Huawei - Marketing Essay PDF

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IB1770 Markets, Marketing and Strategy Individual Assignment

A Business Report on Huawei & The U.K Market Student ID: -----Word Count: 2000

Table of Contents

Executive Summary

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Main Body

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- Introduction

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- Analysis of the Industry & Business environment in UK Market

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- Analysis of Huawei’s Current Strategy and Segmentation

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- Marketing Mix

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- Porter’s 5 Forces

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- Swot Analysis

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- Conclusion

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References

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Executive Summary Following its decrease in American and Australian market share over the years, an investigation was evaluated for Huawei’s decision to further invest in research & development and promotion to enlarge and attract more of U.K’s middle to upper-middle class with their affordable mobile phones.

Hence, the aim of this report was to analyze the industry and business environment Huawei faces in the U.K market and assess the current strategy the company implements. Huawei’s target market was analyzed and was based on demographics, income, and age. Additionally, the marketing mix was evaluated to aid in market planning, ensuring prices of Huawei’s mobile phones and promotion aligned with the company’s values.

Porter’s 5 forces were analyzed to limit Huawei’s further competition, given the competitive nature of the mobile phone industry where large institutions such as Apple and Samsung have already gained the interest of British customers with a middle to upper-middle socio-economic background. Joint with SWOT Analysis, Huawei’s competitive position was examined to identify whether they are maintaining competitiveness within the mobile phone industry.

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Main Body Introduction Founded in 1987, Ren Zhenfei, a former engineer at the People’s Liberation Army established Huawei and aimed to “create a lasting value for its customers, work to empower people, enrich home life and inspire innovation in organizations of all shapes and sizes.” (Huawei, 2018) At present, Huawei is the second largest mobile phone seller after Samsung and has over 180,000 employees operating in more than 170 countries and regions, reflecting itself as a large multinational firm. (Huawei, 2018)

Huawei operates in a competitive field, specifically the mobile phone industry where other multinational market leaders dominate the market. Statista (2018) reports that Apple competitively owns nearly half of UK’s mobile vendor market share while Huawei operates with only 3.91%. (Statcounter, 2018) However, with Huawei’s intense research and development team that spent more than 13.2 billion USD last year on R&D (Lucas, 2018) as well as the development of Huawei’s new P20 product connoting ‘sophistication and fashionable’ (Chapman, 2017), Huawei will undoubtedly grow in the nearby future.

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Analysis of the Business & Industry Environment in the U.K

The potential to boom in UK’s mobile phone market is high for Huawei as the company’s shares of the UK smartphone market have increased dramatically after the release of Huawei’s P20 device which targets mostly the middle to upper-middle class. (Tao, 2018) Retailing at £399, the mobile phone’s price maintains its competitive advantage over Apple’s £699 iPhone 8 which the P20 is equivalent to. (McCaskill, 2018) While the price may not be deemed as the most cost-effective in comparison to similar models in the market, the scatter graph in Figure 1 depicts that more British citizens are entering the middle-class tier rather than the working class tier as the proportion of British households working in non-manual professions have risen. Higher incomes may result in higher customer expenditure and thus British customers may be more willing to purchase more premium mobile phones while maintaining a budget.

Figure 1: Graph depicting the rise of ABCI1s (non-manual professions) (Ipsos Mori)

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Furthermore, Huawei has partnered with Argos, a British catalogue retailer, to distribute their phones which Huawei may benefit from the increase in brand awareness in the U.K and potentially may be seen as more trusting by loyal customers of Argos, increasing their market share.

Android devices such as Huawei, Xiaomi, Oppo and Vivo continue to account for ⅔ of the British market with iOS only covering the remaining ⅓. (Arnett, 2016) Thus, while Huawei may have to evaluate ways to differentiate among other Android companies, the statistics show that there is still an increasing demand for Android which may increase Huawei’s revenue.

However, a recent 2018 report by the UK government National Cyber Security Centre (NCSC) revealed that there has been a “growing concern over shortcomings in Huawei’s engineering processes that exposed UK networks to new risks.” (Bond & Fildes, 2018) This may hold risks to Huawei’s reputation, that has already been severely tarnished in America and Australia due to cybersecurity issues (Arthur, 2018) if issues raised in the report are not resolved. Therefore, it is vital that Huawei aims to increase their UK market share and further enhance their corporate image to recoup any legal costs involved to resolve its engineering processes, that may result in the firm becoming less competitive.

Huawei has also recently pleaded guilty over the theft of technology for its telecom networks and thus, face a threat of being barred from selling services in Britain. (Bernal, 2018) Should this occur, Huawei will be excluded from the US, Australia and the UK, 3 of which account for close

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to 60% of mobile phone users worldwide (Chen & Wellman, 2004) which may cause insolvency for Huawei. Additionally, there has been a saturation in Chinese markets for Huawei’s products (Fan & P., 2011), and thus sales volume are relatively low in China as Huawei’s products have become diffused within the market.

Analysis of Huawei’s Current Strategy and Segmentation

Huawei has taken on a dual-pronged approach to produce Honor, a sub-brand of Huawei that primarily targets individuals with a low to middle socioeconomic background. The production of Honor aligns with their vision of “bringing digital to every person, home and organization for a fully connected, intelligent world” (Huawei, 2018) as it allows individuals, who may not be able to afford premium products such as Apple’s iPhones, a chance to “stay connected with the world.” This has proven to be a success as its latest flagship model, the Honor 10, has generated 200% sales year on year in the first quarter. (Tao, 2018) Apart from targeting the low to middle-class tier, Huawei is starting to target the “new cosmopolitan” (Garrihy, 2018), as the design of Huawei’s latest P20 mobile phone has a “young, fresh feel” and is portrayed as “sophisticated and fashionable.” (Chapman, 2017)

Marketing Mix Seeming that one of Huawei’s unique selling point may be its affordable prices, prices of the marketing mix must be heavily emphasized to reach their target market. Huawei depends on a corporate brand strategy in which the company has launched numerous products with various

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prices to cater and appeal to their different target markets. For example, Huawei has established premium strategic partnerships with respected brands, Porsche Design and Google (Jerome, 2018) to produce more advanced products, such as the P20 - set at a more premium price while following a sleek design to appeal to the upper-middle class tier. Huawei has strategically set the price of its P20 lower than Apple’s iPhone 8 to maintain competitiveness. That being said, P20’s focus differs from Huawei’s Honor which targets lower income individuals by implementing a good-value pricing strategy.

With the competitive nature of the mobile phone industry, promotion of the marketing mix must also be emphasized to increase market share and build brand awareness. Recently, Huawei partnered with Saatchi Gallery London and Leica Camera to commission artists including British singer Chris Levine to use the Huawei P10 to “demonstrate the power of the smartphone’s dual-lens camera.” (Huawei, 2018) The exhibition held presented the history of the selfie, reflecting another one of Huawei’s target market - millennials, who are aware of the online jargon ‘selfie.’

Overall, the marketing mix Huawei instils seems reasonable, considering Huawei aims to cater to the young and modern audience who may not be generating a high income. Hence, Huawei sets its prices competitively as opposed to its competitors, such as Apple and Samsung who adopt premium pricing.

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Porter’s 5 Forces Porter’s 5 Forces analyzed the competition Huawei may face should they develop their middle-class market in the U.K. The threat of new entrants into the industry for Huawei is weak due to the diseconomies of scale a newly start-up mobile phone company may face. It requires huge capital investments, high research and development costs, as well as highly skilled labour to fully establish a multinational technology company that can compete locally and internationally, such as Huawei.

Buyer power and the threat of substitute products is high due to the availability of similar products to Huawei’s P20 or P10, such as Xiaomi or Nokia which also offer products at competitive prices. Additionally, it is hard for consumers of Apple or other companies that have a strong customer loyalty base to switch to Huawei’s low-cost products as there may be a misconception that the low prices reflect poor quality.

Initially, suppliers had a strong power as Huawei relied on AMD and MediaTek to supply their mobile components, however, to minimize supplier costs, Huawei began to manufacture its own processors such as the “Kirin 970 processor”, a fast mobile chip that allows artificial intelligence and on-device AI to run alongside each other. (Boxall, 2017)

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SWOT Analysis

Figure 2: SWOT Analysis of Huawei in the U.K

Strengths - Huawei invested more than 13.2 billion USD last year on R&D (Lucas, 2018), making them the biggest spender within the mobile phone industry on R&D. This puts Huawei at a competitive advantage in the U.K as they adopt a product orientation and therefore products may be perceived as high quality despite the low prices.

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Huawei also instils competitive prices for their phones, among other competitors such as Apple and Samsung, thereby satisfying their target markets: individuals with low-middle income and the youth.

Huawei has also signed a contract with Altice Portugal, one of the 15 European carriers Huawei has partnered with to ensure commitment for the carriers to use the firm’s 5G network. (Jing & Dai, 2018) This partnership grants Huawei easier access to the market as Altice Portugal may have more knowledge and awareness on how to operate within the British market.

Weaknesses - Huawei has a poor corporate image, with many speculations on its cybersecurity and corporate espionage which can disrupt the development of brand loyalty.

Threats - Apple still takes up the biggest market share position in the UK, forming a massive barrier entry to Apple’s loyal customers.

Following the recent arrest of Sabrina Wangzhou, Huawei’s chief financial officer, the development of Huawei’s latest 5G mobile network may be hindered if it incurs US sanctions, prohibiting flexible access to American suppliers as there is the potential that Huawei could be banned on purchasing the US hi-tech software. (Jing & Dai, 2018) This can prevent Huawei from selling high-quality 5G network services to the British market, potentially damaging their corporate image.

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Opportunities - Huawei has partnered with local British carriers Three, EE and Vodafone to provide 5G network services in the nearby future, in which the firm’s technological innovation may enhance their corporate image. Additionally, when phone plans are established, it gives customers more of an incentive to use Huawei’s phones.

There has also been a growing number of middle-class individuals in the U.K however, while they have a higher customer expenditure, they may still not be willing to spend money on premium mobile phones, such as Apple’s iPhones which are set at premium pricing and therefore may adhere to Huawei’s affordable mobile phones.

Conclusion Despite the competitive market environment Huawei operates in, they remain one of the leading companies for mobile phones. While they suffer in sales and market share from the US and Australia, Huawei has the potential to expand their market in the U.K by further investing in R&D on their current products to target the growing middle-class market as well as the youth. This will align with their vision of “connecting everyone with the world” and while Huawei may experience a lower profit margin than competitors such as Apple, who sell products at a more premium price and therefore target a more niche market, Huawei can still attract and retain the middle class - the mass population - in U.K. While Huawei’s Honor targets more individuals with a lower socioeconomic background, Huawei can develop its branch of mobile phones to make them more advanced and modern to remove the misconception of low quality that comes along with low prices, appealing to its target market - the middle and upper-middle class.

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References -

Arnett, G. (2016). UK became more middle class than working class in 2000, data shows. [online] the Guardian. Available at: https://www.theguardian.com/news/datablog/2016/feb/26/uk-more-middle-class-than-wor king-class-2000-data [Accessed 6 Dec. 2018].

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Arthur, C. (2017). Will AT&T’s call to drop Huawei end phone maker’s US hopes?. [online] the Guardian. Available at: https://www.theguardian.com/technology/2018/jan/13/huawei-china-american-atandt-dea l-loss-end-us-ambitions-cyber-security-fears [Accessed 6 Dec. 2018].

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BBC News. (2018). Why has the UK not blocked Huawei?. [online] Available at: https://www.bbc.co.uk/news/technology-46370014 [Accessed 14 Dec. 2018].

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Bernal, N. (2018). Huawei faces bill for tens of millions for 'theft of 4G technology'. [online] The Telegraph. Available at: https://www.telegraph.co.uk/technology/2018/10/23/huawei-faces-bill-tens-millions-theft -4g-technology/ [Accessed 6 Dec. 2018].

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Chapman, M. (2017). Huawei targets 'new cosmopolitan' as it rapidly expands European marketing team. [online] Campaignlive.co.uk. Available at: https://www.campaignlive.co.uk/article/huawei-targets-new-cosmopolitan-rapidly-expand s-european-marketing-team/1425392 [Accessed 6 Dec. 2018].

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Chen, W. and Wellman, B., 2004. The global digital divide–within and between countries. IT & society, 1(7), pp.39-45.

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Fan, P., 2011. Innovation, globalization, and catch-up of latecomers: Cases of Chinese telecom firms. Environment and Planning A, 43(4), pp.830-849.

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Ft.com. (2018). Why the UK has national security fears over China’s Huawei | Financial Times. [online] Available at: https://www.ft.com/content/e7d9b288-8f34-11e8-bb8f-a6a2f7bca546 [Accessed 6 Dec. 2018].

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Huawei. (2018). Caring for Employees - Huawei Sustainability. [online] Available at: https://www.huawei.com/en/about-huawei/sustainability/win-win-development/develop_l ove [Accessed 14 Dec. 2018].

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Jing, M. and Dai, S. (2018). Huawei CFO’s arrest poses a threat to China’s 5G ambitions. [online] South China Morning Post. Available at: https://www.scmp.com/tech/gear/article/2176779/huawei-cfos-arrest-may-pose-threat-chi nas-global-5g-mobile-ambitions [Accessed 9 Dec. 2018].

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Kochhar, R. (2017). The middle class is large in many Western European countries, but is losing ground in others. [online] Pew Research Center's Global Attitudes Project. Available at: http://www.pewglobal.org/2017/04/24/the-middle-class-is-large-in-many-western-europe an-countries-but-it-is-losing-ground-in-places/ [Accessed 6 Dec. 2018].

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McCaskill, S. (2018). Huawei 'cracks' UK market thanks to P20. [online] TechRadar. Available at: https://www.techradar.com/uk/news/huawei-cracks-uk-market-thanks-to-p20 [Accessed 6 Dec. 2018].

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Statista. (2018). Apple iOS: mobile market share in the United Kingdom 2011-2018 | UK Statistics. [online] Available at: https://www.statista.com/statistics/271195/apple-ios-market-share-in-the-united-kingdom -uk/ [Accessed 14 Dec. 2018].

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Tao, L. (2018). Huawei targets high end with Leica triple camera smartphone. [online] South China Morning Post. Available at: https://www.scmp.com/tech/china-tech/article/2139143/huawei-targets-high-end-flagship -p20-pro-smartphone-featuring-leica [Accessed 12 Dec. 2018].

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Wang, Y. (2017). Huawei's Smartphone Market Share Is Growing Fast, But It Needs To Break The U.S. Market, And Soon. [online] Forbes.com. Available at: https://www.forbes.com/sites/ywang/2017/09/11/huaweis-smartphone-market-share-is-gr owing-fast-but-it-needs-to-break-the-u-s-market-and-soon/#327a47464333 [Accessed 6 Dec. 2018].

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