Part One: Boxed Out of the West, Huawei Looks to Russia to Survive the Crisis and Emerge Stronger
Lauren Dudley is a research associate for Asia Studies at the Council on Foreign Relations.
This is the first part of a series on Huawei’s expansion in Russia as a reaction to geopolitical technology tensions, followed by the second and third parts.
Few, if any, other companies have been as affected by China’s ongoing geopolitical technology tensions as Huawei. The Chinese tech behemoth, with business interests including telecommunications, cloud computing, and artificial intelligence (AI), has taken a hit as its access to foreign technology has been restricted by the Trump administration and suspicion of its products, particularly 5G network equipment, grows.
In 2019, Huawei CEO Ren Zhengfei estimated that in the two-year period following May 2019, the company would forgo $30 billion in revenue due to U.S. restrictions. The company has framed this challenge as a battle and has developed a war-like strategy to survive.
Russia plays an important role in this strategy.
Even prior to the onset of the recent geopolitical technology tensions, Russia has been a promising market for Huawei. Since 2014, Huawei’s sales to Russia have grown by an average of 51 percent per year, making Russia its fastest-growing market. During this time period, Huawei cultivated several partnerships with Russian universities, research institutes, and companies and established its own OpenLab in Moscow in hopes of benefitting from Russia’s strong math and science talent base.
The recent onslaught of restrictions against Huawei has intensified the company’s interest in Russia as a place to source components and software, develop new technologies, and attract high-quality talent. This strategy has important implications for Huawei’s business, for both surviving the current crisis and emerging stronger.
One of the important components of this strategy is Huawei’s use of Russian talent and technology to cope with its inability to use the Android operating system (OS) and Google Mobile Services (GMS) in its consumer products, which accounted for 55 percent of the company's revenue in the first half of 2019.
Shortly after Huawei was included on the U.S. Entity List, Huawei representatives met with the Russian Minister of Digital Development and Communications to discuss the possibility of using the Aurora OS developed by Rostelecom, a Russian majority-state-owned telephone provider, on Huawei devices. At the time, reports suggested Huawei was testing devices pre-installed with the Aurora OS, instead of Android. Huawei also entered negotiations to supply Russia with 360,000 tablets that were pre-installed with the Aurora OS for use in Russia’s census. This effort attracted high-level support from the Chinese and Russian governments, and even became a topic of conversation during a June 2019 meeting between Russian President Vladimir Putin and Chinese President Xi Jinping. Although Huawei is now poised to move forward with its own HongMeng OS (also known as HarmonyOS) rather than the Aurora OS, Russian talent has played a role in developing HongMeng. As of September 2020, Russian engineers Huawei labs in Moscow, St. Petersburg, Nizhny Novgorod, and Novosibirsk are helping to develop HongMeng OS.
Huawei has also looked to Russian companies to develop a replacement to the suite of apps included in GMS, such as Gmail, Google Chrome, and Google Maps. Last August, Huawei began negotiations with Russian search giant Yandex about the potential addition of their voice assistant, music, ride-hailing, news, and other apps to Huawei devices. These negotiations followed a partnership between Huawei and Yandex in the development of Huawei’s Map Kit, a service that allows software developers to create applications using Map Kit’s mapping and location capabilities. While negotiating with Yandex, Huawei entered similar talks with Mail.ru, a Russian email provider. These negotiations are beginning to come to fruition, with the Yandex Celia voice assistant officially added to Huawei products in mid-September.
But the development of a strong app ecosystem goes beyond developing apps to replace GMS—Huawei also needs to encourage app developers to make their apps compatible with Huawei’s new operating system and mobile services. To accomplish this, Huawei has reportedly joined forces with Russian companies Vkontakte, Odnoklassniki, Ozon, Wildberries, Kinopoisk, and Wink to develop apps compatible with the Huawei ecosystem. In February of this year, the company announced that it will also invest $10 million in Russia to further encourage the development of apps to run on Huawei devices.
What will be made of Huawei’s efforts to develop its own OS and attract app developers is yet to be seen. A strong Huawei OS and app ecosystem could help the company grow its market share in Russia, particularly through offering Russian-language apps and services. The potential growth of Huawei’s business in Russia could also partially offset some of the losses it expects in markets it has been blocked from, such as the United States, Australia, and Japan, perhaps reducing the relative importance of these markets to the company and furthering global tech decoupling.
Most importantly, and regardless of whether Huawei successfully creates alternatives to U.S. smartphone software, Huawei’s expansion in Russia is poised to strengthen the connection between Huawei and Russia and the Sino-Russian tech partnership more broadly. This is especially true as Huawei looks to Russian research institutes, universities, companies, and researchers for the talent and knowledge to spur innovation, discussed in part two.