1.

0 EXECUTIVE SUMMARY

1.1 INTRODUCTION

Huawei founded in 1987 by Zhengfer Ren who is a former engineer of the people’s
liberation Army. Headquartered of Huawei at Shenzhen which is a place provided
many resources such as telecom carriers, enterprise, and consumers. Huawei have a
ranking of NO 1 in the global telecom equipment market and N0 3 in the global
smartphone market after Samsung and Apple.

Huawei launched first digital product was access servers and hit the supply target of
70% within a year. Huawei enter in global telecom equipment market in 2001.
Huawei used strategy of the continuous customer-centric innovation and win-win
operation and expanded their R&D from China to Other countries. In 2002, Huawei
enter 3G market. Huawei cooperate with Europe’s top telecom carriers and success
taken 62% of the 4G market in Europe.

In 2011, Huawei implement cloud-pipe-device strategy to develop synergies among

the business. Cloud is the cloud computing and service. Data storage of Huawei
growing rapidly and offer service to more than 4,000 enterprises and over 150
countries.

Pipe refers to wireless communication network infrastructure and mobile

telecommunication technology. Huawei set up more than 400 LTE commercial
networks and more than 180 EPC to service half of the world 4G users.

Device refers as smart devices or smartphones. Huawei started business by

manufacturing low end phones. With brand recognition, channel development and
eco-system, Huawei succeed entered into premium segment. In 2015, Huawei achieve
No 3 position for the global smartphone.
1.2 KEY PROBLEM AND ISSUES

Huawei having higher R&D expenses than others competitors which was 15.1% of
sales revenue. Huawei believe that R&D and design is the key success in a
smartphone business. Huawei faced fierce competition with other major players
especially with Samsung and apple. Consumers purchased behavior, capabilities of
the operating system and features of the smartphone are the mainly consideration of
Huawei. Huawei need to notice with the problem of weakness in designing operating
system and apps, limited ability to control the industry chain and rising manufacturing
costs in China. Dynamic industry environment and smartphone strategy that
implemented by Huawei will affect the Huawei’s strategic goal in smartphone
business.

1.3 OBJECTIVES

The findings in this case study are proposed to:

1. To demonstrate a thorough understanding of the company’s operation, product

and service offering.

2. To conduct a review of the literature with particular attention to a company’s

strengths, weaknesses, opportunities and threats.

3. To discover the possible outcomes of strategy that implemented by company.

4. To analyses the company’s performance and interpret the findings.

1.4 SIGNIFICANCE OF STUDIES

Significance of study defines on the case study will create and carry out impacts on
the outcome that will contribute and benefit to the specific audience from this study.
Thus researchers could use the propose solution that derived from this case study to
use as a guideline to proceed for future research in similar industry.

1.4.1 Policy Makers

Policy makers could refer to this case study and determine the possible alternative to
handle the identified problem.
1.4.2 Future Researchers

Future researchers could refer to this case study and provide an insight to performing
similar analysis in the future.

1.4.3 Industry Owners

Industry owners could refer to this case study and use it as a guideline to compare and
review to the strategy execution yet determine whether there is any possible outcomes
that conjunction in this case study.

1.4.4 Academic Institution

Academic institution could use this as a reference or teaching criteria to enhance the
students on developing similar analytical skills and knowledge in the case study.

2.0 COMPANY BACKGROUND

Smartphone have many function and some functions successfully replaced the cell
phone and personal computers likes place and receive messages, multimedia players
GPS and various functions. The first smart phone is Nokia brand then follows by the
IPhone in 2007 and Android OS in 2008. Nokia lost its market due to the new
entrants.

Android OS had a dominate market share of 87.6%,followed by the IOS which is

11.7% and window phone OS which is 0.4%.In the past, phone distribution was
dominated by the telecommunication and offline sales channel of distributor and
retailers. With the increasing the popularity of used smartphone, the function of phone
cell and text messages offered become less important. Users started used the instant
messaging tools and wireless connection become more important. Smartphone
vendors have their offline and online distribution stores and raising thirds party’s
retailer platform like Amazon, Alibaba, Tesco, Lazada, and others.

The spending behavior of phone buyer also change from calling rate plans and brand
names to a growing recognition differentiated features offered by the smartphone.
Feature of phone users concern about call quality and mobile experience. The
changing of consumer demand attracts new entrants to come in like Apple, Samsung,
Huawei and Xiaomi. These new entrants focus on smartphone features and success
squeeze traditional phone makers. The raising of the smartphone successfully replaces
the demand for the computer and camera due to the multifunction of the smartphone.

The value of the smartphone is depending on the capabilities of the operating systems,
performance of the phone and the available apps on the operating system. Key success
for a smartphone is having a good operating system. With a greater number of
functionalities and higher degree of the differentiation can create brand loyalty and
high switching costs. Smartphone makers offer new features, services and content to
attract new growth and opportunities in the market.

2.1 MAJOR PLAYERS

2.1.1 Apple and Samsung

Apple and Samsung have their own self-designed smartphone, SoC (System on Chip).
Apple targeting premium segment and successfully brought vast sales revenues and
profits to the apple. Apple has released new model each year to maintain in the
premium market Besides, Apple also treated to enter in middle segment. Apple has
strong positioning in the software development.

Samsung was the early player in mobile phone and enter in smartphone market after
launch Galaxy S2. With high technology display and 4G capabilities, it prove that
Samsung able to compete with IPhone. Samsung still maintained number position in
the market.

2.1.2 Google and Microsoft

Google designed, promoted and supported the Google Nexus series, but outsourced
manufacturing and partial development to their OEM partners. Nexus one was
manufactured by HTC and launched in 2010. Google precede its acquisition with
Motorola Mobility to secure the Android community and respond to patent lawsuits
by Apple and others.

Microsoft has acquisition with Nokia and triggered competition in the smartphone
market. It was changeling by Apple IOS and IPhone and it lost its market leadership.
The rising of others competitors affect the market position of the Nokia. Microsoft
focused in Windows 10 Mobile OS and manufacturing smartphone hardware.

2.1.3 HTC, Xiaomi and others emerging economics

HTC enter the market by Android open Handset Alliance led by Google. HTC
released new smartphone with right timing and faster growing smartphone period.
However, HTC cannot compete with IPhone and Samsung and never made into high-
end market segment. HTC started to lose the medium-and –low end market segments.

Xiaomi gained the market share by frequently updates the Chinese-version MIUI OS
and target in low-priced but high-value products. In 2004, Xiaomi successfully
overtake Samsung and start expanding to international market. However, Xiaomi
faced lawsuits by Ericsson and other companies. In2015, Xiaomi sales was lower than
expectation of the founder.

Lenovo gained market share by the longstanding relationship with Chinese telecom
carriers and targeted in low-end features phones. After purchased Motorola Mobility
from Google, Lenovo targeted its marketing positioning in medium and high-end
markets. In 2015, Lenovo launched high end smartphone Moto X in China,
comparable with IPhone 6S. Lenovo was no even in top five smartphone vendors in
2016.
3.0 LITERATURE REVIEW

3.1 Porter five forces

3.1.1 Supplier Power

Huawei focus on R&D department and believe that R&D will be the key success in
the smartphone market. Huawei founded Hisilicon Technologies Co. Ltd and self-
designed Kirin series. Kirin SoC used in the Huawei and Honor smartphone. Kirin
series success gain 7.71% market shares of the Adroid’s SoC market share. The self-
development of the SoC, enhance the market position of Huawei and able to compete
the Apple and Samsung. Therefore, Huawei do not facing any supplier problem due to
its own develop the SoC and operating system.

3.1.2 Buyer Power

Demand for the phone buyers’ change from calling rate plan and brand name to
differentiated features of smartphones. Performance of the smartphone is the main
concern of the smartphones. For example, Apple have its own IOS system and
successful make differentiation for its products. Huawei have its own SoC system and
this also make brand recognition for its products. The buyer power I the smartphones
industry is quite high as the buyer can easily switch the smartphone brand to other
competitors. Buyer normally would not consider about the switching cost as they
main concern about the performance and the features of the smartphones. Therefore,
Huawei need to consider about this issue and improve its weakness.

3.1.3 Competitive Rivalry

The main competitors for Huawei are Apple and Samsung. Apple strong in develop in
software system while Samsung good in technology display and 4G capabilities.
Apple and Samsung have their own competitive advantage in smartphone industry
and this is the competitive weapon to compete with others competitors. Apple and
Samsung had a greater market share in the smartphone industry. Therefore, Huawei
need to have their own competitive advantage to compete with these strong
competitors. Huawei need to have proper strategies plan to compete with these two
major competitors.
Besides, Xiaomi is another competitor for Huawei. Xiaomi mainly focused in the
China smartphone market,. Xiaomi gained the market share by the frequently updates
of the Chinese-version MIUI OS based on Android. Xiaomi used the strategies of the
low-priced but high quality products. Xiaomi gained a lot of customers in China.
From the exhibit one, we can saw that Xiaomi increasing its market share throughout
the years. Therefore, Xiaomi is a potential competitors and Huawei need to aware the
strategies that come out by Xiaomi.

The others competitors include Oppo and Vivo. Oppo and Vivo achieved market share
in 2005. From exhibit 1, we can see that the shipment market share of Oppo and vivo
keep on increasing throughout the years. In 2016, Oppo and Vivo success enter into
top 5 Smartphone vendors in China. Therefore, Huawei need to have strategies to
strengthen its smartphone market position,

3.1.4 Threat of Substitution

The substitutes for smartphones are laptops, tablets, TV, cameras and so on.
However, smartphones are the strong substitutes among for these products.
Smartphones would not been affected by these substitutes. Demand for the computers
drop deeply due to raising of smartphones. From exhibit 4, we can see that the
demand of smartphones decrease over the years. Camera also integration into the
smartphone due to the fluctuation of the market demands. Smartphone have many
functions such take photo, send mail, watch movies and others function. These
functions strengthen the position of the smartphone and smartphone difficult to
replace with other substitution, Due to the function of the smartphone, smartphones
become convenience to the users.

3.1.5 Threat of New Entry

Value of the smartphones depends on the capabilities of OS, and features of phones.
Manufacturer or developers has advance apps and OS system creating the
opportunities to entry into the smartphone market. New entrants with a well-
developed software and hardware will decrease the barriers for them to enter into the
smartphone market. If the new entrants success create differential for their
smartphone will help them to gain market share in the smartphone market.
4.0 METHODOLOGY

This case study was distributed and assigned by Dr. Ahmad Nazri Wahidudin, from
Universiti Tunku Abdul Rahman (UTAR). Internet sources, journals and article will
help to analyze the information in the case study. Besides, strategy which provide in
case study will be used to determine the impact to the company. There were
information tables provided in the case study and it had been analyzed and stated in
the analysis.

Tables and graphs in this case study will be used in analysis part. All the information
will be used to explain the following analysis.

4.1 Market Repositioning and Channel Restructuring

Huawei initially offer low-end phones, but this strategy cannot help to build brand
recognition and differentiation to Huawei. Therefore, Huawei did market
repositioning to build up brand recognition. Huawei reduced to relied on telecom
carriers and developed other channel. Adoption of dual-brand and dual-channel will
attract high-end customers purchase Huawei’s phone. Dual brand means Huawei offer
two kinds of phones which were Huawei brand and Honor brand. Huawei brand offers
high-end smartphone while Honor brand targeted young people and medium-end
customers. Dual channel refers to both offline and online sales. Offline channel refer
as traditional agents and Huawei’s shop while offline shop refer as online agents or
third party online retailers.

Huawei aimed to boost sales through dual channel to 80 % and drove down the sales
of telecom carriers to below 20%.Internet sales channels greatly reduced distribution
costs and drove up volume. Honor brand successfully entered 74 countries and
regions with independent operations. Shipment of Honor was more than 40 million
and doubles its 2014 sales revenue in 2015. The sales of Huawei brand was mainly
used offline channel. Huawei offer Huawei’s Mate series to suit the market for
business people which can compete with Samsung high-end smartphone. Huawei P
series focused more on technologically sophisticated users which can compete with
Apple premium Smartphone. Huawei successfully move up to medium and high end
market with by the P and Mate series.

By implemented the dual-brand and dual channel, Huawei’s sales revenue reached to
CNY 395,005 million which increase 37% when compared with sales revenue of 2014
which was CNY 288,197 million. This achievement was due to Huawei able to meet
the customers need and requirement. Huawei could respond the market trend changes
and implement best strategies to the changes. Customers have choices to purchase
through online or offline channel. Offline channel success attracts those customers
which likes to online shopping, Offline channel develop an e-commerce business for
Huawei. Customers also can visit the Huawei’s stores to choose the smartphone.
Besides, reduced dependent on telecom carriers was a big arrangement for Huawei.
Throughout this strategy, Huawei able to move to another channel and success gain
more market share in the market. The two series of smartphone success target the
youngsters and high-end market. For exhibit 7b, the table showed that the market
share of Huawei was 7.4 % in 2015 which means increase 29.8% compare with 5.7%
market share in 2014. This means that this strategy help Huawei gain more market
share in 2015.

4.2 Focusing on SoC (System on Chip) Development and smartphone strategy

Huawei focused on R&D as they believe that R&D and design are key factor to a
success of smartphone business. R&D expense of Huawei reached CNY 59.607
billion, 15.1% of total sales revenue. Huawei spend more in R&D to develop the SoC
and smartphone design. Huawei had founded Hisilicon Technologies Co, Ltd in 2004
and this company bring many advantages to Huawei. Huawei dedicated in
development SoC to enable Huawei compete with others competitors.

Huawei cooperate with others companies to improve the Smartphone quality and user
experience. Huawei create the image of the smartphone as collision between high-tech
and fashion. Huawei recruited outsider talents to help in smartphone design and
development. Huawei focus on the two core principles which are industrial design
directing design of the hardware and user experience design of the software.

Huawei focus on R&D and put investment more than other competitors. Huawei
purposely set up the R&D department at others countries instead of in China. Huawei
able to trap into well-established market that are consist of talented and educated
engineer to solve the complex issue through spreading the innovation centre across
the world. Huawei keep on touch for every innovation centre and sharing the
knowledge to each centre.

Furthermore, the collaboration with others partners also bring advantage to the
company. Huawei can share the technology knowledge between the partnership
parties and able to improve the quality of Huawei’s smartphone. The development on
SoC could become the driving force for Huawei’s smartphone growth. Therefore,
Huawei have its own SoC and can compete with Samsung and Apple.

4.3 Driving Synergies between business

Huawei’s background and technological capabilities as telecom equipment provider

and this is the technological advantage for its smartphone business. Huawei developed
3G to 4G wireless and success solve the battery lifespan problem. Huawei Mate 8
smartphones offer the new chipset which is to improve CPU performance, enhance
the battery life and smartphone security. Huawei able to used patent in
telecommunication as bargaining chips or competitive weapon to against others
smartphone makers.

Huawei able to cooperate with telecom carriers and this is another advantage to its
smartphone business. Huawei cooperate with global telecom carriers and provided
more than 40000 host post operated by carriers in 75 countries. Besides, Huawei
distribute its smartphones to local telecom carriers and telecom carriers will provide
data wireless and speech communication to the customers.

With the background of telecom equipment provide, it able Huawei to have

technological advantage compare with others competitors. Huawei know how to use
its advantage to compete with others competitors. Huawei have more collaboration
partners, collaborate will bring the advantages to Huawei. This is a win-win situation
for Huawei and it’s collaborate partners. Huawei collaboration partners can carry out
data plan plus smartphone package to the customers. So, the customers can purchase
the smartphone with the data plan.