Huawei Technologies Co Ltd - Development in International Markets - Case Study Example

Dеvеlорmеnt in Intеrnаtiоnаl Маrkеts: Саsе Study оf Нuаwеi Тесhnоlоgiеs Со.Ltd (Author’s name) (Institutional Affiliation) Purpose This paper aims at increasing knowledge and understanding of international business through analyzing, describing, investigating how decisions are arrived by firms to take their businesses abroad. To achieve the purpose the paper studied and researched on how international goals of a company are executed. Theoretical frame work There has been a greater evolvement in the concept of internationalization. Scholars claim that internationalization is the international involvement increase and also it is an incremental series of decision marking. Internationalization is defined as a dynamic model that is involved in increasing operations in the international market, where there is broader concept of involvement in both inward and outward involvement. Beamish describes internationalization as a process in which firm use to increase their indirect influence and awareness of international transactions (Beamish 1990, P80). Adapting to international market and also modality of exchange transaction can be referred to as internationalization. There are some series of factors that influence internationalization which come from both the environment and the firm. Literature review Introduction The opportunities provided by the Global-Trade-Wind are promising and have attracted many companies in the world. The motives for many firms are to penetrate the global market and increase their economic scale. There are various methodologies those have been research in the past years by scholar in order to understand the entry strategies of firms in the international market. Domestic markets have proven not to be enough for many firms and that the reason many have opted to chase after the opportunities in the global market. Internalization has greater risk due to the volatility of the markets and also economic instability in various countries. There are different paths for companies to choose from when entering global markets. Some consider a step-by-step strategy while other prefers gradual approach taking into account time and knowledge of the market. This paper aims at studying internationalization of Chinese multinational companies and especially Huawei technologies limited which has been able to acquire a share in international market. The purpose of the project is to understand various entry strategies used to penetrate the international market, companies’ development in the global market and Chinese companies’ achievements in the domestic market before they were able to enter the international market. In order for the purpose to be achieved, the paper will study influences on which entry strategy to use and multinational companies’ goals in the market. Examining and analyzing existing literatures about internalization of Huawei Company, the paper will be able to use the relevant information to answer the research question. It will also review previous research findings on entry mode for companies from the perspective of entrepreneur. Some of the entry strategies used by various companies are the international pull and technical entrepreneur strategy, push and marketing entrepreneur and restructuring international industry. Previous research review Various scholars and research institutions have conducted investigations and research international business field with the aim of understanding firms’ objectives of internalization. Telecommunication companies like Huawei has invested largely in understanding international market and entrance strategies. Luostarinen (1979) explained much on the process of internationalization. Even though there is a close link between inward and outward processes of internationalization, inward notion of internationalization has not been embraced by the traditional approach. Over four stages have been suggested as internationalization path. Domestic stage, which is the first stage, does not involve any international operation. Inward stage follows, where foreign activities are tied only on importation of components or raw material and technological transfer. Outward stage, which is the third stage deals with co-operation process, these processes includes exporting, contract manufacturing and subcontracting. Final stage is co-operation where a company may sign an agreement in areas of purchasing, manufacturing, development and research. Foreign direct investment may influence domestic country economy because resources allocated to research may be reduced because firms are able to observe the techniques and strategies used by global companies and later adopting them for their advantage (Buckley et al. 2007, p450). Previous research has explained that horizontal spillovers of foreign direct investment can take place in cases of increased production in domestic companies. There are various channels in which spillovers can occurs. FDI through demonstration channels affects largely on innovation cost reduction. However FDI has some negative effect on domestic firms in the short run. The market share of firms in the domestic market has to be shared with the FDI which increases the competition intensity. Policies that encourage FDI inflow has been pursued by China since 1970s. FDI inflow increase has been recorded in China, recording a dramatic increase in 2006. In 2007, there was 10.6 percent investment from foreign firms and in June, china had accumulation of FDI was 750 billion dollars. Spillovers are dampened when domestic firms lack absorptive capability (Buckley et al. 2007, p450). The main goal of FDI policies in China is to promote transfer of technology. Research has shown that FDI has a positive effect in state-owned enterprises which deals with human capital investment, export and research and development. Even though many researches have recorded various findings in the field on internationalization, there is still lack of concrete conclusion on which is the best strategy for firms’ entry in the international market (Buckley et al. 2007, p450). Research methodology, data collection and analysis Research design are classified into three, casual research, descriptive research and explanatory research. According to Churchill and Lacobucci, discovery of insights and ideas is referred to as explanatory research (Churchill & Iacobucci, 2006). The frequency in which things occur with the initial hypothesis guidance is referred to as descriptive research. Effect and causes of relationship is the research method that involves experiment study and is known as casual research (Churchill & Iacobucci, 2006). Data collection method is selected once the research has determined the research purpose. Because the aim of this paper is to analyze and review internationalization of Huawei Company, the suitable system for this project is qualitative method (Churchill & Iacobucci, 2006). The method will enable one to collect primary data by going deeper into the research conducted about the company. This review draws its information from existing database and also different publication in order to give an in-depth literature review. The concept of internationalization This chapter mainly focuses on appraising studies and researches by other authors in relation to International Development Markets. The core company of Comparison is Huawei Technologies- a China Based International company. Internationalization is a concept which encompasses planning and execution of both merchandises and services in a particular entity towards progressive achievement and competitiveness in the market arena. Its evolvement has been gradual and has earned a lot of credit in three decades time since its conceptualization. Its core focus is not on only the direct but also the indirect relationship between an entity and its internal clients and international ones. Its success has inspirations from the products or services available, strategies, verdicts and flow or resources across territories. The internal and external environments of an entity have a great impact on Internationalization. It encompasses the entry mode which mainly has its core focus on the knowledge an entity has on the target market and its commitment to the identified market. Is it ready to provide quality products consistently? Is the market: clients to be precise the main focus in production? Are the discrepancies taken into consideration? If so, how soon? The choice of this entry mode by any entity is a key factor in determining how successful it will be in ensuring sustainable development. It is with this regard that various factors have to be put into consideration. According to Wu & Zhao (2007 p. 186-187), the factors are otherwise regarded to as moderating variables towards conceptualization of business. They discovered that the factors were not only internal but also the external environment played a key role. The situational factors entail entities such as it merits, developed and adopted strategies towards development and experience in terms of dealing with a diverse target market. External environment factors range from the condition of both political and economic sectors. This is with regard to the stability of the home country politically and the countries across the borders with which their markets are based. Secondly, the stability of the economic sector is important in determining the steadiness of production and marketing. The demand of various products by the clients is also a key factor in prompting entry in international market. The sociocultural affiliations of the target market and the area in which the entity will be established need consideration. This is essential in creating an ample relationship with the surrounding environment. According to Freeman (2010), Stakeholder Theory operates under the principle that the existence and success of any business depends on the value it offers its interested parties. It emphasizes on the need to cultivate a solid and successful relationships by adopting excellent management. Planning been a component of management is key at the entry level. This theory adds that success of any company depends on maximizing not only on the stakeholders but also the internal structure and strategies laid in the firm. According to Organizational Legitimacy theory, it is assumed that the existence of any organization is assumed to have engagements which are socially acceptable based on the society’s norms, beliefs and values (Cho, 2007). This theory mainly focuses on the relationship between the community and an entity. The two are believed to exist mutually in that the community provides resources such as man power, land for establishing buildings whereas the organization provides goods and services which fulfil their needs. In addition, this theory protects the community from harmful wastes produced by the company. This is achieved by ensuring that the company adheres to the ethical and environmental rules and regulation set. Huawei Company in the domestic market Huawei Technologies Company limited, as a late comer in Chinese market took advantage of the market by spurring already existing companies. It started by manufacturing products which were technologically standardized and also positioned the products at low-cost. This low-cost position was more advantageous in attracting domestic customers, therefore Huawei market share increase more than those of already existing technologies. Huawei technologies were started in 1988 as PBX (Private Branch Exchange) products distributor. These products include data network and cell phone supported wireless hardware. According to Luo et al, (2011) the mainstream breakthrough of Huawei technologies in the market of telecommunication first occurred in 1993. Upon accumulated sufficient resources and knowledge, the company switched from technologies of PBX and launched a digital telephone, in order to satisfy telecom industry supply gap in China. This product penetrated well in the telecommunication market and later the company launched other communication products such as GSM (Global System for Mobile), Mobile Telecommunication System and also CDMA (Code Division Multiple Access). Huawei has remained a very large localize enterprise in china, and has been voted as the most influential telecommunication company in China. Through raising productivity, cutting cost and concentration in its domestic market has a strong cash flow; Huawei Company was able to nurture its capability (Krugman 1979, p471). The fast growth of Huawei was supported by the domestic cluster. The political support offered by Chinese government helped Huawei not to directly compete with Shanghai Bell (Felipe 2000, p54). This support was a key factor in exploring China Rural market because the company was able to enjoy privilege such as financial credits and domestic market support in 1960s (Felipe 2000, p55). After the company’s success in domestic market, it started to invest in other countries. In order to optimize its management, Huawei collaborated with a consultant company IBM which helped in management. The penetration of global market was made possible by carrying out thorough research and investing heavily in development. Research and development was yearly allocated a minimum of 10 percent annual sales. This investment and various alliances were important for Huawei’s greater achievements in global market (Felipe 2000, p65). Since 2005, Huawei has invested in domestic universities and research institutes such as Zhejiang University, Sanjiang University, Beijing University and other to study the global and domestic market trend. Apart from investment in research institutes, Huawei has provided pre-career education programs to graduates that have helped to nature talents (Zhang et al, 2010). The programs has given the company to absorb and use external knowledge and also provided it with a cheaper human market (Zhang et al, 2010). These research institutions have been able to advise the company on which partnership is best for the company to form and this has enabled to promote Huawei’s network position in both global and international market. The company occupies the largest share of China’s telecommunication market and most of its competitors have raised questions as to why it is difficult to penetrate the market as Huawei has. Huawei domination of the domestic market was achieved by obtaining various segments such as cell phone networks, operating system services and cell phone handsets in the telecommunication industry (Krugman 1979, p471). The multiple segments hold by Huawei in the market position, has been the company’s unique advantage over its competitors. According to Luo et al, (2011) Huawei’s founder Ren Zhengfei entrepreneurial leadership skills helped the company to stabilized in both domestic and international market. Huawei Company made its product a national identity which helped in winning domestic market loyalty to its products. Even though Huawei is a private enterprise, the support offered by the government of China helped to achieve much in the country’s telecommunication market. After the company penetrated domestic market, it’s forward-looking and visionary leaders saw the need to seek for a share in the international market. During information technology hard time, Huawei build solid alliances with its clients by adopted the strategy of allowing its clients enjoy more profits (Luo et al. 2011, p70). Huawei started to win international market through the use of different strategies. They offered cheaper products and then through rural areas they encircled cities. The company started its expansion first in Hong Kong, Shenzhen then to developing countries which were emerging. According to Luo et al, Huawei was sharp and intuitive when it came to seizing opportunities (2011, p69). Through China government, Huawei was able to benefit from diplomatic relations cultivated between various countries and China. For example, Bangguo the State Council vice Premier of China in 2000 November, visited Africa in the company of Huawei founder Ren Zhengfei. Expansion of Huawei has been boosted also through global entrepreneurial partnership (Luo et al. 20011, p72). By 2003, Huawei had created partnerships which were very successful and was able to develop networking equipment which was high-end. This equipment helped a lot in the competition between 3COM, a switches and routers company. Thus, the two companies agreed on joint venture. The agreement provided a platform that Huawei’s networking equipment could be resold as a brand of 3COM. Huawei and 3COM owned 51 and 49 percent of the joint venture respectively. Huawei competitors in the international marker such as Cisco faced a bigger pressure from the partnership because the joint partnership helped Huawei to penetrate markets previously were unable to. Through joined forces between Siemens and Huawei, 3G communication standard for mobile was developed in 2004. The strategy of partnership seemed to benefit the company and over 270 million Chinese users in the market benefited from the technology. According to Luo et al, Huawei has continued to acquire more share of the international market by partnering with other companies which has improved the global economy as well. Many people are asking, which benefits have Huawei enjoyed from its many partnerships in the international market. First, the company has reaped increased reputation internationally as well as in China and also the company has made very lucrative contracts in different countries, for example, in Algeria, India, Sri Lanka and in some European countries (Luo et al. 2011, p73). While its competitors were experiencing slowdown in contract sales, Huawei recorded 46 percent increase in contract sales in 2008 year-o- year. The total contracts sales were 23.3 billion dollars. Huawei process of internationalization started in 1996, where it spent 3 months providing customized portability services for Hong Kong Hutchison Telecoms. The company then made a decision to pursue the international markets with Russia markets being its first priority in 1996. In Russia, Russia Telecom and Russia Beto Konzern formed a joint venture with Beto-Huawei in 1977. Huawei Company experienced some difficulties because it took four year for it to be able to get the first order (Hong et al.2012, p915). When the first order came in 2000, the company recorded its business improvement in the Russia market. According to 20003 statistics, in Russia and surrounding market, Huawei earned over 0.3 billion dollars in sales. Over the years Huawei domination of Russia broadband products market has increased up to 50 percent. Since 2000, Huawei has been able to get a share of the market in various countries which include Thailand, Malaysia and Singapore. West Europe countries have been difficult for the company to penetrate but it has contracted some local agents in order to put its products into the market (Hong et al.2012, p9217). Huawei and other Chinese companies have been affected by the inability to match between resources and ambition, a technique which has been employment my many global companies. This has been a greater weakness for Huawei Company, therefore its chances to compete with against giants of global telecommunication such as Alcatel, Siemens Motorola and Nortel is very little (Wang, 2012). Even though Huawei has recorded some improvements in research and development, it faces some weakness in its competition for the global market share. Cheaper technology was Huawei’s strategy of penetrating in developing countries’ market. However developed country’s markets are very different and require a much better strategy. Global operations of Huawei Company In over 100 regions and countries, products and solutions of Huawei have been used. Statistics show that global services of the company are being used by over one billion user with the major source of its sales being the international market. In an attempt to get their services closer to global customers, Huawei has set up over 100 branches in 20 different regions. There is Huawei in Sweden, China, India and in United States. Research and development centers, twelve research institutes which focus on different directions have been set up in other places. Through these centers and institutes the company is able to gather world’s experience and technology in order to improve in its internationalization. Just like the founder had suggested about staff localization, 28 training centers have set overseas in various regions with the aim of learning local cultures. These investments has strengthened and increased the share of the global market owned by Huawei Company. The Huawei success in international market was influenced by factors such as markets commitments. According to Johanson and Vahlne (1977) there is effect in firm’s risks and opportunities are by market commitments (p15). Studies have shown that, Huawei commitment in every country was different, thus they invested in R & D in order to understand every market culture. Resource commitment was reduced by hiring employees from every location they set up a branch. Through corporation and joint venture, the company eliminated the barriers that might be connected to lack of market knowledge. Joint ventures with Siemens and Microsoft helped the company to reduce unknown market risk (Johanson Vahlne 1992, p18). Previous researches have shown that Huawei Company has succeeded in the process of internationalization. The success and its contribution to international market depend largely on the employed market strategies and the entry mode. Huawei entry choice in every country was different (Hong et al.2012, p927). The company studied well its competitors in the market and employed a strategy mode which was appropriate. Even though it did not follow the stage strictly, Huawei was able t success. Huawei started a joint venture in Russia, and spend four years studying the market before the first order. The company target was first on markets with weak telecommunication products. This decision shows that they would enter the market by offering its products at lower cost which will build a good relationship with its customers (Hong et al.2012, p922). The second entry mode employed by Huawei was export. The local market and geographical distance conditions influence this mode of entry in Asia, Africa and South America. Using this mode, resource commitment and dissemination risk is low. Due to high completion, Huawei applied contractual mode of entry in West Europe, North America and in other countries in 2001. Some of contracts are with Motorola Company and also the Marconi Company. The relationships and network for Huawei was very important because resources controlled by one particular firm are assumed to be other firms dependent (Doole & Lowe, 2008). Developing an ultimately clients was the main aim for Huawei company and that was the reason there was no contract between agencies and the company as described by Mr. Zhang Jingdong. Market information and customer information is controlled by the company. The process of Huawei internationalization was influence by political factors, government policies, specialty in information and communication technology, which meant that its products were valuable when combined with other products (Mathews 2007, p389). When Huawei internationalization is analyze, it was found that the important factor that influenced entry mode was the industry feature. China being a developing country, the home country of Huawei Company influenced Huawei internationalization. As proposed by Uppsala, psychological distance like education, cultures, region language differences and business practices was a burned for Huawei penetration into some countries. However through learning the foreign market and adopting culture of the local market the company was able to penetrate the market. Ability for Huawei to mount an attack when there was an emergence of new opportunity was vital in studying fluctuations of prices, surveying steps taken by competitors and business strategy formulation (Mathews 2007, p403). Low –cost in research and development was another trait that benefited Huawei. According to statistics the cost of R&D for Huawei compared to European counterparts is ten times larger. Which give the company bigger advantages over its competitors. Conclusion This paper has been able to review various researches conducted about internationalization of Chinese firm, Huawei. The company is able to compete with telecommunication giants such as Alcatel and Motorola in the international due to entrepreneurial characters of its founders and through application of different entry mode strategies. Even though, Huawei Company was able to penetrate the international market when others owned a greater share of the market, it is very important for research institutes to find a better entry strategy. The business world is changing, hence need for better performances in the international market. In conclusion, globalization is latecomer’s tremendous opportunity and cannot any longer be defined as new market Bibliography Beamish, P.W., 1990. The internationalization process for smaller Ontario firms: a research agenda. Research in global business management, 1, pp.77-92. Buckley, P.J., Clegg, J. and Wang, C., 2007. Is the relationship between inward FDI and spillover effects linear? An empirical examination of the case of China. Journal of International Business Studies, 38(3), pp.447-459. Cho, C.H., 2007. 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Alliance-based Network View on Chinese Firms’ Catching-up: Case Study of Huawei Technologies Co. Ltd. Journal on Innovation and Sustainability. RISUS ISSN 2179-3565, 1(2). Read More