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The strategies to enter the international market of electronic equipment: the case study of HUAWEI; a Chinese hi-technology company.

Abstract:

The explicit outcomes of globalization have been responsible for the implications of product standardization and competitive pricing in global markets. The promotion of international business among high technology companies also became a major characteristic of global economy. Subsequently, the requirement of international business entry strategies was also observed profoundly in the context of the different market environments. The preferred market entry modes in international business are subject to the analysis of industry and country factors. The following report emphasizes on the description of an empirical research approach for determination of the international market entry strategies of Huawei, a multinational high technology company facilitating electronic products. The report would emphasize on the description of the research background comprising of company information and its potential accomplishments in international business. The other significant elements of the report refer to literature review which is based on a critical reflection of secondary research pertaining to international business. The research report also emphasizes on the research methodology comprising of the methods used for data collection as well as the determination of particular objectives of the research activity. Followed by data collection, the research findings are illustrated which facilitate credible input for data analysis. The final section of the report is associated with a description of limitations pertaining to the research activity followed by specific recommendations for future research.

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Introduction:

The organization assumed as a case example for the assignment is Huawei which is a Chinese multinational electronics enterprise established in 1987 by Ren Zhengfei as a one-room workshop. Huawei has improved since then by a huge margin to become one of the world’s leading information and communication solutions and service provider. The development of capabilities noted across the carrier networks, consumer fields and enterprise, as well as the consistent improvement in terms of innovation, enabled Huawei to acquire substantial competences for international business (Koigi, 2013). Huawei has depicted these competences in the form of aggressive undercutting of prices as well as establishing in-house R&D facilities that enabled the organization to implement reverse engineering of foreign products.

Thereafter the organization’s capabilities were specifically noticed in the deployment of the solutions, services, and products of the organization in almost 140 countries which served more than approximately one-third of the world population. Therefore the reputation of Huawei as one of the most innovative, dynamic and fast-growing high technology companies in the world can be assumed as a promising rationale for the organization to consider international business as a major source of revenue. Another formidable characteristic that could be observed in the case of Huawei refers to the generation of 67% higher revenue of the organization in foreign markets than in domestic market i.e. China (Twarowska & Kąkol, 2013).

Therefore the international business efficiency of Huawei is assumed as a viable case study for this report to illustrate the strategies that can be feasible for international market entry. The observation of the prominence of strategic mergers and partnerships as the most viable mode of entry preferred by international telecommunication switch market organizations could be observed as a major characteristic of the economic environment of China in later period 1990s. Therefore Huawei preferred expansion into foreign markets to capitalize on opportunities for future growth.

The following research report focuses on the utilization of an empirical research approach in order to estimate the factors that are responsible for the selection of international market entry modes. The research would emphasize on a comprehensive data collection process that would facilitate plausible inputs for analysis leading to outcomes that could provide reasonable indications for future research. The research outcomes could also be used to resolve the dilemmas faced by high technology firms in the selection of international markets for entry.

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Literature review:

This section provides a theoretical basis for the selection of entry strategies of multinational corporations in new international markets. With respect to the scope of international marketing strategy, the literature review would emphasize on a critical analysis of the Transaction Cost Analysis (TCA) theory as well as the bargaining power theory. Thereafter the literature review expounds on the distinct international market entry strategies referred in secondary sources of information.

Bargaining power theory:

Bargaining power theory facilitates indications towards estimating the relative bargaining power of an enterprise. The relative bargaining power is dependent on the disparity between the bargaining powers of the enterprise as compared to the government. Therefore the organizations preferring bargaining power theory have to be dependent on the interferences on behalf of domestic and foreign political entities thereby implying formidable influence of political imperative on initial market entry decision (ntc.ntu, 2017).

As per Fabbri & Klapper, Multinational firms are required to accomplish negotiations with various governmental actors in order to realize their objectives thereby implying the formidable consideration of bargaining power of corporate and political actors in market entry decisions (Fabbri & Klapper, 2016). The consideration for the bargaining power theory is based on the provision of a high control mode of international market entry for a firm which could be depreciated in case the firm has lower bargaining power.

Bargaining power emphasizes on the definition of the ability of the bargaining party to establish the precedents for discussion with the other party alongside obtaining flexible accommodations from the other party as well as modify the outcomes of the negotiation process towards the specific objectives for desired ownership implications (Chan & Hui, 2014). As per Sheu & Gao, the bargaining power of a firm is primarily derived from the ownership advantages possessed by the organization characterized by the employment prospects offered by the organization to the local population and the contributions of the firm to the local economy (Sheu & Gao, 2014).

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Transaction cost analysis theory:

Transaction Cost Analysis (TCA) theory reflects on the internalization of operations in order to be performed at low transaction costs which indicate superior performance than scenarios when the firm enters the international business through export and contractual partnership with local firms. The comprehensiveness of the use of TCA as a viable theory pertaining to entry modes has been limited by the concerns of applicability in non-western contexts.

As per Nas, the emphasis of the theory on institutional structures and their relevant impact on transaction costs have been identified as critical gaps by many researchers thereby emphasizing on the limitations of applying transaction cost analysis for selection of market entry mode in East Asian markets (Nas, 2016). Examples of impact on transaction costs associated with partnership could be associated with the factor of an institution’s structure in a particular country. Furthermore, the application of TCA refers to the significance of opportunistic behaviour leading to minimization of costs related to partnerships which should be characterized by the presence of higher levels of trust.

According to Samouel et al, international market entry strategies are defined as the process of transferring the ownership of an enterprise in order to acquire access to new markets, novel phases of the production process and new sources of materials. These processes are associated with internationalization generally characterized by the incremental nature depicted in distinct stages or through transition across a large margin of choices from export, licensing, joint ventures, complete ownership, and franchising (Samouel et al., 2015).

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The selection of an entry mode is essentially qualified as a strategic decision of the firm thereby indicating potential references to the significance of evaluating the inherent risks alongside the distinct options that are accessible in an international market environment. The strategy selected for entry into the international market proves to be a major influence on the level of control imposed by the multinational corporation over the international business venture. The examples of low levels of control associated with the entry modes such as licensing and exporting could imply restrictions in terms of marketing and operations while the levels of risk associated with the modes are minimal (Nas, 2016).

On the other hand modes such as complete ownership could lead to improvement in the extent of control alongside implying considerable threats of risks in the business environment. Furthermore, international business organizations have to focus on the irreversible nature of the selected mode of entry in an international market which implies the minimal chances for recovering investments or changing the selected market entry mode flexibly. Hence the evolution of numerous strategic decisions pertaining to foreign market entry has been associated with the formidable volume of research that reflects on the importance of decisions in international market entry strategies.

Exporting can be defined as the selected mode of international market entry which entails the sale of physical products that are manufactured external to the host nation. Exporting has been generally associated with the lower risk and commitment, however, neglecting the plausible implications that can be related to the confusion related to characteristics of exporting. The variations in control and commitment in exporting initiatives have been noted in the classification of direct and indirect exporting.

Indirect exporting relates to the involvement of exporting arrangements wherein the selling is facilitated to an intermediary such as export trading agencies. On the other hand, direct exporting involves the development of strong relationships with distributors in the international market. Direct exporting is also associated with the advantage of the firm to participate in the marketing of products in international markets.

Licensing can be defined as an alternative to access entry to a foreign market characterized by a low degree of risk. The international firm facilitates patent rights to licensees in the host country alongside copyrights, technical know-how of the products, services and processes and trademark rights. The licensee is obliged to pay royalties or licensor fees on the basis of sales volumes of products, ensure production of the licensor’s products and their marketing in specifically assigned territories. The application of licensing is particularly useful for transfer of technology which could also be favourably accepted by foreign public authorities.

Franchising can be considered synonymous with the concept of licensing other than the exception of higher inclination of the enterprise in development and control of marketing programmes. The system of franchising is associated with the promising depiction of fees paid by semi-autonomous business owners to the parent company. The franchisees or the semi-autonomous owners are able to acquire the trademark of the parent company or the franchiser and sale of products and services alongside obtaining the necessary opportunities to utilize the business format and system of the parent company.

In comparison to licensing, franchising is associated with an extended period of time wherein the franchisor provides a wide-ranging assortment of resources and privileges which comprise of equipment, operation manual, site approval, managerial systems, support for franchisees and the initial training. Furthermore, franchising indicates limitations only in the case of trademarks and information about the operating framework of the business as compared to licensing which relies largely on emphatic restrictions on trade secrets and intellectual property agreements. Franchising is associated with cognizable advantages as an international market entry mode which includes low cost and political risk as the major advantages (Nas, 2016). Thereafter, it can also be observed that selection of competent franchisee partners could facilitate access to plausible financial investment and the managerial competences of organizational operations.

The low political risk and cost elements could also imply that franchising can be assumed as a viable rationale for expansion into different regions across the globe. However, franchising reflects on certain pitfalls such as the possibility of franchisees turning into future competitors, pitfalls for organizational reputation and image in the market due to incompetent franchisees, scarce franchisee demands leading to agreements with false candidates and the requirement of additional financial investment. The financial investment serves as the resource for an organization to acquire prospective franchisees alongside supporting and managing their operations thereby reflecting on drawbacks as compared to exporting and licensing.

Joint ventures are considered synonymous with licensing from different dimensions with the exception of maintaining an equity position of the foreign firm and sustaining the voice of the firm for management in the foreign firm. Formation of a partnership between home country and host country is ensured in joint ventures through the formation of a third firm. The international firm is able to acquire potential control over the operations of the joint venture alongside comprehensive insights into the knowledge pertaining to the local market.

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The comprehensive access privileges of the international firm to the relationship networks of the local firms in the context of joint ventures alongside minimal exposure to expropriation risks. The preferences for joint ventures have been increasing exponentially in the recent times since the mode of market entry restricts the issues pertaining to control as compared to other market entry modes. Furthermore, the characteristic references to the presence of the local firm in the international business operations of a multinational enterprise could also account for flexible integration of the concerned enterprise in a foreign environment.

A strategic alliance can be defined as the association of different organizations through the measures of formal joint ventures, minority equity participation and shared research. Contemporary strategic alliances are characterized by the distinct features such as the feasibility of strategic alliances among highly industrialized nations, short-term durations and emphasis on the creation of new products and technologies. Strategic alliances are associated with the outcome of technology exchange to a large extent.

Technological innovations could be related to interdisciplinary proceedings wherein the limitations of a single firm in terms of resources and capabilities for R&D activities can be addressed by the competences of the partner firm. On the contrary, strategic alliances are also related to disadvantages especially pertaining to the risks of competitive collaboration wherein competing organizations are required to participate in agreements (Nas, 2016). In such cases, the partners could utilize the strategic alliance for creating a competitive advantage over the other firm thereby leading to ethical concerns in the alliance.

Direct investments are also included as plausible choices in the international market entry strategies wherein the international firm is required to invest in the production unit operating in a foreign market. The scope for direct investments is realized through two approaches of Greenfield investments and direct acquisitions in the host market. Greenfield investments require the foundation of new wholly owned subsidiaries which could involve higher complexities and costs. However, the approach of acquisition could be associated with flexibility since the outcomes provide quick access to the operations in international business alongside emphasizing on the precise estimation of acquisition outcomes.

Therefore Greenfield investments are classified as time-consuming initiatives referring to the increasing risks due to the need for learning and implementation of appropriate marketing strategies, business networks, and novel operations. Direct investments are also associated with the inherent limitations that relate to the requirement of time to attain the necessary competences for addressing competitive rivalry in a new market (Samouel et al., 2015).

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The theories pertaining to international market entry strategies could be appropriately implicative of the specific references to the frameworks that can be utilized for evaluation of the extent and potential to which industry and market globalization can be accomplished. Reflection on literature provides an illustration of four distinct factors that determine the capacity of the enterprise to realize globalization in the context of a specific industry.

The factors refer to market, government, competitive environment and costs and the analysis of these specific components provide a sound illustration of the feasibility for expanding globalization in a specific industry or market segment. The distinct subsections in the individual components should be comprehensively evaluated in order to determine the choice between globalization and localization.

The market dimension which acts as a driver for globalization can be associated with customers, marketing, channels and country description. Competitive environment referring to the nature of competitors, the interdependence of countries and volume of exports should also be analyzed comprehensively in order to ascertain selected approach from globalization and localization. The aspects associated with the cost related driver of globalization refer to economies of scale, country costs, technological changes, logistics, experience curve and R&D costs.

The prominent classifications of transnational strategies which are implemented by multinational corporations reflect on Porter’s global generic strategy, total global strategy, global strategies emphasizing on responsiveness and integration and transnational strategy. The generic strategy framework presented by Porter for international business entry was based on the concepts of global differentiation or global cost leadership. Porter was also responsible for the introduction of the terms coordination and configuration in the framework for international business strategy.

The implications of coordination refer to activities pertaining to allocation of responsibilities, alignment of efforts with the international operations of the enterprise and information sharing. Configuration is associated with modifications in the upstream and downstream activities of the organization alongside the value-adding activities on a global scale which can be used to address the distinct requirements of globalization and localization.

Global strategies refer to accomplishing corporate success on an international scale could be realized by the ability of the enterprise for coordination and integration of global activities. The integration must be in unison with the prospects for retention of flexible response rates towards demands and altering circumstances in domestic markets. On the other hand formulation of a total global strategy can also be assumed as a reasonable indicator for aligning the strategic focus of the enterprise towards global marketing and standardization of products.

The development of core strategy, its internationalization, and globalization of the international strategy could be assumed as the specific phases of development of the total global strategy. Transnational business strategies are specifically required to ensure the precise selection from among the particular references to global strategy and local responsiveness, formidable central control, and subsidiary autonomy and the centralization and decentralization of key resources. The efficiency of transnational business strategies can be associated with formidable characteristics such as strong business, geographical and functional management on a global scale.

Since foreign markets are associated with cognizable variations in external characteristics as well as internal analysis of company competences, the reflection on the appropriate market entry mode should be made on the basis of specific competences. In the case of high technology industries, product specialization accounts for major impacts on the international marketing aspects of an enterprise. The acquisition of a practical impression of the research issue from an empirical perspective refers to the use of a research methodology to address specific research objectives.

Research methodology:

This section refers to the illustration of research design and methods used for conducting the research activity especially referring to the sample, type of data collection and relevant instruments, techniques for data analysis and the credibility of the instruments used for data collection and analysis (koreatimes, 2017).

The research design assumes a deductive approach in order to analyze the content observed from data collection phases. The evaluation of a case study of Huawei refers to the plausible identification of entry strategies that can be functional in the case of high technology multinational firms. The research objective is vested in the determination of viable recommendations for entry of Huawei into international markets which can be used to frame research question as follows.

What are the factors that affect the selection and performance of the international market entry strategy of a high technology multinational enterprise?

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Data Collection:

The data collection method assumed for primary data acquisition refers to the use of interviews. Interview questions are directed towards the investigation of the market entry strategies followed by Huawei to enter international business environments. The selection of a sample is required for effective realization of primary data collection process and in case of this research activity, it is imperative to consider a sample of 10 employees working in the various managerial departments of Huawei (Harvard Business Review, 2017). The major instrument available for the researcher in this phase of data collection was an in-depth interview wherein the participants were allowed to express their opinions and comments without any restrictions.

Therefore, the researcher could be able to obtain precise inputs for data analysis as well as derive recommendations for future study. The use of qualitative data analysis could be observed as the significant element in the research methodology in which content analysis is used for reviewing the opinions of respondents pertaining to international entry strategies implemented by Huawei. The implementation of data coding could be assumed as viable implications for the researcher to present an explanation as well as capitalize on narratives for a description of overall results.

Data Analysis:

The data analysis section of the research report would comprise of references to data presentation and analysis to estimate the strategies followed by Huawei in order to cater to international market entry objectives. The research relied on the primary data collection through in-depth interviews with 10 managerial-level employees of Huawei which serves as a comprehensive data collection instrument (ntc.ntu, 2017). The use of qualitative content analysis can be observed profoundly in the case of this research activity owing to the subjective and detailed nature of inputs acquired from the in-depth interviews.

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Research Findings:

The response rate observed in the primary data collection phase of research was estimated to be 100% with all the 10 participants involved in the data collection process. The comprehensive realization of conducting interviews and filing of information could be observed from the response rate in the primary data collection phase. Generally, a response rate of 50% is assumed as sufficient for analysis and reporting while those above 70% reflect on an excellent response rate (Twarowska & Kąkol, 2013).

The research data also emphasizes on the level of management which the respondents were associated with the organization. The interview question asking them to illustrate their role in the organization was reflective of the three distinct levels of management referring to the top level, middle level, and lower management. Majority of the respondents indicated that they were employed in the middle level of management in varying roles such as supervisors and managers. Three of the respondents replied that they operated at the senior level of management with two of them serving as senior manager and one representing the position of General Manager (Koigi, 2013).

Research Analysis:

Opportunities in international markets for Huawei were perceived by employees and interpreted in the data collection frameworks. The selection of a particular market of choice was associated with the availability of opportunities for technological advancement in the telecommunications and broadband market and competitive service segments. Competitive pricing for the new products and services alongside the provision of government support can also be assumed as viable predictors of the opportunities that Huawei perceives in its international market entry strategy (Twarowska & Kąkol, 2013).

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The interview also provided viable implications towards the challenges that can be faced by Huawei in its international market entry strategies. The formidable challenges could be observed in the context of the possibilities for the increasing profitability of competitors that can streamline the operations of Huawei. Therefore the enterprise could face the imperative need to develop new revenue streams that would alternatively require substantial investments (ntc.ntu, 2017).

The challenge of overcoming the brand of a foreign company as well as the liabilities associated with foreign market operations from the perspective of market entry strategy. The participants also provided insights into the challenge of formulating precise decisions owing to the evolution of international business environments as well as the setbacks faced for reversal of an inappropriate entry strategy.

The respondents also provided insights into the concerns for the level of control assumed by Huawei for international market entry. The references to using of exporting and licensing could be associated with indications for lower risk while depicting lower control. On the other hand, the application of joint ventures and strategic alliances can be assumed to be associated with a higher level of control as well as risk. The respondents presented a viable response towards the strategic alliances and joint ventures that are preferred by high technology companies (Harvard Business Review, 2017). The radical changes in the telecommunication sector and market of electronic devices implies the formation of new entrepreneurial establishments which are directed towards the provision of low cost and effective solutions to products facilitated by international firms. Therefore the concerns for low control can be negated in a joint venture wherein the organization assumes an equity position as well as a voice in the management. These aspects provide reasonable implications for the level of control in an international business entry strategy.

The respondents also indicated a response towards the preferable feasibility of franchising and licensing arrangements of the company. The study findings predict that Huawei entered into licensing and franchising arrangements in order to develop higher levels of technology co-operation and establish owned subsidiaries. Respondents suggested that the application of licensing and franchising as international market entry modes reflected on the possible outcomes on the operations as well as returns on investment (ROI) of the company. Licensing allows viable opportunities for organizations to enter an international market with precisely safeguarded assets that are subject to legal protection (koreatimes, 2017). The limited investments required from the licensor in such market entry modes reflect on the improvement of ROI. On the other hand, the respondents also provided critical insights into the depreciation of potential returns that can be obtained from marketing and manufacturing activities that are carried out by the licensee.

Issues with joint venture arrangements could also be identified as major influences on the international market entry strategies for Huawei. The commitment of resources, capabilities to a partner that is comparatively unfamiliar which is complicated further by the inferences towards benefits acquired by local area lead to certain prominent inferences. First of all, the companies must acquire substantial information about the financial condition and business practices of the potential partner which could be helpful in assessing the probability of completing the project within stipulated periods of time (Harvard Business Review, 2017). The responses indicated that unclear assignment of responsibilities arising from the confusion pertaining to dimensions of contract administration could lead to challenges in joint ventures and strategic partnerships. Performance bonds, construction, and distribution costs, working capital of the joint venture and the considerations of cash management approach wherein substantial amounts of idle cash invites dilemma pertaining to the assignment of cash management privileges to the partners are found as major challenges faced by managerial employees for realizing efficient joint venture operations. Therefore the requirement of a comprehensive cash management system is invariably noted in case of Huawei.

The respondents were also required to emphasize on the apprehension of the level of control of the joint venture arrangements in foreign markets. The respondents suggested that the level of control could vary according to the position of the partner in the arrangement. The research findings suggest that Huawei prefers owning subsidiaries in order to improve the prospects for control over minority partners. The respondents also indicated towards the pitfalls in the form of conflicts and insufficiencies that arise in the context of the venture’s responsibility.

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The research findings were analyzed to draw implications for the methods for acquisition of ownership in international markets for high technology companies. The respondents’ opinion suggests that licensing and franchising allow effective transfer of technology and management systems to the host nation and the host company is generally liable to acquire ownership (koreatimes, 2017). The company is obliged to facilitate design, trademarks, technological information, intellectual property and patents in return for royalties as well as other forms of remuneration based on sales volumes. Huawei has also emphasized on joint ventures to acquire strategic advantages in international market entry especially through establishing own subsidiaries that facilitate a higher level of control to the enterprise on its operations in international business environments. The methods of acquiring ownership as identified in the case of research findings for Huawei refer to the use of full ownership through the acquisition of companies which obtain a 100% equity stake in the enterprise.

Limitations of the study:

The limitations of the research activity could be noted in terms of resources and ethics. In terms of resources, the availability of sample for conducting the in-depth interviews in the middle level and senior level management could be considered as a profound limitation. This limitation reduced the comprehensiveness of the information that was acquired for the qualitative content analysis (Twarowska & Kąkol, 2013). The design of the interview questionnaire was also characterized by limitations especially pertaining to the nature of the questions and the requirement of refraining from any questions that could interfere with the personal space of the respondent. Furthermore, the design of the interview questions within restrictions was responsible for varying perception of questions by different respondents thereby affecting the individual responses. The limitations of the study in terms of ethics refer to the provision of assurance pertaining to safeguarding the integrity of respondents and refraining from the use of unauthorized channels to accomplish research objectives. Ethical limitations in the research were addressed in the form of maintaining the confidentiality of the participants.

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Conclusion:

The research outcomes and the validation of methodology implemented for the research reflect on the prominence of the bargaining power of Huawei in international market environments as a determinant of market entry mode. The research objective was intended to determine the market entry strategies followed by Huawei which was addressed by the subjective content analysis of research data. The conclusion also provides insights into the additional factors such as penetration of telecommunication and electronic products in a specific market environment, government support as well as the implications of competitive pricing noticed as a response from competitors in the foreign market environment. The research also facilitated an impression of the possible setbacks in international business that could be faced due to the selection of inappropriate market entry strategies. The setbacks could include potential challenges for improving the profitability of the business alongside prominent implications towards streamlining of operations that could be required for developing alternate revenue streams. Another prominent outcome that could be derived from the research findings referred to the feasibility of joint venture as the most plausible mode of market entry that could provide the reasonable opportunities for establishing control alongside addressing risk factors.

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Recommendations:

The research analysis provided substantial indications towards possible opportunities that can be associated with Huawei’s international market entry strategies in the future. Furthermore, the findings of the research could also be used to draw viable recommendations for other high technology companies seeking international market entry approaches. First of all, business organization relying on a provision of high technology services and products should opt for joint ventures, partnerships and strategic alliances as the preferable mode of market entry in order to weigh the market potential. This enables the international firm to ensure appropriate transfer of technology and production know-how to partner firms alongside increasing own subsidiaries to sustain control. On the contrary, international firms must not refrain from analysis of the financial condition and business practices of potential partners in order to avoid long-term issues. International firms with high technology competences should be specific in a demonstration of the precise dimensions of contract administration as per the agreement for the joint venture. Furthermore, the implications of cash management in an international business activity through a joint venture agreement are imperative owing to the requirement of resolving the dilemma pertaining to management privileges in cash and relationship distributions. The recommendations for further research that can be drawn from the research activity refer to the consideration of the company’s increasing focus towards the smartphone segment as well as the implications of utilizing the implications of diversification to imply the flexible identification of market entry modes. The profit sharing model followed by Huawei could not be included in the scope of this research activity which should be identified as a reasonable contributor to future research. Furthermore, the recommendations for future research would include the apprehension of the influence of government policies on international market entry modes selected by multinational companies.