Huawei in Venezuela: a review of 2006-2019.
| Autor | Baldo, Carlos M. |
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Introduction and literature review
The internationalization of Chinese enterprises into Latin America (LATAM) has left deep footprints in the region. These tracks can be measured by a large amount of Chinese investment in the region and the advanced internationalization levels achieved by its enterprises. Chinese foreign direct investment (FDI) in LATAM increased significantly in the second decade of the 2000s compared to the previous decade. This is particularly evident in Argentina, Brazil, Colombia, Peru, Ecuador and Venezuela (Chen & Perez Ludena, 2014); in some cases, investment doubled from one year to another (Peters, 2019).
Although most of this FDI has gone to extraction industries and natural resources (Perez Ludena, 2012), other sectors have also been impacted, including the telecom sector (Salidjanova, 2011). Huawei and other Chinese telecom organizations such as ZTE, China Unicom and TP-Link have all increased their operations in the Latin America (LATAM) region (Avendano, Melguizo, & Miner, 2017). For instance, China Unicom has used its relationship with the Spanish telecom Telefonica as a springboard to increase its presence in the LATAM region (Casanova & Rodriguez-Montemayor, 2014), and ZTE entered the LATAMn market through Brazil in 1998 (Rehman, Nawaz, Ahmedand, & Hyder, 2014). In the case of TP-Link, their internationalization in the Americas started in 2008 with opening an office in the USA, then developing a partnership with Telmex from Mexico and becoming a service provider in Peru (Regalado & Zapata, 2017). The expansion of these Chinese telecom organizations, along with those in the mining and energy sectors, reflects a strong presence and high level of Chinese investment in the LATAM region.
In order to better understand the China-LATAM relationship, this paper examines the expansion of Chinese telecom multinational Huawei into Venezuela between 2006 and 2019. This particular example of Chinese internationalization in a LATAM country provides an insightful lens for understanding Sino-Latin American business relations because, in some ways, it has proceeded as predicted by internationalization models, but in other ways, it has unfolded in unexpected ways due to the unique context in Venezuela. As a host country for Huawei, Venezuela has presented the Chinese company with a particular set of conditions: a local telecom partner that has been nationalized, privatized and renationalized, a government that has shifted strongly toward left-socialist politics and away from the U.S. as its primary trading partner; many local opportunities to deploy technology and products to satisfy demand and the ability to connect financially with the country's vast oil reserves and well-developed petroleum industry. This combination of conditions created a context that is unique to the story of Huawei and Venezuela; however, issues such as nationalization, leftist politics, large underserved markets and enticing resource reserves can be found across the region, making this a relevant case to study.
Internationalization can be defined most generally as "the process through which a firm moves from operating solely in its domestic marketplace to international markets" (Javalgi, Griffith, & White, 2003, p. 186). A more detailed definition comes from Welch & Luostarinen (1988), who specified that internationalization includes both outward and inward activities because "both sides of the process, i.e., both inward and outward, have become more closely linked in the dynamics of international trade" (p. 36). For this research, we use Vissak's (2015) concept of internationalization, which not only incorporates "any inward, outward and/or linked cooperative modes-for instance, exporting, importing, investing, licensing or cooperating in other ways" but also acknowledges that these activities may ebb and flow over time via "de-internationalization" and re-internationalization" (p. 2). It is important to consider the ebb and flow of internationalization in the case of Chinese investment in Venezuela, as decreasing oil prices and productions (and, more recently, the global pandemic) have impacted what had previously been a consistently growing relationship.
One of the oldest and best-known models of the internationalization process is the Uppsala model (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975), which holds that internationalization is a process through which an organization gradually increases its commitment to international operations via a series of incremental decisions and activities. The model lays out four stages that range from having no export activities to engaging in actual production in a foreign market. The choice of expansion locations is typically based on market potential and on "psychic distance" factors such as "language, culture, political systems, level of education, level of industrial development, etc." that make it more or less difficult for the firm to acquire and use information about the market (Johanson & Wiedersheim-Paul, 1975, p. 308). This model has been criticized and updated over the years (e.g. Andersen, 1993; Vahlne & Johanson, 2017), but the focus remains on internationalization as a process of incremental learning and commitments. This paper will outline how Huawei's engagement in Venezuela began with incremental commitments but expanded rapidly during the administration of Hugo Chavez due to political alignment and the use of Venezuelan oil to secure Chinese financing.
The paper is organized into eight sections. Section 2 describes the methodology used in the paper. Section 3 offers a general overview of Huawei before its engagement in the Venezuelan market, and Section 4 describes the Venezuela telecommunications sector prior to the renationalization of the CANTV (Compania Anonima Nacional de Telefonos de Venezuela) phone company in 2007. Section 5 discusses the China-Venezuela joint fund and the political and economic context of Huawei's growth in Venezuela. Section 6 uses news media documentation to build a detailed timeline of Huawei's operations and actions in Venezuela. Section 7 considers what aspects of Huawei's internationalization process were conventional and unconventional in relation to other organizations and markets, and Section 8 provides discussion and conclusions in relation to the case.
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Methodology
This paper addresses the following research questions: What was Huawei's internationalization process in Venezuela, and what can be learned from this example of Chinese expansion in LATAM? The paper is based on a search of secondary data (academic articles, company data and news articles), and it is presented as a quasi-case study. A case study allows the investigation of a current phenomenon and its context, particularly when the context is not defined or limited (Yin, 2018). The method used here is based on the concept of a case study as a "contextualized explanation" from Welch, Piekkari. Plakoyiannaki & Paavilainen-Mantymaki (2011), who argue that "the value of this approach lies in its different view of how to generate theories about the social world: the rejection of the regularity model of causation, skepticism towards the possibility of meaningful law-like generalizations, and a defense of context as being an essential component of, rather than a hindrance to, explanation" (p. 755). Rather than attempting to generalize theory about internationalization processes from this case, we instead wish to explore the particular context of Huawei's internationalization in Venezuela and point out the complex social and economic circumstances that influenced the process. Some of these circumstances will be germane to the growth of other Chinese companies in other South American countries and some will not; the value of the case is that it provides a detailed picture of the process, and it explains by "factoring in the combination of conditions found in the case rather than seeking to measure the net effect of an isolated variable" (Welch, Piekkari, Plakoyiannaki & Paavilainen-Mantymaki, 2011, p. 749).
Due to the limited information produced by the Venezuelan government concerning Chinese companies operating there and the inconsistent availability of data generated by Huawei about its Venezuelan operations, we supplemented these data sources with academic sources (to understand the company's and host country's conditions) and a systematic review of contemporary news articles (to understand the internationalization timeline). Using this approach, we were able to identify "strategic decisions and market transactions" (Surdu, Mellahi & Glaister, 2019, p. 400) that signaled the company's level of involvement in the host country. Although each type of source required some interpretation to analyze the data or documents, the case at the end provides an aggregation of concepts (Stake, 1995). This triangulating helped us to validate our findings (Patton, 2014; Yazan, 2015) and is consistent with a call to increase the use of data triangulation in international business research.
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Huawei before 2006
Ren Zhengfei founded Huawei Technologies Company, Limited (Huawei) in 1987 with 21,000 Yuan (US$ 4,400 at the time) of his own money ("The Long March of the Invisible Mr. Ren," 2011, p. 80). By 2006, Huawei's annual revenue was US$ 8.504 bn; net income was $512m; cash flow from operations was $748m; operating profit margin was 7%; and net return on assets was 20% (Huawei, 2007). This impressive growth included developing design and manufacturing capabilities, gathering resources, establishing dominance in the Chinese market, expanding internationally and challenging major competitors.
Initially, Huawei sold private branch exchange (PBX) switches made by a Hong Kong company, but Huawei was soon designing communication systems for customers and building parts. Early customers were hotels and small companies that needed low-cost solutions modified to...
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