Global Operations Management of Huawei Technologies Corporation - Case Study Example

?Global Operations Management Background The Huawei Technologies Corporation is a company that was officially formed in 1988 in Guangdong by Ren Zhengfei. It rose to become one of the most internationally recognized providers of products in the telecommunications industry. Huawei’s rapid international expansion has surprised even the more established firms in the telecommunications sector. With its continued investment in cutting edge technology, the firm is set to become one of the major challengers of the more established and Western based telecommunications corporations. To increase its influence and reach more customers in various parts of the world, Huawei has also entered into partnerships with numerous companies. Theories of Internalisation The term internationalisation is descriptive of the methods that are used by business organisations to adapt their numerous operations, in regards to company policies, resources and organisational structure, to suit foreign environments (Dunning 2006). Before embarking on the process of internationalisation, business organisations have to take into account factors such as the geographic distance of the overseas market being considered, the different company associated operations that the company will engage in the foreign branch, and the level to which the company would like to integrate corporate activities (Mitgwe 2006). There are different theories that seek to explain the ways through which internationalisation may occur. Three of these theories include Dunning’s eclectic paradigm, which deals with the significance of ownership advantage and transaction cost, the Uppsala process theory which tackles the significance of various developmental phases undertaken by a multinational corporation in the course of internationalisation, and the innovation-related internationalisation model, which stipulates that internal as well as external change forms the basis of the process of internationalisation (Thomas and Eden 2004). When it was first established more than two decades ago, the leaders of the Huawei Corporation were not interested in expanding beyond China. Its expansion into other regions in China, apart from Guangdong, as well as into other nations, was something that happened on a gradual basis. Dunning’s Theory in the Internationalisation of Huawei According to Dunning’s OLI model, foreign subsidiaries usually demonstrate higher productivity rates than their local counterparts due to the existence of ownership competitive advantages (Dunning 2006). Dunning’s eclectic (OLI) model stipulates that there are three critical elements that are evident in any firm that invests in a foreign branch or subsidiary. The three factors are location advantages, ownership advantages, and internalisation advantages (Dunning 2009). Ownership advantages have to do with the existing conditions that accompany of foreign direct investment (Contractor 2007). For example, to be successful in foreign investment, a firm has to have comparative advantages over other foreign corporations before it determines that a branch will be set up in a foreign nation. Location advantages have to do with the extent to which foreign business-related conditions are favourable to the company in question (Sethi, Guisinger, Phelan, and Berg 2003). Internalisation factors, on the other hand, have to do with how well the multinational corporation can internalise ownership advantages in order to prevent the escalation of transaction costs which are naturally incurred in the course of international production. The Huawei Technological Corporation is a firm that was launched long after other telecommunications corporations had already been launched in the Western nations (Dunning 2009). Huawei therefore focused more on meeting particular objectives in order to realise its internationalisation. Huawei has traditionally used low cost as a technique to enter markets in both developing and developed nations. Huawei also invests in developed nations mainly to realise the adoption of new technologies. Most multinational corporations have a need to internalize ownership advantages so as to retain control within their ranks. This may be a reason why they choose to establish majority owned foreign branches. When they opt to enter into joint partnerships, they may actually be seeking to enhance their capabilities in given areas. This is particularly true where the MNC’s such as Huawei are concerned (Dunning 2006). When Huawei partners with telecom networks in regions such as Western Europe and America, it ensures that its partners have complementary skills that are highly valued. Huawei’s ownership advantages in aspects such as labour, individual entrepreneurship, and natural resources mirror China’s resource endowments. As asserted by Dunning’s model, Huawei’s reasons for expanding into nations such as the United States are driven by the desire to gain access to better technology as well as a new customer base. Huawei began expanding to Western nations when it entered the third development stage in the innovation-intensive field of telecommunications. Moreover, there are definite misalignments between the OLI paradigms recommendations on the operations of multinational corporations and the realities of the multinational corporations, such as Huawei, from developing nations (Dunning 2006). It has become quite common for MNEs like Huawei to assume leading positions in fields like the telecommunications industry. They are usually quite small when compared to their rivals in industrialized nations, and are quite accustomed to functioning in very volatile environments. Many of them are also often dependent on firm-specific benefits like management, process capabilities, parental networks, corporate entrepreneurship, social and networking skills, and flexibility (Dunning 2006). Most multinational corporations from developing nations are usually perceived as being part of a homogeneous group which benefit from notable state support. Huawei’s ownership advantages comprise of inherent aspects such as the policy of emphasising on high efficiency, low cost, and product differentiation. Another factor that may be referred to as an ownership advantage has to do with the benefits accrued by the company after tackling weaknesses in technology through international cooperation as well as self-improvement. When it first started to branch out, the Huawei Corporation made use of existing advantages in policy to break into foreign markets. It also chose to implement strategies to catch-up to more recognised telecommunications firms by remedying existing defects in its products. By doing this effectively, it slowly acquired a reputation for cooperating with other companies with the least amount of fuss and thus built a stable reputation. After acquiring the reputation that depicted it as a trustworthy enterprise, Huawei would then begin to begin to further consolidate its painstakingly acquired position as a company to be reckoned with in the extremely competitive telecommunications industry. The term location advantage could be used in reference to particular factor endowments such as economic environment, natural resources, social and cultural factors, the legal environment, and political power (Oviatt and McDougall 2005). In every additional phase of internationalisation, Huawei’s preferred location has been in accordance with its internationalisation strategy. Huawei at first chose to enter into the markets of developing countries which it was invited to or sensed were ready for internationalisation. These economies were beneficial for Huawei because there was not the fierce competition that it would be exposed to if it chose to enter Western markets. Huawei could also manufacture its products at cost effective prices in some of the developing nations it invested in. It is only in its maturity that the company opted to gain a foothold in developed economies. In as far as internalisation advantages are concerned, Huawei benefits because its capital markets wherever it invests tend to generate opportunities for horizontal as well as vertical linkages among affiliate firms that may be made up of contractors or suppliers. Vertical linkages will assist in keeping price variations in check, thus ensuring that production costs do not escalate. Horizontal linkages, on the other hand, allow for information as well as resource sharing. They also effect the sharing of technological innovations (Kotabe and Helson 2008). This kind of internalisation facilitates the transfer of knowledge or resources acquired by affiliate partners among themselves and with the main company without effecting high coordination costs. The Uppsala model of internationalisation seeks to define the processes that take place in the initial stages of a company’s expansion. When a company is launching its first move to a foreign branch, it will not have a lot of resources or even knowledge of other markets. According to the Uppsala model, a company will develop gradually in its effort to engage in international expansion. According to Johanson and Vahlne, firms will start off by establishing themselves in culturally as well as geographically close markets. They will also gradually increase their commitment to new populations of customers and reach out to sales companies before progressing to manufacturing companies (Luo and Tung 2007). According to Johanson and Vahlne, there are four steps that mark the progress of multinational corporations in different markets. This establishment chain first starts with the incidence of irregular export activities. It is then followed by exporting activities through independent representatives. Next, is the company’s launching of a foreign sales subsidiary. Finally, there is the establishment of an overseas manufacturing subsidiary in a foreign nation. Johanson and Vahlne showed that a company can launch its products in a new market through the lowest resource commitment and then develop further from this position (Luo and Tung 2007). The method used by the multinational company, whether it is from a developing or developed nation, to enter new markets is determined by the incidence of risk association, existing business chances, urgency of expansion, and volume of the anticipated market. In every investment made by the MNE, the resources that will be committed will be dependent on the level of investment in any given market (Luo and Tung 2007). The level of commitment will also be determined by the existing number of alternatives for transport sources as well as existing raw resources.   When Huawei was first beginning to launch into foreign nations, it deliberately selected developing markets so as to avoid being negatively affected by severe competition and advanced technologies in developed markets. Investing in nations such as Brazil, Russia, and India in the late 1990s was beneficial for Huawei because these nations had low market access as well as backward telecom technologies in comparison to those in more developed countries (Li 2003). The company therefore gained experience in operating in foreign markets and studied other more established firms before opting to enter the competitive market place in the telecommunications industry. Huawei also entered into various partnerships in transitioning economies which would help it in establishing a foothold in other markets. For example, Huawei, in 1997 partnered with the Beto-Huawei in Russia. Apart from becoming Huawei’s main source of revenue in the area, this partnership would also allow for a stepping stone for Huawei which was able to enter other telecommunications markets in nations around the region. Similarly, Huawei’s entry into the Brazilian market afforded it the opportunity to be able to expand into other neighbouring Latin American nations. It is only after gaining experience in these transitioning economies while closely observing operations in more competitive markets that Huawei began to consider entering into developed economies. The location advantages in shifting operations to developed economies included the fact that they had the latest technologies. Huawei would successfully set up research and development operations in Sweden and America as these regions are home to the world’s best R&D infrastructure and thus provide a productive atmosphere which is conducive to product innovation. Another location related reason or Huawei has to do with its markets. According to Ahmad and Kitchen (2008) developed nations are the world’s biggest telecom markets, with North America as well as the European nation making up approximately 61.3% of global telecom spending. Innovation-related internationalisation Models Huawei has also made use of the Innovation-related internationalisation model. In the innovation-related internationalisation model, the focus is on the way in which the company learns as it adopts new and improved innovations in the course of internationalisation. Every new stage of internationalisation is thus viewed as a phase for acquiring more experience than the company had in the earlier phases of international expansion. When it first started to establish a presence in the telecommunications market by catching –up to the correct production of telecommunications products, Huawei was essentially learning about the necessary functions of the industry; and not necessarily actively involved in the export of its own products. The investment in various branches would come later. Huawei started off with wanting to learn about various processes involved in the production of telecommunications products (Luo and Tung 2007). Its learning process was what it perceived as being an innovation. In the early 1990s, even as the company was expanding in areas in which there was little completion for it, Ren Zhenghei, the man who launched the company was quietly studying the ways in which Western company’s such as IBM were structured. He was interested into launching operations into the competitive Western market; but was aware that his company would be crushed if he did not tale precaution to learn all that he could about the competition. He would go further to hire IBM as a consulting service between 1998 and 2003 so that he could restructure his company and prepare it for phenomenal expansion into the Western market. Recommendations Today, Huawei is faced with foreign as well as domestic competition. The company has to keep advancing to its expertise in the division of research and product development in order to keep all competitors at bay. Moreover, it may have to accomplish this feat by using different methods from those that it used in the past. The general internationalisation of operations in large, average-sized, and small scale corporations has grown to be easier to effect since there are now better techniques of communication as well as infrastructure which allows for better transportation. The proliferation of IT technology has also allowed for more companies to be able to effect a more dispersed type of organisational structure which will result in the vertical disintegration of the structure of big organisations. Huawei has to come to the understanding that even though economic forces were in the past the main force for globalisation, the present day networking culture is creating a different culture from that of the past. Firms are growing in different ways from what used to be the norm. In the past, theories on internationalisation dealt with the reality of tactical national borders. There might be a need for large corporations such as Huawei to redefine their understanding of borders, though, as the world is quickly being transformed into a regional-global-local body that operates on different rules from the days when national boundaries were recognised. This is because such changes naturally affect business aspects as well. It might be more beneficial for Huawei to channel its energies towards conquering the competition through network internationalisation (Chetty and Campbell-Hunt 2004). A borderless world allows for more hazards than were formerly present. For example, Huawei’s concern in the past was how to acquire more sales than the big Western based corporations. However, in a borderless and more networked society, the competition has expanded to include small and average sized firms (Okpara and Koumbiadis 2010). In the present business industry, small companies can operate on equal footing with giants such as Huawei in different functions. In an age that supports the outsourcing of business processes and in which powerful software exists, small competitors are able to challenge large organisations that have existed for decades (Ramamurti 2004). Huawei’s main competition may not be the Western based corporations, but may be the small up-and-coming companies that work on small budgets, but have modern work processes and logistics, as well as revolutionary ideas. To benefit from gaining more customers and improving its proceeds, Huawei has to engage in the process of reaching out to new consumers in emerging economies. This is not just in reference to nations in Latin America, but also in Asia and Africa. Emerging nations are the future markets and will likely eclipse the markets of the developed nations. The rapid development being witnessed in terms of IT knowledge in many parts of Africa, for example, suggests that there will be fresh consumer for telecommunications products in the near future and that changing patterns of spending in other nations will result in a shift in levels of demand for assorted products (Beausang 2003). Huawei has to position itself in such a way that it does not miss the chance to grow along with these economies. It is also important for the corporation to balance employee empowerment with collaboration and control, valuing the independence as well as flexibility of members of its network, while also aligning all the different stakeholders in such a way that common objectives can be achieved. References Ahmad S. Z., & Kitchen, P. J. (2008) 'Transnational corporations from Asian developing countries: the internationalisation characteristics and business strategies of Sime Darby Berhad', International Journal of Business Science and Applied Management, vol. 3, no. 2, pp. 21-36. Beausang, F. (2003) Third world multinationals: engine of competitiveness or new form of dependency? Palgrave Macmillan, Basingstoke. Chetty, S., & Campbell-Hunt, C. (2004) ‘A strategic approach to internationalisation: a traditional versus a “born-global” approach’, Journal of International Marketing, vol. 12, no. 1, pp. 57-81. Contractor, F. (2007) ‘Is international business good for companies? The evolutionary or multi-stage theory of internationalisation vs. the transaction cost perspective’, Management International Review, vol. 47, no. 3, pp. 453-475. Dunning, J. H. (2006) ‘Comment on dragon multinationals: new players in21st century globalization’, Asia Pacific Journal of Management, vol. 23, no. 2, pp. 139–141. Dunning, J. H. (2009) ‘Location and the multinational enterprise: John Dunning's thought on receiving the journal of international business studies 2008 decade award’, Journal of International Business Studies, pp. 20-34. Kotabe, M., & Helson, K., (2008) ‘Global marketing management’, A Journal of Global Marketing, pp. 329-331. Li, P. P. (2003) 'Towards a geocentric theory of multinational evolution: the implications from the Asian MNEs as latecomers', Asia Pacific Journal of Management, vol. 20, no. 2, pp. 217-42. Luo, Y. D., & Tung, R. L. (2007) ‘International expansion of emerging market enterprises: a springboard perspective’, Journal of International Business Studies, vol. 38, no. 4, pp. 481-498. Mitgwe, B. (2006) ‘Theoretical milestones in international business: the journey to international entrepreneurship theory’, Journal of International Entrepreneurship, vol. 4, pp. 5-25. Okpara, J. O., & Koumbiadis, N. J. (2010) ‘Strategic export orientation and internationalisation barriers: evidence from SMEs in a developing economy’, Journal of International Business & Cultural Studies, vol. 4, pp. 1-10. Oviatt, B. M., & McDougall, P. P. (2005) ‘Defining international entrepreneurship and modelling the speed of internationalisation’, Entrepreneurship Theory and Practice, vol. 537-553. Ramamurti, R. (2004) 'Developing countries and MNEs: extending and enriching the research agenda', Journal of International Business Studies, vol. 35, pp. 277-283. Sethi, D., Guisinger, S.E., Phelan, S.E. & Berg, D.M. (2003) ‘Trends in foreign direction investment flows: a theoretical and empirical analysis’, Journal of International Business Studies vol. 34, no.4, pp. 315-326. Thomas, D.E., & Eden, L. (2004) ‘What Is the shape of the multi-nationality-performance relationship?’ The Multinational Business Review, vol. 12, pp. 89-110. Read More