If I were to ask you who the world’s two largest mobile phone makers are, you’d probably guess exactly right: Apple and Samsung. But who’s the third largest?
It’s not Nokia, the once-ubiquitous Finnish giant; Research in Motion, the beleaguered maker of Blackberry; or HTC, the manufacturer of Google’s first Android phone. It’s Huawei, a Chinese giant virtually unknown in the United States.
Huawei is also the world’s second-largest telecom equipment manufacturer behind Sweden’s Ericsson. Over the past year, Huawei saw a 33 percent growth in profit, more than any other Western manufacturer of similar technologies. What’s more interesting is that they do around 70 percent of their business outside of China.
It’s a huge company with a global presence that’s focusing on markets with a high potential for growth: Africa, Latin America and Asia. It’s on a path to, eventually, outearn rivals in its two main business lines.
There are lots of reasons why the company has a fairly low profile in the United States. It makes cheap, often unbranded, smartphones (my T-Mobile MyTouch is a Huawei phone, but the logo only appears under the battery cover) and U.S. lawmakers have prevented them from expanding into the U.S. telecom equipment market.
Last April, The Economist ran a piece about the suspicions many Western governments harbor against this company. Critics say that Huawei is ultimately loyal to the Chinese government and would perform espionage, if asked. While telecom security is an important issue, these fears are overblown. Any breach of trust would kill Huawei’s non-China business, which would effectively cripple the company.
The national security argument for keeping Huawei out of the U.S. masks establishment protectionism. You can bet that American telecom providers, who would have to compete with Huawei, are actively lobbying to keep them out. They don’t want the competition, so they’re using spurious arguments to keep profits up, which ultimately hurts consumers.
As The Economist points out, many Western firms rely heavily on Chinese subcontractors to make telecom equipment. These subcontractors are no different from Huawei. A router from Alcatel-Lucent, under protectionist “national security” logic, should be just as suspect as one from Huawei.
Huawei illustrates how Chinese companies are moving up the value chain and out-competing Western rivals on many fronts. China’s not just a manufacturing powerhouse anymore. They’re doing R&D and selling high-end, powerful equipment to most of the rest of the world. We Americans should have the choice to buy their equipment.
In any case, none of this may matter much in the long run. On a larger scale, consumers in the West are becoming less and less important globally. Burgeoning middle classes in Asia, Africa and Latin America will fuel demand for products in virtually all industries (especially smartphones and telecom equipment). The center of gravity is shifting east, and Western consumers and companies should take note.
At the very least, we should have the same opportunity to buy reliable, inexpensive telecom products made by Huawei that consumers around the world enjoy. Without a credible national security threat, protectionist laws only serve to buoy the profits of domestic producers. That’s corporate welfare.