Specializing In The Research And Technology Development Management Essay
Huawei Technologies Co. Ltd. is a Chinese multinational company that focused on networking and telecommunications equipment manufactures and services around the world. It is also specializing in the research and technology development. The company headquarter is located in Shenzhen, China. It was founded by Mr. Ren Zhengfei in 1988 and started off as a sales agent for a Hong Kong company that producing private branch exchange (PBX) switches. In 1992, Huawei achieved its first breakthrough into the mainstream telecommunications market after gaining knowledge and resources on the PBX business. (Li, C. & Cui 2004) Huawei Technologies core business activities include building telecommunications networks, providing operational and consulting services and equipment to enterprises, and also manufacturing communications devices for the consumer market.
In 1996, Huawei first start its internationalization by providing customized design of ‘number portability service’ for Hutchison Telecoms based in Hong Kong. After that, the company made a decision to enter international market with Russia and Southern America are first selected. It has established a joint venture of Beto-Huawei with Russian Beto Konzern and Russia Telecom to develop the Russian market in 1997. Joint venture is the establishment of a new firm that is jointly owned by two or more independent firms. (Hill & HernÃ¡ndez-Requejo, 2011)
After 2000, Huawei keep expanding to other countries such as Southern Asia (Thailand, Singapore, and Malaysia), Middle East and Africa. The company has targeted these markets by using export method as the entry mode. It sent out many of sales and service engineers from home country to setup branches and service centers in these countries.
Besides that, the products of Huawei also have been sold in West Europe (German, France, Spain, and the United Kingdom) through the local famous agents since 2001. Huawei applied a variety of contractual modes to entry these developed countries market. The methods of contractual entry modes include franchising, co-research, co-production and co-sales that help each other to sale products in each own markets.
In fact, Huawei often expand its businesses by using joint venture and export methods to enter a new international market. However, the company also employs different entry modes for different products other than the traditional entry modes.
Moreover, Huawei’s internationalization process success is mostly due to their appropriate market entry mode and the market strategies that being employed. Huawei have been applied using different geographical markets and different products markets to deal with the internationalization process.
As a conclusion, Huawei targeted Russia as their choice as internationalization process by using joint venture mode in 1996. Other than that, South America is also targeted as their target market by employed the export methods due to the geographical distances and local market conditions. Started from 2000 onwards, Huawei is also started to enter Asia, Mid East and North Africa market by using the export methods which they sent out many of their sales and service engineers form home country to setup branches and service centers in these countries. After 2001, Huawei applied many of the contractual entry mode which including franchising, co-research, co-production and co-sales. For example, Huawei co-operated with Marconi in product development and marketing approaches in Europe market. Marconi helps Huawei to sell products in Europe while Huawei helps Marconi selling their products in Asia markets. Besides that, Motorola is also one of the co-production in the telecommunication and network infrastructure with Huawei to develop the data communication market in North America by using the joint venture with 3com which is the main player in data communication market. Huawei manage to get the advantages of R&D ability and the 3com international resources.
Huawei’s success has been proved due to their flexibility to different products and different entry modes. In the traditional advantaged products such as switching network, telecommunication power, Huawei often used joint venture and export modes while in the product without advantages such as 2G mobile networks, Huawei co-operate with giants of this area.
2.0 Current Expansion Strategy
Today, Huawei is a leading global information and communication technology (ICT) solutions provider. The successful of Huawei is due to the expansion strategy used by the organization. They are currently using several entry modes such as management contracts, joint venture and strategic investment to expand their business into worldwide.
In 1997, Huawei had got it first overseas contract that provide fixed-line network products to Hong Kong Company, Hutchison Whampoa. (Christine Chang, Amy Cheng, Susan Kim, Johanna Kuhn Osius, Jesus Reyes & Daniel Turgel, 2009).
From this contract, Huawei started to launch its wireless GSM-based products and eventually expanded to offer CDMA and UMTS. Besides that, from year 1998 to 2003, Huawei also contracted with IBM for management consulting and underwent significant transformation of its management and product development structure. In 2004, Huawei had a contract with Telfot which is a Dutch mobile operator to build a third-generation network. (Alexandra Harney, 2004) The contract valued more than USD25 million and bring Huawei expanding to Europe.
In 2005, Huawei’s international contract orders had exceeded its domestic sales. During the year, Huawei had signed a Global Framework agreement with Vodafone. The agreement had established the terms and conditions for the supply of Huawei’s solutions to any of the Vodafone operating companies worldwide. In the same year, Huawei also signed a contract with British Telecom for the deployment of its multi-service access network and transmission equipment for BT’s 21Century Network. This contract let Huawei provided British Telecom and the UK telecommunications industry with infrastructure necessary to support future growth.
The second strategy that used by Huawei is joint venture. In March 2003, Huawei and 3Com Corporation formed a joint venture company, 3Com-Huawei(H3C), that focused on the R&D, production and sales of data networking products. The company later divested a 49% stake in H3C for USD880 million in 2006.
In year 2005, Huawei began to has a joint venture with Siemens and formed a company called TD Tech. The company main is to develop 3G/TD-SCDMA mobile communication technology products. The USD100 million investments gave the company a 49% stake in the venture, while Siemens held a 51% stake. But however, in 2007, after Nokia and Siemens co-founded Nokia Siemens Networks, Siemens had transferred all shares it held in TD Tech to Nokia Siemens Networks.
In year 2006, Huawei had joint venture with Motorola and formed a Shanghai-based R&D center. The R&D center is to develop UMTS technologies. In the same year, Huawei also established a joint venture with Telecom Venezuela, which the company called Industria Electronica Orinoquia. The company’s core activity is in research and development and also the sales of telecommunications terminals.
In May 2007, Huawei formed a joint venture company with American Security firm Symantec in Chengdu, China. The company formed to develop security and storage solutions to market to telecommunications carriers. The company named as Huawei Symantec and Huawei own 51% stake of the company. (Brett Winterford, 2007)
By the year 2008, Huawei launched a joint venture with UK-based marine engineering company, Global Marine Systems. The company is focused on build undersea network equipment and it related services. (Wang Xing, 2008). Within the year, Huawei and joint venture with Optus to develop a mobile innovation center in Sydney, Australia. The center is to provide facilities for engineers to develop new wireless and mobile broadband concepts into “ready for market” products.
The last strategy used by Huawei is strategic investment. In year 1999, Huawei opened a research and development center in Bangalore, India. The R&D center in Bangalore is to develop a wide range of telecom software. In late 2010, Huawei is planning to invest around USD500 million to set up a telecom equipment manufacturing facility in Tamil Nadu, India and USD100 million to expand its R&D center in Bangalore
In year 2000, Huawei established an R&D center in Stockholm, Sweden. In the next year 2001, Huawei established 4 R&D centers in UK. It had divested non-core subsidiary Avansys to Emerson for USD750 million and Huawei joined the International Telecommunications Union (ITU). By strategic investment, Huawei’s international market sales had reached USD552 million. In year 2008, Huawei deployed UMTS/HSPA in North America providing TELUS’s new next generation wireless network and Bell Canada with high-speed mobile access. (XFN-ASIA, 2008)
In year 2012, Huawei plans to expand its business in Russia through strategic investment. Huawei aims to build a harmonious business environment and localized operations to support the advancement of Russia’s ICT industry and increase its competitiveness. Before that, Huawei has established an integrated industrial chain in Russia and trained a large number of local talents through system integrations.
Recently, Huawei had established its global ICT training center in Malaysia. The first global ICT training center of its kind outside China will position Malaysia as the venue for global professional training in next generation ICT technologies for its development and research for the Asean countries.
3.0 Future Expansion Strategy
Huawei’s products and solutions have been used for more than 100 countries and regions with the global services more than 1 billion users nowadays due to their implementation of the strategic management of the globalization. The internatilnal market is now become the major source of Huawei profits with almost 72% of the sales is from overseas markets in 2007.
There is no the single right market strategy entry for Huawei to pursue their global expansion nowadays. In our team member opinion, we suggested that Huawei should adopt a combination of the investment options and some strategic alliances options in other while depending on the company’s tolerance to risk that they deal with, their ability to manage the complexities, the financial resources and management capabilities. (Beebe et al, 2005)
Forming the international joint ventures with the foreign enterprises by entering into a partnership with them through the original equipment manufacturing (OEM) or licensing their technology is one of the methods of entry mode nowadays. However, a dedicated study by (Beamish and Iris.2003) suggested that the International Joint Ventures are not typically motivated by the learning outcomes because learning takes time, increases cost and do not provide efficiency in short term. Indeed the government policy can be seen here in that a willingness to provide the firms with the access to technology has often been a condition of permitting the foreign companies to establish in their home country. Huawei is already proved that the joint venture route strengthened their international competitive capabilities.
Nowadays, R&D internationalization has been seen as a core factors for the firms to enhance their competitive status and improve their entry mode as well as their technologically capabilities. R&D internationalization is not only improve their competitiveness based on local market conditions but also establish the technology center based on local technology and resources advantages to improve the technology capabilities as well as takes them as complementary resources of special technology. Zander, 1997; Breschi et al, 1998)
Firstly, with the firm’s entry with WTO, the knowledge needed by them becomes more and globalized and everlasting open-door policies create the prerequisites for the free flow of knowledge. Second, the transitions and acquisition of R&D based growth makes enterprises more technology-intensified which need to absorb the advanced technological knowledge abroad to enhance the corporate technological capabilities.
In the course of internationalization of R&D, Huawei had a definite strategy which aims at adopting the updated research results of communication equipment manufacturing broadly, learning from successful enterprises and establishing a core technology system based on R&D independently and collaboration with other organizations openly. Huawei chooses rationally the location of its R&D Units abroad. America is the modern science and technology centre of the world, and Silicon Valley is the famous high-tech base of the world. So, America is the first objective for Huawei to choose locations to establish R&D Units abroad.
Since established in 1988, Huawei has been teaming up with world-leading companies, to incorporate international best practices. For example, IBM has contributed to their integrated product development and supply chain, PricewaterhouseCoopers (PwC) to their financial management system and the Hay Group on human resources. Spreading learning and best practices throughout such a vast operation across the globe certainly demands good management systems and practices.
In today’s business environment, it is a trend for industry peers to develop together through cooperation. Huawei is staging the open-door cooperation on a larger scale. On one hand, they are building more stable partnerships with customers and suppliers, reinforcing strategic cooperation with international and domestic mainstream operators, building up their position in key markets across the globe, strengthening partnerships with key suppliers, and improving the response time and service advantages of the supply chain. On the other hand, Huawei is specifically building up multi-level cooperation with peers, to jointly establish a future-oriented, coexistent win-win and secure development pattern (Huawei Annual Report, 2005).
Additionally, they have cooperated with TI, Motorola, Agere, Intel, IBM, Sun,
Microsystem, Marconi, and NEC. Huawei has set up many R&D laboratories respectively with the first-class companies such as TI, Motorola, IBM, Intel, Lucent, ALTERA, and SUN in order to establish long-term, friendly, open and double-win relationship with them, and then realize its internationalization of technology research and cooperation by cooperating with them in technology and market widely.
Huawei had taken a high commission policy to encourage the first sales in new markets. Analyzing Huawei’s internationalization process, it is showed that the industry feature is the most important factor that affects Huawei’s entry mode decision. The opinion of influence from industry structure & characteristics is also supported by (DuBois, Toyne & Oliff ‘s 1993) research into international strategies in four technology industries. Huawei’s foreign market entry mode is based on the host market environment and industry features. The best mode is the one that can help a company to break the first market-balanced point. Therefore, Huawei uses different entry method in different market and for different products.
As shown in the previous examples, Huawei uses the join-venture method to enter Russian market; uses export method to enter Southern American, Africa and uses contractual method and joint venture to enter Europe and North American. From this point of view, Huawei’s entry mode selection is not primarily based on the firm factors. By contrast, it depends more on the industry factors/ products and the host market environmental factors.
Lastly, Huawei is still encouraged to use the combination of several entry modes for their international expansion and they should aim for a long term relationship with the host countries that they wanted to target. Due to the differences of many countries culture, political and economic factors, Huawei is still need to deal with different situation to help them to get the entry into the particular markets.
As the conclusion, the mere fact that Huawei entering strategies are functioning well, it is not enough to conclude that the present strategy should be generalized. The world of business is dynamic and the role of entry strategy is to assist the firm to adapt to changes in market and competitive conditions. Hence, for Huawei, the challenge is to devise new strategies that can enable the firms to perform better than it would, when the firms cannot simply sitick to its present strategy, which may now lead to new sustainable advantage.
For technological firms in developing countries, home countries’ technological level and reputation influence the firms’ internationalization significantly. To avoid this negative influence, Huawei had to enter the developing countries’ market first before it enters developed countries’ market. As a strategy, many hi-tech firms choose to set up the R&D department or register subsidiary companies in developed countries to develop an international market share.
Huawei is perhaps the most outstanding example of a Chinese company that has rapidly established itself in overseas markets. In terms of entry mode, in Huawei’s situations, the company prefers international joint ventures (IJV) or partnerships (inward internationalization) over M&A (outward internationalization) because IJV offer an effective path towards securing the technological basis for a differentiation advantage.
It is almost a miracle that Huawei is able to compete with global telecommunication giants in many products, but nevertheless, it still shows that Huawei is much inferior to its foreign rivals in various aspects. Therefore, Huawei needs to overcome a myriad of challenges such as human resources and cultural, branding, regulation and other aspects to be in their consideration in order to sustain the differences of the environment which might become one the threats for them to enter a new market.
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