A Business Report on the Mobile Phone Market and Performance of Huawei

Table of Contents

1.0 Title Page 1

2.0 Executive Summary 3

3.0 Main Body 3

3.1 Introduction 3

3.2 Analysis of the Industry Environment  3

3.3 Strategy 6

4.0 Reference List 8

2.0 Executive Summary

Huawei are a rapidly growing tech company who have recently become a major competitor in the UK market, growing their market share from 2.7% to 13.7% in 2018. They are also a major global competitor, overtaking Apple on number of units sold in the last year. This reports objective is to gain knowledge of the market environment Huawei face, it’s greatest strengths it needs to take advantage of, and to highlight the weaknesses and threats that are posed to Huawei and how they should overcome them.                                                                                    A PEST analysis of the UK market exposes that in the coming years, exports to the UK will become dearer due to the strengthening pound against the Yuan after Brexit uncertainty is over. Analysis also highlights a growing UK market with increasing GDP/GDP per capita in unison with decreasing unemployment. A socio-cultural hurdle Huawei face ia tackling western mindsets that Huawei have Chinese government military ties, and therefore is considered a threat to security. Technological analysis reveals Huawei’s competitive edge with R&D and new technology innovations leading to a unique selling point but remains to fall behind on patent approvals.                                                                                                                 Huawei’s greatest weakness is its lacklustre customer service which directly contradicts its core value of “Customer First”. My recommendation is large investment in customer service infrastructure for western countries as I believe this is paramount to its growing success and could stop its future brand being tarnished by a bad reputation.

3.0 Main Body

3.1 Introduction

The mobile phone market worldwide is a highly competitive market, which in the UK is highly saturated. This can be seen through overall sales in the market slowing by 2% due to longer lasting phones alongside increases in price (Guardian 2018). The company that leads the market and grows the most is heavily dependent on branding, social trends, and most importantly: who is the leader in the latest technological advancements. The mobile phone market in the UK has seen old competitors such as Blackberry diminish, and new entrants such as Huawei thrive.                                                                                                                              Huawei are a China based technology company who manufacture smartphones alongside other tech. Huawei’s rapid growth in the UK smartphone market was most notably from Q2-Q3 of 2018, where it’s market share grew from 2.7% to 13.7% between May and July of 2018 (Kantar, TechRadar 2018). The second quarter of 2018 was when Huawei overtook Apple in global sales to become the second largest seller of smartphones behind Samsung. This report will analyse the current smartphone market Huawei face, alongside analysing Huawei’s strengths and therefore reasons for its success, the threats that Huawei face in the future and how Huawei can plan to combat these threats.

3.2 Analysis of the Industry Environment

To analyse the macro-economic business environment in the UK and understand what factors may affect Huawei’s decision making in the UK market, we will use a PEST analysis to identify any possible opportunities or threats that are presented to Huawei.

Political Factors

The ongoing Brexit debate is the biggest area of uncertainty in the Political climate of the UK. However, due to Huawei manufacturing and importing its phones from India for its low labour costs to have a price advantage, the change in EU regulations of trade and trade tariffs will have little impact on Huawei’s entry into the UK, and no effect on any new labour laws put into motion.                                                                                                                                            However, if Brexit were to continue, it is a possibility that the UK may seek a trade deal with the US. If the UK were to undergo this procedure, the US-China trade war tensions may have an adverse effect on the UK. This is not helped by Meng Wanzhou’s arrest, who is the daughter of Huawei’s founder and the Chief Financial Officer of the company (Financial Times 2018). She faces extradition to the US and is said to be used as a “bargaining chip” by President Trump. China has now threatened severe consequences if the Huawei executive is not released (BBC 2018).

Economic Factors

The affect that Brexit has had on the economy is that this uncertainty has slowed down economic growth to 1.3% in 2018. During the Brexit negotiations the value of the pound fell by 14%. This weaker pound makes imports more expensive for Britain. The result of this to Huawei mean that their exports are cheaper to the UK because the Yuan is stronger against the Pound, increasing profitability.                                                                                                                 However, these impacts of Brexit are short term. Theresa May states that the pound will be back to its original strength after the negotiations in 2020, reverting Huawei’s profitability back to its original figure as exports become dearer for Huawei, however imports into Britain become more attractive to UK consumers. The slowed growth of 1.3% is set to increase back to 2% after the uncertainty of Brexit. Unemployment remains constant, fluctuating between 4.0-4.2%, with an overall downwards sloping trend as illustrated in Figure 1 (Trading Economics 2018).

This presents opportunities for Huawei due to this being a 43 year low, whereby lower unemployment means higher disposable incomes. This links into the UK’s GDP per capita having grown by 1.2% in 2017, leading to a larger market Huawei can trade with due to aggregate demand increasing. This fall in unemployment presents an opportunity to Huawei where some consumers are being able to afford high-end phones such as the P20 Pro for the first time, so Huawei needs to take advantage of this.

Socio-Cultural Factors

There are some socio-cultural hurdles that Huawei face in the UK. One social trend that poses a threat to Huawei is the consumers in the UK holding beliefs that Huawei is a security concern due to its origin with ties to the Chinese military network. Huawei have had this problem in the US and Australia which are influential to the UK (BBC 2018). As a result, Huawei need to prove that their product is safe so not to impact sales negatively.                                           Another issue Huawei face is the social media cultural trend in Western countries to heavily criticize android phone users in comparison to exclusively the iPhone. There is a cultural belief that android is for poorer people, which threatens consumers readiness to buy Huawei phones due to connotations of their operating system being for people of a lower class, which is negatively reinforced with Huawei’s budget line of android phones such as the Huawei Y6 (Business Insider 2014).

Technological Factors

As a technology company, this is the biggest influencer on Huawei. Huawei brand themselves as innovators, and therefore it imperative that they invest a lot on research and development. So much so that a total their budget has been raised to $20 billion for phone development alongside implementing new 5G technologies. This is double Apple’s $10 billion budget putting them at a research advantage. Huawei launched its 5G Roadshow throughout the UK, showcasing their new 5G technologies which it is currently a global leader in since its investments begun in 2009.                                                                                                  A significant strength of Huawei came in 2017 when Huawei partnered with UK based service provider Stratto, and in November of 2018 they announced a new Digital Indoor System (DIS). This provides enhanced 3G and 4G indoor mobile coverage where its demand from business and home owners in confined spaces has grown due to the increased growth of high speed applications such as introduction of 4K video, alongside the growing complexities of older distributed antenna systems (DAS) which are starting to fail to meet the necessary speed and coverage demands in the UK.                                                                                                  However, a weakness of Huawei is that as of December 2017, they have been granted 74,307 total patents with 64,091 pending in China and 48,758 pending outside China. However, this figure is dwarfed with respect to Samsung’s 1.2 million total patents, so Huawei are struggling to keep up. Figure 2 shows a clear lead from other phone companies such as Samsung and Google in the top 10, whilst Huawei sits at 20th showing that in 2017 it’s number of approved patents was just 18.18% of Samsung’s total.                                                        On the contrary, it could be argued that in 2016 Huawei was ranked 25th for number of approved patents, and one year later in 2017 it has increased to 20th. This could show that its increased spending on R&D is proving successful, giving Huawei an upward trend of approved patents. Therefore, Huawei’s 2018 figure may rise even further, but will still only be a small proportion of Samsung’s approved patents.

3.3 Strategy

Product

A major driving force of Huawei’s strategy was to create high quality products with great value for their customers, beating competitors with the power of their product. One of their core values is ‘Customer First’, stating that they aim to “create long-term value” whilst “being responsive to their needs”. Their strategy through innovation and continuous improvement of their product with their $20 Billion in research is a great strength of theirs. Their products are reviewed well by customers, so customer satisfaction is being achieved, hence their growing sales and growing market share.                                                                       However, one major downfall that is contradictory to “Customer First” is Huawei’s lack of effective customer service in the western world. They fail to successfully deal with customer complaints. Huawei lack the experience in western countries to compete with competitor’s customer service abilities. As a result, Huawei are at major risk of building a bad reputation which could tarnish their brand image detrimentally (CustomerServiceScoreboard 2018).

Price

To enter the UK market, Huawei used a two-pronged, multi-segmented targeting approach. Huawei entered the market with two lines of smartphone staged at different price ranges to target people of different incomes.                                                                                                                              The high-end P20 Pro smartphone is a competitor to the iPhone X and Samsung Galaxy S9. It can demand a high price due to technology features that its competitors are lacking such as its triple camera, in comparison to the iPhone X’s dual camera. This premium pricing is reasonable because of its differentiation within its innovative features. However, the price of the P20 Pro is higher than Samsung’s S9. I would argue that Huawei are yet to have the brand recognition in the UK to be pricing higher than Samsung, as it gives no reason for loyal Samsung users to switch to Huawei.                                                                                                                              On the contrary, Samsung users with lower incomes could switch Huawei’s P Smart phone. This budget £299 phone was well reviewed and gave people with lower incomes the ability to switch, therefore building brand loyalty with Huawei. This was a smart move because it covered the entire UK smartphone market, meaning Huawei’s market share started increasing as brand recognition and loyalty started to grow with it.

3.4 Conclusion

Huawei are proving themselves to be a strong competitor in the mobile phone market. Their research and development investments clearly pay off as both the P20 Pro and P Smart range of phones were well reviewed and recommended, building a strong and growing product reputation with their UK market share reaching a 5-fold increase in one year.                            Huawei’s biggest strength is its differentiation within its technological advancements due to its $20 billion on R&D. The 3 camera P20 Pro is one example of many competitive advantages the Chinese company has over its main competitors, proving itself by beating Apple in total number of global units sold to become the second highest seller of mobile phones after seven years of Apple and Samsung holding the top 2 places. These technology prowess’s along with Huawei’s cost advantage of Chinese and Indian production gives them a synergistic edge which competitors will need to respond to fast.                                                         One recommendation I have on analysis of Huawei is major investment into development of their customer service network in their western markets. If this is not implemented rapidly, although Huawei have a price advantage, many customers will start to envisage Huawei as lacking in care for customers. This will result in loss of customer loyalty and market share will decrease as western consumers will no longer be satisfied with Huawei’s services.

4.0 References