Huawei founder's observation of Japan's "lost decade"
Huawei founder's observation of Japan's "lost decade"
Spring of The North, and the lessons Ren Zhengfei drew from Japan
“If there’s a Darth Vader in the minds of Chinese national security hawks in Washington worried about China’s rising tech power, it’s Ren (Zhengfei).” said a Bloomberg story in 2018, conveying the enormous Western doubts and concerns in the founder of Huawei.
It’s perhaps still not well-known that over the years Ren has authored many unpretentious articles full of personal details. Pekingnology so far has translated three of them.
《我的父亲母亲》 My Father and Mother, written on Feb. 8, 2001, is a comprehensive, first-person account of his family background and early life, including, yes, his ties to the Chinese military.
《赴美考察散记》 Notes from a Trip to America, first published on Jan. 28, 1994, is his thoughts after visiting Boston, New York, Philly, and Las Vegas.
“Central Park is so big, we walked for half a day, and when we looked at the map, we realized that we had walked past just a small corner. In order to know how big it is, we rented a cab and asked the driver to take us around it,” wrote Ren, who made sure to document his cab fare. “Because the driver was afraid of riots from some African Americans, the cab ride cost us the equivalent of more than 100 yuan.”
Pekingnology also documented Ren’s consistent and public 亲美 “pro-U.S.” stance over the years, in his own words.
《赴俄参展杂记》Notes from an Exhibition in Russia, published on Aug. 26, 1996.
Pekingnology today publishes a translation of Ren’s《北国之春》Spring of The North, apparently inspired by the Japanese song Kitaguni no Haru by Masao Sen. (Listen to the song at the end.)
What can you learn from an article written 20 years ago?
Ren’s brief reflection on his personal life.
Ren’s diagnosis of Japan’s “lost decade.”
Ren’s merciless criticism of Huawei, which at the time was doing very well, and his constant worry for Huawei to get prepared for “winter.”
Most importantly, you can tell something about the Darth Vader from his writing.
All of the writings are sourced from Huawei’s internal newspaper《华为人》Huawei People, available at Huawei’s 心声社区 Xinsheng Community, an internal forum for employees that remains nonetheless open to the general public. For companies of the size of Huawei, that’s a unique and unprecedented source of information where you can also find many executives’ speeches and corporate memos.
Pekingnology has never been and is not paid by Huawei to unearth these articles.
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北国之春 Spring of The North/Kitaguni no Haru
by Ren Zhengfei, June 24, 2001.
We set foot in Japan when the cherries were in full bloom, and the spring was bright. On this trip, we did not come to feel the exotic spring and enjoy the cherry blossoms all over the mountains, but to learn from the experience of coping with winter.
Spring will always come in the north
As soon as I stepped into the land of Japan, my first impression was the serenity, peace, cleanliness, affluence, and comfort I felt ten years ago. From the remote countryside to the big and prosperous cities, the streets were as neat and orderly as ever; the people were as kind, friendly, and courteous as ever, and their footsteps were as hurried as ever; from the waiters at the ramen store to the old ladies at the small country inns, as well as the office workers at the big companies.
All of them were so calm, optimistic, and dedicated. The Japanese people cherish their jobs and the opportunity to serve others so much. Work seems to be their highest enjoyment, without restlessness, dissatisfaction, or resentment. In my opinion, Japan is still the same as it was ten years ago, and the Japanese people are still the same as they were ten years ago.
But who would have thought that Japan has endured the harshest and longest post-war winter during these ten years? It is because what I see and hear now is based on such a long period of low growth that I have such a strong feeling. The vast majority of companies in Japan have not had a wage increase in almost eight years. Amazingly, security and order are still better than (even?) in Northern Europe.
Once Japan takes off again, such a solid foundation will enable it to skyrocket. If Huawei encounters two consecutive winters, it is unclear whether Huawei people will still be calm, calm, overcoming difficulties, and looking forward to spring.
Since the early 1990s, Japan has had low growth, zero growth, or negative growth. This winter is too long. How did Japanese companies get through it, what difficulties did they encounter, what experience did they have, and what inspiration can they give us?
That is the purpose of our visit to Japan.
Huawei has had ten years of rapid development. Will Huawei be able to sustain long-term development? Will it encounter low growth or even a long period of low growth? What problems exist in the structure and management of Huawei? Huawei employees rose rapidly in peacetime. Can we withstand the cold winter? Will the cash flow be interrupted in rapid development? If the river freezes, will there be a trickle of water that prevents Huawei from a complete standstill? These are all things that we business leaders should study in advance. Huawei will always face winter, and it is better to be prepared with cotton clothes in advance. How should we deal with Huawei's winter?
That is the topic we ponder and discuss at times in Japan.
Endeavor is the power source of a nation's rise
In a small izakaya in a remote village, we coincidentally met a group of retired Japanese seniors who were traveling, and they sang ソーラン節/Sōran Bushi for us enthusiastically. We couldn't help but sing the Hokkaido folk song Spring of The North/Kitaguni no Haru with them. They were so optimistic, enthusiastic, and carefree, which infected me. In contrast, I felt that the Chinese elderly live with constant worry, heavy hearts, and a very tiring life. Our fathers were so heavy-hearted that they never had an easy time until they died.
I have listened to Spring of The North/Kitaguni no Haru hundreds of times, and each time I have been brought to tears and struck by its simple, unpretentious lyrics. The original author intended it to be a tribute to entrepreneurs and endeavors, not a love song as today's youth mistakenly believe.
When a young man leaves his hometown, far from his family, to fight for his career, his mother is the only one who cares for him all the time, so much so that she does not know that the seasons have changed, and sends him cotton clothes for the winter when spring has come.
I no longer have a mother who sends me fritillary (fishy grass), wild vegetables, and spicy sausage. All of them can only be stored in memory. The parents of the world are the same in worrying about their children. The article I wrote, My Father and Mother, had also been translated into Japanese and English by my Japanese friends for their employees to pass around, and they mistook me for a filial son. Because I had not done my duty to take care of my parents, I was in so much guilt and pain. I dedicated all my energy to my work, ignored my parents' well-being, and was an unworthy son.
One leaves home to endeavor to get a good life, and love is the most essential part of a good life, but love is like a single-log bridge. Once the other person is crossing it, you can't.
[Pekingnology: Ren quotes the lyrics of Spring of The North/Kitaguni no Haru]
So far, I've been separated from her for five years, wondering how she is now
Melted snow, meandering flows and the single-log bridge
When faced with the single-log bridge, I wouldn't know if my love has passed (me) over, if she is still there. How can (commercial/career) success make up for the melancholy, loss, and confusion?
[Pekingnology: the lyrics again.]
Clusters of kerrias, morning mist and the hut with a waterwheel
Children's ballads fly into my ears as comes the spring of the North, oh, spring of the North
Elder brother and father are both alike and silent
Occasionally they'd have a drink together
Most of us were able to go to college due to our fathers' and brothers' silent dedication. They worked hard and saved little by little to provide for their isolated and helpless children far away from home, but they themselves were not educated. They used their rugged backbone to build up the first step of life and career for us. I hope they don't suffer too much for themselves and could put up two glasses of liquor when sad and speechless. We must never forget them, never despise them, and never forget to repay them.
From this, I think each of our successes comes from the selfless dedication of our loved ones. The power source of our life, work, and career first comes from our mother's clothes for cold winter, from the silent father and brother, the hometown, the hut with a waterwheel, the single-log bridge, and the girl who once loved you but have parted ways.......
Spring in the North represents the endeavor of the Japanese people.
I have personally appreciated the diligence of the Japanese people, without which they would not have risen from the ashes of World War II in just 20 or 30 years. The Japanese people are good at fine craftsmanship, and in the era of product economy, they have impressed people worldwide. I also learned about their patience and optimism in overcoming depression under challenging times.
Japan is an island country with a small land area and mostly high mountains, so the Japanese people have developed a habit of making "short, thin, light, and fine" from the "big and heavy". They have developed a tradition of fine craftsmanship for a long time. A small garden is so beautiful and a small street is so neat and attractive that any corner is comfortable.
Japan has produced the small, powerful cameras and the household appliances that once swept the world market. This country has no coal, iron ore, or oil but produces quality automobiles all over the world. Their diligence and the persistence of the German nation, has shaken the world in the era of the electromechanical products industry. The uncomplaining, hard-working, and continuous dedication created Japan's prosperity.
Although Japan is experiencing difficulties, its national spirit of endurance, optimism, diligence, and endeavor remains unchanged, as does its belief and love for life and work. We believe that Japan will be able to survive this cold winter.
What happened to the Japanese economy?
After WWII, Japan's economy started in the 1950s mainly by military orders and the support of the United States. In the 1960s and 1970s, Japan was the center in the manufacturing of electromechanical products, and the added value was mainly in the manufacturing industry at that time.
On this basis, Japan's economy took off soon. After the end of the Cold War, the United States quickly shifted military technology to civilian use, contributing to the rapid development of information technology. As information technology entered the industrial system, the added value of its industry quickly shifted to core technology research and development and sales. Manufacturing opened up to become highly competitive and marginally profitable contract manufacturing. Japan, which had manufacturing as its competitive advantage, was hit hard.
In the 1970s, when Japan's economy was highly efficient in mass production, volume sales, and material production, the growth rate was about 10%.
In the 1980s, the environment centered on mixed innovation and knowledge productivity changed. Still, the system of Japanese companies did not change with it and soon slipped from the center of the world economy to the periphery, with a growth rate of no more than 4%.
In the 1990s, in the environment of globalization of market economy, value-added knowledge, and information society, the system of Japanese companies still did not change fundamentally, and they were thrown out at once, with a growth rate of about 2%.
Japanese companies have been very successful in the past, but they cannot rely on one system to achieve long-term sustainable growth. Is the model that Huawei used to grow on so reliable? It is also worth reflecting on.
During the period of rapid economic development in Japan, the United States regarded Japan and Germany as imaginary enemies. They carefully studied the vulnerability of Japan and Germany. In response to the closed policy of Japan and Germany, the U.S. pursued an open policy, adopting an approach of charming the world's best talents to work in the U.S., introducing advanced technology from all countries, energizing and vitalizing the stock market, and attracting capital from all over the world.
And Japan is relatively a single-ethnic country with little internal competition and income disparity. That inhibits innovation. Although Japan has long participated in WTO, its government's openness is not equal to the openness of its market. The patriotism of the Japanese people makes it difficult for foreign companies and products to expand in Japan.
For example, the media widely publicized in the past few years that Japanese people travel abroad on Japan Airlines (JAL) flights (of course, the excellent service of JAL is a reason) and even travel abroad with Japanese rice and soy sauce.
The limited expansion of foreign companies in Japan is not enough to activate the internal competition in Japan. Only fierce competition will lead to innovation, and Japan is inadequate in creation, making its past advantages unsustainable.
At this stage, the lack of innovation has brought Japan's manufacturing industry into trouble. The real drag on Japan's economy is due to many bad debts in Japan's real estate industry.
In the years of economic takeoff, Prime Minister Tanaka Kakuei proposed a plan to transform the Japanese islands. At that time, Japanese companies and people were wealthy, and Japan didn't have a lot of land. All of a sudden, land and property prices soared.
A vast amount of yen poured into real estate every year in the decades of prosperity. When the financial crisis came, coupled with the lack of innovation in manufacturing and a sharp decline in revenue, the prices of real estate suddenly fell sharply. The companies which owned real estate went into red and became debt-ridden. The companies' funding came mainly from banks, which were also in danger of being brought down. Without getting rid of these bad debts, the companies could not turn themselves over.
If Japan had taken advantage of the economic boom at that time, implemented multiculturalism, brought in a large number of talents, revitalized education, broke up egalitarianism, promoted internal competition, and stimulated new vitality so that its manufacturing industry remained robuts, the economy would not necessarily have collapsed if Japan had managed a gradual contraction in real estate.
I was inspired by an exchange with Prof. 竹内伦树 Takenouchi. There is no shortage of knowledgeable people in Japan who genuinely understand Japan's national conditions, what is wrong with Japan, and how to escape Japan's predicament. I believe that the problems they are experiencing now are difficulties in structural adjustment, and they will go back to the road of revitalization.
Compared with Japan, China's economic development has a significant advantage. Japan's infrastructure is complete-built, with little else to add. Japan's environmental protection is perfect, which is enviable in an industrialized. Then there isn't much space for investment in environmental protection. The Japanese people are generally relatively affluent, and education is fairly decent. I wouldn't know where to stimulate its domestic demand.
China's economy is emerging. Not to mention the west, the eastern infrastructure is also very imperfect. A huge investment in environmental protection in the east would be necessary to restore the lucid waters and lush mountains. Not to mention the poverty in the West, the laid-off workers in the east need to make a living.
Numerous investments would be needed to have the 1.2 billion people have their homes and an excellent public transport system. The project of educating 1.2 billion people and improving the knowledge of the whole nation is enormous. Hundreds of billions of dollars would be needed to lighten the burden of farmers and build multimedia rural primary and secondary schools. And the universities need upgrading to modern ones.
Therefore, China has at least two or three decades of high-speed development opportunities to fulfill its domestic demand, where society's devotion from all aspects needs to be facilitated in a continuous endeavor.
However, in the development, we should be mindful that generous social welfare may decrease people's incentive to work hard. That's not only the lesson from Japan but also from Canada and Northern Europe, where excessive taxation and welfare resulted in the departure of many talents. That's what we should study and learn from to develop effectively.
What difficulties have Japanese companies encountered?
The companies we visited make products, and such companies are doing better than other companies. They still have sales, and the cash is still flowing. It's just that the eight-year business growth curve is a flat line with almost no growth. Wages have barely grown. They have even declined slightly.
The three kinds of excesses weigh heavily on the Japanese companies and make transformation difficult": excess employment, equipment, and debt.
The adjustment to the excesses involves:
Institutional reform.
Structural and industrial restructuring.
Transition to the development of knowledge and innovation industries.
Core management capabilities.
The shift to timely operation.
The Japanese corporate system in the past hindered this transformation. Japanese companies feel that the key lies in not doing something right or wrong but developing core competencies.
If, for example, Huawei's growth rate slows down significantly, all three kinds of excesses of Japanese companies will appear. Without early recognition and complete preparation in thinking, Huawei will be trapped as well.
As Japanese companies haven't recruited new employees for a long time, the average age of employees gradually increases, and the talent structure shifts from the shape of a pagoda to a spindle, with fewer outstanding talents, less new strength, and older, unremarkable employees. The companies then lack vitality and suffer high labor costs. Due to the weakened mobility of talents, positions are relatively frozen, making innovation significantly insufficient.
Japanese companies are lagging in internal reforms. Their domestic competition is stagnant, and employees within companies also falter in little but necessary competition. The economic downturn did not accentuate the internal and external factors that urgently prompted corporate reform. It is challenging for Japanese companies to implement more extensive reforms entirely.
As mentioned before, Japan is a country with good security and order and comfortable and stable life. That wages have not risen for eight years hasn't threatened consumption, and people are used to their comfort zone. The Japanese people rarely even go overseas to study. The stability is not conducive to forcing companies to undertake painful reforms.
At the same time as abolishing the wage system based on seniority and lifetime employment and strengthening performance evaluations, Japanese companies have now also begun to reorganize internally. They are shrinking from a large company that does everything to focusing on a few significant areas, giving financial independence to these major areas with a shared brand, making accounting objectives clear, etc.. Still, traditional and cultural inertia have impeded the reforms.
Japanese companies have also started implementing employee stock ownership systems to activate and promote competition among employees and companies. The law in Japan did not allow employee stock ownership in the first place. However, Japanese companies did not take intense action to improve their competitiveness at the core. They have dealt with the symptoms rather than the illnesses, so the deep-rooted problems persisted.
Japan has always been seeking stability. Company executives are aging. Decision-making process is too cautious. Many important decisions must be unanimously adopted there, so a few objections would require a lot of persuasions, delaying the decision-making. Timeliness is sacrificed for security. An overly democratic decision-making system is not necessarily sound.
Japanese companies have been more international than other Asian countries, but when they sum up the cause of their failure, they still say they are not international enough. Huawei's internationalization is far behind Panasonic and NEC. What can we be proud of blindly?
The internationalization of Asian companies is difficult from the start, and the development of China in the 20 years after decades of closure is not enough to support internationalization. Huawei's pace of internationalization is even more difficult, not least because many foreign employees cannot read Chinese documents, and a large number of domestic employees are not good at English. That's problematic enough by itself. If we can't overcome these difficulties, Huawei may prosper just briefly.
The Japanese government has decided to tackle non-performing loans by 2003, buying 33 trillion yen of debt from banks. Japan has also agreed to implement a "small government" and give more power to localities. They will introduce tax reform, lower income tax, and raise the consumption tax. They will reform the education system, changing the one-fits-all method to education catering to the needs of the individual students. That will help tap the potential and increase the creativity of young people. They will reform the social security system and introduce the American-style social security system. They will step up on IT and strengthen drive industrialization with information technology. All of them will lay the foundation for further corporate reforms.
What about Huawei?
Some people compare a company to a ship, and Panasonic compares itself to a boat in the ice sea. In Panasonic, we can see a poster everywhere, no matter in the office, in the meeting room, or on the wall of the passage, on which is a massive ship about to hit an iceberg, and below it is written: "The only one who can save this ship is you."
Its awareness of crisis is evident. In Huawei, is our awareness of winter that strong? Has it been passed to the grassroots? Has everyone taken action?
Huawei is not yet in winter. It's in late autumn or early winter, if we can seriously learn from others, accelerate the overall improvement of work efficiency, improve the rationality and effectiveness of the process, cut and merge unnecessary organizations, cut redundant staff, and strengthen the self-training and quality improvement of employees, maybe we can prepare a good cotton jacket before winter.
Huawei grew up in the fastest growth period of the global information industry, especially in China's transformation from a backward information network into a world-class advanced information network. In the rapid trend, Huawei is like a leaf, enjoying the privilege of landing on a ship that rides the waves. The tide has been lifting the boat, so Huawei hasn't experienced the test of shocking waves, flooding, the collapse of a dam, or other crises. Therefore, Huawei's success lies in catching the opportunity rather than its quality and competence.
What is success? It's like those Japanese companies which survived disasters and went on to live well. Huawei is not successful, and it is just growing.
Huawei has been in peacetime for so long that we promoted too many corporate officials, which may constitute our disaster. The Titanic sailed out to sea amidst cheers.
We have many blindly prideful employees. They are like frogs at the bottom of the well. Seeing that we are accidentally ahead of Western companies in some products, they think our company is already at the world level. They do not know the connotation of a world-famous company, nor do they see the trend of the world's development and the potential achievements that others have kept under wraps. We as a nation have never stood up before, and when we stand up a little, we have blind optimism and unrealistic pride. Huawei is younger, more naive, and more immature in this regard.
Huawei's uneven organizational structure is inefficient. Just like how much water a barrel holds depends on the short piece of wood, the imbalance is the bottleneck of the process.
For example, when our company was starved for revenue, the great initial emphasis on conditioning research and development and marketing to adapt to the market was the right approach. There would be no basis for scientific management if we couldn't live.
However, after that period passed, we haven't changed course because the executives promoted to the top mainly were from R&D and marketing. They carried with them an unconscious, habitual tendency. The result is the strong departments got stronger and the weak departments weaker, leading to bottlenecks.
Sometimes some executives accuse our plan and budget are not accurate, cost accounting and control are not extended to projects, accountings are not well done by product, layer, region, or project, and cash flow is not managed at the best level....... But if our value evaluation system can't make the company's organization balanced, the lack of excellent executives in these departments will be even less able to achieve simultaneous progress. How can the balance sheet suddenly get better if they don't progress and you don't progress? God knows. Huawei's progress will be empty talk if the bias is not changed.
Due to its temporary success, Huawei's compensation for employees is relatively high. Many executives now want to rest on their laurels. They ask for instructions on everything and implement the corporate leadership's speeches rigidly, fearing losing their positions. They are an obstacle to our system where employees are responsible for tasks (Pekingnology: rather than their supervisors.)
The system of accountability to people and the system of accountability to tasks are two fundamental systems, and the system of accountability to people is a system toward convergence. Based on the process and authorization and effective monitoring, responsibility for tasks makes the most knowledgeable people have the power to deal with problems. And it is a system toward expansion.
Now Huawei's senior and middle-level executives are consciously and unconsciously accustomed to the person-to-person accountability system, making it challenging to implement process-oriented IT management.
Professional, standardized, tabular, and template management is still in short supply at Huawei, which is still amateurish. Repetitive work and overlapping management are rampant, which is the root cause of inefficiency. I have seen the work of some corporate secretaries from Hong Kong, who got things done efficiently. We still have to fumble, and when the job is done, we don't know if it's professional, so we convene a small meeting to review it. That's where our high cost comes from. To quickly achieve IT management, our corporate officials need to be brought up to speed.
The obstacles to the implementation of IT come mainly from within the company. The senior and middle-level corporate officials would lose power. But do we correctly understand that the life and death of the company must come from the progress of the management system? This progress must be fast, correct, end-to-end, point-to-point, and removes many intermediaries. Are we prepared to face many senior and middle-level executives being laid off with the implementation of IT? Will they stall the process to retain their power? Or, can we convince our market rivals not to adopt IT? I don't think so. No progress translates to a dead end.
Huawei has so many problems that I do not know how many days it takes to count them all.
But as long as we continue to find problems, explore them, stick to self-criticism, build, and improve, there will always be a way out. Just as Panasonic has shown that the only people who can save the sinking ship are the company's employees, the only people who can save Huawei are Huawei's employees. We want no condescending saviors; to rule us from a judgment hall; We workers ask not for their favors; Let us consult for all.
Winter will always pass, and spring will surely come. We shall build ourselves in winter - just like the Japanese companies - and get over the severe winter. Huawei's spring will surely come.
It is challenging to start a business; it is hard to keep it. But if we know where the difficulties lie, it becomes not so difficult.
The past success of high-tech enterprises is often the mother of failure in their future. Only those who live in fear and uncertainty can survive in this fast-changing information society.
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Again, recommendations:
My Father and Mother, written on Feb. 8, 2001, is a comprehensive, first-person account of his family background and early life, including, yes, his ties to the Chinese military.
Notes from a Trip to America, first published on Jan. 28, 1994, is his thoughts after visiting Boston, New York, Philly, and Las Vegas.
Notes from an Exhibition in Russia, published on Aug. 26, 1996.
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In case you want to put a face to the Japanese song, it can only be the late 邓丽君 Teresa Teng, who made it popular across generations in Greater China.