Indian companies to be punished for Huawei business

India is the latest country to be dragged into the US/China conflict as the threat of punishment is directed towards any companies who work with Huawei.

According to the Economic Times, any company found to be supplying components or products to Huawei, or any affiliated company on the US Entity List, could face regulatory penalties. Although the White House has focused on crippling Huawei through placing limitations on US companies, it seems the US Government feels it needs to spread its wings further.

“Any Indian company which will act as a supplier of US-origin equipment, software, technology to Huawei and its affiliates in entity list could be subject to penal action/sanction under US regulations,” said Telecoms and IT Minister Ravi Shankar Prasad in Parliament this week.

Although Huawei’s entry onto the Entity List, a list of companies which US firms are banned from working with, has had a notable impact on the Chinese firm’s business, it seems the consequences have not gone far enough. Huawei has suggested smartphone shipments will certainly take a hit, but the company is still functional, seemingly much to the distaste of US officials.

Last year, the US dropped an economic dirty-bomb on ZTE and it almost destroyed the firm. ZTE’s supply chain was unhealthily concentrated in the US leading to the distress, though as Huawei’s supply chain is much more diversified, the same action has not brought the same result.

Perhaps this is another step to add further distress to Huawei. If the US Government places restrictions on the companies who supply Huawei, irrelevant to their nationality, it might have a better chance of hurting the Chinese vendor.

That said, the impact on Huawei might just be a pleasant by-product of a dispute between the US and India. Like China, Mexico and Canada, India has got its own tensions with the US this time concerning data localisation.

Last month, rumours emerged that India would be the latest target of the US. India currently has laws in place which force foreign companies to store data on Indian consumers and businesses within the borders. There are other countries who have similar laws, but the US does seem to have some leverage over India.

H-1B work visas allow an individual to enter the US to temporarily work at an employer in a specialty occupation. Although there are no official quotas, it is believed Indian citizens account for as much as 70% of the H-1B work visas which are handed out each year. If localisation rules are not relaxed, the US has threatened to curb the flow of visas into India.

What will interesting to see is whether this is a strategy which is rolled out globally for the US Government. If it holds all of Huawei’s suppliers who use US components, products or IP in their products to account, there will be a varied list. This might be a strategy to further cause distress to Huawei, though we suspect it could also be used as a bargaining chip in the larger trade discussions.

Huawei R&D faces export ban in Silicon Valley

The US Commerce Department has refused to renew an export licence at a Huawei subsidy in Silicon Valley, meaning China cannot access new developments at the site.

According to the Wall Street Journal, Huawei R&D outfit Futurewei was informed over the summer that the US Department of Commerce would not be renewing the license meaning some of the technologies developed at the site, but not all, could not be exported back to China. It’s a new strategy in the conflict between the US and China, but it could prove to be an effective one.

Silicon Valley is not the hotspot of the technology world because of the favourable climate or the presence of helpful regulations, it has one of the most talented workforces around the world. There are of course challengers to this claim emerging, India or Eastern European for example, but companies flock to Silicon Valley to open up R&D offices to tap into this resource. Such a ban from the US Commerce Department means Huawei is going to miss out on some of these smarts.

The block will prove problematic to overcome as there does not appear to be any logical way to combat the move. The rationale behind the blockage is quite simple; national security. Seeing as Huawei is currently being trialled and punished without the burden of evidence, there seems to be little the vendor can do to combat such passive aggressive moves by the US.

This is of course just another stage is the incrementally escalating conflict between the US and China. The tension between the pair does seem to have escalated over the last few days following a minor hiatus at Christmas. Rumours are circling the Oval Office concerning an all-out ban on Huawei and ZTE technology in the US, while suspicions will only increase following the arrest of a Huawei employee in Poland on the grounds of espionage.

With all the drama before Christmas and the hullaballoo kicking off again now, perhaps we should expect some sort of retaliation from Beijing. The Chinese governments has not been anywhere near as confrontation as the US, though there might be a breaking point somewhere in the future.