Importance of networking in our daily lives is undeniable as it keep us connected and integrated. It not only allows us to maintain close connection with our friends, families on a daily basis but also evokes much importance in conducting business operations and expanding them globally. In the expansion of networking, today the role of technology and various networking equipments are crucially important. Cisco Systems Inc and Huawei are two popular firms in the networking equipment manufacturing and service providing industry (CNBC, 2017).. While the former is based in USA, the latter is the rising competitor of it in Asia.
This report focuses on operative details of Cisco Systems including its overview, economic analysis and performance. These are compared and contrasted with the business performance and uprising of Huawei. The aim of the report is to highlight the extent of competition between them along with outlining the strategies that Cisco can adopt in order to survive the competition and shocks in the economy.
Cisco Systems Inc is popular name in the networking equipment industry of the world being largest networking company of the world. It is USA based multinational technological conglomerate having headquarter at San Jose, California. Being on the centralized industry situated in Silicon Valley, it makes provision of the development, manufacturing and selling of equipments pertaining to networking hardware, telecommunication and other services of higher technology (Galbraith 2014). The firm has specialized into specific tech markets such as Domain Security, Energy Management and Internet of Things. The firm is operative through various subsidiaries owned by it for example, WebEx, Jabber, Jasper and OpenDNS (CNBC, 2017). With market capitalization more than $560 billion, the firm is most valuable company in the world b the year 2000.
The core service of the firm Cisco revolves around designing and selling broad ranges of products, services that connects the global networks efficiently. The firm has motivation of helping customers build network that include automation, orchestration and integration of the digitized IT-based products and services. Growth of interconnectedness among countries and regions has allowed the firm to bring transformation in business through the changes in government policies and infrastructural needs of cities all around the world.
The services provided by Cisco ensures expansion of networks through improving data center, security, cloud, analytics, collaboration and Internet of things for hastening the business transformation with lessened risk (Sarin, Challagalla and Kohli 2012). even if the organization is a profit making body operative under manufacturing industry it carries greater aspirations based on its belief and how the firm wants to represent itself. The core value of the firm set to change the world through materializing innovation. Mutual respect, care and winning together with prime focus given on customer relation and satisfaction.
Economic Analysis: Bottom-Up Approach
The overall analysis has been conducted following bottom up approach that focuses upon identifying the problems or issues the firm Cisco is facing at the core or ground level with gradual shift toward broader outlook and impact on market. This is followed up further by provision of solution that paves way toward better condition of the firm eradicating the issues (Viswanathan 2012). The bigger issue faced by the Cisco is falling market share and decreasing popularity from a position of solo player in the market in the chosen time period 2006 to 2016. The bottom up analysis of the firm help us to conduct separate analysis of different sector of firm like internal and external factors viz. market exposure, cost, strategy, political, social, economic, technological and legal aspects. The analysis helps in detecting the core of the issues that mostly revolve around three broad aspects viz. internal shortcomings, external threats and financial operation. Internal shortcoming is well explained through the discussion of market exposure, cost, vulnerability and business design to bring growth. External challenges include the macro factors analysis in light of pestle and identification of loopholes in the business strategy the firm applies amid competitive market operation. Followed by analyzing the efficacy of business strategy and performance of Cisco in 2008 on the verge of global recessionary hit, the preparation implemented by the firm to improve efficiency in dealing with impending economic shocks has been discussed.
Cisco Systems, Inc. is a leading internet networking firm worldwide. The firm develops Internet Protocol based solutions that act as basis of major education, government and corporate networks all around the world. Even though there are ranges of products produced and offered by the firm, it is mostly famous for its switches and routers that provide linkage to networks and power to the internet. The services of the firm allow network access to servers and software related to management field of operation (Strauss 2016). The services of the firm and its broad ranges of products targets there specific market segments: Small Business, enterprise & service providers and home. The firm not only captures bigger market exposure in North America and Europe but also has been experiencing popularity in the Asia-Pacific region over last few decades. It has become one of the dominant seller in Australian markets possessing leadership among all segments of markets. The firm earns competitive advantage through providing for integrated sustainability and long run stability in terms of offering diverse portfolio of product.
Even though the firm is young in terms of existential operation, it has achieved huge growth in the last decades owing to the fact that the industry itself is a fast-paced business. With constant evolution, of technology companies are being forced to come up with more innovation in their launched products. One of the brutal fact is the huge competition that the firm face which also poses threat for the firm in terms of customer bargaining and switching to another brands existing. The biggest competitors in network and hardware space are Lucent SA, HP, Dell, IBM, Huawei, Microsoft Corporation and Jupiter networks. Maintaining its own customer base require the firm to design effective strategy for the business operation (CNBC, 2017). The firm has adopted development and marketing its strategy known as Globally Networked Business System. The system has made an addition of accounting information system. Implementing this strategy has allowed the firm survive the tough market competition and manage increasing market share and customer loyalty reflected in rising net profit. Groundbreaking research and development and exceptional marketing strategy with excellence in staff operation the firm has been able to improve its growth opportunity,
The firm is exposed to immense competition and the SWOT analysis of its operation has rightly revealed its vulnerability in terms of loosing share even if enjoying strong position in the market. The inflexibility reflected in higher prices and huge operational cost can cause the market share to fall drastically. The reason behind rise in the prices can be huge operational cost that further reflects inefficient management. The process of globalization and innovation of products and technology have somehow allowed the firm kept on earning revenue that surpass the cost and fight its competitors in terms of quality as well
As per the data revealed in 2010, the firms sale achieved a balanced growth across geographical extensions of it. The quality of services and products led to exemplified markets evident in Cisco reaching revenue worth $40 billion in fiscal year of 2010 (Forbes.com, 2017) Defining true efforts toward innovation and maintaining operational excellence within the firm allowed it to acheieve the figure. Improving position as strategic partner and enhancing strategic asset in information technology and communication the firm has earned advantage from its growing customer base.
Figure 1: Income Trend of Cisco (2005-2010)
Source: (CNBC 2017)
Some of the important macroeconomic factors influencing the decision making, performance and strategies of Cisco are concerned with its economic, social, political, legal, technological aspects and changes demographics as well natural forces.
Political: The political concerns greatly influence the business operation of Cisco as it has stronger influence upon the spending pattern of government and strategies and policies of the service providers. In the annual report of the firm, it stated how uncertain economic events cause fluctuation in their stock price, which further affect the business capital. Economic outcomes are partially dependent on the policies taken up by national and local governments. For example the imposition and hike of corporate tax rate drains out profit of the firm affecting its business operation. The financial crisis of 2008 compelled the government take expansionary fiscal policies in form of tax cut and increased government spending that allowed the firms to carry on the operation (Forbes.com, 2017)
Economic: The economic factor to influence the business of Cisco has been variation and fluctuation in exchange rate of currency. Excessive fluctuation of currency subject to global economic shocks and tensions exert negative impressions on the financial reports. This has led the firm to take up forward contracts in the foreign exchange market (Verbeke 2013). This reduces the short-term influences of the fluctuations of receivable, payable and investments pertaining to foreign currency.
Social: The firm has also undergone few socially contributory functions like collaborating with UNIFEM (United Fund for Women) and Government of Jordan to serve women in Jordan and encourage them study and work in ICT and IT. A training program of 20 long years has been initiated by the firm and its associated in order to push women in Jordan to be trained and work equally as men. This later extended up to 142 countries of the nation (Rosenbloom 2012.) This program by Cisco allowed it to leave impact on social, economic and political spheres of the economy.
Technological: Application and innovation of technology owns undeniable importance in the development of network industry as well as its prosperity. To provide protection to its products in terms of trademarks, service patents, copyright issues and innovation Cisco exploits technological advances and researches in order to bring more success sin the business operation. Modernization in terms of technicality improves the competitive advantage the firm has on the market.
Legal: The firm has adopted strategy of building partnerships with leading companies of the industry to provide highly protected and secured smart grid services and solutions to the customers. To ensure the efficiency of smart grid modernization of electric utility is mandatory, these further require high-end legal protection, and enforcement of codes and conduct Cisco uses licensed software from third party and has experienced legal problems for violating securities law of federal states and other laws like California Corporation Codes (Strauss 2016). Moreover breach of fiduciary duties, unjustified enrichment and causing wastage of corporate assets have led the form be sued many terms helping the financial situations and stock prices get affected severely.
Environmental: The production and transaction of Cisco goods and services has no direct and visible impact on the environment and its sustainability. However the wastage of the goods do have environmental implication that the firm take scare of while devising the strategy planning regarding its operation.
Huwaei Technologies Co. Ltd is telecommunication equipment and multinational networking service firm based in China. In terms of telecommunication equipment, the firm is largest globally overtaking Ericsson. It offers wide ranges of goods and services including mobile, smart phones, tablet, computers, dongles, fixed broadband networks, consultancy and managed services (Facts, 2017). The firm has operation and business extended in countries worldwide along with its research and development unit that have been installed in as many as 172 countries of the world. From R&D expenditure at $5 billion in 2013 it has gone up to $7.3 billion in 2017 indicating growth momentum of the firm’s research and development (De Cremer and Zhang 2014). It serves almost 45 countries of 50 largest telecommunication-operating countries.
In 2010, the firm made an announcement of 34% hike in the revenue earning owing to significant growth in the overseas market. the amount of net profit rose to $24 billion in 2010 from $ 18 billion in 2009. This increment in just one-year span of time reflects growing internal as well as external sales of the firm. The cross border expansion of sales outside China has been growing and one of the driving forces behind higher business of Huawei evident in hike in the overseas revenue by 34% reaching $120 billion in 2010 (Facts, 2017). The internal revenue within China only grew by 9% owing to the fact that investment in telecom sector has dropped. Through expansion of its operation in India, Huawei sets its target to reach a revenue earnings of $150 million in coming year.
The success factor behind Huawei is not only the support from government in form of subsidy but also the efficient and powerful local support capability. There are availability and willingness to employ better skilled and higher number of people to solve any issue as compared to Cisco. The responses made quickly by Huwaei service desk has made it capture customer loyalty and exceed the brand reputation of Cisco in home market (De Cremer and Zhang 2014). Moreover based on the quality delivered by the firms in their offered ranges of products, it has been found that Huawei has varied option and more efficiency wrapped in reasonable price and remarkable customer service option.
Figure 2: Popularity of Cisco
(Source:Cisco Case Analysis 2017)
As per the recorded responses of the individuals the Cisco is seemede to be known by more people reflecting its popularity as well as customer loyalty for the firm.
Figure 3: Revenue of Cisco by Categories of Product
(Source:Cisco Case Analysis 2017)
As the analysis suggests, the switches of Cisco faces higher market demand that also captures increasing pattern in sales across the quarters the total product is much higher and increasing pattern in the sales (Galbraith 2014).
Figure 4: Revenue of Switch Market by Top Vendors in 2015-2016
(Source:Cisco Case Analysis 2017)
Amid top switch producers in the market, Cisco captures the maximum of the market revenue in the past two years of 2015 and 2016 (Facts, 2017). This further consolidates the fact that even the competition of the market could not lead Cisco fall from its market position fully rather it has been able to regain that with the help of better strategies to calibrate changes in trend.
As per the listing in NASDAQ, Cisco is technologic firm that reached matured stage with substantial market share in traditional business operations. The up gradation of technologies in networking and new entries in the market poses challenge to the supremacy of the firm enjoyed earlier. What evoke concern for the firm is the cyclical sensitivity issues that makes management of the firm complicated and plunges it toward depending on merging and acquisitions in order to augment portfolio of products. These complications create risk that the firm faces internally. Apart form that there are some other risks that the firm faces externally in form of shocks in global business stemming from market crisis or recession. This event not only reduces domestic demand but also the international demand contracting the market for the firm and affects supplies as well as production. Lesser production indicates lesser revenue.
The financial crisis of 2008 occurred globally hit the world economies specially the manufacturing and service providing. The chain effect of crisis got infiltrated to almost every sector of economy and disrupted the demand supply in the market. Cisco has adopted and followed few tactics pertaining to marketing strategies. Cisco enjoys first mover advantage in the market of technology and offers wide ranges of products like wireless security, optical networking, routers, and switches (Forbes.com, 2017). All of these already gained a predetermined place in the market that made it a leader in the networking industry. The firm follows offensive market location tactics in order to take advantage of its market leadership. It is also found to be following defensive strategy that focuses on creating structural barriers in order to stop the avenues of attack by the challengers. Another general strategy of the firm is to keep reasonable pricing on the famous and old product lines that has more market popularity. The firm prefers to provide full range of its products in every possible market segments that has profit capability.The effectiveness of the business particularly in 2008 is evident in its continuous increase in the sales from $9.60 billion in the first quarter to $10.40 billion in the fourth quarter (Chae, Koh and Prybutok 2014). This reflects that the firm was able to withhold its business volume even in the presence of market crisis. Following the sales data from 2006-2016 it can be seen that until 2010 t here has been raising trend and slight decline afterwards.
Existence of greater competition exerted by the firms like Amazon, HP, Dell, Huawei and so on, the firm prefers keeping itself ready with proper strategy in order to make it well equipped against any global shock ahead. Firstly it has to deal with fragmented competitor group of low-cost substitute (Galbraith 2014). With the advent of newer technologies and innovation, inn communication the firm is losing its earlier legacy of demand in the router and switch products. Two emerging technologies Network function virtualization (NFV) and software-defined networking (SDN) are replacing the long gained market position of Cisco products based on primitive technologies (Rugman, Nguyen and Wei 2014).This further evokes importance for the firm to explore alternative market option that is going to be best strategy to overcome any global shock ahead. Moreover the alternative management strategies taken up by the firm can be implantation of web services, building strategic alliance with growing and stronger telecommunication industries. Creation of network based products for the local residential and offering at lower price can boost the sale as well as allow the firm hold persistence in the market share. Marketing of the internal networking system. Producing software packages and venturing into other small firms are few of the strategies that prepare the firm better equipped against market crashes (Rosenbloom 2012).
The bottom up analysis detected the issues lying at the ground level of the firm based on three broad sectors. The important factors to contribute in the overall fading of the market share by Cisco are the:
Conclusion:
The discussion evidently reveals the importance of both the firms Huawei and Cisco in networking equipment industry and how they turn out to be close competitor of each other with close substitute of products. This brings forth the price as well as non-price competition which creates concern for the market leader firm Cisco that owns higher market share and sales but with time looses on face of dire competition from other competitors operating at low cost yet producing better quality applying updated technology and innovative modes designs. In spite all these challenges the firm came up with strategic changes to regain its market share and prepare itself with better technical and business support to withstand any impending shocks in global market.
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