set up by a state-run research institute and several Chinese graduates from US universities—began mass production of its new switch, the SP30. And across town in Shenzhen, the Zhongxing Telecommunications Equipment Company—which would later be known as ZTE—had developed its ZXJ10 switch. People called them the Big Four of China’s domestic switchmaking, and they made quick work of eating into the foreign vendors’ market share. Within a few years, the price of telephone switches in China had dropped from $300 per line to $70 per line. With so many contenders, and such thin margins, companies were always flaming out. In early 1996, a dozen of Great Dragon’s 04 switches abruptly failed due to a software problem. The company never recovered.

Huawei had started out as an underdog compared with its state-owned rivals. Now it was emerging as the frontrunner, so much so that the state-owned companies were crying foul. “They sell cheaply to get market share,” an executive at Datang complained. Great Dragon’s Wu Jiangxing griped to Shenzhen’s Science and Technology Bureau that the local government shouldn’t just support privately owned companies.

Despite the shortage of PhDs in DEI in China and overt sexist sentiments, women are able to rise to top executive positions.

The executive who rose the highest was Sun Yafang, who was elevated from marketing and sales president to Huawei’s vice-chairwoman in 1994. She was an intense woman of around forty, with a hawkish nose and a stately bearing. She had overseen Huawei’s “marriage” to the state through the joint ventures with provincial telecom bureaus and had led the mass resignation of the sales managers. People whispered that Madam Sun had worked for the Ministry of State Security, or the MSS, China’s powerful civilian intelligence agency, before joining the company. Perhaps that had something to do with her rapid rise through Huawei’s ranks, or perhaps not.

Sun ran a tight ship, cracking down on excessive golfing among the managers. “Huawei’s sales staffers all know that if Madam Sun sees you without a tie on a convention floor, your fate will be a miserable one,” a member of her team wrote about her. “Not to mention her fiery temper. The hurricane of her criticism will leave you with no possible hope to find an escape.”

Ren had proved willing to promote capable female executives, even as he sometimes expressed old-fashioned views on women in the workplace. “Many companies don’t like hiring female employees, because female employees are inefficient and can’t achieve the goals when they do things,” Ren said in a speech to Huawei’s secretaries around this time. “Female employees have a big shortcoming, which is they like to gossip and nag, which undermines unity. Originally, the purpose of hiring female employees was to add a lubricant to the management team. The main characteristic of male employees is their rigidity, and they are prone to producing sparks when they collide. With a layer of elastic sponge in between, there won’t be sparks.”

A lot of Huawei’s management and corporate practices were modeled on IBM’s and with IBM consultants’ help:

IBM’s consultants started arriving at Huawei’s headquarters in August 1998. They would remain in residence for a decade. Gary Garner, one of the early IBM consultants, recalled that his first impression of Huawei was that it was a vibrant but undisciplined company where things were sometimes just scrawled on sticky notes instead of being filed properly. “President Ren had a whole bunch of bright young PhDs,” he said, “but it was disorganized. It wasn’t ready to go to the international market.” Some of Huawei’s managers protested the new systems, which they found burdensome. Ren insisted they follow the IBM way. If the shoes didn’t fit, Ren told them, they had to “cut their feet to fit the shoes.” IBM’s output was fifty-five times Huawei’s that first year, 1998. Ren set a goal of shrinking the difference to thirty-five to forty times greater by 1999. “We are making big strides forward,” he told his staff. “We’re narrowing the gap.”

One place that Huawei didn’t follow IBM was onto a public stock exchange. The company remains privately owned, mostly by employees, to this day.

Imagine if U.S. politicians would follow Ren’s example of voluntary semi-retirement at age 67:

In December 2011, Ren, sixty-seven, announced he was stepping back to allow younger hands to steer the company. “I increasingly don’t understand the technology, increasingly don’t understand finance, and only half understand management,” he told his staff. “If I can’t treat our group kindly and democratically, and fully unleash the talents of all our heroes, I will have achieved nothing.”

Much of the rest of the book is about Huawei’s entries into various foreign markets and tussles with the U.S. and other Western intelligence agencies that either (1) wanted a back door to tap into communications, or (2) were worried that their Chinese counterparts had a back door into Huawei’s gear. I won’t cover that here because it is too involved, but I will have another post about this House of Huawei: The Secret History of China’s Most Powerful Company.

I promised more about House of Huawei: The Secret History of China’s Most Powerful Company (see Unprovoked genocide against the Uyghurs) and here it is…

The book covers the modern history of China as well as the history of Huawei. The book should be inspiring to us older folks because the founder of Huawei was born in 1944 and, at age 81, is still involved in corporate management:

In Guizhou, Ren Moxun met a seventeen-year-old named Cheng Yuanzhao. With big brown eyes,[15] round cheeks, and a broad smile, she was also bright and good with numbers. They married, and Cheng Yuanzhao soon became pregnant. Their son was born in October 1944, and they named him Ren Zhengfei. It was an ambiguous name. Zheng meant “correct,” and fei meant “not.” “Right or wrong” would be a fair translation.

We are reminded that China is a multi-ethnic empire:

Mao’s officials believed they were extending a civilizing influence to the nation’s frontiers—Guizhou in the south, Inner Mongolia in the north, Tibet and Xinjiang in the west. The residents didn’t necessarily see it that way. They had lived for centuries with their own languages and customs, and they were now being compelled to assimilate. There were those who did not like Ren Moxun and his school either. After someone threatened to kill him with a hand grenade—the precise reasons are unclear—the school was issued four rifles to protect the staff and students. One of Ren Moxun’s objectives was to inculcate his students with the right beliefs. “Principal Ren, your guiding ideology must be clear,” a visiting official instructed him. “You must make clear who the enemies are, who we are, who are our friends.” Ren Moxun organized rallies for the students to denounce their enemies. The enemies at home were the oppressive landlords. The enemies abroad were the Americans, who were waging war against North Korea, one of China’s allies. Ren Moxun reported that the “scoundrels” hidden among the teachers were successfully caught through these criticism sessions, which were often intense, with students bursting into tears. In the anti-America sessions, students offered up secondhand accounts of atrocities committed by US troops in the area, presumably when they had passed through during World War II. One student said a US soldier had shot a farmer for sport near the Yellow Fruit Waterfall. Another said a classmate’s sister had been dragged into a jeep and raped. It was hard to say what, exactly, had happened years ago with US soldiers, but the resentment against America was certainly real.

and that the Cultural Revolution wasn’t a great time to be an educator or a student who wanted to learn

Ren Moxun was hauled onto a platform in the school cafeteria, his hands tied, his face smeared with black ink, the tall hat of shame denoting a counterrevolutionary placed on his head. “Studying is useless!” people shouted. “The more knowledge you possess, the more reactionary you are!”

One of Ren Moxun’s students demanded the principal admit that he’d instilled feudalist thinking in the students, such as by quoting Confucius. According to a recollective essay by Feng Jugao, a different student, when Ren Moxun tried to deny the accusation, the accuser rushed forward with a wooden stick and beat him until the stick broke.[53] “I can’t say if the wooden stick was weak, or if Principal Ren’s backbone was strong,” Feng wrote. “But the wooden stick broke in two across Principal Ren’s back.” Feng recalled his mother being aghast, saying that the students who beat the principal would get their karmic punishment.

Universities nationwide were banned from matriculating any new students between 1966 and 1976. Ren Zhengfei’s younger siblings were shut out, but through the random luck of his birth year, he’d been able to eke out a college education. In 1968, Ren graduated with a major in heating, gas supply, and ventilation engineering.

At age 42, Ren started Huawei:

Shenzhen legalized the establishment of “minjian” (unofficial or, more literally, “among the people”) private technology companies in February 1987 under a pilot program. Applicants poured in from across the country—professors and engineers from Beijing to Kunming. The idea of running your own company in the SEZ was exciting—and risky. Seventy-five percent of the first batch of entrepreneurs asked their state employers for temporary unpaid leave, with the option of reprising their old jobs if their startups didn’t work out. Ren founded Huawei as a minjian company on September 15, 1987, with twenty-one thousand yuan pooled between himself and five investors.

Wuhan was the source for more than SARS-CoV-2 and coronapanic:

Ren arrived in the inland city of Wuhan in the spring of 1988 in search of engineers. Dubbed “the Chicago of China,” Wuhan was a bustling industrial city on the Yangtze River. The Huazhong Institute of Technology had been founded here in the 1950s, and three decades later, conditions at the university were still spare: Students bunked six to a room in the dorms and took cold-water showers.[38] There was no air-conditioning or heat. But there was a professor who was knowledgeable about telephone switching, and Ren hoped he could help Huawei build a switch.

The book covers the 1989 protests and power struggles, then returns to the early days of Huawei:

Ren’s team had been making simple analog switches that could handle forty, eighty, or, at most, a couple hundred phone calls at once. Their early attempt at a more complex one-thousand-line switch was a failure, suffering from serious cross talk, dropped calls, and a tendency to catch fire from lightning strikes. Now, in 1993, they were trying to build a digital switch that could handle ten thousand telephone calls at once. This would catapult them into the big leagues. They would no longer be selling to hotels and small offices; they would be selling directly to the telephone switching centers for entire cities.

Ren had rented the third floor of an industrial building on Shenzhen’s outskirts for his fledgling R&D team. There was no air-conditioning, only electric fans, and they took cold showers to try to keep cool. They rigged up nets to try to escape the ferocious mosquitoes. A dozen cots lined the wall. The engineers worked day and night, flopping down on mattresses to sleep for a few hours when they reached exhaustion, which led to the saying that Huawei had a “mattress culture.”[9] One engineer worked so hard that his cornea detached, requiring emergency surgery.

It wasn’t as simple as going to the state’s web site and forming a corporation or LLC:

By 1991, Huawei had ten million yuan in fixed assets and was churning out eighty million yuan worth of switches a year. It had 105 employees, the majority of whom were shareholders. That year, Huawei’s shareholders did something curious: after proudly launching themselves in 1987 as one of Shenzhen’s first wave of “minjian” private tech companies, they voted unanimously to stop being one. From 1992 to 1997, Huawei would be a jitisuoyouzhi, or a “collectively owned enterprise,” something that was neither “private” nor “state-owned” in the modern senses of the words. Indeed, such companies were most similar in spirit to the Mao-era communes: Beijing defined them as “socialist economic organizations whose property is collectively owned by the working people, who practice joint labor, and whose distribution method is based on distribution according to labor.” While collectively owned businesses had been used in the countryside to mixed success, China’s national government had, in 1991, just formalized guidelines for urban collective companies. Putting on the “red hat” of a collective was popular among startups then as a way to obtain political protection. The Stone Group—hailed as “China’s IBM” in the 1980s—had been a trailblazer in this regard, successfully switching to a “collectively owned enterprise” in 1986. The 1991 national guidelines stipulated that collectively owned enterprises could enjoy preferential treatment in national policies and apply for loans from specialized banks. The guidelines also ordered government authorities nationwide to incorporate the companies into their economic plans in order to ensure the success of the urban collective economy. It remains unclear why Ren and his team decided to switch to a jitisuoyouzhi, though it’s likely that the broader financing opportunities were attractive.

Like Jeff Bezos, who married a secretary at D.E. Shaw while he was a VP (Wokipedia says that MacKenzie Scott had “an administrative role” at D.E. Shaw, implying that she might have been a top manager; the New York Times says that she held the job of “administrative assistant” (i.e., secretary)), Ren might have married his secretary:

While the precise timeline is unclear, Ren Zhengfei had remarried at some point and was building a new family in Shenzhen. This second marriage may have taken place around 1994, according to a speech Ren gave in January 2009, in which he praised his second wife, Yao Ling, for “fifteen years of silent devotion to the family.” Yao Ling was a petite and graceful young woman, much younger than Ren, with almond-shaped eyes and a winsome smile. Some news reports referred to her as Ren’s former secretary, though this has not been confirmed by the company. Ren had called Meng Jun “very tough”; he called Yao Ling “gentle and capable.”

The company prospers partly because the Chinese government imposed a “Buy Chinese” mandate similar to the U.S.’s “Buy American” mandates:

Since Ren’s meeting with Jiang in 1994, much more government support had been pledged. At the end of 1994, Zhang told Ren that in the next five-year economic plan, half of telecom operators’ switch purchases would be reserved for purely domestic companies like Huawei. “The way I look at it,” Zhang said, “it’s not that important what type of ownership structure a company has. The important thing is if it’s Chinese. So we at the Electronics Ministry want to support a business like yours.” China would have 84 million telephone lines’ worth of switches in operation by 1995, and officials planned to more than double that to 174 million lines’ worth by 2000.

I’ll close here and pick up in another post. Meanwhile, if you’re interested, read House of Huawei: The Secret History of China’s Most Powerful Company.