Porter’s Five Forces Analysis of Huawei and the Smartphone Industry
Michael Porter designed a Five Force analysis for use in exploring the environment in which a company or a product is operating so as to create competitive advantage (Rothaermel, 2015). The five forces developed by Porter include threat of entry, power of suppliers, threat of substitutes and competitive rivalry.
Threat of substitute products or services
The smartphone industry is facing threats from other products or services. Potential substitutes for smartphones are laptops, desktop computers, tablets, game players, smart TVs, multimedia players, cameras, smart watches, and bank cards among others. Smartphones can be substituted with desktop computers and even feature phones that allow users to perform simple operations like making calls and sending and receiving text messages. Furthermore, the number of desktop software applications that represent relevant substitute for the smartphones are on the rise. However, smartphones remains a strong substitute for all these other options, owing to their high level of mobility, functional level, and expandability.
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Rivalry among Existing Firms
Huawei is operating in smartphone industry saturated by different firms including Apple, Samsung, LG, Xiaomi, Lenovo, HTC and many others. The rivalry among the existing companies in the smartphone industry intensifies as the market becomes saturated. This is because there is very little differentiation in the range of products that they offer. Moreover, the higher the number and diversity of existing rivals, the higher competition level in the industry. However, Huawei has emerged a strong smartphone manufacturer and producer in the global market thus giving it a more competitive ground among its competitors, thanks to its quality smartphone models like the P9 (Dempsey, 2016).
Bargaining Power of Suppliers
A smartphone features various hardware and software components, including Operating system, apps, processor, memory, frame, display, camera, battery, and many others. Smartphone companies usually outsource some of these hardware and software components from suppliers who charge different prices for their products. With the high cost that usually comes with manufacturing some of these components, manufactures tend to charge high costs for their supplies which in turn impacts on the profits of the smartphone industry from the sales of the final product. However, Huawei owns some of these components, like the Kirin 955 chip a Leica’s dual-lens camera.
Threats of New Entry
The smartphone industry has become a lucrative business, with new entrants joining. This is partly due to the increasing number of smartphone users and technology enthusiast who prefers portable mobile smartphone devices to desktop computers and laptops. Today, other companies such as Tecno, Infinix and others have joined the business, adding up to the number of the existing competitors. However, Huawei has established itself as market leader in the global smartphone industry, coming third after Samsung and Apple.
Huawei’s Competitive Advantage in the Smartphone Industry
Huawei draws its competitive advantage from a number of sources including multiple distribution channels, market position;
i) Market Position
Huawei has successfully managed to reposition itself in the market. Initially, the company was viewed as offering low-end phones as the Samsung and Apple dominated the high-end smartphone market. Most of its phones were sold to telecom carriers who often targeted low-end consumer market (De Cremer & Zhang, 2014). This could not help the company establish itself in the market as they were targeting carriers instead of ultimate consumers. However, the company has today emerged among the top smartphone companies, coming in the position after Samsung and Apple.
The success of Huawei’s Mate and P series enabled the company to move to the medium and high-end market level and increased its brand value. This brand position has given the competitive advantage over its rivals. Huawei’s P9 smartphone targets technologically sophisticated consumers, making it comparable to Apple’s premium phones.
ii) Multiple Distribution Channels
Huawei has managed to expand its distribution channels, unlike sometimes before when it’s used only to sell to telecom. Today, Huawei has positioned itself in the smartphone industry with a “Dual-channel” strategy (De Cremer & Zhang, 2014). Dual channel involve the use of both offline retailers and online distribution channels. This strategy has given the company a competitive advantage as it sales both to low-end and high-end users. Companies such as Samsung and Apple mainly targets high-end users thus limited distribution channels. Huawei still drives sales through its traditional telecom carriers and online retailers through its “Honor” Brand which is supplemented by offline distribution channels. The company has managed to reduce its distribution costs through online sales.
iii) Research And Development
Huawei invests in a lot of research and development to improve the quality of its smartphone productions. The company has massively invested in R & D personalities and facilities to enable it rise to the global level smartphone producer. Created in 2004, HiSilicon Technologies Co., Ltd has been the driving force behind Huawei’s smartphone success in this competitive industry. HiSilicon has design centers both in China (Beijing and Shanghai) and abroad (Sweden) (De Cremer & Zhang, 2014). The company conceives its smartphones as a “collision between high-tech and fashion”. It emphasizes on both technology and user interface in its smartphone design.
The manufacturer’s collaboration with carriers and suppliers gives it’s a competitive advantage in the smartphone industry. For example, for over 20 years now, Huawei has been collaborating with leading global telecom carriers, which form forms one of its reliable distribution channels. The mobile manufacturer also collaborates with suppliers of mobile technology components such as Harman and Leica as to give consumers high quality products. Its collaboration with Leica resulted to the production of the P9 smartphone, featuring a dual-lens camera (Dempsey, 2016).
v) Company Assets
Huawei’s telecom network assets are another source of its competitive advantage. For example, the company’s Kirin 950 SoC, is a new mobile chipset to address the battery-life problem which has been a major problem for most smartphone users. The company has also issued patents to other smartphone manufacturers for the use of its components in their products. In 2015, the company licensed patents to Apple, covering wireless communication technologies like LTE, GSM, and UMTS.
For Huawei to remain competitive in the smartphone industry, the company needs to embark on customer engagement through a strong marketing management. Existing brands such as in both Apple and Samsung are already engaging in competitive marketing for their products and engaging customers so as to grab a share of the customer base. Through this, Huawei will suppress any competitor who plans to overtake it in the
market and brad position.
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- De Cremer, D., & Zhang, J. (2014). HUAWEI TO THE FUTURE. Business Strategy Review, 25(1), 26-29. http://dx.doi.org/10.1111/j.1467-8616.2014.01023.x
- Dempsey, P. (2016). The Teardown: Huawei P9 smartphone. Engineering & Technology, 11(9), 80-81. http://dx.doi.org/10.1049/et.2016.0926
- Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education