The Huawei case study describes China's largest telecommunication equipment provider. The key question is whether Huawei will be able to leverage its core strengths in order to climb up technology's value chain, replicating their earlier success with low-end telecom networking in both high-technology products as well as services? Will Huawei be able to build a global brand?
Ali Farhoomand; Phoebe Ho
Harvard Business Review (HKU599-PDF-ENG)
November 14, 2006
Case questions answered:
- Describe the strengths, weaknesses, opportunities, and threats faced by Huawei as it ventured into international markets? (SWOT Model)
- How did the company initially position itself in its international expansion strategy?
- What are the competitive advantages of Huawei in the global telecom equipment industry?
- Can these competitive advantages be sustained?
- Huawei has recently come under attack by the United States government……..What is the issue or concern by the US government (and some other countries)? In your opinion, can this issue be resolved?
- How well is Huawei performing today?
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Huawei: Cisco's Chinese Challenger Case Answers
1. Describe the strengths, weaknesses, opportunities, and threats faced by Huawei as it ventured into international markets? (SWOT Model)
Huawei wanted to expand and started its global extension in1996 because it needed to search for a different wellspring of development past its neighborhood market.
The strengths are:
- The latest technologies provided at a cheaper rate made people buy in the other parts of the world except for the US.
- They were continuously innovating as they had invested a lot of money in the R&D department.
- As a result of their R&D department, they had about 8000 patents, like most major companies.
- The Chinese government had their backs monetarily.
The weaknesses are:
- Their connection with the army put a shadow over their customers worldwide.
- Expansion for them in the US became difficult as people couldn’t understand the company’s name, and Americans found it difficult to work with the Chinese people.
- The picture of Chinese items that were modest and problematic had an untoward impact on the company. Because of this terrible picture on Chinese items, Huawei had utilized forceful strategies to win contracts.
- To maintain a strategic distance from extreme rivalry from organizations like Cisco and 3Com, Huawei had wandered into creating regions where there is less rivalry.
- By the above procedure, the company put their first universal deal into the Russian telecom administration supplier, trailed by Advanced Info Service (Thailand’s portable administration supplier) and Tele Norte Leste Participacoces (Brazil’s altered line Carrier).
- The Chinese discovered the Texas articulation and different parts of the neighborhood society troublesome.
- Due to the above reasons, they needed to change the organization’s name to Futurewei.
- Though the company employed Americans for some positions, the Huawei officials and the Americans had a strained relationship.
- Unlike in Europe, where less value would win you bargains, in America, the client will change just because of the forefront innovation instead of less cost.
- Another significant test for the company was that they couldn’t match up with the brand estimation of organizations like Cisco.
- Some watched that Huawei’s items seemed, by all accounts, to be gotten from those of different organizations, either through patent-mining or figuring out. The company needed to change this picture.
- Huawei’s association with the Chinese military had an awful picture among some of their abroad customers.
- There were inquiries of trust and notoriety which hampered Huawei to win abroad contracts.
The opportunities confronted by Huawei are:
- The first nation to which they contributed were Russia, empowering switches. Huawei had undermined the costs. However, it was their administration that awed the Russians.
- Following Russia and creating areas, the company went ahead to put resources into developed regions.
- The item given to the Dutch were a decent illustration of expense development, which gave propelled highlights at a diminished cost.
- For those nations that were searching for moderate innovation, the company was their accomplice.
- Huawei made a deal to the French administrator by offering less cost and building some portion of it gratis and permitting the administrator to run it for 3 months to test it before they buy.
- An ensuing deal to the United Arab Emirates made the nation the first Arab nation to include 3G administration.
- Huawei was included in 14 out of 19 3G systems construct outs internationally in 2004.
- British Telecom (BT) made Huawei as a favored supplier for its cutting edge systems. This had been a pivotal element for Huawei ascend after not long after a supplier concurrence with Vodafone in 2005.
The threats are:
- Contrary to winning arrangements in Europe and other outside destination, the company had a tangle in the American market. Even though Huawei managed to get their hands on some of the deals, they failed to get a major contract.
- Six months after their set up in the US, Cisco sued Huawei for purportedly encroached some of Cisco’s licenses and copyrights for running their low-end switches.
- Due to the above claim recorded against the company, numerous arrangements were executed off. When the charges cleared, the organization had lurched once more.
- A company representative had taken photographs of internal parts of innovative hardware from Fujitsu. Huawei clarified that the photographs were never utilized, and it was the worker’s first visit to the US.
- In a country like the US, low-cost was not the only thing they could run with. They had to improve to be on par and set-up their footprint in the US.
2. How did the company initially position itself in its international expansion strategy?
Huawei knew that they had cheaper products than other competitors, and people might go in cheaper products as they were getting the same technically sound equipment.
Also, the company had control over their residential business sector, making them wander into the abroad market where advancement or foundation is less in those nations. They would not like to have a direct rivalry with the business goliaths like Cisco, 3Com.
This technique helped them wander into creating nations like Southeast Asia, Latin America, Russia, and Africa before making endeavors to enter Europe and the American market.
This came about them in solid, differentiated incomes in items that are bleeding edge while keeping up a low cost. The company had a manageable point of preference with their ease of R&D focuses.
This permitted them to get more income and include in client-driven customizations than their rivals. In 2004 they turned into the first organization to set up a CDMA system in Europe.
They had set up another 3G versatile system around the same time, making them touch base with the major group of telecom hardware suppliers.
Huawei was included in R&D work in WCDMA as a joint endeavor with Japan’s NEC. The company likewise wandered with Siemens to test TD-SCDMA. Huawei’s colossal push on R&D demonstrates its push to the next influx of development and extension.
3. What are the competitive advantages of Huawei in the global telecom equipment industry?
The competitive advantages of Huawei were:
- Huawei decided to add to its innovation in-house, and later on, when they had noteworthy mechanical resources and capacities, they had joint efforts with remote accomplices.
- The company had perceived universal firms to give non-technology parts of its operation. IBM was conveyed on to assist them with overseeing and compose the R&D process.
- As Huawei’s inside innovation developed, it got to be to work together with worldwide firms. For instance, Huawei collaborated with IBM in 2000 on utilizing IBM cutting edge system processor, and consequently, Huawei became acquainted with IBM’s R&D focuses. Both picked up from this plan.
- The company had an amazing R&D focus and was included in several advancements. The staff working in the R&D focuses basically had experts or PhDs. Added to the way that they paid less wages to their staff when contrasted with their rivals.
- Even however, it spends not exactly Alcatel-Lucent, Cisco, and Ericsson. Huawei had pioneered the patent war.
- Huawei figured out fundamental items and utilized that establishment to grow more perplexing items which were not before seen by Chinese organization.
- The company could provide advanced technology at a cheaper rate, which attracted most of its customers.
- They had the capacity to offer capable motivating forces. To quote a sample to win the Neuf Telecom, France, Huawei offered to fabricate a portion of the client’s sans system of expense and ran it for 3 months so that Neuf specialists could test it before resolving to purchase.
- The Chinese government bolstered Huawei’s principal achievement. They had great money related sponsorship and political backing from the administration.
4. Can these competitive advantages be sustained?
No, these upper hands can’t be managed. Huawei began to lose their home business sector, where their rivals began their R&D focuses in China to diminish the expense and give an immediate rivalry to the company in the home business sector.
Also, Cisco documented a claim against the company for their Quidway switches. This had a noteworthy effect on the picture of Huawei. Numerous arrangements were executed off, and Huawei was attempting to make an imprint in the American market.
Huawei had the capacity to get bargains. They were not ready to make a noteworthy effect in the American market. They couldn’t get bargains from any Tier 1 organizations.
The convoluting component in the company’s universal endeavor is a serious consideration in its ties with the Chinese government. These security concerns will keep on plaguing Huawei’s aggressiveness in the US and Europe.
Huawei’s significant disadvantage is looking after straightforwardness and dealing with its reputation.
5. Huawei has recently come under attack by the United States government……..What is the issue or concern by the US government (and some other countries)? In your opinion, can this issue be resolved?
US government’s major concern is whether allowing Huawei to set up its footprint in the US would jeopardize the telecommunication infrastructure (cyber-attacks and spying) of the country.
They believed that Huawei had ties with the Chinese government. US government supported their talk by saying that Huawei did not cooperate and did not provide enough documents to the government for an investigation to prove that the company was an independent company.
Huawei intern said that even if the company was not part of the government, the government could pass a law to check its communication before being implemented.
Moreover, concerns increased among the US officials as Huawei’s CEO had a past connection with the people’s liberation army.
Also, over the years, according to a US head of the cybersecurity official said that there had been an increase in cybercrime, and since all of the US depends on the network, there is no way we can let be jeopardized. Also, few of the company’s working employees were reported illegally working in the US on a tourist visa.
Yes, this can be and must be resolved. Like the FBI investigation made earlier in which the US hackers had made it through to the Huawei router and network to ensure their working, another similar investigation must be made.
It is a foreign entity to make sure it’s an independent company and has no ties with the Chinese government. The company must be honest as for them, expansion is important.
This can also be resolved if the US government decides after looking at the facts and taking a stand for it. If they don’t find anything against the company, they must let it expand.
Also, the company can have an acquisition with a US-based small company, and this company would handle the traffic coming in from the other parts of the world.
How well is Huawei performing today?
Huawei is currently the second-best telecommunication manufacture in the world and the top three in the cellphone market. This company has taken another technique of developing normal income per client, expanding transmission capacity, and making it cost-effective.
Huawei declared in the 2011 report that they would be taking after a pivoting CEO idea every serving for 6 months. They could, in any case, not have a noteworthy achievement in the US market.
Despite offering over and over since it initially entered America 10 years prior, the organization has yet to win a solitary enormous contract from the top-level U.S.
Today, nonetheless, the company is building a portion of the best, most imaginative, and quickest hardware in the business. Quality is no more an issue.
Huawei needs to rise into distributed computing and the undertaking space — carrying it into rivalry with any semblance of Oracle, HP, Cisco, and Amazon. Around the world, Huawei conjectures that its income will triple by 2020, to more than $100 billion.
From the IDC report, Huawei has been incorporated into main 10 positions in the worldwide business. The company bested its primary adversary, Ericsson, in the opening portion of 2014 as far as deals.
China was Huawei’s quickest developing business sector as far as deals development in 2013. Be that as it may, Europe, the Middle East, and Africa produced the organization’s most income a year ago.
The company is performing admirably in today’s business sector and is giving extreme rivalry to the big players. Huawei, in the future, envisions to have the majority market holder in telecommunication equipment in the world.