Introduction:

The aim of this project is to understand how firms from developing

markets capture and gain success in their home country and then move
onto the process of entering international markets. Internationalization
is a process where firms increase their international involvement (Johnson
& Vahlne, 1977).

The story of Huawei brings out factors that need to be considered or how
a company must make a call on entering a market based on
environmental conditions, political factors, infrastructure conditions,
potential of the market and its growth prospect by internationalization.
The study further determines that there are no fixed steps of doing it and
one must learn, link and leverage based on the advantage they seek from
a market they wish to enter.

Industry Background

Huawei caters a wide spectrum of industries including the following:

Telecommunications equipment, Network equipment, semiconductor,
public safety, government, transport, finance, media and entertainment,
healthcare, oil and gas, manufacturing, smart retail, power grid and
hospitality.

Most of the worlds top 50 telecom companies are engaged with Huawei
and its customer set is expanding very rapidly, prominent customers and
partners include Orange, Motorola, Vodafone, Bell Canada, Cox
Communications, Portugal Telecom, T-Mobile, BT, Clearwire and TalkTalk.

Huaweis principal competitors are Ericsson, Nokia and Cisco Systems in

manufacturing telecommunications and network infrastructure and
Samsung and Apple in manufacturing smartphones. Huawei utilizes its
strengths and capitalizes on the opportunities to improve upon what its
competition has been doing while overcoming its weaknesses and threats
at the same time.

Company Background

As per the report by Gartner, Huaweis revenues in 2010 reckoned for

approximately 16% of the global network infrastructure market. Huawei
has just overtaken its principal competitor, Ericsson, to become the
worlds largest telecommunication equipment maker. As per the report by
BBC news, Huawei has observed a significant growth in the overseas
markets, leading to increase in the profits for the firm.

In 1987 People's Liberation Army former deputy director Ren Zhengfei,

founded Huawei in Shenzhen China. The company initially focused on local
research and development or customer-centric innovation, they also
provided consulting and operations services to Chinese enterprises
(Mathew). They performed reverse-engineering to produce the switches
using foreign technologies which was initially deployed in small cities and
rural areas where they captured a good amount of the market share
(Chang, et al). The company made connections with the government by
providing them with dividends in exchange for their use of Huawei
products. In 1996, the Chinese government adopted a policy stating their
support for domestic telecommunications manufacturers and prohibiting
access to foreign competitors, this created a major opportunity for Huawei
domestically (Ahrens). It continued to expand into international markets
with the help of IBM as its technology-training provider. In 1997, Hong
Kong based company Hutchison Whampoa signed a contract on providing
fixed-line network products, giving the company its first overseas contract
(Chang, et al). In 1999, the company set up an R&D center in Bangalore
(Mathew). Huawei expanded into overseas markets, having achieved
international sales of more than US$100 million by the year 2000. Huawei
grew further and was included in the Global Fortune 500 for the first time
in 2010 having annual sales of US$21.8 billion and net profit of US$2.67
billion (Huawei). Huawei focused on enhancing its mobile technology and
by 2010 has already worked with 80% of the top 50 telecom companies
(Mathew).

Motivation for Internationalization:

Huaweis CEO Ren did not believe in internationalizing until they were
familiar with the international markets. They wanted to conquer post
gaining from the learnings of their international competitors. Once the
domestic markets saturate, Huawei might not survive unless they build an
international team. To gain market share outside domestic market they
will need to have a competitive advantage in the form of advanced
technology, reliable quality and superb service to stand out in
International markets.

Location Choice and Strategy for Growth Within Target Markets:

Huawei started its journey in China where the target market was mainly
the countrys rural countryside. The strategy adapted by them was to
focus on developing countries first and then move on to more advanced or
developed countries. This strategy helped them transform domestic
oriented organization towards establishing a company with an
international presence.

First move towards Internationalization

Huawei tested the waters of the international markets with Hutchison
Telecoms, Hong Kong in 1996. Hutchison purchased switches and related
equipment from Huawei. The close proximity between both places is what
gave Huawei this advantage of first step success.

Entry into Russia and Developing countries

Huawei entered the Russian market through a Joint Venture with Beto
Konzern and Russian Telecom in 1996 to produce switching equipment. As
a new player in the international market, it took four years of analyzing
the market and waiting to gain their first order.
Their entry strategy mainly targeted countries that had weak
telecommunication infrastructure but great potential to develop.
Post entry in Russia, they made entries in Thailand, Brazil and Africa with
aggressive pricing to beat competitors prices.

South America, Asia and Africa-Export Method

Geographical distance and local market issues in South America, made
Huawei select the export entry mode. The Chinese telecommunication
instruments giant further entered Asia, Middle East and North African
market using this method.
The strategy used for entry into these markets was based on factors such
as high flexibility, low resource commitment and low risk.

Partnership and contractual entry

In developed countries, Huawei penetrated these market in the form of
contractual agreements and partnerships. Marconi and Huawei co-
operated in the European markets. Further, Huawei Motorola in Mobile
network infrastructure area using the coproduction method.

The strategy used to grow in the International market was employing

different entry modes based on the different products they had to offer.
Joint ventures and export methods were used when the focus was
switching networks, telecommunication power etc. Collaboration and co-
operations were used for products that had some advantages but lacked
certain elements.

The Huawei case and its process of Internationalization clearly state that
when it comes to high technology firms, they cant really follow a step
wise method or a fixed model. The industry structure and environmental
factors play an important role in the entry of high tech firms in foreign
markets.

Strategies for Leveraging the Target Market for Global

Advantages -

The strategies Huawei adopted, starting 1996, were to leverage on

different attributes in the different markets it ventured into. It decided to
first enter the host market with good relationships with the home
countries to smoothen out the internationalization process. Following are a
few attributes Huawei leveraged on as it expanded in different markets
differently:

Cost Efficiency

Being a Chinese manufacturer it enjoyed a cost advantage given the

resource availability in the home country. The joint ventures in Russia and
the strategic alliances in North America and West Europe offered Huawei
more targeted and cost effective means of acquiring or access market and
another companys capacity.

Innovation

To understand the local market and adapt to the local needs Huawei set
out to learn and understand the North American and West European
market by entering into contracts such as franchising, co-research, co-
production (OEM) and Co-sales (help each other to sale products in each
own markets). This lead innovation in terms of newer products and
facilities.

Strategic Resources (Knowledge, Talent, Relationships, Global

image, Venture capital)
Huawei adopted the export entry strategy in markets such as South
America, Asia and Africa export entry strategy where the resource pool
and its efficiency was of a similar or superior quality as compared to the
home country. Huawei sent out many of sales and service engineers from
home country to setup branches and service centers in these countries.
The selection is based upon the characteristic of export entry mode: High
flexibility, low resource commitment and low dissemination risk.

Strategic Assets (Proprietary Technology, Global Brands,

Specialized Infrastructure, Distribution networks)

In the United States, India, Sweden, Russia and China, and other places
Huawei set up 12 research institutes, R & D centre in each of the different
research focus and direction to synchronize research systems and gather
the worlds technology, experience and conduct product research and
development to remain leading the worlds technology.

Huawei also set up 28 overseas regional training centre for employee

learning the local culture, and vigorously promote the localization of staff.
Within the scope of the localization of global operations, not only
strengthen their understanding of the local market, but also made
contributions to the socio and economic development for the host
countries and regions.
 Penetrating/ Competing in Other
Markets

Huaweis strategic alliances

comprised wide varieties of
collaborative relationship, including
joint research, technology- sharing
arrangement, shared manufacturing,
joint marketing and/or distributional
arrangements with companies such
as Motorola and Siemens, just to
mention a few. This entering strategy
has positioned Huawei in becoming a
market leader globally. Huawei
successful application of these
strategies was a product of it strategy, size and resources.

Graph 1

Linkage, Leverage, and Learning Model

In order to enter the global markets, Huawei realized that they had co-
operate with established telecom equipment suppliers. Several
establishments like joint research and development labs with companies
like Texas Instruments, IBM, Motorola, Intel, Sun Microsystems etc. They
have also had several joint ventures like Huawei -3Com as a route to enter
international markets. In cities like Turkey, Hungary etc., they have a JV
with Vodafone to supply mobile phones. They also had linkage with the
Chinese government that provided funds to Chinese companies in order to
expand to other markets.
Huawei was able to leverage through all of the linkages it gained and
successfully expand into international markets. It was also through
constant learnings from leading international competitive companies and
through linkages with leading technology firms, they were able to
maintain and reach the set benchmark.

Analysis of Performance

A detailed timeline for the key milestones for Huawei is made available in
the exhibits. A summary of the performance is given below. (Exhibit 1)

Analyzing Performance in Target Market

Huawei has employed the strategy where they first secured the target
home market and once it started saturating they moved to international
markets. However, they continued to focus on the home market to
maintain their position and advantage.

Revenue/ Profits and Market Share

More than 50 % of their profits still

come from China. They are the
largest handset manufacturer for
smartphones in China and hold a
commanding position for the
enterprise and carrier business in
China. The revenue for Huawei in
China has been growing steadily and in
2015 they have reported a revenue of over 30
billion USD from China alone. They have
number 1 in terms of market share
for smartphones as well as their
enterprise solutions (telecommunication hardware) in China.
Graph 2 : Source ITU website.

Product/ Brand Diversification and Market Segment

Diversification

China being one of the most competitive technology markets required

Huawei to be agile and always focused on diversification and expansion.
This is how they maintained their position. The company diversified from
enterprise to carrier and consumer segments and also ensured that with
the right R&D stayed on top of their game. They are a formidable force in
China and this is because of the Diversification of the Product and brand
as well as the market segment.

Innovation Global and Domestic

The company has and promises to continue spending at least 10% of its
annual budget on R&D. This is one of the drivers to the success of Huawei.
They have managed to not only tap and capture the existing markets but
has also created new demand by leading the research in the field of
telecommunication and has been the first to launch a number of these
innovations. They have set up R&D facilities in Europe and a number of
different regions.

Analyzing Effect of Target Market on International Performance

When Huawei first entered international markets they secured a revenue

of 100 million which quickly grew to 552 million in a couple of years. This
however was just the start as they started gaining momentum soon with
international partnerships and contracts in developed regions such as
Europe. Within a couple of months, they saw their revenue numbers soar
as they filled the infrastructural gaps in developing regions of Asia as well
as focused on Research and development and strengthened their position
in developed regions.

Diversification of FDI / No. Of Markets Entered

Huawei started its diversification with South East Asia as the market
condition and institutional and infrastructural gaps were similar to their
home market. They then on account of their technological expertise
moved to more developed countries. They entered into joint ventures and
acquired companies to gain momentum fasted. They also secured large
contracts from their enterprise and carrier business. They are now present
in more than 140 countries.

Global Revenue
Huawei have come a long way from where they started their
internationalization journey. Their 2015 annual report testifies to this as
their overall revenue in 2015 is CNY395,009 million, which as per the
exchange rate is about 60 Billion USD. Of this 46 % of their revenue is
from international markets. A snapshot from their annual report is pasted
below.

Graph and table 3: source Huawei Annual report 2015

Global market share

Huawei started off as a small player in the technology hardware industry

however, today they are present in various segments of the
telecommunication industry. They are ranked the ranked 3 rd globally in
terms of market share for smartphones and in the 2 nd worldwide by
market share for radio access equipment.
Global Product/ Brand Diversification

The company has basically gone from being a purely B2B company to a
loved B2C company. To enter international markets Huawei continued with
their strength of being technology focused B2B. They secured big
contracts in Europe and Asia. They did the same in North America,
however, they then moved to produce their own handset with the
experience and knowledge gathered. They are now split into 3 major
parts, carrier segment, enterprise segment and consumer segment. They
also have alternate revenue streams and are constantly innovating to
diversify more. They have gone from selling hardware to companies to
selling technology solutions to them and also producing and selling
hardware like smartphones directly to the consumer.

Graph and table 4: source Huawei Annual report 2015

Global Competitive Position

Huawei has successfully managed to gain a favorable position in the

global market. It has not only managed to capture market share in various
area that it entered in but is also among the top 100 brands in the world.
It has also managed to secure competitive position and advantage due to
its advanced R&D and technological knowledge.
Implications for Future Growth Strategy

Comparison of Huawei and Ciscos international performance

Cisco from America is Huaweis one of the principal competitor around the
world. Both brands are global leaders in information technology and
contest in providing information technology solutions, security systems,
telecommunication and wireless networking.

a) Marketing Investment

Both Huawei and Cisco are increasing their market investments overseas,
the focus is less on product marketing due to the nature of products
offered, both focus on providing high quality solutions and products
through immense R&D investments and communication network. Cisco,
currently has a better integration of R&D investments and communication
than Huawei.

b) Market Performance

Both Huawei and Cisco have a compelling market performance around the
world, in many global markets share for both brands exceeds 16%.
Although, Huaweis market performance has grappled in the United States
market due to unsuccessful acquisitions and security issues.

c) Shareholder value

Ciscos has a good P/E ratio, approximately 15.5, combined with a high
shareholder equity. However, it is onerous to measure Huaweis
shareholder equity since it is an employee-owned, private company. It can
be assumed that Huaweis shareholder equity is equivalent to Ciscos,
based on its performance across the global markets.

d) Customer mindset

Ciscos persistent good performance in China has led to a strong and a

positive customer mindset in the overseas market. However, Huawei has a
negative customer mindset in the United States market, pertaining to the
security risks and intellectual property issues.

Insights into managerial implications of the research

findings for future growth strategy

In achieving continuous growth, the managers of Huawei should focus

on implementing current strategies and seizing opportunities. They should
strengthen their investments in areas such as convergence, switching,
information access, transmission and storage. Enable to keep themselves
efficient, the management should know what the market demands as
soon as they come or even before that. Creating breakthrough
technologies and lowering cost of procurement should be of top
importance in order to increase profitability and competitiveness.

The company also needs to build and maintain the trust of their
customers, hence in lowering the cost of procurement, the quality should
not be sacrificed. Impulse expansions are landmines that the managers
should be careful of. During this stage of steady and moderate growth,
they should ensure the profitability of their investments by proper
customer/project based budgeting and accounting, controlling costs,
improving operational quality and accuracy of delivery.

Aside from internal factors, there are certain external factors that the
company should adjust to accordingly. Some of these are the uncertainties
of pace of business investment, new business development and
deteriorating business environment. It is also important that they remain
efficient and responsible in their performance. Delegation of authority to
field offices while the headquarters focus on service, support and
supervision will create value for the staff. Aside from providing products,
integrating with local society is also necessary move towards growth and
stability.

Conclusions and Recommendations

Investments in Research & Development domain and patent ownerships,

are the most compelling factors for both Huawei and Ciscos success in
the global markets. They have gained global recognition though their
expertise in innovation and technology advancements. However, their
weaknesses are extremely different. Huaweis weakness lies in paucity of
transparency while Ciscos weakness is their premium price approach.

Opportunities for both Huawei and Cisco encompasses technology

advancement and innovation. While the threats to their international
performance involves global politics, mergers and acquisitions risks.
Huawei should take into deliberation its struggles in the global markets
and negative impact of these struggles across other foreign markets, and
should focus on restoring damage caused in foreign markets. While, Cisco
needs to get rid of the premium pricing strategy and adopt a more
competitive pricing approach. Else, Cisco will lose customers in the
overseas markets, to competitors like Huawei, having lower costs of
production in both foreign and domestic markets.