November 15, 2017 3:02 pm JST

Huawei's war for talent keeps Sony and NEC on the edge

Chinese tech giant's meritocracy attracting an army of engineers in Japan

FUMIE YAKU and TETSUYA ABE, Nikkei staff writers

Huawei Technologies founder and CEO Ren Zhengfei has grown the company from a seller of switchboards to a major force in the global tech industry.

TOKYO -- When Chinese technology giant Huawei Technologies was looking for a new site for its Japan research lab, it found a lot to like near Shinagawa Station, smack dab in the center of Tokyo.

A few of its powerful Japanese peers were already there.

"It chose Shinagawa to target engineers at Sony, Canon and Toshiba, which also have offices there," the president of a headhunting agency said.

Since relocating this summer, around five engineers have been poached from these and other companies, lured by annual salaries topping out at 30 million yen, or $265,000. Pay runs "even higher at Huawei's China headquarters, but no Japanese engineers earn that much," said the headhunting agency chief.

Huawei Technologies is also offering eye-popping salaries to lure new graduates. But compensation is only one element in the Chinese technology giant's formula for attracting talent.

A posting by Huawei Technologies Japan on the recruiting website Rikunabi seeks science and engineering majors graduating from September to next March. Monthly salaries start at 401,000 yen for those with bachelor's degrees and 430,000 yen for those with master's degrees. For similar positions last year, Sony was offering 218,000 yen and 251,000 yen.

A public relations representative at Huawei Japan said the posted salaries are not unusual, that they are "the global standard for attracting exceptional people" and in line with pay at Western companies. Gradual increases since 2015 have helped bring in top talent, the spokesperson said.

More motivation

Huawei Japan has hired about 10 fresh graduates a year since 2012. But it is also looking for more experienced candidates.

Hideko Takahashi joined Huawei Japan as a new graduate after majoring in biotechnology at a Chinese university. She considered only one job offer from a Japanese business -- a second-tier manufacturer -- before opting for Huawei, where she thought the working environment might be highly competitive, like at her school. She is in her second year at the company, and already her input is sought on her department's budget for the year and other important matters.

"Honestly, the incentives are big," said Mitsuharu Senda, who drums up new business for Huawei Japan. Successfully completing projects can in some cases boost annual salaries to several times those seen at Japanese companies. But Senda stressed that the company's appeal goes beyond pay.

Like nearly all of his Japanese colleagues, the 38-year-old joined Huawei midcareer. He had been working as a wireless engineer at a Japanese manufacturer. There, the standard seniority-based pay scale made him feel as though he had only limited potential. Now, Senda said, Huawei's meritocracy is boosting his motivation -- and allowing him to excel.

Spend money, people will come

"Our human resources department is on edge worrying about whether we'll lose talent" to Huawei, a midlevel representative at Japanese rival NEC said.

Huawei is converting a former DMG Mori plant in Chiba Prefecture, near Tokyo, into a research lab that could begin operating within months. Huawei's existing Japan research center opened in 2013. It specializes in product development. The Funabashi site will cover the overall manufacturing process and probably be set up to handle everything from assembly to connectivity tests. Its mission is to expand Huawei's quality assurance and efficiency know-how.

The test site will employ Japanese engineers with years of experience at electrical equipment and precision machinery factories. The company plans to hire several dozen engineers and has already recruited a dozen or so, a senior executive said.

Huawei posted revenue of 521.57 billion yuan ($78.6 billion) last year -- more than Fujitsu and NEC combined. Just three decades after its founding, the company has already overtaken Sony and is catching up to Hitachi.

Though Huawei is known for its smartphones, its bread and butter actually consists of such products as telecommunications equipment for cellular base stations. CEO Ren Zhengfei started the company as a seller of telephone switchboards, expanding from rural areas to the rest of China and from there to emerging markets.

Ren's mantra is "spend money and then people will come." Huawei has taken it to heart, spending at least 10% of its annual revenue on research and development. R&D expenditures last year totaled 76.39 billion yuan, equivalent to four times Hitachi's tally and close to that of Toyota Motor. This investment has helped attract talented engineers from around the world.

45 and out

Huawei's Shenzhen headquarters is like a test-bed for meritocratic management and compensation systems.

Each April sees a flurry of comments on Xinsheng Community, Huawei's internal social media site, speculating about the size of that year's dividend. Huawei is neither state-run nor publicly listed -- the 98.6% of its shares not owned by Ren are distributed among some 80,000 Chinese employees. Some who have been with the company for 15 years or more can rake in 1 million yuan in annual dividends.

But competition can be cutthroat. Rumors began to circulate around the Lunar New Year holiday in February that Huawei was starting to lay off employees aged 34 or older. This came just  as the company went a step further with its focus on results by switching to quarterly performance reviews.

These reviews place employees in one of four tiers. Those ranked A or B enjoy bonuses and can be fast-tracked to managerial positions at age 30. But C-ranked staffers are pressured to leave voluntarily, and a D grade earns only the termination of the employee's contract.

Huawei cuts around 5% of its staff each year, with not even management safe from the ax. Though the company quickly dismissed the talk of age-based layoffs as groundless, Ren later warned in an internal memo that Huawei would not pay for employees who do not work hard.

The average age of employees at Huawei's headquarters is in their early 30's. The view persists inside and outside the company that departing at 45 is the norm.

An emphasis on talent

Huawei's use of local talent to bolster its capabilities extends beyond Japan. In a fall 2016 speech, Chief Financial Officer Sabrina Meng boasted that some 700 top scientists were recruited from around the world over the previous three years.

Huawei established a microwave-focused R&D center in Milan, Italy -- a hotspot for microwave radar research -- plucking researchers from Siemens and elsewhere for a product development team specializing in the field. Similarly, the company located an algorithm development lab in Russia, home to many mathematicians, and a software development center in Bangalore, India.

Each of these R&D centers employs around 100 people. Huawei is using these economies of scale to achieve high quality and low prices that Japanese rivals like Fujitsu and NEC cannot match.

SoftBank Group was the first of Japan's wireless carriers to use Huawei products. Big players in other fields, such as internet enterprise CyberAgent and entertainment company Bandai Namco Holdings, are increasingly using servers and other IT equipment from the Chinese manufacturer.

"Huawei products cost half as much as those from manufacturers here," the head of a wireless company said. "We may have no choice but to use them."

Xinsheng Community, the social networking site for Huawei employees, is open to the public. The service, whose Chinese name is meant to evoke the idea of a place where people can speak their minds freely, was established as a way for employees to make their frustrations known to management.

As a privately held company, Huawei can lack transparency, and Ren's ties to the Chinese government from his background in the People's Liberation Army have made many wary. Yet forums like Xinsheng are a rare sight even in Japan, let alone China. The lure of Huawei, compared with stagnating Japanese manufacturers, seems to owe to more than mere compensation and an emphasis on talent over seniority.

NEC Corp.

Japan

Market(Ticker): TKS(6701)
Sector:
Industry:
Electronic Technology
Electronic Equipment/Instruments
Market cap(USD): 6,742.42M
Shares: 260.47M

DMG MORI CO., LTD.

Japan

Market(Ticker): TKS(6141)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 2,654.84M
Shares: 125.95M

Fujitsu Ltd.

Japan

Market(Ticker): TKS(6702)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 15,298.7M
Shares: 2,070.02M

Hitachi Ltd.

Japan

Market(Ticker): TKS(6501)
Sector:
Industry:
Producer Manufacturing
Industrial Conglomerates
Market cap(USD): 36,804.5M
Shares: 4,833.46M

Toyota Motor Corp.

Japan

Market(Ticker): TKS(7203)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 200,561M
Shares: 3,263M

SoftBank Group Corp.

Japan

Market(Ticker): TKS(9984)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 93,179.8M
Shares: 1,100.66M

CyberAgent, Inc.

Japan

Market(Ticker): TKS(4751)
Sector:
Industry:
Commercial Services
Advertising/Marketing Services
Market cap(USD): 4,555.56M
Shares: 126.42M

BANDAI NAMCO Holdings Inc.

Japan

Market(Ticker): TKS(7832)
Sector:
Industry:
Consumer Durables
Recreational Products
Market cap(USD): 7,594.97M
Shares: 222M

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