Analysis Of Huawei And Its Core Competencies Management Essay

Analysis Of Huawei And Its Core Competencies Management EssayHuawei Technologies was founded in 1998 by Ren Zhengfei who is a former Peoples release Army officer and telecom engineer. It was incorpo localized as a private disgraceprise which manufactures telecommunications equipments for domestic Chinese companies at a much lower impairment than its external competitors. And since the beginning, Zhengfeis vision was to build innovation capability into the conjunction. However, contrary to the chinas policy of exchanging market for applied science, Zhengfei is convinced that having a joint venture with extraneous companies would only arrange the Chinese to lose their domestic market and not enable them to acquire exotic technologies.In performing an internal analysis, it is important to construct a orbicular mind-set, which is the ability to analyse the internal environment in ways that atomic number 18 independent on the assumptions of a single country, culture, or contex t. In addition, the avocations portfolio of resources and the bundles of heterogeneous resources and capabilities get hold of to be analysed so that they argon be leveraged on if need to.Business FundamentalsAccountingHuawei Technologies had annual revenue of US$6.7 one thousand thousand and a become cabbage of US$470 one thousand thousand in 2005. This is an increase from annual revenue of US$5.8 billion and a net profit of US$470 million in 2004.Huaweis net profits in 2002 and 2003 were US$110 million and US$380 million respectively, and it had a net profit margin of 4% in 2002, 10% in 2003 and 8% in 2004. No doubt, Huaweis net profit margin drop by 2% in 2004, Huawei is still generating profit.Finance in that respect atomic number 18 short-term financing and long-term financing options available. Huaweis financial support from the state-owned Chinese Development Bank in the form of a US$10 billion facility and US$600 million from the Export-Import Bank of china are both forms of long-term financing.Risk ManagementThere are three major types of melody risks price risk, credit risk and sublimate risk.As Huawei has markets overseas, thither is bound to be some price risk involved when there is some(prenominal) edition in immaterial exchange rates as their receivables and payments are transacted in foreign currencies. Hence, Huawei stand use hedging to manage its price risks.In addition, pure risk is assume to be present in virtually any industry and there are four types of pure risk that affect business damage to assets, legal liability, workers injury and employee benefits.Organisation DesignHuawei practice departmentalization as its workforce is spilt into departments such as Research Development (RD) and production. It is also a mechanistic structure as there is spirited specialization and centralization.Human Resource ManagementSince its beginning, Huawei had been emphasizing on building a strong RD team and it had been recruiting employe es of high caliber with exceptionally high salary by Chinese standard.Operations and Supply Chain ManagementThe success of most businesses is their ability to identify the customers involve and to come up with products that fulfills the necessary requirements. These products testament then attain to be produced at economically viable costs.As Huawei manufactures and ships its products both local anaestheticly and overseas. Thus, it is vital that Huawei monitors its operations and supply chain guidance to ensure that its products remain profitable and that bullwhip effect be controlled.Product DevelopmentHuawei has the foresight to invest and develop in smart technologies in the industry which gives it a quantum leap in the market from its competitors.Resources, Capabilities, and Core CompetenciesResources, capabilities and core competencies form the basis of competitive advantage. Resources create organizational capabilities when group together and in turn, capabilities resul t in the core competencies of a potent, and these are the foundation of competitive advantage.Tangible ResourcesFinancial ResourcesAs previously mentioned, Huawei has the financial support from the state-owned Chinese Development Bank and the Export-Import Bank of China. With their financial support, Huawei received a US10 billion facility for its world-wide expansion over five years and US$600 million respectively.Organisational ResourcesHuawei has departments such as RD, production and marketing which form up the basic organization structure of the guild. Huawei also integrates its marketing employees into its main RD team so that the customers demand stooge be mitigate communicated to the RD headquarters responsively.Physical ResourcesHuawei has interrogation centres located in China and overseas. For example, it has a 21 storey research cmove into at its headquarters in Shenzhen and six otherwise research laboratories in Beijing, Shanghai, Nanjing, Huangzhou, Xian and Ch engdu a software development centre in Bangalore (India) and research facilities in Moscow (Russia), capital of Sweden (Sweden) and the Silicon Valley in California.Technological ResourcesHuawei had a large number of patents under its differentiate. It had much than 8,000 patent applications by late 2004, with 800 of them 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 rivals in the same industry.Intangible ResourcesHuman ResourcesSince establishment, Huawei had center its resources to build itself a strong RD team. Starting off with 500 RD staffs and 200 production staffs, Huawei had a workforce of 24,000 employees by late 2005 with 48% of them engaging in RD works.In addition, the education level of the companys employees was higher than the average worker in China. More than 85% of its workforce had a bachelors or higher stop, and about 60% had a masters or PhD.Innovation ResourcesHuawei undertook joint RD laboratories with foreign companies such as IBM, Microsoft, Texas Instruments, Intel, e.g., cogitate on different telecom techniques. These joint development efforts were employ to complement Huaweis innovation capabilities.Reputational ResourcesHuawei has a large customer base in China with the major telecom companies being its customer. In addition, Huawei is one of the major suppliers for equipments for the China Telecoms ChinaNet Next Carrying Network, known as CN2, which is the core network for the countrys next-generation business and consumers operate.CapabilitiesCapabilities exist when there are resources on hand that have been deliberately integrated to reach out specific tasks.Huawei had a strong team of RD staff which comprises of 48% of its total employees. In addition, Huawei recruits employees of high caliber, with more than 85% of its employees having at least a bachelors degree and 60% having a masters or PhD. Thus, Huawei is able to come out with innovate products, hence holding an exceptionally high number of patents by Chinese standard.In addition, coming from a legions background, Ren Zhengfeis connection with the Chinese forces athletic supporters create a guanxi network which is extremely helpful to Huawei.Being based in China, Huawei is able to manufacture and offer products at a lower price (typically 30% lower than those of established suppliers).Core CompetenciesCore competencies are capabilities that are a source of competitive advantage for a company over its rivals.Huaweis setoff competence is its RD. Because of the inexpensive labour force in China, Huawei had an advantage over its international competitors. In addition, Huawei integrates its marketing people into its RD team, thus the needs of telephone companies and service providers could be communicated through the marketers to the RD department in the shortest time.Another core competence which Hua wei had is its close-fitting relationship with the Chinese multitude. This close relationship enables Huawei to create a guanxi network which few other competitors could rival and which helps Huawei to secure big contract orders in its initial years and huge financial loans from the state banks.A third core competence is Huaweis products low price as compare to its competitors.In summary, Huawei would need to uphold these core competencies in the long run to have a sustainable competitive advantage.ValuableRareCostly to ImitateNon-substitutableRDClose relationship with Chinese militaryPrice*Must meet at least 3 criteria to be a competitive advantage (CA).Value Chain Analysis apply the value chain analysis, we will analyse which are Huaweis operations segments that create value and those that do not. It is essential to understand these issues, as a business will only earns higher up-average returns when the value created is greater than the costs incurred to create that value.Pri mary activitiesHuaweis primal activities are marketing and sales, inbound logistics, outbound logistics and operations.Support activitiesHuaweis support activities are firm infrastructure, human resource management, service, technological development and procurement.Activities which 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 Analysis Strengths and WeaknessesStrengthsHuawei have a strong RD team and high caliber employees which gives it an edge over its competitors.Being based 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 RD but achieve comparable results with foreign engineering companies who spend more.Ren Zhengfeis connection with the Chinese military enables Huawei to have the support from the Chinese government which is essen tial to functional in China.WeaknessesBeing a Chinese company, Huawei will be view in a different light compared to other companies from other countries. In general, the percept was that Chinese vendors were mainly relying on western engineering methods and were turning the higher margins and complex products into standard commodities. Thus, Huawei would have to move beyond this to be view as a serious global competitor.Huaweis lawsuit with cisco gives rise to the issue that Huawei has infringed Ciscos patents and copyrights by copying its user interface, user manuals and source codes which inevitably affects Huaweis reputation in the United States.Key Success FactorsHuawei is able to be successful as in general the Chinese market is a closed industry and foreign companies would need to joint ventures with local Chinese companies in order to enter the market, which will involve large equity investments.In addition, being a home- parentn company, the Chinese will prefer to buy their products from Huawei, thus giving it an advantage in such a big emerging market. Furthermore, with Ren Zhengfeis connection to the Chinese military, it would have an raw advantage over other companies.Secondly, since the onset, Huawei had localize on employing high caliber employees to form a huge RD team. Together with joint RD with other leading foreign companies, this has enables Huawei to come up with innovative products. head teacher 2.Perform an external analysis of Huawei. Based on your analysis, identify the possible opportunities and banes encountered by Huawei. (30 marks)Business Fundamentals economicsChina overtook the United States to become the largest telecom market in late 2002 and by 2004 Chinas telecom industry had US$112 billion in business transactions. This is similar to an annual growth rate of 34.9% which was 3.7 times Chinas gross domestic product (GDP) growth rate of 9.5%. In addition, Chinas telecom equipment market will continue to grow annually at a c ompound rate of 10.9%, from US$30 billion to US$45 billion between 2004 and 2008.Stakeholder ManagementThere are two major groups of stakeholders market stakeholders and non-market stakeholders.Market stakeholders are also known as primary stakeholders and they include the employees, customers, suppliers and distributors of Huawei. Non-market stakeholders, also known as secondary stakeholders are people whom are affected by Huaweis actions but without being directly involved with any economic transactions with it.MarketingHuawei had to be aggressive to acquire contracts and typically, their products are about 30% cheaper than established brands. In addition, Huawei offer incentives when pitching for sales for major contracts.The External EnvironmentThe external environment of a company is divided into three major areas the general, industry and competitor environments, each focusing on different aspects.The General Environment PESTL ModelThe general environment comprises of dimens ions in the broader society that influence an industry and the firms within it. Using the PESTL model, we will gather the information and analyse each segment and its implication.PoliticalHuaweis founder Ren Zhengfei was from the Chinese military and this connection had created a guanxi network which few competitors could match. This relationship had helped Huawei secure big contract orders with the military during its early years. In addition, financial supports from state-owned banks were given to Huawei for its expansion plans overseas.However, this connection to the Chinese military had also affect Huawei, as a number of distributors in the United States were skeptical about the influence Huawei was subject to, and they were cautious of any implications.In addition, due to ownerships restrictions in China, most foreign firms would need to have a joint venture with local Chinese companies before they can enter the market. Hence, Huawei had an advantage in this aspect.EconomicsHua wei was the largest telecom equipment manufacturer in China with annual revenue of US$6.7 billion in 2005, and a net profit of US$470 million. At the same time, its market capitalization was estimated to be up to US$10 billion.SocioculturalDespite Huaweis efforts to fit into the United States culture, Huawei still met with difficulties when it first started operating in Plano, Texas in 2001. For a start, the Americans had difficulty pronouncing the companys name to the extent that Huawei had to come up with a working name. However, this caused confusion as the new name was not adopted nor promoted consistently and the Americans were confused by two different names belonging to the same company. To make matter worse, Huaweis employees had difficulty adapting to the Texas accent and their local culture.Huawei itself has a ridiculous corporate culture within the company. Due to Ren Zhengfeis military background, he had instilled military style training for new employees and his employ ees were urged to learn from the behavior of wolves. He wants Huaweis marketing department to be aggressive, just like a pack of wolves.TechnologicalTechnological advances in the internet boom continued till 2006, and the technology choices and service requirements of service providers were getting more diversify. As previously mentioned, China had overtaken the United States to become the largest telecom market and hence, telecom service providers were now focusing on network improvement and value-added services rather than on infrastructure development.Huawei had the foresight to venture early and invested heavily in the third-generation (3G) planetary communications technology and it started its own research and development (RD) in Code-Division fivefold Access (CDMA) in 1995. And over the next few years, Huawei invested more than US$370 million in wide-band CDMA (WCDMA) technologies with a dedicated team of 3,500 RD employees deployed throughout research centres in China and o ther countries.In 2003, Huawei formed a 3G research joint venture with Japans NEC and Matsushita and entered the mobile handset market in early 2004 to familiarise itself with the 3G industry in future. At the same time, a joint venture was also formed with reciprocal ohm to test TD-SCDMA (Chinas home expectant standard) mobile handsets and networks equipments. As a matter of fact, Huawei had invested one-third of its RD spending on 3G technologies for the past two years.LegalHuawei was sued by Cisco in the United States six months after mise en scene up a subsidiary there. It had allegedly infringed a number of Ciscos copyrights and patents and Cisco was seeking damages in the lawsuit, which includes the discontinuation of Huaweis Quidway routers, and the impoundment and destruction of all Huaweis routers and manuals in the United States. By the time Cisco dropped its lawsuit in July 2004 many sales contracts which Huawei was pitching for were lost. To make matter worse, a Huawe is employee was caught taking photographs of high-tech equipment from Fujitsu in a trade show in Chicago in June 2004.The Industry Environment The Five Forces of challenger ModelThe intensity of competition and the profit potential of an industry are the functions of the five forces of competition the threats of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products and rivalry among competing firms.Threat of New EntrantsThere is a low to medium risk for Huawei for the threat of new entrants in the industry. Chinas telecom industry had grown to become the largest telecom market in the world and most of the leading global telecom equipment firms had already started operations in China by setting up joint ventures with local Chinese companies. Among the multinationals in China now are leading global telecom equipment firms such as Motorola, Nokia, Lucent Technologies and Siemens. Thus, it is already a competitive market with little roo m for new players.In addition, as previously mentioned, foreign companies wanting to enter the Chinese market would have to set up joint ventures with Chinese companies due to ownership restrictions and this usually involve equity investments. Hence, it is capital intensive for a new player to enter the market.Bargaining Power of SuppliersNo evidence found in the case study.Bargaining Power of BuyersThe buyers have a high bargaining power. Phone subscriptions had change magnitude to 390 million mobile phone users and 348 million fixed-line users by October 2005. As there was low switching costs for customers, telecom service providers are focusing on network improvement and value-added services to win customers and make existing customers stay. In addition, Chinas telecom equipment market has been forecasted to grow at a 10.9% annual compound rate between 2004 and 2008, from US$30 billion to US$45 billion.Threat of Substitute ProductsThere is a low threat of substitute products as there is basically no substitute for the industry. There is currently no other products that can offer the same usage and convenience offered by the telecom equipment industry. controversy Among Competing FirmsThere is a high rivalry among competing firms. Beside the influx of multinationals telecom enterprises, there are also a number of domestic companies that are becoming competitive. There is little note among competitors and hence, customers have low switching costs.Besides Huawei, there are three more companies ZTE, DTT and GDT that have started to emerge. Both Huawei and ZTE were expected to enter moreover into international markets in the near future, going neck-to-neck with the established multinational enterprises for the same customers.The Competitor EnvironmentIntense rivalry creates a need for Huawei to understand its competitors and their objectives, strategies, capabilities and assumptions.To help Huawei prepare for a response to its competitor, four dimensions (fut ure objectives, current strategy, assumptions and capabilities) about the competitor should be found out and understand.SWOT Analysis Opportunities and ThreatsOpportunitiesHaving already facing difficulties entryway the United States market, Huawei can present itself better in the United States by collaborating with some of the United States companies. In this way, customers will not perceive Huawei as a low-cost vendor.In addition, as long as Huawei delivers reliable equipments, quality service and continues its product development, it will pose a formidable opponent to foreign companies.ThreatsHuawei have to be wary of competition from companies from low-cost countries where they pose a direct threat.Question 3.Identify the business level strategy adopted by Huawei and discuss the strategic actions implemented by Huawei in supporting this strategy. (20 marks)Huawei had adopted an integrated cost leadership/ differentiation strategy for its business level strategy.With its focus on RD and owning more than 8,000 patents, Huawei is able to differentiate their products in many ways. In addition, being located in a low-cost workforce country, Huawei is able to have their products manufactured at a much lower cost compared to others.Huawei engages in both value-creating primary and support activities that enables them to concurrently pursue cost leadership/ differentiation strategy. By having an efficient production, low costs can be maintained while creating products of unique value give rises to differentiation.Primary activitiesAs mentioned in motion 1, Huaweis primary activities are marketing and sales, inbound logistics, outbound logistics and operations.Marketing and SalesHuawei priced their products about 30% cheaper than other established brands and to make it more attractive, Huawei offers attractive incentives as a sales package when pitching for major contracts.Support activitiesHuaweis support activities are firm infrastructure, human resource man agement, service, technological development and procurement.Firm pedestalHuawei had a good infrastructure that enables it to effectively and consistently identify its external threats and opportunities, resources and capabilities and support core competencies.It had a very good relationship with the Chinese military which is paramount to its success in China.Human Resource ManagementHuawei focus on having high caliber employees to build up its RD team. With more than 85% of its employees having a bachelors degree and above, Huawei ensures that they are highly paid by Chinese standard.In addition, due to Ren Zhengfeis military background, new employees are put through intensive military style training for the initial months.ServiceTo offer unparallel service to its customers, Huawei hires local personnel in customers home country as part of its strategy to tailor technologies and services according to customers needs.Technological DevelopmentHuawei ventured early and invested in thi rd-generation (3G) mobile communications technology and it started its own research and development (RD) in Code-Division Multiple Access (CDMA) in 1995. With a dedicated team of 3,500 RD employees deployed throughout research centres in China and other countries, Huawei invested more than US$370 million in wide-band CDMA (WCDMA) technologies over the next few years.In addition, to familiarise itself with 3G industry, Huawei formed a 3G research joint venture with Japans NEC and Matsushita in 2003, and entered the mobile handset market in early 2004. At the same time, Huawei started a joint venture with Siemens to test TD-SCDMA (Chinas home grown standard) mobile handsets and networks equipments.ProcurementHuawei has research centres both in China and overseas. It had a 21-storey research centre in Shenzhen, and six other research laboratories in Beijing, Shanghai, Nanjing, Huangzhou, Xian and Chengdu a software development centre in Bangalore (India) and research facilities in Mosc ow (Russia), Stockholm (Sweden) and the Silicon Valley in California.FlexibilityFlexibility is needed by firms in order to complete both primary and support activities that allow the production of differentiation products at relatively low costs.Three sources of flexibility are Flexible manufacturing systems, information networks and total quality management systems.Flexible Manufacturing SystemsFlexible manufacturing systems enable a firm to produce a variety of products in moderate quantities with minimum human intervention. Through either patent-mining or reverse engineering, Huawei had turned high-profit and complex products into standard commodities. In addition, to offer better differentiation products, Huawei hires local personnel in customers home country to tailor technologies and services according to customers needs.Information NetworksBy linking companies with their suppliers, distributors and customers, information networks provide another source of flexibility. Ren Zhe ngfeis relationship with the Chinese military had helped Huawei to have a close guanxi network which other competitors do not have, and this had helped Huawei to secure big contract orders.Furthermore, Huaweis major customers in China were the big players in the industry such as China Telecom, China Mobile, China Netcom and China Unicom. Huaweis networks in China has over 400 million people across the country, occupying 25% of the mobile network market shares and supplying 80% of all SMS from China Mobile.Total Quality Management (TQM) SystemsTQM emphasizes the companys commitment to the customer and to continuously improve process through usage of data-driven, problem-solving approaches from empowerment of employee groups and teams.Huawei is able to simultaneously reduce cost while making use of its ability to develop innovative products. This increases their flexibility which is beneficial to implementing an integrated cost leadership/ differentiation strategy.Question 4.What othe r strategic actions would you recommend to Huawei to compete better in the future? Justify your answer. (20 marks)Besides the current strategic actions which Huawei is already implementing, I would suggest that Huawei weigh skill where Huawei will buys a controlling, or 100% interest in another company to make it Huaweis subsidiary business within its portfolio.They are several(prenominal) reasons for acquisitions and we shall look at each of themIncreased Market PowerMarket power exists when a firm is able to sell its goods or services above competition levels or when the costs of its primary or support activities are lower than those of its competitors. Hence, to increase its market power, Huawei can use horizontal acquisition where it acquires company competing in the same industry.Overcoming Entry BarriersPresently, Huawei experiences problems entering the United States market. Hence, by making a cross-border acquisition, Huawei can overcome these entry barriers and gives it m ore control over its international operations.Cost of New Product Development and Increased Speed to MarketAcquisitions allow Huawei to gain access to current and new products that are unique to the acquired firm. Returns are more predictable as the performance of the acquired firm products can be observed and assessed prior to acquisition.Lower Risk Compared to Developing New ProductsAs the results of an acquisition can be easily and accurately estimated than that of developing a new product, Huawei will find that there are lower risks involved.Increased DiversificationHuawei can find it easier to develop and introduce new products through the acquired firm as it may be difficult to develop products that deviate from their current product lines.Reshaping Firms combative AdvantageCompetitive rivalry can affects Huaweis profitability. Thus, to reduce the effect of an intense rivalry, acquisitions actually reduce Huaweis dependence on one or more products or markets. This will in tur n alters Huaweis competitive scope.Learning and Developing New CapabilitiesAcquisition can allows Huawei to gain new capabilities which it does not currently possess. Through acquisition, Huawei can broaden their knowledge base and reduce inactivity.In addition to acquisition, Huawei can also have a nonequity strategic alliance with other companies. A nonequity strategic alliance is a form of alliance where two or more companies have a contractual relationship such that they share some of their unique resources and capabilities to create a competitive advantage. This is used in more uncertain situations, and companies do not establish any independent company and hence do not have any equity positions.Through nonequity strategic alliance, Huawei can have licensing agreements, distribution agreements, and supply contracts with other alliance companies. Usually, outsourcing commitments are specified in the form of nonequity strategic alliance.In conclusion, I would recommend that Huawe i consider acquisition and nonequity strategic alliance as its business strategy in the future so that it can better compete with other competitors.