Battling Perceptions: The Next Challenge in Huawei's Globalization Agenda

Case Code: BSTR498 Case Length: 20 Pages Period: 1889-2016 Pub Date: 2016 Teaching Note: Available

Price: Rs.600 Organization: S.A.C.I. Falabella Industry: Retail Countries: Chile, Latin America Themes: International Business, Brand Management

Abstract Case Intro 1 Case Intro 2 Excerpts

Introduction

On September 29, 2015, the efforts of Shenzhen-based networking and telecommunications equipment and services company Huawei Technologies Ltd. (Huawei) to win broader global consumer appeal received a major boost when American multinational technology company, Google Inc. (Google), unveiled its high-end smartphone Nexus 6P, developed in collaboration with the company. Analysts felt that the partnership with Google gave Huawei an opportunity to make inroads into the US consumer market. Commenting on the deal, Ian Fogg (Fogg), senior director at the consultancy, IHS Technology, said, "[The deal with Google] opens up a route into the US market to raise visibility for Huawei smartphones. Huawei will be particularly pleased if this can be a bridgehead into the US market."

Founded in 1987 in Shenzhen by Ren Zhengfei (Ren), a former military engineer in the People's Liberation Army (PLA), the unified organization of the armed forces of China, Huawei started as a sales agent for a Hong Kong-based company selling private branch exchange (PBX) switches. Soon, the company innovated and started selling its own PBX switches. Having established its domination over the Chinese telecommunications market, the company entered the global markets of Russia and Africa in 1996 and later mature markets such as the US and Europe. In 2011, the company started facing opposition in the US, Australia, and the European Union for its telecom equipment. Both the US and Australia alleged that Huawei had entered their establishments by the back door at the behest of the Beijing government, giving China a better chance to spy on the US. The allegations surfaced due to Ren’s past association with the PLA. Huawei's culture of secrecy, lack of openness and transparency, and Ren’s unwillingness to give pubic interviews added to the woes of the company. In October 2012, a US House intelligence committee report concluded that Huawei was a threat to the US national security. Similar concerns had led the Australian government to ban Huawei from bidding as a supplier for the country's National Broadband Network (NBN).

Huawei denied all espionage accusations and the allegations that it had links with the military. The company relentlessly fought for several years to shed its image of a company controlled by the Chinese state, despite its private ownership structure. Since Ren's past experience in the PLA was often cited by overseas media and officials to suggest that Huawei was collaborating with the Chinese government, Huawei took the help of global public relations firms, advertisers, and strategic consultants to try and erase this impression. Despite spending a huge amount of money on lobbying activities in the US, from 2012, the company had to lower its presence in the US telecom market.

Notwithstanding its battle against accusations of espionage, the company continued to be optimistic about its growth. Despite a slowdown in its telecom business, in 2011, Huawei announced plans to become a US$ 100 billion company by 2020 from US$ 27.4 billion in 2010. The company planned to achieve this ambitious goal by focusing on new engines of growth – the consumer business group and the enterprise business group established in 2011. Since Huawei was locked out of the lucrative US telecom market, the company forayed into the US consumer and enterprise market where political interference was less.

Huawei’s efforts to drive growth from the consumer and enterprise markets were visible in the second quarter of 2015. For the first half of 2015, the company’s revenues grew by 30 percent to US$ 28.3 billion from US$ 21.8 billion in the first half of 2014. The company's enterprise and consumer businesses were the fastest-growing segments in 2014, growing by 27.3 percent and 32.6 percent respectively. For the second quarter (Q2) of 2015, the company stood as the third largest vendor in the global smartphone market after Samsung and Apple. For the same period, the company stood second in the Chinese smartphone market, with a market share of 15.7 percent after Beijing-based Chinese electronics company, Xiaomi Inc. (Xiaomi), which had a share of 15.9 percent, according to research firm, Canalys. 5 However, the company did not rank in the list of top five vendors in the US smartphone market during the same period....

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