Brief Introduction and Problem Statement
Huawei is a Chinese company that has a long history of working with telecom equipment and, later, smartphones, laptops, and other portable technology. From its launch in 1987 to the present day, the main focus of Huawei has been innovation – the research and development (R&D) department in the organization received the majority of funding and attention (Ofek et al. 2018). Previous efforts of Huawei to penetrate first the telecom then the smartphone market, led it to become one of the global leaders in both segments.
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Currently, Huawei is consistently placed in the “big three” of leading vendors in the smartphone market, along with Samsung, a Korean brand, and Apple, an American company (Ofek et al. 2018). While the competition among these brands changes their positions from one year to another, Huawei has cemented its place as a major player in the segment of handheld devices.
Nonetheless, the future of Huawei’s sales in some markets remains to be uncertain. As Ofek et al. (2018) find, the strained relationship between China and the United States greatly impacted the ability of Huawei to penetrate the American market. While the sales of Huawei increase globally, its presence in the US is minuscule in comparison. The most recent events further challenge Huawei in developing a new plan for marketing globally and in the US. According to the latest news, the place of Huawei in the Western country is under serious legal threat which also affects the brand’s image and poses some severe challenges for further marketing.
This report focuses on Huawei’s opportunities in the US and global smartphone and telecom markets. It pays specific attention to the strategies of penetrating the American segment and determining whether such actions are necessary to keep the company profitable. In order to understand which actions can Huawei take, the report will contain analyses of various external and internal factors influencing Huawei and the smartphone market.
The PESTLE analysis is performed to see which factors smartphone developing companies have to consider when entering or functioning in specific markets. As Huawei currently faces the challenge of working in the US, the policies and preferences of this particular country will be highlighted. Other nations may be affected by Huawei’s progress In the US as well, thus prompting one’s investigation to focus on North America before moving onto the global market.
The conflict between China and the US is not new, thus pointing to Huawei’s long struggle for acceptance in the Western state. According to Ofek et al. (2018), Huawei encountered its first problems to enter the American market in 2008 when the Chinese company was trying to acquire 3Com. The US Committee on Foreign Investment prevented this deal from happening, starting a continuous battle between the American government and the Chinese company for the right to operate in the US in full capacity. In 2012, the US government urged local enterprises to stop interacting with Huawei and ZTE, Chinese companies, presuming a threat to national security (Ofek et al. 2018). In 2013, the discussion of Chinese firms providing unsafe IT equipment continued.
Although Huawei was able to take some steps to sell its new models in the US, the conflict reemerged in 2019. The Federal Communications Commission introduced new standards for working with companies that may threaten American national security (Zhong & Mozur 2018). This change, while not mentioning Huawei specifically, implicitly banned all interactions between the Chinese company and federally subsidized telecommunications carriers (Zhong & Mozur 2018). As such carriers are the foundation of smartphone-based communication in the US, Huawei’s opportunities in the US market may be limited significantly in the upcoming future.
Moving onto other nations, the influence of the US can also affect Huawei’s presence in several countries. Such states as the United Kingdom, Australia, Canada, and New Zealand may change their view of the Chinese company if the latter’s brand image remains tarnished by accusations of security breaches. It is unclear how much of an impact the US will have on other markets, but some changes in Huawei’s stability are inevitable as the American market is the largest in the world (Sun, Ding & Zhou 2016). The political relationship of the US with nations in other regions may not damage Huawei’s brand at the same level. In China, Huawei’s place on the market is supported by the local government. Here, the political situation is beneficial to Huawei, as the company’s and the government’s visions of China as a leader in IT seem to align (Ofek et al. 2018). Thus, the political environment of China will likely help Huawei to remain at the top of smartphone-selling firms.
The industry of smartphones continues to advance and attract customers. As smartphones upgrade and introduce new features, the number of buyers does not diminish significantly. Moreover, phones are viewed as a necessity, maintaining the economical advantage of smartphone companies having a high status on the market, if their new models are awaited by the public. The outlook of the industry, therefore, is positive, and smartphones are likely to continue dominating and overpowering other segments such as tablets, computers, and mp3 players.
The image of Huawei in the US is not stable or recognized in a positive way. The previous conflicts between the Chinese company and the US government resulted in Huawei and similar brands losing connections with major telecommunications carriers. As an outcome, American buyers are not acquainted with the brand, and their preferences may differ from those of people in other countries. The implications connected to Chinese products as being low quality and untrustworthy are still present in the market (Ofek et al. 2018). Thus, it may be difficult for Huawei to establish itself in comparison to Apple, which is widely viewed as a standard for smartphones in the US (Ofek et al. 2018). The acceptance of Huawei’s challenge to penetrate the American market is seen in the company’s reduced marketing spending in the region.
Apart from overall prejudices related to the brand, the behavior of consumers continues to change as concerns for environmental sustainability rise. Young people, especially students, depend on smartphones as the primary device for obtaining information and communicating (Arif, Aslam & Ali 2016). However, some younger consumers are choosing not to purchase the latest models or buy refurbished devices to engage in the cyclical economy (Valente & Atkinson 2019). However, this segment of customers is small, and the overall behavior favors new models and frequent range change.
A potential decisive social factor is the new generation’s lack of attachment to particular brands. For instance, Apple’s consumer groups may change due to people’s preferences of quality over brand loyalty (Sun, Ding & Zhou 2016). Here, Huawei has the possibility to capture younger audiences with its balance of price and quality. The brand’s ethical and environmental concerns have to be addressed as some groups may still have negative thoughts about the company making products in China.
The smartphone industry’s main technological aims are related to cloud computing, the integration of AI, and 5G networks. In all areas, Huawei maintains an advantage over other companies, has contributed to the research and development significantly in the previous years. The newer models of Huawei smartphones have 5G technology and integrate first AI-based processors for better battery use and speed (Segan 2019). Thus, Huawei has some advantages in the field of innovation, especially if it continues to increase the spending in its R&D department.
In the US, the 5G wireless technology has been adopted by all major carriers. However, their implementation is still at the starting level (Segan 2019). Moreover, it is unclear whether these phones will be compatible with the 5G networks in the US under the new bills proposed by the American government (Segan 2019). Thus, this point in the company’s innovation does not promise a clear advantage for the US market but has some potential in other areas.
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The current political climate influences the legal environment in the US in regard to Huawei and other Chinese companies. The change in regulations for foreign companies and their interaction with local carriers can substantially change the American smartphone market and eliminate some competitors that do not comply with the new laws. Huawei is one of the firms that may be affected by these changes. Other possible events that can impact Huawei’s entrance to the American market are changes in tax law and regulations and standards of allowing foreign investments. The strained US-China relationship may lead to other limitations that will decrease Huawei’s chances of attracting American customers.
In the following years, the expectations for manufacturing companies will continue changing under the influence of the Paris climate agreement. For China, the decrease in emissions and the overall environmental impact will be gradual, thus limiting the impact that these new guidelines have on the national economy (Mani et al. 2018). Nonetheless, new standards for sustainability will put some pressure on Huawei to make sure that its processes do not harm the environment.
One of the environmental issues that smartphone developers deal with is the disposal of used devices. Smartphones have many elements that are difficult to recycle or transfer to landfills. For example, lithium batteries put the environment at risk, if handled improperly (Mani et al. 2018). Furthermore, the impact of manufacturing on the environment is another issue that the company has to acknowledge. Tighter limitations put forth by the Paris agreement and similar documents may lead to increased spending. The impact of climate change on shipping and international trade is a substantial concern that gains attention globally. Huawei’s presence on multiple continents can be disrupted due to natural disasters and changes in transportation methods.
Table 1: SWOT – critical points for Huawei in the US and global markets.
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First of all, it is vital to address the existing strengths of Huawei (Table 1). Currently, the company holds a significant share of smartphone sales globally. According to Statista (2019), it is the second-largest vendor of smartphones in the world, acquiring more than 17% of the market and closely following Samsung with 22%. Its number of sales is higher than Apple’s – a development from 2018 when the American company held second place instead (Exhibit 1). Thus, one can see that Huawei is a popular brand in many countries which may inspire brand loyalty and stable sales rates in several regions.
Moreover, Huawei’s clear focus on innovation is an attractive point for customers who wait for new ideas in each model. The introduction of new features is likely to attract buyers’ attention and persuade them to change phones frequently. The technical achievements of Huawei strengthen their position further as the company quickly designs new features that either improve on previous’ fails of competitors’ or introduce entirely new concepts. Finally, the manufacturing location of Huawei, as well as its practices, grant the firm cost leadership in the market –parts are developed in China, a prominent place for smartphone manifesting.
Among the weaknesses, Huawei’s conflict with the US is the most significant. The image of the Chinese company is tainted by recent controversies, limiting its reach to Western clients. It is the current weak position in the US is an issue that can affect not only Huawei’s prospect of entering the US market in the future but also its relationship with European countries or states that are influenced by American politics.
The technological advancement of Huawei and its primary focus on new and exciting additions to the smartphone industry is the central opportunity on which the company can rely. 5G and AI developments, for example, help Huawei stand out and be noticed by customers with a technical background. After the conflict between Huawei and Google, the Chinese company also chose to design its own operating system (OS) which, while driving some clients away, may be appealing to some populations. Among the untapped markets, India remains open for Huawei – this country currently has other Chinese brands and has a need for both affordable and high-end devices.
Finally, the heavy competition in the smartphone industry and China’s tensions with the US are the primary threats to the firm. Recently, many developers copy each other’s innovations and improve upon them in short amounts of time which eliminates substantial differences between brands. To stand out, Huawei has to be competent in both technological abilities and the aesthetic presentation of its devices. Furthermore, it remains uncertain whether the US’ regulations will also affect other countries to ban Huawei’s phones entirely.
Market Segmentation and Positioning Strategy
Segmentation is a tool for grouping customers according to their characteristics. Huawei uses a mix of segmentation approaches, separating clients according to their demographics, location, and social (psychographic) features. As the case study shows, the geographical division is apparent – Huawei enters local markets with a unique message based on national preferences. The company’s tiered product range relies on people’s financial abilities, social status, and purchasing habits. “Mate” series features large screens, advanced technology, and high prices, targeting professional adults (Ofek et al. 2018). “P” set of phones is also on the more expensive side, but it pays attention to photography and design, aiming to appeal to a younger, lifestyle-driven demographic (Ofek et al. 2018). Other products combine low prices and functionality for locations with generally low incomes.
It is clear that Huawei approaches the issue of segmentation with the opinion that it is necessary to appeal to local communities rather than create a unifying global image. This strategy may be beneficial to the emerging markets as they need to feel comfortable and familiar with the brands that they purchase. However, it may be detrimental in appealing to high-end customers who want their technology to be a sign of exclusivity and status.
It may be necessary for Huawei to differentiate between their luxury models and cheaper devices if they want to target both groups. In comparison. Apple does not have similar segmentation and focuses on creating one solid image of the customer – professional, intellectual, unconventional, and creative (Valente & Atkinson 2019). Here, the American company aspires for everyone to follow its trends, designing a niche for its products as a result. While this strategy is less effective in markets with lower incomes, it is successful in increasing brand loyalty.
As a result, Huawei adopts a user benefit and value-based positioning strategy – in countries where price-quality balance is vital, the value-based approach is highlighted. In contrast, Chinese consumers regard phones as a status symbol – user benefit is a more appropriate strategy, and Huawei utilizes it in the region (Ofek et al. 2018). Overall, the positioning of the firm is strongly reliant on the geographic location of the market.
Huawei has defined its primary customer groups to which it aims to appeal. According to Hopkinson (2015), the company has selected six segments that it can target – business-focused, value-chaser, family-focused, entertainer, socializer, and heavy user. Arguably, Huawei attempts to create devices for all classes, producing smartphones with larger and smaller screens, professional cameras, online and offline gaming support, online payment systems, and other functions. As the case suggests, the primary audience for Huawei smartphones is different, depending on the country.
In China, Huawei targets entertainers, business-focused, and heavy users offering large screens, powerful hardware, and online gaming and shopping applications (Ofek et al. 2018). In Europe, Huawei’s users are value-chasers and family-focused customers – the selection of smaller models at affordable prices is the popular option (Ofek et al. 2018). The flexibility of Huawei’s range and marketing strategy allows it to enter virtually any market if one does not account for political conflicts.
Marketing Mix: 4Ps
Huawei’s product line is broad, combining B2B and B2C solutions, networks, and devices. The core technology for businesses includes telecom networks, routers, broadband access, and other systems. The Chinese company also sells and maintains equipment for telecommunication operators, Finally, the most recent addition to the product range is personal devices and wearables, such as smartphones, laptops, smartwatches, tablets, and various accessories. The number of models offered to individual customers is broad as well – as mentioned above, Huawei divides its products into categories depending on their price and functionality.
Currently, Huawei is active in more than 150 countries, offering B2B and B2C goods. The company’s headquarters are located in Shenzhen, China, but it operates globally and distributes products to all continents. Huawei also employs people from different nations to work in development, marketing, and customer service to deliver experiences rooted in local cultures. Huawei’s distribution network depends on the country as well – it works with retailers, enterprises, governments, and also has several brand stores in locations with high product demand. Online stores, maintained both by Huawei and third-party retailers, constitute a significant portion of sales in China and other countries.
The pricing policy of the Chinese company is founded on a number of factors, including the market’s location, economic conditions, trends, and offered product range. With the introduction of more expensive iPhones, for instance, Huawei used the opportunity to design more high-end devices with a premium pricing strategy (Ofek et al. 2018). Nonetheless, the prevalent approach is value-based as Huawei often competes in markets where customers prefer low prices.
The promotional activities of Huawei range from standard media campaigns to online communication and lifestyle-inspired collaborations. In some states, Huawei approached celebrities to create a youthful and stylish image. In other countries, online marketing and promotions were implemented to increase customer bases. Overall, similar to other marketing elements, Huawei’s strategy is complex and geographically dependent – Huawei penetrates the market with flash sales and maintains the position with print and online advertising.
The problem of Huawei failing to enter the US market may be further complicated by the political issues currently present between the US and China. Thus, the company can consider multiple approaches to continue growing in the smartphone industry. First of all, it can attempt to clear its image with the US government by dispelling the accusations and making sure that its products follow all standards posed by the Western country. As the US plans to ban all devices and services that Huawei provides, the Chinese company will also lose its position as a major telecom equipment manufacturer.
The second solution would be to forego the American market and focus its efforts on other areas, including those where Huawei products are not widely known currently. India, African countries, and countries where iPhone and Samsung hold higher positions may become the new target for Huawei, which quickly develops new technologies and adapts to local cultures. In some regions, Huawei’s sales are increasing, and its models gain recognition, thus having a promising outlook to stay successful without involving the US.
Based on the industry and company analyses, one may recommend Huawei to focus its future developments on markets outside of the US. This choice is based on the fact that the Chinese company has been struggling to earn the trust of the American government since the beginning of its work on smartphones and other B2C products (Ofek et al. 2018). The lack of progress in relationships and regular accusations from the US government indicate that the China-US situation is unlikely to improve in the upcoming years. Therefore, Huawei should change its approach and analyze the markets that do not possess a similar negative image of the brand.
The investigation of Huawei’s policies and previous actions reveal the firm’s flexibility in development and marketing. It offers products for different segments and creates an image that is based on local preferences. This characteristic, as well as Huawei’s ability to offer devices in different price ranges, makes the company highly competitive. Moreover, its opportunity to innovate and introduce 5G smartphones and other equipment opens up new possibilities in the local and global markets.
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