Huawei's-strategy.docx

Huawei:Cisco'sChineseChallenger1. Globalmarketentrystrategies1.1 JointVenturesFormanyMNCsthatv/anttoexpandtheirglobaloperations,jointventuresprovetobethemostviablewaytoenterforeignmarkets,especiallyinemergingmarkets.Inmanyinstances,localgovernments(e.g.rChina)discourageorevenforbidwhollyownedventuresincertainindustries.Undersuchcircmstances,partnershipsareasecond-bestortemporarysolution.AsChinaMmarketgrew,mostofleadingglobaltelecomequipmentfirmsstartedoperationsinChinainthe1980sand1990s.Duetoownershiprestrictions,mostforeignfirmsenteredthemarketbysettingupjointventureswithlocalChlMSeComPanieS(like.Motorola,Siemens,Nokia,Alcatel,1.ucentTechnologiesandEricsson).Huaweihasactivelysoughtcooperationwithrenownedforeigncorporationsinnumerousaspectsrangingfrommanagementpracticestoauditingtotechnologyresearch,aspartoftheirglobalizationprocess.TepartnershipswithforeignfirmsareacrucialcomponentnensuringHuaweiproductcompetitivenessandorganizationalexcellence.Thecooperationalsoprovidesmuch-neededlegitimacyfortheChinesefirmsindevelopedmarkets.HuaweihadactivelyundertakenjointR&Dlaboratorieswithforeigncompanies,includingTexasInstrument,MotoralarIBM,Inteletc.ToHuawei,thesejointdevelopmenteffortswereusedasacomplementaryapproachtoenhancingItsinnovationcapabilities.SixmonthsaftersettingupitssubsidiaryintheUSrHuaweiwassuedbyCiscoforhavingallegedllyinfringedanumberofCisco,spatentsandcopyrights.Inthemidstofthelegalproceedings,numeroussalescontractsthatHUaWelWaStryingtoclsoewerekilled.InNovember2003,Huaweienteredajointventurewith3CominChinaandJapan,calledHuawei3Com,inwhichHuaweihelda51%stake.1.2 WhollyownedsubsidiariesMultinationalcompaniesoftenprefertoenternewmarketswith100percentownership.Aswiththeotherentrymodes,fullownershipentryentailscertainbenefitstotheMNCbutalsocarriesrisks.CiscoopeneditsownsubsidiaryinChina,CiscoNetworkingTechnologyCo.1.tdandHuaweialsoenteredUSmarketbyopeningitsownsubsidiary.Buttheresultsareopposite,CiscosucceededandHuaweifailed.1.3 StrategicAlliancesTomoveintonewmarketsegments,Ciscoformedextensivestrategicalliances.CiscousedtheseacquisitionsandstrategicalliancesasawaytoacmmodatetherapidmarketshiftsintheexplodingITsector.Tomeetglobaldemandforitsproducts,Cismadeallianceswithlocaloriginalequipmentmanufacturersanddistributors,butmaintainedacentralizedmanagementstructurebyregion.TheNetherlands,forexample,waschosenasCisco/sregionalheadquartertomanageitsEuropean,AfricanandMiddleEasternmarkets.Cisco'sstrategyinChinawastofocusonrecruitingandtrainingemployeestoservicethehigh-endmarketsoftelecomserviceprovidersandenterprisemarkets.Insteadofformingjointventuresv/ithlocalpartners,CiscoopeneditsownsubsidiaryinChina,CiscoNetworkingTechnologyCo.1.tdztopromoteeducation,demonstrationanddevelopmentofnetworktechnology.Recognizingthelarge,lowcostandskilledlaborforceinChina,CiSComadefurthercommitmentstoinvestinanewR&DcentreinShanghai.1.4 entrysequenceFortheglobalentrysequence,multinationalcompaniesoftenfirstlychoosetoenterthecountriesculturesimilarandregionclosetothemselvseandthenentertheunfamilarmarket.Huawebeganconsideringinternationalexpansionin19%whenitlookedfordiversesourcesofgrowthbeyondtheChinesemarket.TbavoidheadtoheadcompetitionwithitsinternationalrivalssuchasCiscoand3Com,thecompanymadeitsinitialoverseasmoveinthemarketsofdevelopingcountries.WhenHuaweisucceeded,ittransferredtoenterthedevelopedcountries.Ciscoenteredtodevelopedcountriesandthentransferredtodevelopingcountries.2. Competitivestrategy2.1 Cost1.eadershipcompetitivestrategyIncostleadership,afirmsetsouttobecomethelowcostproducerinitsindustry.Thesourcesofcostadvantagevariedanddependonthestructureofteindustry.Theymayincludethepursuitofeconomiesofscale,proprietarytechnology,preferentialaccesstorawmaterialsandotherfactors.Alowcostproducermustfindandexploitallsourcesofcostadvantage.Iftheachievedsellingpricecanatleastequal(ornear)theaverageforthemarket,thenthelowest-stproducerwill(intheory)enjoythebestprofits.Occasionally,alow-costleaderwillalsodiscountitsproducttomaximizesales,particularlyifithasasignificantcostadvantageoverthecompetitionand,indoingso,itcanfurtherincreaseitsmarketshare.Huaweienteredthelow-endintenationalmarkets,supplyingroutersthatwere40%cheaperthatitscompetitorsin2002.ItboastedtheannualrevenueofUS$6.7billionin2005,ofwhich60%camefrominternationalsalesandthecompanycametobeknownastheCiscoofChina.Besides,HuawelhassuccessfullyenhancedItsR&OoperationsbytakingadvantageoflowcostdevelopmentcombinedwithadvancedresearchandexpertiseinChina.HUaWeiycompetitiveadvantagecamenotfromlow-costmanufacturing,butfromlow-costengineering.Withaninexpensiveandhighlyqualifiedresearchanddevelopmentworkforce,thecompanywasabletodelivercustomized,innovativesolutionstoglobalenterpriseslookingtoreducetheircapitalexpenditures.Huaweiinvestedaconsiderableamountofcapital(morethan10%ofannualrevenue)andhumanresources(30-4S%ofallemployeesworkwithinR&D)intoresearchanddevelopmentofnewproductsandtechnologies,sincethetelecomequipmentbusinessishighly