Student ID: 090267536 Student Name: Duzan Adam

BUS 304 International Business This paper is written in accordance to the guidelines provided for Final Essay. With respect to the guidelines and as earlier stated in the Essay Plan, the paper is based on Huawei Telecommunications Ltd as the company and UK as the region.

Introduction Huawei is a Chinese MNE, founded in 1988, which deals in telecommunications hardware. It has grown from being a sales agent company of a small networking switch manufacturer to the worlds largest manufacturer of telecommunications hardware. It is reported that a shocking 90% of the worlds telecom operators are its clients, and over the course of 24 years, Huawei has expanded into nearly 140 countries. From early-2000s, Huawei has diverged from being a simple telecom equipment manufacturer to a networking solutions provider and more recently into retail of networking and mobile technology to consumers and enterprises around the world. However, much of Huaweis performance has come from selling and implementing its telecommunications hardware and solution. Huawei set up operations in UK in 2003, and currently has around 650 employees in the UK division. In the UK, all of the telecom companies are its clients and a few television network also utilize its service. It should be noted that Huawei is not a home base for UK as relatively little of its operations and activities are based on UK. In this paper, the manner in which Huawei entered the UK market (i.e. its market entry strategy) would be assessed on a theoretical and realistic level.

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Essay Structure The paper would conduct this analysis in line with the requirements of the essay. With respect to this the paper would be divided into three sections. The first section would consider the impact of globalization on the UK telecom networking industry. This would be achieved essentially by looking at the globalization drivers and forces mentioned by Yip (1992). A brief discussion of the Porters Five Forces model with respect to the UK telecom hardware industry would also be conducted so that greater context could be realized for later discussion. The second section would look at the efficacy of Huaweis entry market strategy in a theoretical context. This would be done by looking at the resource-based view framework and the integration-responsiveness framework. The third section would look at the impact of Huaweis entry market strategy on its current performance and future prospects in UK. This would be essentially done by conducting a SWOT analysis of Huaweis UK operations. Based on the findings in the aforementioned three sections, the paper would then conclude whether Huaweis market entry strategy for UK was a success or a failure.

Section 1 Globalization Impact on Industry Yip (1992) is a model which represents how possibly globalization may impact an industry. It proposes that there are four forces which may cause globalization; economic forces, social forces, technological forces and political forces. Moreover, it proposes that based on these forces, four factors drive globalization in an industry. These four factors are; cost drivers, market drivers, government drivers and competitive drivers. With respect to the telecom equipment industry, the most relevant force that has led to globalization is the technological force. Developments in networking and

telecommunications technology over the course of last century have revolutionized the manner in which individuals in todays society communicate. Moreover, these developments are to a large extent still continuing as more advanced and new technologies are realized such as 3G and LTE. As these technological factors advance,
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they create demand for them throughout the world. This creates a market driver for globalization with respect to the telecom equipment industry. The impact on UK of these developments has been particularly strong. As an advanced economy, it is often advocated and necessitated for UK to have integrated within the latest advancements in infrastructure technology to provide its citizens with a living standard appropriate of an advanced economy. Hence, there is also a government driver that drives the potential for globalization in the UK industry. Along with these, there are also cases of cost and competitive drivers to globalization within the telecom equipment industry. It should be noted that previously telecom equipment was quite expensive, owing to the high price of R&D and skilled labor in developed economies. However, after China opened up its closed economy for trade and investment, it allowed corporations to at least reduce the cost of skilled labor that would go into manufacturing telecom equipment. Various telecom hardware manufacturers such as Cisco and HP rushed into China and this further elevated globalizations impact on the telecom industry. Lastly, it should be noted that there have been also competitive drivers of globalization within the industry. It should be noted that unlike consumer industries, a business industry such as telecom hardware receives demand based on expansion or development projects by existing telecom operators. However, development projects are scarce, and most of the expansion is into developing regions. For this reason, globalization of the industry was further escalated. However, it should be noted that these are only taking into account what drove globalization. (IDC, 2010; Tang, 2012) It should be realized that several of the forces mentioned in Yip (1992) also have restricted globalization with respect to the industry. The two prominent restrictors of globalization have been economic and political forces. Economically, several nations and telecom operators have realized that implementing higher-end telecom infrastructure in certain regions is commercially unfeasible. This has transformed into different requirements at different regions throughout the world. While some regions might opt to simple build upon existing telecom structures, other might propose to implement wholly new infrastructure. This has restricted from a hyper-globalist environment within the industry. Subsequently, it should be noted that politically there has been a lot of pressure
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for the recent bound of globalization of the tourist hardware industry. It should be noted that most developed economies are distrusting of many developing economies, specifically those which previously were indulged with socialist regimes. Moreover, it should be noted that telecom hardware is part of a countrys infrastructure and there are many political and national security issues that relate to it. In recent years, these have restricted globalization potential in the industry as many trade blocs and national governments have raised security concerns over companies based in formerly socialist regimes. Hence, it should be noted that politically there have been slight opposition of telecom industry globalization. (IDC, 2010) Furthermore, the telecom hardware industry might be understood by looking at Porters Five Forces. The threat of new entrants in the industry is extremely low. First of all, it should be noted that the industry requires high capital investment. Even if somehow capital investment is achieved, entry into the industry requires significant intellectual property which often takes years of R&D. Subsequently, it should be noted that the threat of substitutes is non-existent. If telecom hardware is needed, it is needed there is no substitute for it. The only substitute might be utilizing space technology, however that also makes use of telecom equipment. The bargaining power of suppliers is very low. This is because raw materials with regards to making telecom equipment (plastic, silicon, etc.) have numerous suppliers across the world and there is no representative group. The bargaining power of consumers is, however, moderately high. This is because consumers are usually large corporations or government institutions, and these bodies normally take decisions after considerable review and discussion. However, it should be noted that in case a buyer wants a strictly specific piece of equipment, it could only buy it from one of the telecom hardware manufacturer because of the manner in which intellectual property might restrict other manufacturers from making it. All of this has amalgamated into a relatively moderate competitive rivalry within the industries. This can be seen as whenever a bid occurs, all the leaders (Ericson, Alcatel, Huawei, ZTE) bid on it. However, there arent cases of extreme competition such as price wars, advertising wars, etc. Hence, it should be noted that competition is relatively moderate within the industry.

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It should be noted that this also applies to UK, as all of the considerations herein are applicable to UK. (IDC, 2010)

Section 2 Theoretical Efficacy of Huaweis Strategy In order to asses Huaweis market entry strategy, it is needed that it is first described. It should be realized that Huaweis entry in UK has been an equity mode entry. Subsequently, it should be noted that it hasnt been a joint venture. Huawei, in 2003, setup a wholly-owned regional office in UK, after it won a contract with BT Group. The regional office provided the services of consultancy and equipment supply based on orders and projects that Huawei was awarded. The entry was akin to setting-up of a company-owned service center and distributor in UK. Till now, Huawei has invested UKP 150 million pounds in its UK operations. This does not account for the recent R&D venture that Huawei has acquired within UK. According to Peng (2009), there are four courses of strategies for a MNE such as Huawei. These are based on the integration-responsiveness framework. According to Peng (2009:293), a companys position on the integration-responsiveness framework with respect to a given industry might be judged by considering two sets of pressure: those for cost reduction and local responsiveness. The pressure for cost reduction often necessitates global integration and hence if high amount of pressure for cost reduction exists in an industry; it would mean that there is pressure for the company to globalize. Subsequently, strategy with respect to a country depends on pressure for local responsiveness. Local responsiveness relates to consumer taste in a country and the level and type of demand in a host country. If consumer tastes are quite different from the companys provision then there might be greater requirement for local responsiveness. Similarly, if demand is very high then there might be greater requirement for local responsiveness. In case of Huawei, there is a need for cost reduction in the UK telecom hardware market. This simply derives from the relative pricing within the industry which is based on all participants in the industry manufacturing their hardware in China. As such, for Huawei to shift production to a high-cost region would be inappropriate and
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hence there is a continuing need for cost reduction or maintenance of low costs in the industry. Subsequently, it should be noted that pressure for local responsiveness are also rather low. While there is significant demand for Huaweis products, responsiveness does not differ in terms of consumer tastes or behavior. Both these considerations promote a model of global standardization strategy for Huawei. It should be noted that this is exactly what Huawei does albeit with a twist. It was earlier noted that there was demand for Huaweis product. When there is demand for Huaweis product, there is almost always demand for its consultancy service. Huawei has coped with this by creating consultancy divisions in its so-called centers of excellence (Peng, 2009). Hence, it should be noted that considering the integration-responsiveness framework, the market entry strategy of Huawei is appropriate. Further theoretical analysis may be conducted by considering Huaweis strategy with respect to the resource-based view framework. The resource-based framework dictates that a company should not just simply base its strategy on creating a competitive advantage; it should actually create a strategy that completely takes into account its existing resources. According to the resource-based view, firms should consider what might happen to its existing competitive advantage and resources if a specific strategy is used. For Huawei, expansion could have been achieved through three modes; through agent/distributors, through joint ventures/strategic alliance and through wholly-owned subsidiaries. It should be noted that if Huawei entered through an agent or distributor, it was quite likely that the agent or distributor would have utilized the low-cost advantage of Huawei to its own benefit by reflecting market prices that did not utilize Huaweis low-cost advantage. Subsequently, it was also possible that if a joint venture or strategic alliance was formed that Huaweis intellectual property would have been placed at risk. Hence, it should be realized that Huaweis competitive advantage would have been severely affected if the first two possible entry strategies would have been used. Utilizing a wholly-owned subsidiary was actually also beneficial to Huawei as it allowed providing its products and services without fear of losing or putting its intellectual property at risk. However, it should be noted that Huawei is in essence a knowledge firm. Its competitive advantage and its success depend upon the manner in which it utilizes its knowledge and
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R&D resources. It should be realized in respect to this that having a wholly-owned subsidiary in UK, would allow for more effective knowledge transfer than other options with respect to market entry strategy. As such, it should be noted that as per the resourcebased view framework, Huaweis market entry strategy in UK was quite appropriate. (Kotabe & Helsen, 1998)

Section 3 Actual Implications of Huaweis Strategy Huawei has benefited immensely from its UK market entry strategy. First of all, it should be noted that its UK market entry has been quite successful, as all of the telecom operators in UK have become the clients of Huawei. It should also be noted that there has also been a benefit of R&D with respect to UK as Huawei has recently acquired wellknown R&D center in UK. The more important benefit for Huawei, through its UK market entry strategy, has been of being awarded the contract for LTE implementation throughout UK, i.e. EE. This has been essentially achieved through its relationships with the BT Group. Moreover, its existence in UK has allowed it to further its relationship with IBM, PriceWaterhouseCooper and Hay Group which have been quite important for Huaweis success worldwide. Hence, it should be noted that Huaweis market entry strategy has been quite beneficial for Huawei. (Huawei, 2012; Tang, 2007; IDC, 2010) However, its market entry strategy has resulted in one issue recently. World governments have started investigating Huaweis relationship with the Chinese Government. This has been inspired by reports of Huaweis association with Chinas People Liberation Army. This has even resulted in Huawei being blacklisted in Australia. Recently, Huaweis blacklisting is also being considered in UK, EU and USA. While it has been found that there is no association of Huawei with the Chinese Government, competitors have extensively lobbied for a decision against China. Supporters of blacklisting amongst government cite that Huawei reportedly hires only few people in the countries it earns billions from. This refers to Huaweis mode of entry, and it has become necessary that Huawei addresses it. If Huawei had opened a few manufacturing plants or entered into joint ventures, the notion of such association might have been less effective
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as Huawei could have cited these entry modes in its defense. However, as Huawei did not pursue such an entry strategy, it has become subject to possible blacklisting in UK. (Lee, 2012; Cusick, 2012; Ante, 2012; Beattie, 2012)

Conclusion From the aforementioned analyses, it is quite clear that Huaweis strategy with respect to its UK entry was quite appropriate. Not only did it allow Huawei to leverage its competitive advantage, it also allowed it to further enhance it by boosting its brand name and allowing it form further strategic alliances. It should also be noted that the impact of globalization on the UK telecom industry supported the market entry strategy that Huawei utilized. However, it should be realized that despite Huaweis appropriate market entry strategy, Huawei now faces a huge challenge as multiple governments across the world aim to blacklist Huawei for being associated with the Chinese government. This just goes on to show that a multinational business such as Huawei is affected by far more factors than ones they can control. Nevertheless, Huawei needs to effectively deal with this issue if it is continue its expansion and commercial success in a global market environment.

References Ante, S.E. (2012). Huawei's Ally: IBM. The Wall Street Journal. Available at http://online.wsj.com/article/SB10000872396390443294904578046872036296296.ht ml (Accessed December 7, 2012) Beattie, A.C. (2012). WPP Faces Steep Challenge After Winning Huawei Branding Account. Ad Age. Available at http://adage.com/article/global-news/wpp-faces-steepchallenge-winning-huawei-branding-account/238778/ (Accessed December 12, 2012) Cusick, J. (2012). China telecoms giant Huawei 'could be cyber-security risk to UK. Belfast Telegraph. Available at http://www.belfasttelegraph.co.uk/news/local-

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national/uk/china-telecoms-giant-huawei-could-be-cybersecurity-risk-to-uk16251443.html#ixzz2FXki1BhI (Accessed December 6, 2012) Huawei. (2012). Huawei UK. Available at http://www.huawei.com/uk/about-huawei (Accessed December 5, 2012) IDC. (2010). Insight: A SWOT Analysis: Huawein and Its Green Strategy. IDC. Available at http://www.docin.com/p-139320928.html (Accessed December 5, 2012) Kotabe, M., & Helsen, K. (1998). Global Marketing Management. New York: Wiley. Lee, M. (2012). Huawei says U.S. probe unlikely to affect other business. Reuters. Available at http://www.reuters.com/article/2012/10/17/us-huawei-usidUSBRE89G07120121017 (Accessed December 7, 2012) Peng, M. (2009). Global Strategic Management, International Edition. London: Cengage Learning. Tang, W. (2007). The Internationalization of Chinese Firms: Case Analysis of Some Key Dimensions. Dissertation Thesis, Nottingham University. Available at http://edissertations.nottingham.ac.uk/1204/1/07MALIXWT.pdf (Accessed December 3, 2012)

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