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Huawei vs Apple

In: Business and Management

Submitted By yennth1344
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MINISTRY OF EDUCATION & TRAINING HOA SEN UNIVERSITY FACULTY OF ECONOMICS AND COMMERCE

INDIVIDUAL FINAL REPORT HUAWEI CO. LTD
AND SOME COMPARISONS TO APPLE INC.

INSTRUCTORS: PHAM THI BICH NGOC Ho Chi Minh city, June 2016

MINISTRY OF EDUCATION & TRAINING HOA SEN UNIVERSITY FACULTY OF ECONOMICS AND COMMERCE

HUAWEI CO.LTD
AND SOME COMPARISONS TO APPLE INC.

Student: Student ID | Full Name | 2131344 | Nguyễn Thị Hồng Yến |

INSTRUCTOR’S COMMANDS
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Ho Chi Minh city, June 2016
Instructor’s Signature

ABSTRACT

The main purpose of this report is to apply the theories obtained during the lecture of International Business Management. Not only just base on the theories to further explain the way of operating and thrive of Huawei Co., Ltd but also try to compare it with Apple. Although there are many comparable aspects, this report scopes on:
- The differences in the strategies the two companies applying
- The business operation process differences.
This report is also a chance for us to deeply practice our searching skills as well as get more perception on how multinational firms perform differently responding to the differences in their positions.
Through the research methods used such as collecting and analyzing data from secondary sources, we can come to below conclusions:
- Huawei is a potential company who has enough chances to thrive to the leading position in the future.
- Apple Inc. is a giant in the segment, however, at any point of time, Huawei still be there and truly deserve to be a fierce competitor of Apple.

ACKNOWLEDGEMENT

We would like to send our profoundly thank you to our instructor - Ms Pham Thi Bich Ngoc, who dedicated time and effort to help us well obtain the theories. She is also the useful source of theories whenever students get problem.
Regardless of how hard I tried, within the limit knowledge, the report surely has some shortage, I really respect commands from readers for better report in my future studying.
Thank you.

TABLE OF CONTENT
Contents
INSTRUCTOR’S COMMANDS i ABSTRACT ii ACKNOWLEDGEMENT iii TABLE OF CONTENT iv TABLE OF FIGURE v 1. INTRODUCTION TO HUAWEI 1 1.1. History and development: 1 1.2. Business activities: 2 1.3. Financial statement: 3 2. BUSINESS OPERATIONS AND STRATEGIES: 4 2.1. Business operation 4 2.2. Business Strategies 5 3. BRIEF COMPARISON TABLE OF HUAWEI CO. AND APPLE INC.: 7 4. PEST ANALYSIS: 8 5. CONCLUSION 10 REFERENCE 11

TABLE OF FIGURE

Figure 1 Huawei Co. logo 1 Figure 2 Huawei smartphones 2 Figure 3 Huawei wearable products 2 Figure 4 General Financial Statement Period 2011-2015 3 Figure 5 P8 – a high-end device with eye-catching design and mid-range price. 5 Figure 6 Chinese population structure 9

1. 2. INTRODUCTION TO HUAWEI 3.1. History and development:
Huawei Technologies Co. Ltd has the native name as华为技术有限公司 Figure [ 1 ] Huawei Co. logo

Huawei - 华为, one of the world's largest suppliers of telecommunications equipment and mobile phones, was founded as a private commercial company in China in 1987, with a registered capital of only 21,000 RMB.
About the name of this company, the character 华(Hua) is derived from "花" which means "flower" as well as "China" or “Chinese”. The second character is 为 (Wei) means "achievement", therefore Huawei literally means "China's achievement” which is pronounced in its native language as "Wah-Way" due to some Cantonese influence. Huawei’s founder and present CEO is Ren Zhengfei. He used to serve as an engineering corps in People's Liberation Army (PLA). This is also a strong basement for forming his personalities as well as corporate culture of present Huawe. At the time when all China telecommunications technologies were imported from abroad, Ren hoped to build a domestic Chinese telecommunication company that could compete with foreign competitors.
Initially, this company was solely a distributoar of Private Branch Exchange (PBX) switches for a Hong Kong firm. However, not so long after that, Huawei started to research and manufacture its own PBX technologies. The company has proved their competence when winning the first overseas contract in 1997. From then on, the company has made their best to strive for a future of being a delicate telecommunications company with a huge range of products from the network equipment to the mobile devices, handsets, etc. In addition to developing these products, the company has also offered their customer with network solutions.
By the end of 2014, Huawei products and services have been present in 170 countries, serving more than 1/3 of the world population. With over 20 years of operation in the field of information technology (ICT), their systems spanning the globe with partners and businesses all around the world.
Business philosophy:
Staying customer-centric based on customer needs, continuously innovating based on leading technologies. Shared success partnership based on openness, collaboration.
The Better Connected World which means the fully-connected information is now on the horizon and Huawei – by all costs – has committed to join forces with the entire industry to establish a robust ecosystem to develop and thrive together.
Vision statement:
The vision of Huawei Technologies is “to enrich life through communication”.
Mission statement:
The mission of the company is “to focus on its customers’ challenges and needs by providing excellent communications networks solutions and services in order to consistently create maximum value for customers” 1.2. Business activities:
Huawei has thriven on three core businesses segments: Carrier BG, Enterprise BG and Consumer BG. Each segment has its own products as well as solutions suitable for the target object as showed below: * Carrier BG: Operations and Infrastructure Transformation solution, Cloud core network product, System integration service, etc. * Enterprise BG: Contact center, network energy, Software Defined Networking Solution (SDN solution, etc. * Consumer BG: This focus on direct consumer, variety from smart phones to accessories: Figure [ 2 ] Huawei smartphones

Figure [ 3 ] Huawei wearable products
Source: Huawei.com 1.3. Financial statement:
The revenue has kept consistently increase throughout the years. In 2015, the total revenue was 395,009million CNY, far higher from the previous year. The numbers stated that Huawei achieved fabulous business result and sustainable growth in the three core business segment it has followed: carrier, enterprise, and consumer.

Figure [ 4 ] General Financial Statement Period 2011-2015
*: The closing rate applied is at December 31, 2015 of USD1.00 = CNY6.4927
Source: Huawei.com

1. BUSINESS OPERATIONS AND STRATEGIES: 2.1. Business operation
Organization Structure:
Same as Apple Inc., Huawei has applied the organization structure as function-based grouping and product-based grouping. This kind of structure perfectly provides business support, services, and supervision. They are positioned to offer accurate, timely, and effective services to field offices and strengthen supervision while delegating sufficient authority to them.
However, unlike Apple Inc., the executives who give the final decisions in operation and strategies of Huawei is “The Shareholders' Meeting”. This is the highest level within the Company, the ones to give final decisions on superior issues such as the company's capital increase, profit distribution, and selection of the members of the Board of Directors/Supervisory Board.
Corporate Culture: * Employment dedication:
Apple and Huawei share the same in employment issue: employee dedication. Soon acknowledge that a dedicated and committed work force makes companies more competitive. Huawei promote this dedication and make it accepted with the type that distinguishes itself from Apple: employee shareholding system. As showed in 2014 Annual Report, Ren Zhengfei’s shares account for nearly 1.4% of the company’s total, and 82,471 employees hold the rest. Ren’s idea is to share both responsibilities and benefits with his employees. The employee-ownership arrangement helps Huawei not only attract and retain dedicated employees but also maintain a strong collective fighting spirit. * Gradual decision making:
The entire company sticks to the philosophy of gradual decision making. Which means they take time for profoundly consideration whenever making any major decisions. This style is exactly the trait of Ren Zhengfei – Huawei’s father. As a man with army background, Ren’s patience and determination force him avoid quick decisions and take time to reflect. Furthermore, ideas are communicated and given feedback frequently among every employee and senior executives as well as Ren Zhengfei. This helps improve those ideas in the way that ultimately feed the future vision of the company, as an international character of a once-Chinese company. Furthermore, due to the ownership structure of Huawei, the decision-making power has been put under company control. They have freedom and bare less pressure from the market whenever making decisions.

Research and Development (R&D):
Similar to Apple Inc. as well as many other technology firms, Huawei has been consistently focusing on R&D. Such significant the role of R&D is that nearly 10 percent revenue of the company are spent on R&D projects. Most of this huge amount is for two core segment: Enterprise BG and Consumer BG. Due to that focusing, Huawei is now the global leader in patent application. The company has emphasized on R&D from the start, its R&D staff/employee ratio is pretty high with 500 R&D staffs compare to the number of 200 production staffs. Up to now, Huawei has had 16 R&D centers located in many countries from the Asia to the Europe. If compare the number of R&D centers, Apple has stayed far behind Huawei when it has nearly 5 ones in some specific technology developed countries.
Despite of bearing the difficulties on raising capital in the initial days, Ren and his cohorts decided to mainly invest on R&D. And the time has proved that this is a smart investment. 2.2. Business Strategies
Low-cost Strategy
If product differentiation is the strategy that Apple has been applying so far, Huawei’s itinerary is somehow distinguishes. Huawei has chosen low-cost strategy from its start.
To demonstrate more clearly about the low-cost strategy applied, in Consumer BG, Huawei smartphones are cheaper, far more than other brands. Just spend 400 dollars and users can own the high-end devices such as Honor 7. In contrast, Apple's iPhone has an average price of about 600 dollars, much higher than the opponent.

Figure [ 5 ] P8 – a high-end device with eye-catching design and mid-range price.
Source: Huawei.com

To explain how come Huawei can pursue this low-cost strategy without being hurt in its profit, there are many factors attribute to this strategy’s success. Firstly, some low-cost centers in China gives the firm a significant cost advantage compare to its rivals. Obviously, China is richly endowed with well-educated, talented engineers who are available at a relatively cheap price. A Chinese telecoms engineer with distinction degree commonly has a wage at around a fifth or a fourth of the ones in United State or Europe. Huawei takes advantage of this to overcome its rivals in prices aspect. Apple has also applied the outsourcing solution to respond to the cost pressure but obviously the company can’t gain the advantage over the host Huawei by all means. Additionally, because of pursuing product differentiation strategy, Apple has relied on creating and adding more value to the products, which makes it hardly gain the low-cost strategy anymore.
Besides, to support for this low-price strategy, Huawei accept to gain a low but stable profit. To make it clearly, we can give closer attention to Huawei and Apple rate of profit. Although Huawei's total profit is pretty positive, that profit just reached only 11.6% of its total net revenue in 2015. In the other hand, Apple earned 71.23 billion US dollars and up to 30.5% account for this number is its profit.
The ability to obtain cost innovation of Huawei is also an essential factor. Huawei just breakthroughs European market once it was able to gain a system that did not need to be upgraded the whole but just with the existing protocols. And the upgrade did not perform through equipment but via software.
This low-cost approach plays a core role in helping Huawei in eroding margins for other MNEs in Europe. Aside from shrinking the margins, Huawei also offers a variety range of products which can adapt for most of the existing protocols. This generates huge cost saving amount for the customers.
Localization Strategies
In the four main strategic postures in competing internationally, while Apple has chosen the Global Standardization strategy, Huawei get its way in Localization strategy.
Base on the differences in the strength of pressures for cost reductions versus those for local responsiveness, in contrast with the Global standardization, Localization strategy, is best suited for the Huawei position – low pressure on cost reduction and high pressure on local responsiveness.
Because Apple has followed the Global Standardization strategy, with the low pressure for local responsiveness, it has settled its position as a unique firm, their products are precisely standardized over the countries. They barely have any need to customize anything. Therefore, this leads to the mass-production of products, which means taking advantages of economies of scale to respond to the high pressure on cost issue they are facing. Conversely, to perform Localization strategy, Huawei have to pay high intensity in the local responsiveness, which means customizing its products offering to meet the local requirements and conditions in each separately countries. And as mentioned above in this report, Huawei has benefited from the cost advantages over the rivals to support aggressive pricing in the overall world market so that they are now bearing not so serious pressure from the cost aspect.
Indeed, Huawei is well pursuing Localization strategy by keep improving its customization through designs, features of the products. From the concern about the tastes and preferences vary from countries to countries, Huawei has spent huge amount of its capital, pouring to 16 R&D centers located in separate area of the world: United States, Europe, South Asia, etc. Such intense investment on each areas solely because it supposes the native researchers are the one well-understand the tastes as well as the preference of the citizens in those countries. This expresses that Huawei’s approach into the international market is to make the products customize with local requirement of customers. While Apple has recently set up some technology centers in some specific countries such as Japan, India or Island, for the purpose of advance its technology level, not to research and customize the products to fit the different preferences. Furthermore, to perform the strategy much better, Huawei has utilized it by Huawei hiring local talents for high-level management, helping Huawei become a global enterprise rather than just a Chinese one. 2. BRIEF COMPARISON TABLE OF HUAWEI CO. AND APPLE INC.:

| Huawei Co. | Apple Inc | Similarities | * Both applied the organization structure as function-based grouping and product-based grouping. * The same approach in employment issue: employee dedication | Differences | The Shareholders' Meeting give the final decisions in operation and strategies | The CEOs give the final decisions in operation and strategies | | Low cost Strategies
- Perform the low-end and mid-end lines of products. | Product differentiation
- Dominate the high-end lines of products by creating more value. | | Localization Strategy
- Not so serious cost pressure due to inherent comparative cost advantage in China market.
- Invest on R&D to meet the tastes and preferences of different customers in different countries. | Global Standardization Strategy
- Precisely product standardized throughout the international markets
- Outsourcing some parts of production process to achieve cost reduction. |

3. PEST ANALYSIS:

P - POLITICAL FACTORS:
Government’s support: Ren Zhengfei once stated that “if there had been no government policy to protect nationally owned company, Huawei would not exist”. The statement strongly proved the role of the Chinese government in the long-way success of Huawei. This encouragement comes from the military relationship that Ren got during his time served as engineering corp.
It is also essential to mention that the support of the Chinese government for Huawei was a part of the long-term process to push, to thrive the entire telecommunications industry of this country, not just implementing some impacts for a single firm only.
Policy support: In 1998, the China State Council and Ministry of Information Industry has made a settlement favorable to the domestic companies over foreign ones. This has been implemented by many tools: investment legislation, import tariff and local-purchase campaign. These policies came at the peak time of high growth market and demand which bring Huawei great opportunity to thrive for the leading position as nowadays.
Corruption in China has been subject to significant attention from any domestic as well as foreign firms operating in China. Xi Jinping, Communist Party General Secretary announced his Anti-corruption campaign following the 18th National Congress which was held in November 2012. This help the business environment become healthy and beneficial for Huawei’s growth.
E - ECONOMICAL FACTORS:
With the GDP per capita of 7854.67$ in Q1 2016 and, China is the target market of any products, any companies. Being account for nearly 30% of the market share (2015 statistics), Huawei has taken huge benefits from its own hometown.
Interest rate is also a factor amongst needed to be called out. The People’s Bank of China sets the one-year benchmark lending rate, which it has cut six times since 2014. This interest-rate cuts and liquidity injections since have lowered financing costs for companies with access to bank credit.
Labor supply and costs are the two notable factors in economics. From the start, Huawei has positioned itself as a telecommunication firm: a kind of labor-intensive sector. China has always known for their amazing work force: abundant and cheap. Therefore, abundant human resource is one of Huawei's strengths. Almost all the production facilities of Huawei are located in China with skilled labor force. While other technology companies still have problem in the problem of knowledge-human resources and costs, Huawei takes it easy to solve this.
Disposable Income of the Chinese consumers is also a factor to be considered. According to a statement made by The Economists: Despite China’s economic slowdown, consumption is resilient. Due to that, Huawei, as a thriving telecoms giant, predicts that revenues from its consumer-devices division will rise by about 50% this year.
The globalization has brought about many changes in the China market and economic environment. The countries have become interdependent and markets turned into global one. As a multinational enterprises (MNEs), Huawei gain not only opportunities to grow but also competitors to beat.
S - SOCIAL-CULTURAL FACTORS:
Population growth is one of the remarkable factors in social-culture of China. China's population is over 1.381 billion, the largest of any country in the world. The pyramid below shows more detail about Chinese population structure.

Figure 6 Chinese population structure
Source: http://populationpyramid.net/china/2015/
As showed, this is a young population structure. The highest group is at the working age: from 25-29 years old - the age of energy and seizing the opportunities. This plays an important role in decision the success of human resources policy in Huawei. The age profile shows the abundant in work force and dedication is their attitude toward the working. All of characteristics demonstrated above, such population structure perfectly fit for a technology giant like Huawei.
It will be a huge shortage if we analyze social-cultural factors without consideration about the lifestyle and the taste of Chinese consumer. According to a 10,000-subject research, “The Modernization of the Chinese Consumer” report showed that the days of broad-based market growth are coming to an end. Consumers are becoming more selective about where they spend their money, shifting from products to services and from mass to premium segments. They are seeking a more balanced life where health, family, and experiences take priority. This changes forces Huawei to change itself too, both in marketing and production strategies, to keep pace with the markets and rivals.
T - TECHNOLOGICAL FACTORS
Technology is the last of four external factors needed to be examined PEST analysis. For the case of Huawei, its global growth has been influenced to a greater extent by the fast growing level of technology in China, especially emerging technologies. Huawei has taken huge advantage from the surplus advances in technology due to its ability of expanding globally.
The smart investment packages in R&D activities bring Huawei to the leading position as today. Basing on the event of being the top company in patent application, it’s understandable that Huawei has gone miles ahead in the field of technological advancement. To prove that, the innovation teams consistently come out with projects and ideas meet the consumer’s needs.
On the other hand, the rapid growth of internet is also a key element attributes to Huawei’s sales. It’s time for the switch from traditional way to modern one: most activities can be performed online, from working, shopping to studying. This stimulates Huawei sale and revenue from selling their hi-tech products to the promising prospective customers.

4. CONCLUSION

After decade-history as a dominant in the telecommunications segment, Huawei is not an unfamiliar name in China as well as the world. Huawei has continuously improved its image in target segments through many aspects. Nowadays, Huawei has officially put its step in the playground of the world's top smartphone, both in sales and reputation. In the bustle world of smartphone markets today, Huawei becomes highly prominent thanks to the strong growth potential as well as the comparative advantages from its home country. In the near future, Huawei can be able to perform as a formidable competitor of Apple Inc.

REFERENCE 1. Nathaniel Ahrens 2013, “China Competitiveness: Myth, Reality and Lessons for the United States and Japan”, A Report of the CSIS Hills Program in Governance, page 4. 2. Nathaniel Ahrens 2013, “China Competitiveness: Myth, Reality and Lessons for the United States and Japan”, A Report of the CSIS Hills Program in Governance, page 22 3. Tran, Tien, 2016, “Tai sao Huawei van luon xep sau Apple?”, news.zing.vn 11th April 2016, http://news.zing.vn/tai-sao-huawei-van-luon-xep-sau-apple-post640857.html 4. McGraw, 2012, International Business: competing in the global marketplace, chapter 13, page 434-440 5. Daniel. Z; Y.Chen; F.Gong, 2016, The Modernization of the Chinese Consumer report.

--------------------------------------------
[ 1 ]. Nathaniel Ahrens 2013, “China Competitiveness: Myth, Reality and Lessons for the United States and Japan”, A Report of the CSIS Hills Program in Governance, page 4.
[ 2 ]. Nathaniel Ahrens 2013, “China Competitiveness: Myth, Reality and Lessons for the United States and Japan”, A Report of the CSIS Hills Program in Governance, page 22
[ 3 ]. Tran, Tien, 2016, “Tai sao Huawei van luon xep sau Apple?”, news.zing.vn 11th April 2016, http://news.zing.vn/tai-sao-huawei-van-luon-xep-sau-apple-post640857.html
[ 4 ]. McGraw, 2012, International Business: competing in the global marketplace, chapter 13, page 434-440
[ 5 ]. Daniel. Z; Y.Chen; F.Gong, 2016, The Modernization of the Chinese Consumer report.…...

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