Strategic Management Case Study “Huawei: How Can We Lead the Way”
The industry that Huawei operates in is the telecommunications equipment industry. While a majority of their business is done in the mobile smart-phone sector of this industry, they also offer tablets, PCs, wearable technology and other forms of telecommunication network infrastructure equipment. This industry includes anything that makes communications possible on a global scale.
Bargaining Power of Suppliers
The bargaining power of suppliers in the telecommunications equipment industry is high.
Suppliers in this industry supply many key parts of smart-phones and other devices to manufacturers such as System on Chip (SoC), the screen/display, memory, storage, modems, battery, wires and a camera. There are few companies that supply some of these important parts. For example, Qualcomm and MediaTek are two suppliers of SoCs and due to their size and unique product offering, they maintain high bargaining power. Big players like Apple and Samsung have found ways to mitigate the bargaining power of suppliers by manufacturing their own SoCs which gives them more freedom over procurement prices as well as the terms of the manufacturing.
Bargaining Power of Buyers
The bargaining power of buyers in the telecommunications equipment industry is high. The number of options available to consumers in this industry is increasing constantly, and as more and more companies offer similar products and solutions, the differentiation in the market is small. This creates price sensitivity and puts the power in the hands of the buyers who can easily go to a different supplier and get a similar product for a more desirable price.
Threat of Substitute Products
The threat of substitute products in the telecommunications equipment industry is low. There are several products that can keep people connected though communication as well as access and distribute information instantly. However, all of these products fit into the telecommunications equipment industry and therefore the only products that would be considered substitutes would be face to face communication which is not as convenient, feasible, seamless or as capable as telecommunications equipment is. Also, this option may present a form of a learning curve for many individuals as many of us rely on telecommunications equipment nowadays.
Threat of New Entrants
The threat of new entrants in the telecommunications equipment industry is low. This is already a well established industry that has been around for many years. Due to the technological nature of this industry, capital requirements can be extremely high to cover costs such as research and development as well as overall manufacturing costs. Also, once companies discover an effective way of doing something through their research, they often patent the technology which can be a barrier to entry for new companies looking to enter the market. Also, many consumers are very brand loyal in the telecommunications equipment industry, such as Apple loyalists for example which can make it difficult for new entrants to gain market share.
Industry Competitive Rivalry
Competitive Rivalry in the telecommunications equipment industry is high. There are many competitors all offering similar products that can all accomplish similar tasks within a similar period of time. If you introduce an exciting feature, it is likely that another company will follow shortly after .Lastly, strong brand loyalty exists within this industry such as “apple loyalists”.
In conclusion, the telecommunications equipment industry is a relatively unattractive industry. It has become extremely saturated, there are tons of competitors offering similar products and it is extremely expensive to operate in this industry. Also, it is heavily influenced by buyers due to price sensitivity. This market is attractive if you are one of the number one players but otherwise it is extremely difficult to compete with companies such as Apple & Samsung.
Economically, this industry is very dependent on the state of the economy. Consumers are more likely to purchase new equipment when the economy is doing well, whereas consumers are more likely to hold onto their old equipment as long as it functions in times when the economy is doing poorly.
Socially, we as individuals possess a lot of influencing power in terms of convincing our peers which device they should purchase or which device would make them more “popular”. Many consumers are brand loyal or against a particular brand which is factored into our purchase decisions.
Technologically, this industry is heavily influenced by research and development regarding different technologies that can be used to accomplish the same tasks in a more effective or efficient. When a new technology is introduced by one company it eventually becomes a requirement to compete.
The generic competitive strategy that Huawei pursues is low-cost (broad). While they do place an emphasis on quality as well, they are not differentiating their value statement enough to consider it a differentiation strategy. The features included in their mobile smart-phone are extremely similar to the features that all telecommunications companies are currently offering around the world. Rather, they focus on keeping their costs as low as possible in order to offer their buyers a price that is low and competitive due to price sensitivity. Also, the products that they are offering are designed to meet the needs of the whole market, as opposed to a niche segment of buyers or consumers.
I think this is a suitable strategy for this industry. It is very difficult to differentiate yourself in a market that is this saturated and that has this many players offering similar products that do similar tasks. So, aligning their strategies like this allows them to compete in terms of pricing and also allows them to maximize the portion or segment of the market they are serving and satisfying.
Huawei’s best resources and capabilities include, their marketing capability, their technology leadership, their distribution channel, (P.10) their research and development capability and their human capital.
The first Capability to be analyzed is Huawei’s marketing capabilities, specifically their ability to communicate information to their consumers. Huawei understands that in order to succeed in such a competitive B2C market, they need to actively and continuously interact with users at every stage of the customer buying process. Communicating to consumers at only one stage of the customer buying process is not an effective way of retaining customers and building brand loyalty. This includes things like hosting launch events, mass media and below- the-line marketing.
V: The marketing capabilities possessed by Huawei are valuable as they help build a consumer perception and brand image. An affordable high quality product means nothing if nobody knows about it and understands why its superior. This capability helps them build the resource of brand recognition and therefore consumers become more educated about what the company has to offer. By hosting launching events and using mass media, brand awareness and brand image can be built in order to improve revenues and help the company grow in size. By conducting below- the-line marketing, Huawei leverages their retailers and carriers by maximizing shelf space and potentially increasing revenue and market share.
R: While their marketing capabilities are valuable, they are less of a competitive advantage and more of a competitive equality/parity. Not only do their competitors possess this quality but essentially any large company should possess this capability.
I: Huawei’s marketing capabilities are not inimitable. There is nothing preventing other companies from doing the same, and most already do.
O: While this capability may not be rare, or inimitable, there is no arguing how valuable it is. What makes it even more valuable is being able to leverage another one of your company’s capabilities using your marketing capabilities. For example, Huawei’s technology leadership can be communicated to the market using their marketing capability in order to communicate to consumers what Huawei does better than other companies. The marketing capability builds a brand awareness, and potentially a brand image and then the technology leadership backs up that statement by supporting the marketing statement and value statements with evidence in order to build a loyal customer base. Together, these capabilities are much stronger than they are separately as they reinforce one another.
The next Capability to be analyzed is Huawei’s Technology Leadership. They possess an in- depth knowledge and understanding of communication protocols that eventually lead to the development of one of their best resources which is their proprietary Kirin smart-phone chipsets. Also, their technology leadership capability has allowed them to offer improved cameras, larger screens, better hardware and very long battery life for products.
V: The Kirin smart-phone chipsets as well as Huawei’s Technology Leadership capability are very valuable. Due to their capabilities, they developed the chipsets which have added value to Huawei by allowing them to support the latest telecom technology such as 4.5G and 5G in the foreseeable future. As a result, Huawei can offer their users faster and more robust connectivity to the network in order to offer superior reception.
R: Huawei is the number one network equipment vendor and its telecom products host 50% of all calls world-wide. Only one company can be the number one company in this category, so yes their technology leadership is rare. It is something that is unique about them that other companies cannot do quite as effectively and efficiently as Huawei can.
I: While their technology leadership is rare, it is not inimitable. As the case states, competitors always catch up quickly. They often come out with new or improved technologies that offer them a temporary competitive advantage but then other companies often copy them and offer similar solutions that serve similar purposes and do similar tasks which is why it is truly so difficult to differentiate yourself in this industry. While initially these technological advances create competitive advantage, they eventually just become requirements that all companies must do in order to remain competitive.
O: This resource can be leveraged by their research and development capability. They are already a technology leader in their respective industry, which is valuable and rare but it is also potentially imitable. So, in order to make this temporary competitive advantage last as long as possible and mitigate the risk of competitors copying or catching up to them, they need to be continuously searching for new ways to improve their technologies. This can be done through their effective research and development practices. On the other hand, their research and development capability is leveraged by their technology leadership and their marketing capability. It is great to find a new technology solution but unless you can actually deliver that theory to market at an affordable price and unless you can communicate the benefits of that technology to consumers then that great idea isn’t going to convert to revenue.
Also Study: HUAWEI’S SMARTPHONE STRATEGY Case Study Analysis