Over relatively saturated and most of the future

Over the past decade the smartphone has become
one of the most important pieces of personal technology. For many individuals
it has become a replacement for their home phones, personal computer, music
player, GPS devices, cameras and has now even begun to replace the physical
wallet. According to a 2015 article in the Economist, the average American was
spending over two hours per day on their smartphone and 80% of owners checked
their phone within 10 minutes of waking up.1 The industry has seen
explosive growth and global sales have increased from 122.32 million units in
2007 to almost 1.5 billion units in 2017.2 According to an
International Data Corporation abstract, sales are projected to increase to
over 1.7 billion by 2021.3

As sales have skyrocketed so have global sales
figures and according to Statista, global revenues from smartphone sales have
increased from approximately 330.4 billion U.S. Dollars in 2013 to 434.5
billion U.S. Dollars in 2016 and expected to “plateau at about $400 billion
U.S. Dollars.”4 It is important to note that this same source states
that a quarter of this revenue is expected to be generated in China with over
130 billion U.S. Dollars.

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Although the industry is very attractive, it is
important to note that markets are evolving and as the industry matures, there
will be tremendous competition and great pressure to reduce costs. North
America and Europe are relatively saturated and most of the future growth in
the smartphone market is tied to sales in developing regions. As a result,
pressure is on to bring lower priced models to market and this will likely lead
to lower margins and slowdowns in revenue. Another area where growth is
expected to increase is in China and brands such as Huawei, Xiaomi Inc, Lenovo,
Oppo and Vivo are queuing up to take advantage of this opportunity.

Huawei
is the leading smartphone provider in China and ranks no. 3 worldwide behind
Samsung and Apple.6 It’s hard to imagine that this brand, worth $7.3
billion in May 2017, was established with a few thousand dollars in 1987.5
Its background as a telecommunications equipment provider gives Huawei a
technological advantage over its competitors. 
For instance, one major complaint echoed by smartphone users worldwide
is the lack of longevity when it comes to battery life.  Huawei used their knowledge of 3G and 4G
wireless modem technologies to create a device with an enhanced battery life
thus outshining its competitors.6 Through years of extensive
“customer-centric” R, Huawei developed numerous patents that were used as
both a bargaining tool and leverage against its competitors.6 It
also developed strong relationships with carriers that spanned more than twenty
years allowing Huawei to easily distribute its devices when it first emerged as
a player in the smartphone industry. Huawei’s “cloud-pipe-device” strategy
allowed it to create all the major components of wireless communications from
the telecom networks to the SoC (system on chip) and smartphone devices.6 This
is a competitive advantage that is unique to Huawei and ultimately helped
propel them to their current position in the smartphone industry.

Huawei’s early success
and influence in the telecommunication equipment market within China allowed
the company to grow at a rate that warranted global expansion.  In 2001, Huawei established 17 R centers
in the United States, Canada, Japan, and Western Europe and collaborated with
leading telecom carriers to establish 36 joint innovation centers worldwide.6
This expansion aided Huawei’s “continuous customer-centric innovation” into the
smartphone and premium smartphone industry. When Huawei’s Chengdong (Richard)
Yu was appointed Chairman of Huawei Device and CEO of Huawei Consumer Business
Group, his goal was to move away from low-end phones that were produced for
telecom carriers and instead, streamline the company’s focus on smartphones.
The focus on smartphones also led to the adoption of a “dual-brand and
dual-channel” business model which captured consumers looking for either a
medium-end or a premium high-end smartphone through offline and online channels
which is resource needed
to stay competitive in the global smartphone industry. The focus on
smartphones allowed Huawei to analyze and understand the fast-changing
preferences of consumers in the industry, and their collaborations with leading
global telecom carriers provides them with smartphone assets globally, an
advantage unmatched by even Apple and Samsung.

Huawei’s
continued pursuit of providing for the needs of their customers offers the
company a flexible advantage that contributes to the stability of their
competitive advantage. However, the company’s lack of ability to substantially
expand its customer base in the U.S. is a major threat to their future goals. A
few weeks ago, Huawei’s long-anticipated partnership with AT to sell a
new flagship smartphone imploded due to security concerns. Though Huawei is a
privately-owned company, U.S. officials fear that ties to the Chinese Communist
Party may undermine national security, suspecting potential espionage on U.S.
citizens and government officials who could potentially own Huawei phones. In
order to challenge Apple and Samsung on a global scale, Huawei will have to
navigate these concerns to gain ground in the U.S., otherwise they seem stuck
in third place in the industry. In similar fashion to security concerns in
Washington, Huawei does hold a strong competitive advantage on their home turf
in the Chinese cellular market, as “Chinese officials have repeatedly called
for technology made by American companies to be replaced by locally produced
ones.” Huawei must continue their efforts to break into the U.S. cellular
oligopoly—made up of Verizon, AT, Sprint, and T-Mobile—in order to
improve on its strengths and gain global competitive advantage.

 

 

 

1 www.economist.com/news/leaders/21645180-smartphone-ubiquitous-addictive-and-transformative-planet-phones

2 www.statista.com/statistics/263437/global-smartphone-sales-to-end-users-since-2007/

3 www.businesswire.com/news/home/20170829005316/en/Smartphone-Growth-Expected-Remain-Positive-Shipments-Forecast

4 www.statista.com/statistics/237505/global-revenue-from-smartphones-since-2008/

5 www.forbes.com/companies/huawei/

6 Xiao, Yangao, et al. A
Dark Horse in the Global Smartphone Market: Huawei’s Smartphone Strategy.
INSEAD, 2017, pp. 10 – 14.

 

 

 

 

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