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Situation Analysis

In the last two decades, Huawei Technologies Ltd., a privately held, Chinese
company, was exploring the new market and later the company becomes one of the world’s
largest telecommunications equipment makers. It had established in Asia, Russia, and Africa
for more than 10 years along with European markets, including Germany and the United
Kingdom before it entered to the Canadian market in 2008. Canada was ranked third in
mobile operators, whose customers involved 36 of the world’s 50 largest telecommunication
operators. Huawei came to this market as a full-fledged multinational. Huawei launched a
globalization strategy in the Canadian market, claiming itself as a Canadian company with
tested global credentials. Within six months, the company could establish its first Canadian
office and be co-awarded, with rival Nokia Siemens Networks, high-speed network
infrastructure contracts with TELUS and Bell Mobility, two of the three largest telecom
operators in Canada. Sean Yang, president of Canadian operations initiate to build strong,
local mobile and cloud-technology research partnerships with customers and universities. By
achieving this, he announced a five - year, C$80 million R&D investment focused in Ottawa.
Huawei, as a supplier, planned to provide major equipment and service contracts to both
regional and national operators. The Chinese multinational is becoming the key significant
provider in Canada’s telecommunication services operators.

Nevertheless, in 2012, the US. Congress published a report claiming one issue about
national security risk related to Huawei’s products moreover; the report also suggested a ban
on the company’s operation. In fact, there is a trade war between USA and China therefore; it
is a quite high risk for the USA if the country allows the Chinese company to operate the
business within the boundary. After the report was released, the US, Australian, and Indian
government excluded Huawei from bidding the government project and asked other private
companies to perform instead. With growing concern about national security risk, Huawei
lost some potential project deals in North America, the level of confidence is decreased and
the company faced difficulty in penetrating new targeted telecom operators. What could Sean
Yang do in order to reaffirm Huawei’s commitment to the Canadian market? How could
Huawei make use of its global credentials and vested interest in Canada to re-establish itself
as a trusted player in the market? Most importantly, what could Huawei do to sustain its
market leadership position in both Canada and the world?
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1st Recommendation (King Maker)

From our first recommendation, Kingmaker, we plan to build regional operators to be

like national ones. To achieve this, Huawei needs to create an alliance of network and offer
bundled service to them. According to the market share, the carriers that Huawei will
corporate with include SaskTel, MTS, and Videotron. To create the alliance of networks,
Huawei needs to negotiate the terms with the carrier then strengthen the alliances by assisting
them in acquiring spectrum, expanding HSPA network, and offer long term credit for co-
operation in long term. Then to seamlessly make the regional network into the national
network, Huawei has to reduce the cost of data roaming among alliance. In order to receive
extra credit, operators must follow within one condition; they must reduce the cost of data
roaming for all customers who come from other operators under our alliance. Next Huawei
enhances the bargaining power of alliance. As a strong alliance, we are, we will not let our
operator make any commercial contracts alone. Instead, we will do it as a group. It is simpler
to negotiate with others since we have more bargain power. The company expands our
alliance by increasing additional partner. Since TELUS and bell are operators supplied by
Huawei, Huawei will invite them to join our alliance. This allows our alliance to expand the
area of data roaming. Huawei needs to sustain the strategy by retaining a long-lasting impact.
After creating the alliance of network, Huawei will have to assist the operator in offering
bundled services by dealing with the incumbent telecommunication service provider. This
bundle services include television line, wireless, wireline, and broadband internet. Television
line service gives subscriber access to any form of entertainment through exclusive channels.
Wireless service will offer cellular telephone, telephone service, and personal communication
service (PCS). Wireline offers residential landline services for local, national and
international calling. Finally, Broadband internet provides services for accessing, using, or
participating in the Internet.

In order to summarize the impact of King Maker, Huawei makes the market more
competitive. With both strategies, Regional operators will have enough power to compete
with national ones. Therefore, the competition will be more intensive and it will enhance
customers’ performance and reduce their cost of living. Huawei indirectly stimulates other
carriers to work with the company and increases the demand of smartphone in Canada.
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Application of “Measuring a nation’s income (Chapter10)”

In order to apply this chapter, I will use a circular flow diagram to explain how the
first strategy is related to GDP measurement. Suppose, a firm in this model is
telecommunication service operator and buyers are their consumers. The consumers own
their factor of productions such as land. Huawei’s first strategy aims to increase the number
of mobile service operators so those ones need to buy more land in order to open their new
branches. The consumers provide their land and other resources to those operators and the
operators will use them to produce more goods and services which in turn, are sold back to
consumers. All consumers have to pay for those services and this amount will become the
firms’ revenue which they will use to pay for the factor of productions.

As we have more digital services such as internet providing in Canada, people are
easily able to access more information. For example, I will mention on big data; many
organizations use this flow of data to analyse the behaviour of people what they prefer and
which trend is coming soon. According to the case study in South Korea, a lot of universities
use the data to analyse the trend of future career: which occupations will be the key to the
higher growth rate for the country. Therefore, being able to approach more information
enhances the efficiency and effectiveness of people within Canada. They will be higher
qualified and this leads to their higher income. Canada’s GDP will be increased.
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Application of “Production and growth (Chapter12)”

The core of the first recommendation is to enhance productivity in Canada. Recall

from chapter12, the factors which are important to increase the level of productivity are
Capital per worker (K/L), Human capital per worker (H/L), Natural resources per capital
(N/L), and Technological knowledge. Start with the first factor, Capital per worker (K/L), by
building the alliance and inviting local telecommunication service to join, members among
the alliance can borrow equipment such as machines from each other moreover; in term of
structure, we can use another company’s factory to do research and development, this will
help those operators get more insight into their customers as well. Second, we talk about
human capital per worker (H/L). People in any operators but within our alliance can learn and
apply the state of art from each other. Since a lot of ideas can be shared freely from anyone
son it will be easier for them to acquire new skills and worth experience. For natural
resources per worker, it is not quite relevant to Huawei and their mobile operators but if it
has, the concept is going to be the same as the capital per worker. The last factors which is
the most important for improving the productivity level, Technological knowledge, it is an
advance in knowledge and understanding of the best way to produce goods and services. In
this scenario, all of the operators within Huawei’s alliance can learn and apply the production
process and the way that each operator provides services to their own customers. There if
Huawei can leverage these factors which are the key to increasing productivity, Canada’s
standard of living will be enhanced.

Application of “Saving and investment (Chapter13)”

As Huawei’s first strategy, it implies that Huawei applies the knowledge from two
hand-outs. Firstly, it’s “Saving and Investment”. Since this chapter has to use the supply and
demand model to analyse how financial institutions match the quantity of saving supplied and
the quantity of investment demanded. For the first recommendation, I will use the concept of
this model to illustrate as well, not the whole content in the chapter. To emphasize Mankiw’s
concept “Markets are usually way to organize the economic activity”, assuming that there is
no government interruption in this telecommunication service market. All mobile operators
provide smartphones and services in this market and all customers will pay for them. There is
a price which both represents the revenue for those operators and expenditure that consumers
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need to spend. Due to lack of telecommunication service operators in Canada, those mobile
consumers were charged the high price of accessing in the world of digital networks such as
internet fee and cost of data roaming. My first recommendation is to build the alliance of
telecommunication service operators. This situation affects the supply curve. By inviting the
local operators to join our alliance, they can easily work together to provide more service to
the customers at any price level. The demand curve is unchanged because it does not affect
buyers’ behaviour whether they will buy or not. After Huawei can convince more mobile
service operators to join our alliance, the alliance will be larger and this point shifts the
supply curve to the right. There is no excess supply and this lead to a decrease in the price of
using the internet and the cost of data roaming. The equilibrium quantity of service supplied
increase while the equilibrium price decreases along with the curve.

D1 S1

Quantity of services

Application of “Unemployment (Chapter15)”

As Huawei has more telecommunication service operator inside its alliance, in order
to provide more services to mobile users, they need to hire more employees so this point
leads to decrease structural unemployment. There are more jobs available for workers in the
long term. Since Huawei has a policy that workers from one operator can move to other
operators within the alliance, it causes sectorial shift because there are changes in demand of
workers among operators. Such shift displaces some workers who are looking for a new job.
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2nd Recommendation (Capture Gain)

For the second strategy, Capture gain, we aim to introduce Huawei in to consume the
smartphone market. From our strategy, “Kingmaker” the cost of using the smartphone from
the phone package would decrease and the mobile penetration would increase as the
competition in telecom carrier get intensifies. This would increase the demand of smartphone
by an estimation of 4.96%. However, the option of purchasing a smartphone in Canada
market is limited, the affordable phone has very limited feature and the high-quality premium
phone has an expensive price point. Therefore, with this pain point, Huawei should enter
smartphone market and fill the gap with a high-quality smartphone at an affordable price
point with the positioning of “Affordable feature focused premium smartphone which focuses
on value for price” as indicated by Huawei’s core competency in being pioneer in research
and development and having cost leadership. The main target that Huawei should aim for is
urban professional aged between 18-42 with the sub-segment of those being Young adults,
value-focused, and tech-savvy customer. The young adult looks for affordable phones that
look stylish and can serve a casual daily requirement. Those who are value-focused look for
phones that can serve daily requirement and have the value worth its price. Lastly, tech-savvy
look for A phone with a high specification that can effectively support developers and able to
support heavy usage. The execution of this strategy includes Localization, by using brand
ambassador and building micro influencer to promote the product. The advertising would be
done in both in online content format, using traditional media and special campaign. The
promotion would be informed of cash back claim from reviews on social media after
purchasing smartphone and contract from our alliance of phone carriers. Customer usage
experience would be enhanced by providing customer support, helping customer solving
issues on their phone and support tech-savvy users who use advanced functions, to ensure
that customer get the best experience from what they had paid for.

In conclusion, the second recommendation is introduced for capturing an increase in

demand resulted from launching the first strategy. However, when Huawei sell its
smartphone, the company has to perform strategic marketing by segmenting and choosing the
right group of targeted customers.
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Application of “Open-economy in Macroeconomics” (Chapter18)

From the first strategy, the regional carriers are able to become the national ones so
Huawei can take the privilege by consigning the smartphone in order to perform “Business to
Customer” marketing. Since there is only one main Huawei’s smartphone wholesaler located
in China, the company needs to export to those telecommunication services operators in
Canada in order to sell them the Canadian. From this point, it is related to the concept of
opened economy. The wholesaler in China interacts with Canadian economies and other
around the world. The China net export will increase since the people in Canada purchases
more products from Huawei on the other hand; the Canada net export will falls since the
those mobile operators will import the smartphone form Huawei. From this situation, China
will face trade surplus: an excess of export over import while Canada is dealing with trade
deficit: an excess of import over export.

According to the flow of capital, with Canada’s perspective, this kind of Huawei’s
strategy can make the country Net Cash Outflow (NCO) increase. Since NCO is rising, it
implies that Domestic resident purchase of foreign asset exceeds the foreign purchase of
domestic asset. The risk of holding foreign assets can be occurred. There are two forms of
flow capital: foreign direct investment and foreign portfolio investment. Huawei applies the
concept of the first one but it is not totally full version because in this case, the company
doesn’t open any factories in Canada. It invests its investment through telecommunication
service operators in the country.

In reality, it is impossible that the price of smartphone in Canada is the same as the
price in China. This is because Huawei bears the cost of transportation with a tariff imposed
on products while they are exported. For some distribution companies or sellers, they try to
do tax evasion in order to buy cheaper smartphone. This kind of action is illegal. According
to the concept of purchasing power parity, the company should apply the theory of exchange
rate where a unit of any currency should be able to buy the same goods in all market. The
logic is it should be based on the law of one price. The key question is how the products itself
are sold in same price in all markets. We have two perspectives of answer. First, we use
Nominal exchange to adjust to equalize the price in all market. Second, we can apply the
concept of arbitrage; it takes advantage of the price differences for the same items in different
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Application of “Theory of Open-economy” (Chapter19)

Let’s recall the GDP’s equation from Chapter10

GDP (Y) = C + I + G + NX

Y - C – G = National Saving (S)


Final Equation

S = I +NCO

Market of Loanable funds

Supply of Loanable funds = saving

A Canadian dollar of saving can be used to finance

 The purchase of domestic capital

 The purchase of foreign asset
A demand for loanable funds = I + NCO

- National saving (S) is directly proportional to Real interest rate (r).

- Domestic investment (I) is indirectly proportional to Real interest rate (r).

Market for foreign-currency exchange

NX is the demand for Canadian dollar.

- Foreigners need Canadian dollar to buy Canadian assets.

NCO is the supply of Canadian dollar.

- Canadian buyers sell Canadian dollars in order to obtain the foreign-currency that they
needto buy foreign assets.

The real exchange rate (E) is real value of Canadian dollar in market for foreign-currency
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From the second strategy, Huawei exports its smartphones to their telecommunication
services operators that the company develop them from the first recommendation. From my
opinion, I assume that a fall real interest rate (r) in Canada makes foreign products more
attractive than domestic ones. People in Canada will buy more foreign products on the other
hand; they will buy fewer for Canada products. Interest rate adjusts to balance supply and
demand in loanable fund market and both I and NCO depend negatively on interest rate so
the demand curve is downward-sloping. However in this case, it doesn’t affect market for
loanable funds.

A rise in real interest rate increases NCO so demand curve will shift to the right. This
situation means people will acquire more foreign assets at any price level.
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An increase in NCO causes an increase in Canadian dollar in foreign exchange market so the
real exchange rate of the currency will fall.

Forecasted Outcome

After implementing both strategies, Huawei will bring prosperity to themselves, their
business partner and the country they land on. The key impact is that Canada will be planted
new telecom networks and get their people more convinced in distant communication. Our
partner will have more coverage of network and increasing their subscribers. Huawei will
increase its customer base and regain its public relations. In terms of financial, Huawei
revenue in Canada will be 1,177 M C$ increasing CAGR by 3% in the next 5 years; total cost
would be 840 M C$. The possible risk is mobile market penetration, cooperation with the
regional operator, and default risk are calculated and has been mitigated.

In conclusion, Huawei insists that the company’s main target is to improve the quality
of life for the people in Canada. Even though there are many rumours from externality, the
company never hesitate to keep on walking forward. We are looking forward to bringing
advanced technology and innovation into the country. Communication is rapid, travel is fast,
movement is easy, action is quick, interaction has sped up and so has life. Things that once
took hours to complete, can be done in seconds today. The world is smaller and life is fast.
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Online Source:

Offline Source:

Handout Material

Huawei Annual Report 2017

Principles of Economics, 7th Edition by N. Gregory Mankiw [Dr. Soc].

Principles of Economics, 8th Edition by Lipsey.