Checkpoint Asia

Huawei and Russia Team Up as Tech Cold War Deepens

The partnership of the sanctioned

Huawei Technologies has drawn closer to Russia, after having been blacklisted by the U.S. and several European countries, a move that has huge implications for both sides, analysts said.

“Huawei is China’s largest technological company. China is friends with Russia, so it is only logical that Huawei now plays a leading role in this friendship,” said Vladimir Rubanov, executive manager of Russian IT company Rosplatforma.

Over the past year, Huawei has made major inroads in Russia. The Chinese tech company has emerged as a leader in Russia in areas ranging from fifth-generation mobile network development to smartphone sales. Huawei is also in the process of significantly expanding its Russia-based research and development operations and forming partnerships with local universities.

Russia, too, is facing antagonism from the West and its relationship with the U.S. is deteriorating. Against this backdrop, the Chinese tech giant is providing the Russian economy with much-needed foreign investment and helping Russian tech specialists acquire new skills, said Rubanov.

During Chinese President Xi Jinping’s visit to St.Petersburg in June, Huawei signed a deal with Russia’s leading telecom company MTS to develop 5G network in the country. The two companies launched their first 5G test zone in Moscow just last month.

On Oct. 8, Huawei Vice Chairman Ken Hu announced that the company would promote the development of 5G in Russia by investing 500 million rubles ($7.8 million) in training 10,000 specialists over the next five years.

Huawei has also established itself as the dominant player in the Russian smartphone market. According to research group M.Video-Eldorado, Huawei and its subsidiary brand Honor overtook Samsung Electronics in the third quarter of 2018 in smartphone sales. A study by the same group in August found that Huawei and Honor together control 37% of the market.

Huawei’s success in the Russian smartphone market is in large part due to its heavy investment in the Honor brand, said Eldar Murtazin, editor-in-chief of Mobile Review. He said Honor won over Russian consumers by offering relatively high-quality phones at below market prices that Huawei’s rivals were either unable or unwilling to match.

“No one, of course, actively competed against Huawei in this show of unprecedented generosity because when your initial sales are negative, it is impossible to continue working,” Murtazin said.

While Huawei has encountered road blocks in the U.S. and Europe on allegations that it could be used to spy for the Chinese government, Murtazin said such accusations hold no water in Moscow. “Huawei is viewed in Russia as a law-abiding company that does not engage in such things because no one has presented any evidence,” he said.

More broadly, all the Russian experts the Nikkei Asian Review spoke to uniformly argued that the privacy of personal data is inherently vulnerable and there was no reason to believe that Huawei users were uniquely at risk.

Some also noted that the Kremlin was less concerned about the prospect of China, its close strategic partner, gaining access to Russian user data than it would be about the U.S. doing so. “There is a joke among Russian tech professionals. If you use Apple, Washington listens to your calls. If you use Huawei, Beijing listens to your calls. Which is better?” Rubanov said.

Rising tensions with Washington have also pushed Huawei to look to Russia as a potential source of innovation, experts told.

Huawei announced in August that it would triple the size of its R&D staff in Russia over the next six years and open three new R&D centers there by the end of 2019, which would make the country home to the third largest R&D operation it has outside of China.

Huawei is also strengthening its collaboration with leading Russian technical universities and other research institutions, including by inviting them to participate in joint projects and providing financial support for research related to areas of interest for the Chinese company, reported the local newspaper Izvestia.

Russia’s skilled labor force makes it well equipped to help Huawei maintain an innovative edge despite growing pressure from the West, said Dmitry Komissarov, CEO of New Cloud Technologies.

“There are not many countries that have an abundance of available programmers and engineers,” he said. “Russia is not the only country that can offer strong workers in this area, but it is one option.”

With its vast financial resources, Huawei is well positioned to attract Russian talent. Komissarov said that Huawei had recruited several of his acquaintances in the IT industry by doubling their salaries.

From Moscow’s point of view, the relationship with Huawei has many benefits — the Chinese company is providing the Russian economy with much-needed foreign investment and also helping local tech specialists to acquire new skills, Rubanov said.

“In essence, Huawei is using its own money to train Russian citizens on how to use advanced technologies and give them an opportunity to participate in global scale product development,” he said.

Komissarov agreed, adding that many of the specialists trained at Huawei’s R&D centers will eventually go on to start their own companies, thereby fueling entrepreneurship in Russia’s IT industry in the long run.

As Huawei continues to strengthen its presence in Russia, its future success in the country is likely to come at the expense of American competitors, Muratzin said.

“Huawei’s global strategy is pretty simple. There is America, which has thrown out Huawei, there is the Chinese market, and there are loyal countries where Huawei has an opportunity to expand its presence. Russia is one such country,” he said.

“For this reason, Huawei will invest heavily in the Russian market and it effectively kills off American infrastructure companies in Russia,” Muratzin added. “This is a conscientious effort to squeeze them out, less so politically than marketing-wise, commercially, and by offering better conditions and contracts.”

Source: Nikkei Review