Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma

a Tasnim Islam

1.

Describe the strengths, weaknesses, opportunities and threats faced by Huawei as it ventured into international markets? (SWOT Model)

Strengths

Weaknesses

Opportunities

Threats

By 2005, 60% of annual revenue came from international sales Huawei became the market leader with 13.5% market share of the Chinese market Low cost engineering, low labor cost, so they have low cost products comparing to other companies, equipment reliability and long-term development. Inexpensive and highly qualified R&D workforce Aggressive pricing strategies to expand into international markets Strong Chinese Network (Huaweis major customers included all the big names such as China Telecom, China Mobile, China Netcom and China Unicom) Wolf-pack military ideology Offer free test network to potential customer first, then sell Extensive worldwide distribution network Strong OEM with efficient production facilities Government support. Perception that Chinese products were cheap and unreliable. They were weak in US market comparing to its other overseas market share. Weak brand recognition in US Using western engineering, not enough inventing Not much in network security Difficulty get along with the US culture They started to research WCDMA and TS-SCDMA and to produce 3G equipment very early (won 1 licenses over 19 awarded licenses) and it can be an opportunity to expand internationally in West World. Undeveloped countries market is open to Huawei Become a number 2 of the international market after Cisco. They entered into joint venture with 3com, it was a profitable strategy Chine is one of the biggest growing telecom markets. Buying 3Com was always a possibility as the US Company continued to stumble in its global sales. Developed countries still prefer Cisco Chinese employees had a difficult time adapting the Texas accent and other aspects of the local culture. Cisco or other companies in US may sue Huawei again in any reason, in future. Cisco still have 62% market share in Asia versus Huawei has 6.2% in routers and switching. In mobile handsets, Chinese suppliers were losing ground to their foreign counterparts; shares by Chinese companies of local market fell from 50% in 2004 to 38% in the first six months of 2005. Foreign suppliers were also dominating the mobile switching infrastructure market. Its connection to the Chinese army continued to cast shadow around Huaweis image for some overseas customers. Especially US distributors have some doubts about it. 1

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

Ciscos independent expansion strategy in Chine is a threat for Huawei. Low cost mainly relies on Chinese low cost labors, and other companies are building research centers in China, so it is not a advantage anymore. Also, reliance on local service partners in foreign markets will ultimately raise its cost of running the business.

2.

How did the company initially position itself in its international expansion strategy?

Focusing on market in developing countries. Trying to get the 35% left by Cisco and grab some from the 65% too. Inviting as many prospective buyers as possible to Huawei headquarters. Going to all kinds of trade shows and exhibitions to show to the international customer base. Building part of the network free for potential customers then test it to ensure them the quality of Huawei products Hiring local personnel and cater to customer's specific needs Taking business from global giants Being involved in building 3G wireless network licenses Image-building campaign to eliminate the perception that Chinese products are cheap and unreliable Building joint R&D laboratories with foreign companies as a complementary approach to enhancing Huawei's innovation capabilities.

3.

What are the competitive advantages of Huawei in the global telecom equipment industry? The first competitive advantage for Huawei was that they focused their resources on building itself into an R&D powerhouse. Huawei had a policy of investing no less than 10% of its total annual revenue in R&D (Compare to 15% R&D spending by leading foreign technology companies). Because of the low labor cost in China, Huaweis focused R&D strategy became a significant competitive advantage over its international competitors. The next competitive advantage was that they had a heavy investment in the third generation mobile communication technology (3G). They started their own R&D in CDMA in 1995. After

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

that they invested more than US$370 million in wide-band CDMA technology with a dedicated R&D staff of 3500 through its research centers in China and overseas. The other competitive advantage for Huawei was the educational level of the companys employees. Among its 24,000 employees, more than 85% had a bachelor or higher degree and about 60% had a masters or PhD. As a result of this, Huawei held an impressive record of patent ownership. By the end of 2004, its patent applications had totaled over 8000, of which 800 were applied for in over 20 countries, including the US and Europe. One of the other potential competitive advantages of Huawei was that they had actively joint R&D laboratories with foreign companies, including Texas Instrument, Motorola, IBM, Intel, Sun and Microsoft focusing on various telecom technologies. To them, these joint development efforts were used as a complementary approach to enhancing its innovation capabilities. On the other hand, Ren Zhengfeis history with Chinese military was a topic of much interest (and concern) in the Western world. His connection to the army had undoubtedly created a relationship network that few other companies could match. The company received financial support from a state-owned Chinese development Bank in the form of US$10 billion credit facility for Huaweis international expansion over five years, and an additional US$600 Million from an official export-import bank of China. But Huaweis connection to Chinese army cast a shadow around Huaweis image for some overseas customers. They kept recruiting with and exponentially high pay scale. Strong and Integrated Chinese market. In China Huaweis major customers were China Telecom, China Mobile, China Netcom and China Unicom. They have low cost products. Unbeatable pricing (typically 30% lower than those established suppliers) Local hiring to minimize training costs.

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

4.

Can these competitive advantages be sustained? These competitive advantages can positively be sustained. The following arguments can be put in favor of the assumption. As Huawei came to face the perception that their product is cheap and unreliable, to defeat this misconception they came in contract with France Telecom to build a part of the customer network for free of charge and to let the customer company to run it for 3 months for free so that Neuf's engineers could test before they could decide to buy it. Their expertise and proficiency in R&D will sustain as Huawei started to hire local personnel to provide communicative technological services. Also as China has their policy of letting international companies to enter their local market so hiring strategy of higher degree R&D employees will sustain too. Their expansion with reliable service in the international market pacing up with big giants will sustain too. We can take the following performance of Huawei as support to that,

They participated in a contract to build the 1st 3G wireless communication in Arab with Etissalat. They became the 1st communication supplier to set up a CDMA network in Europe. They were selected by British Telecom for a five year long 21st Century Network upgrade project along with renowned companies from USA and Germany. They also made agreement with Vodafone Group to supply mobile phone networks to any Vodafone company worldwide. They won 14 licenses among 19 which were awarded in 2004 worldwide for 3G wireless network.

Ren Zhengfeis military background from the Chinese army continued to cast shadow around Huaweis image for some overseas customers created suspicion in the eyes of Western World. But this image cannot hinder the progress of the company as the disciplined approach and method of Ren Zhengfei from his military background until now has proved to very prolific. However its low-cost strategy (might not be sustained) seemed increasingly untenable as its reliance on local service partners in foreign markets would ultimately raise its cost of running the business. Also foreign companies were increasing their manufacturing base and R&D facilities in China and would soon become equally competitive in terms of pricing. So Huaweis low cost strategy and its property of good R&D may not be a competitive advantage in future.

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

5.

Based on your research and the current marketplace, how is Cisco performing today? (Stock price, market share, increase/decrease in annual revenue, new product launches, cost cutting measures, etc.)

Stock Price

It can be seen that changes in Cisco stock price fluctuation between 2007 and 2012 and also Huaweis stock prices changes can be seen in. (Exhibit 1) According to these graphs, the company had some difficult times especially in 2011 between April and October. After that date Cisco stock price increased but it is, 19.48, still far away 2010s numbers which was 26.98 in April 2010.

New Product Offerings

-Cisco Catalyst 6503 Firewall Security System -Cisco Catalyst 6506 Firewall Security System -Cisco Catalyst 6503 IPSec VPN System -Cisco Catalyst 6506 IPSec VPN System -Cisco Catalyst 6500 SSL and Content Switching

Market share

Cisco Systems Inc., the biggest maker of networking equipment, had the largest decline in its share of the router market since the technology slump of 2001 as rival added customers and the economic slowdown cut into sales. Cisco's portion of the $3.2 billion market shrank to 61 percent in the third quarter, from 65 percent in the previous three months, according to Dell'Oro Group in Redwood City, California. Juniper Networks Inc. had 18 percent, up from 17 percent. Alcatel-Lucent SA's share widened to 7 percent from 6 percent. Huawei Technologies Co.'s share of the market increased to 6 percent from 5 percent in the previous three months, Dell'Oro said. (Ref2) But still comparing to the other companies CISCO still holds the highest market share. -2009 Cisco CEO John Chambers, in pursuing another billion dollars of expense reduction, just said on the networking gear companys earnings call that the company could reduce its work force by 1,500 to 2,000 people. (Ref3)

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

-2011 July Cisco has announced that they will lay off around 10,000 employees in an effort to reduce costs and regain profitability. 7,000 positions will be cut and 3,000 people will receive early retirement under this initiative. Some reports say that Cisco is thinking to sell off its Linksys Home Router business unit, while it has already shut the Flip camera unit. With the above changes, Cisco is expecting to save around 1 billion dollars in 2012. The company is focusing more on the routing and switching business, something which has been its core business since the companys starting days. In this market however, Cisco lost market share by 6.4% (now it has 54.2% of the total market) with rivals like Juniper and Alcatel-Lucent gaining ground. This has been alarming for Cisco which is trying hard now to regain the lost market, especially in the Enterprise and Service Provider routing and switching business. (Ref2) -2011 September Shares have surged more than 20% from their 52-week low in mid-August. During the same timeframe, HP has sunk nearly 30%. It hit another new 52-week low on Tuesday. And the broader market has continued to slide due to concerns about the debt crisis in Europe and the sagging economy in the United States. Cisco still is facing many serious challenges, most notably the fact that its core businesses of selling routers and switches is slowing. But John Chamber, CEO of Cisco still claims "We have moved with remarkable speed" and mentioned they have targeted rivals like HP and Juniper (JNPR) where Juniper's stock actually had lagged Cisco's on 2011. (Ref2) Chambers added that his company was "fat" and had an extra "four or five inches on its waistline" -- especially in its sales force. He hinted that many of his competitors still have to make the tough decisions his company already has about restructuring "Now we are going to transform even faster," he said. "We've made all our changes that our peers are going to have to make and we did it in 120 days." (Ref4) -2012 February On February Cisco (CSCO: Charts, News, Offers) topped Wall Streets second quarter forecasts as a networking equipment maker on both profit and sales, with adjusted earnings of 47 cents per share on revenue of $11.5 billion. Analysts on average were expecting earnings of 45 cents on revenue of $11.2 billion. This marks Ciscos fourth consecutive quarter of rising revenues, and breaks four consecutive quarters of profit declines. This is also the fourth straight quarter that Cisco has beaten the street.

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

Investors had been concerned that delays in network upgrades by telecom companies would dampen its revenue, but the company attributed its strong earnings to CEO John Chamberss aggressive turnaround plan which started last year. Chambers cut thousands of jobs, streamlined a cumbersome internal decision-making hierarchy, eliminated unprofitable business segments and focused on more profitable ones. Chambers attributed the companys strong numbers to the success of his turnaround measures, stating that Cisco achieved a billion-dollar expense reduction a quarter early and our ongoing innovation enables our customers to solve their critical business needs The San Jose, California-based company also decreased its average product price, sacrificing margins in order to gain more sales volume from its competitors. Gross margins eroded to 61.3%, a slow decline from the 65% it posted two years ago, while orders from service providers grew 12%, reflecting this new shift in strategy. Cisco has targeted lower priced competitors such as Hewlett-Packard (HPQ: Charts, News, Offers), Juniper (JNPR: Charts,News, Offers) and Huawei Technologies, which have stolen the companys market share over the past several years. Despite lower prices, Ciscos other cost-cutting measures have apparently kept its bottom line well-protected. Its price-cutting aggression is well documented in the industry. A January survey by Robert W. Baird & Co. of 100 resellers of Cisco products found that over half claimed that Cisco had become incrementally more aggressive on pricing in the past few months. Although many analysts hesitate to call Ciscos solid quarter a turnaround, shares have already risen 13% for the year, as investors anticipate higher orders and upgrades of networking equipment as the global economy recovers from the stagnation of 2011. The stagnation has been exacerbated by an increasingly fragmented market of networking equipment makers. A third of Ciscos revenue comes from service providers, which is less than its industry peers. This has insulated it from a slowdown in network upgrades at the big telecom companies that has hurt its rivals, such as Juniper, which earns over half of its revenue from that market. In addition, Cisco not only posted growth in its routers business, but also in its Enterprise, Commercial, Search and Cloud-based businesses as well. (Ref5) If we take a look at Cisco's annual report we can also see that their performance is going good compared to their records since 2007. Since 2007 till 2011, their debt has been around 18% of their total assets. (Ref6) Above that from Exhibit 3 we can see that until now Cisco is holding almost 96% of the market capitalization in comparison to other Telecom Companies. Their Revenue and Outstanding shares are also around 50% more than other companies in the Telecom Market. Though Cisco faced share loss and internal issues like laying off a significant numbers of employees which from the discussion seems quiet negatively outstanding, but the company itself has been able to keep up its place up in the Telecom Market. The way they started as a giant, their policies to target companies and keeping their share superior has worked out so far. So the company is still running well off in today's Telecom Market.

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

Exhibit(1)

Exhibit(2), Reference6

Public Policy 1st Group Assignment Huawei Group Names: - Berna Tosun - Hamid Moghani - Yuchen Chen - Nayma Tasnim Islam

Exhibit(3)

Reference 1 http://investor.cisco.com/financialStatements.cfm Reference2 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7byJNgbW5hQ&refer=us Reference3 http://www.zdnet.com/blog/btl/cisco-may-cut-2000-jobs-but-thats-not-a-layoff/12274 Reference4 http://www.readwriteweb.com/enterprise/2011/07/the-rise-and-fall-of-the-cisco-empire.php Reference5 http://www.investorguide.com/article/10107/cisco-csco-makes-a-strong-comeback-and-topsearnings-estimates/ Reference6 http://www.cisco.com/assets/cdc_content_elements/docs/annualreports/media/2011-ar.pdf