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          Huali Networks: going its own way to innovation
          (China IP)
          Updated: 2010-08-25

          The innovated management system based on “humanism”

          For high-tech enterprises, talents are always considered the cornerstone of survival and development. Speaking of talent management, Mr. Ding states his philosophy and practices as follows: “According to Maslow’s theory, humans have five hierarchies of needs: physiological, safety, love/belonging, esteem and self-actualization. Practically speaking, people have needs, and needs invite pressures, which jump exponentially with the rise of hierarchies. For us employers, we expect our employees to attain the highest hierarchy of needs, i.e. the self-actualization, or self-esteem.”

          Based on this “humanism,” Huali Networks established the corporate culture themed by “Confucianism, Diligence, Quality and Humanism.” Confucianism is reflected by integrity, generosity and law-abidingness. Diligence requires all the staff to be job-devoted and diligent. Quality is realized by constant innovation. Humanism is the respect for individual. In Ding’s view, as long as you are hard-working, generous and understanding, you will get people’s understanding and trust. “The IT sector is synonymous with sophisticated knowledge and advanced technology. Many customers, due to their limited knowledge of this area, don’t trust us or the products they intend to buy. If we treat them with sincerity, considerate service and intimate understanding, we will alleviate their worries. This is applicable for both doing business and making friends,” Mr. Ding explained.

          In Mr. Ding’s view, employees are the source of power for a company’s innovation and development. To attain long-term development, the company must fully mobilize its staff’s enthusiasm, initiative and innovation behaviors. The best way to associate an enterprise with its staff is to implement the, “Employee Stock Ownership Plan” (ESOP). In Huali Networks, however, many core technical specialists are foreigners, who are excluded from direct stock ownership according to the current rule of law. Therefore, Huali Networks initiated another plan: the “ESOP” employee option incentive mechanism. The major shareholders of Huali Networks invested and set up Mstar Internet of Things Research Institute Limited (Mstar Internet of Things), acting as the general partners/acting partners (usually referred to as “GPs”) of the company and assuming unlimited liabilities. The Mstar Internet of Things recruits employees (including foreign employees) of Huali Networks who have outstanding contributions as its limited partners (LPs) with limited liabilities. Mstar Internet of Things is structured through this GP/LP arrangement. Through stock transfer, Mstar Internet of Things obtains the stock/option of Huali Networks, and then the GPs transfer their stocks to LPs based on the contributions. Changes in the LPs’ stock ownership in Mstar Internet of Things indirectly lead to changes in their stock holdings in Huali Networks. This is how Huali Networks’s employee option incentive mechanism works. Additionally, Mstar Internet of Things is a Sino-foreign invested limited partnership. GPs and LPs of the partnership need not pay business income tax or other taxes. They only need to pay personal tax. Therefore, this mechanism is the best solution for Huali Networks’s incentive mechanism.

          The long-term development propelled by intellectual properties

          Mr. Ding’s understanding of intellectual property is far beyond this journalist’s expectation. He said, “We attach great importance to R&D and innovation, and have put in enormous time and effort. Intellectual property is also a great concern for us. We try our best to protect it. Up to now, we have filed 34 patent applications, including 12 invention patents, 12 software copyrights and two registered marks.” As to the impetus role of patent and other intellectual properties upon technological development, Ding has his unique perspective: “If I made an invention and I wanted to know if there were similar inventions, I would check patent documents. Then if I found several similar inventions, say 50% in similarities, and saw ‘bugs’ in them, I would use them as a reference to modify and improve my own invention. This is a progress of technology.”

          “Intellectual properties, such as patents, are more like a glorious title for an enterprise than a tool for lawsuits. They are also a weapon for restricting and intimidating competitors.” Ding’s perception of intellectual property greatly surprised this journalist. But on reflection, he saw the reason. This is about the commercial application of intellectual property in business operation, and such a commercial role is usually ignored by other enterprises in China. Possibly, this is the cornerstone for Huali Networks’s sustainable innovation and development.

          Huali Networks has a recurring new product development conference it calls, “brain storm.” Out of respect for innovation, Huali Networks encourages its staff to learn new technologies, encourages technicians to attend new product release conferences, and gives financial support to buy learning materials and experimental apparatus. Any good idea of the technicians will get the support of the company. About the IP encouragement system of Huali Networks, Mr. Ding said: “We have our unique practices to encourage and manage intellectual properties. For applied patents, we return all the rewards from the government to the invention team. For granted patents, we will give the team extra rewards. If the patented product yields a good profit, there will be additional project rewards.”

          Generally speaking, innovation-prone people, the consciousness of innovation and the innovation mechanism are the essential elements for a company’s development. Meanwhile, IP commercialization and the management of innovation achievements are also important to maintain and maximize a company’s rights and interests. More importantly, innovation should not be directionless, but must have specific targets and follow particular steps in combination with the company’s strengths and development. Huali Networks follows these rules and succeeds.

          The innovation road of Huali Networks is on-going. No matter whether it will finally beat American chips, it sets a good example for other medium and small enterprises in understanding and practicing innovation.

          Innovation remains an eternal topic at any time. But in what ways can innovation actualize the sustainable development of an enterprise? Maybe you, or your company, will give us the answer by telling your innovation stories.

          By Tommy Zhang (China IP)

          (Translated by Hu Xiaoying)


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