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