A Sino-Centric Approach by Gulf Nations and Telcos Should be an Alarm Bell for Western Tech

I. Patel

Summary Bullets:

• For China, brokering political stability in the Middle East means investment opportunities. It is working at both in tandem as an overture to its long-term strategic interests in the region.

• Policy and government diktat will not compensate for the fragmented approach by Western governments and tech companies when challenging the likes of Huawei in eastern markets.

After a seven-year stand-off that involved the Saudi and Iranian Embassies gathering dust in each other’s countries, Riyadh (Saudi Arabia) announced a rapprochement with Tehran (Iran) under the auspices of Beijing (China) on March 10, 2023. This was a surprise announcement made by representatives from the two countries attending a summit in China with analysts across all sectors pouring over what it means. Technology is one sector that is worthy of analysis comment to determine the wider implications for the international technology market.

In late 2019, thanks to the US government blacklisting Huawei’s wireless equipment, the tech behemoth was staring down the abyss of a reduced addressable market worldwide for large swaths of its portfolio. As a result, Huawei had to offload its x86 server business in 2021 after failing to secure processors from Intel. The US not only severed commercial links with Huawei, but it started downscaling already deployed infrastructure from the vendor. Soft diplomatic pressure was applied on US American allies around the world to follow suit.

But even as US tech firms were reluctantly accepting the ban, there was still a total of $103 billion worth of tech licenses and shipments to Huawei and Chinese chipmaker SMIC that were controversially waivered through. In Europe, individual market responses to the ban have been somewhat mixed: many have decided not to rip out existing Huawei deployments, and there has most certainly not been the fervent desire to follow the US’ lead. For Middle Eastern countries, it seemed for a period in 2021 that governments and telcos were complying: stc, Ooredoo, and Etisalat (now e&) all announced deals with Ericsson and Nokia to deploy parts of their 5G networks.

But Huawei is looking at a markedly friendlier Middle Eastern regional market than it was in 2021. It now provides large parts of 5G networks in Saudi Arabia, Qatar, Kuwait, and the UAE. Although operators also have non-Huawei elements in their networks, Huawei is clearly the telcos’ preferred partner for wireless infrastructure. As part of the Gulf nations’ economic visions, their incumbent telcos have embraced the Chinese vision of digital transformation to diversify economically and reduce their over-reliance on the energy income.

Huawei will be leveraging the Chinese government’s diplomacy to entrench itself further into the Gulf, just like it has successfully done with Pakistan. In spite of being reliant on the US for their military security, the Gulf states have not sounded any meaningful hostility against China or Huawei thus far. Like the Gulf states, Huawei itself is also diversifying – from products and services susceptible to sanctions to software-driven services and customized products that are harder to blacklist. In addition to developing its own smartphone OS and app store (e.g., Harmony and App Gallery, respectively), it now has its own car system OS, for which it has struck a deal with car manufacturer Seres for its flagship electric car, Aito M5. Huawei is reinventing itself, and the Middle East is rapidly becoming a sandbox for what a successful model for Huawei operations outside of China might look like.

For technology players and governments in the West, however, this is a critical juncture. Huawei has stolen a march in the networks space, both quantitively in terms of market share, and qualitatively: its network deployments in European markets and the MEA are conspicuous, cheaper, faster, and greener (as is claimed by the company). Western competition – spearheaded by Ericsson and Nokia, with other niche vendors – is fragmented to the point of being ineffective against competing with Huawei without political intervention. As western technology can no longer be taken for granted, those governments and companies outside North America and Western Europe’s political orbit will need to see an ambitious and competitive program in order for them to actively invest into it, rather than simply falling into adopting Chinese solutions. For this to work, it will take copious amounts of political will, large-scale public-private initiatives in R&D, investments in new and existing tech startups, and the demonstration of tangible and innovative business applications to engender a credible and competitive tech value chain that can compete with the likes of Huawei and those who are embracing it.

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