Economic Assignment: Analysis of Huawei Technologies Inc. (Essay Sample)

Economic Analysis of Huawei
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Introduction
Huawei Technologies Inc. is one of the largest telecommunication companies in the world. The company has experienced an extraordinary transformation. Over the last decade or so Huawei Corporation has expanded from its vast home market in China to become a global player in the telecommunication industry. It was founded by Ren Zhengfei who is a China Liberation Army veteran in 1987 (Zhu, & Jones, 2014). The company started venturing into overseas market in 1995. The company has over 140,000 employees and has a product presence in more than 140 countries all over the world. It has over the years earned the reputation of being one of the most innovative, fastest growing and dynamic multinational technology company. The company has laid an ambitious plan to dominate the global market. It is the third biggest smartphone manufacturer in the world in terms of market share. Mobile phones make almost a third of the corporation's total revenue (Huawei, 2016). The company also faces major business risks such as pure risk, price risk, and credit risk. The paper evaluates how the global environment is impacting on its structure, conduct, and performance and conducts an analysis of the company based on Porter's five forces model. It also analyses the strategies employed by the company to remain competitive in the global economy.
Methodology
The study focuses on Huawei Corporation and the global economic environment of the smartphone or mobile industry. Secondary data from academic sources such as journals and academic articles relating to the Huawei, the company five forces analysis and the strategies adopted to remain competitive in the market will be employed. Information will also be sourced from the company’s annual reports and other relevant sources.
How the global environment is impacting on Huawei structure, conduct, and performance
The information communication technology especially the telecommunication sector is rapidly growing. New technological concepts such as cloud computing and digital operations are emerging which are shaping how business is conducted in the industry (Ahrens, 2016).Competition is also intensifying required the company to adopt strategies which will allow it to achieve competitive advantage. The uncertainties are bringing changes to business and technology. All this is impacting on the company's structure, conduct, and performance. The company is adhering to its development strategy and investing heavily in research business models in areas where development is not certain and in technology.
It is also striving to stay ahead of the trends in the industry, and identify and satisfy its customers. Huawei Corporation is launching better products to improve its operating performance. It is also trying to produce its products at economically feasible costs(Bons& Brandt, 2014). Launching of unique and price friendly products is increasing their demand hence allowing to realize profitability. The increasing income of population in emerging markets is providing the company with an opportunity to increase its market share hence improve its profits.
Analysis of the firm based on porters five forces.
The extent to which threat of entry or potential entry erodes Huawei profitability
New entrant threat in the global telecommunication industry is strong especially in its major markets such as in China. The economies of scale in areas such as research and development, production, finance, and marketing is proving to be insufficient to deter new entrants to venture into the market. Also, many existing voice phone and feature phone manufacturers having similar industrial background would not meet a lot of difficulties regarding economies of scale (Bai, 2017). Product differentiation is also proving to be large enough to provide new entrants with a niche market to operate in.
Based on various handphone features like operating system, with or without a keyboard, size of screen and pricing the level of product differentiation in the smartphone industry is high. Many governments all over the world are also coming up with policies encouraging companies to venture into the mobile industry. It is not difficult to access the industry’s distribution channels. The E-commerce platform is also providing new entrants with a platform to access the global market without the needs on the traditional distribution channels.
The fair margins which are being experienced in the industry will attract more new entrants. The new entrants in the market are one of the major causes of the dilution of profits (Nakai& Tanaka, 2010). This is due to increased price wars in the industry. In some countries, companies are finding it easy to enter since they are now not required to have their own networks hence significantly reducing entry barriers. Price wars are increasing, reducing the profit margins in the industry significantly, and Huawei Corporation like other corporations is feeling the pressure of reduced profit margins.
Extent to which products outside the company are eroding Huawei profitability
Competitive rivalry is also influencing prices in the industry due to price wars being experienced. Outside products are being manufactured by global firms such as Samsung, Apple, Motorola, HTC, and Sony Erickson among other companies. Price war which is being experienced in the industry has commoditized the market making other important aspects such as branding to take a back seat. In addition to the listed multinational companies domestic companies are also becoming very competitive (Lin, 2012). The low switching cost in the market as a result of outside products is not helping either.
Extent of the economic power of the company to charge higher prices
Huawei Company does not have significant power to charge high prices. This is due to the price war existing in the market. Low switching cost which is providing the buyer with a bargaining power also contributes to the inability to control prices. Although the company provides differentiated products, the fact that some features are similar in the industry and the big number of competitors is leading to a high bargaining power by the buyers. Companies which are charging relatively higher prices compared to Huawei are also fighting back on strategies which it has adopted (Huawei, 2015). They are also trying to attempt to isolate low-cost competitors by introducing competitively priced products with the intention of isolating corporations such as Huawei.
Intensifying competition is also driving prices down. However, the company efficiently employs the cost leadership strategy allowing it to attain a lower production cost compared to rivals. This to an extent is providing it with an economic power to charge competitive prices without affecting its profit margin. Companies enjoying a cost advantage can compete based on prices but enjoy better profit margin than the competition. The competitors are also multinational organizations having a positive reputation in the market hence significantly minimizing its ability to charge higher prices.
This shows that the conditions in the global environment do not provide the company with the economic power to charge high prices. Competition in the industry is also high due to the fact that there exist high exit barriers. This increases the difficulty of the players in the industry in exiting or leaving the market. They are forced to stay and fight for a chunk of the market and adopt any strategy convenient for them to survive. Foreign exchange rate fluctuations bring rise to price risk.
The bargaining power of suppliers and their effects on the prices and profitability
The suppliers bargaining power can be regarded to be in the middle level. The suppliers in the smartphone and other telecommunication equipment sector are many diluting their bargaining power. This allows the corporation to source its raw materials at competitive prices reducing the total operating expenditure. Most of its suppliers are located in China and allows it to employ its low-cost leadership strategy effectively (Wang, 2016). Compared to the industry players the suppliers are many and smaller in size giving the telecommunication companies an advantage over them. Suppliers do not play a significant role in the company’s operations since most of the processes are undertaken by its production and research and development departments. The raw materials involved are also widely available (Huawei, 2015). Low bargaining power of suppliers coupled with cheap labor is allowing the company to acquire factors of production at relatively low cost. This is reflected in the profitability of the corporation.
Threat of substitute products and their effects on pricing and profitability
The major possible substitute for the company's smartphones is the tablet computer. This complete mobile computer is larger than the personal digital assistance or a normal mobile phone. The substitute effects of this gadget have however been found to be minimal. It has no influence or impact on the pricing strategy of Huawei smartphones. Also, it does not affect the operational aspects and profitability of the Corporation. Based on the porters’ five forces competition in the industry is big and the company is forced to keep investing in research and development. Gaining market share is also hard. Investing a significant amount of research and development means that a huge chunk of profits must be plowed back to the operational aspects of the business. The company intends to try and gain a significant foothold in the United States market to increase its revenue since this market is regarded as one of the most significant in the world.
Extent to which price and non-price competition affects the firm’s profitabilit...