In performing an interior analysis, it's important to have a 'global mind-set', which is the ability to analyse the inner environment with techniques that are independent on the assumptions of an individual country, culture, or framework. In addition, the business's profile of resources and the bundles of heterogeneous resources and capacities need to be analysed so that they are be leveraged on if need to.
Business Fundamentals
Accounting
Huawei Technologies possessed annual earnings of US$6. 7 billion and a world wide web earnings of US$470 million in 2005. This is a rise from annual income of US$5. 8 billion and a net earnings of US$470 million in 2004.
Huawei's net earnings in 2002 and 2003 were US$110 million and US$380 million respectively, and it got a net profit margin of 4% in 2002, 10% in 2003 and 8% in 2004. No doubt, Huawei's net profit percentage drop by 2% in 2004, Huawei is still generating income.
Finance
There are short-term financing and long-term funding possibilities. Huawei's financial support from the state-owned Chinese Development Bank by means of a US$10 billion service and US$600 million from the Export-Import Bank of China are both types of long-term funding.
Risk Management
There are three major types of business dangers; price risk, credit risk and natural risk.
As Huawei has marketplaces overseas, there is bound to be some price risk engaged when there is certainly any fluctuation in foreign exchange rates as their receivables and repayments are transacted in foreign currency. Hence, Huawei may use hedging to manage its price dangers.
In addition, pure risk is presume to be present in practically any industry and there are four types of pure risk that affect business; damage to assets, legal liability, workers' harm and worker benefits.
Organisation Design
Huawei practice departmentalization as its labor force is spilt into departments such as Research & Development (R&D) and development. It is also a mechanistic structure as there is high field of expertise and centralization.
Human Source Management
Since its start, Huawei had been emphasizing on building a strong R&D team and it had been recruiting employees of high caliber with exceptionally high salary by Chinese language standard.
Operations and offer Chain Management
The success of all businesses is their capacity to identify the customers' needs and also to produce products that fulfills the required requirements. The products will then need to be produced at financially practical costs.
As Huawei companies and boats its products both locally and overseas. Thus, it is vital that Huawei monitors its operations and supply chain management to ensure that its products stay profitable and that bullwhip effect be managed.
Product Development
Huawei gets the foresight to get and develop in new systems on the market which gives it a quantum leap on the market from its competition.
Resources, Functions, and Central Competencies
Resources, functions and center competencies form the basis of competitive advantage. Resources create organizational functions when group along and subsequently, capabilities lead to the central competencies of a company, and these are the foundation of competitive benefit.
Tangible Resources
Financial Resources
As earlier mentioned, Huawei has the financial support from the state-owned Chinese Development Lender and the Export-Import Lender of China. With their financial support, Huawei received a US10 billion center for its international growth over five years and US$600 million respectively.
Organisational Resources
Huawei has departments such as R&D, production and marketing which form up the basic organization framework of the company. Huawei also integrates its marketing employees into its main R&D team so that the customers' needs can be better communicated to the R&D head office responsively.
Physical Resources
Huawei has research centres situated in China and overseas. For instance, it has a 21 storey research center at its head office in Shenzhen and six other research laboratories in Beijing, Shanghai, Nanjing, Huangzhou, Xi'an and Chengdu; a software development centre in Bangalore (India) and research facilities in Moscow (Russia), Stockholm (Sweden) and the Silicon Valley in California.
Technological Resources
Huawei had a huge range of patents under its name. It experienced more than 8, 000 patent applications by late 2004, with 800 of these applied in more than 20 countries, including the United States and Europe. In fact, in 2004 alone, Huawei had more than 2, 000 patent applications which put it on par with its international competitors in the same industry.
Intangible Resources
Human Resources
Since establishment, Huawei experienced focused its resources to create itself a strong R&D team. Starting with 500 R&D staffs and 200 creation staffs, Huawei acquired a labor force of 24, 000 employees by late 2005 with 48% of them engaging in R&D works.
In addition, the education level of the business's employees was greater than the average worker in China. A lot more than 85% of its workforce possessed a bachelors or higher level, and about 60% had a master's or PhD.
Innovation Resources
Huawei undertook joint R&D laboratories with international companies such as IBM, Microsoft, Texas Instruments, Intel, e. g. , concentrating on different telecom techniques. These joint development work were used to complement Huawei's innovation capacities.
Reputational Resources
Huawei has a large customer bottom in China with the major telecom companies being its customer. In addition, Huawei is one of the major suppliers for accessories for the China Telecom's ChinaNet Next Carrying Network, known as CN2, which is the main network for the country's next-generation business and consumers services.
Capabilities
Capabilities exist when there are resources on hand that have been deliberately integrated to accomplish specific duties.
Huawei had a strong team of R&D staff which comprises of 48% of its total employees. Furthermore, Huawei recruits employees of high caliber, with an increase of than 85% of its employees having at least a bachelors degree and 60% getting a master's or PhD. Thus, Huawei can turn out with innovate products, hence having an exceptionally high number of patents by Chinese language standard.
In addition, coming from a military background, Ren Zhengfei's reference to the Chinese military helps create a guanxi network which is incredibly helpful to Huawei.
Being located in China, Huawei can manufacture and provide products at less price (typically 30% lower than those of established suppliers).
Core Competencies
Core competencies are capacities that include competitive advantage for an organization over its competitors.
Huawei's first competence is its R&D. Due to the inexpensive labour drive in China, Huawei acquired an advantage over its international rivals. Furthermore, Huawei combines its marketing people into its R&D team, thus the needs of phone companies and providers could be communicated through the marketers to the R&D section in the shortest time.
Another main competence which Huawei possessed is its close relationship with the Chinese military services. This close romantic relationship enables Huawei to make a guanxi network which few other opponents could rival and which helps Huawei to secure big contract requests in its first years and huge financial loans from the state of hawaii banks.
A third center competence is Huawei's products good deal as compare to its opponents.
In synopsis, Huawei would need to maintain these key competencies over time to have a sustainable competitive gain.
Valuable
Rare
Costly to Imitate
Non-substitutable
R&D
Close romantic relationship with Chinese military
Price
*Must meet at least 3 requirements to be always a competitive benefit (CA).
Value Chain Analysis
Using the value chain analysis, we will analyse which can be Huawei's businesses' segments that induce value and the ones that not. It is essential to understand these issues, as an enterprise will only earns above-average earnings when the value created is greater than the expenses incurred to produce that value.
Huawei's primary activities are marketing and sales, inbound logistics, outbound logistics and businesses.
Huawei's support activities are strong infrastructure, human learning resource management, service, technological development and procurement.
Activities that are not of competitive advantages to Huawei can be outsourced to external vendors so that resources can be put to better use within the company.
SWOT Evaluation - Strengths and Weaknesses
Strengths
Huawei have a strong R&D team and high caliber employees which gives it an advantage over its rivals.
Being located in China, Huawei is able to manufacture and offer products at a lower price (typically 30% lower than those of established suppliers).
In addition, with a low-cost workforce, Huawei spends less in R&D but achieve comparable results with foreign technology companies who spend more.
Ren Zhengfei's connection with the Chinese armed forces enables Huawei to have the support from the Chinese language government which is vital to working in China.
Weaknesses
Being a Chinese language company, Huawei will be view in a new light in comparison to other companies from other countries. Generally, the belief was that Chinese language vendors were mainly relying on western executive methods and were turning the bigger margins and complex products into standard goods. Thus, Huawei would have to move beyond this to be view as a significant global competition.
Huawei's lawsuit with Cisco offers rise to the problem that Huawei has infringed Cisco's patents and copyrights by copying its interface, user guides and source codes which inevitably influences Huawei's reputation in the United States.
Key Success Factors
Huawei can achieve success as in general the Chinese market is a finished industry and international companies would have to joint projects with local Chinese companies in order to enter the marketplace, which will require large equity ventures.
In addition, being a home-grown company, the China will would rather buy their products from Huawei, this provides you with it an advantage in such a big rising market. Furthermore, with Ren Zhengfei's connection to the Chinese army, it would offer an unfair benefits over others.
Secondly, since the onset, Huawei experienced focus on utilizing high caliber employees to create an enormous R&D team. As well as joint R&D with other leading international companies, it has enables Huawei to create ground breaking products.
Question 2.
Perform an external examination of Huawei. Predicated on your evaluation, identify the possible opportunities and risks encountered by Huawei. (30 marks)
Business Fundamentals
Economics
China overtook america to be the most significant telecom market in later 2002 and by 2004; China's telecom industry experienced US$112 billion running a business transactions. This is equivalent to an annual expansion rate of 34. 9% which was 3. 7 times China's gross domestic product (GDP) progress rate of 9. 5%. In addition, China's telecom equipment market will continue to grow on a yearly basis at a compound rate of 10. 9%, from US$30 billion to US$45 billion between 2004 and 2008.
Stakeholder Management
There are two major groups of stakeholders; market stakeholders and non-market stakeholders.
Market stakeholders are also called primary stakeholders plus they include the employees, customers, suppliers and vendors of Huawei. Non-market stakeholders, also known as extra stakeholders are people whom are affected by Huawei's activities but without having to be directly involved with any economic transactions with it.
Marketing
Huawei needed to be aggressive to succeed deals and typically, their products are about 30% cheaper than proven brands. In addition, Huawei offer bonuses when pitching for sales for major agreements.
The External Environment
The external environment of an company is split into three major areas; the general, industry and rival environments, each concentrating on different facets.
The Standard Environment - PESTL Model
The basic environment comprises of dimensions in the broader population that influence a business and the firms within it. Making use of the PESTL model, we will collect the info and analyse each section and its implication.
Political
Huawei's creator; Ren Zhengfei was from the Chinese military and this connection got created a guanxi network which few competitors could match. This marriage possessed helped Huawei secure big deal orders with the armed forces during its early on years. In addition, financial supports from state-owned banks were given to Huawei for its expansion plans overseas.
However, this link with the Chinese government had also impact Huawei, as lots of distributors in america were skeptical about the influence Huawei was at the mercy of, plus they were cautious of any implications.
In addition, scheduled to ownerships restrictions in China, most overseas firms would need to have a joint venture with local Chinese companies before they can enter in the market. Hence, Huawei acquired an edge in this aspect.
Economics
Huawei was the largest telecom equipment company in China with total annual revenue of US$6. 7 billion in 2005, and a world wide web earnings of US$470 million. At the same time, its market capitalization was estimated to depend on US$10 billion.
Sociocultural
Despite Huawei's attempts to fit into the United Says' culture, Huawei still satisfied with challenges when it first began working in Plano, Tx in 2001. To begin with, the Americans had difficulty pronouncing the company's name to the degree that Huawei had to come up with a working name. However, this triggered bafflement as the new name was not adopted nor promoted constantly and the People in america were perplexed by two different titles belonging to the same company. To make subject worse, Huawei's employees had difficulty adapting to the Tx accent and their local culture.
Huawei itself has a distinctive commercial culture within the business. Due to Ren Zhengfei's armed forces background, he previously instilled military style training for new employees and his employees were urged to study from the behavior of wolves. He would like Huawei's marketing team to be intense, just like a pack of wolves.
Technological
Technological advances in the internet increase continued till 2006, and the technology choices and service requirements of providers were getting more diversify. As mentioned, China acquired overtaken the United States to become the most significant telecom market and therefore, telecom service providers were now focusing on network improvement and value-added services rather than on infrastructure development.
Huawei possessed the foresight to venture early and invested greatly in the third-generation (3G) mobile communications technology and it began its research and development (R&D) in Code-Division Multiple Access (CDMA) in 1995. And over another few years, Huawei invested more than US$370 million in wide-band CDMA (WCDMA) technology with a fervent team of 3, 500 R&D employees deployed throughout research centres in China and other countries.
In 2003, Huawei produced a 3G research jv with Japan's NEC and Matsushita and came into the mobile handset market in early 2004 to familiarise itself with the 3G industry in future. At exactly the same time, a joint venture was also created with Siemens to test TD-SCDMA (China's home increased standard) mobile handsets and networks equipments. As a matter of known fact, Huawei had spent one-third of its R&D shelling out for 3G technology for days gone by two years.
Legal
Huawei was sued by Cisco in america six months after setting up a subsidiary there. It possessed allegedly infringed a number of Cisco's copyrights and patents and Cisco was seeking injuries in the lawsuit, which includes the discontinuation of Huawei's Quidway routers, and the impoundment and destruction of most Huawei's routers and guides in the United States. By enough time Cisco dropped its lawsuit in July 2004; many sales contracts which Huawei was pitching for were lost. To make subject worse, a Huawei's worker was found taking images of high-tech equipment from Fujitsu in a trade show in Chicago in June 2004.
The Industry Environment - The Five Pushes of Competition Model
The intensity of competition and the revenue potential of an industry are the functions of the five forces of competition; the risks of new entrants, bargaining ability of suppliers, bargaining vitality of buyers, risk of alternative products and rivalry among fighting firms.
Threat of New Entrants
There is a minimal to medium risk for Huawei for the risk of new entrants on the market. China's telecom industry possessed grown to be the greatest telecom market on earth and most of the key global telecom equipment businesses had already started procedures in China by setting up joint projects with local Chinese companies. Among the multinationals in China now are leading global telecom equipment businesses such as Motorola, Nokia, Lucent Solutions and Siemens. Thus, it has already been a competitive market with little room for new players.
In addition, as previously mentioned, foreign companies attempting to enter the Chinese language market would need to setup joint endeavors with Chinese companies due to ownership limitations which usually involve collateral investment funds. Hence, it is capital extensive for a new player to enter in the marketplace.
Bargaining Ability of Suppliers
No evidence within the case study.
Bargaining Vitality of Buyers
The purchasers have a higher bargaining power. Telephone subscriptions had increased to 390 million mobile phone users and 348 million fixed-line users by October 2005. As there was low switching costs for customers, telecom companies are concentrating on network improvement and value-added services to earn customers and make existing customers stay. In addition, China's telecom equipment market has been forecasted to develop at a 10. 9% twelve-monthly ingredient rate between 2004 and 2008, from US$30 billion to US$45 billion.
Threat of Alternative Products
There is a minimal threat of alternative products as there is basically no substitute for the industry. There happens to be no other products that can provide the same consumption and convenience made available from the telecom equipment industry.
Rivalry Among Fighting Firms
There is a high rivalry among rivalling firms. Next to the influx of multinationals telecom enterprises, there's also a number of local companies that have become competitive. There is certainly little differentiation among competitors and therefore, customers have low turning costs.
Besides Huawei, there are three more companies; ZTE, DTT and GDT which have started to emerge. Both Huawei and ZTE were likely to get into further into international market segments in the near future, heading neck-to-neck with the founded multinational companies for the same customers.
The Competition Environment
Intense rivalry creates a dependence on Huawei to understand its opponents and their aims, strategies, functions and assumptions.
To help Huawei prepare for a response to its competitor, four sizes (future objectives, current strategy, assumptions and functions) about the competitor should be discovered and understand.
SWOT Examination - Opportunities and Threats
Opportunities
Having already facing difficulties entering the United States market, Huawei can present itself better in the United States by collaborating with a few of the United States companies. In this manner, customers won't understand Huawei as a low-cost merchant.
In addition, as long as Huawei offers reliable machines, quality service and continues its product development, it'll pose a formidable opposition to international companies.
Threats
Huawei need to be cautious with competition from companies from low-cost countries where they pose a direct menace.
Question 3.
Identify the business enterprise level strategy followed by Huawei and discuss the tactical actions implemented by Huawei in aiding this strategy. (20 marks)
Huawei had followed an integrated cost control/ differentiation technique for its business level strategy.
With its concentrate on R&D and using more than 8, 000 patents, Huawei is able to distinguish their products in lots of ways. In addition, being found in a low-cost labor force country, Huawei can have their products produced at a much lower cost compared to others.
Huawei partcipates in both value-creating principal and support activities that permits them to all together pursue cost leadership/ differentiation strategy. By having an efficient production, low costs can be managed while creating products of unique value give goes up to differentiation.
Primary activities
As mentioned involved 1, Huawei's principal activities are marketing and sales, inbound logistics, outbound logistics and businesses.
Marketing and Sales
Huawei costed their products about 30% cheaper than other founded brands also to make it more attractive, Huawei offers attractive incentives as a sales offer when pitching for major deals.
Support activities
Huawei's support activities are strong infrastructure, human source management, service, scientific development and procurement.
Firm Infrastructure
Huawei had a good infrastructure that allows it to effectively and constantly identify its external hazards and opportunities, resources and functions and support key competencies.
It had a very good romance with the Chinese military which is key to its success in China.
Human Resource Management
Huawei give attention to having high caliber employees to build up its R&D team. With an increase of than 85% of its employees creating a bachelors level and above, Huawei ensures that they are highly paid by Chinese standard.
In addition, scheduled to Ren Zhengfei's armed service qualifications, new employees are placed through intensive military-style training for the initial months.
Service
To offer unparallel service to its customers, Huawei hires local employees in customers' home country within its strategy to tailor technologies and services relating to customers' needs.
Technological Development
Huawei ventured early on and invested in third-generation (3G) mobile marketing communications technology and it began its own research and development (R&D) in Code-Division Multiple Access (CDMA) in 1995. Using a dedicated team of 3, 500 R&D employees deployed throughout research centres in China and other countries, Huawei invested more than US$370 million in wide-band CDMA (WCDMA) solutions over another couple of years.
In addition, to familiarise itself with 3G industry, Huawei made a 3G research joint venture with Japan's NEC and Matsushita in 2003, and joined the mobile handset market in early 2004. At exactly the same time, Huawei started a joint venture with Siemens to check TD-SCDMA (China's home expanded standard) mobile handsets and sites equipments.
Procurement
Huawei has research centres both in China and overseas. It acquired a 21-storey research centre in Shenzhen, and six other research laboratories in Beijing, Shanghai, Nanjing, Huangzhou, Xi'an and Chengdu; a software development centre in Bangalore (India) and research facilities in Moscow (Russia), Stockholm (Sweden) and the Silicon Valley in California.
Flexibility
Flexibility is necessary by firms in order to complete both primary and support activities that allow the development of differentiation products at relatively low costs.
Three resources of flexibility are: Versatile making systems, information networks and total quality management systems.
Flexible Developing Systems
Flexible processing systems enable a good to make a variety of products in average quantities with minimum amount human intervention. Through either patent-mining or reverse engineering, Huawei had turned high-profit and intricate products into standard goods. In addition, to offer better differentiation products, Huawei hires local staff in customers' home country to tailor solutions and services relating to customers' needs.
Information Networks
By linking companies with the suppliers, vendors and customers, information systems provide another way to obtain versatility. Ren Zhengfei's marriage with the Chinese language military got helped Huawei to have a close guanxi network which other opponents do not have, and this experienced helped Huawei to secure big contract orders.
Furthermore, Huawei's major customers in China were the best players on the market such as; China Telecom, China Mobile, China Netcom and China Unicom. Huawei's networks in China has over 400 million people across the country, occupying 25% of the mobile network market shares and delivering 80% of most Text from China Mobile.
Total Quality Management (TQM) Systems
TQM emphasizes the business's commitment to the client and to continuously improve process through utilization of data-driven, problem-solving techniques from empowerment of staff groups and clubs.
Huawei can concurrently reduce cost while making use of its ability to build up progressive products. This heightens their flexibility which is effective to implementing a built-in cost authority/ differentiation strategy.
Question 4.
What other tactical actions will you recommend to Huawei to contend better in the future? Justify your answer. (20 marks)
Besides the existing strategic actions which Huawei is already implementing, I recommend that Huawei consider acquisition where Huawei will buys a controlling, or 100% curiosity about another company to make it Huawei's subsidiary business within its collection.
They are several reasons for acquisitions and we will look at each of them:
Increased Market Power
Market power exists when a company is able to sell its goods or services above competition levels or when the costs of its key or support activities are lower than those of its competitors. Hence, to increase its market electricity, Huawei can use horizontal acquisition where it acquires company contending in the same industry.
Overcoming Entrance Barriers
Presently, Huawei experiences problems entering the United States market. Hence, by making a cross-border acquisition, Huawei can triumph over these entry obstacles and gives it more control over its international procedures.
Cost of New Product Development and Increased Quickness to Market
Acquisitions allow Huawei to get access to current and services that are unique to the obtained firm. Returns tend to be more predictable as the performance of the received organization' products can be viewed and assessed prior to acquisition.
Lower Risk Compared to Expanding New Products
As the results of an acquisition can be easily and effectively estimated than that of developing a new product, Huawei will see that we now have lower risks included.
Increased Diversification
Huawei can find it better to develop and expose new products through the bought firm as it could be difficult to build up products that deviate from their current product lines.
Reshaping Firm's Competitive Advantage
Competitive rivalry can impacts Huawei's profitability. Thus, to lessen the effect of your strong rivalry, acquisitions actually reduce Huawei's dependence on a number of products or markets. This will subsequently alters Huawei's competitive scope.
Learning and Producing New Capabilities
Acquisition can allows Huawei to get new functions which it generally does not currently possess. Through acquisition, Huawei can broaden their knowledge basic and reduce inactivity.
In addition to acquisition, Huawei can likewise have a nonequity proper alliance with other companies. A nonequity proper alliance is a kind of alliance where several companies have a contractual romantic relationship in a way that they share a few of their particular resources and capacities to make a competitive edge. This is utilized in more uncertain situations, and companies do not set up any indie company and therefore don't have any equity positions.
Through nonequity tactical alliance, Huawei can have licensing agreements, distribution agreements, and supply deals with other alliance companies. Usually, outsourcing commitments are specified by means of nonequity proper alliance.
In conclusion, I would recommend that Huawei consider acquisition and nonequity proper alliance as its business strategy in the foreseeable future such that it can better compete with other opponents.
