Huawei: A Greener Supply Chain, A More Responsible Industry Leader

An ICT Industry Leader and Its Path to Greener Supply Chain Management…

Huawei Technologies (“Huawei”), headquartered in Shenzhen, China, is a leading information and communications technology (ICT) company with a comprehensive product portfolio in telecom networks, devices, and cloud services. As of November 2017, Huawei’s products and services are sold in 170 countries, serving 1/3 of the world’s population. [1]

Over the past decades, increased emission of greenhouse gases (GHG) accelerates global warming, which further results in environmental changes such as sea level rise. Although the ICT industry plays a vital role in improving resource utilization efficiency and decreasing waste and emissions, it also significantly contributes to the increased GHG emissions worldwide, as scientific studies suggest that the industry accounts for ~2% of global CO2 emissions, roughly the same as the aviation industry. [2] The production cycle of an iPhone X, for instance, would release 79kg of CO2 to the atmosphere. [3]

Having manufactured and sold 131 million smartphones in 2016 alone [4], Huawei undeniably contributes to GHG emission and climate change. Indeed, Greenpeace International has blamed tech giants including Huawei for failing to reduce GHG emissions by claiming that their supply chains are still “stuck in the Industrial Age. ” [5]

In light of such public complaints that could undermine its reputation, there’s an imperative need for Huawei to implement changes to its supply chain management to show that it is socially responsible. Furthermore, the Chinese government has been making unwavering efforts to make its economy more eco-friendly and sustainable. Leader of China’s ICT industry and benchmark for other ICT players, Huawei is both expected and required to make its supply chain greener and contribute less to climate change.

Well aware of public expectations for it to reduce GHG emission, Huawei has been taking bold strokes to innovate its supply chain to become a “viable partner in the deceleration of climate change.” [6]  All of Huawei’s efforts towards building a supply chain with less GHG emission are part of its “Green Pipe, Green Operations, Green Partner and Green World” initiative effective since 2014. [7]  The Green Partner pillar particularly requires Huawei’s supply chain partners to follow green initiatives throughout a product’s lifecycle from design to manufacturing. Major actions taken under “Green Partner” are discussed below.

First, Huawei applies a stringent selection process with sustainability-focused criteria for its upstream suppliers. In 2016, the company assessed 57 supplier candidates in terms of GHG emission control and turned down 12 of them that failed the evaluation. [8] Huawei also audited 938 of its existing suppliers with regard to GHG emission and sustainability risks, and halted cooperation with two of them because of their poor performance in meeting the minimal sustainability requirements. [9]

Second, Huawei organizes training seminars and workshops for its suppliers to study state-of-the-art practices on emission reduction and assisted them in designing their own green production plans. In 2016, 20 of Huawei’s suppliers both in China and globally participated in the program, having jointly reduced a total of 55,000 tons of CO2. [10]

One practice Huawei recommended to its supply chain partners is the adoption of renewable packaging materials and increased recycling of the non-renewable ones with the goal of saving 12,000 cubic meters of timber consumption and reducing 6,172,000 tons of carbon dioxide emissions per annum. [11]

Third and from a policymaking perspective, Huawei has been actively involved in establishing GHG emission standards for the ICT industry together with China’s regulatory agencies. For example, the company played an important role in developing the IPC-1401 Supply Chain Sustainability Management System Guidance in 2016. [12]

Fourth and for the longer term, Huawei has plans to increase its R&D to further develop greener production techniques that would reduce GHG emission from the manufacturing of telecom devices. [13]

In addition to above, I recommend that Huawei take the following actions to reduce its supply chain’s contribution to climate change.

First, besides the annual sustainability audits, Huawei should conduct more regular follow-up checks, both planned and impromptu, on its suppliers to make sure they are following the green production practices both required by Huawei and learned from Huawei’s training seminars. Failure to abide by the emission reduction principles could result in termination of cooperation.

Second, Huawei should expand its Green Partner program from upstream manufacturers to mid- and downstream partners on the supply chain such as distributors and retailers. The company could, for example, work together with them to reduce GHG emission in product shipping and transportation.

While opportunities abound, challenges and uncertainties still exist as to how effectively Huawei will be able to roll out more innovations on its supply chain to tackle climate change going forward. Although being socially responsible is critically important for an industry leader, shifting towards a greener supply chain often implies higher costs and lower profitability in the short term. Given the highly competitive ICT industry, how incentivized would Huawei be to further cut GHG emission in its supply chain remains a question mark.

(800 words)

Sources

[1] “Huawei on the Forbes World’s Most Valuable Brands List” https://www.forbes.com/companies/huawei/

[2] “ICT and CO2 Emissions” Parliamentary Office of Science and Technology, Dec 2008 http://www.parliament.uk/documents/post/postpn319.pdf

[3] “历史最高 生产一部iPhone X排放79公斤温室气体”Wangyi Tech, Oct 2017 http://tech.163.com/17/1007/10/D04U4FJ200097U7S.html

[4] “Huawei Tops China’s Smartphone Market” Economic Time, Feb 2017

[5] “Greenpeace Faults Samsung, Amazon, Huawei, and Other Tech Giants for Environment Impact”Gadgets, Oct 2017 https://gadgets.ndtv.com/others/news/greenpeace-faults-samsung-amazon-huawei-and-other-tech-giants-for-environment-impact-1764330

[6] “Huawei: Deceleration of and Adaptation to Climate Change” http://m.huawei.com/enmobile/about-us/corporate-citizenship/environment-protect/climate-change/index.htm

[7] “Huawei to Support Its Global Supply Chain to Go Green” Company News Egypt, http://www.cnegypt.com/2014/08/huawei-to-support-its-global-supply.html

[8] “Huawei: Supply Chain Management” http://www.huawei.com/en/sustainability/win-win-development/develop_supplychain

[9] “The Huawei 2016 Sustainability Report” http://www.huawei.com/en/sustainability/sustainability-report

[10] “Huawei Energy Efficiency White Paper” http://www.mobilontelecom.com/Huawei-Energy-Efficiency-White-Paper.pdf

[11] “Huawei Energy Efficiency White Paper” http://www.mobilontelecom.com/Huawei-Energy-Efficiency-White-Paper.pdf

[12] “Supply Chain Social Responsibility Management System Guide” http://www.ipc.org/TOC/IPC-1401.pdf

[13] “Huawei: Research & Development” http://www.huawei.com/en/about-huawei/research-development

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4 thoughts on “Huawei: A Greener Supply Chain, A More Responsible Industry Leader

  1. OEL, Huawei is an interesting example because it has managed to take environmentally sustainable measures while maintaining its market position. According to the latest IDC research, Huawei continues to be the third largest mobile phone company in terms of shipments (https://www.idc.com/getdoc.jsp?containerId=prUS43193517). Although, it is curious that Huawei is not promoting its green supply chain initiatives more prominently in marketing campaigns. Doing so could have dual benefits. First, it is likely to improve sales for Huawei, and perhaps even help it make gains in the North American market, which continues to remain elusive for Huawei. Second, it will create competitive pressure on its peers to undertake similar steps towards environment sustainability, thereby improving the carbon footprint of overall industry.

  2. I applaud Huawei’s efforts to encourage and enforce environmentally sustainable practices among its supply chain partners. To take it a step further, I would suggest that Huawei turn the lens on itself and see what they could do to promote green practices within its own organization.

    During a recent TOM Field Trip, I found that Fidelity prides itself on its energy-efficient office buildings and data centers. Given that they are a financial services and institutional investment firm, one would think that their environmental impact would not be high, at least not as much as manufacturers. So, if they can implement these environment standards on their own practices, Huawei could too. To Japees’ point above, there are also industry certifications in this space (such as the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED®) and the Green Building Initiative’s Green Globes®) that could be highlighted in marketing materials as well.

  3. OEL – this is a super interesting read, thank you! I agree with the previous comments and applaud Huawei for the efforts they have made thus far in promoting sustainability in their supply chain. To your question, I think Huawei is actually able to push much of the upfront cost of becoming more green to suppliers, potentially offsetting some of the loss of profitability that would come with changing to a more sustainable business model. I agree with Chloe’s comment that they should certainly make Huawei’s own infrastructure more “green” but I think the real opportunity here is to incentivize or penalize their suppliers to become more sustainable, decreasing green house emissions without taking too many near-term direct costs on themselves. They are well enough established that suppliers will change to meet their demands over time. Huawei will have to take on the additional costs associated with auditing their suppliers but I think sustainability can then become one of their key value proposition as a company, justifying some increases in cost and making Huawei a market leader of sustainability in China and among ICT companies.

  4. Wow this is very informative, clear, and concise! Thanks for a good read Leo, I was curious to read something by a published author 🙂

    It sounds to me like Huawei is doing a lot to build a greener supply chain, and I think your suggestions are the next logical steps for the company to take. As you said, I too am concerned about whether Huawei can and will sustain this level of engagement with green issues, or not, given competition. Arguably, a greener supply chain can result in changes which are beneficial to their cost structure overall (e.g. energy or raw material inputs costs savings), but this will not always be the case.

    I’m wondering, rather, as to whether there is a stronger role for regulators to play here. The release of GHGs as a byproduct of production, results in a strong negative externality, which will be hard for the producer to correct on their own since they capture value from the externality. If the regulators limit emissions, then it creates more of a level playing field across industry players, and helps reduce the externality. However, one risk is if this is implemented in a limited set of countries, companies in those countries may be disadvantaged relative to others in the global markets. In any case, what is the state of regulation in China? I was trying to figure out what’s going on and it looks like something is under way but not implemented? [1] Would this affect Huawei?

    [1] https://www.scientificamerican.com/article/china-is-preparing-to-launch-the-world-rsquo-s-biggest-carbon-market/

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