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The purpose of this report is to use Huawei as the focus of an analysis and compare and contrast business models adopted by other companies that operate within the smartphone industry. The analysis will then include a description on Huawei’s organisational culture and the impact this has on the company’s success. An analysis of Huawei’s relationships with other companies and countries will be done to try and determine how this influences the supply chain and the distribution and logistics strategies.
Comparison of business models, market positioning and market development of Huawei and its competitors at home and overseas
A firm’s Business Model (BM) is the articulation of the processes through which resources are leveraged to create and deliver value to stakeholders allowing the firm to generate a profit (Chesbrough,2010). For years the high-end smartphone industry has been dominated by Apple and Samsung with both companies being involved in a worldwide corporate battle since 2010 as Samsung who was back then a supplier to Apple had released a product that was far to similar to the iPhone. For years, these two companies have been battling for superiority within the industry and only focusing on beating each other but however one Chinese phone manufacturer is hoping to battle both companies to be recognised as one of the best. Huawei was previously known for distributing smartphones that were cheap and un-branded but the company is dumping this business model and has re-invented its self to become a globally recognized brand by advancing rapidly into markets worldwide. Huawei has now become the worlds number three smartphone brand and earned itself a 10% global market share (Samsung-23.3% and Apple-14.7%).
Innovation of new business models
As the industry is getting more and more intense and populated with smartphones that are constantly improving to be better than their competitors it’s getting more complicated to design a business model that can meet targets and be the dominator of the smartphone industry. The business model is a key indicator of who is going to be at the top of the telecom market and the traditional smartphone business model is facing challenges that have never been dealt with before from issues that the companies have not necessarily had any influence on such as globalization and the important role that internet plays in todays world. Having a successful business model has been key to the rise and success of Huawei, they have even got their own Business Model Innovation Centre (BMIC) which has been praised for analysing current business models from its competitors to see an end result of them bettering themselves as a global organisation. The BMIC develops methodologies and tools to help allow the business innovate there current business model to help the business to continue growth to be multilingual, multicultural and multinational with plenty of recognition in key international markets. With the innovation of the business model, its expected that new opportunities will arise but with threats also emerging from industry competitors it is imperative that the business model can capitalize on these issues to ensure that a well sustained profit is achieved along with having that competitive advantage over its major competitors.
Challenges of implementing a successful business model
To ensure that these can be overcome as quickly and as safely as possible there are numerous challenges that must be overcome, including:
- Revenue enhancement through differentiated user experience
- Business model innovation that supports/monetizes new services
- Cost structure optimization for sustained profitability
- Transaction model adaptation that improves financials
- Participation in emerging disruptors such as cloud computing
- Huawei’s role is to help clients understand how and when to do these things so that time-to-market and commercial risk are minimized.
In recent years Huawei has worked hard to establish itself as the undisputed number one smartphone brand in China and part of their business model has been to establish themselves within other markets. Huawei has advanced aggressively into other markets and focused mainly on boosting brand awareness and increasing sales especially in Europe.
In Europe, the company is growing at an unprecedented rate due to the company releasing better quality products and re-inventing the brands image with high end marketing campaigns. In particular, Europeans have been receptive of Huawei and are ditching previous mentality of either getting the latest iPhone or Samsung and open to trying new technology released by Huawei. Around half of Huawei’s 100+million phone sales and 65% of the company’s revenue in 2016 was generated from markets outside of its home country, China. Huawei saw an increase in market share as its popularity rapidly rose in countries such as Germany, Italy and Spain. The rise of Huawei has stifled the iPhones momentum in China and is now being recognised as the worlds third largest smartphone make in 2016. For Huawei to continue this rise they have to continue to pursue a business model that can allow them to compete with Apple and Samsung.
Adaptation of new business models
When you look at the rise of the Huawei it’s clear that the success has come from adopting new business models to fit current market trends and to ensure that they remain competitive towards its competitors. The adaptation and change for its business models over the years has ensured that it remains a dark horse in the smartphone industry. Many years ago, Huawei was known for selling ‘cheap and cheerful’ products, which were renowned to not last very long. As a company, Huawei has invested millions in R&D to help them pursue better approaches to the industry and to try and get the company renowned as one of the best. As you can see from the image below the amount of units that Huawei now sells compared to back in 2013 is a substantial improvement, which can effectively be down to several improvements it has made as a company over the period of 3 years. The willingness of adapting and changing its ideas to fit and match companies such as Apple and Samsung will be a major factor of its success.
Huawei’s organisational culture
Huawei has a sharp vision, a vision to enrich life through communication. It focuses on its customers’ challenges and needs and strives to create maximum value through excellent service (Huawei, 2013)
The rise and success of Huawei has been brilliant and the visionary founder Ren Zhengfei who started the company when he had no money and no connections within the technology industry. He has been praised for implementing and sustaining a culture that thrives Huawei’s employees in day-to-day business and its this mentality that is continuously praised but has had some implications in the past. Back in 2008 once of Huawei’s employees jumped to his death in the company’s headquarters and was the sixth employee to have committed suicide with the same mysterious circumstances. It has been blamed on Huawei’s aggressive and ruthless corporate culture of adopting the ‘wolf-culture’, which is explained below. In most top companies today, they rely strongly on continuing the culture of the organization, which can often relate to beliefs and values which were originally set out when the company was first generated. For Huawei these factors have determined the success of company and it has been stated that this also differentiates them from other market leaders such as Apple and Samsung.
The main organisational culture of Huawei, which sets out its key values, beliefs and attitudes, which is followed by all of its organisational members, is known as ‘wolf-culture’, this has three main characters, which are defined as:
- Character 1– Wolves are bloodthirsty, employees of the company are extremely sensitive to information related to its main competitors and any changed within the market itself and they could respond promptly and adapt to any changes to ensure they remain successful.
- Character 2- Wolves are resistant to coldness, the fearlessness of difficulties that may rise and eagerness of making progress are insisted to every member of Huawei no matter how complicated the challenge may be.
- Character 3- Taking actions in teams, The atmosphere of team cooperation is particularly strong in Huawei and people are encouraged to develop and share personal opinions with each other (laoyzy, 2011).
The ‘wolf-culture’ brings Huawei a high level of keen insight about the unsteady market and assists the company to quickly react to any existing opportunities. As a result, Huawei could expand its business volume about approximately twenty percent every year (Heissougly, 2010).
Huawei vision, mission and core values
Vision – To enrich life through communication.
Mission – To focus on our customers’ market challenges and needs by providing excellent communications network solutions and services in order to consistently create maximum value for customers.
Core Values –
- To put the customers first
- Continuous Improvements
- Openness and initiative
Huawei’s relationships and partnerships in host countries
Huawei is the only Chinese company out of 91 mainland Chinese companies listed on the Fortune Global 500 list, which earns more revenue abroad than in China. Huawei’s revenue from overseas markets exceeded that from the Chinese market for the first time in 2005. For the company this is a massive achievement and a step towards being recognised as the leading smartphone provider.
In recent years Huawei has witnessed itself becoming increasingly popular out of China and seen a dramatic rise in its European sales, this surge in sales was initiated by the improvement in product quality and the high profile advertising campaigns it has created. Promotions for Huawei newest products are being advertised in several cities across Europe, some campaigns are:
- Covering the trams of Rotterdam
- They have opened a flagship store in a prominent location at downtown Brussels
- Gigantic Banners in Berlin and Lodz (Poland)
- In the city centre of Warsaw looks like an advertising convention and Huawei is the guest of honour
This successful campaign across European cities has also seen the company sponsor major European football teams such as Arsenal, AC Milan and Paris Saint-Germain. Huawei is not messing about when it comes to marketing, they are figuring out what can generate the most attention and ensuring that they get the brand more recognition as being one of the top smartphone providers. These campaigns across Europe is just a fraction of what they are actually doing, they are also recruiting European athletes such as Lionel Messi and Robert Lewandowski to be brand ambassadors along other entertainment stars such as Scarlett Johansson to endorse its high-end products. Europe has become Huawei’s most successful overseas territory and they have overtaken Apple and became the world’s second largest smartphone maker by shipment in several countries including Finland, Italy, Poland and Spain. It has ranked number three in Germany and number four in France, (Canalys, 2016). One of the main factors that has influenced Huawei’s presence in Europe is its relationship with local phone carriers. Before they started, selling phones Huawei were building telecom stations for European carriers such as Orange in France and Elisa Oyj in Finland. After previously building a successful relationship with already, well established businesses it has allowed Huawei a quick market entry and allowed them to spend its marketing budget on the best display positions inside local retailers, (Jeronimo, 2016). Retaining a strong relationship with previous clients has obviously benefited the company in establishing the brand outside of China but there are bigger problems that the company has been encountering. Although it is a huge success Huawei, starting to be recognised on a global scale but the company hasn’t got much closer to its end goal of profitability due to the fact shipment of all the high-end products still remains limited. The rise of Huawei does deserve praise when you look at how far they come, when comparing the amount of products its shipped with Apple and Samsung its still only a fraction of what there figures are. In the first half of 2016 Huawei only shipped 3.6 million smartphones priced higher than $600. When comparing this statistic with Apples 77.8 million and Samsung’s 31.6 million it just shows that there is still a lot of work needed to be done.
The main factor that is restricting Huawei from achieving figures as high as its competitors is the fact that its unable to replicate its European strategy in the US. Reasons for this is that is doesn’t have a strong relationship with any of the ‘big four’ phone carriers in the US (Verizon, AT&T, T-Mobile and Sprint). The US is a market where phone carriers dominate smartphone sales and without the support of the industry dominators, it has and will continue to make Huawei’s US ambitions a failure. In 2012, a congressional report was made stating that Huawei’s hardware could be used by the Chinese government for spying purposes. This is an allegation that the company continues to deny but with anti-china talks often occurring under the Trump administration this is likely going to continue as a threat for the company. For now, Huawei has to carry on with a less effective strategy in the US of selling phone through lesser known carriers and online stores such as Amazon. Last year Huawei was nowhere near the top five smartphone makers in the US as it only shipped 1.4 million units (Canalys ,2016). This figure alone proves to Huawei that not enough is being done in the biggest market in the world but with allegations being made politically, does not give them much confidence and belief that the issue can be rectified any time soon.
Huawei’s supply chain, distribution and logistics strategies
A strong and reliable supply chain is essential to the survival of any company, for Huawei it is essential that they can rely on all stakeholders within the supply chain as this enables them to ship products all over the world once they have been manufactured. When it comes to logistics Huawei’s strategy has been to adopt the asset-light strategy which allows them not worry about any large expenditure costs to purchase any large fleet of transport themselves, they will instead use courier companies to ship products all over the world. Huawei’s CEO has previously mentioned that they are hoping to work with suppliers all over the world to help build a business ecosystem in which all stakeholders can all create value to share the risks involved and to enjoy the benefits that the success of working with each other will hopefully bring. Huawei believe that working closely with their suppliers is essential to building that competitive edge and this can help them achieve the positive results needed. With the increase of popularity of smartphones it has led to companies like Huawei to change the strategy in which these phones are distributed. The most common source of distribution has previously been phone carriers distributing the phone them selling it with a monthly payment plan requiring users to sign a fixed contract during a fixed duration. Due to the popularity of companies like Amazon, Tesco and Ebay this has given smartphone companies another platform to advertise and sell its products and gives millions of sales each year. It is imperative for companies like Huawei to keep up to date with key trends that are trending in different markets that it’s operating in. In emerging markets such as Russia and Africa it is common for consumers to purchase just the phone and not fixed to any contract with any phone carrier, however, in Europe and the US it is getting increasingly popular to purchase the phone on a fixed contract basis. When it comes to distribution since 2012 Huawei has been pushing to be active in as many distribution channels and using the UK as an example it has succeeded in doing this. In doing so Huawei sets out clear guidelines to its suppliers and distributors that it expects them to follow. One of the main factors that it sets out is to pursue a sustainable approach. Sustainability is part of Huawei’s procurement strategy and to be eligible to be part of Huawei’s supply chain they insist that all members must comply with applicable laws and regulations set out in Huawei’s supplier sustainability agreement. They use this agreement to continuously drive supplier improvements and to monitor and control any risks that are can occur.
All these factors enabled Huawei to minimize supply risks, increase customer satisfaction, and boost the competitiveness of the supply chain. To help the company ensure that all companies are complying with this agreement they risk rank and audit each company. Each year they will conduct an audit for suppliers which represents around 90% of their procurement spending and assign a priority level of high, medium or low. The factors, which determine which level is given, are:
- Supplier location
- Product/material manufacturing
- Sustainability performance
- Risk management systems
- Environmental risks
Once this audit has been conducted, it then allows Huawei to manage the performance of everyone involved in its supply chain and they will do this annually and audit the results and any improvements that can be made. Performance appraisals are in place to determine the reliability and performance for Huawei’s suppliers and then this allows them to determine who they need to offer improvement to and who needs to be praised for the continued hard-work and loyalty given to the company. The appraisal cover a few different factors:
- Health and safety
- Impact it has on the environment (sustainability)
- Business ethics
- Management systems
In the event of a new supplier being added to the supply chain, Huawei has a qualification process the company must pass to enable them to become business partners. This process will examine the supplier’s capacity and their compliance with applicable laws and regulations set out in their own supplier sustainability Agreement. To ensure that all suppliers comply with the sustainability agreement they provide training and coaching that is necessary and they also encourage them to include sustainability into their business models and strategies. They do this as they view sustainability as a key to reduce business risks and to perform operations more efficiently.
Prohibition of ‘conflict minerals’
As sustainability is the main focus of Huawei’s supply chain another focus of theirs is that companies must have good business ethics so they prohibit the use of ‘conflict minerals’. This refers to minerals that are sold to finance ongoing-armed conflicts in which the countries are mined or smelted. This is a common occurrence in Africa. The problem of this is making not just Huawei but other smartphone providers more aware of the issue and the US and Europe have just passed new laws to help deal with the issue and prevent the armed militias from making an come from top companies. This is not necessarily just associated with smartphone providers but the issue is a complex one that will be resolved through an organised global commitment and close cooperation between businesses and governments. All these factors will contribute to a successful and sustainable supply chain. It is also imperative that Huawei stays in a close partnership with other businesses in the same industry; this will allow them all to address problems that the companies may be facing or to rectify any problems that can occur. In a nutshell, collaboration allows us to combine strengths and gain advantage to boost industry competitiveness (Huawei, 2016).
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