DOING BUSINESS IN CHINA
[Name]
[Date]
Huawei Technologies Co., Ltd.
The lure of an economy growing at an average of 7.4 per cent, a population of over 1.3 billion (which comprise a huge emerging middle class), cheap labour and ongoing market reforms has been so strong to resist for investors seeking to enter China market. Investors are motivated that the business opportunities provided by the fastest growing major economy in the world is all what they need to secure unprecedented growth. While these opportunities provide the necessary combination for business success, investors ought not to forget some of the underlying risk in China market. Such factors as cultural dynamics, political and economic climate, industrial dynamics as well as competition from local players are some of the factors that may prove challenging for any business that wish to exploit China market. This essay takes the example of Huwaei Technologies to critically analyse how to enter China technology market and which measures need to be taken to be successful in the market.
Overview of Huawei Technologies
Huawei is a Chinese company in the Information, Communication and Technology (ICT) Industry. The Company is headquartered in Shenzhen, Guangdong province. Huawei was started in 1988 by Ren Zhengfei, a former engineer in the People’s Liberation Army (Zhang and Dujsters, 2011). The company is the leading global Information and Communications Technology (ICT) solutions provider. Successive technological innovation and strategic alliances has seen the company challenge other established companies in technology industry. The company is described as an “employee-owned” but what this description mean in China might be difficult to comprehend as it is hard to distance the state from its running (Ahrens, 2013, p.17). Looking at the success of the company investors can learn myriad of lesson on what it takes to succeed in Chinese market.
Market entry strategies
Although much of Huawei success in Chinese market can be attributed to strategic alliances and Mergers and Acquisition, the company started basically as a start-up company. The company started as a small distributor of telephone-exchange equipments imported from Hong Kong without any telecommunication knowledge (Zhang and Dujsters 2011, p.10; the Economist 2012). According to Zhang and Dujsters (2011) and the Economist (2012) the company gained knowledge to manufacture the telephone-exchange equipments and made its first breakthrough with its C&C08 digital telephone switch which had a greater capacity than any other in China. In this advancement, Huawei had benefited from the technology diffusion from Shanghai Bell-the first Sino-foreign joint venture in China (Zhang and Dujsters, 2011). Supported by the government strategies to support and protect local firms, Huawei started by taking control of the Chinese rural market before gaining strength to compete with other players in the urban market. The company strategy was to undercut competitors. It adopted a Maoist approach to markets which is “to encircle and finally to capture the cities” (The Economist, 2012). Huawei applies this strategy up to today where it has managed to undercut competitors in foreign markets such as Africa. From such a humble beginning, the company has risen to be one of the well known global leaders in the ICT industry, comparable to companies like Google and Apple. In 2011, the company recorded revenue of $27.4 billion (The Economist, 2011).
Much of Huawei success can be attributed to its close partnership with players in the telecommunication sector. One such partnership that assisted the company in gaining telecommunication knowledge is Shanghai Bell. Through partnership with the Shaghai Bell, the company acquired the knowledge it did not have to manufacture telecommunication products. In order to avoid direct competition with its close partners, the company initially focused on rural market and left the urban market for its competitors (Frost & Sullivan 2007). However, after it had monopolised the rural market, the company gained the financial strength to capture the urban market.
The company also benefited from China’s policy of encouraging foreign companies to form joint ventures with local companies. Since China started its liberalisation policies with the eventual membership to WTO in 2001, foreign companies started setting base in the country (Barbieri, et al 2013). Huawei took advantage of this outcome to form joint ventures with established global ICT industry. Since 1997 Huawei has formed various joint ventures with different companies key among them Siemens, Motorola, Texas Instruments, Intel, Freescales Semiconductor, Infineon, Qualcomm, Agere Systems, IBM, Microsoft, Sun Microsystems HP, Xilinx, Oracle among others. Huawei has formed this strategic venture with an aim of acquiring technological knowhow. The company has also corroborated with global firms such as Hay Group, FhG and PWC to acquire quality, financial and human resource management skills (Fan, 2006, p.364). However, amid these joint ventures, Ren, Huwaei founder, was convinced that foreign companies could transfer their cutting-edge technology to China. As a result, Huwaei started allocated funds for research and development very early during its formation. Starting with a 10 per cent allocation, the company today allocate 46 per cent of its revenue to research and development (Huawei 2013 Annual Report).
Political and Economical Environmental Analysis
One of the factors that affect performance of a business is its nature of external environment. Each country has its own unique environmental factors. One of the best way of understanding the external market environmental that may affect a business in China is through a PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analysis(Tian, 2007).
