Analyse the internal and external environment of Huawei and global smartphone industry using Swot, Pestel, Porters five forces & BCG

• For Lenovo Pestle and Swot analysis, see Lenovo Pestle & Swot.
• For Xiaomi Pestle and Swot analysis, see Xiaomi Pestle & Swot.

1.0 INTRODUCTION 

Huawei China is a globally recognized telecommunications equipment and service company founded in 1987 with its headquarters in Shenzhen Guangdong china. The company started out as a producer of phone switches but later expanding into building telecommunication network, communication devices and providing operational and consulting services in china and abroad (Shepard 2016). The company serves approximately 170 countries, equivalent to one third of the world’s population (Huawei 2018). Huawei now offers a wide range of services to other companies and consumers such as Internet of Things (IoT), cloud computing, among others.

Huawei was ranked third globally in the global smartphone market with a global market share of approximately 11% after Apple with 12% and market leader Samsung  with 23% as of 2017(Arabian Gazette 2017). Huawei’s smartphone market is an oligopoly with both high end (Apple  and Samsung) and low-end players. Huawei on the other hand is a low-end smartphone vender having an 11.4% market share with major competitors Samsung, Apple and Xiaomi having 22.6%, 15.1% and 8.2% market shares respectively, based on smartphone shipments for the first quarter of 2018 (Statista 2018).

2.0 Huawei PESTLE analysis 2017-2018 (Opportunities and threats)

2.1 Political environment

One of the biggest political issues Huawei faces is US political interference driven by Trumps administration. The Chinese company has had issues with the United States government with lawmakers in congress for instance threatening the company’s success in USA under claims that it is a national security threat, with the perceived threat Huawei phones could be used as a vehicle for spying by Chinese government (CBC 2018).Trumps administration has already urged major US carriers Verizon and AT & T to completely cut ties with Huawei, resulting in both cancelling the sale of Huawei phones including Huawei’s Mate 10 smartphone in USA in January 2018 (Moritz et al 2018; Hruska 2018). Not only are US law makers opposing any collaboration with Huawei, they have also gone against plans of other Chinese mobile operators including China Mobile entering the US market as well as completel banning others like ZTE. 

Trumps administration has gone ahead to warn US corporations that deploy Huawei hardware, they will not work on government contracts. This puts the company in a disadvantaged competitive position against major competitors Apple and Samsung who are the top sellers in the US, further reducing Huawei’s chances of expanding its market share in the US. Huawei is of course a victim of the strained relationship between China and USA, threatening to potentially limit the company’s growth in the major market of the US. According to CBC news (2018), with China aspiring to become world leader in technology industries like robotics, this might not be about national security threats but rather the US taking advantage at any presented chance to push back at China. This rivalry between the two countries is unfortunately affecting Chinese mobile and telecommunications firms’ expansion in the USA. According to CBC (2018), what the US government calls a National threat could just be another trade or competitive mask to protect US competitive interests such as its mobile telecommunications firms.

2.2 Economic environment

China’s continued economic growth is a great opportunity for China’s firms (Bremmer 2017). This stable economic environment has strengthened the quality of the country’s economy and has promoted its supply structure too (Lingqing 2017).With this growth, China’s population has become richer and this has improved their expenditure habits of Chinese turning them into big consumers. The economic growth has boosted the growth of China’s telecommunication companies like Huawei and Xiaomi Pestle. This is a great advantage for Huawei because with the consumers changing expenditure habits, the company will be able to sell more and increase its profit margins.

2.3 Social environment

The macro social environment can include changes in people’s lifestyles, fashion, labour composition, or other demographic trends that have the potential to be threats or opportunities for businesses. One of the more notable social change that’s already affecting many Chinese firms is the aging population.China is on the crisp of an aging population explosion with more than 230million Chinese aged 60 or above in 2016 which will rise to an estimated 255million Chinese above the age of 60 by 2020 (Xinhua 2017b). An aging Chinese population will greatly affect the economy of telecommunication companies like Huawei. According to Bloomberg (2017), other than being technological laggards, older populations tend to be slower when it comes to adopting new technology. With smart phone functions like video sharing, shopping and online chatting becoming part of the younger generation, it is harder for older people to catch up with the fast growing technological developments, which will likely reduce the demand for mobile phones among this age group.

Nevertheless, there is an opportunity for mobile phone firms like Huawei to close the gap between the elderly and new technology, an effective way to open up a whole new social world and solve some of the problems that come with aging. Many analysts such as Xinhua (2017) note that mobile phones are an effective way for the elderly to keep in touch with their friends and family since its they find it hard to move around. Ghaswalla (2018) also observes the growing popularity of internet among people of different age groups adopting to technology and using it for their daily needs, noting that old people are not resistant to digital devices as many have come to believe. Hence this could be a great opportunity for Huawei if the firm extends their marketing to this group that has been neglected by many when it comes to technology. 

2.4 Technological environment

The 5G network is one of the latest technological innovations in the mobile communications sector. According to Villas-Boas (2018), 5G network has the potential to be faster than 4G network and wired connections. This super-fast internet could be used as wireless communication to transmit all data and could replace some industries and applications (Villas-Boas 2018). With its speed, 5G will be used to power technologies like self-driving cars. Samsung has already adopted this technology while carriers like AT and T and Verizon have already launched the new technology in some US states (Villa-Boaz 2018). According to Sin (2017), Huawei was the first to launch the 5G back in 2009 introducing the first 5G network router. The company has been able to complete its 5G network verification at the China Mobile research institute with results showing that it can serve a future foundation for commercial on a large scale (Huawei 2018).

Another technological trend driving the smartphone industry is AI. More and more mobile developers are for instance using AI (Artificial intelligence) to power their Apps. To their credit, Huawei has been trying to incorporate the AI trend going a step further and embedding it in its Mate 10 and Mate 10 Pro (Auchard and Jiang 2017). The Mate 10 differentiates its self from Apple and Samsung devices because of its ability to differentiate between people and other objects in different light settings because of its advanced neuron sensor technology (Auchard and Jiang 2017).

2.5 Legal environment

Due to political pressure from Trump’s government, US law makers have gone as far as introducing a new bill that bans phones made by Huawei and ZTE from the country, with carriers such as Verizon and AT & T cancelling the sale of Huawei’s phones after being warned by the US government on national security grounds (CBC 2018).

Huawei has also had legal issues in the UK, after it was given an injunction after losing a legal case against Unwired Planet International over a patent dispute in the case Unwired Planet International Ltd v Huawei Technologies Co Ltd [2017] EWHC 2831 (Feifei 2017). Huawei was ordered by the Court of England to pay licensing fees related to 4G technologies in some of its devices and warned refusal to pay would lead to a ban of company sales in the UK (Feifei 2017).

2.6 Environmental factors

The government of China has set up a major campaign against environmental violation which has seen many companies punished for ignoring Chinese environmental laws (Corne and Browaey 2017). In response, Huawei has increased resource utilization efficiency and reduced its emissions. Following its strategy of green pipe, green world, green partner and green operations, the company maximizes energy utilization efficiency and reduces carbon emission and its negative effects (Huawei 2018).

3.0 Huawei China BCG Matrix 2018

Huawei has four major strategic business units (SBU’s) namely; the Carriers SBU, Consumer SBU, Enterprise and the Cloud services. In 2017, Huawei’s revenue grew at a CAPR of 26% from $75,103million in 2016 to $92,549million in 2017 with a $7,276million net profit (Huawei Annual Report 2017).    

Cash cows

Huawei’s Carriers, a strategic business unit that sells network equipment to mobile carriers has been operating as a cash cow for Huawei for several years since it is highly profitable and has achieved consistently high revenues. According to the 2017 annual report, Huawei’s Carrier SBU had 297,838million Yuan in revenue, a 2.5% increase from 2016 revenue, accounting for 49.3% of Huawei’s total annual revenue (Annual Report 2017). However due to slow growth in Carrier business markets across major markets, this business unit does not need further huge investments to maintain the high revenues but rather, Huawei can invest in other businesses units such as the consumers business unit and enterprises, to attain bigger market shares and revenues (cash cows) to support other strategic business units (Statista 2018).  

Stars

Huawei’s consumer strategic business unit, spearheaded by the smartphone segment is categorized as a star because of its rapid growth. The consumer business unit had total revenue of 237,249million Yuan, a 31.9% year on year increase (from 2016) contributing 39.3% to Huawei’s total annual revenue. Its growth is attributed to the increase in smartphone sales, induced by the release of Huawei Mate 10 in 2017, the first smartphone at the time with an embedded artificial intelligence chipset. Huawei has a 23% market share in China’s smartphone market and given its fast-growing smartphone market share, it should further invest in the consumer business unit to help it break the US smartphone market. While tis will not be easy due to political tensions, it will enable Huawei improve its global smartphone market share and revenues thus developing this star into a cash cow (Wang 2017).

Question marks

Huawei’s enterprise business unit can be categorized as a question mark for the Chinese group because of its uncertain growth. Although the business unit has shown rapid growth over the years, it has failed to raise significant revenues for Huawei. In 2017, the enterprise business unit had total revenues of 54,948million Yuan, and while it experienced a 35.1% year on year growth (from 2016), it only contributed 9.1% to Huawei’s total annual group revenue. However, given the high growth opportunities in this segment such as data centers, artificial intelligence and Internet of Things (IoT) a market expected to grow at a CAGR of 26.9% from US$170.57billion in 2017 to US$561.04billion in 2022, Huawei should invest in its enterprise business unit to turn it into a potential star and future cash cow with solid revenues to fund other business units (PR Newswire 2018). 

Dogs

Huawei’s cloud services business unit is relatively new and classified as a dog in Huawei portfolio of SBUs because its growth is unpredictable. Even though Huawei has invested heavily in the unit to enable its growth, the cloud services SBU has failed to return significant revenue. Nevertheless, the cloud computing market is expected to grow rapidly over the next years driven by demand for big data, so Huawei should continue investing in this unit. Huawei launched three data centers in Hongkong to serve as infrastructure for its cloud services business in the international market so this may be a sign the company is determined to press on with this unit despite low growth and market share (Tao 2018).

4.0 Huawei China SWOT Analysis 2018

4.1 Strengths

• The company’s branding is one of its greatest strength. Huawei’s branding strategy has built a strong reputation for the company with current users recommending others to Huawei phones. This has greatly improved sales, further enhancing the reputation for its products (Huawei 2015). According to The India times (2018) Huawei’s success is greatly based on its aggressive marketing using sponsorship deals like hosting big football clubs such as Arsenal and AC Milan among others (Dambrans 2016). Through such sponsorships, the company has been able to raise its brand awareness which has given it a competitive advantage against its competitors. This helped Huawei exceed Apple in global sales for the first time in 2017 making it the second largest global smart phone vendor after Samsung (The Indian express 2018). It has also helped Huawei take lead positions in some major markets like China, Latin America, Asia and some European markets. This has limited the growth of big players like Samsung and Apple which previously had lead positions in most markets (The India Express 2018). 
• Huawei’s collaboration efforts with other companies, has become one of its key strengths. From selfie to self-awareness campaigns in collaboration with Saatchi gallery which emphasizes the potential of smart phones as an artistic medium (London news 2017) has been able to reach out to selfie lovers especially the millennials thus creating more brand awareness. The company’s collaboration with Leica, a European company helped promote the brand’s awareness in Europe (Leica 2016) which has helped compensate for the slow growth in upcoming markets.

4.2 Weaknesses

• The company’s over dependence on its domestic market of China is one of its greatest weakness (The India express 2018). Huawei has become very dependent on its home market because of the leadership position it enjoys in China and it has neglected big markets like South Asia, India and North America where its presence is quite limited. This limits the company’s chances to sustain the second largest global vendor position in the market (The Indian Express 2018).
• Due to the intensified competition in the mobile phone market, the company’s profit margins declined in 2017, representing their slowest growth in the preceding four years (Financial tribune 2018). Nevertheless, the company could increase its margins by extending its outreach with it premium products. With its Mate 10 series for instance, Huawei stands a chance to increase profit margins since this phone is the most expensive among its brands so far and has the added advantage of running on an advanced AI enhanced chip, the first of its kind (Financial tribune 2018).

4.3 Opportunities

• The launching of 5G is a big opportunity as it will help Huawei improve its margins. The company completed the launch of its 5G network in collaboration with China Mobile institute (Huawei 2018). 5G is predicted to will become a key driver of change in operating systems, production, connections between things especially Internet of Things as well as connections between people and things (Huawei 2018). 5G could support national energy transformation, improve the efficiency of smart driving, transform manufacturing and provide business opportunities for telecom companies such as Huawei (Huawei 2018).This is why it is a massive opportunity for firms like Huawei to provide services to governments and private companies alike (Perez 2017).

4.4 Threats

• The political tensions between china and USA are a threat to Huawei’s chances of expanding its presence in the major market of USA (CBC 2018). It has experienced hardship in trying to expand its phone market in the USA due to the allegations by the US government that it’s a security threat (Economic Times 2018).This has led the company to lose the deal with AT and T and Verizon which would have given the company a strong presence in the US market (Economic Times 2018).The situation puts Huawei at a competitive disadvantage against major rivals like Apple and Samsung who have established leading market positions in the USA. This is why Huawei’s Mate 10 pro is predicted to perform poorly in the USA after Verizon and AT & T cancelled its launch after US government warnings. Since the company has failed to get deals with wireless companies in the USA like AT and T and Verizon which make the biggest percent of sales, it’s a challenge for Huawei to make its presence and impression on consumers (Cendrowski 2017).This will disadvantage Huawei given the fact the Mate 10 Pro is the most expensive phone the company has tried to sell in the US (Ruddock 2018).

5.0 Huawei Porters Five Forces Analysis 2017-2018

Bargaining power of buyers

Huawei customers have a relatively high bargaining power due to the availability of many similar products (smartphones, tablets, PC’s) on the low-end market from fellow technology companies like Xiaomi, Lenovo, OPPO, among others that have similar price ranges. This makes switching costs low which gives consumers power to chose between a wide variety of products. However, product differentiation and branding make it hard for some customers to purchase Huawei products for example many buy buyers are not willing to switch from using high-end Apple products to low-cost Huawei products (Vilner 2017).

Bargaining power of suppliers

Technology industry suppliers are mostly large companies like intel AMD and MediaTek that supply processors, ATL chips, memory, extra and generally have a high bargaining power because there are very few accomplished suppliers in the technology industry. This gives suppliers power to get the highest price possible for their products from Huawei to improve their profit margins. However, to minimize supplier costs, Huawei started manufacturing its own processors such as the Kirin 970 processor which is a hyper-fast mobile chip with a Neural processing unit which will allow cloud based Artificial Intelligence and on device AI to run alongside each other hence making the device faster (Boxall 2017).

Competitive rivalry

Huawei being the largest low-cost smartphone vender worldwide faces high competition in the low-end smartphone and PC markets both locally and internationally from major competitors such as Lenovo, Xiaomi, OPPO among others which manufacture similar products like Tablets, Smartphones and PCs with similar price ranges. This makes product switching costs low hence consumers can easily switch from Huawei products to competitor’s products leading to decrease in sales. This has led to price wars, product innovations and extensive advertising of new and existing products. For example, Lenovo increased its smartphone sales in India by debuting smartphones for under $100 which were also able to withstand three days of use on a single charge (Ming 2017).

Threat of substitutes

This is considered as a low threat by Huawei because there are few substitutes for its smartphone, tablet and PC products which include telephones, two-way radios and satellite phones. These are considered old-fashioned by the modern generation because unlike smartphones, you cannot access social media or internet when using telephones or two-way radios. In addition, satellite phones are associated with high operational costs, lagging and interference problems compared to smartphones (Ashish 2018). 

Threat of entry/Barriers to entry

This is considered as a low threat by Huawei because it requires huge capital investments, expensive skilled human resource and plenty of time to fully establish a technology company and be able to compete with existing companies both locally and internationally. In addition, there are few accomplished suppliers in the technology industry hence it would be very expensive for a new entrant to get products from suppliers thus limiting entry. In addition, product differentiation, branding and marketing power by some technology companies such as apple and Samsung make it difficult for new entrants to prosper. For example, Apple has its own operating system with an extended eco-system of products which clearly differentiates it from other products together with its high marketing power which do not favor a new entrant (Moorman 2018).  

Conclusion

As Huawei faces a potential ban on the purchase of American technology if found guilty of violating US export rules, the rising trade tensions between China and the USA pose a critical threat not only to the company’s future competitiveness but it’s very survival. Huawei relies heavily on American technology so such a scenario would have an adverse effect despite actually having a limited market presence in the American market. Nevertheless, Huawei is more diversified than ZTE both in terms of product scope, breadth but also in terms of geographical markets. This means it has enough brand resilience to withstand any temporary shock from the adverse political climate in the USA if it comes the worst and its faced with a ban, like ZTE.

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