How is Huawei’s internationalisation endeavour a good success story example for other companies wanting to pursue global growth? Introduction Huawei Technologies Co. , Ltd. provides telecommunications equipment and solutions to operators in China and internationally. The company’s products include wireless and networking equipment, applications and software, and terminals; smartphones for French users; and metro services platforms, which help operators to build broadband metro area networks.
It also offers mobile network, broadband network, IP-based and optical network, and telecom value-added services. Huawei Technologies Co. , Ltd. has strategic partnerships with IBM, the Hay Group, PwC, FhG, Intel, Texas Instruments, Freescale Semiconductor, Qualcomm, Infineon, Agere Systems, Microsoft, Sun Microsystems, and HP. Huawei Technologies is a Chinese company. It was established in1988 by Ren Zhengfei, a former People’s Liberation Army officer and telecom engineer.
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Huawei’s headquarters site, of modern and impressive building fittings, is situated in Shenzhen, southern China (Guandong province). In 2006, Huawei Technologies was among the ranks of China’s “National Champions”, along Haier, Lenovo TCL, and the Wanxiang Group, poised to compete with global leaders in the international market place. Huawei has also been dubbed as the Cisco of China. It is thus a multinational corporation with branch offices in 100 countries which serves over one billion users worldwide.
The question is then begged as to why Huawei is so competitive? What were and could be the challenges the Chinese-based company faces? What are the implications of Huawei’s strategy? In this paper I will attempt to analyse Huawei Technologies strategy to internalisation by taking in account the company’s starting point in China, and by setting the stage for the comparison of Huawei’s to that Cisco’s strategy.
I will then proceed with some recommendations on what a Chinese company could have done to better prepare for competition in the US telecom industry. And conclude with some remarks on the progress made by Huawei since 2006, when the case study on which the analysis is based was compiled. Company Overview From its very beginnings, the company’s vision has been to become a lighthouse of innovation which would successfully enable it to compete first in its home market, and then proceed with international expansion.
When the company was still operating only in China, Huawei’s methodology around its goals, to not be set up in joint ventures with foreign companies, to pursue global cutting-edge technologies, persist on self-development, and expand internationally, largely consisted in extensive investment in research and development (R&D) capabilities, and hiring a highly-qualified workforce from China. Huawei was created almost single-handedly under the strong vision and leadership of Zhingfei. He fostered a unique and rigorous management culture, by building a “pack-of-wolves enterprise”.
He instilled a management philosophy within the company which meant to view competition and market opportunities with a keen smell, react to with an aggressive push and always confront both in unified groups. Under Zhengfei’s lead, who had been successful to create and manage a large relationship network, few other competitors could match, the company had relied on big contract orders from the military to secure a foothold in the telecom network market in its early years. Moreover, extended army and government ties had provided the company with relatively easy access to financing.
Huawei was undoubtedly the largest Chinese telecom equipment manufacturer, with annual revenue of US$6. 7 billion in 2005. Market capitalisation was estimated to be up to US$10 billion. In China, Huawei’s major customers included all the big names such as China Telecom, China Mobile, China Netcom and China Unicom. Huawei’s networks in China served over 400 million people communicating across the country, occupied 25% market share in the mobile networks, and supplied 80% of all short messaging services from China mobile.
Therefore, Huawei’s strategy to focus on R&D to lead technological advancement, its attention to choose high-calibre and yet inexpensive labour from China, as well as foster a consolidated sense of corporate culture none but confirmed Huawei’s stable, long-term oriented organic growth strategy. The company’s competitive advantage in its home turf had built up to be low-cost engineering, enabling Huawei to compete with large indigenous and foreign competitors.
Cisco, Huawei, and the International Market of Telecom Equipment and Services Cisco, which global presence spurred with the enlarging footprint of the internet across the globe in 1991, decided to focus its growth strategy in China by the end of the 1990s. Cisco’s strategy in China consisted in recruiting and training employees to service high-end markets of telecom service providers and enterprise markets. Instead of forming joint ventures with local partners (like most of its international competitors did in China), Cisco opened its own subsidiary in China, Cisco Networking Technology Co. Ltd. to promote education, demonstration and development of network technology. Educational initiatives presented Cisco with an opportunity to develop favourable relations with Chinese authorities and to cultivate new areas of business within China. Moreover, recognising the large, low-cost and skilled labour force in China, Cisco continued its commitment in the country by investing in an R&D centre in Shanghai. Cisco’s CEO plans for the facility were to allow Cisco access to technology and local talent so as to leverage Cisco’s newness to the corporate culture of China and be able for it to buy into the local Chinese local market.
Cisco’s goal was by all means to maintain its leadership position in cutting edge technology. While at the same time, Chinese competitors were using their aggressive pricing strategies to expand into the international markets, and were rapidly using their low-cost advantages to move up the value chain. And Huawei was among the Chinese companies that were expected to make further inroads into international markets in the next few years, competing head-to-head with established Western players for the same global accounts.
Internationalisation: Phase 1
Having secured a strong foothold in its home market in China, Huawei started to look for diverse sources of growth internationally, in the first half of the 1990s. However, it was able to conclude its first significant international contract only in 2000, in Russia. In order to avoid outright competitive confrontations with well-established Western telecommunication multinationals, Huawei went global by first entering growing markets in developing countries.
Considerable contracts extended later on beyond Eastern Europe, in South America (Brazil’s fixed line carrier) and Asia (Thailand’s largest mobile service provider). Huawei’s path toward the matured Western European markets, the company’s next challenge, would not come without tradeoffs. In the early 2000s, Huawei was a new company competing for market share with established global communications technology suppliers. Chinese products were then suffering from a common perception of being cheap and unreliable, forcing Huawei to thus pursue aggressive tactics to win contracts.
With 30% lower pricing points than established competitors, a commitment to offer trial periods for its products and hiring local personnel to tailor technologies and services to customers' needs, led the company to win contracts in tough-to-please markets such as France (Neuf Telecom, 2001). The biggest success, however, and the one that signified Huawei’s breakthrough in Europe, was in 2004 when the company was selected by a Dutch mobile operator to build its 3G mobile phone network, by then Huawei’s hallmark capability.
Internationalisation: Phase 2
In order to highlight the key points of Huawei’s internationalisation strategy, the case of the company’s entrance in the U. S. calls for an analytical stop. The challenges Huawei faced in the North American market revolve around several axes, but overall the endeavour highlights the general lack of preparation and some strategic blunders which made the company’s top management decide to update Huawei’s strategy and draft one that caters to long term sustainable development. When it opened its first office in Plano, Texas, the company made every effort to blend into the local culture.
It shared the building with law offices, realtors and the regional office of the lingerie company Victoria’s Secret. A Texas state flag and an American receptionist welcomed visitors on the ground-floor lobby. Shortly after the US-launch, however, the defect of not having carefully planned for cultural differences eventually surfaced. Chinese employees had a difficult time adapting to the Texas accent and other aspects of the local culture. Huawei executives also realised that Americans had difficulty pronouncing the company’s name.
They came up with a working name, Futurei, which although facilitated to a better pronunciation, only confused targeted customers even more, and Huawei’s infant brand came under great shock. In the US telecommunications industry, a mature market where lower prices often are not enough to land a deal, winning customers and contracts would demand for a lot more effort. Phone companies and equipment suppliers had long term ties with their equipment suppliers, customers looked for exceptionally leading-edge technology and a compelling reason to switch.
Moreover, trying to switch to a virtually unrecognised brand in the US market meant that telecom service providers – Huawei’s classical customers – would request exhaustive testing of equipment quality and reliability, lasting several months, before committing to buying it; a common procedure for sourcing from an unknown company. Another hurdle Huawei encountered was a lawsuit Cisco launched, only six months after Huawei had set up its subsidiary in the US.
Analysts observed that Huawei’s steep discounting of low-end routers [Cisco’s] products in its home turf, the US market, had prompted the lawsuit [of alleged infringement of Cisco’s patents and copyrights. This was Cisco’s first intellectual property lawsuit despite its huge intellectual portfolio. Huawei ended up by agreeing to withdraw from the market place Quidway routers and other related products. Three years after its US launch, the company was able to land its first contract with a US wireless carrier in 2004, and subsequently securing other contracts with small wireless carriers.
Huawei had serious intentions for the U. S. market. Yet cultural risk and Cisco’s buying power in its home turf, led to a substantial delay of results, and thus loss of revenue and opportunity for Huawei. Despite having a powerful and well recognised brand name, when Cisco started its venture into China (in 1998), it began by first building on local labour-skill capabilities and government network to leverage on its inexperience in the Chinese market and thus buy into market sales power among corporate customers. Huawei, on the other hand was literally unknown in the US market.
And it was naive enough to assume that American corporate customers would be sufficed with high-quality low-cost equipments from an unknown Chinese company. Or that its organisation was rightly prepared to face global competition as aggressively and in the right way as it had done in China. Cisco’s entry strategy into China was aggressive not because it offered low-cost high quality products, but expensive and exclusive technology, reinforced further via R centres spread across the country. Enterprises in China knew about and trusted Cisco’s product quality nd reliability. The same cannot be said about Huawei’s products. In spite of success in winning deals in developing countries, Huawei could not reach US corporate customers if they would not pass that easily the wall of perception that Chinese products were cheap and merely copied versions of other recognised telecom equipment and software.
Recommendations, or lessons to be drawn from Huawei’s experience, would capture the overall need for Chinese companies to acclimate to new surroundings first – just as the foreign companies that entered China did . Acclimatisation, for Huawei could have proceeded by:
- Improving assessment of risk – economic, political, regulatory, cultural, organisational to avoid cultural and regulatory (the lawsuit) blunders. Huawei could have also better prepared to build a network before out rightly starting to target enterprise and corporate customers.
- Preparing better for the entry strategy in the US– be it Greenfield, acquisition, merger or alliance. Cisco, to show its commitment for China, announced a US$100 million investment, stirring curiosity and interest among corporate customers and Chinese authorities. Huawei went into the US “quietly” opening a branch office!
- Developing global talent – R investment and international top managers with a global experience and extended local market knowledge, in order to enhance buying power into the local market.
- Creating a global brand – to be accepted in the market place by using local industrial public relations companies can facilitate brand recognition in the initial stages.
Assessing and redesigning organisation and management style to one that caters four dimensions:
- co-orientation, the temporal dimension - being able to balance between short-term results for survival and long-term performance for sustainable profit growth;
- co-competence, the relationship dimension – persist on the dual possession of both transactional and relational competence;
- co-opetition – the capability to win market share through simultaneous competition and cooperation for reasons that range from brand name strengthening and market share growth;
- be agile and flexible to re-adjust to shocks efficiently, and flexible enough to re-balance short-term results with long-term performance, and
- co-evolution – the pursuit of organisational adaptation to and proactive influence on the external environment facing a firm [Huawei]
Analysis and Discussion
The future of business is in its course to re-establishing itself in a [somewhat] changed order. The recent financial crisis has certainly tested the best and the worst of yesteryear strategies and management styles.
Thanks also to a revived wave of globalisation companies are in the quest for profit, at a time when there are possibilities – probabilities – and uncertainty. The US market continues indeed to be a litmus test of endurance for non-American companies. Luckily, Huawei had sufficient financial cushion and top management agility to learn quickly and be able to modify its corporate business model strategy to fit the demands of its targeted customers – corporate clients. “Huawei Technologies Co. , Ltd. announced it will unveil a new mobile broadband solution at Mobile World Congress 2010. This solution will accommodate the tremendous increase in mobile broadband traffic, reduce the per-bit cost by over 95%, and make mobile broadband services more profitable for operators worldwide.
Today, mobile broadband services are growing exponentially, but operators have not yet been able to convert this into significant revenue streams. Huawei estimates that global data traffic on mobile broadband networks will grow 1,000 times over the next decade, from the current 85 million Giga-bytes per month in 2009. As the number of mobile broadband users continues to climb, subscribers will increasingly look for low tariffs with unlimited, high-speed access and abundant mobile broadband service, while operators will need network capabilities that allow them to accommodate the expansion pressures of mobile broadband network and profitable operation mode. Huawei would seem to be “swimming” in a blue ocean now because it has been able to grow in scale and revenue while keeping a low cost structure. The R investment and ability to simultaneously fill a gap in telecom infrastructure by putting forward a unique value proposition to telecom end user customers and telecom services suppliers. Mobile broadband users, growing exponentionally in numbers, are now being offered the possibility of low tariffs for unlimited, high-speed access and abundant broadband services. In turn, operators will need network capabilities that allow them to accommodate these expansion pressures on the mobile broadband network and retain profit margins.
The case of Huawei Technologies certainly reflects a good example of success story in dealing with all the above issues. Chinese-based companies planning to become global may well benchmark Huawei’s management structure and organisation in turning around the focus from high-tech products to customer-centric high-tech products and services, under an internationally accepted brand label. Huawei’s top management certainly took a step back after the initial limping performance in the U. S. It now “believes that cooperating with customers, suppliers and leading players in the industry to face challenges together through a win-win strategy is essential in today's business world” . Huawei has formed numerous partnerships [... ] with leading multinationals such as ADI, Agere, Altera, HP, IBM, Intel, Microsoft, Motorola, Oracle, SUN, TI and Xilinx to improve the time to market of [... ] products, and to incorporate the latest technologies and best management practices into [the] company. [Such] will enhance [its] position [and brand image] in key international markets, [... ] and improve [its] response speed and service advantages in [the] supply chain” . As of 2010, Huawei has 87,502 employees, of whom 43% are dedicated to R&D. Huawei’s most recently reported sales counted at US$18. 33 billion, a 75% increase from the 2006 sales, and with US$1. 15 in net profit.
In 2009, it was named the world's top patent seeker, it was the first Chinese company to head the United Nations World Intellectual Property Organization (WIPO) list, its contract orders rose 46% to US$23. 3 billion (75% of which came from overseas), overtook Alcatel-Lucent to become world's No. 3 mobile network gear maker, and during the third quarter of 2009, Huawei passed Nokia Siemens Networks for the No. 2 position in the global mobile infrastructure equipment (according to research firm Dell'Oro)—a sign of the changing fortunes of the two vendors . Huawei’s change in the strategy style is noticeable right at its formulation of the new vision - it is now “to enrich life through communication”.
The company continues to maintain a leading competitive position in the international industry of telecom technology and services, and only these days was elected 5th most innovative company in the World “behind only Facebook, Amazon, Apple, and Google” !
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