Posted at 10.11.2018
This research study analyses and discusses the internationalization procedure for Huawei, a respected telecommunication equipment supplier in China. Our research seeks to explore the special top features of the internationalization of Chinese language hi-tech firms by way of a case study and identify the factors that impact Chinese hi-tech companies' international accessibility mode decision. On this paper, several foreign market entry methods were talked about. Issues of why and exactly how to take into account the factors of industrial characteristics, environmental factors, firm factors, and moderators for internationalization and exactly how to hire different entry settings in different coordinator markets are mentioned and illustrated based on this case study. It is found that commercial characteristics and home country's technical reputation have an impact on to a great extent the internationalization way of the hi-tech company studied. The study also shows that in terms of hi-tech enterprises' internationalization, the factors such as international experience and company size aren't as important to traditional manufacturers as to hi-tech businesses.
It is worth it to look at the growth record of an organization when we research a company. On this section, we will list some fact of HuaWei. The concentration would be the business's internationalization process, and the achievements it has reached.
HuaWei was set up 23 years ago, in 1988, by Ren Zhengfei, a former People's Liberation Military officer. The head office are in Shenzhen. Unlike other famous state owned Chinese language companies, the business is privately owned or operated. Matching to its marketing director, Edward Zhou, HuaWei is owned or operated by its 87, 502 employees.
Initially HuaWei was just a little distributor of imported PBX products without any telecommunication knowledge. Five years later, in 1993, Huawei possessed achieved its major threshold of knowledge accumulation on PBX and effectively made the first discovery in C&C08 digital phone move by effectively taking advantage of the technology diffusions from Shanghai Bell (the first Sino-foreign joint venture in China). It began selling its digital telephone switch in rural regions of China. Huawei thereafter efficiently monopolized Chinese rural market and small locations. Later, with higher product quality and increased product development, Huawei began to compete with international enterprises in Chinese language urban market. Shortly after, HuaWei supplied items to China's three major providers - China Mobile, China Telecom, China Unicom.
With regard to internationlization, HuaWei commenced its internationalization process at an early on stage, in comparison to many other Chinese firms. The first step of internationalization in Huawei is providing customized design of 'quantity portability service' for Hutchison Telecoms, Hong Kong in 1996 (Li, C. & Cui 2004). From then on, Huawei determined to get into international market. Russia and Southern America market are first decided on. Huawei got into Russian market in 1996. It create a joint venture of Beto-Huawei with Russian Beto Konzern and Russia Telecom to build up Russian market in 1997. However, Huawei did not get any order within four years.
After 2000, Huawei expanded its target markets abroad, including Southern Asia (Thailand, Singapore, and Malaysia), Midsection East and Africa. Since 2001, the products of Huawei have been sold in West European countries market through the neighborhood famous brokers. These countries include German, France, Spain and UK.
Huawei has now provided products and service for over 300 telecom companies around the world. They have won the main position in the global market in the areas of 3G, next generation network (NGN), moving over, xDSL, optical network, and data communications.
With 75% of its deal sales via outside of China and international sales doubling every year, considerably exceeding its local sales, Huawei, indeed, is an effective player in the international market.
Business environment has a great impact on an organization. Environmental factors are the substential affects that have an impact on the frims' internationalization. And it can be classified as the internal environment and the exterior environment. The inner environment, or strong factors, includes firm-specific advantages, corporate policies and firm size, experience and strategy. The external environment factors include demand/competition, socio-cultural conditions and politics/economic conditions, and other factors moderators, such as coordinator/home government policies. In this particular section, we will analyse the exterior and inside environment of HuaWei.
We apply SWOT to analyse the business enterprise environment of HuaWei. SWOT means advantages, weaknesses, opportunities, and risks. Environmental factors internal to the organization usually can be categorized as advantages (S) or weaknesses (W), and those exterior to the organization can be labeled as opportunities (O) or hazards (T). The effect is illustrated in Table 2.
We also apply Porter's Five Makes model to analyse the business enterprise environment. This model is developed by Michael E. Porter (1979). Since then, it has turned into a platform for the industry evaluation and business strategy development. Elements in Porter's five makes are discussed in detail below.
During the past twenty years, China, as well as the planet, has gone through a rapid development in the telecommunication industry. This craze remains, with the emergence of 3G, cordless network, and NGN. Hence, the demand for telecommunication products and services is overwhelming.
With China's accessibility to the WTO, trading between China and the globe is booming. For instance, China's exports come to US$760 billion in 2005, with high-technology products such as telecommunications equipment, computer and electronic components accounting for 43 percent of total exports. On the other hand, globalization worldwide has made trading among countries grow tremendously.
Foreign hi-tech companies, such as Cisco System, Siemens, and Motorola, have spent a staggering amount of money in China. Ironically, much of this is attributed to China's entry into the WTO, which offers unprecedented access for foreign companies in many companies. As a result, it is driving a car HuaWei overseas to construct capabilities that can help to compete more effectively against domestic and foreign opponents in China.
By evaluation, China's outward immediate investment and cross-border M&A is small by global specifications. However, this might change in the near future. In fact, the Chinese federal is a strong supporter for home firms to travel abroad.
Through many years of hard work, HuaWei has established its brand name as a low-cost but high quality telecom specialist. HuaWei's value proposition is based on "cost of possession" i. e. , the total lifetime cost of possession for the network as a whole. In an time when telecom's ARPU (average income per customer) is dropping, cost of possession is crucial, which makes HuaWei a high possible substitute for other telecom companies.
Considering the external and internal environment HuaWei is facing, in this section, we will identify and discuss HuaWei's motive to visit internationally. Previous researches have examine this issue from different perspectives. For instance, Bartlett and Ghoshal (2000) summarised three main traditional driving a vehicle makes behind the abroad expansion of a the greater part of multinational businesses: (1) to secure key equipment, (2) market seeking, and (3) gain access to low-cost factors. Bartlett and Ghoshal (2000) emphasised that the drive of market seeking was especially strong in companies. Alternatively, the well-known product pattern theory developed by Vernon (1966) suggests that the starting place for the internationalisation process is typically an innovation that a company creates in its home country. Still, others (Barney, 1991) suggest that factors above aren't enough for a firm to become a multinational. Other conditions such as administration support, must be found for the business to visit global.
Based on these theory, we analyze HuaWei's drive to expand globally and identify a range of reasons, including tapping new growth markets, protecting natural resources, acquiring advanced technology and management skills, avoiding extensive domestic competition, improving productivity, receiving international financing, and etc. In Body 1, we illustrate these factors by their importance to the business. And three most important factors are discussed in detail in the following.
Seeking new market segments for growth was the primary reason for HuaWei to grow internationally. In aggregate, the majority of earnings in China disproportionately movement to highly regulated, highly concentrated establishments such as coal and oil, mining and real real estate that are primarily managed by state-owned companies. In contrast, the telecommunication sector is hindered by overcapacity and facing strong profit pressures. As a result, HuaWei is obviously looking in another country for new markets with less competition and higher profit potential.
Innovation is on the top of CEOs'minds as the only way to survive and grow in an progressively more competitive world, as highlighted in the IBM Global CEO analysis (2006).
However, many Chinese language manufacturers still contend on low-cost labor and hostile pricing, alternatively than on impressive, branded products and services with higher profit margins. To this aspect, HuaWei is going abroad to acquire advanced technology and R&D features, which provide the means to create a differentiation benefits. Having been a licensee of intellectual property right for an extended period of the time, HuaWei is trying to change itself as a originator of its technology and patents. The purposes are to escape from status that its R&D are dominated by patent of multinational firms overseas.
HuaWei should go global to avoid lots of competitive down sides incurred by working exclusively in the local market. These disadvantageous local conditions include : regional protectionism that restricts the opportunities usually offered by a large local market to exploit economies of size; limited access to capital that prevents investment in plants of optimal size; lack of developed intellectual property protection under the law that limits usage of state-of-the-art solutions; under provision of training and education that limits usage of skilled human resources; poor local infrastructure that boosts transport costs; and local markets that are fragmented by provincial and municipal protectionism (Zhang, 2009).
The government is becoming more supportive of Chinese companies expanding globally. Within the last five years, various federal government agencies including the Country wide Development and Reform Payment (NRDC), the Ministry of Financing, the Ministry of Business and the state of hawaii Administration of FOREX (SAFE) have all developed policies encouraging Chinese companies to develop overseas.
Senior representatives have reaffirmed the government's dedication to support globalization by offering various types of support, including new insurance policies and services to coordinate overseas opportunities and manage hazards. Financial institutions such as the Loan provider of China, China Development Loan company are offering beneficial financing by means of lines of credit and low-interest lending options to Chinese companies expanding in foreign countries. For instance, HuaWei has received a US$10 billion line of credit from the China Development Loan provider to help finance its global extension efforts (BDA record, 2005). Furthermore, additionally it is indirect beneficiary of Chinese foreign aid programs to African and other producing countries.
This section will discuss the positioning decision in HuaWei's internationlization process. In fact, deciding which market to enter is usually an important tactical issue in the business's international enlargement.
Today, Huawei's global market is split into eight different areas (see Desk 3), with its global R&D centers located in Bangalore (India); Moscow (Russia); Stockholm, (Sweden); the Silicon Valley, California (USA); and Dallas, Texas (USA), in addition to those in China. However, when we study the company's expansion record, we find that Huawei prevented developed countries market and first visited developing countries encompassing them. In growing countries, HuaWei can apply its low-cost, non-brand product bought from local market, as these countries favor the same product as China. In comparison to other Chinese language company's "leap-frogging strategy" (Lazonik & William, 2004), Such targeting market in expanding countries first is comparable to crab, which walks sideward and go very far away without realizing anyone. Therefoer, we might name Huawei's strategy in location decision as "Sideward Crawl Strategy", which is proven during HuaWei's internationalization process in Desk 4.
Market access strategy, simply put, is the prepared method of providing goods or services to a marketplace and distributing them there. There are a variety of ways in which organisations can enter into foreign markets, such as exporting, joint venture, licensing, combine & acquisition, greenfield investment and etc. Driscoll (1995) created a comprehensive foreign market admittance decision construction. In his definition, the contractual access modes add a variety of agreements such as licensing and franchising. The investment accessibility function includes merge & acquisitions, joint venture and greenfield investment.
Buckley & Casson (2007) further analysed the different alternatives of market accessibility by foreign firms and the factors that influence entry strategy choice. Their methodology serves as guidence for complicated analysis and, depending on the magnitude of the various cost components, one technique may be preferred to other alternatives.
Their review emphasized that there surely is a diverse selection of influences bearing on the firm's desire to have certain entrance strategy choice and that there surely is no optimal foreign market entry modes under all conditions. Therefore, it requires to consider the characteristics of modes, the strong factors, environmental factors and other factors when it chooses entry mode.
In the following, we will study the marketplace access strategy of HuaWei in various markets and the rationale behind these strategies predicated on the theory mentioned above.
In 1996, as a discovery, Huawei began its international business at Russia. It create a jv of Beto-Huawei with Russian Beto Konzern and Russia Telecom to develop Russian market in 1997. As a new player in international market, Huawei's development in Russian market is very hard at the first level. Huawei put in four years on waiting around and studying before they acquired the first order. At the initial level of internationalization, Huawei's market selection strategy is focusing on the markets which may have weak telecommunication infrastructure but have great developing potentiality. Based on the features of telecommunication products, the sponsor market's sociable and ethnic conditions were considered. First, because of the network impact (Katz & Shapiro 1994) and telecommunication products related to information security, Huawei first select those host market segments which have good marriage with home country. Then, based on its own benefits of technical research and development (R&D), Huawei chose the jv as the first foreign market settings.
In the fist level of Huawei's internationalization, South America is also selected as a target market. However, Huawei utilizes export method as the access mode. The affect factors are the issues of geographical distance and local market conditions. From 2000 onwards, Huawei started to enter in Asia, Mid-east and North Africa market, in this field, where Huawei also use export method to entry this market. Huawei sent out a lot of sales and service engineers from home country to create branches and service centers in these countries. The selection is based after the feature of export entrance mode: High overall flexibility, low resource determination and low dissemination risk.
After 2001, Huawei's products learn to be sold in West Europe and THE UNITED STATES. In these developed countries, Huawei applied a number of contractual settings to entry these market. These methods include franchising, co-research, co-production (OEM) and Co-sales (help one another to deal products in each own market segments). For instance, in Western market, Huawei co-operate with Marconi in product development and marketing. Marconi helps Huawei to market products in Europe using their channels. At the same time, Huawei helps selling Marconi's product in China and Asia markets.
Early to 2002, Huawei has cooperated with Motorola in Mobile network infrastructure area using the OEM method. To build up the market of data communication in North American and other international market segments, Huawei create joint venture: Huawei-3Com with 3com, the key player in data communication market. In this method, Huawei will take the advantage of R&D ability and the 3Com's international market source. Stand 4 shows Huawei's alliances in the telecommunication industry. More of HuaWei's jv in the telecommunication industry is illustrated in Table 7 below.
Numerous data have turned out HuaWei's success on its market selection and market accessibility strategy. For example, after getting the first order in Russia in 2000, the business enterprise of Huawei in Russian market grows up quickly. In 2003, Huawei received the sale volumn greater than USD 0. 3 billion in Russian and the encompassing markets. In the market of broadband products, Huawei occupied more than 50% of the market. Up till now, Huawei is among the most Chinese company with the largest investment in Russia (Wu, 2004). And in 2008 (a negative 12 months for network infrastructure companies), Huawei's income rose 36% to $17 billion and produced $1. 15 billion in net income (up from $957 m. in 2007), demonstrating a much better performance than most of its Western competitors including Ericsson, Alcatel-Lucent, Motorola, Nortel Systems (Nortel called for bankruptcy protection in '09 2009) and Cisco, that was amid the global economical turmoil. Among these earnings, foreign sales take into account three-quarters, up from 43 % this past year (the Wall Streets Journal, 2008).
Not only does HuaWei gain a huge benefit from internationalization, but its development capacities are greatly reinforce during the process. In '09 2009 the globe Intellectual Property Group WIPO reported that Huawei was positioned as the largest applicant under WIPO's Patent Assistance Treaty (PCT), with 1, 737 applications printed in 2008, replacing Philips Electronics. We collected patent data from SIPO, USPTO, and EPO, as the performance in USPTO and EPO can represent Huawei's innovative electricity in developed parts; and patents in SIPO either in English or Chinese can indicate Huawei's competitive capacity for invention performance within China's local market. The data are shown in shape 2 below.
Not amazing that Business Week newspaper positioned HuaWei 3rd, after Apple and Google, in its World's Most Influential Companies list, acknowledging its participating in a significant role in the world of business and being with the capacity of shaping the corporate landscape for years to come.
Huawei is one of the few Chinese language companies which go effectively in internationalization. The research study of HuaWei in this report provides an information into the internationaliztion process, as well as the strategies, applied by HuaWei in the marketing communications equipment industry.
The analysis of this paper demonstrates industry structure/characteristics play an important role in hi-tech businesses' overseas market entry function decision. Compared with traditional manufacture businesses, Hi-tech enterprises have a tendency to take stable factors as less important in choosing their admittance function. As shown in this paper, the internationalization of hi-tech businesses from producing countries is harder than those companies from developed countries. For technological firms in developing countries, home countries' technical level and reputation effect the companies' internationalization significantly. To avoid this negative affect, Huawei had to enter the growing countries' market first before it enters developed countries' market. As a strategy, many hi-tech firms choose to set up the R&D department or sign-up subsidiary companies in developed countries to develop an international market share.
HuaWei create a role model for some Chinese organizations in the internationalization process. However, HuaWei's storyline is not perfect. They have experienced lawsuit with Cisco Systems in 2003, under suspect that Huawei infringed Cisco's patent, which ended with bargain Huawei withdrew all the products sold in america market. But HuaWei learnt from its lessons. It really is now one of only two telecommunication equipment company (the a different one is ZTE, also located in Shenzhen city, Guangdong Province) from developing countries that positively records patent.
Even though it is hard to say the success avenue of Huawei does apply to all others in growing countries, at least, we can say company can get into market which can't find the money for high-cost equipments that is provided by Western and US companies by firmly taking sideward-crawling Crab strategy. And It is hoped that more and more Chinese firms will follow HuaWei's journey and begin to acquire their places on the globe market.