A Dark Horse in the Global Smartphone Market: Huawei's Smartphone Strategy

1. How attractive is the smartphone industry? How will its attractiveness change in the future?
● Analyze industry
○ Mobile communications industry? Smart phone industry? Or is it a market?
● Attractiveness now
○ Growth slowing globally - 10.08% in 2015
○ Profitability?
○ Emerging markets still growing - 35.8% in 2015
○ Growth in emerging for low end smart phones
○
○
● Attractiveness future
○ Smartphones slowing down - need to focus on software capabilities and
complements in future
○ Fierce competition - see page 6
○
● Use Porters 5 forces
●

2. Does Huawei have a sustainable competitive advantage in the smartphone industry?

● Yes
○ Background and tech capabilities as a telecom equipment provider
■ Battery life
■ Security technology ( p.14)
■ Patents in telecommunications available for leverage
○ Telecom network assets and relationships with carriers
■ Ownership of networks in 140 capital cities
■ Significant global presence for indoor connected solution - 120 carries in
75 countries
■ Mate 8 - can connect to 1000 carriers in 200 countries
● No
○ Weaknesses in designing operating systems and apps
○ Limited ability to control the industry chain
○ Rising manufacturing costs in China

3. How does Huawei’s global strategy contribute to its smartphone success?

● Global embedment in cloud computing and service
● Wireless infrastructure and mobile communications technology
● Both create a solid foothold in many developed and emerging countries
● Strong presence in emerging countries will allow continued growth while developed
countries growth is slowing down
Notes from Class (9/23/17): Ha - Why
Growth Drivers for Huawei
- Background
- Was a command control economy until 1979 - foreign companies were not
allowed prior, very little foreign investment pouring into China when Huawei was
starting
- Road and rail infrastructure, electrical infrastructure not developed
- Founded by a guy that came out of the military - conservative environment - very
amazing accomplishment to establish a very successful company in the
uncertain environment
- Telecom equipment (B2B)
- Had better products
- Smaller and lighter
- Heavy R&D and collaboration - direct translation into better products
- Access to patents/technologies
- Access to knowledge that they didn’t have (getting this organically - SLOW
process)
- Huge advantage to be fast and first
- Low cost labor and land, etc
- Case didn’t mention - but great relationship between Huawei and government
- Relationships are everything in China
- Today very strong in telecom systems
- Carrier relationships
- Technical standards (huge) - they are involved in creating standards and
delivering equipment to those standards all over the world (eg. 5G systems)
- They know long before Apple or Samsung what they have to deliver to
maximize the value of those products - speed = weapon
- Credibility
- Applying each of these 3 things to the Smartphone industry

Smart Phone Industry

- Apple
+
- Brand image
- User experience
- OS - 13%
- Apps
- Compatibility of products (exclusive Apple ecosystem)
- SoC
- Hardware and Software

- Samsung
+
- Affordability? (high to mid-level pricing)
 - Scale - implies low cost
- Superior displays - OLED’s
- Android OS - 87%
- Strength
- Compatibility
- Lower development costs
- Customizable
-
-
Apps - + and a -
- Weakness
- Security
- Holdup - your ability to deliver value is being held up by another company
in your ecosystem, Samsung is not the one that is moving the OS forward
-
Just Hardware
SoC - VERY important - all major components on one chip - eg GPS, etc - lots of R&D
go into this and must work extremely well - a lot of money being put into this area

Huawei
+
- Telecom strengths
- SoC
- Low-end / B2B - Telecoms
Negatives
- Low margins
- Low / no brand awareness
- Poor brand image
-
Transitioned
- Telecoms to B2C
- Drive to develop superior products
- Talent acquisition - hiring top designers/engineers (eg Chief Designer at BMW)
- Own OS
- Very high R&D expenditures
- R&D offices throughout world (IS, India, Germany, France)
- 5G
- Collaboration - with other great companies, just like they did in the
80’s/90’s, not to another area - there is a skillset associated with
maximizing value from collaborative activities
-
- Dual brand strategy
- Huawei
 - Honor - young people, online only, midrange (didn’t do low range - more
competitors and more coming in - see table 7a)
- Brand strategy discussion - cascading technologies from high to low (only
works if right cost structure) - must keep differentiation clear
- Can also leverage a core technology through everything - maybe how you
talk about it is different
-
-
Maintaining Competitive Advantage?
- Lots of new competitors (not good)
- Of the things where they currently have competitive advantage, which will provide the
same advantage going forward?
- Telecom equipment
- Yes - continued investment, strong position, relationships with carriers
- Technical standards - huge benefit going forward (insights to allow them to work
on product applications to mesh with those standards way before other
competitors)
- OS?
- R&D and collaboration- global R&D centers
- SoC - could drive huge benefit in future
- Brand - very strong in China, but not as strong in the US
- Scale
- He would not be shocked if they were #1 in the next 5 years
-