Ken Hu (Huawei Technologies): Make the Most of Digital

Thank you very much, Sekiguchi-san. Good morning, everyone. It's a great honor to be invited again to the Nikkei Global Management Forum. First of all, congratulations to Nikkei for hosting this great event for 20 years, and thanks Nikkei for bringing all of us together. Many of you may have learned about Huawei because my colleague in Japan told me that our smartphone is getting more and more popular in the Japanese market. I'm really happy to hear that. But we have done a lot more than smartphones. So now I will give you a bigger picture in Japanese.

As we can see, Huawei has grown from a small company to one of the leading ICT technology providers in the world today in just 30 years. And we have a vision for the future: to bring digital technology to every person, every home, and every organization, and to help build a fully connected and intelligent world. I've been working for Huawei for almost 30 years. As an engineering graduate, I'm always about technological innovation and how it can help us develop our society. So today, I would like to take this good opportunity to talk about the benefits digital technology will bring to us and how we, as business leaders, can harness this new potential. At Huawei, we believe that we are entering an intelligent world, and I'm sure the change will happen in the next 30 years. In the intelligent world, everything will be connected. We anticipate that by the year 2025, we will have around 100 billion connections around us. Because at that time, broadband access will be ubiquitous, and everything will be able to sense the environment because sensors will be available. That will help us collect different kinds of data, which will help us better understand the world and also better understand ourselves. And ultimately, everything will be intelligent because all the data will be processed in a totally different way than today, particularly with the support of artificial intelligence. That will help us bring intelligence to every person, every organization in the world. So this will be a brand new intelligent world, and every one of us can expect a lot on different levels of our society. Next, I will talk about that in more detail. For people, our lives are going digital very fast. Here, I would like to share with you some of the figures from the Huawei Global Industry Vision Report for 2025. We believe that we will have 40 billion smart devices around us. Not just our smartphones—everybody has a smartphone—but also different kinds of wearable devices: our watches, our shoes, and even our toothbrushes. And most people, 60 to 90 percent, will have their own smart personal assistant. As a result, the consumption of data will greatly increase as well. AI, artificial intelligence, has become a superpower of our society, and it is changing everything. For example, with the latest flagship smartphone which we launched last month, any of us can take a picture with professional quality because the artificial intelligence functionality embodied into the smartphone can automatically choose the best setting for more than 1,500 scenarios, like taking a photo of children, of flowers, of food, of pets. And artificial intelligence can do a lot more. For example, now you can take a photo of food with our latest smartphone, and it will help you tell how many calories it has because the artificial intelligence brings data analytic capability to the camera, to the phone. So this is really cool. And our home will be better connected. We anticipate that we will have 5 billion smart devices in the home environment, and the broadband access in the home will greatly increase as well. Now, only 3 percent of homes have gigabit internet access, and the number will reach 30 percent in less than 10 years. As a result, in the better-connected home, we will see a great increase in the usage of smart home robots. Now, only 2 percent of homes have smart home robots, and the number will rise to 10 percent in less than 10 years. The smart home robots can help with some daily tasks like cooking, cleaning, education, and healthcare. This is very helpful for countries with aging populations like Japan. Talking about industry, different industries will benefit a lot from emerging digital technology. Today, more and more industries are embracing digital technology, and I believe in the next 10 years, it will be a main trend that digital technology, particularly artificial intelligence, will be combined with the expertise and know-how in existing industries like transportation, aviation, healthcare, agriculture, and education. That will help us greatly enhance our existing efforts in all those industries, and particularly, it will help us multiply the business values in those industries. This is an amazing future. In this process, cloud computing and artificial intelligence will become new engines for business growth. From our observation, ultimately, all companies will be connected to the cloud, and 86 percent of enterprises will use artificial intelligence in their business operations. As a result, we will be able to generate greater value from data. Here are some figures: today, only 16 percent of data is being used in our business. For the future, we anticipate that 80 percent of data generated from business operations will be used to create new value. So this is a big increase and a big step forward to create value from data. So we will be able to make business and the economy data-driven. Let me talk about 5G because 5G is becoming a very popular topic today, and I believe that 5G will be able to become a new enabling technology to create amazing user experiences and develop some very helpful industrial applications. From a technology perspective, 5G will help us create much faster speed, much lower latency, and many more connections. Let me share with you in more detail. 5G will be super fast. From a technology perspective, it will be 100 times faster than our existing 4G and LTE. And it will be 50 times more responsive. In terms of latency, it's less than one millisecond, so it's 50 times more responsive than 4G. And it will provide many more connections. You can imagine that in the space of one square kilometer, we will have a million connections. That will help us get everything in this space connected. So with those features, 5G will help us develop some amazing applications for consumers. For example, real-time VR gaming. Now, when you're playing a VR game, you have to wear very big glasses with a cable, and that's not a very comfortable experience. But with 5G, you can experience real-time VR gaming with others in a remote area. And we can use that technology in remote education as well. And 5G can help us develop some amazing applications for industrial use, for example, smart manufacturing and the industrial internet. At Huawei, we've been working on 5G for almost 10 years, and now we're in the leading position to provide 5G to the market. Now we are working with more than 50 carriers in the world on their 5G networks, pre-trial or commercial. So we can expect a lot from 5G. So to summarize, 5G, Internet of Things, cloud, and artificial intelligence—those are the technical drivers for the future intelligent world. And particularly when those emerging technologies converge with each other and combine with existing industries' know-how and expertise, they will help us create enormous opportunities in those areas and ultimately help us drive exponential growth in the economy. This is exactly what we want in the intelligent world. And in Japan, you have a great vision. It's called Society 5.0. What we learn from this initiative is that the Japanese government is going to make great efforts promoting emerging digital technology into different sectors of society to pursue bigger business growth and create bigger social value. This is a very visionary initiative, and I believe that it will help Japan be in the leading position in digital transformation. And I hope that this will also establish a meaningful reference to the rest of the world. When we talk about the technology which has been ready, we talk about the demand which is ready, and the government has already established a blueprint for us for the future. So you may ask, what can we do as a company? My point is that we, as a company, should be able to embrace the new technology and step up to promote digital transformation in our business. So let me share with you some of our thoughts from Huawei's practice. We believe that as a company, in order to make the most of digital technology, we can have three key considerations: strategy, process, and technology. I will talk about strategy first. As a company, we should focus our digital strategy on real business challenges. Don't go digital just to go digital. Because we can expect a lot from digital technology: better user experience, higher efficiency, lower cost. Those are the major benefits from digital technology for any company. While you have concerns or challenges in any of those areas, you should consider going digital. Process: I believe that our future economy is customer-centric, data-driven, and will be enabled by digital technology. So for any of us, our process and organization should be able to fit this model. But first of all, we should be clear about what the customer wants and what that user experience is. Here at Huawei, we identify five common user experiences in the digital era, in the digital environment. We call that ROADS. It stands for Real-time, On-demand, All-online, DIY, and Social. We believe that this is what customers want, and this is what we, as a company, have to deal with. So while you start to redesign your process, you can start from the user experience rather than starting from function. At the same time, we should get all the process integrated by scenario rather than working in different silos. Lastly, I will talk about technology. Technology is playing a more strategic role in our business process. We, as an enterprise, should be able to embrace digital technology to deal with our business challenges. For example, artificial intelligence will help us on many repetitive tasks, and blockchain will help us build a brand new secure transaction process and eventually lower the end-to-end transaction cost. And the cloud will help us increase the efficiency of resources. Actually, with the cloud, as a company, we don't need to buy the assets, we don't need to buy the resources, we just need to buy the services. This is particularly helpful for SMEs. So any company can take those considerations while they are going digital. Here, I would like to share with you one of the reference cases from one of our customers, China Merchants Bank. It is one of the top retail banks in China. They are using emerging digital technology to enhance operational efficiency and create a better user experience. Before, it took 15 days to apply for a credit card from China Merchants Bank, and now it takes just five minutes. So from 15 days to five minutes—how can they do that? Because Huawei worked with them to deploy a big data solution which helped them better analyze and control risk. So this is a great benefit for the bank and a great enhancement of the user experience. They are also using artificial intelligence technology in their business. They equip their ATMs with facial recognition technology. With those technologies, now customers don't need a card to withdraw money from the ATM. Getting money from the ATM is just as easy as unlocking your smartphone. This is a very interesting experience. So looking at China Merchants Bank, every organization can consider going digital by applying emerging digital technology to deal with their business challenges, enhance efficiency, and improve user experience. However, in the digital era, no company can survive on its own resources and expertise. Companies have to work with each other in a stronger ecosystem. So now I'd like to talk about the ecosystem. At Huawei, our model for ecosystem is based on openness, collaboration, and shared success. We extend this model in our business operation in Japan as well. As I just shared in the video, Huawei has been in Japan for 30 years. We have been working with many of our partners in Japan to build a strong ecosystem. So with the concept of open collaboration, on one hand, we work with our Japanese partners to use high-quality, very competitive components from them to help us enhance the quality and competitiveness of our products and solutions. At the same time, we bring Japanese innovation to the rest of the world through our global value chain, because we've been working in 140 countries in the world. This is a global value chain. So here is just a very simple sample of our partnership in Japan. Totally, now we have over 80 partners in Japan across different industries. Working with them, we are building a very strong ICT ecosystem, and we have contributed a lot to technology development both in Japan and in the rest of the world. So, ladies and gentlemen, thanks for this great opportunity. I think this is a great opportunity for us to exchange ideas on how we can take advantage of emerging digital technology to develop our business and promote the development of our society. I believe that we're all in a brand new ecosystem. We can work together to do more, and we can work to make the most of digital technology. Thank you very much.

So I would like to speak in my own language, Chinese. Sekiguchi-san, thank you for your question. 13 years ago, I joined Huawei. 30 years ago, so fortunately, I have witnessed all the different stages of development of Huawei. When I joined, it was very small, a little less than 100 people were working for it. But now, 180,000 people are working for it. And I experienced various changes in Huawei. The first one is that it grew from 100 people to 180,000 people. The company grew as a global corporation. The second one is that the company started from electronics manufacturing, but now it is manufacturing various equipment to promote telecommunication services itself. And the third one is that Huawei used to be a pure Chinese company, but now it's a multinational company. It has businesses in over 140 countries. So through this experience, I myself have been very lucky. And looking at the last 30 years of history, Huawei achieved great success. And there are two key factors there. First one is the external element, and another one is our own efforts. So I would like to briefly touch upon the two. First one is about the external elements. So the success of Huawei, first of all, has to do with the 1978 initiative for liberalization and opening the market strategy and policy. And we have benefited from that. Shenzhen is the number one, of course, city where we launched the opening of the market. And in terms of the environment of the liberalization of the market, we have seen the growth of the private sector and companies. We have been promoted by the government in order to develop private companies. At that time, the private company was not easy to grow during those political circumstances. In any case, we have been able to grow in a quite open, liberal environment. And the fact that Huawei has grown under this landscape is one important factor. The other is that we have been very fortunate enough that this ICT industry is an industry that is about to grow for the future. So the industry that is the size has enlarged. So ICT industry, in order to touch upon several figures, in 2017, by the end of 2017, globally there are 8.7 billion mobile devices, mobile phones that have existed. And 30 years ago, when you recall, maybe 35 years ago, when you recall, the mobile phone market was zero. And only in this recent three decades, the telecommunication market has grown over the years. So the telecommunication industry is just a part or the tip of the iceberg. So as I have alluded to in my presentation, this technology and telecommunications needs to be embedded and harnessed within our lifestyles and every corner of our lifestyles. And this digital transformation needs to be realized in every aspect of our livelihood, meaning that this market has bigger potential to grow. If this, of course, the potential to grow is still a sunrise stage or initial phase of this industry. So that is another, of course, driving factor. So these are the two external factors that have driven our growth from my personal experience. The other, of course, dimension why Huawei has succeeded, there are all things to be said. One is that Huawei, in selecting the strategies, we decided to focus on the most important thing. Telecommunication industry was evolving in size, but under these circumstances, we have many opportunities. It's an endless opportunity that we can focus on. For the companies, these endless opportunities, when we confront with these a pile of opportunities, we can only have so much to spend for R&D. We need to specialize in certain fields, otherwise we will not be able to establish a competitive edge or strength. So for us to obtain a competitive strength, we need to focus on the most important thing for a company. For instance, for us, it's connection. Connection is what we prioritize on. Cheaper and most within the minimum of mass, maximum amount of connection. We need to be connected to various networks: fixed fiber or optical fiber, mobility network, 3G, 4G, 5G. But we focus on the connectivity of devices. And in the future, when we think about the digital transformation, we have to consider about the fundamental digital platform connecting to cloud or recognition by utilization of AI. So we need to focus on these areas. Besides from that, we are not going to touch on our efforts. So it says application development, this is something that we are not going to take part of. So we are going to offer a platform. So the basic infrastructure is what we need to focus on. So we believe that in the future years to come, more than ever before, what we need to do, what we are not going to do, we need to think with scrutiny. So that's one thing: to focus on the most important thing for the company. The second aspect is the continuous innovation, to engage ourselves in continuous innovation. Huawei, on the day of the foundation of the company, every year, 10 percent of the sales, or maybe even 15 percent of the sales, are allocated to R&D. And last year, we have 10.6 billion U.S. dollars that we have invested in the R&D effort. So focusing on the strategy, as I said, we need to really laser focus on what we need to do. At the same time, we are going to make abundant investment on R&D effort. By doing so, we are building upon our strength in terms of expanding our competitive edge and expanding the scope and the realm of our competitive edge. And focusing on the R&D, so that's another important thing. The one other thing that's very important is Huawei, we have a customer-centric culture and philosophy within our company. Not only by means of word, but the actual work that we engage ourselves. And we need to reflect that in everything that we do. In terms of R&D for new product development, what are the pain points for the customer? We need to focus on solving that pain point. What do we need to make? Not what we want to sell, but what is needed on the part of the customer is our driving force for our R&D. And the other thing is that always we need to consider the benefit of the customers as being number one. We are a telecommunication industry. So therefore, if there is a problem, the safety of the community, there is a major impact on the livelihood of the people. In terms of the Great East Japan Earthquake of 2011, many enterprises have felt a threat and they decided to recede from operation in Japan. But at the most difficult part, we have gone to the most dangerous part with the customer, with the end users. We wanted to get there, offering a stable network to the customer. And that's the third thing. The fourth thing that was important for the Huawei success is that inside our company, we need to share the benefit that we drive. And we have established that mechanism and scheme for that. You may know that we have an employee equity holding program, ESOP holding program. So meaning that we all share the benefit. So besides from the bonus, we swipe from the compensation and your wages, the profit generated by the company will be shared amongst employees. So there are the stakeholders, shareholders, and getting benefit out of their hard-working efforts. So therefore, they're putting a lot of efforts, but the value of the company growth could be shared amongst our employees. So these are the four reasons why Huawei has succeeded over the years.

In terms of the trade friction between China and the United States, in the recent few months, it is really under the limelight, the trade issues. So no bilateral relationship. We are a high-tech company who have global operations. So with this new political, of course, scheme, it is something that is very regrettable. But as a company, this, I think, is a given. So many of the things, it's really transcend the area of our control. So the trade issue between the two countries, there is a very tense relationship. But from the global operation, I believe that there is a negative impact on the economy as a whole. So our industry, which is a high-tech industry, we are companies that are quite dependent on the global economy, global market. So telecommunication equipment and, of course, products that we offer, we need to all play our role and we collaborate coming up with the product and services. Any product or services, let's say, the component parts are produced in Japan, and software developed in the United States, and assembly is done in China, and this product at times is utilized in India or Europe. So it truly is a global operation. It's a high dependency on the global market. So in the trade friction and protectionism that we see, the industry chain is all going to be fragmented. So that, I think, has a significant impact. So first of all, it breaks the flow of knowledge. So technological innovation is really globalized, which means that you have to have a free flow of knowledge. Unless you have a free flow of knowledge, the innovation acceleration stops, and also the cost of innovation increases. So very much concerned that the current trade situation will deteriorate in the future. I hope it will get better. As Sekiguchi-san said, what do we do at Huawei then? So our response is as following: we just accelerate our globalization. So we have tension existing in trade, but this is only for a limited number of countries. The globalization trend itself will not really stop. So based on this judgment, we decided to promote globalization even further and having collaboration all over the world. For example, our smartphones, 50 percent of the components are manufactured in Japan. So even for the future, our business will be global. We will have partners all over the world where resources are most competitive and provide the devices all over the world. And trade friction, which exists in only limited countries, reverses globalization trend. We really want to respond to that by accelerating our globalization. And free trade will not be reversed by just these frictions.

I also touched upon this in my presentation. Future economy is going to be digital economy, which means that data is going to be the driver of the world development. So this is the mainstream trend. The data protection, privacy protection must be done in a sophisticated manner. And the data, privacy, data, unless you protect them well, that itself is going to be the hindrance for societal development. GDPR was created, and then this is going to be the very comprehensive rules, and the EU companies, EU member states have adopted this. May, and I think it gives a very good model for the world business sectors. I think three progress were made under this. The number one is that in the digital economy in the future, the subject of the data, or the creator of the data, or processor of the data, or controller of the data, each party must have a clear responsibility for treating the data. And also, the corporate governance should be strengthened so that the corporation should be able to control the data. So according to the GDPR, the corporations on the EU market must manage their companies. They have to have a full-fledged person who controls the data security, and the DPO should also be created in companies so that even in one country, every country must implement the data security so that it actually qualifies all the rules of the people and the enterprises and organizations. So I think GDPR gave us a very good example for us. So how do countries, we are of course launching our business, so GDPR, in terms of how we will be able to resolve that, I think needs to be changed because already the GDPR request has to be responded, and we have been exerting an effort for that very sake. So in terms of data protection, the person in charge of the data protection in our company, we are enhancing on this effort. So the training of the employees, GDPR, what are the definitions and one of the requirements to fulfill and to comply with GDPR, these trainings are being conducted. At the same time, all the business processes, we are reviewing the process and we are trying to make improvements so the GDPR compliance should be well met. And also, the other thing is that in terms of internal, external, the gap or maybe the roles that we need to play within that company, in every aspect of our business, we are reviewing the situation so that we be able to respond with GDPR. So this May, with the enactment of this law and regulation, we have not been impacted at all in terms of internal operation because we have already been able to fulfill the requirement on GDPR. So this is, of course, in hindsight, we had exerted a lot of effort to do so, and of course, that will incur cost as well. But that's something that we must do. And in terms of the question, in terms of the personal information protection law in China, this is in terms of GDPR, we don't have a well-established scheme and systems such as GDPR, but within each of the laws and regulations, we are seeking to protect private information. But in terms of protecting the privacy issue in China, it is going to be more important, and there will be more thoughts that will be put through in the few years to come. China, we will need to review and revisit and enhance the regulatory framework so that we'll be able to protect personal information and privacy information. So in terms of network security or cybersecurity law in China, after being enacted, there are some misinterpretation of this regulation to some parties. For instance, in China, disclosing some of the companies are required to disclose information, but that is not the case. The information, there is an accountability and, of course, mandate in order to protect the personal information. So as an obligation, the user privacy or information is not going to be well protected. So in other words, we are offering facility in order to enable this regulation. So it's a foreign government or Chinese government, we may be asked to disclose the data, and we are not going to be disclosing our data, obviously. And Huawei is doing operation in infrastructure. A company is creating the infrastructure, not responsible for the operation. So we are not in a position to control the data in most cases. Our company will not process the data. So the company customer information, the touch point with the private customer information, it's not too big. So in terms of what Sekiguchi-san asks, I would like to be quite clear and explicit about this.