HUAWEI

GROUP 3NITY
TING (Yei Ti), MARI, XIN YU, LI YING, CHEE TAO,
VALERIE
Content Outline:
1. General Environment Framework Analysis

2. Porter’s 5 Forces Framework

3. VRIO/VRIN Analysis

4. Generic Strategy adopted by Huawei

5. SWOT Analysis

6. Corporate Level Strategy Suggestion

Huawei Technologies (Huawei)
Telecommunications Industry
● Telecom equipment, services & wireless
communication, which includes communications
equipment.

Why this industry?

● As shown on 1st page & LinkedIn
● Largest telecommunications vendor in 2012
● Although in transition to consumer mobile device
provider, Huawei has not reached profitability in
smartphone sector
1. Build a general environment framework in which Huawei is operating based on case only

SOCIOCULTURAL
• Network customization Needed for Telecommunications Switches in Rural Areas
• Stereotype: Chinese products are inferior
• Consumers in emerging markets replace basic phones with smartphones
• Low brand awareness amongst international consumer markets

TECHNOLOGICAL
• Import of mobile tech (analogue cellular mobile communication systems), increasing need to
switch connections between various telephone systems.
• Build-out of global 3G networks
1. Build a general environment framework in which Huawei is operating based on case only

POLITICAL/LEGAL
• Support domestic telecommunications companies by removing import policies that
favored foreign companies by CN government.
• Security & espionage risks concerns by US, Australia & UK.
• CN law permits reverse engineering which was considered as Intellectual Property theft.

PHYSICAL ENVIRONMENT
• Potential in CN fixed line telephone industry (<0.5% adoption during 1980s)
• Growth of Global System for Mobile (GSM) networks
1. Build a general environment framework in which Huawei is operating based on case only

ECONOMIC
• CN telecommunications industry relies on tech & equipment acquisition through imports.
• SH Bell set up international joint venture to import & learn from foreign partners.
• (Early 90s) Less available financial resource for private firms compared to SOEs, borrow at
higher interest rate.
• (Late 90s) More available financial resources to domestic companies, increase capital for
further expansion.
• Extensive credit support from CN’s Development Back & Export-Import Bank of CN
• Saturated smartphone market with low growth & intensified competition with established
leaders.
• Transition to price-sensitive e-commerce model
• Emergence of cost/ value-for-money innovation
• Low-price strategy leads to price wars & thinned profit margins in CN
1. Build a general environment framework in which Huawei is operating based on case only

GLOBAL
• Penetration of international telecommunications companies into CN telecommunications switch
market through strategic mergers & partnerships.
• Global players neglected CN rural areas with considered “poor conditions & lower profit
margins”.
• Ericsson, Motorola, Nokia entered CN fixed line telephone industry.
• High demand for affordable technologies (telecommunications infrastructure) in developing
countries (Russia, Thailand, Brazil & South Africa).
• Samsung & Apple are smartphone market leaders.
2. Build a Porter’s 5 framework showing the industry in which Huawei is operating
Threat of News Entrants LOW
Barriers to entry:
● Capital requirement high.
● Economies of scale.
● Government policies.
Expected retaliation:
● Competitors size and power.
● Bias in some Governments.
Threat of Substitute
Products MODERATE
● The industry is in growth.
● The price performance ratio is high.
● Switching costs for buyers can be
expensive or almost non-cost,
depending on the sector of the
industry.
2. Build a Porter’s 5 framework showing the industry in which Huawei is operating

Bargaining Power of Suppliers LOW Bargaining Power of Buyers HIGH

● Significant buyers of the suppliers. ● Price sensitive.

They buy in large volumes. ● Almost no switching cost.
● No threat of integration forward. ● No threat of backwards integration.
● High price competition. ● Negotiation power.

Rivalry Among Competing Firms HIGH

● High industry growth.

● Aggressive price war.
● High exit barriers as high redundancy and
difficult assets to sell.
● Competitors are powerful, competitives and
from different countries.
3. Do a VRIO/VRIN analysis based only on case facts

Competitive Advantage 1: Its technology (Strong in-house R&D and innovation)

Is this a CA?

The cutting edge technology generates value for the company and Competitive parity.
Valuable
the consumers. Is profitable. (Cost effective technology) Valuable If they do not
continuously improve
Rare in the china industry. However, amount spent by Huawei on
and catch up with their
R&D is still lower than its competitors as shown in Table 1 in the
Rare competitors, their
case. Rare among China brand, not rare in the rest of the world.
technology will cease to
Not Rare
have this competitive
Although HuaWei has some protection from patents, it can only help parity.
Imitable to prevent imitation to a certain extent because technology’s nature is
still that it can easily be copied. Imitable
New technology released can easily be copied, or competitors are
Non-replaceable
also able to launch something similar. Replaceable
3. Do a VRIO/VRIN analysis based only on case facts

Competitive Advantage 2: Brand

Is this a CA?

Largely perceived as an inferior goods due to the country of Competitive

production. No value derived by the company and customers. Drives disadvantage, need
Valuable
profit down instead. With the exception in China. Not Valuable to improve brand
image asap.
Telecommunication brands and companies are not rare. Many
Rare telecommunication brands out there as well in the industry (Xiaomi,
Shanghai Bell). Not Rare
Easy to imitate low cost brand if they are also able to achieve low cost,
compared to making it into a premium brand. Easy to imitate
Imitable

Close substitutes from Xiaomi, that has almost the same functions with
the same competitive price. Many different tiers of brands in the market
Non-replaceable
as well. Consumers can easily switch to these products that will give
the same outcome. . Replaceable
3. Do a VRIO/VRIN analysis based only on case facts

Competitive Advantage 3: Low price (due to size, economies of scale and low margin)
Cost innovation (Value for money innovation)
Is this a CA?
Generates value for consumers as there a lower price means more Temporary
Valuable
consumer satisfaction. Valuable. competitive
advantage.
Generally more rare as other industry players were not able to match
Huawei must either
Rare huawei’s pricing, where Huawei is able to cut competitor’s price by
continue to keep cost at
~30%. Rare.
an ‘impossible’ low rate
Such a cost cutting strategy, yet maintaining a certain level of quality, or to improve its brand
with low margins will not be as easily imitated as there is a certain level value before increasing
Imitable of risk to it. Huawei is only able to do it because of the strong finance its price so that
backing from the China government and its large economies of scale. consumers will not
Difficult to imitate Huawei’s price. Difficult to imitate. experience a drop in
Similar companies such as Xiaomi and other telecommunications in customer value.
Non-replaceable the industry are also competing at low price and Huawei can be very
easily replaced. Replaceable.
4. What is the Generic Strategy adopted by Huawei?

COMPETITIVE ADVANTAGE
COMPETITIVE SCOPE LOWER COST DIFFERENTIATION

BROAD COST
DIFFERENTIATION
TARGET LEADERSHIP

FOCUS
NARROW COST FOCUS
DIFFERENTIATION
TARGET
4. What is the Generic Strategy adopted by Huawei?

COMPETITIVE ADVANTAGE
COMPETITIVE SCOPE LOWER COST DIFFERENTIATION

BROAD COST
DIFFERENTIATION
TARGET LEADERSHIP

FOCUS
NARROW COST FOCUS
DIFFERENTIATION
TARGET
4. What is the Generic Strategy adopted by Huawei?
5. Summarize the SWOT from the above questions

STRENGTHS
• Strong R&D
• Very low price
• High amount of capital
• Offers value for money
5. Summarize the SWOT from the above questions

WEAKNESSES
• Perceived as low-quality due to country origin and pricing
S strategy
• Seen as unreliable and not trustworthy by western
countries
• Face unfavourable foreign policies
• Believed to be unoriginal due to reverse-engineering
O T • Shortcomings in financial statements
5. Summarize the SWOT from the above questions

OPPORTUNITIES
● Developing countries were looking for affordable technology
● Loans made more available to China companies
● China’s policies favour Huawei
5. Summarize the SWOT from the above questions

THREATS
• Risks of lawsuits due to claims of intellectual property theft
• Susceptible to trade tariffs
• May not be profitable in the long run
What is Corporate-level strategy?

Highest strategic plan of the organization.

• Long-term, defined direction of a company or organization.

• Helps determines the overall value of organization, sets strategic goals and motivates
workers to achieve them.
• It’s a continual process that must be responded appropriately to changing conditions and
surrounding external conditions.

Business Unit Strategy Corporate-level Strategy

Individual goods & services Huawei is currently
providing.
- What are the drivers of industry profitability?
- How can a firm create competitive advantage?
Huawei’s overall strategy for the mix of products &
services they have.
- Does their strategic positions increases the
firm’s value?
- Which business portfolio are worth more?
- How do we add value in each unit?
6. How would you change the corporate level strategy?

Huawei’s Corporate Strategy

Growth Strategy Stability Strategy Retrenchment Strategy

Effective Vertical Related Integration

To a certain extent

Ineffective Horizontal Related Diversification

Unrelated Diversification
6. How would you change the corporate level strategy?

Vertical Related Integration

• Huawei’s play for cost-for-value in the international telecommunication industry.
Effective To a certain extent
•. Huawei customers experience quality products & services for lower prices → Come back for
more.

• Value-added customer services; Vendor-financed loans to customers, impressive after-sales

service, and trial test services.

But

• Huawei’s vertical related integration “doesn’t make money but doesn’t lose money”. E.g.
Honora smartphones.
• Huawei’s profit margins (8.7%) is much lower than Samsung’s (21.4%) and Apple’s (13.9%).
Their target customers are extremely price sensitive → After experiencing low prices,
would not easily accept higher prices for better products.
6. How would you change the corporate level strategy?

Horizontal Related Diversification

• Huawei’s play for cost-for-value in the international telecommunication industry.

• Huawei entered into Russia market with 12% lower prices and into Thailand, Brazil, and
South Africa with 30% lower prices.
• Huawei has started to take on a more mainstream approach and launched its global ad
campaign, running TV, print, online, outdoor and point-of-sale commercials. Its objective in
2014 was to increase brand awareness by 30 per cent.

Ineffective.
• You cannot win over countries’, businesses’ and customers’ trust with lower prices.
→ Created an industry-wide declining profit margin (lose-lose situation).

• Their strong China government backing compromises their independence in international

consumer’s eyes.
● Marketing, advertisement → Cannot convince international consumers to trust
Huawei
6. How would you change the corporate level strategy?

“ Approximately two-thirds of its revenue come from international markets.”

• Huawei came up with Cost Leadership to break into the international telecommunications
industry;
1. Huawei had China govt & local market backing to conduct massive production (and earn
huge economies of scale).
2. Provide consumers with high quality goods & services at an aggressive-low price.
3. Huawei intends to grow their market share and push the other big players out of the
market.
How it backfired...

❖ Huawei customers now EXPECTS low prices with high quality of goods & services.
➢ Huawei needs to keep conducting massive production
➢ To not undercut their profits further → Further discounts to sell all remaining G&S

Never ending cycle within cost leadership. Not sustainable!

6. How would you change the corporate level strategy?

Huawei needs to STOP cost leadership because it’s hurting their own brand.

• Providing at low costs, yet conducting research & development, advanced technology and
customization → Hurting their profitability.

• Huawei’s negative reputation and brand image are driving away potential customers.

• Huawei’s remaining customers are only attracted to the low prices.

DIFFERENTIATION HUAWEI is already a cost leadership & differentiation!

6. How would you change the corporate level strategy?
❖ Apple & Samsung managed to successfully created BRAND LOYALTY among their
customers.
➢ Customers uses the same brand for their phone, wireless earbuds, laptops and even
(for samsung) television etcetera.
➢ Huawei’s low prices could not overcome this brand loyalty Apple and Samsung
customers holds towards their own favourite brands.

❖ Huawei needs to slowly rebuild their reputation and brand, leaving behind their cost
leadership strategy behind.
➢ Differentiation strategy: Most sustainable, profitable structure in a competitive industry.
➢ Brand loyalty → Lesser risks such as customers dropping/not buying your products.
➢ Look towards long term profitability, instead of capturing market share.
6. How would you change the corporate level strategy?

Unrelated Diversification

None outside of telecommunication industry.

• Since the international market is uncertain about the trustworthiness of Huawei’s technology
and data security, why not ease consumers into the brand by diversifying into unrelated
industries?
E.g. Refrigerators, washing machines, induction stove Wrong → Too expensive.
Does not make sense!
- Show quality of products and affordability
- Lesser risk (more diversified)
• Change consumer mindset and earn trust in Huawei’s brand.
• Improve profitability.
Should work together with another company in a partnership to make
cheaper goods & services!
THANK
YOU