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Business Management

Huawei: Secret transparency in a Chinese smartphone factory

It is a comedy scene: around a dozen UK journalists, PRs and other personnel all putting on ill-fitting white coats, yellow hairnets and extremely slippery anti-static shoes. It provides an instant, blanket-transformation from ordinary civilians into factory workers. And it takes place in a specially designated room, outside Huawei’s pass-code-protected production line in Shenzhen, mainland China. Photography and reporting are strictly prohibited on the inside.

Huawei – loosely pronounced Wahway – is a huge player in the local space. Recent Gartner news, showed a year-on-year fall in smartphone sales across China but revealed that Huawei took the top spot for growth with a 46% rise in its home market. The company is also making waves outside the domestic arena and earlier this year featured in BrandZs top 100 global brands for 2015.

Yet Huawei’s current challenge is to establish itself as a premium international brand and move away from its low-cost, Chinese image. “Huawei is not a Chinese company,” clarifies Glory Cheung, CMO of the consumer business group. “It is a company that happens to be headquartered in China.”

A hush-hush trip down a Shenzhen production line

During the brief – secret – manufacturing hall tour we are walked down the entire smartphone production line. Photos are forbidden, and we are told absolutely not to report on this, yet there is nothing really surprising here. The venue is a bright white warehouse space. And the process comprises of various fiddly steps, undertaken by electronic arms and white-coated workers.

Although a high volume of phones are produced each month, this has conspicuously nothing to do the pejorative ‘Chinese sweatshop’ image, which has so often dogged the country. In fact, the ambiance is strongly reminiscent of a modern call centre with sections of wall given over to a “wish board” and “suggestions board” where employees can propose ideas for improvement and no-doubt in management speak, ‘empower’ themselves.

Probably the most interesting thing about it all is that, despite Huawei’s protestations of uniqueness and transparency, we’re not allowed to talk about it. And yet, some members of our party still confirm it is no different from other smartphone facilities in the region that they have previously visited. 

Differentiation for a global Chinese company

Maybe, secrecy aside then, it is irrelevant that we’re in China? After all, Huawei feels its core differentiator from competitors is high-quality hardware design, along with complete A to Z of telecom services: from device, to network to storage. This has nothing to do with being Chinese. Its big aim is to overtake Samsung and eventually Apple in the high-end global smartphone space.

The drive is most definitely for a global premium. And the main Shenzhen campus, which houses tens of thousands of employees, does indeed look a beautiful place to work wherever you’re from in the world. Many of the senior people are shipped over from Europe. And the space includes subsidised housing for the lucky few, a gorgeous swimming pool which looks like it belongs in a hotel, a huge lake and a slew of environmental features set to render it as attractive as possible to top tier graduates.

The opportunity for international travel was a big draw, one local tells us over lunch. Yet irrespective of the global outlook you can tell this is in China. The work ethic is self-evident – our schedule alone is punishing – and Chinese professionals are more anxious to please than you would expect in Europe or America. This feels like a systematic bid for the top, Chinese style.

“With every company in the world new design is a key differentiator for business,” says Anthony Smith, Management and Innovation Strategist of MBB and homes device design centre. “We want people to be proud that things are designed in China and not just manufactured here.”

To facilitate this and promote excellence, the company has cut down the volume of its mobile products from 75 models three years ago to 20 models this year. It is also committing an ever increasing volume of money to R&D. This figure went up 29% between 2013 and 2014 and proportional to its revenue, Huawei is spending more than Microsoft or Amazon and really isn’t far behind Google.

In the race for the next must-have devices Huawei is soon to launch its own smartwatch and is pushing partnerships in local countries to drive brand awareness. It even has a totally separate sub-brand, Honor, which targets an online customer base, is more experimental in approach and is poised to capture eCommerce once it properly arrives in emerging regions.

This does all beg the question: would Huawei ever go for a complete name change to make things easier for westerners? “A good name is nice to have,” says Glory Cheung the CMO “but not a must have.” The meaning is loud and clear: high quality should stand alone.

The thorny issue of humane smartphone production

The trouble is once you get beyond screen size, camera resolution and a few individual status features, these little mini-computers are all more or less the same. And smartphone production, across the spectrum, faces a bit of an image problem. This is not to be underestimated and extends far beyond a few Chinese factories to envelop the whole vast global supply chain.

None of this is necessarily the direct fault of individual manufacturers. It is just extremely difficult for big companies to trace the source of all their materials because such a large number are used.

“For just one phone you need around 40 minerals that come from all over the world,” Daria Koreniushkina, public engagement officer at Dutch company Fairphone explained to us recently in a separate interview. Fairphone is an organisation that has started a whole movement to make the supply chain transparent. “In the end, just for one phone, you have a supply chain that includes hundreds and sometimes thousands of actors in it,” she added.

Tommi Laine-Ylijoki who heads up the entire supply chain at Huawei is adamant the company has “the highest quality standards” both within China and beyond. This includes proactive, “360 degree checks” on all supplier companies before a new agreement is set, along with a quality system where personnel are placed within any partner factories to ensure standards are maintained throughout the process.

“We have very strict CSR,” he stresses and promises to deliver more information in a post-trip follow up. In the end, this consists of a statement published in 2012 pledging to “never knowingly procure or support the use of conflict minerals”. It also requires strict adherence to all guidelines by suppliers and promises to “actively seek sustainable solutions to the problem of conflict minerals”.

It is impossible to argue with all this and clearly showcases the exact type of due diligence needed. However, it does not answer the question of how a manufacturer could possibly know everything about their suppliers. Yet this is a problem which impacts all large smartphone producers and is in no way unique to this company.

In the end, Huawei’s story is the same as many large corporations trying to differentiate themselves: it is tricky. But one thing is certain: as China’s flagging economy makes increasingly big headlines, those companies looking outwards, and seeking to move beyond the usual Chinese stereotypes, are likely to perform the best in the future. And Huawei is certainly working very hard to achieve this.

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