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[Course title]
1. Which of the trends in the smartphone industry do you consider to be most important for
Huawei?
Aiming to focus on their customers “market challenges and needs by providing excellent
communications network solutions and services in order to consistently create maximum value
for customers”, Huawei - a chinese technology company based in Shenzhen, China - has been
successfully delivering value to customers, jumping from being a sales agent to a
telecommunications giant. Serving over one third of the world’s population, Huawei is now
ranked No 1 and No 3 in the global telecom equipment and smartphone markets, respectively.
From 2006 to 2015 the company’s revenues increased from, approximately, 8 to 60 million
USD, respectively, achieving operating profits of 7,052 million USD in 2015 (Exhibit 8a).
Originating from Personal digital assistants, that lacked the features voice and
telecommunication of cell phones, smartphones disrupted the telecommunications industry,
blurring the boundaries between traditional cellular phones (which focused on voice and text
communication) and personal computers. This disruption seems to come from above, as new
products in the smartphone market tend to arrive as luxury goods, but over time, they get
cheaper and the old less capable model must be replaced. This top down approach of
smartphone entrance into the market was, in effect, running parallel with a bottom up disruption
on cellular services. The cellular service market is fiercely competitive, and to effectively enter
this competition, new service providers must offer higher speeds or cheaper prices, with most
choosing the latter due to technical capabilities.
Composed by different software and hardware components, smartphones introduced
new functionalities, such as wireless connection technologies and internet-based message tools
that led to a shift from traditional features such as text messages and phone calls to an increase
in the usage of these new developments implemented by technology giants such as Apple,
Samsung and Huawei. As a consequence, distribution channels in online markets were
introduced to the previously dominant telecom carrier only constituted by offline sales channels
of distributors and retailers. Furthermore, the technological innovations introduced led to major
changes in customer's purchase decision, from a focus in calling rate plans and brand
recognition to attributes such as wireless data, camera, network development or speech
communication, raising customer switching costs and developing brand loyalty, two entry
barriers characteristic of the industry. These features created by the telecommunications
companies culminated in a successful top-down market disruption, therefore, decreasing the
importance and market share of PCs and laptops (Exhibit 4), once smartphones allow
customers to access most of their functionalities in a more practical and, thus, less time-
consuming fashion.
More recently, and even though the smartphone industry registered an exponential
growth over the past decade, the growth in demand has been much stronger in emerging than
in developed countries (Exhibit 6a), triggering the demand for low-end smartphones and,
consequently, a decrease in the average sale price. This fact, led to a slowdown in the sales of
smartphones, led to an increase in competition, from which constant innovation seems to be
crucial to survive and maintain a competitive advantage.
Understanding customers and market changes are critical trends for Huawei. In order
to do this, Huawei will need to successfully target customers according to their needs and
preferences, develop software capabilities and complements, and improve hardware to
continuously ensure their products competitive advantage in a highly competitive market.
2. Explain which impact you think those trends will have on the smartphone industry
As mentioned in the previous section, innovation is the most important factor for
telecommunications companies, especially regarding the high end market, due to customers
high standards and expectations. Apple’s presentation of its new smartphones is the best
example to illustrate this. They have been the preeminent power in highlighting their phones
new capabilities and how strongly their team has developed the new product, comparing and
contrasting numerous specifications against other high end competitors. However, this constant
innovation has to be balanced with the high demand in the low-end smartphones where the
market pressure is on lower prices. This increase in low-end demand has had an impact on the
smartphone industry by pushing the average price of smartphones down, due to the higher price
competition, and this has led to increases in the competition between the different players in
the smartphone market. This increase in low-end demand created an urge for smartphone
companies to lower their prices in emerging markets, to gain market share. The aforementioned
trend could have another impact for the smartphone industry, motivating these businesses to
continue to invest heavily in Research and Development. This investment is one of the tools
that allows dominant players, and new potential entrants, to gain a competitive advantage.
Huawei, Xaomi and other Asian companies have another advantage in countries like China.
Chinese citizens give great importance to national companies, they trust those companies as a
guarantee of quality for them and therefore may give them priority over similar other products
offered by international competitors.
The smartphone is becoming a substitute for many other electronic devices, and in the
future years it will continue to go this way due to the constant innovation of
telecommunications companies and their effort to integrate more functionalities in these
devices. As an example, smartphones are already a good substitute for cameras, GPS and other
devices. However, smartphones are not yet perfect substitutes for computers or televisions.
Students still need a computer at school to write their notes and workplaces still cannot replace
them to perform tasks in the office building, yet the potential for this is becoming more
promising.
In the high-end smartphone market, prices are decreasing due to saturation of the
market. Competition between these actors is increasing and this is driving prices down, as
differentiation becomes more difficult to identify. Therefore smartphone companies will have
to continue innovating if they want to stay at the top and survive. If a company is able to have
a competitive advantage, through innovation, (for example a really thin keyboard that you can
put in your phone) that the other competitors can’t have, they could sell their phones for a
higher price or capture a greater market share against their nearest competitors.
Finally, smartphone makers will have to invest in software and application partnerships,
as this will drive the demand of the secondary market. The number of applications available in
every applications store (iOS or Android) is huge and is growing exponential. For example,
Windows Phone tried to enter the market with their own “application store” but it turned out
to be a failure, due to the small amount of applications available on their store. Applications
on smartphones became essential for the users, an important trend in which smartphone makers
have to try to get a competitive advantage by having special and exclusive apps. For example,
companies could create a partnership with a famous developers to get the exclusivity on its
new applications. This kind of advantage could lead to profit opportunities for the company
that achieves successful partnerships (first mover advantage).
To conclude this section, the trends in the market highlight the need for every
smartphone company to invest heavily in R&D and to improve the capacities of their devices
through innovation, as the growth in competition between products and market saturation force
smartphone companies to devise new ways to generate profit and differentiate their product.
Conclusion:
The market for smartphones and their secondary and tertiary product streams are facing the
greatest period of competition in their short history. Most people own a smartphone, as shown
through the slowing of purchases and consolidation of the market into two main product
streams: Android and iOS users. Due to this consolidation the main competition for business
has shifted from the operating system market to the hardware and application markets. Huawei
must consider that users who have made their choice to purchase iOS products are mainly
driven by factors such as brand familiarity and reputation. That opens the possibility to compete
within the Android market against the other major smartphone companies such as Samsung,
Xiaomi and Lenovo. Competing in this market does not come without its challenges, as we
have shown. However, we have shown potential ways in which Huawei can different
themselves. The hardware/software market in smartphones has the potential to be disrupted
and by continuing to develop both their lines of products, Huawei should remain a strong
competitor in this area; moreover, using their ability to sell at lower prices than their
competitors should assist them in competing in the China and Emerging APAC markets.
Secondly, they can compete in the secondary market, one where revenue exists once an user
has purchased the smartphone. As phones become substitutes for laptops and tablets, this
market will become ever more important, and realizing this early Huawei should begin to
expand their offerings in this sector. Finally, and most important to their goal, Huawei must
use their competitive advantage in understanding the GSM and cellular data market to capture
market share and raise entry barriers. As differentiation in products shrinks, the speed and
quantity of data available will be paramount, and Huawei has the greatest capabilities in this
area.