Huawei Technologies Co. Ltd: SWOT Analysis, VRIO Framework, And Competitive Analysis

Company background

Huawei Technologies Co. Ltd is Chinese multinational networking and telecommunications equipments and services company that has its head quarter in Shenzhen Guangdong. It is regarded as the largest telecommunications equipment manufacturer in the world and the company have overtaken Ericsson in 2012. The company have deployed its products and service across more than 140 countries and it presently serves more than 45 countries of the world’s 50 largest telecom operators.

The problems faced by the company are alleged infringement of the patents and illegally copying the sources code that is used in the switches and routers. Furthermore, the company has been facing challenges by numerous entities of the American government and security officials regarding the unauthorized access of the Chinese government.   

Political Factors: Canada has parliamentary democracy and the government system of Canada is federal with better democratic traditions. Concerning the computer networking industry the decisions of the micro economic and government gives the government provides preference to the decision of the firms (Abbott, 2015). The political environment a company faces in Canada provides lesser regulations in respect of other countries.

Economic factors: The economy of Canada is determined by the service sector. The trade integration of Canada has transformed the North American economy with lower cost of labour have attracted major manufacturing facilities in Canada.

Social Factors: The advent of modernization has changed the lifestyle and adaptability of the society in Canada. The social factors create an impact on the market since the taste and preference of the customers and their purchasing patterns have changed the social forces (Aithal, 2016). In China, the socio cultural factors is improving the strong scientific and education based of Huawei.

Technological Factors: Technological advances in the areas of internet continued in Canada with the technological choices and the requirement of service providers were getting more diversify (Abbott, 2015). The service of internet information in Canada have increased and Huawei has invested more than US $374 million in wide band technologies with devoted team of 3,500 R&D employees deployed research centres in Canada.

Legal Factors: The law system of Canada has its foundations in the British common law and yet the country retains the civil system for issues relating to private law. The legal system of Canada is subject to constitutions of Canada. Huawei was sued by Cisco in United States for setting up a subsidiary by infringement of copyrights and patents right, which led to loss of sales contract.

Factors affecting Huawei in Canada

Environmental Factors: The environmental aspects of Canada are concerned with the perseveration of quality of natural environment to coordinate the environmental policies and programs. The Canadian environmental framework became the federal department to make sure that telecommunication companies clean up hazardous waste.

Strength: · Huawei has strong base for research and development and high quality employees that provides an edge over the competitors · The company has green products attributes with evolving business initiatives	Weaknesses: · Vision for application or technology for green society and behaviours · External engagement and advocacy · Due to the complex organizational structure the on-site installation team faces the problems of sharing knowledge with the supply chain
Opportunities: · Huawei has the opportunities in Increasing political and customer appreciation for its green attributes · Huawei has the increased opportunities product portfolio with rise in demand for networking equipment	Threat: · The company faces threat in the European market due to the challenging supply chain of the company · The slowing global economic recovery stands as the threat in expanding to the European economy (Grünig & Kühn, 2015).

VRIO analysis is very helpful in gaining an in depth knowledge of the internal capabilities of Huawei to function in the Chinese computer to operate in the computer networking industry (Knott, 2015). Below stated VRIO framework is attached for the f Huawei

Resources and Capabilities	Value	Rarity	Inimitability	Organization	Competitive Implications
Market Position	Yes	Yes	Yes	Yes	Temporary competitive advantage
Brand Loyalty	Yes	Yes	Yes	Yes	Sustained competitive advantage
Supportive Technologies and Network Infrastructure	Yes	No	No	Yes	Competitive Priority
Employee Loyalty	Yes	Yes	Yes	Yes	Sustained competitive advantage
Suppliers	Yes	No	No	Yes	Temporary competitive advantage
Customers Involvement	Yes	Yes	Yes	No	Competitive Priority
Allied Firms	Yes	Yes	No	Yes	Temporary competitive advantage

On analyzing the above stated VRIO analysis of Huawei it is noticed that the company makes the use of the IP voice technology with the objective of maintaining better relations with the customers (Albrecht et al., 2016). The company also has the better stakeholders in the form of suppliers, customers, employees and venture firms those results in rarity in the organization. The effective and positive relationship with the stakeholders forms critical resource for the Huawei.  

The intensity of the competition and the potentiality of the profit will be based on the industry functions. The below listed are the Porter’s five forces are performed for Huawei;

Threat of New Entrants: Low

The threat of new entrant for Huawei in the Canadian industry is high. The Chinese telecom industry has expanded to the largest telecom markets in the world and most leading international telecom equipment Company (Barney, 2014). It is considered among the multinationals that is leading the telecom equipment supplier firms such as Motorola, Nokia and Siemens.

Bargaining power of the suppliers: High

Very often suppliers uses considerable amount of bargaining power over the companies. The suppliers have higher power of bargaining due to the advanced integration and flexibility of supply (Bull et al., 2016). With limited number of suppliers, the bargaining power is high.  

Bargaining power of the buyers: High

The bargaining power of the buyers for Huawei is high. The subscriptions of phone have increased to 390 million mobile phone users with 348 million fixed users. With low cost of switching for customers telecom service providers, telecom service providers are seeking to enhance the network and value added service to retain customers by making the current customers stay.

Rivalry among competing firms: High

The rivalry among the competing companies is higher. Apart from the influx of several multinationals telecom companies, there are large numbers of domestic companies that are becoming competitive (Hill et al., 2014). Besides Huawei, ZTE, Cisco and GDT have gained markets to further enter into the international markets and compete with the multinational firms for customers.

SWOT analysis

Threat of product substitute: High

The threat of substitute product prevailing in the market poses a threat for Huawei. The degree of competition is impacted by the substitutes available in the market. Therefore, Huawei needs to focus on maintaining the comparable prices with the substitute products (Thomson & Culbert, 2017). Huawei needs to possess better knowledge with modifications and alterations in the hardware and software as this will help the company to alter its products and service accordingly.

Cultural distance – High	Administrative Distance – High	Geographic Distance – High	Economic Distance – High
Different regions	Canada and China has different lawful systems	The geographical size of the country is different	Higher GDP in Canada
Different Language	Different system of governance	Both Canada and China have access to oceans	Higher  instances of labour force in china than in Canada
Difference in social norms	Chinese colonial ties with Canada	Both Canada and China are bordered by the identical countries	Higher amount of populations in China than with Canada

1. Customer review:

The Huawei customer review strategies ask both its high-end customers and low end customers to review the service of the company. Huawai has started to look for ways to authentically improve the customer service to better market its product.

1. Establish an emphatic connection:

Critically Huawei emphasises on creating a connection with the customers by establishing trust and creating a line of open dialogue by creating empathy and trust among the customers (Peppard & Ward, 2016). Establishing such connections would enable the company to be highly counterproductive, resulting both the high and low-end customers feeling the care of the company.

1. Locating gaps in customer’s service or needs:  

Once empathy and trust is established is established, Huawei looks forward to discover gaps in its products and services, which will sincerely benefit its customers. Huawai has experienced personnel that are skilful identifying gaps in products and service.

1. Opening sincere dialogue:

Huawei has translated from an entirely support call with questions that are helpful in drawing the attention of the customers to an enjoyable deliverable (Eden & Ackermann, 2013). Huawei increase revenues even further by launching new reward programs for its employees for the interactions with the customers in establishing sincere benefit to the customers.  

1. Demonstrating benefits to customers:

For high-end long-term customers Huawei demonstrates the benefit of the products to its customers by illustrating specific cost savings benefits to its customers. This has resulted for Huawei to phenomenal increase in sales to even further widen their brand.  

1. Innovations of improving customers satisfaction:

Huawai avoids sales pitches by establishing successful call support with the objective of improving customer’s satisfaction scores following the end of the call. The company boost is sales by assisting people to better locate what they need and by sharing an opportunity with them.

The financial system of Huawei is assessed by taking into the considerations the financial ratio to reflect the true and fair view of the organization operational effectiveness.

Net working capital:

The working capital provides the ability of the organization to meets its short term obligations (Deegan, 2013). If the organization is unable to meet is short-term obligations within time consequences might arise relating to the lower credit ratings. The working capital of Huawei for the year the year 2015 stood 89019 which substantially inceased in 2016 to 355502 reflecting a better ability to meet its obligations.

VRIO framework

Changes in net working capital:

Changes in net working capital reflect the firm ability towards operational efficiency. The changes in net working capital is 13% for the year 2015 and subsequently increased to 31% and this is a positive indication of huawei efficient operational efficiency.

Debt to equity ratio:

The debt to equity ratio illustrates the capital structure of an organization (Williams, 2014). The debt to equity ratio for Huawei stood 2.09 in 2014, which subsequently increased in 2015, 2016 to 2.12, and 2016 respectively. This reflects Huawei is more leveraged towards debt than equity.

Long-term debt to equity ratio:

The long-term debt to equity ratio for Huawei stood 0.6 in 2014, which subsequently increased in 2015 to 0.31 and fell by 0.19 in the year 2016. This represents that Huawei is incurring larger portion of long-term debt and might face the issues of not paying its current debt.

Net income:

The net income for Huawei has been growing gradually over the years as the company reported a net income of 36910 in 2014 (Edwards, 2013). The net income subsequently increased to 41987 and 44058 in the year 2015 and 2016.

Quick ratio:

In 2014, the quick ratio of Huawei stood 1.03, which marginally declined in 2015 to 1.02. However, the company reported better quick ratio in 2016 of 1.05 reflecting substantial increase for current assets.

Particulars	2014	2015	2016
Net working Capital	78566	89019	355502
Changes in Net Working Capital		13%	31%
Debt to Equity Ratio	2.09	2.12	2.16
Long term debt to equity ratio	0.6	0.31	0.19
Net Income	36910	41987	44058
Quick Ratio	1.03	1.02	1.05

1. It is recommended that Huawei should make the use of horizontal acquisition where it can acquire the company that is operating in the same industry.
2. It is recommended that acquisitions would allow Huawei to obtain the access to present and new products that are unique to the firm that is acquired.
3. Competitive rivalry can affect the profitability. To reduce competition it can increase diversification in its products, as this will help in altering Huawei’s competitive scope.    

As evident from the financial ratios and reviewing the Huawei’s balance sheet there could be circumstances where it can face the issues of meeting its current debts. With increasing debt ratio as an alternative Huawei should increase their sales as the alternative to be successful since they must keep their operations running and meets its outstanding debts. With such alternative Huawei can implement a stronger supply chain further increase their profit margin.   

Long-term implementation plan

1. Constantly monitoring and evaluating the partnerships with suppliers may help in widening the brand and product reach.
2. Seeking out a viable company to acquire will help Huawei in increasing market share to tap into the customer segments.  

Conclusions:

To conclude with, it has been found that Huawei is looking forward to implement the international strategy of expansion with the help of the continuing their established sales regions and preferably through acquisitions. It is apparent that the company posses the necessary tools to overcome their supply chain issues and rising long-term borrowings by increasing sales through market penetration and growth.

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