Emerging Market Enterprises: Huawei Essay Example

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Emerging Market Enterprises: Huawei

The corporate achievements of Huawei Technologies have led to global attention and a lot of research on the factors that have contributed to its success. Indeed, the rapid economic development of China and its communication industry have contributed to this success. The rise of Huawei is an interesting one since Huawei has achieved so much yet it received little support from the government and had the lowest start-up capital (Petti & Ederer 2012, p. 113). Chinese Companies that had significant market share in 1990s have either stagnated or had already quit the market while others are still at the developing stage. The question now remains how Huawei turn its fortunes to become one of the leading technological MNC from China given its unpopular status and competitive advantage that its competitors had in 1990s. There are several firm level and country-level factors that have contributed to success of Huawei Technologies. Detailed analysis of these factors will be undertaken in this essay. The main lessons that business managers can learn about interplay between firm and country-level factors in achieving success is also briefly discussed.

Most of the world’s fastest growing markets are the developing countries. Many multinational corporations (MNCS) are locating their businesses in these countries in order to take advantage of the large market. Foreign direct investment has significantly increased as social and economic factors in the emerging markets provide big investment opportunities for international companies. Indeed, the rise of emerging markets such as Brazil, India and China has been tremendous since 2000s. These countries together with Russia (commonly known as BRIC countries) contributed less than 8% of the total global output in 2000 (Wan 2013, p. 01). However, this share has rapidly increased and in 2008, these countries accounted for more than 14% of the total global output and more than 20% in 2013. According to forecasts by different international organizations such as International Monetary Fund (IMF) and World Bank, Brazil, Russia, India and China all will be among the top largest economies in the world by 2020 (Wan 2013, p.01).

In the recent years, BRIC countries have stand out as the best investment destination among the emerging markets. Investors are offered significant growth potential in these countries due to their sustainable and rapid growth. Massive government spending in sectors such as housing, healthcare, infrastructure and tourism in these countries has led to success of many MNCs. One such MNC is Huawei. Huawei Technologies is among the leaders that provide the next-generation telecommunications having been established in 1988 (Alas 2009, p. 165). The company deals with various products and solutions that include network products, wireless products, and mobile network products. Its mission and commitment is to provide innovative and customized products, services and solutions in order to create growth potential and long-term value for its customers (Alas 2009, p. 165). It is one of the successful MNC from China having global research and development centres in India, United States, Sweden and Russia.

Today, emerging market enterprises (EME) are embracing outward foreign direct investment (OFDI). It is receiving significant support from the emerging market governments as it actively stimulates OFDI through its various programs. Indeed, OFDI promotion policies are economically important and institutionally complementary in offsetting competitive disadvantages that EMEs are facing in global competition (Luo, Xue, & Han 2010, p. 68). Chinese government is increasingly adopting favourable measures that enable its MNCs to undertake OFDI for purposes of expanding into the international market. Majority of the emerging markets government are encouraging its local companies to go global (World Investment Report 2008, p. 07). Huawei now has presence in many countries as it increasingly use favourable policies that the Chinese government has adopted to enable its firms compete in international markets. The current measures used by the Chinese government include financial support and simplified approval process for companies that intend to invest abroad.

Huawei has significantly benefited from the financial support given by the Chinese government to enterprises that have operations abroad. China uses single corporate tax principle (Luo et al., 2010, p. 73). Double taxation is hence avoided when companies from China such as Huawei operate overseas. To achieve this objective, China continuously signs double taxation avoidance treaties with different countries. Huawei has profited from this scheme by using the money that would have otherwise been paid as taxes to expand its operations in the global market. It can also apply for loan at a discounted rate as Chinese enterprises that invest abroad get subsidised loans from the People’s Bank of China. As Huawei continue to invest in different countries, smooth and simplified approval process enabled by the Chinese government is important in its expansion strategies. Economic or technological feasibility reports are not required except the investment direction of the company (Luo et al., 2010, p. 73). This is an indication that the government of China attempt to improve efficiency of its services in order to assist its MNCs gain competitive advantage in the global market.

The telecommunication infrastructure in China was very weak prior to its economic reforms and opening up policy. A three-pronged strategy was adopted by the Chinese government (Smith-Gillepsie, 2001, p. 45). It encouraged joint venture, imported foreign equipment and promoted indigenous research and development. China was relying on ‘100 per cent of its acquisition of telecom equipment through imports” at the time Huawei was being founded (Fan, p. 361). Moreover, majority of the international telecommunication companies such as Motorola, Nokia, Ericsson and Alcatel had already infiltrated the Chinese market. The strategy of Huawei founders was to create a domestic telecommunication company that will compete with its international counterparts. It started slowly reselling imported products such as fire alarms and public branch exchange switches from Hong Kong.

The company needed to distinguish itself from other domestic manufacturers and made a significant strategic decision of developing its own technology as opposed to an international joint venture (IJV). This was a conventional strategy as most of its competitors the leading company at the time-Shaghsi Bell chose IJV (Bell 2008, p. 107). The management of the company emphasized research and development and it paid off after it successfully released its first in-house developed product.

Internal management of a company plays a significant role in the success of any enterprise. The successful administrative changes of Huawei have been key to its success. In mid-1990s, the administration of Huawei technologies had its first visible turning point (Alas, p. 166). Previously, its management was at its infant stage. The company uses rapid action as its key management tool. A centralized model of business that focuses on business has been adopted by Huawei through a strategy of acting rapidly, immediate collection of feedback and quick adjustment. In 1990s, the company used strong sales power for purposes of launching its products.

The success of Huawei has largely depended on its rightful strategic thinking. Indeed, Huawei has a unique culture that has implemented its strategies through ‘wolf-like’ corporate culture (Liu 2015, p. 193). Its reward and punishment systems have largely supported and promoted its unique culture. Employees who work hard and help the company achieve its objectives are handsomely rewarded while indolent employees are forced out of Huawei. This policy has been strictly implemented since the inception of the company. Indeed, the wolf-like culture of Huawei combined with its reward and punishment systems can be described by three characteristics: high pressure, high performance and high reward (Liu 2015, p. 196). In its early development, the importance of this culture was vital for the company’s survival. Therefore, all the employees that have remained at Huawei have survived this policy and they are now enjoying handsome perks through various Huawei shares and bonuses.

Most of the MNCs from China lack competitive advantages in the global markets. They use foreign acquisitions as a way of compensating for their competitive disadvantages (Rui & Yip 2008, p. 221). The telecommunication companies lack product technology that is vital in a globalised market. Moreover, they do not have a globally recognised brand as well as managerial experience at an international level. In order to compensate for these disadvantages, Chinese MNCs such as Huawei seek strategic resources for acquisition of foreign companies when they become available. In addition, Huawei compensate lack of product technology through applicable technology that is highly demanded by its Chinese customers. The increased competitive pressure in China has forced Huawei to choose quick solutions in order to enhance their competitiveness. Luo and Tung (2007, p. 486) argues that this is one of the common push factor for emerging market MNCs. Huawei has continuously acquire foreign companies as part of its strategy to infiltrate different markets. For example, Huawei acquired Marconi in order to assist it access European markets through its experience of the local markets. As a result, Huawei has been able to maintain successful business in different global markets.

Marketing is a critical function in an organisation. For a successful business both at local and international markets, a firm should have a powerful ability to market its products and services. Huawei has an innovative and effective marketing. Tang (2004, p.122) described Huawei marketing system as “a net from which no potential customers could escape”. On one hand, the company use international telecommunication exhibitions to market and demonstrate its products to the global consumers. In fact, it regard these exhibitions as the best opportunity for the company to market itself and its various products. On the other hand, Huawei use guanxi strategy as its core marketing strategy (Rui & Yip 2008, p. 222). It has set up representative offices throughout China which result in a close relationship between its marketing staff and clients and later formed joint business ventures with the local telecommunication authorities. This strategy has assisted Huawei secure the Chinese market. In international markets, this marketing strategy has already been applied in Russia and Africa.

Urbanisation has been a major growth opportunity. The urban population of China has significantly increased in the last 20 years. It offers a great opportunity to MNCs such as Huawei as these consumers demand sophisticated products and services. Indeed, Huawei has been continuously using China’s urbanisation process to grow its business by building relationships with various municipal governments. It has been identifying local stakeholders and partners as a way of expanding its local market share. Huawei has divided the local Chinese market into two; mature and emerging markets. It then devises technological solutions to satisfy both markets.

The success of Huawei in the global market cannot be overemphasized. It is the only Chinese multinational in the Fortune Global 500 list that generates more revenue in the global markets than in China. Long-term planning has contributed to this achievement. Huawei employee-ownership pact has assisted the company in attracting and retaining employees (Bell 2008, p.107). Furthermore, it has allowed Huawei to put in place long-term plans. Typically, companies undertake their planning every financial year but Huawei plans the company’s development for a period of 10 years. A rotating senior leadership has been introduced at Huawei in order to have a innovative management structure that does not make the company vulnerable in case one executive fails in delivering the mandate. For a period of six months each, three deputy chairmen take turns as acting Chief Executive Officer of the company.

Motivated employees are more productive as they focus their energy and attention towards the attainment of organizational and personal goals. Huawei has a tradition of stressing its employees to work hard. Indeed, it views it as the only best way through which opportunities can be acquired (Cuervo-Cazurra, Newburry & Park 2016, p. 15). Organizations are more focused when there is a committed and devoted workforce. It is sometimes impossible to boost employees’ dedication, morale and trust and make them acknowledge it. However, to some extent, Huawei has achieved it through its incentive performance system. As a private company, Huawei is owned by individuals. It is therefore important to make employees feel that they share the company’s responsibilities and benefits with its owners. The management of Huawei wants every employee to act like a manager. Employees who perform very well are allowed to take part in the common stock option arrangement.

International managers must be aware of the different firm-level and country-level factors that influence the success of an MNC. The competitiveness of a firm is a greatly debated topic in the business world. International managers must know how firm-level and country-level factors combine to a give a company its competitive advantage. Indeed, the performance of the firm is affected its competitive advantages (Depperu & Cerrato 2005, p. 2011-2013). The competitiveness of a firm internationally may be different from its home competitiveness. In fact, a company may have low international competitiveness but very profitable in its home country where it dominates the market. International managers need to know the factors that bring this discrepancy such as barriers to international trade. In this case, they should come up with strategies that bridge these barriers.

The mode of entry is important to companies that seek to expand their operations to international markets. It must choose an entry mode that is most appropriate for its operations and the nature of the foreign market. This is because an entry mode greatly impacts the performance and success of the company in its foreign market. It can choose from five entry modes that include exporting, licensing, strategic alliances, acquisitions and newly owned subsidiary (Hitt, Ireland, & Hoskisson 20, p. 242). Each mode of entry has its own advantages and disadvantages hence the choice of entry is capable of affecting the degree of the firm success in international market. International managers should choose a mode of entry that best suit its business strategy and objectives.

Managers should have the knowledge of country-level factors such as cultural differences and the laws and policies of the host country. The economic, social and political environment influences the competitiveness of a country through its impact on innovation conditions (Shenkar, Luo, & Chi 2015, p. 33). The competitiveness of a country should be fully understood by a manager since it is an important factor in selection of its global operations. Important policies that apply to MNCs should be taken into consideration before launching an overseas operation. Competitiveness of a country is improved through increased productivity. International managers search for nations that enable their companies to create and maintain competitive advantages. Interplay between firm-level and country level factors often combine to create a good business environment. Managers should learn how they can maximize interaction of these factors in order to achieve their objectives and competitive advantages.

Chinese MNCs are increasingly playing a vital role in the development of China’s economy. The growth rate of China continues to increase as business opportunities arising from infrastructural development, urbanisation and increased consumer spending assist its MNCs to expand globally. However, it is increasingly challenging to carry out successful business in the global 2nd largest economy due to fierce competition and sophisticated consumers. Telecommunication company such as Huawei continue to achieve tremendous success both at home and international markets despite these challenges. Its marketing strategies and organisational culture have played a critical role in its successful business venture. Country-level factors such as immense government support for its multinationals and large consumer base have combined with strategic plans of Huawei to boost the company revenues and hence its success.

References

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