By Bruce Einhorn Back in the 1980s, critics remarked that nothing could stick to Ronald Reagan. No matter how damaging the situation -- remember Iran-Contra? -- he was able to maintain his popularity with his most important constituency, the American people. Reagan was America's Teflon President, just as Huawei Technologies seems to be China's Teflon company.
Ever since Huawei was sued by Cisco Systems (CSCO) in early 2003 for allegedly pilfering the American company's software, China's leading high-tech group has been hit with a barrage of embarrassing press reports about its alleged shortcomings vis-a-vis intellectual property rights (IPR). (After Cisco filed suit, privately held Huawei pulled some of its products from the U.S. market, although it denied any wrongdoing and company officials insist that its employees respect intellectual property rights.) Yes despite its bad press, Huawei has been able to maintain its popularity with its most important constituency, corporate customers. In 2003, the year in which Cisco filed suit, Huawei's overseas sales soared to $1 billion, double what they were the year before.
ON TRIAL. On July 28, Cisco announced that it had reached a settlement with Huawei, the terms of which neither side can reveal. That's good news for Huawei, which is determined to overcome its scofflaw reputation and be seen as a trustworthy, law-abiding company. The Chinese company is making a major push to win business worldwide, especially in Asia, the Middle East, Africa, and other developing markets.
Indeed, Huawei has garnered an impressive list of foreign partners that are attracted by its low-cost, high-quality products and are apparently untroubled by allegations of IPR problems. Even before the Cisco settlement, Huawei recently won a contract to supply wireless equipment to an operator in Ukraine, unveiled a deal to build a next-generation Internet protocol network for another operator in Pakistan, and it has signed a deal that will allow it to use microprocessors from British-based chip-design company ARM in its new 3G products.
Now, however, Huawei's Teflon reputation is being tested again. In June, a young Huawei engineer named Zhu Yibin was in the U.S. and attended the Supercomm trade show in Chicago. According to a July 21 letter to Huawei from the general counsel of Japanese giant Fujitsu's American subsidiary, Fujitsu Network Communications (FNC), Zhu paid an afterhours visit to Fujitsu's Supercomm booth and engaged in what Fujitsu fears may have been industrial espionage (see BW Online, 7/30/04, "Huawei Isn't in the Clear Yet").
"MISUNDERSTANDING." "Specifically, Mr. Zhu reportedly went to FNC's booth after the exhibition hall had closed to conference attendees and removed the casing from a proprietary optical networking device owned by FNC," wrote FNC General Counsel Melanie W. Scofield in her letter to Huawei CEO Ren Zhengfei and Vice-President Song Liuping. "He was caught by a contractor of FNC while he was examining certain circuit boards within the device (after removing the casing of the device)."
The letter goes on to explain how Zhu's credentials, which did not allow for him to be in the area at the time, identified his employee as a company called Weihua. This, according to Scofield, "may have been an attempt to obscure is true employer, Huawei."
This could mean more legal trouble for Huawei, since Fujitsu says it's turning the matter over to the FBI. But is Fujitsu overreacting? After all, it's hardly news that trade shows are places where rivals snoop on one another. But in the light of the Huawei's run-in with Cisco, perhaps would-be rivals are especially wary.
FLIP-FLOP FLAP. Huawei, which is headquartered in a vast corporate campus in the southern city of Shenzhen, just across the border from Hong Kong, contends that the affair was largely the result of a simple misunderstanding by a rogue employee. A Huawei spokesman says that Zhu, a fairly inexperienced worker in his 20s who was on his first trip outside of China, was in the U.S. to help a customer install some Huawei equipment and isn't part of the company's research and development team. Also, he doesn't speak English well, according to Huawei.
All this might help explain why Zhu's Supercomm ID badge identified him as an employee of Weihua rather than Huawei. In Chinese, family names come first and given names come second, and some people flip the order when they're among English speakers, and it seems Zhu flipped the two parts of Huawei's name, just as he did his own name. Hence, Zhu Yibin of Huawei became Yi Bin Zhu of Weihua.
Clearly Huawei executives don't want this flap with Fujitsu to become another headache, especially now that the Cisco lawsuit has been settled. However, since the FBI is now involved, there's probably not a lot that Huawei can do to defuse the situation. "Huawei is reviewing the matter to determine if disciplinary action is warranted," a spokesman told BusinessWeek. Zhu is still working, but the company has reduced his pay.
MAKING NICE. In her letter to Ren, Huawei's CEO, Fujitsu lawyer Scofield does the name mix-up herself. The Huawei chief, a former officer in China's People's Liberation Army, is famous for keeping a low profile, refusing interview requests, and staying away from the spotlight. Yet Scofield's letter addresses him by his given name Zhengfei, not his family name, Ren, showing that the hapless Mr. Zhu is not the only one who has found himself lost in translation.
Having weathered the Cisco storm without much damage, Huawei executives probably feel that they can do the same with the Fujitsu fuss. Still, it would be nice if Huawei didn't take its Teflon status for granted. Now would be a good time for Huawei CEO Ren Zhengfei to step forward and take more of a public role. He could start by writing back to Scofield -- maybe even with a letter that begins "Dear Melanie." Einhorn is Asia economics editor for BusinessWeek