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Charlie Pinto Huawei: Ciscos Chinese Challenger

1. What kind of company is Huawei? Is it privately-owned or something else? In what ways has its development been shaped by former vestiges of a planned system, and in what ways has it been shaped by market conditions? Huawei is a Chinese multinational company that participates in the telecommunications industry. They are the leading telecom equipment vendor in China and have dozens of branch offices worldwide. Huawei is a privately-owned company in the sense that it has not gone public through an IPO. However, as it is based in China, it is really state-owned rather than privatelyowned. Chinas planned system has some effect on all companies that do business in China, both foreign and domestic. For Huawei, they adopted the practice of low-cost low-technology manufacturing and engineering and left the expensive, high-technology manufacturing and engineering to the foreign companies, which was very common among Chinese companies. One of the main ways Huawei has been shaped by market conditions is by following a similar R & Dcentric business path that Cisco had when they started. With labor costs in China being so low, this strategy gave Huawei an important competitive advantage over both Chinese and International competitors. Another condition, which is partly market-based and partly coming from a planned system, is Huaweis joint-venture strategy. Very common in Chinas planned system, many foreign companies would come to China to set up joint-ventures. However, unlike most Chinese companies that use joint-ventures as a main approach, Huawei used joint-ventures as a complementary approach to enhancing its innovation capabilities (Farhoomand 7).

2.

The term guanxi appears, or is implied, several times in the case. Explain what this is referring to in each instance, and discuss whether it is really important or not.

The term guanxi is a term used to describe a reciprocal relationship often found and practiced in China. It is believed that in order to become partners with another group or person in China, you must have guanxi. This idea is implied in the case when mentioning the common practice of joint-ventures in China between foreign and domestic companies. In this instance, I believe it is fairly important, because for these joint-ventures to be successful for both parties in China, guanxi must be correctly established. If it is not, more times than not, these ventures will be fruitless.

Also, one of the largest examples that we see guanxi in this case is between Ren Zhengfei, the founder of Huawei, and the Chinese military. In this scenario, I believe guanxi is very important for two reasons, one positive and one negative. First, this connection gave Huawei a strong advantage in doing business in China with large contracts coming from the Chinese military that other companies could not obtain. Second, however, these connections to the military have also created a stigma for Huawei abroad, particularly in the United States with many companies skeptical of doing business with Huawei in fear of the militarys influence on the company.

3.

What conditions shaped Huaweis growth in the Chinese domestic market. What did the companys domestic strategy look like?

Huawei was quick to adopt some common Western business practices which greatly helped its growth in the Chinese domestic market, because they were well ahead of the domestic competition in that sense. Huawei would go on to start paying their employees much higher than national average wages and they sought to have the most educated workforce in China. Furthermore, Huawei engaged a team of foreign experts to adopt international best practices in the areas of product development, supply chain integration, human resources management, financial management and quality control. (Farhoomand 8) These conditions all greatly aided Huaweis growth in the domestic market. In terms of Huaweis domestic strategy, the focus on R & D and the quick adoption of 3G mobile communications technology, would lead Huawei to become one of the leading telecommunications companies in China. In fact, in 2002, Huawei controlled almost 90% of the Chinese domestic market in mobile network equipments (Farhoomand 6). With the adoption of Western management practices and their R & D-centric strategy leading to great innovation in the mobile communications field, Huawei was able to grow into a very powerful and important company and one that had incredible success in the domestic market.

For questions 4 & 5, additional research on the current issues relating to Huawei is recommended. Please cite appropriately. 4. What geographical and operational trajectory has Huawei used in its global expansion? What has been successful and what has not? Why? In 1996, Huawei sought to expand internationally. In order to avoid direct competition with some of the larger international telecommunications companies, they first looked to expand into developing countries, like Russia. Later, in order to get into some countries, like France, they offered very incentive-laden propositions. In addition, they also looked to get more localized in these countries by hiring local personnel, who could provide more specific assistance to the

customers of that area. Furthermore, Huawei has been successful in the European 3G market, as the case mentions, In 2004, of the 19 licenses awarded around the world for 3-G wireless networks, Huawei was involved in building 14 of them. (Farhoomand 10) Huaweis trajectory has followed a fairly conventional path in regards to Dickens paths of TNC evolution Figure 5.5 (Dicken 118). After serving the domestic market exclusively and then growing beyond it, they have moved to establish manufacturing and engineering offices around the globe. However, they have done this more so by setting up new facilities rather than acquiring local firms. The aforementioned strategies in regards to global expansion trajectories have all been fairly successful. One area in which Huawei is still struggling is in the United States. Home of Cisco, Huawei has struggled in the United States so far as their incentive-laden strategy and lower prices have not been enough to win over American businesses. Furthermore, with the assumed close connections to the Chinese military many United States companies worry over the security of their information were they to work with Huawei.

5.

What should Huaweis global strategy look like to be more successful in the future? Why?

As of this year, it appears that Huawei is looking to expand their brand name and become more of a consumer brand rather than deal with telecommunications carriers exclusively. I believe this could be a strong and successful move for the future of the company. As the article states, a senior executive of the company said that the company is trying to showcase its brand devices such as smart phones (China Daily 1) which I believe could be a great idea as we know how large the smart phone market globally is now. With this consumer brand expansion, Huawei may be able to finally and successfully break in to the United States market as well.

Citations: 1. Farhoomand, A. (2006). Huawei: Cisco's Chinese Challenger. Asia Case Research Centre 2. Dicken, P. (2011). Global shift: Mapping the changing contours of the world economy. New York: Guilford Press. 3. China Daily. (2012, 06 22). Huawei adjusts strategy to build consumer brand. Retrieved from http://www.chinadaily.com.cn/bizchina/2012-06/22/content_15518367.htm