Foreign Investment in Guangdong: New Incentives Announced

Guangdong province, China’s manufacturing heartland, has announced new measures to attract foreign investment.

On December 1, the Guangdong provincial government issued a report delineating 10 policies to expand the province’s openness to foreign investors and foreign capital.

The measures are in support of the State Council’s Measures to Expand Opening-up and Actively Utilize Foreign Investment (Guo Fa [2017] No. 5) and the Measures to Promote Foreign Capital Growth (Guo Fa [2017] No. 39). They include policies to improve Guangdong’s business environment, promote fair competition between foreign and domestic companies, expand market access, and offer investment incentives.

The 10 measures for relaxing foreign investment:

  1. Further expand market access, including relaxing ownership limits and/or operation scope in the following industries:
    • Special vehicle manufacturing;
    • New energy vehicle manufacturing;
    • Ship design;
    • Regional aircraft and general aircraft maintenance;
    • Human resources service agencies;
    • International maritime transport companies;
    • Railway passenger transport companies;
    • Construction and operation of gas stations;
    • Internet service and call centers;
    • Performance brokerages;
    • Brokerage, banking, securities, futures, and life insurance companies;
    • Law firms jointly owned by Hong Kong/Macau investors and domestic investors; and
    • Hong Kong/Macau airlines will be treated as special domestic airlines.
  2. Increase the use of financial incentives for foreign investment for the 2017-2022 period, including:
    • For new projects worth more than US$50 million, replenishment projects worth more than US$30 million, and for multinational or regional headquarters worth at least US$10 million, the provincial government will give financial bonuses worth no less than two percent of the year’s actual investment amount, capped at RMB 100 million (US$15.1 million).
    • For Fortune 500 companies and leading global companies with actual investments (new projects or replenishment projects) in manufacturing worth over US$100 million in one year, and newly established IAB (new generation of information, automatic equipment, and bio-pharmaceuticals) and NEM (new energy, new material) projects with actual investments of no less than US$30 million in one year, the provincial government will provide financial support on a case-by-case basis.
    • For multinational or regional headquarters that contribute over RMB 10 million (US$1.5 million) to provincial revenue, 30 percent of the contributions will be awarded to the company in a lump sum payment, capped at RMB 10 million (US$1.5 million).
    • Local governments can provide other financial incentives based on provincial incentive standards.
  3. Strengthen the use of land security, including land-use incentives for Fortune 500 companies, regional headquarters, and advanced factories.
  4. Support innovation and research & development (R&D), including financial support for foreign R&D institutions and encourage participation in the development of public service platforms.
  5. Increase financial support, particularly for Fortune 500 companies, global industry leaders, and cross-border mergers and acquisitions.
  6. Strengthen personnel support, including incentives and visa conveniences for high-level foreign talent.
  7. Strengthen the protection of intellectual property rights, including by accelerating the construction of the China (Guangdong) Intellectual Property Protection Center.
  8. Enhance the level of investment and trade facilitation, including the full implementation of the Negative List and access to national treatment.
  9. Optimize the environment for attracting foreign investment in key parks, including implementation of administrative streamlining in eligible development zones and other supportive policies.
  10. Improve the use of foreign investment guarantee mechanisms, including setting up a coordinated mechanism to coordinate and solve the key problems that prevent investment in Guangdong.

The measures represent a step forward in boosting Guangdong’s competitiveness in attracting foreign investment. Although Guangdong is China’s richest province by GDP, and already one of the most open to foreign investment, rising labor and land costs have seen many businesses relocate their manufacturing operations to lower cost alternatives, such as Western China, Vietnam, and India.

Some areas in Guangdong have been successful in upgrading their local economies beyond low-value manufacturing. Most notably, Shenzhen has emerged as a hub for innovation and high-tech startups, and also boasts a robust financial sector.

Guangzhou has also had success in moving up the value chain, by producing higher-end goods like automobiles and high-tech products, while surrounding cities like Foshanhave also benefited from regional integration and high-tech manufacturing.

The new measures reflect Guangdong’s continued desire to attract high quality capital-heavy investments; many of the policies specifically state a preference for Fortune 500 companies or recognizable industry leaders.

Stephen O’Regan, Senior International Business Advisory Associate at Dezan Shira & Associates in Guangzhou said, “These new regulations certainly show a more open approach by the Guangdong government towards foreign investment, particularly in trying to attract high level talent. However, many smaller companies still find it difficult to incorporate in China; the country is lowering entry barriers only for already strong enterprises.”

According to O’Regan, “The new policies show a step in the right direction, but overseas SMEs may still find it difficult to enter the south China market without more government support”. In this environment, local expertise proves valuable.

O’Regan noted that SMEs can still benefit from some of the new measures both directly and indirectly, as well as other regional incentives. He explained, “Many of Guangdong’s cities offer incentives and subsidies that foreign SMEs find attractive. The Guangdong government is ultimately paving the way for more foreign SME investment by making it easier to access incentives.”

 

Alexander Chipman Koty contributes to Editorial and Research operations for Asia Briefing in China.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Will These Two Emerging Countries Continue To See Easy Monetary Policy In 2018?

South Africa

Unlike some other countries in this review, rate cuts in South Africa later this year, and going into 2018 are much more uncertain.

The sole rate cut effected in July this year was aimed at stimulating the economy, and a dip in inflation supported the 25 basis point reduction.

Similar to the situation in Brazil, risks emanating from political developments can be expected to drive financial markets until the 54th National Conference of the ruling African National Congress in December.

The South African Reserve Bank sees upside risks to inflation due to an electricity tariff increase and maintains that monetary policy alone may not be enough to stimulate growth in light of the political uncertainty.

However, in its September monetary policy statement, the picture painted by the central bank forces one to believe that the authorities may cut rates. Particularly if its views on inflation remain in the expected range with some headroom, consumer spending remains constrained after rebounding in Q2 2017, and credit extension to the private sector continues to decline, among other aspects.

Moreover, if rating agencies cut the country’s ratings further, the central bank may need to reduce its policy rate even in the face of political uncertainty.

Investors have continued to pile into South Africa bonds even in the face of political challenges and rating cuts; a small rating cut may not deter them given the still large spread between South African bonds and US Treasuries. Depending on the political situation, it may help infuse some confidence in the country and resuscitate private investment.

Indonesia

Indonesia has surprised markets both times that it has slashed rates this year. Its moves were aimed at stimulating a stagnating economy which has been stuck at about 5% growth for the past four quarters. Bank Indonesia is hoping that the rate cuts will reignite bank lending.

Going forward, the central bank would first want to assess the impact of these two cuts on inflation and growth in economic output. A few more reductions may be in the offing if inflation remains within the target range of 4% plus/minus 1% for 2017 and 3.5% plus/minus 1% for 2018.

Indonesian bonds have been attractive in 2017 given their yields. However, as shown by the graph above, yields have come down in the past year, making them less attractive to prospective investors than before.

Bonds from countries like South Africa and Brazil are a providing serious competition to Indonesia in this regard. But the country’s relative stability to these nations is keeping its bonds in play.

Apart from monetary policy, investors would want to keep an eye on the Indonesian rupiah for local currency-denominated bonds. A breakout from the narrow trading range that the rupiah maintained against the dollar could be a trigger point for Indonesian bonds.

After An ‘Easy’ YTD 2017, How Will Monetary Policy Impact Bonds Latin American Countries?

Brazil

Inflation has been benign in Brazil. In its latest reading for September, it rose 2.5% from a year ago, which is below the central bank’s target of 4.5% plus or minus 1.5%. There are wide-ranging expectations regarding the Selic to be reduced to 7% by the end of this year.

In all likelihood, these expectations will materialize. However, the central bank has already expressed that future rate cuts could be gradual.

Given that the reduction of the Selic to 7% is largely expected, it is already priced into its bonds. At this juncture, aggressive rate cuts in 2018 are not expected and investors in the country’s bonds would need to focus on developments on the political front to drive bond yields once the rate cut cycle draws to a close.

Peru

Monetary policy easing in Peru this year has been aimed at spurring economic growth. The country’s economy had grown at a less-than-expected 2.4% pace in Q2 2017 after posting a 2.1% rate in the first quarter.

Inflation has stood at 3.04% in May, higher than the 1-3% range that the Banco Central de Reserve del Peru targets, but the reserve rate was still slashed for the first time this year. Though this seems counterintuitive, it was needed to support the economy and was made possible by views that the factors putting upward pressure on inflation were transitory.

Another indicator which helped the central bank reduce rates was the strength of the Peruvian sol against the US dollar. A stronger domestic currency increases the returns on local currency-denominated bonds when converted to dollars.

Similar to Brazil, the Peruvian central bank may be close to ending the rate reduction cycle. However, it can still consider cutting rates once either this year or the beginning of the next year depending on how inflation moves in response to the most recent rate cut. Inflation slowed to 2.94% in September, and if the impact of the intermittent rise in food prices is only transitory, one more rate cut may be in the offing.

Chile and Colombia

Unlike Brazil and Peru, monetary policy easing may have come to a close for now for both Chile and Colombia.

Chile’s Monetary Policy Rate was last slashed in May, and even though inflation remains benign at 1.5% in September, lower than its 3% target, moderation in the central bank’s stance indicates that until essential, further rate reductions may not be considered.

In its May policy statement, the Banco Central de Chile sounded neutral on further rate cuts by pledging to remain flexible about monetary policy. This was a major change from consideration of additional easing in the April statement, and easing being necessary given market conditions in the March statement.

However, the central bank has headroom to reduce rates further if conditions warrant in 2018.

As far as Colombia is concerned, the Banco Central de la Republica de Colombia may like to see the effect of the rate cut at the end of August on the economy. A bounce back in economic growth may reduce the necessity to ease policy rates further.

Monetary Policy May See Additional Rate Cuts In These 3 Emerging European Countries

Ukraine

The National Bank of Ukraine has slowed down the pace of rate cuts this year compared to 2016. The reason is visible from the graph below.

The central bank keeps a close eye on inflation as the key factor which determines whether further easing will take place or not. The upward trajectory of inflation in 2017 explains why rate cuts in the country have not been as aggressive this year as they were last year.

The central bank is targeting an inflation rate of 8% plus/minus 2% for this year and 6% plus/minus 2% for 2018. In its quarterly inflation report, last published in July, the National Bank of Ukraine had kept its inflation forecast unchanged at 9.1% for this year and 6% for the next.

Given the relatively high rate of inflation, aggressive rate hikes in the remainder of 2017 can be ruled out. However, if the indicator remains on the expected path in 2018, the central bank may resume slashing its discount rate next year.

Ukraine has been one of the most attractive places for fixed income investors in emerging Europe, along with Russia, this year. A further cut in interest rates would increase profits for investors already invested in the country’s bonds. Investors in local currency-denominated bonds would need to watch out for its movement vis-à-vis the US dollar, though.

Belarus

Alike Ukraine, inflation has been the main driving factor behind the reduction in the refinancing rate by the National Bank of the Republic of Belarus.

However, unlike Ukraine, inflation in Belarus, which fell to 4.9% in September from 5.3% in August, is already below the central bank’s target of 9% for this year.

Given the fact the central bank aims to gradually reach the inflation rate of 5% by 2020 – a target which has already been met – it opens up the possibility of further rate cuts going into 2018.

Russia

Inflation in Russia stood at 3% in September, while core inflation was down to 2.8%. Both numbers were the slowest on record. This sets a stage for further rate reductions in the country. However, the path is not as straightforward as some of its peers.

This is because there is disagreement between the central bank and the government regarding the path of monetary policy traversed until now. While the government thinks that the central bank has been slow in responding to the decline in inflation, the central bank believes that there is a greater than anticipated risk of a rise in prices, thus justifying its cautious stance.

Though another rate cut before the end of the year is quite likely, market participants would need to read closely the stance of the central bank which sees risks to inflation and intends to remain measured in its moves – both in size and scope.

These 10 Emerging Market Central Banks Account For the Largest Interest Rates Cuts In 2017

Economic developments in emerging market countries throughout 2017 have led to many central banks reducing their key rates this year.

Some of the major emerging markets which have slashed interest rates are shown in the graph below with the levels of their key rates as on October 11.

Ukraine

Ukraine has cut its policy rate twice in YTD 2017 by a cumulative 150 basis points. The discount rate had begun the year at 14% and was last reduced in May by 50 basis points.

The country’s central bank – the National Bank of Ukraine – has been on a policy easing cycle since August 2015 and has cut the discount rate by a sizable 17.5% since then. Its speed of rate cuts has declined though; in 2016, the central bank reduced the discount rate by a total of 8 percentage points.

Belarus

Belarus has seen quite a bit of monetary easing in the form of rate cuts this year. The National Bank of the Republic of Belarus has slashed its refinancing rate seven times so far and has already announced that it will introduce another cut in its meeting later in October.

The refinancing rate had begun the year at 18%, and with the announced reduction in October, it will decline to 11%. Of these eight cuts, six have been a full percentage point each.

Russia

In 2017 so far, the Central Bank of Russia has reduced its key interest rate by 150 basis points. The bank’s key rate began the year at 10%, and four reductions later, stands at 8.5%; the latest cut was effected on September 15. A dive in inflation in the country has been the primary driver of the aforementioned rate cuts.

Brazil

The Banco Central do Brasil has been on an aggressive rate-cutting spree. In YTD 2017 alone, the central bank reduced its Selic rate six times and post the latest cut in September, it stands at a four year low of 8.25%.

South Africa

South Africa has seen only one rate cut this year. The South Africa Reserve Bank had surprised markets by reducing its average repo rate by 25 basis points to 6.75% in July but since then, has remained unmoved.

The rate cut in July was its first in five years and was aimed primarily at supporting the economy which had fallen into recession at the beginning of the year.

India

The Reserve Bank of India has been relatively cautious about easing monetary policy this year, slashing its key repo rate just once in August by 25 basis points to 6%.

Colombia

Colombia has cut rates seven times this year. The Colombia minimum repo rate had begun the year at 7.5%, and with the latest reduction in August, the cumulative amount of cuts stands lower by 225 basis points.

Low inflation has allowed the Banco Central de la Republica de Colombia to slash rates and stimulate economic growth.

Indonesia

Bank Indonesia surprised markets when it cut its 7-day Reverse Repo Rate for the first time since October 2016 in August. It kept the surprise element going by catching market participants off-guard again in September. In total, the central bank has reduced its policy rate by 50 basis points in 2017 so far.

Peru

Similar to Belarus and neighboring Brazil and Colombia, Peru has witnessed several interest rate reductions in 2017. The Peru Central Bank Reference Rate has been slashed three times this year by a cumulative 75 basis points.

The first cut of the year was effected in May and it had marked the first decline in the reference rate in 14 months.

Chile

The Banco Central de Chile, similar to several of its Latin America peers, has cut its policy rates in 2017. Chile’s Monetary Policy Rate has been reduced four times this year by a cumulative one percentage point and stands at 2.5% at present.

Thinking About Working For A Chinese Company? First, Find Out If It’s A ‘Lenovo’ Or A ‘Huawei.’

“If you have experience managing an overseas office for Huawei or Lenovo, your résumé is as good as gold right now.”

That’s what a Chinese headhunter specializing in North American executive recruitment for Chinese firms recently told me, adding, “It seems like every Chinese tech company is planning for a global expansion these days.”

A friend of mine who has spent her career working for different Chinese tech firms and now works in HR at one of the BAT giants (Baidu, Alibaba, Tencent) says of their global pushes, “Right now, the big question with many of these companies is: Are they going to go the Lenovo route or the Huawei route?”

There is good reason for the Chinese tech world’s hyperfocus on Huawei and Lenovo: While Baidu, Alibaba, Tencent, and a few newer players like Didi Chuxing dominate their sectors in China, Huawei and Lenovo have succeeded in foreign markets. Earlier this year, global advertising giant WPP ranked Lenovo and Huawei as China’s first and second most powerful global brands, respectively. Lenovo has over 52,000 employees worldwide and ranks 226 on Fortune’s Global 500 list. If Lenovo is big, Huawei is downright colossal, with over 180,000 employees, ranking 83rd on the Global 500. Both companies bring in a majority of their revenue from overseas business — 70 percent and 60 percent for Lenovo and Huawei, respectively.

However, when looking at the corporate cultures, worldviews, and globalization strategies of both firms, the two display striking differences. As China’s tech firms expand globally, which model they choose to follow will drastically impact not only how individual companies approach global markets, but also how Chinese business as a whole presents itself to the world.

For companies or individuals considering collaborating with or working for Chinese companies, the big question should be: “Are they a ‘Lenovo’ or a ‘Huawei’?”

There has been much written highlighting the achievements of each company in building their respective corporate cultures, and rightfully so. 2014’s The Lenovo Way, by executives Gina Qiao and Yolanda Conyers, and 2016’s Huawei: Leadership, Culture, and Connectivity, by Tian Tao, David De Cremer, and Wu Chunbo, tell the stories of how each company achieved global success through developing strong cultures.

However, when engaging with the employees themselves, a more complex picture of these two cultures emerges. In preparation for this piece, I spoke with 27 current and former Huawei and Lenovo employees, four of whom had experience at both companies. The majority of my respondents only agreed to speak off the record or on a condition that their identities not be revealed. Additionally, information was taken from anonymous online employer review forums such as Glassdoor, Indeed, and Quora. In an attempt to assure accuracy and reliability, such online forums were used to identify patterns or trends, rather than a few disgruntled individuals.

Nice at Lenovo

Employees of both firms seemed to describe Lenovo’s culture and general view of its people in a more trusting and optimistic way, while Huawei’s general perspective seemed to be one of mistrust of its people. “People learn not to trust each other at Huawei,” said a former Huawei and Lenovo employee. “At Lenovo, it’s quite the opposite, very trusting. It is a very comfortable place to work. At Lenovo, the assumption is that everyone is trustworthy until they prove otherwise, while at Huawei, everyone is assumed to be untrustworthy until they prove to be worthy, and even then, people will be skeptical of you.”

“What I like about working here is the emphasis on polite behavior. In other Chinese tech companies, you hear stories about people screaming at each other in meetings if they disagree, but I rarely see that here. Of course people disagree, but they are encouraged to do it politely and respectfully,” a Chinese Lenovo employee told me. Lenovo also focuses heavily on planning and process in getting things done. “If we have a project, we will carefully plan, get the resources, put the team in place, and then execute carefully according to each step of the plan… Following the process is very important,” said a Chinese-born Lenovo employee currently working in the U.S.

Boot camp and wolf culture

In contrast, Huawei, with its military background, tends to have a culture that can encourage a battlefield-like mentality. This culture is often referred to at Huawei as “wolf culture,” a relentlessly aggressive approach, which one former employee described this way: “In Huawei, ‘wolf culture’ means you kill or be killed. I think the idea is that if you have everyone in the company competing fiercely with one another, the company will be better at fighting and competing with external threats.” If this seems like an unpleasant work environment, that partially seems to be by design. The former employee explained, “I don’t think Huawei seems to be very interested in making work ‘fun’ or ‘enjoyable.’ What Huawei looks for when recruiting is young, skilled people from fourth- or fifth-tier cities looking for their ‘first pot of gold’ [第一桶金 dìyī tǒng jīn],” using a phrase meaning the first opportunity that a person receives to make a lot of money, or to move into the middle class.

Huawei wants people who are hungry, works them hard (it is said the average Huawei employee works a 12-hour day), but also rewards them with good salaries and quick promotions if they achieve results. And those results are prioritized above all else at Huawei, creating an intensity that produces the high-speed, low-cost deliverables that the company is famous for.

This approach, while it can sound unpleasant, can work well for the right kind of person. “I get a lot of satisfaction from completing a project. I’ve worked building telecoms infrastructure in remote, poor places, and I’m proud to know that my work has connected those people to the world,” said a 16-year Huawei veteran who claims to have worked for the company in 50 countries.

Get a divorce!

There is a famous story about Huawei founder and CEO Ren Zhengfei that was shared with me a few times in researching this article. While the details differ depending on who tells the story, the main gist is the same. A Huawei senior executive approached Ren, telling him that he needed to relocate from the company headquarters in Shenzhen to Beijing to be with his wife and family. “Can’t your family move to Shenzhen?” Ren asked. When the executive explained that his family situation made it nearly impossible for his family to leave Beijing, Ren is reputed to have said, in all seriousness, “Well, then get a divorce.”

While it is nearly impossible to entirely confirm whether this interaction actually took place, the fact that this story has so much resonance with those close to Huawei demonstrates the level of loyalty and commitment that is expected from Huawei employees. Most employees who go on to find success at Huawei begin with a notoriously challenging “boot camp” experience and sign a document that in English can be called a “striver agreement,” in which the employee voluntarily surrenders their rights to claim annual leave and overtime pay.

It is from this club of “strivers” that the vast majority of Huawei’s key talent and decision makers are composed. It is not unusual for these strivers to spend decades-long careers at Huawei without ever working anywhere else. This creates a very strong central culture, but also a very clear in-group/out-group dynamic that makes it very difficult to succeed as an outside hire at the company. “It’s kind of like moving to a small town, where all the inhabitants have lived there their whole lives,” explained an ex-Huawei employee. “Even if you live there five or 10 years, you will still be viewed as an outsider because your family isn’t from that town. That’s what Huawei is like.”

This culture of striving is reinforced through both carrots and sticks. Those who build careers at Huawei are enrolled in a share program that increases over time, regularly providing dividends. This means that after taking the dividend income into consideration, it is entirely possible for a longer-tenured, lower-ranking employee to be bringing in more income than a shorter-tenured, higher-ranking employee. However, Huawei makes it clear that if an employee leaves, they are gone forever. “In general, former Huawei employees are not welcomed back,” said a former Huawei HR professional. “In rare cases, exceptions are made, but that is very unusual.”

This is in stark contrast with Lenovo’s approach to hiring ex-employees. “It often happens where employees will leave the company, due to family reasons, or a higher salary or new opportunities elsewhere,” a senior Lenovo HR leader explained. “In many of these instances, we find that after being away for a few years, they realize how great Lenovo is, and they want to come back. That is often okay with us.”

Global organization vs. Chinese company with international business?

When it comes to how the two companies operate internationally, there was also a clear difference in how these two companies were characterized. “Lenovo is, in many ways, a truly global company. Huawei is a Chinese company that does business overseas,” was a statement I heard from nearly everyone with substantial knowledge of the two companies.

Lenovo CEO Yang Yuanqing 杨元庆 is famous for strongly emphasizing the company’s goal of a global identity. In a 2014 interview with Harvard Business Review, he was asked what Chinese companies could learn from American companies, and what American companies could learn from Chinese companies. Yang responded, “I think both kinds of companies can learn from Lenovo,” emphasizing his concept of Lenovo as a company with a global identity, rather than a national one. Indeed, those working for Lenovo’s Beijing headquarters have expressed that referring to the company as anything other than “global” in its identity can be a bit taboo.

Lenovo is quick to emphasize its localization-focused approach to overseas business. It is reputed to send relatively few of its employees on foreign assignments, opting rather to trust locals to manage their own markets. “Our global-local model balances local empowerment and responsiveness with global learning and innovation and scale of production,” says Lenovo chief diversity officer Yolanda Conyers. “We believe it’s far more effective in building a consistent company culture and motivating employees, which, in turn, results in higher-quality products and helps us to better meet the needs of our customers.”

With Huawei, all business seems to orbit around the company’s central headquarters in Shenzhen, and for the company’s overseas business, it relies on sending employees abroad on a massive scale. It is notoriously untrusting of local staff. “If someone works at Huawei and they are not Chinese, regardless of their title or salary, I guarantee you, they have very little real power or authority, even if they are based in their home country,” said a former Huawei employee. Another former Huawei employee told me, “When we’d work overseas, the Chinese staff would discuss an issue privately, and then agree on how we would communicate that issue to the local staff. Often the message we would give the local staff was very different from the reality of the situation.”

Another industry expert said bluntly about Huawei, “I cannot think of another company in the world that has such a global presence, but pays so little attention to localization and integration.”

Acquisitions vs. organic growth

Much of this difference can be traced back to how the companies expanded globally in the first place. While Lenovo grew largely through acquisition of established international brands, most prominently the purchase of IBM’s ThinkPad brand of laptop computers in 2005, Huawei expanded country by country, replicating practices established in Shenzhen. For Lenovo, acquisitions meant the cultural integration aspect was an urgent issue upon which the company’s success would hinge. “They couldn’t avoid the culture issue. It was staring them right in the face,” said a former Lenovo employee involved with the ThinkPad acquisition. In response, Lenovo prioritized managing cultural challenges and developed a program for cultural integration that is a reference point not only for Chinese companies, but also for any company looking to develop a global corporate culture.

Huawei, in contrast, has expanded step by step into new markets, often developing markets, where it worked on telecoms infrastructure. In these cases, adaptation to local culture may have been somewhat important, but not urgent. “Huawei has preferred to take an approach like a steamroller to the culture issue,” said an American entrepreneur who has worked with Huawei on language and culture training. “They don’t really believe in adjusting to overseas cultures, but just overwhelming projects with resources until they get it done. To Huawei, cultural issues are distractions from urgent short-term goals, rather than a long-term challenge to handle.”

This approach has been successful for Huawei, but it has also created reputational problems for Huawei’s brand as an employer, especially in developed countries. Take, for example, ratings on Glassdoor.com, a popular HR site, where employees give their companies one to five stars. Lenovo has received roughly 1,000 reviews, while Huawei has received around 3,000. While neither received the four-plus star rating of world-class employers like Google and Hilton, the difference in trends between the two were interesting. In developed markets in particular, while Lenovo performed on a par or slightly better than comparable companies, Huawei’s performance was subpar:

In nearly every developed country, Huawei scored under three stars as an employer. In many, it scored far less. Even in the one exception of Sweden, where employees enjoyed higher-than-average salaries and opportunities to display their competence and work ethic, those employees complained about the same issues common throughout Huawei’s reviews from all over the world: lack of respect for local culture and laws, communication issues due to language, and a perceived two-class system, in which Chinese expats routinely received responsibility, information, and opportunities that local staff did not.

In Lenovo’s reviews, employees criticized the company’s strategic direction, internal politics, and some inconveniences due to cultural and time-zone differences working in a global company. However, the strong language and sharp accusations made consistently in Huawei’s reviews are hard to find in Lenovo’s.

When looking at developing and middle-income countries, however, it is a different story. Huawei’s scores, while not stellar, noticeably improved, while Lenovo’s were slightly lower:

What is the cause for the differences in scores between developed and developing markets? While difficult to say for sure, a few theories were offered by people familiar with the situation. One is the “first pot of gold” effect: that employees in developing countries, like those who Huawei prefers to recruit in China, often come from poorer backgrounds and are looking for a way to break into the global middle class. In many of these countries, well-paying jobs can be hard to find, and the opportunities Huawei offers seem to be more worth the difficulties. In contrast, those hired in developed markets are often well settled into the middle-class and have a larger variety of employers to choose from, making a job at Huawei seem less appealing.

Even in developing markets, Huawei has struggled in handling local staff and complying with local labor laws. In 2016, the Sahara Reporters noted a series of improper practices at Huawei’s office in Nigeria, alleging that the company was evading local taxes, violating the country’s expatriate employment quota, keeping Chinese employees in the country long after their employment visas had expired, and refusing to keep and train Nigerian understudies, which is required by law. In 2010, Huawei reportedly came under investigation by Indian authorities after it was alleged that only the first two floors of the company’s Bangalore R&D center were accessible to local employees, and that for all other floors, only Chinese employees had authorization. Chinese employees in India were also investigated for overstaying their work visas as well. In May of this year, over 300 local employees protested outside of Huawei’s Johannesburg office, leading to 30 arrests, after Huawei had reportedly unceremoniously fired hundreds of contract employees via text message.

Huawei’s struggles in managing non-Chinese staff seem to be hardwired: Since most Huawei positions are filled internally, often by the “strivers” who have spent their entire careers at Huawei, there tends to be a strong in-group/out-group dynamic. “It’s not just foreigners who have a difficult time at Huawei. It’s anyone who hasn’t been there from the beginning, including Chinese,” said a Chinese former Huawei employee who joined the company mid-career.

Another factor lies in how Huawei expatriate employees are circulated in their overseas work. In order to maintain a focus on results within their employees, managers are reportedly sent on assignment for no longer than three to four years at a time so that they “can’t set down roots and build too many relationships” with locals. With high pressure for results, these expatriate managers will often prefer to rely on bringing Huawei employees from Shenzhen with whom they have worked in the past. “There isn’t much room for local staff in that equation,” said a former Huawei manager.

The attitude from Huawei employees toward how their company is perceived as an employer internationally differs depending on whom you ask: Younger and more international employees often acknowledge that it is a problem, which the company is attempting to address. Some older and longer-tenured employees respond by referring to the positive cross-cultural experiences that they have personally had at the company, while others react defensively, or dismiss the idea altogether, with one person referring to the idea of the importance of cross-cultural collaboration and integration as a “myth.”

The difference in how Lenovo and Huawei manage cultural integration also comes from the personal experiences of those in charge. When looking at their boards of directors, their makeup looks quite different.

According to the company’s official website, of Huawei’s 17 board members, none have joined the company any later than 1997, none have experience working for non-Chinese firms, and no degrees from any foreign university are mentioned in any of their profiles. Lenovo’s board, however, has far more global representation:

In addition to a globally diverse management team, the Chinese leaders at Lenovo have been remarkably open about the value and challenges of managing across cultures. “Both YY (Yang Yuanqing) and Gina (Qiao Jian) are global leaders. They have a genuine curiosity for learning about other cultures, new experiences, and getting out of their comfort zones. They truly are global leaders of an international company with Chinese roots,” said Yolanda Conyers.

One former leader at both companies also spoke highly of long-time Lenovo executive Gina Qiao, explaining his view this way: “With any international business, cultural differences are like a bridge. While it can certainly be debated how much each side should walk across the bridge in each situation, they must meet somewhere on the bridge. At Lenovo, Gina has shown a willingness to be one of the first people on the bridge. When others have seen her get on the bridge, people from all other sides start to get on that bridge as well. It is very helpful in bringing people together.”

In contrast, when I asked a former senior Huawei manager about the approach of the company leaders to learning and integrating global cultures, he responded, “I don’t think they really care much about that at all.”

Huawei more admired as a business in China

Despite their vastly different reputations outside of China, when speaking with businesspeople inside of China, it is Huawei, not Lenovo, which surprisingly is often talked about as a model to follow for globalization. This may simply be because of recent performance:

The 2005 IBM ThinkPad acquisition resulted in Lenovo becoming the world’s leading PC brand, but the company has struggled to achieve consistent profits in recent years. In 2015, Lenovo recorded its first loss in six years, and while it returned to profitability for 2016, as the global PC market continues to shrink and with its server and smartphone businesses not yet making a profit, Lenovo is in a difficult position.

When asked to put a finger on the relative ascendency and fall of the two companies, their employees, while strongly defending the respective cultures, seemed to point the finger at long-term strategic moves, influenced by the differing governance structures. “Lenovo is a public company, and because of that, there is a lot of pressure to impress shareholders with good numbers,” said a Lenovo employee. “That means Lenovo has been less interested in investing in long-term projects and technology development.” Huawei, on the other hand, is privately held, which allows its leadership to focus on long-term investments and R&D, rather than on simply quarterly and annual profits.

Those close to Lenovo have also mentioned that some political infighting and waste have been a hindrance, and that, ironically for a company that prides itself on cultural integration, bringing on the Motorola business unit did not go as smoothly as hoped.

Huawei, on the other hand, has looked a bit better as of late: Its overall revenue in 2016 jumped 32 percent at the same time as consumer awareness of Huawei’s brand has grown while Lenovo’s presence decreases. In China, Huawei’s high-end phones are attracting customers away from Apple and Samsung, while its low-end Honor line challenges the likes of Xiaomi and Vivo. Huawei phones seem to be everywhere in China, while Lenovo’s phones, and those of its Motorola business unit, are rare sightings. This growth in China, as well as abroad, has propelled Huawei to surpass Apple as the world’s number two smartphone maker.

The striking success of homegrown Huawei to become a strong competitor of Apple and Samsung, in the end, may be the deciding factor of many people’s perception of this brand. One Chinese executive told me, “I feel proud to know that a company from China makes a top-quality smartphone.” A Chinese colleague of mine added, “Huawei has built its brand from the ground up, but Lenovo just bought IBM’s.”

 

Elliott Zaagman is a corporate trainer, executive coach, and writer.

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.