Huawei Consumer Business Technology Leadership Challenges Case Solution

2. External analysis 

2.1. Industry structure and general environmental analysis

The structure of the smartphone industry is an oligopoly as this industry is dominated by some large firms like Samsung, Apple, Sony and Huawei. There are several political, economic and social factors that are affecting the global smartphone industry. Chinese smartphone manufacturers are facing increased political pressures due to recent U.S imposed sanctions on Huawei, which has been accused of IP violations against the Iranian regime. The U.S-China conflict has resulted in decreasing trade relations between Chinese smartphone manufacturers and technology software companies operating in large western markets.  Currently, the global COVID-19 has also created economic uncertainty as it has lowered consumers’ spending on electronic products worldwide. Before the pandemic, there was an increasing trend of impulsive buying of smartphones. But, COVID-19 has changed this social trend as both discretionary and impulse types of spending on smartphones have been reduced. As a result, a significant decline in smartphone sales is observed in first quarter of year 2020. Analysts estimated that economic effects of COVID-19 will remain there for several upcoming years. Thus, it can be said that political and economic challenges can have a long-term effect on the smartphone industry. On other hand, a positive technological trend is observed in the sense that smartphone manufacturers have significantly increased their pace of innovation due to rapidly increasing technological advancements and they have shifted their sole focus on smartphones to a diversified portfolio of interconnected devices that could offer seamless user experience.      

2.2. Porter five forces model

1. Bargaining power of suppliers

There are a large number of suppliers that manufacture components for building smartphone devices, and smartphone manufacturers have large scale of operations, which keep the bargaining power of suppliers low. As major third-party assemblers like Foxconn and Flextronics have large capacity and huge labor, so smartphone manufacturers tend to outsource mass production of many smartphone models to them. As a result, healthy and long-term relationships are developed and smartphone manufacturers can easily negotiate with assemblers on favorable terms.

2. Bargaining power of buyers

In high-end markets, there is strong competition between Samsung, Apple and Huawei that mainly targets the premium customer segment, which is willing to pay premium prices for enhanced hardware features and services. Thus, the bargaining power of premium customers is low. While, in booming emerging markets like China, India and Africa, there is intense competition among large number of Chinese companies (Vivo, Xiaomi and Oppo etc.) that offer cheaper products to medium to low-end customer segment, which is a huge population segment and which use smartphones as commodity products. In the United States, price-conscious smartphone customers are also customers of carrier network providers. So, the bargaining power of the medium to low-end customers is high.  

3. Competitive rivalry

The competitive rivalry is strong as there are large numbers of competitors available in the global android market space. They are investing aggressively in R&D to maintain their market shares and retain customers (Samsung being the top R&D spender in 2020). 

4. Threat of new entrants

The threat of new entrants is low because of substantial entry barriers- the large smartphone markets- United States and Europe, have already become saturated or matured, initial investment and R&D costs are high, and there are increased political pressures and legal restrictions.

5. Threat of substitutes

It is moderate because although, there are some substitutes (like notebook computers, leaner laptops) available to a smartphone but the smartphone is still a top priority for customers due to its perceived commoditized nature.  

3. Internal analysis

3.1. Value chain analysis

1. Primary activities

Huawei has its own large manufacturing base in China, which also serves as storage space for inbound logistics. It has adopted vertically integrated supply chain model and maintained strong relationships with major assemblers for smooth operations. But, it’s dependency on American technology components and services has adversely affected the firm’s margins. For outbound logistics and product distribution, it has opened direct channels and partnered with e-commerce companies like Alibaba, which are ultimately having positive impacts on the firm’s margins. Although, it has developed brand recognition in China it has employed less effective marketing strategies in overseas markets. Its pricing strategy is effective as it caters needs of both customer segments.  

2. Support activities    

It’s strong human capital, educational and training programs (1-6 months), R&D capabilities in terms of highly skilled and educated design engineers, and well-developed technological infrastructure are indirectly generating positive firm value. 

3.2. VRIN model