a dynamic success
from OEM to OBMGroup 3Andrea
PavoncelloChiara B. BloisiCiro La GrottaGiulio TartagliaTiffany Zhang
What is interesting about this case?
Huawei as Latecomer broke the market (just like Samsung)
Huawei success depending on Cluster Dynamics
(Shenzhen)
High Standards CMM 5 (like Infosys)
Rapid Internationalization (like Ispat)
The Frameworks
National Competitive Advantage
Cluster Dynamics
Latecomer Strategies
Porter’s Five Forces
1987-1990• Establis
hed in Shenzhen
• Embarks on independent research and commercialization of PBX technologies
1992-1998• Initiates
R&D and launches rural digital switching solution
• Generates sales of RMB1.5 billion
• Launches wireless GSM-based solutions
• Expands into metropolitan areas of China
1999-2001• Establishes
R&D centre in Bangalore, India, achieving level-4 accreditation in 2001 and level-5 accreditation in 2003; Establishes R&D centre in Stockholm, Sweden
• USD100m generated from international markets
• Establishes four R&D centres in the United States
• Joins International Telecommunications Union (ITU)
2002-2005• International
market sales reach $552m
• Establishes joint venture with 3Com on enterprise data networking solutions
• Establishes joint venture with Siemens
• Achieves first significant contract in Europe valued at over $25m with Telfort
• Signs Global Framework Agreement with Vodafone
• Selects 21CN supplier British Telecom (BT)
2005-2007• Divests 49
percent stake in H3C for $880m
• Establishes joint R&D Centre with Motorola
• Introduced new VI
• Joint venture with Symantec
• Joint venture with Global Marine
• Partner to all top European operators
• Won 2007 Global Supplier Award by Vodafone
• Unveils its ALL IP FMC solutions
The Foundations …
2008• BusinessWeek’s a
world' s most influential company
• No. 3 on Informa for worldwide market share
• First large scale deployment of UMTS/HSPA in North America
• No. 1 on ABI for shipping over 20 million units
• Largest WIPO's PCT applicant
2009• No.2 in global
market share of radio access equipment
• Successfully delivers the world' s first LTE/EPC commercial network
• Launches the world' s first end-to-end 100G solution
• Receives "2009 Corporate Award" IEEE-SA
• Receives the Financial Times' Arcelor Mittal Boldness in Business award
• Year-on-year decrease of more than 20% in resource consumption by Huawei's main products;
• deploys over 3,000 sites powered by RES-Es worldwide
2010• Deployed over 80
Single RAN networks among which 28 were commercial LTE/EPC networks
• Established its Cyber Security Evaluation Centre in the UK
• Signed a Voluntary Green Agreement with the China Ministry of Industry and Information Technology (MIIT)
• Joined the UN Broadband Commission for Digital Development
• Awarded the"2010 Corporate Use of Innovation Award" by The Economist
… till today!
Some Numbers …
… showing a rapid and continuous growth
History of S.E.Z.s part 1Late 1978 3rd Plenary
Session of the 11th CPC Central Committee:
decision to reform the national economic setup
and opening to the outside world
1980s establishment of special economic zones and open coastal cities
and areas, and designation of open inland and coastal
economic and technology development
zones
August 1980 NPC passes "Regulations for The Special Economy Zone of Guangdong Province" officially
designating a portion of Shenzhen as the SSEZ
1984 the PRC further opened 14 coastal cities to overseas investment.
1988 opening extended to border areas, areas
along the Yangtze River and inland areas.
1988 1st session of the 7th NPC decides to turn
Hainan Island into mainland China's biggest SEZ and to enlarge the
other four
1988 State Council expands open coastal
areas, extending into an open coastal belt some of the open economic
zones
1990 the PRC government opens
“dragon head” Pudong New Area in Shanghai and additional cities
along the Yangtze River valley to overseas
investment
1992 further openings of a number of border
cities, as well as all the capital cities of inland
provinces and autonomous regions
15 free trade zones, 32 state-level economic and
technological development zones, and
53 new and high-tech industrial development
zones established in large & medium-sized
cities.
As open areas adopt different policies, dual
role arises: window and radiator
Source: wikipedia.org
History of S.E.Z.s part 2Primarily geared to exporting processed
goods, the 5 SEZs are foreign-oriented areas
which integrate science and industry
with trade, and benefit from preferential
policies and special managerial systems.
1999 Shenzhen's new-and high-tech industry becomes the SEZ with
the best prospects
Shenzen output value of new-and high-tech
products reaches 81.98 billion yuan, making up 40.5% of
the city's total industrial output value.Since its founding in
1992, the Shanghai Pudong New Zone has made great progress in both absorbing foreign
capital and accelerating the
economic development of the Yangtze River
valley.
The state has extended special
preferential policies to the Pudong New Zone
that are not yet enjoyed by SEZs.
State favours Pudong by allowing foreign business people to
open financial institutions and run tertiary industries.
In addition, the state has given Shanghai
permission to set up a stock exchange,
expand its examination and approval authority over investments and allow foreign-funded banks to engage in
RMB business.
In 1999, the GDP of the Pudong New Zone
came to 80 billion Yuan, and the total
industrial output value, 145 billion Yuan.
In May 2010, the city of Kashgar in Xinjiang
becomes a SEZ. Kashgar's CAGR was
17.4% in 2009. Kashgar borders ex-Soviet Central Asia
increasing international trade links between with
those states.Source: wikipedia.org
See China …
Source: understand-china.com
… and the SEZs
The Shenzen Cluster
The Shenzen Cluster Players
•Huawei•Kingdee•UfSoft•Neusoft•CS & S
Software
•Huawei•ZTE•UTStarcom•Lenovo
Hardware
•ASMC•CSMC•GSMCSemiconductors
•Comlent•Datang MT•Hangzhou
IC Design
The Shenzen Cluster Players
Cluster Advantages depend on Value Chain Complementarities
A Cluster Competitor ZTE
Started after Huawei
It is catching up
Same Cluster advantages of Huawei
Competitive Clusters create
competitive firms
The Shenzen Cluster Advantages
Logistical Proximity with Hong Kong
Low Labour Costs
Investment Incentives
“Even as old reasons for clustering have diminished in importance with globalization, new influences of clusters on competition have taken on growing importance in an increasingly complex, knowledge-based and dynamic economy” ( Porter, 1990)
•Better access to knowledge, human resources and public goods
Productivity
•Technological upgrading and flexibility
Innovation
•Lower barriers to entry and productive advantages
New Businesses
Clusters and the National Competitive Advantage
TODAY
National Competitive Advantage• Low cost labour• Relatevely advanced
technology infrastructure
• High education level of population
• Domestic and international competition
• Concentration in network
• Most populous region (7,8% of Chinese total population)
• Highest percentage GDP ( 11,4%)
• IT concentration: hardware, software and semiconductor industries creating a mutually renforcing process
FACTORCONDITIO
NS
FIRMS STRATEGY STRUCTURE AND RIVALRY
DEMANDCONDITIO
NS
RELATED AND
SUPPORTING
INDUSTRIES
SupportiveGovernmen
t
From follower to leader
Ren Zhengfei and the Latecomer Strategy
“ the difference between a follower and a leader in the
technology arena is that while leaders create new market
opportunities to induce customer spending, followers jump on and
take advantage of them “
Huawei has constantly spent 10% of revenues every year on R&D to become the technological leader in telecommunication
equipments
Samsung: a prior example for Huawei
Importance of Chaebols = Korean clusters
Low labour cost advantage
Motiveted and skilled people
Long –established relationship
Technological learning
L.L.L.
“Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries and associated institutions in a particular field that compete but also cooperate” ( Porter, 1990)Leverage
Li
nkages
Learni
ng
Easy transfer of technology and know how
Resource Leverage Strategy: “ Real demands into solutions
”China cost
effectiveness
Complete core technology architecture
International cooperation parternship
Global perspectiveFast response to market change
Increase of quality standards through the use
of the CMM
Customized products to better serve customers
• few big companies• big initial investment• government policies
control the market• Huawei has products
differentiated, good reputation, cost advantages
• Huawei has a large research and development division, able to develop their own products
• raw materials widely available
• when entering high, then, after being
known worldwide, low
• very fast and developing market
• a lot of new products every year
Threat of New
Entrants
Barganing Power of Suppliers
Barganing Power of
Customers
Threat of Substitutes
Industry Rivalry• lots of big and powerful
competitors• chinese market is
growing very fast• high exit barriers• Huawei adopts the “win-
win” strategy (lots of joint-ventures)
Porter’s Five Force Analysis
This analysis suggests to not entry in the industry
Original Equipment Manufacturer …
1 •“...manufactures products or components that are purchased by a company and retailed under that purchasing company's brand name”
2 •Most of the current Chinese manufacturers are OEM
3 •It’s a very competitive market, with low margins
4 •Some manufacturers are trying to became OBM (Huawei)
“going from sewing wedding dresses to
wearing them”OEM No national
distinctionFirst-step of value chainsLow margins (19%)Dog-eat dog world: i.e. fierce competitionFocus only on manufacturing processLow costsHigh flexibility in response to customer requirementsLower riskSimple strategy deployment
OBMBrand name and greater national visibilityEnd-step of value chainHigh margins (27%)Concentrated market with specialized firmsFocus on product and service qualityStrong distribution networksHigher costsProduct differentiation and customer loyaltyHigher risk More complicated strategy deployment
Own Brand Manufacturer
The main issue in OBM is to create the brand
Chinese firms are trying to do that (Huawei, Lenovo, …)
From “Making in China” to “Creating In China”
In Dec. 2008 Business Week ranked Huawei 3rd, after Apple and Google, in its World’s
Most Influential Companies list
Innovative technology Low cost of ownership for the network taken as a whole
Pool of top talent Chinese graduates
Regarded in China as its most prestigious high-tech global
company.
Conclusions
National Competitive Advantage
Suggests to enter
They are having success,
so NCA is consistent
Latecomer
Strategies
Most of the
latecomers are facing
success, so it
suggests to enter
They are having
success, so LCS is consisten
tPorter’s
Five Force
It’s not an attractive industry,
it suggests
not to enter
They are having success
and lots of firms have entered in
the industry, so P5F is
NOT consistent
Cluster Dynamic
s
Suggests to enter
They are having
success, so CD is consistent
Questions,Thank You,& Good Bye
Bibliography & References• http://www.huawei.com/products/datacomm/catalog.do?id=1455• http://edissertations.nottingham.ac.uk/195/1/06MAlixwh8.pdf• http://www.pmi.org/Business-Solutions/~/media/PDF/Case%20Study/Case_Huawei
%20Technologies.ashx• http://timnovate.wordpress.com/2009/12/02/huawei-case-study-created-in-china-is-real-imminent-
and-a-major-threat-to-your-business/• http://www.adb.org/Documents/Reports/PRM-Policy-Notes/Special-Economic-Zone-Shenzhen.pdf• http://english.peopledaily.com.cn/90001/90776/90882/6663161.html• http://www.china.org.cn/english/travel/99695.htm• http://timnovate.wordpress.com/2009/12/02/huawei-case-study-created-in-china-is-real-imminent-
and-a-major-threat-to-your-business/• http://www.fusionbrand.com/pdf/from_oem_to_obm_crossing_the_chasm.pdf• http://www.hktdc.com/info/vp/a/hke/en/1/4/1/1X0040U6/Study-On-OEM-ODM-And-OBM-Extending-The-
Supply-Chain-With-Added-Value.htm• http://www.emilebons.nl/publicFiles/091003investingAndJointVentures.pdf• http://books.google.it/books?id=wKr252lN-
50C&pg=PA176&lpg=PA176&dq=shenzhen+huawei+cluster+company+list&source=bl&ots=zEmweqJdow&sig=7OZexcCewg4wD4ppA1j2FQVEoVw&hl=it&ei=zvrUTpGdO83N4QTr3O3EAQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CB4Q6AEwAA#v=onepage&q=shenzhen%20huawei%20cluster%20company%20list&f=false
• The Economist• Wikipedia• Huawei web site
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