Resource base view - Huawei

ARTICLE ANALYSIS

As an accomplished chess player, Huawei, the Chinese telecommunications equipment giant is planning to do a smart move again. The likely acquisition of Nokia seems to be part of a structured strategy that they have been implemented since 2003 when they started to diversify toward other units business. Therefore, this essay will analyse from the resource-based view the different strategic moves that this company has implemented in order to strengthen its handsets business unit and the implications that would entail the acquisition of Nokia, if it was to materialize.
The core business of Huawei during its first 18 years of existence was offering network technologies and solutions, also providing equipment to build and operate them. This technology-development focus, allowed them to develop and amass a set of resources and capabilities that have been deployed in its aim of diversifying its core business. Although resources such as, technical skills, R&D expertise and technology have been clearly an important foundation for strategizing, this essay will place emphasis in other key resources and capabilities that Huawei was able to leverage in order to first, entry in the handset devises market and second, to gain gradually presence on it.
The first key resource was “the relational capital”. In 2013, Huawei already had important contracts and join-venture agreements with some of the most important mobile operators worldwide. Impelled for this context, Huawei´s first strategy to enter handsets market was producing initially “white label” versions for its network-operator customers. Huawei’s managers understood their own limitation as to lack of brand-awareness in final consumer, thus, they focused on maximizing other resources such as its own image, prestige and bargaining power among network operators through producing their private labels.
However, Huawei strategy of focusing initially in the B2B segment was just the first element of a structured strategy that will end up in its current focus on positioning its own brand. Once Huawei amassed enough resources, such as branding awareness and expertise in the handset industry while also developed marketing capabilities they felt that it was the right moment to concentrate efforts in its own brand (Huawei’s own brand sales moved from 20% in 2011 to 85% in 2012). Although that move implied heavy investing in branding strategy, its massive financial resources could readily afford it. Huawei understood that in long term, the development of its own brand would be more profitable, allowing the creation of switching costs as well as shielding its share market.
Also, thanks to the capability of influencing the handsets Industry, Huawei was able to leverage its position as a newcomer. As a strong player in the telecommunication industry, Huawei was able to understand as few, the direction that would take the mobile devices industry. Initially, focusing in cheap and “basic features” phones they took advantage of the fast development of new generations of networking technologies, and later on, focusing its strengths on producing smartphones devices. As a result, Huawei is now the third-largest manufacturer of smartphones by volume behind Samsung and Apple, manufacturing devices with similar specifications than them but cheaper.
During the brief 10 years of existence of its handset business unit, Huawei´s strategic decisions have relied on the deployment of existing resources and at the same time the development of the future firm resource base. However, with the likely acquisition of Nokia seems to be that Huawei’s ambitious goes further. Huawei’s approach to strategy is now also concerned with leveraging external and transferable resources. Through this acquisition, Huawei would seek to leverage a large resource from its competitor to broaden the firm´s strategic opportunities. Among many others, the most craved Nokia’s resources could be its brand awareness, its portfolio of products and its technical expertise.
While Nokia seems to have failed in its approach to conquer the smartphones segment, they still keep a dominant position in “feature” phones category worldwide, having strong brand positioning in some massive markets such as India. Although smartphones “boom” has been overwhelming, features phones category continues with the majority share of global handsets market (51%). One acquisition like this would allow Huawei to extract the Nokia’s capability of spreading throughout several markets where the Chinese firm is weak, and also, to expand its portfolio of products covering all possible categories.
In addition, Nokia’s technical expertise and the Huawei’s innovation dynamic could finalize with interesting synergies due to the combination of their resources and capabilities. For example, the ability of establish a cost–advantage of Huawei, could be leveraged by Nokia developing superior technology processes, accessing to low-wage labour and so on. Similarly, some of the attributes of Nokia devices such as reliability and battery durability could be transferred to Huawei´s smartphones and vice-versa. Even more, this new pool of resources, could be leveraged in the current effort of Huawei to diversification through the development of new products, such as wearable devices which could challenge against Google glasses or Apple watches.
Finally, the acquisition of Nokia could be also a smart move to sort out the main constraining factors of the Industry. Just as it is expressed for Huawei’s CEO in the article, the shortage of components and slowing manufacturing have affected the potential growth for them in this segment. The acquisition of this pool of resources would allow Huawei to be placed in a different position over its rivals, achieving new economies of scale and being able to ensure component supply over time. It is important to remark that regardless its current “down turn”, Nokia is still the second mobile manufacturer, just behind Samsung.
In conclusion, Huawei has been able to maximize rents over time, through strategizing around the most critically important resources and existing capabilities, but also through “filling its resource gap” which has allowed them to build up the foundation for subsequent strategic moves. However, the Huawei’s strategic mindset is not that simple, perhaps the statement of Penrose in “the growth of the firm” summarizes what Huawei is currently pursuing with Nokia acquisition: “Available resources limit expansion, but unused resources stimulate and largely determine the direction of expansion”.
Julian Arias – Mba. MGSM . Sydney , Australia.