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Marking and Branding Analysis of Huawei – The Paradox of Global Growth Despite a US Ban

Introduction

Chinese technology firm Huawei was until recently a virtual unknown in the smart phone sector, until it was catapulted into the headlines by a US ban on its products and services (BBC, 2019). Currently ranked as one of the top three global smartphone brands, for a brief period in late 2018 Huawei knocked Apple of the pedestal of being either the first or second smartphone brand in the world - a position that Apple has occupied unchallenged for very nearly a decade (Forbes, 2019). This essay provides a critical analysis of the rapid growth and brand development of Huawei, considering how it came to penetrate the UK market, and also how as a brand it has continued to report global increases in sales, in spite of losing all of its US market which ought, in theory, to have caused significant brand and reputational damage.

Offering a brief background of the rapid growth and ethos of Huawei, discussions in this essay consider the marketing environment of the smart phone sector, with particular emphasis on competitive forces and how Huawei have addressed these competitive challenges with a compelling B2C online presence, building the brand, and overcoming direct challenges to brand reputation.

Background of Huawei

Huawei was formed in 1987 and focused initially on the manufacture of component parts for the telecommunication sector (Tao et al., 2016). Seeing increasing demand for its products and services, Huawei expand internationally, and by 2011, was providing major component parts and services of telecoms infrastructure to more than 50 countries (Tao et al., 2016). Significant interests were noted in UK, US, and Canadian infrastructure and telecoms, as well as internet security and data management. The manufacture and sale of smart phones was a natural addition to the portfolio, and as of the end of 2018 was reported that Huawei has sold more than 200 million handsets worldwide (O’Flaherty, 2019).

Market Analysis of the Smartphone Market

The rapid global growth in smartphone market has undoubtedly contributed to the favourable market conditions for Huawei. Experienced as a firm in telecommunications manufacture, sale and resale, Huawei are ideally positioned to exploit the intimate knowledge of the smartphone sector, given that they are directly involved in several major smartphone networks in the form of infrastructure, data security and data management (Low, 2007). A PESTLE analysis of the global smartphone market (Fig. 1) establishes steadily growing demand, particularly in developing and emerging economies.

Figure 1: Short-form PESTLE Analysis of Huawei in the Global Smartphone Market 2019

Data captured by the global analysis firm Statistia (2018) determines that there are an estimated 1.56bn smartphone handsets in use around the world (defined as those which have an active contract), and that the global smartphone market is worth an estimated $522bn, with consistent year-on-year market growth. Although it might be anticipated that consumer demand for smartphones has been saturated, continual developments in terms of key features have supported the sector’s buoyancy (Cecere et al., 2015). The trend for market growth looks set to continue, as increasingly social and cultural habits around the world are encouraging increased reliance on smartphones as an all-encompassing device for everyday tasks (Suarez et al., 2015). Growth areas such as the Middle East and Africa are particularly attractive, because Huawei has extreme learning curve advantages in terms of technological development. Tao et al., (2016) argue that as a telecommunications firm, Huawei is in an unrivalled position to penetrate and gain first entrant advantage in these rapidly economically developing markets.

In terms of internal strengths and capabilities, Huawei are, according to Rong et al., (2013), at a considerable advantage compared to providers from developed economies. As the first telecommunications provider to develop domestic Chinese telecommunications network, Huawei have invaluable market knowledge of how to establish a telecommunications infrastructure from scratch, particularly in areas which have significant resource scarcity and economic depravity. Chen and Wen (2016) draw parallels between rural parts of China, and large parts of Africa in terms of infrastructure development. Huawei not only have invaluable industry knowledge, they are also hugely efficient in terms of their manufacturing processes, enabling them to develop good quality products at very affordable prices (Kshetri, 2017).  It is a powerful combination of strengths, which places Huawei in a robust position in the global smartphone market place.

How Huawei Exploit Competitive Forces

By definition, when any organisation operates in a marketplace, it will face a combination of competitive forces. This is true even in a monopoly environment, which to some extent in China at least, Huawei manages to hold (Bhatt, 2013). It is therefore a valuable exercise to undertake a strategic analysis of the competitive forces in a marketplace in order that organisation position itself appropriately, and identify how best to market in such a competitive environment. Andaleeb and Hasan (2016) contend the most effective tool for undertaking this analysis is a Five Forces analysis. It is fundamentally a strategic tool, used to assess the overall level of competition in a marketplace.

The framework acknowledges, that simply because competition exists this does not necessarily make the market unavoidable - it is a rational response of organisations to turn towards potentially attractive markets, thus increasing competition (Porter, 2008). However, this does have implications for the way in which a firm chooses to position itself in terms of aggressive marketing, or a more collaborative approach. Fig. 2 offers illustration of a five forces analysis for Huawei.

Figure 2: Simplified Five Forces Analysis of Huawei 2019

It is acknowledged that there is some overlap in terms of marketing strategy, and broader organisational strategy identified in the analysis, not least of which relating to the role of branding and pricing. These two aspects in particular are central to marketing strategy (Davcik and Sharma, 2015), demonstrating the interrelationship and importance of marketing with organisational strategy more broadly. Rowley (2016) contends that a strong marketing proposition is invaluable in helping an organisation maintain its competitive stance.

In the case of Huawei, they might themselves be considered a threatening new entrant to the marketplace, typically given their seeming exponential rise and direct challenge to extremely well-established brands such as Apple and Samsung. The analysis reveals that part of the power which Huawei operate in this regard is related to their internal strengths, most notably, the knowledge of the global marketplace, extensive experience in manufacturing and managing telecommunications, and direct access to distribution channels which firms such as Apple cannot always access without a third-party intermediary.

Further, the pricing and branding of Huawei is very popular with consumers (Forbes, 2019). The pricing particularly, on a like-for-like basis compared to other similar smartphone devices in the marketplace relative to the performance of devices is important, giving Huawei price strategy which significantly undercuts its competitors. Mindful that pricing is a key component of the 4P or 7Ps of marketing (Gillespie, 2015), and also mindful of consumers being increasingly concerned around pricing and product, these aspects are particularly important.

Marketing Week (2018) argues that alongside pricing and product, is the power of the Huawei brand which has grown from being virtually unrecognised in the UK in 2017, becoming one of the more popular smartphone brands. Close inspection of how Huawei have crafted such brand growth reveals insights into their marketing strategy.

Building the Brand

To understand how Huawei had been able to establish themselves so prominently in the global smartphone market, it is useful to analyse their brand in more depth. Although as a company, Huawei are not in fact that much different in terms of age to Apple, the Huawei brand can be considered much younger (Bakker, 2016a). Furthermore, it was established in a different context, and in a markedly different way, giving, in the opinion of Bakker (2016b), a much fresher and younger feel which is better connected to the consumers of today. In comparison, where Apple have always adopted a branding strategy of extremely high quality but a paternalistic approach whereby Apple inform customers what market changes will be, Huawei works collaboratively with key suppliers and customers to understand what consumers really want (Marketing Week, 2018).

The result is that as a brand, Huawei has established a reputation as being approachable and relatable, which is much more appealing to contemporary consumers (Filieri and Lin, 2017). From a supplier perspective, Huawei has focused particularly on establishing relationships with two or three key high-end suppliers such as Leica for the lenses in smartphone handsets, and also focusing on battery life (Forbes, 2019). These two features have become key to smart phone users. This innovative, collaborative and adaptive approach has been built into the DNA of the Huawei brand. According to brand representative cited in Marketing Week (2018), Huawei passionately believe in perpetually challenging the status quo, which is how they been able to grow so rapidly by really listening to customers and establishing a strong reciprocal branding relationship.

Alongside this there are structural conditions which are supported the growth of the Huawei brand, which can be traced back to the origins of their internal analysis. Huawei establish themselves as a firm in a fiercely competitive marketplace where they face direct competition from local Chinese brands, but also international competition from foreign firms (Kim and Chao, 2018). In the view of Kim and Chao (2018), these early experiences now shape the way in which Huawei adapt and respond to rapidly changing consumer and market trends. By staying close to their customers, Huawei have built a different type of brand loyalty through adaptability and responsiveness.

A Compelling B2C and B2B Online Presence

Part of the successful marketing strategy of Huawei is that they have a compelling B2C (Business to Consumer) and also B2B (Business to Business) online presence (Xia and Gan, 2017). In comparison to Apple, who have physical stores in key locations, Huawei smartphones are sold either directly, or via a reseller. In order for this business model to be effective, Huawei understand the need to emphasise their online marketing and advertising, as well as strengthening their brand. Without a physical manifestation of the product which speaks for itself, creating a compelling online presence is imperative.

In this area, the years of experience in managing telecommunications networks and data come into their own to support marketing strategy and positioning of Huawei (Fu et al., 2018).  For example, guiding customers through the purchase process, by asking a number of pertinent questions around the desired functionality of the handset, and also the likely amount of use in a data package or contract. As Rowley (2016) notes, in internet marketing terms, this can be a valuable opportunity to engage in up selling and cross selling - for example additional supporting items such as cases for the handset, or add-ons to the contract package.

Huawei also have a practical and insightful understanding of the functionality of acting globally, but thinking locally - a term referred to in some areas of marketing as ‘glocalisation’ (Yu and Guo, 2018). As Tao et al., (2016) comment, the early years of Huawei’s growth taught it a great deal as an organisation about making scalable products and services, but also ensuring that they were suitable for their local target market. They have put this knowledge to excellent use in order to create a compelling online presence which not only attracts potential customers or consumers in the first instance, but also encourages them to purchase.

These aspects might sound straightforward, but as Charlesworth (2017) notes, the practical ‘on the ground’ understanding that Huawei have always developed and utilised by maintaining close links with the customers as enabled them to react very quickly to changes, and also ensure that they continue to provide the information which customers are looking for. Whilst the apple branding ecosystem is undeniably popular, there is increasing frustration with regard to the insular nature of its products and services.  By adopting a far more collaborative approach, Huawei believe that they have established a powerful online presence, and the rapid growth of the brand tends to support this interpretation.

Using Marketing and Branding to Overcome Reputational Damage

Late 2018 and early 2019 saw a number of specific challenges to Huawei’s brand reputation arising from allegations of significant misconduct (espionage and theft of intellectual property) by the US government against Huawei (O’Flaherty, 2019). The outcome of which is that Huawei products and services are entirely banned in the US (BBC, 2019). Admittedly there is contextual backdrop to this around the protectionist stance by the current US president specifically against China, which may be an influencing factor, but in any event loss the US market, both commercial and domestic represented a significant financial blow to Huawei (Tung, 2019). Further, the significant reputational damage arising from these allegations would undoubtedly be challenging for any organisation to recover from.

This being said, the most recent financial data and sales figures produced by Huawei, and verified by external analysis (Tung, 2019) suggest that the firm continues to go from strength to strength despite the US ban. They have reported the highest ever number of mobile handset sales, and continued large contracts with governments and major organisations around the world. At face value this appears paradoxical, as according to a large amount of marketing and branding theory, any organisation which had been faced with such serious allegations would find themselves losing significant stock value, and potentially also having major contracts terminated by large customers also fearing espionage and/or intellectual property theft (Heater, 2019). That Huawei have continued to grow despite these challenges, indicates the power and attractiveness of their brand, but also their very strong understanding of the nature of their market sector.

Industry commentary and analysis of the situation facing Huawei in terms of the US government, and the seeming paradox of Huawei’s continued growth believe that a combination of factors relating to marketing and branding are contributing to the sustained strong position of operations (Heater, 2019; Tung, 2019). Huawei have built a relatable brand which is appealing to a broad remit of consumers in terms of giving consumers what they actually want in the form of a good quality product at an affordable price. The features and benefits of the product are attractive, and Huawei proved themselves at developing a consistent quality product over the years.

Theoretical explanations of the way in which marketing and branding can be used to overcome allegations of service failure revealed that a combination of prior consistency in service, and immediate steps to address the concerns are typically sufficient to address any problems particularly if a firm already has a strong brand reputation (Park and Ha, 2016). Huawei satisfies these conditions, and has continued to press forward in innovation and development, giving it a strong competitive advantage to overcome the allegations and potential reputational damage. The market demand for smartphones remain strong, and, despite these difficulties there is every reason to believe that Huawei both as a firm and a brand will continue to grow.

Summary

This essay has provided a critical consideration the telecommunications firm Huawei, with specific emphasis on their penetration into the smartphone marketplace. From being a virtual unknown amongst Western consumers a decade ago, Huawei has now become consistently recognised as one of the top three smartphone brands in the world. Marketing analysis of Huawei’s rise to prominence reveals a number of key factors highlighting the synergy between organisational strategy, marketing activity and the power of Huawei’s branding. The latter has proven particularly important in overcoming potential sources reputational damage including serious allegations against the brand. Taken in the context of its global dominance, the evidence and analysis would appear to suggest that Huawei will quickly overcome these challenges and continue to grow and dominate in the global smartphone and telecommunications arena.

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