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Internationalization Huawei

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Internationalization Huawei

Internationalization Huawei

Executive Summary

            Huawei has significantly established its operation in Mexico. The nation is the 15th largest economy in the world and is predicted to be the fifth largest by 2050. Mexico has a favourable business environment through political stability, high urbanization, and a largely young population. However, unsuitable government regulations and drug cartels hinder business operations. The firm also has to consider that its home culture is different from that of Mexico. The differences are outlined using Hofstede’s cultural dimensions of individualism versus collectivism, power distance index, Indulgence Versus Restraint (Ind), Long Term Orientation Versus Short Term Normative Orientation (Lto), Uncertainty Avoidance Index (Uai), and Masculinity Versus Femininity (Mas). Huawei adopts a polycentric staffing policy that allows it to keep its culture while respecting that of the locals. The Chinese and Mexican cultures are similar in many aspects, which is problematic for Huawei in the short-term but beneficial in the long-term. It uses the universal leadership system to forecast future trends, align people, and deal with challenges such as corruption, pollution, and workplace discrimination.

Internationalization: Huawei

Introduction

            Internationalization has attracted the interest of many companies around the world. Today, most businesses start their operations in the domestic market but eventually explore the international ones. Internationalization has resulted in a dynamic market situation and increased competition in the market. Huawei, the Chinese multinational consumer electronics and telecom equipment manufacturer established in 1987 by Ren Zhengfei initially focused on producing phone switches.  It expanded its business to include manufacturing communication devices and building telecommunications networks. The company also established its operations in many countries in the world such as the US, Thailand, Mexico, and African countries. Internationalization of Huawei to Mexico exposes it to environmental factors, social challenges, and opportunities.

Environmental Analysis

            Huawei has focused on internationalization in the recent past. The strategy has allowed the firm to increase its revenues to 38.9 billion dollars as of 2013. China contributed 35%, Africa, the Middle East, and Europe 35%, Americas 14%, and Asia Pacific 16% (Kesseli, 2017). The success of the strategy has encouraged the firm to focus on increasing its market share in different nations across the world. Huawei is well established in Mexico but would like to increase its market share and sales in the nation. Therefore, it is important to look at the factors that can influence its success or failure in the North American nation.

Economic environment

            Mexico is the 15th largest economy in the world and the second largest in Latin America (Kesseli, 2017). The country’s economy grows at an average annual rate of 2.4%, which makes it stable (Kesseli, 2017). The stability of the Mexican economy as well as the growth potential ensure the current success of Huawei in the country and increases its likelihood of further growth.

Political environment

            Mexico is a presidential federal republic with three levels of government. Representatives are elected for the various positions every five years. Although the nation maintains that it is democratic, most elections have serious irregularities (Kesseli, 2017). Nonetheless, the government of the day maintains stability albeit some security issues from drug cartel groups. The existing policies are not ideal for foreign organizations such as Huawei (Kesseli, 2017). The Mexican government acknowledged gaps in its policies when it stated that it would initiate reforms in 2016.

Social environment

            The social factors that influence businesses in Mexico include life expectancy, literacy, and urbanization. Mexico has a high literacy level of 95.1%, and an urbanization rate of 79.2 % (Kesseli, 2017).  The Mexican population presents Huawei a good business environment. Moreover, most of the people are economically empowered and can afford the firm’s products. Nonetheless, the company has to deal with the presence of drug cartels and the high crime rate in the country. Therefore, it may be unable to establish its operations in some regions of the nation.

Demographic factors

            The total population of Mexico was 121,736,809 as of 2015 with young people aged between 15 and 54 years accounting for 58% (Kesseli, 2017). In terms of religion, 82.7% of the population are Roman Catholic while others such as Pentecostal and Jehovah’s Witnesses accounting for the remaining 17.3% (Kesseli, 2017). The high population provides a good market for Huawei products.

            The market environment in Mexico is significantly favourable for Huawei. Some of the factors that the firm can explore for enhanced performance include a good performing economy, high spending ability among consumers, and the huge population that comprises of mainly young people. However, the company has also to contend with various challenges in the market such as crime.

Critical Operational Factors

            The critical operational factors of Mexico include the efficiency of the supply chain and information system. Mexico has improved its telecommunication system through the development of modern infrastructure. Consequently, Huawei has been able to acquire important information such as consumer needs and preferences (Kesseli, 2017). The firm can use that data to customize its products to fir the expectations of Mexicans. Mexico has significantly developed infrastructure that improves the operations of the company. Moreover, Huawei can ship its products to different regions within the country fast.

Background and Analysis of Internationalization Strategy

Background

            Huawei first explored the international market in 1996 through Hutchison Telecoms, a Hong Kong-based company. The firm wanted to focus on Russia and South America first (Dawei, 2008). It commenced operations in Russia in 1996 through a joint venture with Russia Telecom and Beto Konzern; its product became popular after 2000 and has been recording increased sales (Dawei, 2008). The firm expanded into Thailand, Malaysia, Africa, and the Middle East after success in Russia.

Critical analysis of Huawei’s internationalization strategy

            Huawei uses different entry strategies depending on the market. It used a joint venture in Russia (Dawei, 2008), exportation in Africa, Asia, and South America, and contractual franchising, coproduction, and co-research in North America and Western Europe. The motivation of the company was low competition in most of the regions. It also understood it could provide better products and affordable prices to beat its rivals.

            It can be deduced, based on the entry modes used, that Huawei does not focus on one internationalization strategy but rather looks at different strategies depending on the characteristics of the market (Dawei, 2008). For example, since North America and West Europe are developed markets with strong competitors, the company decided to use the contractual entry strategy. However, the low level of development in markets such as Africa prompted the company to use the exportation as the entry strategy.

            The entry strategies have both advantages and limitations, which influence the success of the firm internationally. For instance, the joint venture enabled Huawei to gain insights about the Russian market, making it easy for it to succeed. The joint venture also allowed the company to lower the risks involved, should it have failed (Dawei, 2008). However, despite these advantages, there were also various limitations of the joint venture for Huawei. For instance, the company’s flexibility was significantly restricted, as it had to consider the other party in the joint venture. Such restricted flexibility may have contributed to the limited success in the first four years in the Russian market (Dawei, 2008). Another limitation is the clash of cultures. Huawei has a unique organizational culture that is different from Russia Telecom and Beto Konzern, partners in the joint venture. Consequently, the firm most likely experienced operational challenges in the country.

International Success

            Huawei has succeeded significantly in its international markets. For example, in 2013, 65% of its total income was derived from the international market. In 2017, foreign markets contributed total revenue of 298.529 billion Chinese Yuan, which was 49.45% of the company’s total revenue (Huawei, 2017). However, an accurate picture of the company’s financial performance can only be determined through the net profits in each international market. Unfortunately, there are no financial reports of the individual markets. Nonetheless, the overall profitability of the company implies that foreign markets contribute significantly to the overall net profit (Huawei, 2017). The following table shows the revenue generated by each market in 2016 and 2017.

Revenue (CNY million)20172016
China305,092236,512
Europe, Middle East, Africa (EMEA)163,854156,509
Asia Pacific74,42767,500
Americas39,28544,082
Other20,96316,971
Total603,621521,574

Culture Profile of China and Mexico

            Culture is one of the factors that influence the success of a business. A country’s cultural characteristics determine how consumers react to various products. It is important to analyze the cultural profile of China as the country of origin and Mexico as the host country to determine how culture affected Huawei in international markets.

Culture profile of China and Mexico

Individualism versus collectivism

            The Chinese culture is largely collectivism (Techo, 2017) that evolved from the Mao administration that encouraged community activity to attain national goals. Consequently, the Chinese like to work in groups (Techo, 2017). The Mexican culture also appreciates working in groups (Itim International, n.d). In addition, Mexicans treasure relationships with family and friends. The similarity of the two cultures in these aspects will make it easy for the firm to integrate well in the nation.

Power distance

            The high power distance of Chinese emanates from the philosophical belief that stresses on respecting senior individuals in society. Therefore, it is uncommon for Chinese juniors to disagree with their superiors (Techo, 2017). The high power distance also makes it hard for employees to be involved in the decision-making process in Chinese companies. Mexico also ranks high in the power distance. Power inequality is endorsed by leaders and followers. Therefore, each person understands their position and do not challenge the status quo (Itim International, n.d). The similarity in this aspect can allow the firm to integrate to the Mexican society with ease.

Masculinity versus femininity

Men are given priority in the workplace over women. Therefore, it is uncommon for women to hold senior management positions. The focus on the masculine aspect is also reflected in the strong drive towards financial success (Techo, 2017), which has made Chinese firms highly competitive. Mexico has a high level of masculinity. As such, there is a high level of differentiation of roles between the two genders (Itim International, n.d). In addition, like the Chinese culture, men dominate the power structure. Consequently, women in Mexican society have been forced to become more competitive.

Uncertainty avoidance

            There is low uncertainty avoidance in Chinese culture since they make relatively risky decisions. The low uncertainty avoidance is also reflected in the willingness of the Chinese companies to venture into international markets without focusing much on the risks that might exist in the market (Techo, 2017). On the contrary, the Mexican culture has a low tolerance for uncertainty. Mexico uses strict laws, rules, regulations, and policies to avert risky undertakings (Itim International, n.d). Mexicans try everything possible to control everything to avoid the unexpected.

Rationale for Staffing Policy

            Huawei uses the polycentric staffing policy, which encompasses allocating home country workers top positions at the head office while the rest of the jobs are reserved for the local employees. The aim of Huawei is to encourage more efficient responses in local markets while maintaining overall organizational culture (Tsui, 2016). Having local people hold significant positions has allowed the firm to learn the local market and respond to local customer demands and needs effectively (Tsui, 2016). The company has also been using the strategy to lower expenses because it is able to pay lower salaries and benefits. Huawei’s rationale also aims to achieve acceptance in foreign markets (Tsui, 2016). Lastly, the company focuses on hiring local workers because of the need to establish relationships, cooperation, and friendship.  On the other hand, by maintaining home country employees at headquarters and central offices, the company is able to easily coordinate its activities since these employees understand well the company’s culture and way of operation.

            One of the aspects that can be improved in the staffing at Huawei is the employment of more local individuals in senior positions. While the company employs local workers, the hiring of the locals is focused on only junior employees. There are very few senior employees from the local markets. The company needs to change this in order to enhance its performance in international markets since senior employees from the local markets would help in strategy formulation.

Leadership, Decision-Making, and Motivational Systems Huawei Should Use in Mexico

            Huawei should use universal leadership in Mexico (Holyfield, 2018). The leadership system will allow the firm to find ideas that meet the needs of the consumers in the market and take advantage of possible opportunities. The universal leadership system would also allow Huawei to identify and promote people with the right skills. By putting the right people in optimal positions that would allow them to utilize their talents, gifts, and skills in making the right decisions, Huawei would realize enhanced performance in the market. The universal leadership system would also help Huawei detect patterns in the market and determine how the market is going to behave in future (Holyfield, 2018). As such, it will be able to adjust its operations to adapt to these trends. The company also needs to apply the strategic decision-making system to make its human and financial resources in Mexico (Elbanna, 2006).

            The strategic decision-making system will also help the company to take calculated risks in Mexico. For Huawei to maintain or increase its performance in the country, it must evolve constantly. One aspect of the evolution process involves introducing new products in the market (Elbanna, 2006). However, new products are always at a risk of failing because consumers may not like them. Strategic decision making helps a firm to deal with such a problem. It allows a firm to determine the chances of success of a plan by analyzing the market in terms of consumers’ needs and preferences (Elbanna, 2006). Strategic decision-making will allow the company to take calculated risks that have a limited chance of occurring. Optimal utilization of resources is also another reason why Huawei should use strategic decision-making. The system would enable the company to determine high-performance areas and, thereby, focus most of its resources in these areas. As a result, the company’s efficiency will be enhanced.

            Huawei should develop the intrinsic motivation system that appeals to the interests and desires of employees (van Eerde, 2015). Intrinsic motivation encourages employees to work hard without much supervision. Therefore, Huawei will require fewer managers to guide employees, thereby reducing the time spent. The managers can handle complicated tasks since the employees work autonomously and only consult them occasionally. An intrinsic motivation system will also encourage innovation in the company (van Eerde, 2015). Moreover, most employees would focus on career development and personal accomplishment. The increased innovation of employees is particularly important for Huawei because of the nature of the industry it operates in. The high competition from other firms forces it to come up with innovative ideas to remain the preferred brand. The strategy can be extremely helpful in Mexico considering that it has to manufacture products based on the customer’s preferences.

Communication Problems Expatriate Managers May Face in Mexico

            The communication problems Huawei expatriate managers may face in Mexico is the language barrier (Löppönen, 2012). Mexicans speak Spanish while the expatriate speaks Chinese. The difference in language makes it hard for the two sides to communicate. In addition, the communication styles used by the two make it challenging for the firm (Löppönen, 2012). Mexicans and Chinese use indirect communication style, which is problematic since they do not express themselves, especially to strangers. Mexicans and Chinese focus on building relationships first, which may take time. Huawei may take longer to establish relationships and start its operations in the nation.

            Chinese expatriates need to learn the local language to improve communication efficiency (Löppönen, 2012). Effective communication can only occur if people speak the same language (Löppönen, 2012). Since they would be operating in the market where the majority of people speak Spanish, the expatriates will need to learn the language so that they communicate effectively with the locals.  The expatriates also need to learn about the Mexican culture, particularly with respect to communication (Löppönen, 2012). Learning about the Mexican culture would allow the expatriates to understand important aspects such as communicating with gestures and body language. 

Ethics and Social Responsibility Issues Huawei Managers May Face In Mexico

            Huawei faces many ethical challenges in Mexico. Mexico is one of the most corrupt countries in the world, which makes it challenging for the firm to operate (Grasso, 2017). Moreover, Huawei managers may be required to provide bribes to government officials, which may be against their ethical principles (Leonard, 2019). Huawei managers may also face the problem of discrimination in the workplace (Leonard, 2019). As pointed out, Mexico is mostly a masculine society. As such, it is likely that female employees will be discriminated against.

Huawei may experience social responsibility issues such as pollution. The firm should ensure that it produced little or no pollution as a way to conserve the environment (Vargas-Hernandez & Sandoval, 2017). Another CSR issue the managers may face is employee welfare.

Conclusion

            Essentially, Huawei is significantly established in Mexico. The company is affected by political, economic, and social factors in the country. An analysis of these factors shows that the market environment in Mexico is favorable for the firm, although it has to deal with problems such as crime and corruption. The culture profiles of China and Mexico are significantly similar, which advantageous and problematic at the same time. Chinese and Mexicans take time to understand strangers before they can engage in businesses. Therefore, Huawei may take a lot of time to increase market penetration in the nation. In addition, the company’s expatriate managers are likely to experience communication problems due to language barriers. The managers need to learn the local language so that they can communicate effectively. Huawei uses the polycentric staffing policy that allows it to maintain its organizational culture but at the same time take endear itself to the local markets through employment locals. However, it should increase of locals in senior positions to improve efficiency. The firm should use universal leadership, strategic decision-making and intrinsic motivation to be more effective.

References

Dawei, G. (2008). Internationalization and entry strategy of enterprises: a case study of Chinese firm: Huawei. Master programme in international marketing. School of Business and Engineering. University of Halmstad: Sweden.

Elbanna, S. (2006). Strategic decision‐making: Process perspectives. International Journal of Management Reviews, 8(1), 1-20.

Grasso, C. (2017). Mexico’s corruption problems are still among the world’s deepest. Retrieved from https://theconversation.com/mexicos-corruption-problems-are-still-among-the-worlds-deepest-76627

Holyfield, T. (2018). The 8 universal leadership attributes. Retrieved from https://assessments24x7.com/blog/universal-leadership-attributes/

Huawei (2017). Huawei Investment & Holding Co., Ltd.2017 Annual Report. Retrieved from https://www-file.huawei.com/-/media/corporate/pdf/annual-report/annual_report2017_en.pdf

Itim International (n.d). Mexico-Mexican Geert Hofstede cultural dimensions explained. Retrieved from http://www.taylortraining.com/spanish/Hofstede_Cultural_Dimension_Explained(external).pdf

Kesseli, T. (2017). The Business Environment and Culture of Mexico from the Perspective of Finnish Companies. Retrieved from https://www.theseus.fi/bitstream/handle/10024/123426/opparivaslmis..pdf?sequence=1&isAllowed=y

Leonard, K. (2019). Examples of ethical issues in business. Retrieved from https://smallbusiness.chron.com/examples-ethical-issues-business-24464.html

Löppönen, H. (2012). Communication challenges in an expatriate program: Case company: IKEA LTD. Retrieved from https://www.theseus.fi/bitstream/handle/10024/45200/Henri_Lopponen.pdf?sequence=1&isAllowed=y

Techo, V.P. (2017). The Chinese cultural dimension. Retrieved from https://www.researchgate.net/publication/316103895_The_Chinese_Cultural_Dimension

Tsui, B. (2016). Do Huawei’s training programs and centers transfer skills to Africa? Retrieved from https://static1.squarespace.com/static/5652847de4b033f56d2bdc29/t/578e94e83e00be65954feb3f/1468962026573/Tsui+brief+v.5.pdf

van Eerde, W. (2015). Motivation and reward systems. Wiley Encyclopedia of Management, 1-4.

Vargas-Hernandez, J.G. & Sandoval, J.L.S. (2017). Analysis of the Corporate Social Responsibility (CSR) practices in Mexico and its relationship with the labor development and workers life quality. Retrieved from https://www.researchgate.net/publication/322257581_Analysis_of_the_Corporate_Social_Responsibility_CSR_practices_in_Mexico_and_its_relationship_with_the_labor_development_and_workers_life_quality

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