Huawei as a Dark Horse in the Global Smartphone Market - Case Study Example

Case Study: Huawei- A Dark Horse in the Global Smartphone Market Name Institution Case Study: Huawei- A Dark Horse in the Global Smartphone Market Key Issue Huawei is a smartphone company dealing with the manufacture and distribution of smartphones globally. The company has established itself in the smartphone industry despite the many challenges that it faces. However, there are some key issues that have been problematic for the company which are challenges in its design of the operating systems that it has been using on its apps, skyrocketing cost of production amid financial challenges, lack of power to control the industry due to many players in the market which has made it impossible to manage a sizeable control. Although Huawei is a dark horse in the global smartphone market, it must adjust then business model it uses so that it can be able to cope up with the challenges it is facing. Analysis Internal analysis For the competencies of Huawei to be evaluated and understood clearly, there is a need to conduct an internal analysis. This includes the manufacturing costs as compared to the other firms in the industry as well as the capability of the company to compete in the global smartphone market. Also, analyzing the VRINE model is as useful as well, and the conduction of the value chain analysis is necessary for the evaluation of Huawei's internal strengths. Financial Analysis The appendix on this essay gives the financial insights into the Huawei’s revenue as well as the operating profit from the year 2006 to 2015. The operating profit is compared to the revenue so that a financial analysis can be generated from the two items, with the cost being able to be estimated and conclusions made. From the data availed, it is clear that the revenues of the company have been on a rise since the year 2007 to the last year when the accounts were updated and a balance sheet drawn. This confirms the reason as to why the company has been a dark horse in the smartphone market. However, during the year 2005, the revenues that were realized were $8,499 million, giving the lowest price ever to be recorded by the company. The operating profit tallied to $621 million. From then, there has been an ever increasing revenue and operating profit figure to the tune of $60,839 million and $7,052 million respectively. This shows the efforts ha company has been investing in its operations to make sure that everything that is done always goes in a positive direction. However, this is not the rate at which the profits ought to be growing, and the revenues too are supposed to increase at a higher rate considering the investments that are made in the firm. As is visible form the chart, starting from the year 2007, Huawei started managing the expenses that were being incurred against the revenue that was being received. This was to avert a downward sloping revenue curve. The continued rise in revenue is attributed to a significant percentage of the share of global shipping of smartphones whereby the company ranks the fourth after Samsung, apple, and Motorola in the year 2014. The market share at this defined time was a 6.2%, but it rose significantly to 8.4% in the year 2015, outdoing Lenovo and Motorola which were ahead of it in the previous year, 2014. A continuous improvement was noted when the company jumped from 8.4 % to 9.3% but maintaining the same position regarding the ranking in the shipment market share of global brands smartphones VRINE Model The competitive advantages that Huawei has over the other firms in the industry are assessed by the use of the VRINE model. Also, the applicability, as well as the sustainability of the competitive advantages, are also analyzed. Value: Huawei focusses on value by selling high quality but cheap smartphones that are suitable to the low and middle-income earners across the globe. The phones are continually improved, with technologists spending their valuable time in the lab trying to make something that would be appreciated and welcomed by a majority of the population of smartphone users. The firm has local as well as international agents who are well equipped with the knowledge about the products and networking necessary for the establishment of a reliable sale and marketing contacts. Rarity: smartphones are not rare since most of the people are using them today in the world. However, considering this from a production point of view, they are not often found as the industry has a few players who are limited in number. Furthermore, the smartphones manufactured by Huawei are rare because of their quality and ability to withstand wear and tear than the others made by the other industry players. Inimitability: the gadgets made by Huawei are unique models that are not easily counterfeited since the make itself is so distinguished and stands out from the rest of the smartphones in the market. This makes it very difficult to reproduce the models. The rights to manufacture with the specific Huawei technology only remain the property of the company and no other player in the industry is allowed to imitate. This gives the company a competitive edge in the market over its rivals. Non-Substitutable: there are other smartphones in the market such as the Tecno ones that can replace the Huawei ones. However, the other gadgets are expensive to the buyers, which make Huawei smartphones to have some advantage of being non-substitutable economically. To worsen the situation, there are other luxurious smartphones which are exorbitant to customers. Hence Huawei has the upper hand in this case. The more financially feasible option is the one that is chosen, as the consumers are always rational. Exploitable: The system used by Huawei guarantees maximum income from the venture as the way of making sales is made to be in a manner that all the revenues are received by the company. Therefore the whole process is exploitable by the organization. The VRINE analysis shows that the manufacturing of goods that are meant to suit the customer needs which include financial and quality have been used by the company to give it a distinguished position in the market. This has been a survival tactic as well as a unique characteristic which has earned the company an impressive image. Value Chain Analysis This is the analysis that identifies the operations that are performed by changing the inputs into output; rather the finished products. The analysis here will give a prediction of the operations that were involved in the manufacturing of the Huawei smartphones. Primary activities: the basic activities include the production of the phones, logistics, marketing, as well as sales. After the phones are manufactured, they are transported by the company to different distributors who are partners to the company. The distributors supply to different regions of the world whereby the chain continues till the customers are reached. The organization has got different branches in different countries especially to offer support services and do marketing in the specific regions. However, sale to the final customers is made by the agents that the company has established ties with over the years. The agents are allowed to carry out their local sales promotion and marketing activities, but the commercial broadcasts are done by the company. The warrant services are offered to the customers through the agents of the company such as the retailers who direct clients to the Huawei service centers in the specific regions. Support Activities: the technology that is used in the production of the smartphones by Huawei is highly supported for any further development. The inputs in the production process are all imported by the company then the different engineers together with their sections that they have been allocated to oversee. The technology that is used in the manufacture of the gadgets determines a great deal in the competitiveness ability of the smartphones. The quality is also standard and is recognized worldwide with many distributors preferring to partner with Huawei and sellers stocking the products. The batteries that are out in the smartphones make the gadgets appear more marketable because they are long lasting and are also environmentally friendly. Many people feel that they need to buy Huawei products mainly because of the long lasting battery that comes with a good screen lighting system so that the battery power is prevented from being wasted unnecessarily. With the recent introduction of the system to eliminate fake mobile phones by terminating them from the network service providers, the Huawei brands have received a major boost, selling more than triple the number of smartphones they used to sell previously. This came as a boost to the genuine manufacturers of mobile phones. However, due to the availability, durability and the low price at which the gadgets are sold, the Huawei Company made incredible revenues that surpassed any prediction that had been projected before. Before the entrance of Huawei into the mobile phone industry, there were some few dominant firms that used to inflate the prices of their phone that they were selling. The introduction of the smartphone technology came as a rescue to the mobile phone industry whereby the consumers were looking for phones which could be able to access the internet in a faster manner and also serve the other purposes as the other phones had been doing. However, there came in smartphone giants such as the Lenovo which used to sell their smartphones at higher prices such that when Huawei took over, they never noticed before they were surpassed. The cost, therefore, meant a lot to the consumers who were yearning for a product to satisfy their specifications. External Analysis The Porter's Five Forces model, as well as the Competitor analysis, is used to conduct the external analysis which shows the competitiveness of firms as well as their profitability in the industry that they are operating. The Porters Five Forces Model It evaluates the profitability of a certain firm in a given industry where the firm operates. These five forces are used at this moment to analyses the smartphone industry where Huawei is competing alongside other firms such as Lenovo and Samsung. Competitor rivalry: the competition level in the industry is tough considering that there are more than six firms, each having its sizeable share of the market. In a situation whereby a firm fails to catch up with competition completely, it is kicked out of the market, and it, therefore, must withdraw. Unfortunately, the market is a global one such that if a company is kicked out of the market due to competition, and cannot go to another part of the world to re-establish the business there because the market is a global one. Many of the firms have a vast amount of resources at their disposal. Bargaining Power of Suppliers: The suppliers who supply the necessary components that are used as the inputs in the manufacturing process of the smartphones have a low bargaining power. So that the firm does not end up making losses or realizing low revenues, it makes sure that it buys the input materials at a lower price so that the cost of production is lowered. The prices are in fact negotiable and can be lowered upon bargaining by the manufacturer to the supplier. As a consequence, the revenues of the company have been rising steadily over the years, making it a dark horse in the industry. The bargaining power of Buyers: the customers have had an experience purchasing other smartphones from the market and are aware of the prices that reign in the market6. Apart from that. Huawei wants to attract the customers by using the price factor and lowering the prices to a point whereby its rivals will have to sell at their prices to avoid incurring losses, leaving Huawei enjoying high sales. Therefore the bargaining power of the buyers is quite high, and the company has to adapt to this so that it does not lose the esteemed buyers. The threat of Substitute products: there are other smartphones from rivals that are offered in the market and this is one of the factors that have hindered Huawei from being the number one smartphone seller. Therefore, the company keeps on strategizing on how to deal with the substitute products so that they do not significantly threaten its position in the market. Huawei has to, therefore, adopt more and better ways of keeping up with the changes in the market so that it does not find itself in the middle of the cross roads in the midst of stiff competition. The threat of New Entrants: there are many potential entrants in the market which are backed by investors who have a large capital to invest, which opens a threat to the existing firms in the smartphone industry. Also, the existing firms in other industries such as the software industry, for example, Google, did enter the smartphone market, facing a sharp threat to Huawei. This is because the strategies of the new entrants are extremely effective because they have been tested elsewhere and the products that result are usually of high quality. This has placed Huawei on its toes so that it is not overtaken in the market which is a perfectively competitive one where there is the freedom of entry and exit. The new entrants that have made their way into the industry have reduced the earnings of Huawei simply because they are taking up the market share that already belongs to the existing members. However, the capital that is required in the setup of a new business in this particular industry is fundamentally huge; few enterprises give it a try to set foot in the industry (Yangao Xiao, 2017). Decision Criteria Maintain control over production Maintenance of control over the production ensures that the right quality and quantity is produced so that the attainment of the targeted production plan is achieved. This means that the company watched over the production to make sure that it conforms to specific criteria that would fit the expectations of the management by use of the output. The production of smartphones that were using only Bluetooth to transfer files instead of flash are app a setback, but once the anomaly was corrected, the production reflected the expected outcome. Mitigating Increasing Cost Pressures in Industry The skyrocketing of costs reduces the profits that are made significantly, making the owners of equity unhappy with the returns on capital that they get. This means that it is dangerous as they may decide to withdraw their support and invest their funds somewhere else whereby they would get higher returns. The increasing costs of the inputs are also a setback that results in higher production costs that before but it is good to bargain to protect this so that the revenues are safe guarded against being exhausted in the process of deducting costs. Provide Value to the Customer Providing high-quality products to the customers increase the consumer trust that they have in the company. Huawei increases the value so that they can have their customer’s always common back, creating customer loyalty. The customer base that is created is offered a basis upon which the company could stand on the issue of countering competition in the market (Yangao Xiao, 2017). Resources and Capabilities required to be Competitive The exclusivity rights that Huawei has when it comes to the issue of the suppliers make the difference to the company. Apart from this, the company also has invested in its endeavors such that some of the profit is taken back from reinvestment into o the business for further expansion. \ Options Option 1: Huawei Keeps the Same Model of Business as Before Because of the considerable amount of market share that Huawei holds, it is preferable if the management decides that the firm will use the same business model since it has been found to be effective. Option 2: Huawei Uses a New Business Model The business may decide to scrap off the old model and replace it with a new one that would be work better for it. Also, the new model would be tried on different spheres of business to see its effects on the revenues and the earnings. Option 3: Huawei nixes the old and new business model This is the perfect blending whereby the business would fetch the best from the old model and trash the undesirable part then replace it with a part of the new business model. This works for the best because it is the most rational choice (Yangao Xiao, 2017). Recommendations Option 3 is the best choice that can ever be made because it entails retaining the effective part and doing away with the ineffective parts of the business model. It would, therefore, would be more advantageous if used. Implementation A five-year implementation plan is the best as it gives time for the optimal testing of the plan for the best results. Short term implementation (1 year) The feasibility study is done here to determine the practicability of the model selected. Medium term implementation Here is the testing of the plan to see how good it is to the business. Long-term implementation Here, the model is already in use for the fifth year and is implemented long termly. Contingency plan If the model is found not to work long termly, then it must be reviewed or dropped for an adoption of another fresh one. Appendix YEAR REVENUE $ OPERATING PROFIT $ 2006 8499 621 2007 12840 1247 2008 18321 2370 2009 21830 3083 2010 27961 4420 2011 32396 2952 2012 35353 3204 2013 39463 4809 2014 46515 5521 2015 60839 7052 References Yangao Xiao, (2017), Huawei: A dark horse in the global smartphone market. Business school for the world Read More