CONTENTS
I. Introduction 3
II. Factors, Behind Huawei Decision to Enter the Canadian Telecommunications Market 4
(a) Political Environment in Canada 4
(b) Economic Environment in Canada 5
(c) Legal Environment 6
(d) Technological Environment 6
(e) Environmental Profile 6
III. Huawei Response to Competition in Canada 7
(a) Bargaining Power of Suppliers 7
(b) Bargaining Power of Customers 8
(c) Competition Intensity 8
(d) Threat of Substitute Products 8
(e) New Market Players Entry 9
IV. Two Ways to Enhance Image and Reputation in Canada 9
V. Conclusion 10
References 11
Introduction
Huawei Technologies Ltd. is one of the leading international manufacturers of mobile and fixed broadband networks, smartphones, tablet computers, dongles and other equipment. The company is one of the recognized players in the growing field of telecommunications management in consulting. Having established strong presence in the developing countries of Asia, Pacific region and Africa in the early 2000s, the company started to actively expand its presence in the industrialized countries of the western world from 2005 onwards.
While facing serious, allegedly politically-based challenges in the United States, in 2008 the company took a rather venturesome step, deciding to open the first office in Canada. Between 2008 and 2015, the company gained a solid reputation in the country, reflected in its serious market share in the telecommunications segment (22% of the wireless network equipment market; 40% of the globally won contracts), expansion of the Canadian network of R&D facilities and election to the number of international technology-driving organizations (e.g. 3G Generation Partnership Program). In addition, the company ‘befriended’ many local universities and Mayor of Ontario himself, who, emphasizing the importance of Huawei presence in the country visited Shenzhen headquarters of Huawei (Celly, Han & Lau, 2015).
Although the future of Huawei in China appeared to be serene, the company’s 2012 decision of the United States House Committee on Intelligence blurred company vision in the country. Dramatically declining sales and boycott from the private sector led to the withdrawal of the firm from one of the promising country. Many analysts argue that close trade and cultural ties between the USA and Canada, as well shared overzealous westernized approach to cyber security systems may undermine fruitful commitment of Huawei to the expansion of technology in Canada, as well as it may tarnish its business prospects there.
This paper aims at accomplishing several intertwined purposes. Firstly, it provides a brief description of the factors behind Huawei Technologies Co. decision to enter the Canadian market. Secondly, it analyzes its response to the fierce competition with Ericsson, Nokia-Siemens and other players. Lastly, the paper evaluates potential strategies of ‘making a preemptive strike’ to the potential security charges and attempts at choosing the most effective solution in this regard.
Factors, Behind Huawei Decision to Enter the Canadian Telecommunications Market
The practice shows that despite its oriental business development ‘aggressiveness’, Huawei has never entered a single market, without profound analysis of its political, economic, social, environmental, legal and technological backgrounds. In Canada, these factors were especially fecund to begin operations there.
Political Environment in Canada
Canada has one of the most friendly business climates in the world for the technological companies. The country is almost free from political instability. As a democratic, parliamentary republic with long history, the country has been ranked among the top countries in terms of ease of doing business for tech (and other) companies. The business community agrees on the idea that political pressure on business in Canada is minimal, if any. Moreover, the government policies aim at removing all hindrances on the way to perfect market economy. In this country the principle of ‘invisible hand’ is implemented in the most effective way – Canada has been ranked number 14 in the global ‘ease of doing business’ rating administered by the World Bank.
Because the technological and telecommunication sectors in particular create the biggest numbers of job opportunities, the companies operating in this sector seem to enjoy a special status. The mayor of Ontario even visited the headquarters of Huawei in China, recognizing its commitment to the local economy. Strong and seamless rapport between the private and the public sectors of the country is a key feature, which attracted many high-tech businesses here, making Ontario the ‘silicon valley of the North’.
Economic Environment in Canada
Not only the country has effective regulatory frameworks, but Canada also presents abundant business opportunities for Huawei. It has one of the highest standards of living, as well as purchasing capacity of the population and business segments, furnishing many customers to the company in B2B and B2C segments of the market.
Starting from 2005 the trade relations between China and Canada started to deepen, bolstering independence of Canada from exports to the United States of America. Both of the nations benefited from bilateral trade, with Canada exporting raw materials and agricultural products to China, and latter saturating the nascent Canadian market of telecommunication goods. As a result of this cooperation, as well as a number of incentivizing policies of the Chinese government, exports of the Chinese manufacturers to Canada doubled between the period 2003 and 2014, amounting for C$52, 7 billion. Telecommunication equipment evolved into the second largest category of exports with annual financial turnover exceeding 3.4 billion dollars in 2015 (Celly, Han & Lau, 2015).
In spite of the fact that the business approaches of China caused some controversies relating to subsidies and dumping in the United States of America and Europe, the symptoms of trade declines have not transpired in Canada-China relationships, although the business community should brace for impact.
Legal Environment
Canada has one the most developed legal systems in the world, especially renowned for its unrelenting ability to protect IP assets of an enterprise. It also haas effective contract enforcement and dispute resolution frameworks. The courts in Canada are expeditious in hearing and adjudicating disputes. In addition, alternative dispute resolutions methods are widespread in the country. This factor facilitates business growth and attracts foreign investment into the country.
Huawei heavily relies on legal mechanisms in protecting its business strategies. Therefore, favorable legal environment was one of the reasons, which made Canada a prioritized business destination for Huawei.
Technological Environment
The development of telecommunication industry in Canada is in line with other advanced economies. The country’s technological community is focused on spreading 4G technology, and updating fixed-line solutions with their wireless more effective analogues. The practice shows that Canadian economy heavily relies on technology, integrating the most recent and effective solutions in the both public and private sectors.
In the meantime, Canadian companies regard technology as one of the essential elements of getting and retaining competitive advantage over the local and international rivals. The business segment tries to get the best solutions in the industry, which presented multiple opportunities for Huawei in the country.
Environmental Profile
Despite its image as a highly industrialized nation, Canada is scrupulous in keeping its natural ambience unscathed and resources preserved. The research shows that Canada is one of the greenest countries in the globe, which has never exceeded the amount of permissible by the Kyoto Protocol CO2 emissions. The companies, which use recycled materials and eco-friendly technologies receive significant privileges from the government in terms of tax reductions, government procurement contracts etc.
As an eco-friendly company (at least in Canada; there is much controversy regarding ethical compliance of Huawei in China), Huawei received fertile development area in Canada.
Huawei Response to Competition in Canada
Huawei Technologies Ltd. applied a ‘globalization’ strategy in Canada, which has been effectively used by the company on the global scale, positioning itself as a Canadian company with global roots (Celly, Han & Lau, 2015).
With regard to the markets in Canada, the firm focused on providing network equipment (mostly wireless broadband wireless networks) to the enterprise segment, as well as in retail business, gaining significant market share in low and medium-end tablets and smartphones.
Bargaining Power of Suppliers
The majority of Huawei suppliers are in China or in other Eastern countries. However, when Huawei appeared on top of the Canadian market, their bargaining power seriously shrunk. In fact, for many suppliers the contracts with Huawei was major source of revenue.
Together with fierce competition among potential suppliers, the top positions on the market made it possible to Huawei to dictate, virtually, its will to the suppliers: the company started to organize tenders. As a result, profit margins of the suppliers keep decreasing.
The company should hold a firm grip on the emerging technologies. If the scientific community discovers some groundbreaking technology, the company should ensure that this technology is within its assets. Otherwise, bargaining power of suppliers may skyrocket.
Bargaining Power of Customers
Because the telecommunications market in Canada is very saturated, both businesses and individuals have many choices, making bargaining power of customers unprecedentedly high. The only exception is low-income individual customers, for whom the products of Huawei are often the best alternative as the best fusion of price and quality.
Moreover, the fact that a client from Canada can easily order a mobile gadget from overseas (e.g. directly from China) increases their bargaining power additionally, making the competition in this segment really international. In the meantime, it is important to highlight that traditional methods of reducing customers’ bargaining power are no longer effective for all customers groups of Huawei. In other words, whose main motive of buying the products of Huawei is financial, have no other alternatives, because Huawei offers the best prices in its segment. However, the company should develop the methodologies of influencing other groups of customers. Launching a media campaign, which highlights technological advancements of the company seems to be a viable idea in this regard.
Competition Intensity
Because the company is comparatively a new player on the Canadian telecommunication landscape, its attempts to penetrate into the market faced strong opposition from Ericsson and Nokia-Siemens, which have especially strong presence in providing equipment and services to the national mobile carriers. The competition in this segment is very intense, yet in 2014, Huawei outpaced Ericsson globally, as well as in Canada. However, it is worth noting market superiority has been achieved mostly due low prices and narrowing profit margins.
In the meantime, the company performance is rather unhindered in low-priced tablets and smartphones segment.
Threat of Substitute Products
The chances that the products manufactured by Huawei and its closest competitors will be replaced are not high. Even if some revolutionary technology emerges on the technological horizon, Huawei is likely to become the owner of that technology, or it will develop a counterpart.
In particular, both the telecommunication and smartphone production market is at the second stage of its evolution – the largest consumer electronics companies have understood its benefits. A new company with limited financial resources can neither produce a smartphone better than the existing alternatives, nor it has the potential of marketing it. As far a substitute products are concerned, evidently there is no alternative, which can replace a mobile network. The protocol of data transmission may be changed, but the appliances will be still necessary.
Finally, even if a new technological breakthrough happens, and something unimaginable is discovered, Huawei is one of the most financially affluent company in the world. Purchasing that newly-discovered technology will not be a problem for the company.
New Market Players Entry
The chances that some other company enters the market, and this will affect sales of Huawei are minimal. Firstly, launching a company similar to Huawei in size requires large amount of financial resources, owned by several companies in the world only. Secondly, even if such project starts, the marketing costs will be beyond any reasonable capacity. Therefore, Huawei and other leading companies may stay assured that nothing jeopardizes their dominance.
Two Ways to Enhance Image and Reputation in Canada
As discussed above, on October 8, 2012 the House Committee on Intelligence reported that some of Huawei operations posed serious cyber security threats to the United States, alleging that its products made it possible for the Chinese intelligence service to gather data about the U.S. companies and the government. The Committee mandated the public sector to cease all contracts with Huawei, and recommended the private community to act in a similar way. After the publication, Huawei sales in the USA plummeted, eventually forcing out it from the market.
Up to date this action of the United States government has not affected Huawei operations in Canada. However, the two countries have close cultural ties, which may hypothetically spark similar attitudes towards the company products in Canada. Therefore, the company should keep at full alert to avert any potentially negative consequences.
Firstly, the Canadian community monitors the US news. Therefore, keeping silent about the scandal in the United States of America is neither possible, nor it recommended. The first alternative for Huawei is to release a large, comprehensive press release, providing a detailed, in-depth explanation that its products do not infringe privacy of users. Furthermore, the company may start an initiative, declaring that it will willingly disclose any part of its proprietary code, as well as give any microchips to any research institution in Canada. The findings of these research centers should be made public. In the meantime, the company should keep on integrating into social and educational hubs of the country, providing donations to universities, fighting unemployment among the youth and paying taxes obediently and accurately. As long as the real benefits of having Huawei in Canada outweigh the disadvantages, the firm will not be excluded from Canada.
Secondly, the company may take a courageous action, and attempt changing the legality of the Intelligence Committee decision in the courts of the United States. Because the matter is rather controversial, the chances that it will reach the Supreme Court are high. This court is one of the most unbiased legal institution in the world, which has never toadied before the executive. Moreover, many rulings of the Supreme Court drastically opposed foreign policies of the USA.
However, this strategy will work only if it the company is indeed guiltless. Yet, even the top executives of Huawei may not be aware of secret operations of the Chinese security service executed with help of the company equipment.
Conclusion
Although the second method of raising public awareness about purely commercial orientation of Huawei appears to be more effective, assuring that the Court’s decision will be positive is not possible, until the management becomes absolutely certain about the firm’s non-complicity.
Therefore, before the matters become clear, the company should implement start a publicity campaign, as well as it should continue rooting into the Canadian societal and academic structures. Together with reaping profits, Huawei should focus on doing good to the community, even if it entails extra expenditures. As long as the company makes positive contributions and forbear to engage in any unethical actions, its presence in Canada is secure.
References
Celly, N., Han, M. & Lau, M. (2015). Huawei in Canada: Can It Become a Trusted Player? Boston, MA: Harvard Business School Publishing.
