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Rubbing salt into the wounds: Huawei to open R&D centre in Nokia's back yard

Posted By TelecomTV One , 11 December 2012 | 0 Comments | (0)
Tags: Huawei ZTE Nokia Ericsson Finance Technology competition R&D mobile sunsidisation

The Chinese telecoms equipment maker Huawei is investing €70 million in building a new R&D facility in the Helsinki area, just fifteen miles from Espoo where Nokia has its global HQ. It is hard to tell if this is just one among many screws being added to the scaffold that Nokia will eventually be hanged from or another nail in the company's coffin. By Martyn Warwick

For far too many days of the year the sky over Shenzhen might be an ominous shade of mustard yellow, (and replete with a similar taste) but at least it is pleasantly warm almost all of the time. That certainly can't be said for Espoo, Finland where struggling Nokia is currently headquartered. There the early winter chill has just increased by several more degrees as the news of Huawei's plan percolates through the Finnish company and causes shivers throughout the serried ranks of worried executives.

Huawei's new R&D facility will concentrate on "software development for mobile devices" and "optimising the user experience of existing operating systems such as Android and Windows Phone 8." Huawei's plans call for it to double the size of its staff in Europe within the next three to five years. The company currently employs 7,000 people in Europe and the new Helsinki R&D base will begin with a mere 30 staff - but that is just a straw in the wind.

The difference between the bullish expansionism of Huawei and Nokia's retreat and retrenchment could hardly be more marked. Despite selling an appreciable quantity of its new Lumia smartphones, the Finnish company continues to lose global market share and has had little success with its own Windows Phone offerings. Nokia has made thousands and thousands of people redundant and has even gone so far as to put its splendid and beautifully designed global headquarters in Espoo on the market in yet another effort further to cut costs.

Huawei's Vice President of International Media Affairs, Roland Sladek doesn't beat around the bush. He says the Chinese company has chosen to set up shop in Finland because of the country's “long-reaching track record of mobile technology R&D" that it can "tap into”.

In other words, "bring me your angry, disillusioned and redundant Nokia engineers, send them tempest-tost to me". How ironic is it that a Chinese company of extremely questionable antecedents is now able to make such offers whilst a once superb company that played (and plays) by all the rules is on the skids?

Well, part of the reason is that Huawei's US ambitions have been well and truly stymied over the course of 2012 and the company is unlikely to make any further headway into that market in the forseeable future so it makes good strategic sense for it to concentrate some serious effort in Europe where it has more than just a tenuous toehold in the market.

Hence the plans to invest £1.2 billion in the UK and to build a further R&D centre in Spain in 2013. Huawei continues to ramp up its R&D activities. It already has more than 70,000 highly-qualified staff in R&D jobs globally and is recruiting more even as the likes of Nokia cut R&D along with everything else that once made the company so great.

In 10 years Huawei has grown from almost nothing to become the world's second-largest maker of comms equipment by market share and is now second only to Ericsson of Sweden. What is very much in Huawei's favour is that the company tends to think and plan over a much longer-term than its western counterparts. Thus the company has said that by 2020 it wants annual group revenue to be US$100 billion. Last year that figure was $32.4 billion.

However, Chinese companies like Huawei and ZTE might soon find that Europe, like the US, are looking at them with jaundiced and quzzical eyes. A new analysis document being written by the European Commission (EC) will show Huawei and ZTE to be guilty of dumping wireless network infrastructure in the European Union at well-below fair-market prices, thus putting European manufacturers as a considerable and unfair disadvantage.

According to a report in the Wall Street Journal, the EC's findings show that both Chinese companies are dumping network equipment in Europe at 35 per cent below fair market prices,. This, the EC says is because Huawei and ZTE are "extensively supported by the Chinese government" and that support runs as far as to the provision of "preferential financing for customers of the two companies".

The EC analysis, copies of which were handed to Member State governments back in the summer shows that the European market share of Chinese companies such as Huawei and ZTE iis up tenfold over that past five years.  Over that same period, European vendors' market share has fallen by 15 percent.

The new report makes plain that the EU will, sooner or later, be forced to intervene if European comms technologies companies are not to be driven out of the market altogether. Any such action would inevitably spark a trade war with China and the government there would most likely respond by savagely upping customs and import tariffs, making European-produced goods prohibitively expensive in the vast Chinese market.

Caught between a rock and a very hard place, the EC is now hoping against hope that the Chinese government's long-promised formula to settle the Huawei and ZTE question amicably will be applied sooner rather than later.

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