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Foundations of International Business

Abstract on The Impact of Sovereign States’ Action

Huawei, the China-based telecommunication company is being scrutinized globally over concerns that it has a close ti with the Chinese government which is said to present a national threat to the U.S., Europe and allied countries. An executive order to ban any electronic or digital technology that is suspected by the secretary of commerce as a national threat was issued by the president of America, Donald Trump. The order was believed to aim at Huawei. Not only America but also Australia accused the company to be the suspect of a national threat. This paper explores the reason behind these actions taken by the different sovereign states and their effect on Huawei. 

Introduction to The Impact of Sovereign States’ Action

The Chinese originated telecommunication company Huawei was started in 1987 by founder Ren Zhengfei which ultimately became a private company which was under the possession of its employees in Shenzen, China.Huawei mainly works in internet communication technology and produces hardware for ICT applications (Tao & Chunbo, 2019). It is the second largest telecommunication company in the world by revenue (Luo, 2019). With the support of Chinese government Huawei succeeded in becoming an international champion in telecommunication sector (Pepermans, 2016). The company succeeded in growing its business across China throughout the 1990s and by the end of 1990s Huawei had started exporting its products overseas. In the year 2012, a blueprint approach towards Asia and China in the 21st century was launched by the Australian government in its white paper which is known as “Australia in the Asian Century” (Chung & Mascitelli, 2015). It showcased the greater level of Australia’s engagement with China and Asia and the Chinese critical role in Australia avoiding serious outcomes from the global financial crisis. The global player in telecommunication equipment making with sales revenue of $16 billion in 2011 (Mei, 2012) was declared as a “security threat” by Australia and the U.S. The Intelligence Committee of the House of the US Congress stated in October 2012 that Huawei along with another Chinese telecommunication company ZTE is not trustworthy as they are influenced from the Beijing government and could be used to undermine US security. The crises touched the peak on May 15, 2019, after the U.S. president Donald Trump banned Huawei in the U.S. from selling products there (Calzati, 2020).

Effect of The Action

Huawei denies all the allegations imposed against it and has planned to dominate the market for the wireless communications of the next generation called 5G. But it is not going to be an easy deal for the company as it has threats from governments throughout the globe by which Huawei’s prospects are being restricted and even being banned from operating in some areas. It was declared by the US government that the Chinese telecommunication company Huawei should be barred from the US contracts and capital acquisitions. The company and its chief financial officer, Meng Wangzhou was charged with fraud in January 2019 by the US Department of Justice. Moreover, Huawei and 68 subsidiaries were added in the Entity List by the Department of Commerce which prevented the U.S. companies from exporting those goods and services without a license, which is rarely granted. It would result in cutting the Huawei’s access to the U.S. designed semiconductors on which the company still heavily relies. The restrictions imposed by the US government on Huawei escalated in May 2018 when the sale of Huawei phones on military bases was banned by Pentagon saying that there was a fear of movements of U.S. soldiers being tracked (Dutta & Marek, 2019). Adding to it the National Defence Authorization Act (NDAA) for the Fiscal Year 2019 which had provisions that stopped U.S. agencies and contractors from using Huawei products was signed. Moreover, the company has been charged in multiple cases of IP theft by the Justice Department. Adding to it, the company along with its CFO Meng Wanzhou has been charged with sanction violations. The barring of Huawei and ZTE from Australian and American telecommunication projects has unbridled great concern in front of global Chinese companies. As a result of the exclusion of Huawei from the US and Australian market the Chinese telecommunication company could not function in both of the markets freely. No sooner was the declaration made by the US Congress than Cisco, the US technology jumped in to take the advantage of the situation and used an anti-Huawei marketing document in which the connection between Huawei and Chinese military was highlighted though Cisco denied adopting any of such strategies. But the reality is different. Huawei has to compete with companies that now have more chances to get large government contracts. Moreover, the US government excluded Huawei from acquiring 3Com and Motorola’s wireless division parts in 2008. Adding to it, the telecommunication contracts of Huawei was barred by Sprint in 2010 again for the security reasons. Huawei has also been prohibited from participating in the US National Emergency Communications Network project bidding. Huawei is banned not only in the US but it has also been restricted in several other regions. Its allies in Washington have been pressured to follow suit and being threatened to stop sharing intelligence with Huawei using countries. The company was banned from building 5G network in Japan and Australia effectively in 2018. The use of Huawei equipment has been banned in the United Kingdom in the current year (2020). The company has been struggling with banns in other U.S partner countries such as Germany, Canada, the Netherlands and New Zealand. Australia too has put a ban to the company from its 5G mobile telecommunication network (Voon & Mitchell, 2019). It is expected by the market experts that the company would be able to survive but at the cost of suffering damage (Maizland & Chatzky, 2020).

Relaxations to the Firm

While the ban is imposed on Huawei, many suppliers argue that it will ultimately make the Chinese companies more self-sufficient and more competitive in technologies which will increase the cybersecurity risks of Huawei. In the contrast, if the firm is allowed by the United States to continue to supply Huawei, their techno;ogical benefits could stop Huawei from gaining the market important to make the development of substitutes for the U. S. technology economically viable. Different firms of the United States and experts also believe that the U.S. A. can have the greatest negative impact of the designation of Huawei on their competitiveness. The United States’ ability to invest in R&D which is highly significant in the United States’ advantage in semiconductors and other high-tech products could be reduced due to fewer revenues of the U.S. firms. Moreover, the Commerce Department issued a 90-days temporary licence within the first week of the designation allowing the U.S. firms to continue providing support to the previously sold products and software to Huawei. The temporary licence was later expanded for 90 days. The president of the U.S.A. Donald Trump in a meeting with Xi at the G-20 summit in Osaka announced that the restrictions on Huawei will be given relaxations and the supplies to the company will be continued by as the U.S. firms which will be granted licences allowing them to export to Huawei. Despite over hundreds of applications however no licence has been granted to any of the exporters. Despite being banned in some of the U.S.-allies countries Huawei is sill engaged in 5G network in many countries which includes key US allies too. As per Huawei, two-third of active 5G networks uses at least some of its equipment. Prior to the U.S. Entity list designation the European Union decided not to ban Huawei from member states’ 5G network. Rather it encouraged sharing of the information and coordinating risk assessment while leaving decisions about restrictions to national governments. After the decision made by the European Union, Huawei announced that it would open the Cyber Transparency Centre in Brussels which is the home to key EU institutions.

Conclusion and Implications on The Impact of Sovereign States’ Action

The denial of the US authority to access Huawei to the US domestic projects could easily reach to the market of other countries through the US command authority in this field. It will not be easy for Huawei to change the attitude of countries like the US. The company needs to build significant level of trust acquisition to do so. Huawei will require working continuously in other markets to present a showcase of their total potential. They need to work and prove that they are better than their competitor telecommunication companies not because of unethical behaviour and national security threats as any link with the Chinese government but thanks to their competitive technology. Huawei requires allocating significant resources to regain its creditability and trust of the sovereign governments and their markets. Although Huawei has tried to convince some specific segment of the western countries that they are trustworthy Chinese global telecommunication company who is interested only in business development and market share yet failed. Taiwan has not imposed a ban on Huawei although it has blocked mainland firms to supply government network since 2013- well before the 5G was introduced. However, TMSC the Taiwanese chipmaker firm argues that the Entity list designation does not affect its chips selling to Huawei.

References for The Impact of Sovereign States’ Action

Chung, M. & Mascitelli, B. (2015). Strategic positioning of Huawei on the international political stage. International Journal of Asian Business and Information Management, 1-18.

 DOI: 10.4018/IJABIM.2015100101

Calzati, S. (2020). China, Africa and the west: a geopolitical assessment of Huawei’s crisis communications on social networks. International Journal of Communication, 14, 4952-4972. Retrieved from

https://ijoc.org/index.php/ijoc/article/view/15031/3226

Dutta, A. & Marek, J. (2019). A concise guide to Huawei’s cybersecurity risks and global responses. Retrieved from

https://www.nbr.org/publication/a-concise-guide-to-huaweis-cybersecurity-risks-and-the-global-responses/

Luo, C. (2019). The real Huawei story and the 5G era. The Park Place Economist, 27. Retrieved from

https://digitalcommons.iwu.edu/parkplace/vol27/iss1/18/

Maizland, L. & Chatzky, A. (2020). Huawei: China’s controversial tech giant. Retrieved from 

https://www.cfr.org/backgrounder/huawei-chinas-controversial-tech-giant

Mei, X. Y. (2012). Telecom sector not in trouble. China Daily, 18 October 2012, Bejing, China.

Pepermans, A. (2016). The Huawei Case and What it Reveals About Europe’s Trade Policy. Retrieved from

https://heinonline.org/HOL/LandingPage?handle=hein.kluwer/eurofa0021&div=44&id=&page=

Tao, T. & Chunbo, W. (2019). The Huawei story. South Asian Journal of Management, 26(2), 218-220. Retrieved from

https://search.proquest.com/openview/55f1339eeedec06089f32ccd838e58e4/1?cbl=46967&pq-origsite=gscholar

Voon, T. & Mitchell, A. D. (2019) Australia’s huawei ban raises difficult questions for WTO. Doi: http://dx.doi.org/10.2139/ssrn.3390675

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