Management Information Systems

Background & Objective

The fifth generation(5G) of telecommunication systems will be one of the most critical building

blocks of the European Union (EU) digital economy and society in the next decade. The EU has

taken significant steps to lead global developments towards this strategic technology. 5G will provide

virtually ubiquitous, ultra-high bandwidth, and low latency connectivity not only to individual users,

but also to connected objects.1 From artificial intelligence to self-driving cars to telemedicine, all the

things Europeans hope will make their lives easier, safer, and healthier will require high-speed,

always-on internet connections. However, China-based Huawei Technologies Co., the world’s largest

provider of telecom equipment maker and leader of 5G technology, has faced opposition in the EU

over building out the new 5G infrastructure on the continent. Amid security concerns, the EU has

raised fears that Huawei’s equipment could be used to spy on countries and companies at the behest

of the Chinese government. The case involves multiple stakeholders and raises economic, legal, and

ethical issues worthy of consideration.

Huawei’s technology touches virtually every corner of the globe. Huawei’s carrier business (e.g.,

networking equipment) has been the company’s heart and soul, but its enterprise business (e.g., cloud

computing) has grown at breakneck speed. Huawei got its start supplying telecom equipment to rural

areas of China, which remains its largest market. Huawei later expanded to other developing markets

before capturing a significant share of Europe’s telecom market. Currently, Huawei along with

Chinese peer ZTE, hold a combined market share in the EU of more than 40%.2 Huawei is well

entrenched in existing 4G wireless networks on the continent. Huawei’s equipment is priced so

cheaply and is of such high quality that EU mobile operators have little choice but to use it. If the EU

were to institute a ban on Huawei due to security threats emanating from its products, replacing

existing networks would be expensive. For EU countries that have Huawei 4G gear, it makes sense to

have their 5G gear as well, as there are financial incentives that can’t be overlooked. Neither

operators nor the governments of the EU have the funding to replace Huawei in their networks.3

According to an industry analysis, restricting Huawei from EU networks would cost the region $62

billion, delay 5G rollout for 18 months, and reduce competition in the network equipment market.

The analysis assumed that there was no security risk to using Huawei equipment.4

Two wide-ranging Chinese national security laws are of grave concern to governments worldwide:

the National Intelligence Law and the Counter-Espionage Law. The former requires Chinese

information technology (IT) firms to support, assist, and cooperate in national intelligence work. The

latter states that during the course of a counter-espionage investigation, relevant organizations and

individuals, must truthfully provide information and must not refuse. Major governments including

Japan, Australia, and the United States have blocked Huawei from providing hardware for 5G. The

United States has argued that Huawei equipment could provide backdoors to the Chinese government

into American networks.5 The EU identified a series of specific security threats posed by foreign

vendors of telecommunications equipment, significantly heightening the bloc’s scrutiny of suppliers

like Huawei. EU leaders will lay out specific guidelines for member states on how best to approach

issues of security within 5G networks which EU member countries, can choose to adopt or ignore.6

The confrontation between the United States and China over Huawei’s role in the deployment of 5G

networks in Europe has placed the EU in the middle of a geopolitical tug of war and has led to

questions about the EU’s approach to the issue and ultimately which side the EU will take on the

matter.7 The United States has cautioned the EU that allowing untrustworthy companies such as

Huawei to supply networking equipment could jeopardize the sharing of sensitive information

between nations. The United States has also warned the EU that Huawei could steal intellectual

property, engage in espionage, and potentially sabotage networks. Huawei has vehemently denied

any criminal wrongdoing and has taken exception to being unfairly maligned by the United States.

Huawei has countered that the United States has not provided evidence that it has worked

inappropriately with the Chinese government or that it would in the future. Huawei has insisted that it

will remain independent of the Chinese government despite its national security laws. Moreover,

Huawei has contended that there are ways to manage and mitigate risks which have worked

successfully in other countries.8

This case was written by Dr. Paul Melendez, Department of Management and Organizations, The

University of Arizona. January 13, 2020.

Key Action Items

Firstly research the company and understand its background in the EU. Deep dive into the security

concerns and regulatory challenges. Examine the company’s impact on the European market and try

to predict its future in the region. After answering the guiding questions below, prepare a presentation

and summarize your findings and thoughts on the complexity of this case.

Ways to Measure Success

To understand the complications of Huawei’s position in Europe, we ask you to consider factors such

as the company’s market share, revenue, brand reputation, and customer feedback. Create a

competitor analysis to explore Huawei’s market position in their industry and research the regulatory

environment. What steps did the EU take toward the company, and how did those regulations impact

Huawei’s sales and revenue? What do you think about the company's plausible threat regarding

engaging in espionage? How would you weigh these factors?

Resources

1 https://wayback.archive-it.org/12090/*/https:/ec.europa.eu/digital-single-market/en/towards-5g

2 https://www.wsj.com/articles/how-huawei-took-over-the-world-11545735603

3 https://www.wired.com/story/huawei-friends-europe-despite-us-warnings/

4 https://www.forbes.com/sites/roslynlayton/2019/09/23/to-rip-and-replace-huawei-in-eu-mobile-networks-costs-about-7-per-subscriber/?sh=5ee8f47e1c8f

5 https://www.cnbc.com/2019/03/05/huawei-would-have-to-give-data-to-china-government-if-asked-experts.html

6 https://www.wsj.com/articles/eu-warns-of-5g-risks-amid-scrutiny-of-huawei-11570814799

7 https://www.swp-berlin.org/10.18449/2019C29/

8 https://www.theverge.com/2019/3/17/18264283/huawei-security-threat-experts-china-spying-5g

Milestone #1

Huawei’s entry into the European market

Suggested Outcome(s)

Understand the company’s current position in the European market and how it has achieved this

place since its launch.

Guiding Questions

 How did Huawei entry to the European market?

 What factors contributed to its early success?

 What was the unique value proposition that they offered? (compared to the competitors)

 What strategies has Huawei employed to expand its presence in Europe? (such as mergers

and acquisitions, partnerships with local companies, and aggressive marketing campaigns)

Deliverable

Understand the company’s current position in the European market and how it has achieved this

place since its launch.