TSMG 5340 Wenzhao Li HUAWEI: CISCO’S CHINESE CHALLENGER The explosive growth of mobile Internet, fueled by the technological innovations, has affected every aspect of our lives.Mobile devices such as smart phones and PDA and even smart pets are now being interwoven into the fabric of our lives.The ultimate goal of all these devices is to bring all people into a networked society.
Behind all these amazing devices, however, are the efforts of the telecom equipment companies, such as Alcatel, Lucent, 3Com and Cisco.
Among all of these companies, there is a Chinese company, named Huawei, gradually being attention by the global telecom industry. For Huawei, its ambition is to catch up with Cisco as a world leader other than a domestic giant, which we know that none Chinese company has ever achieved in an industry as important as telecommunication. In my reading of this issue, trying to comprehensively understand Huawei’s situation in venturing into international market, four observations stand out: strength of Huawei, weakness of Huawei, Huawei’s opportunities and threats faced by Huawei. Strength:
Firstly, China’s telecom equipment market is the background of Huawei. China’s telecom industry achieved substantial double-digit growth in 1980s, and surpassed US to become the largest telecom market by the end of 2002. The glooming growth in Chinese market is an initial power of Huawei’s growth. Table 2 in the case shows that as early as 2005, Huawei had achieved the market leader with the share of 13. 5%. And since China was the largest market, Huawei had become the largest domestic telecom equipment company. Secondly, the special company culture and foresight shown by the company make Huawei an extraordinary different company.
The military-styled “Wolf-Pack” corporate culture and relationship with Chinese government are the “trump cards” of Huawei. The chairman, Zhengfei, admitted that: “If there had been no government policy to protect, Huawei would no longer exist”. But this is not the only reason of Huawei’s success. Different from other companies, who following the country’s policy of “exchanging market for technology”, Huawei put more efforts on research and development, and investing huge punch of money in the future technology (example of investment in 3G).
In this way, Huawei becomes more competitive, holding large amounts of cash and patents. As Huawei becoming more and more powerful, they start to build a national recruitment system with exceptionally high pay by Chinese standards, making them an ideal employer of college graduates. R&D investment, patents, high salaries…all of these characteristics belonging to western technology powerhouse are replicated by Huawei to its model of corporate management. Thirdly, Huawei was undoubted the largest Chinese telecom equipment manufacturer, with integrated and Omni form products.
Weakness: The culture gap between Huawei and other companies may be a headache to the Huawei’s managers. The military-styled wolf-pack corporate culture looks not attractive to the employees overseas, who prefer a workplace with more relax and less stress. Besides this, the closed relationship between Huawei and Chinese government, especially the military, should be considered by the other countries of security issues when they planning to cooperate with Huawei. Opportunities: Huawei’s move in the markets of developing countries has been proved to be successful.
Huawei has printed its steps in Russia, South Africa, South America and Europe. The market of USA is an opportunity for Huawei to make their next global expansion. Threats: “Incumbent Western firms should be very scared of Huawei. Its reputation as a low-cost vendor is only the visible part of the iceberg”, As J. Doineau said, Huawei’s threat to the international telecom equipment suppliers was not to be overlooked. But in Huawei’s viewpoint, if all the competitors and potential partner regarding them as an intruder from “Chinese Military”, they would face serious threats due to the culture misunderstanding.
On the other hand, the world leaders, like Cisco, could not freely give up their market shares to Huawei. The threat of face to face competition with them is another challenge to Huawei. Huawei began considering international expansion in 1996 when it was looking for diverse sources of growth beyond the Chinese market. The company made its initial overseas moves in the markets of developing countries, to avoid “head to head competition with its international rivals such as 3Com and Cisco”.
Huawei made its first significant international sale to a Russian telecom service provider in 2000, which was quickly followed by Advanced Info Service, Thailand’s largest mobile service provider, and Tele Norte Leste Participacoes, Brazil’s fixed line carrier. What’s more, major contracts won in United Arab Emirates, making UAE the first Arab country with 3G wireless communications. They set up CDMA network in Europe and expanded business in Portugal, Netherlands and GB.
Huawei’s success in global expansion cannot live without its competitive advantages comparing to the other companies: low-cost engineering, wolf-pack culture, and government support. As concluded by an industry analyst, Huawei’s threat came not from low-cost manufacturing, but from low-lost engineering. With an inexpensive and highly qualified research and development (R&D) workforce, the company was able to deliver customized, innovative solutions to global enterprises looking to reduce their capital expenditures. The support from the Chinese government is another good news to Huawei.
As cited in the case, the company received financial support from the state-owned Chinese Development Bank in the form of a US$10 billion credit facility for Huawei’s international expansions over five year. We never expect that happening in an US company. Last but not least, the management philosophy “Wolf-Pack” is regarded as a precious to Huawei. We can imagine that a company believing themselves as a pack of wolves-very confident and aggressive. That is why many incumbents feel scared of Huawei like sheep scaring of wolves. However, the competitive advantages cannot sustain forever.
The highly qualified employees cannot satisfy the contemporary salary standards, which are high in China, but comparably low in developed countries. The pressure of the salary expenditure increasing makes a threat to Huawei in global expansion. The news shows that Huawei has recently come under attacks by the US government. The reason why US government did that mostly considers the national security issues, because Huawei has a close guanxi with Chinese military. As stated by Cisco’s CEO John Chambers, “Network would have to be capable of responding to intrusions and viruses before human operators become aware of them.
And security will be the most effective and efficient if a common strategy extends through all of a corporation’s wired and mobile networks”. US government is alert to anything related to security. And what looks ironic here is that the words coming from CEO of Cisco, who is mainly competitor of Huawei in US market. With its bountiful political resources, Cisco is considered to be director of attacks. Whether the issue could be resolved is determined by the communications between Huawei and US government, and of course, the local incumbents.