Why has Huawei been so successful when entering new oversea market？
At the beginning of the 21st century, it has shocked the world that Huawei technology, an IT company from a developing country, China, has achieved great success in the international market which has suppressed Nokia to be the second largest telecommunication company. Huawei is a private company, which differs from other Chinese successful companies that were supported by the government. It was established in 1988 in Shenzhen, Guangdong province. The company had a tough beginning, and started selling imported products before they could manufacture them.
It grew rapidly by dominating global markets, and so far it has been one of World’s Top 500 Enterprises as well as the largest telecom vendor in domestic market (Fu & Fu, 2011). This essay aims to find out the prime reasons why Huawei can be a leader in the telecommunicating field and why it has to exploit international markets instead of finding opportunities from the domestic consumers. What’s more, the essay targets the main rivals that have the same market positioning as Huawei.
This study will firstly analyze the several important factors that lead to Huawei’s success, which includes political situations, economic effect and followed by the company’s own strategies and management model. Additionally, it is also necessary to point out the threats that Huawei are confronting and give some reasonable predication about its future. 2. Analyze reasons of Huawei’s oversea success Why Huawei chose to search ways in oversea countries? At the beginning of 1990, Huawei started its own business.
However, the domestic market was too crowded because world’s famous companies had occupied the whole market, there was no room for a new company to develop(Fu & Fu, 2011). This led to Huawei paying their attention to the oversea market instead of the domestic market. The company needed to search a new place to survive. Finally, the situation motived Huawei to go abroad which has proved to benefit significantly the company as well. 1) Focusing on developed countries when entering international market The beginning always seems to be difficult.
Huawei was established in 1988 and had no business in the domestic market except manufacturing some devices for foreign companies, but in 1997, Huawei achieved the first contract with a foreign company, Hutchison-Whampoa from Hong Kong(Nakai & Tanaka, 2010). The new company not only provided low-cost advantage, but also offered flexible solutions gear to new generation communications business environment. This successful start that worked with foreign company had changed Huawei’s decision and turn its eye to developing oversea market experience.
In the year 1997, after 4 years’ wait, they established joint venture with Umberto Russia, which could be regarded as the important business that led to Huawei’s success today. ‘Its profit margins in developing countries can be up to 10 times greater than those in China’ (O’Brien, 2009). They entered in Brazil and set up with joint venture. One year later, they moved to Yemen and Laos then followed by Africa, focused on Kenai, occupied the market with reputation of low-cost, but still high-quality network.
O’Brien (2009, 220) points out that, ‘Huawei’s only way to survive is to find business out of China, since domestic market had been occupied by other companies from developed countries, and Huawei could not get any orders when compete with these IT giants’. As a result of this, the experience and wealth of expanding markets in developing countries had a significant effect on the company when they prepared to enter western markets, which also made themselves more confident, it was not easy to explore oversea countries for a company from a developing country.
This suggests that restricted by world’s major companies in domestic market, Huawei stepped into international markets, while first entering developing countries had achieved success as people in those countries experienced the same level of expenditure as China did. 2) Sideward-Crawl Crab Strategy What is Sideward-Crawl Crab Strategy? Sideward-Crawl Crab Strategy means encircling cities from the countryside, while the special strategy was used by the Chinese army defended the emery to protect their homeland used the strategy.
It was firstly mentioned by the prime chairman Zedong Mao which during the war against Japan’s Aggression in the 1940s. Huawei company learnt this special stagey in a business way, and Mr. Ren Zhengfei, a former People’s Liberation Army (PLA) officer, when they launched C&C digital telephone switch, Mr. Ren’s strategy in order to step into China’s domestic market which was dominated by foreign MNEs, followed the Chinese strategy “encircling cities from countryside”, as the former chairman Zedong Mao said, which is significantly efficient(Low, 2007).
Huawei stepped into the international market for the start of the long journey, and decided to give up those core markets in European countries that had already been occupied by some world famous companies, such as Nokia and Motorola, and they seemed to be less competitive. As a result, Huawei focused on southwest Asia and Africa with low-price and modern shapes products then could be easily accepted by local inhabitants. In 1997 Huawei moved on to Russian the edge of European countries and happened to meet the finical crisis in western countries that offer opportunities to enter the market after a four-year’s wait.
After entering the market, they moved from edges to centers to dominate the whole market. Huawei’s internationalization process was divided into following stages: Tentative Stage (1996-1999) Huawei started the first contract with a company from Hong Kong, and in the following years, they explored markets in Russia and the same year they also entered Yemen, Brazil, as well as a couple of main cities in Africa(Low, 2007). Huawei entering the market not only provided a low-cost advantage, but also offered flexible methods solving local telecom mutation situation and quality.
Take-off stage (1999-2001) In 1999, when Huawei had achieved success in Africa and Russia market, they turned the strategy into Asia market, and it entered the market in Thailand, Singapore, and Saudi Arabia. And by the year has established branch offices in more than 40 countries its international sales reached 12% of total sales (Back, 2010). Mature stage (2001-now) After nearly a decade’s management, the company has grown confidently, and in 2001 Huawei entered the European markets and formed joint venture with Nokia Siemens networks for TD-SCDMA, then entered the London market.
In 2006, Huawei was selected to build the radio access part of its UMTS by Vodafone(Low, 2007). While in the US market, Huawei failed to make progress, it may because its strategy was not appealing to Americans. The special and unique strategy has been proved to be the main factor that Huawei has achieved success. The strategy of occupying from the edges of the markets to the centers tend to be significantly efficient, which is totally different from other Chinese companies when entering international markets such as Lenovo.
Huawei skipped domestic markets and went directly to those who could not afford expensive equipment, which helped it to avoid certain competition from big companies, since they refused to earn less money from those countries. In the same way, Huawei has achieved a majority of users in both American and British markets, which could be regarded equally as some IT giants, Apple and Google. Diagram: Patent-application by major telecom equipment manufacturer(Ghemawat & Hout, 2006) 3) Copyrights
There are a number of potential companies who may succeed in some fields, while the biggest situation preventing them from success is that—copyright(Hout, Porter, & Rudden, 1982). It is significantly cruel to survive in the business society, every company will apply some copyrights whether they are related to their business or not. Additionally, the companies will apply copyrights not only protecting their products but also restricting their opponents. Nowadays, Huawei is quite famous among the international market.
The reason for this may not only because of the company’s fast growth, but also because it is known for toping world’s patent application in 2008. Huawei Technology is brilliant, it could forecast the future and its application has increased dramatically since 2004, and in the year 2008, it has made 1904 patent application according to WIPO data, which is about 20% more than Ericson (see picture) which followed Huawei the second largest in the industry and the number is almost 14 times as much as regarded-rival, Cisco technologies. The more copyrights they have
means that if there is one company wants to research a device in the following years while the patent has been applied by Huawei, then they have to talk to Huawei whether Huawei will agree to sell the copyright or receive fees from the company, otherwise, it is illegal. Whether the application will be useful or not to Huawei, it presented the relevant strength of the company and it made a profound influence on the company. In addition, it is quite needed especially for a IT company, since the products could be easily copied by others, for example, Apple pay more attention to copyrights, so do other mobile phone companies.
Apple and Samsung often dispute about the copyrights, they will try best to protect the company and limit their opponents. 3. Threats and weaknesses 1) Threats a) Intense competition may lead to pricing pressures affecting the company’s market share. In this day and age, competition from all kinds of field tends to be intense, especially for IT industry. Huawei’s strengths is lower price compared to other companies as the company own a low-cost labor market, while the low-price labor has been increased since the quality of live has been improved in china(Fu & Fu, 2011).
Huawei have to consider the coming situations that their strengths will be shorten. b) Technological changes pose a risk of inventory obsolescence As the technology changing, it will be a challenge for Huawei’s inventory obsolescence, the products will not be sold if they were out of fashion or lack of some certain functions, paradoxically, mobile phone company have to keep their products as secrets before they are open to the public.
As a result of this, Huawei may need to invest more money in researching and estimate the number of products that will be sold. 2) Weaknesses Private ownership may restrict growth options Almost all the world’s top 500 companies in china are belong to the government while Huawei is a private company, it may lead to some problems, for example, some policies will restrict Huawei’s development, or at least will not benefit Huawei. Then the company will be powerless if the policies are not synchronized as the international rules(Ghemawat & Hout, 2006).
The project has shown that the analysis why Huawei could be so successful, it is due to three main reasons, and Huawei’s success should be mainly owing to Sideward-Crawl Crab Strategy which helped the company overcome some difficulties at the start of growing and occupy the markets in developing countries, it avoided world’s major company’s competition, while after developing 10 years, it seemed to be much stronger and could not be exceeded by other countries.
As for copyrights, when Huawei had achieved success, it paid more attention on patent applications that has proved to be a quite correct strategy. In contrast, weaknesses and threats are analyzed in this project, Huawei’s strength is low-price, if this strength will be shorten, then Huawei will be less competitive and the company have to change the manage model and strategy. Additionally, as for a private company in china, they will face risks or problems from the government.