BEM 7064

Economics for Managers

Project Paper

Author CHAN KWAI SANG

1081200555

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TABLE OF CONTENTS

1.0 Executive Summary ........................... 3

2.0 China ................................................. 4

2.1 Telecom Service Market ............................................................................................................... 4 2.2 Telecom Equipment Market ........................................................................................................... 4 2.3 Key Emerging Markets ................................................................................................................... 4 2.4 Regulatory Environment ................................................................................................................ 5 2.5 Foreign Participation ...................................................................................................................... 6 2.6 Network Equipment Suppliers in China ......................................................................................... 6

2.7 Market Opportunities ..................................................................................................................... 7

3.0 Germany ............................................ 9

3.1 Market Overview ............................................................................................................................ 9 3.2 Germany Telecom Market ........................................................................................................... 10 3.3 Investment ................................................................................................................................... 12 3.4 Mobile Communication ................................................................................................................ 13 3.5 Market Opportunity ...................................................................................................................... 14 3.5.1 Fix-Mobile-Convergence ....................................................................................................... 14 3.5.2 Business Solutions ................................................................................................................ 15 3.5.3 IP TV ...................................................................................................................................... 15 3.5.4 Triple Play .............................................................................................................................. 15 3.5.5 3G UMTS from HSDPA to LTE ............................................................................................. 16

4.0 Hua Wei ........................................... 17

4.1 Company Background ................................................................................................................. 17 4.2 Product Portfolio .......................................................................................................................... 17 4.3 Global Appearance ...................................................................................................................... 18 4.4 Competitive Position .................................................................................................................... 19

5.0 Financial Highlight ........................... 21

5.1 Sales Analysis ............................................................................................................................. 23

6.0 Competitor Analysis ......................... 24

7.0 Summary ......................................... 25

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1.0 Executive Summary

Objective of this report is to provide an overview of one of the BRIC‟s telecom service market as

well as telecom equipment market and compare with those in one of the G8 developed economy.

China and Germany have been selected in this research study.

With population of 1.3 billion people, China owns the world‟s largest fixed line network and

mobile communication network in term of network capacity and number of subscriber. China‟s

telecom market is expected to worth $130 bn by 2009. Germany is the largest consumer market

in the European Union with a population of over 82 million. Its telecom market in 2008 was

worth EUR60 bn. Both economies differ in scales in term of GDP per capita and market

structures. Nevertheless, both own a large telecom service market.

HuaWei, as the leading telecom equipment supplier in China has been selected as the model

company in this industry to analyze on its global positioning against its competitors in term of

financial stability.

Lastly, some of the strategies are recommended in order for the company to sustain in a long

term in the business.

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2.0 China

2.1 Telecom Service Market

China‟s telecom market is estimated at $84 billion and is expected to reach $130 billion by 2009.

With population of 1.3 billion people, China owns the world‟s largest fixed-line and mobile

network in terms of both network capacity and number of subscribers. At the end of August

2006, China had approximately 368 million fixed-line subscribers and 437 million mobile

customers, with more than 1.25 million new cellular subscribers every week.

2.2 Telecom Equipment Market

China‟s telecom equipment market is worth about $30 billion in 2006, with significant different

levels of import / export. In 2006, exports were $66 billion, more than five times the value of

import, which reached $12 billion in the same period. Imports of telecom equipment have been

growing at 14% CAGR between 2002 and 2006 - a significant growth but still lower than the

overall market growth estimated at about the current growth of 15%-20% per year. Leading

countries are Japan, and South Korea. U.S. has a limited share, or about 6% of total imports.

Even if Chinese manufacturers dominate the market thanks to low cost production and good

level of technology, foreign players still have opportunities in the latest technology segment

(e.g., 3G1 equipment).

2.3 Key emerging markets

Besides the established Tier I markets, there are opportunities in rapidly growing Tier-II cities

such as Shenzhen, Tianjin, Nanjing and Qingdao focus of this report. Tianjin and Qingdao are

two out of eight target cities in which the pre-building of the 3G network will start. Shenzhen is

currently the largest importer of telecom equipment and largest production base. Nanjing is

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important for its proximity to Shanghai and for the high number of fixed-line and mobile

subscribers. Other emerging markets, not analyzed in this report, include Xi‟an, Xiamen,

Hangzhou and Dalian. 3G Technology.

The Chinese telecommunication industry is on the brink of a major transformation as carriers

prepare to invest heavily in 3G technologies. It is estimated that the investment in telecom

equipment will be about $11billion. Best prospects for foreign exporters are related to 3G

network building equipment and all testing and maintenance equipment (such as spectral

efficiency tester) since the telecom carriers are starting trial operations to test the network.

Moreover, demand for broadband network solutions, optical line and wireless coverage

equipment is also expected to increase. In the telecom equipment market for the

business/corporate sector, radio satellite and communication system and empowering

telecommunication products/technology will also experience strong growth.

In May 2008, MII, NDRC and Minister of Finance announced the third restructuring proposal

and also launched three 3G licenses. With the rapid development and serious competition,

Chinese telecom operators face challenges on shrinking landline users, too rapid growth on

mobile business, low profit services and great gaps among the carriers. The third revolution was

to combine six main telecom operators into three, aiming of developing 3G business and full

telecom services, and avoiding monopolistic and over competition.

2.4 Regulatory Environment

The MII is responsible, among other duties, for elaborating regulations, allocating resources,

granting licenses, supervising the competition, promoting research and development and service

quality as well as for developing tariff rates. The MII has built up a nation-wide regulatory

system composed of Provincial Telecommunications Administrations (PTA) with regulatory

functions within their respective provinces. A number of other significant institutions also

influence the industry, such as the State Development and Reform Commission (SDRC).

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Following its WTO accession, China is starting to make plans, including adopting western-style

telecommunications law and setting up an independent regulatory and arbitration body to deal

with the telecom operators

2.5 Foreign Participation

Prior to its WTO accession, China‟s policy protected the national emerging telecom industry

since it was and is a national priority sector. Only foreign equipment vendors were allowed to

invest in China. Authorization for the investments was conditioned on technology transfer.

International telecom carriers were banned from accessing the market.

As part of the WTO commitments, the Chinese government is opening gradually the carriers

market to foreign investors. There are some geographical limits to this opening but they will be

progressively relaxed. In 2005 foreign investors are allowed for form joint ventures, investing up

to 50% in Internet services in the whole country, up to 49% in the mobile sector in 17 major

Chinese cities and up to 25% in fixed-line basic services in Beijing, Shanghai and Canton

(Guangzhou). Finding a Chinese partner to form a joint venture with, preferably a major carrier

is mandatory for a foreign company wishing to access the Chinese market.

Foreign investments come, in order of importance, from the United States, Canada, Sweden,

Finland, Germany, France, Japan and South Korea. Main companies from these countries already

have one or more Joint Ventures. Notice that many of them result in divorce.

2.6 Network Equipment Suppliers in China

The leading international suppliers of network equipment - Alcatel-Lucent, Cisco, Nortel and

Nokia Siemens Network - as well as the major international suppliers of portable phone sets -

Ericsson, Motorola, Nokia, Samsung, and also Siemens - are well known in China.

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A large number of Chinese companies compete now with foreign corporations not only in the

Chinese market but also in third-world countries. Datang is the main TD-SCDMA manufacturer,

and UTStarcom, the main PAS/PHS manufacturer. Huawei leads the SMS market and Great

Wall stands out in the broadband sector. Other recognized Chinese equipment suppliers are

Shanghai Bell and Zhongxing Telecommunications Equipment (ZTE). Furthermore, Amoi,

Konka, Ningbo Bird and Kejan are the most representative Chinese mobile phone manufacturers.

2.7 Market Opportunities

Mobile communications remains the most profitable business in China‟s telecommunications

service sector, accounting for 45% of the total revenue generated by the industry. China‟s two

mobile operators, China Mobile and China Unicom, will continue to expand their mobile

networks in 2007 to increase network coverage and be able to offer new services to their

customers. Base stations, switches, and network optimization solutions will be needed for this

expansion.

Both Chinese fixed line and mobile telecom operators are changing their development strategies.

They are moving from infrastructure builders to service providers. They are focusing on not only

building the infrastructure but also developing new services, especially value-added services, in

order to generate additional revenue and remain competitive in the market. They are increasingly

open to partnerships with other service or solution providers

IP and broadband are the top priorities for China‟s fixed line telecom operators. China Telecom,

China Netcom and China TieTong will increase their investment in IP and broadband

infrastructure in 2009. Intelligent optical networks, multi-service platforms and fiber to the home

(FTTH) will be the development trend for broadband networks. As China‟s broadband market

grows, China will need more wire line Internet access products such as ADSL, LAN and

Ethernet, as well as Wi-Fi and WiMax for wireless Internet access.

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IPTV and mobile TV are two pioneer applications in the convergence of China‟s telecom

industry. China Netcom launched IPTV in Harbin on May 17, 2006 and now has more than

100,000 subscribers. Shanghai Telecom launched IPTV in Shanghai on September 1, 2006 and

has 60,000 subscribers. China Mobile and China Unicom partnered with China‟s Central

Television (CCTV) and launched mobile TV on December 11, 2006. The further growth of

China‟s IPTV and mobile TV markets in 2007 will offer U.S. technology companies additional

export opportunities.

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3.0 Germany

3.1 Market Overview

The German economy is the world's fourth largest and, after the expansion of the EU, accounts

for nearly one-fifth of European Union GDP. Germany is the United States' largest European

trading partner and is the sixth largest market for U.S. exports. Germany‟s "social market"

economy largely follows free-market principles, but with a considerable degree of government

regulation and generous social welfare programs.

Germany is the largest consumer market in the European Union with a population of over 82

million. However, the significance of the German marketplace goes well beyond its borders. An

enormous volume of worldwide trade is conducted in Germany at some of the world‟s largest

trade events, such as Medica, Hannover Fair, Automechanika, and the ITB Tourism Show. The

volume of trade, number of consumers, and Germany‟s geographic location at the heart of a 27-

member European Union that added ten members in 2004, and two more in 2007.

Real German GDP expanded by 1.3% in 2008 despite the increasing financial turmoil, which

began to affect industrial exports; forecasters predict that Germany would register annual decline

by more than 2% in 2009. Consumer demand, which had a temporary uptick after years of

sluggishness, is declining again. Germany suffered the most dramatic drop in exports of any

major Western European economy in 2008. Business confidence indices sank steadily in 2008 in

the face of great uncertainty in financial markets. The German economy continues to suffer from

structural problems, including over-regulation in labor markets, taxation, and business

establishment, as well as high social insurance costs.

The German government‟s plans for reform have taken a back seat to the more pressing concerns

of addressing a major downturn. Most observers believe that additional reforms to enhance

Germany‟s global competitiveness are unlikely to occur before federal elections in 2009.

Persistent high unemployment, particularly long-term (longer than one year) unemployment, has

long been among Germany‟s most serious political and economic problems. The economic

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growth Germany experienced between 2006 and 2008 rapidly reduced unemployment to levels

not seen since before German unification, but forecasters expect a significant rise in

unemployment in 2009.

3.2 Germany Telecom Market

Total revenues in Germany‟s telecommunications sector in Germany reached EUR 60 billion in

2008, a decrease of 2.3% compared with 2007, mainly due to intense competition and resulting

price decreases. Deutsche Telekom AG(DTAG) achieved sales of EUR 28.9 billion, the

company‟s competitors EUR 31.9 billion. Currently, 62% of landline communications, measured

in minutes, is conducted over Deutsche Telekom AG(DTAG) networks. Please see the figure in

next page.

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Figure 3.1: 2008 Germany Telecommunciations Revenues: €60.6 bn total

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3.3 Investment

Investments in the telecommunications sector grew by 4.6% in 2007 or EUR 6.7 bn. Deutsche

Telekom AG invested EUR 2.8 bn and its competitors EUR 3.9bn in infrastructure and solutions

the past year. The volume of investments in Germany is expected to decrease as elsewhere in

Europe in the coming two years.

(Source: Bundesnetzagentur, March 2008)

Figure 3.2: Telecommunication Investment

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(Source: Bundesnetzagentur, March 2008)

Figure 3.3: Investments by Sector

3.4 Mobile Communications

By the end of 2008, mobile carriers in Germany recorded more than 107 million subscriptions

and, statistically, market penetration had reached 130.6%. This represents a 10% increase over

2007 and indicates that subscribers increasingly use a second or even third cell phone. (15% of

German Teenagers, for example, already have more than one cell phone.)

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(Source: Bundesnetzagentur, March 2008)

Figure 3.4: Market Penetration

3.5 Market Opportunities

3.5.1 Fixed-Mobile-Convergence

According to industry experts, “fixed-mobile-convergence” or FMC has reached maturity:

mobile technology and services are ready to move into Germany‟s living rooms and offices.

Indeed, the four mobile carriers active in Germany provide FMC solutions. Under most

convergence purposes, but need only one contract for both; or the landline is eliminated

completely, and the cell phone satisfies all telecommunication needs – at home, in the office, and

on the road.

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3.5.2 Business Solutions

Transmission speed and worldwide access to networks are invaluable assets to corporate

customers. A recent study found that 60% of all corporate clients using cellular data transmission

technology believe that quick and easy transmission leaves them more time for their clients and

customers. Accordingly, revenues stemming from the data sector of mobile communications

continue to grow.

Traditionally, providers of mobile technology and services have been focusing on larger

companies, with their high demand for fast transmission and the capability to pay high prices.

Increasingly, providers are offering more moderately priced plans in connection with simple

mobile email solutions, attempting to offer attractive solution for small businesses. T-Mobile,

Germany‟s largest mobile telecommunications service provider has opened more than a hundred

branches offering solutions specifically for small and medium business customers.

3.5.3 IP TV

Germany's digital TV transition was undertaken swiftly; in December 2008 network operator,

Media Broadcast, had completed analogue switchover, having begun the process in 2003.

Almost all residences can receive digital TV, though services are still dominated by digital cable

and satellite rather than digital terrestrial.

3.5.4 Triple Play

Triple play is a rapidly developing market in Germany. By early 2009 almost 20% of the

population subscribed to a bundled service, mostly broadband and telephony. In coming years

the sector will be driven by the entry of a growing number of telcos into the market, cheaper

services for consumers, and the greater availability of upgraded networks.

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Germany's VDSL network has been extended in 2009 through co-operative ventures between DT

and utilities as well as its competitors including Arcor, Versatel, Hansenet, Telefonica

Deutschland, NetCologne and QSC.

3.5.5 3G UMTS from HSDPA to LTE

Germany has the largest mobile subscriber base in Europe, with about 107 million subscribers

and a penetration rate of around 130%. There is a strong shift among subscribers from 2G to

UMTS networks. Operators have largely upgraded their networks with HSDPA technology, and

are looking to capitalise on LTE from 2010 while developing business models to encourage

further consumer use of higher-ARPU mobile data services.

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4.0 Hua Wei

4.1 Company Background

Huawei Technologies Co. Ltd is the largest networking and telecommunications equipment

supplier in the People's Republic of China. It is headquartered in Longgang District, Shenzhen,

Guangdong.

Established in 1988 by Ren Zhengfei, Huawei Technologies is a private high-tech enterprise

which specializes in research and development (R&D), production and marketing of

communications equipments, and providing customized network solutions for telecom carriers.

Huawei serves 35 of the top 50 telecoms operators and puts 10 per cent of revenue into R&D

each year. In addition to the R&D centers in Shenzhen, Shanghai, Beijing, Nanjing, Xi'an,

Chengdu, and Wuhan in China, Huawei also has R&D centers in Stockholm, Sweden; Dallas and

Silicon Valley, U.S.; Bangalore, India; Ferbane in Offaly, Ireland; Moscow, Russia; Jakarta,

Indonesia and Netherlands.

4.2 Product Portfolio

Huawei provides fixed network, mobile network, data communications, optical network,

software & services and terminals, including modems ranging from switching, integrated access

network, NGN, xDSL, optical transport, intelligent network, GSM, GPRS, EDGE, W-CDMA,

CDMA2000, a full series of routers and other LAN equipment. Huawei manufactures also

mobile phones such as the Vodafone 710 and 716), 3G HSDPA cards (Huawei E620 HSDPA

Card is being offered by e.g., Vodafone in the United Kingdom and Telia in Sweden), 3G

HSDPA USB modem, Huawei E220 and 3G HSUPA modem stick Huawei E172.

On October 29, 2007, Huawei announced a WiMAX Solution. Huawei E960 HSDPA supports

two working modes of the wireless gateway and USB modem. It includes four LAN interfaces

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for the RJ-45, WLAN, and telephone interface for the RJ-11, USB interface. The power is

supplied through the USB from the PC or power adaptor.

Huawei pushes (broadband) Fixed Mobile Convergence (FMC). Leading the company's FMC

initiatives is the new Huawei HG553 VoIP home gateway, currently available through Vodafone.

The device combines a standard ADSL2 + Wi-Fi-enabled four port router with a pair of phone

sockets for VoIP calling and a dockable USB mobile broadband dongle, giving the user a backup

option of 3G data should the fixed-line service fail. Being removable means that the owner can

take the mobile broadband service with them when necessary.

The Huawei U121, Playset and the Vodafone 716 are 3G mobile camera phones designed and

manufactured by Chinese telecommunications equipment supplier Huawei. The phone is most

common in its Vodafone UK form, where it is branded as a Vodafone product, and sold as a

budget pay as you talk phone. It's also sold by Polish Play network as Playset.

4.3 Global Appearance

In 2005, Huawei was selected by BT as a preferred supplier of communications equipment for

BT‟s 21CN network strategy. In the same year, Huawei signed a Global Framework Agreement

with Vodafone for mobile network infrastructure. In 2006, Motorola signed a deal with Huawei

where Motorola distributes and installs Huawei's 3G equipment. On November 15 (2006),

Huawei signed a deal worth 30 million euros (38.4 million USD) with German operator Versatel

Holding Deutschland GmbH. Huawei will build a fibre-optic communication network based on

Internet protocol (IP) for Versatel, Germany's third largest fixed-line operator. On February 1

(2007), Forbes reported that France Telecom has selected Huawei to supply UMTS mobile

equipment for its third generation network. Huawei replaced Alcatel/Motorola in Romania, and

Nortel in Belgium. Vodafone awarded Huawei 2007 Global Supplier Award for Outstanding

Performance in June, 2007.

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4.4 Competitive Position

Huawei's global contract sales for 2006 reached 11 billion USD (a 34% increase from 2005),

65% of which comes from overseas market. Huawei has now become a leading vendor in the

industry and one of the few vendors in the world to provide end-to-end 3G solutions. In Feb

2009 CTS (Gibraltar) Ltd is due to launch a 3G Mobile network. This network is an end-to-end

3G solution provided by Huawei. In 2006, Huawei ranked No.1 in the global NGN market, No.1

in Mobile Softswitch, No. 2 in Optical Network No.1 in IP DSLAM, No.2 in broadband

convergence routers and No.1 in MSAN market. By the end of 2008, global contract sales of

Huawei Technologies, China's largest telecoms gear maker, jumped 46 percent to 23.3 billion

USD.. Huawei also forecast sales of more than 30 billion USD in 2009.

In 2007, Huawei became the 4th largest patent applicant in the world after Matsushita, Philips

Electronics and Siemens with 1,365 applications. It also recorded sales(not contract sales) of

12,56 billion USD (an increase of 49% from 2006) for the year, which makes it the fifth largest

telecommunication company in the world in terms of revenue after Cisco, Ericsson, Alcatel-

Lucent, and Nokia Siemens Networks.

Huawei Technologies was included in the World's Most Respected 200 Companies list compiled

by Forbes magazine in May 2007, one of the six from telecom industry.

In December 2008, BusinessWeek magazine puts Huawei at number 3 after Apple and Google in

their first annual list of 'The World's Most Influential Companies' in collaboration with an

advisory board of 14 academics, consultants, and industry leaders worldwide, including Shelly

Lazarus, Chairman and CEO of Ogilvy & Mather Worldwide and Jim Collins, author of Good to

Great.

In the end of 2008, Huawei has successfully shipped over one billion licenses for its All-IP based

mobile softswitch. This significant milestone was reached only five years after Huawei shipped

the industry's first mobile softswitch and it is the first time any manufacturer has reached this

level. Huawei softswitches are speeding the transformation of mobile networks to All-IP in more

than 100 countries. Huawei launched its IP-based mobile softswitch solution in 2003 and, in the

same year, installed the world's first 3G mobile softswitch with separate architecture in the

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United Arab Emirates. In 2004, the company created the world's largest IP mobile softswitch

network in China.

In January 2009, a United Nations agency reported Huawei was the world's top international

patent seeker in 2008, which ended the almost one decade of domination by Netherlands' Philips

Electronics as the first place on the list of applicants for World Intellectual Property Organization

(WIPO) patent protection.

According to the World Intellectual Property Organization (WIPO) on 27 January 2009, Huawei

was ranked as the largest applicant under WIPO's Patent Cooperation Treaty (PCT), with 1,737

applications published in 2008. Overall, the total number of international patent filings under

WIPO's PCT for 2008 represents the highest number of applications received under the PCT in a

single year and China improved its ranking by one place, to become the sixth largest user of the

PCT, with 6,089 filings.

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5.0 Financial Highlight

USD in millions

Table 5.1: Financial Data of last 5 years

Figure 5.1: HuaWei revenue growth in last 5 years

Since year 2004, Hua Wei achieved a steady revenue growth in last 5 years. The revenue

increased from USD3.8bn in 2004 to USD18.3bn in 2008 with average annual growth rate of

nearly 50%.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2004 2005 2006 2007 2008

3,827

5,982

8,504

12,840

18,329

Revenue

Revenue(USD Million)

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Figure 5.2 : HuaWei revenue growth rate in last 5 years

In term of net income, HuaWei reported a healthy steadily growth from USD624 Mil in 2004 to

USD1.15bn in 2008. Apparently, the growth rate of net income is still very far behind their

revenue growth rate and this is mainly due to HuaWei‟s pricing strategy which yields very low

margin compare to others telco equipment vendors. Nevertheless, HuaWei still maintains a

healthy cash flow every year as shown in figure.

Figure 5.3: HuaWei net income growth in last 5 years

56.31%

42.16%

50.99%

42.75%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2005 2006 2007 2008

Revenue

0

200

400

600

800

1000

1200

2004 2005 2006 2007 2008

624681

512

957

1,151

Net Income

Net Income(USD Million)

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Figure 5.4: HuaWei cash flows in last 5 years

5.1 Sales Analysis

In term of contract sales, HuaWei reached USD23.3bn in 2008, a 46% increase from the year

before. 75% of the contract sales was from the international market which has become the major

drive of sales growth.

Figure 5.5: Contract sales

0

200

400

600

800

1000

1200

2004 2005 2006 2007 2008

Cash Flows From Operations(USD Million)

Cash Flows From Operations(USD Million)

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6.0 Competitor Analysis

Based on 2007 data, HuaWei registered as the fifth largest telco equipment vendor in the world

with revenue $12.6bn behind Cisco, Ericsson, Alcatel-Lucent and Nokia Siemens Networks.

2007 revenues in US$* 2007 revenues in local currency

Cisco $34.9 billion** Not applicable

Ericsson $31.3 billion 187.8 billion Swedish kroner

Alcatel-Lucent $27.9 billion €17.8 billion

Nokia Siemens Networks $21 billion*** €13.4 billion

Huawei $12.6 billion CNY91.7 billion

Nortel $10.95 billion Not applicable

Table 6: HuaWei stack up against major rivals

Figure 6.1: Comparison of Huawei against major rivals

05

10152025303540

2007 revenues USD in billions

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As we can see from figure, HuaWei‟s R&D spending is comparable low to other major rivals.

Though HuaWei appears as the leading position in number of patent right registered, its R&D

spending does not reflect that.

Figure 6.2: R&D spending comparison with major rivals

3.07 2.913.36

5.28

1.26 1.17

0

1

2

3

4

5

6

R&D USD in billions

Cisco

Ericsson

Alcatel-Lucent

Nokia Siemens Network

HuaWei

Nortel

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7.0 Summary

It‟s very obvious that China‟s telecom market stands very much higher potential than Germany‟s

telecom market for the future. While Germany‟s telecom service market has saturated at 130.6%

last year, China‟s telecom service market penetration is far from the saturation ~60%. Moreover,

more than half of this population is fixed line subscribers. That‟s mean China‟s mobile

communication market could be as low as 30%. This number certainly will increase gradually in

line with the progress of China economy development.

According to HuaWei financial report, HuaWei has been achieving steadily growth since 2004.

HuaWei has become the world fifth largest telecom equipment provider in 2007 thanks to the

strong growth shown in international contract sales. However, HuaWei shall re-focus in

mainland market rather than leaving the market as it shows huge potential in term of market

penetration size. HuaWei initial plan was to expand its presence into global market and captured

more market share. HuaWei pricing strategy which only fraction of those Ericsson, NSN,

Alcatel-Lucent helped them to capture shares in international market. However, due to its pricing

strategy HuaWei has been branded “cheap plug” in the market especially its‟ tendency to copy

competitors‟ solution.

In order to sustain in the long run, HuaWei needs to improve their products‟ quality and

reliability. R&D spending of HuaWei has been considered lower compare to its global rivals. It‟s

because due to their strategy to cap their total R&D spending not much than 10% of their total

revenue. To improve this, HuaWei need to increase their R&D spending and come out with a

better quality products and yield better margin. As „Deep Green‟ has become the global trend

and many operators in the world have decided to go green for the future technology, HuaWei‟s

R&D shall focus in developing green products and become the pioneer in this market.

In a conclusion, HuaWei‟s competitive advantage is low production cost and with its improved

quality of the upcoming products, HuaWei certainly stands a very good position to be prominent

in the global market in the long run.