Battling Perceptions: The Next Challenge in Huawei's Globalization Agenda
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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
Excerpts
Leading the Chinese Telecom Equipment Market
In 1992, Huawei surveyed the situation in China and observed that there were market and infrastructure deficiencies. The national telecommunications infrastructure in China was poor and profit margins were low. Also, foreign manufacturers were focusing on the big domestic players in urban China and neglecting the rural Chinese market. Sensing a potential in the untapped rural market, Huawei seized the opportunity and started supplying domestic communications equipment to the rural market. The company’s sales staff penetrated into China's numerous townships and counties, creating a powerful operations base for supporting firm survival.
While providing infrastructure to the rural markets in China, Huawei used its deep understanding of China's local market to resolve the problem of low telephone penetration rates in the rural markets. In addition to this, the screen menu of all foreign systems was in English. Huawei developed its own digital automatic switches with a simple machine-operator interface and a Chinese-based screen menu. Once Huawei had consolidated its position in its rural base areas, it began to compete in urban markets for core network and access equipment.
To gain a strong foothold in the Chinese market, Huawei offered its products at prices far below those of its international competitors. The cost of Huawei's R&D employees was only one-fifth of that in western telecommunication companies. Low-cost advantages also ensured that it provided the most flexible and effective services to customers....
Entering Global Markets
In the mid-1990s, the Chinese domestic telecommunications networking equipment market was dominated by giant international telecom equipment companies. Their dominance led to Huawei having a relatively weaker position in China. Ren believed that the Chinese telecommunications market was the largest and one of the most open markets in the world attracting global telecommunication giants into China. As a result, Ren felt that, "The best food has all been eaten up by the global giants and what we can do is to have those leftovers." This prompted Huawei to consider entering into international markets. Commenting on its international expansion, Ren, said, "We were forced to go into the international market for our very survival." Huawei approached the international market as it did its domestic market, attacking "soft" targets first before moving into tougher markets. There were many underserved segments in these markets, mostly clients with limited resources, who could not afford the products of established multinational companies......
The Challenges
Though Huawei achieved huge success in several global markets, the US was a different story altogether. Despite bidding several times since the company first entered America, Huawei failed to win a single big contract from top-tier carriers such as AT&T, T-Mobile, and Verizon. The US telecom companies had had long relationships with home-grown suppliers such as Lucent, Motorola, and Cisco. Moreover, the US telecom majors felt that while the telecom equipment manufactured by Huawei was fine for emerging markets, it was not reliable or suitable for the 24/7 service required by networks in the US. Though by 2011, Huawei had developed some of the most innovative and fastest equipment in the telecom industry, it continued to face resistance in the US....
Huawei's Response
In response to the allegations made by the US against Huawei, Ren said, "We have never sold any key equipment to major US carriers, nor have we sold any equipment to any US government agency. Huawei has no connection to the cyber security issues the US has encountered in the past, current, and future." Denying that he was close to the Chinese government, Ren, said, "I don't have any private relationships with any government officials, I don't have any close working partners, I don’t have any dealings with any Chinese businessmen apart from Liu Chuanzhi of Lenovo [world’s largest PC maker] and Wang Shi of Wanke [China’s largest real estate developer]."....
Huawei's Response
In response to the allegations made by the US against Huawei, Ren said, "We have never sold any key equipment to major US carriers, nor have we sold any equipment to any US government agency. Huawei has no connection to the cyber security issues the US has encountered in the past, current, and future." Denying that he was close to the Chinese government, Ren, said, "I don't have any private relationships with any government officials, I don't have any close working partners, I don't have any dealings with any Chinese businessmen apart from Liu Chuanzhi of Lenovo [world’s largest PC maker] and Wang Shi of Wanke [China's largest real estate developer]."....
Bypassing Challenges in Telecom Market - Focusing on New Engines of Growth
Despite Huawei trying to catch up by hiring several multinational public relations, advertising, and marketing agencies to improve its image, it continued to face a ban in the US telecom market. In the US, the company had no contracts with Tier 1 carriers. With so much damaging publicity, in April 2013, Huawei announced that it was "not interested in the US market any more." The announcement came since Ren was frustrated by the US market and US government. In an interview, Ren said, "Our firm is just a small company. We only have about $1 billion sales in the U.S. market. We are just a private enterprise, and don't have that high political position. If because of Huawei the relationship between China and U.S. were affected, it have been the loss of both two countries. So, we decide to quit from the U.S. market."...
The Results
Even as Huawei was grappling with the issue of gaining brand recognition, it was named one of BrandZ's 'Top 100 Global Brands' of 2015 in May 2015. This was the first time it had made it to the list, being ranked 16th in the technology and science category with a brand value of US$ 15.335 billion. According to Doreen Wang, Global Head of BrandZ, "Huawei has made it onto a BrandZ list for the first time today. This is the result of Huawei's solid carrier business and also its active expansion into the enterprise and consumer businesses. Huawei has invested in its global technology offering, demonstrated with two third of its revenue coming from markets outside of China. Ranking on the BrandZ list recognizes Huawei's real strengths."...
Looking Ahead
While Huawei's aim going forward was to conquer the US consumer market, according to Yu Chengdong, head of Huawei's consumer business, some industry watchers felt that the company lacked the appeal of Apple and Samsung for high-end smartphone consumers. Analysts felt that a lack of brand recognition was a bigger hurdle for Huawei's smartphone ambitions in the US. "The US market is tough for anybody except Apple and Samsung," 70 according to Lu. In addition to facing the brand recognition challenge, building a relationship with the major carriers was another challenge for Huawei. Admitting that the US consumer market was challenging, Huawei President, Zhiqiang Xu, said, "The U.S. is the most challenging market in the world, but I'm excited for this challenge. If you look at the whole picture, you’ll find that everybody is here....
Exhibits
Exhibit I: Huawei's Milestones
Exhibit II: A Note on Chinese Telecom Equipment Market
Exhibit III: List of Awards and Recognitions for Huawei
Exhibit IV: Huawei's Five-Year Financial Summary
Exhibit V: Top Ten Companies Filing International Patent Applications under Patent Cooperation Treaty (2014)
Exhibit VI: Timeline of Huawei's Globalization
Exhibit VII: Brand List of Top 20 Technology Brands
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