International Business Environment of Huawei

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International Business Environment of Huawei

Researchers agree that multinational enterprises (MNEs) are the principal incumbents in the international business environment because these organisations pursue strategic sales and production success from a global platform (Lehdonvirta et al., 2019; Twarowska & Kąkol, 2013). What this means is that strategy is an essential component of the international business environment of a transnational company. The international business environment of any contemporary multinational corporation presents a broad gamut of opportunities and challenges manifested in the form of cultural diversities, political and legal risks, socio-cultural and socioeconomic considerations, regulatory and exchange opportunities and risks, and technology, among other factors. This individual report focuses on the international business environment of Huawei Technologies Company Limited, a Chinese multinational enterprise dealing with mobile telephone technology and telecommunications. The report comprises four sections the first of which addresses the potential future challenges Huawei could face in different global business environments. The second section covers the impact of two international trade theories on Huawei. While the third section discusses how foreign direct investments have impacted Huawei, the last section includes a discussion on how this multinational corporation manipulates international financial markets and the international monetary system for its competitive advantage.

Section 1: Potential Future Challenges

Cultural and Political/Legal Challenges

Recently, Huawei has been in the vanguard of establishing and realising a robust business foothold across Europe and the United States. However, this move has come along with political strain that might become a powerful challenge in the future. In the most recent case, the political strain has manifested in the form of allegations of colluding with the Chinese government to conduct espionage abroad, especially against the United States (Mascitelli & Chung, 2019; Parkinson, Bariyo, & Chin, 2019). The political strain will be a potential future challenge because it will shut the relationships between Chinese authorities and foreign governments, limiting Huawei’s ability to enlarge its operations in international markets. Another potential future challenge in the political business environment includes politically-motivated trade sanctions. Recently, the United States initiated such sanctions due to the unfriendly political climate in Washington as regards the spying allegations. These sanctions have hurt Huawei’s business in the United States by causing it to lose its competitive advantage. If such sanctions continue due to the current trade-war tensions between Beijing and Washington, Huawei might see its competitive edge dwindle further, evinced by extensive layoffs that Huawei has planned to execute in the United States (Marcus, 2019).

As regards potential challenges in the sociocultural business environment, one of them is the possibility of frequent changes in global customers’ tastes and preferences of mobile phones. These changes will depend on transformations in native traditions and the adoption of new social tendencies across global cultures where Huawei has established its business operations. Eventually, changes in tastes and preferences will drive demand for new mobile phones and other know-how merchandises, posing a challenge for the multinational enterprise as it seeks to meet this new demand. Another potential sociocultural challenge includes perceptions of and behavioural attitudes towards product quality. Recently, there have been widespread perceptions that Chinese brands are associated with poor quality, which has prompted recalls of some Chinese brands as confirmed by Hung, Guillet, and Zhang (2019). Such perceptions could harm the marketability and market performance of Huawei’s brands across the globe. The last possible sociocultural challenge is educational differences between Huawei’s marketers and its target market. This will be a challenge in the future in that it would make it difficult for these marketers to relate to and engage with the target market with the desired level of efficacy.

Lastly, concerning the potential challenges in the legal realm, one of them includes differences in data protection laws and intellectual property rights in different host countries. Different countries in which Huawei operates have different data protection laws and intellectual property rights, which will be a challenge for the corporation when developing policies for compliance with these legal provisions (Huawei Technologies Co., Ltd., 2019; Seuba, Geiger, & Penin, 2018). Huawei will also face the risk of losing its competitive advantage and high chances of failure in case of data theft incidents in some of these nations. Another potential legal challenge involves changes in occupational health and safety laws across different host nations. This will be a challenge because reinforcing the proper health and safety regulations could be expensive as specialised training programs might be essential for Huawei.

Economic Challenges

One potential economic challenge that Huawei might face in the future is exorbitant tariffs. The trade-war tensions between Beijing and Washington, for example, are triggering the imposition of ridiculous tariff rates on Chinese brands by the United States. Aside from imposing such tariffs, the U.S. has also banned Huawei from buying American technologies (Soo & Chen, 2019). If these tariffs continue to be effected, Huawei’s profitability and global market performance will be hurt terribly because suppliers will cease their business with the company as higher tariffs trigger higher prices. Another potential economic challenge is exchange rate fluctuations. These fluctuations will be a significant issue for Huawei because frequent exchange rate fluctuations are an indication of an unstable currency. Currency instabilities will discourage international investors, affecting Huawei’s profitability. The last challenge in this global business environment is instability in interest rates. Lower interest rates will discourage individuals from borrowing and investing in Huawei’s business, which will reduce the company’s international growth, Turner and Spinelli (2013) suggest.

Technological Challenges

The first potential challenge in the technological business environment is the innovation breakthrough of rival corporations. Current innovation breakthroughs and technological advances by competing firms will mean that Huawei will need to continue monitoring the popularity trends of new technologies. While such an action would be essential to stimulating a sense of innovation urgency needed to upgrade Huawei’s technology, it might be expensive because it would disrupt the company’s revenues. Another possible challenge in the area of technology is forced technology transfer. Forced technology transfer (FTT) is a phenomenon in which foreign enterprises are required to surrender their technologies to Chinese firms via a joint venture treaty to be allowed to enter the Chinese market. According to Prud’homme et al. (2018), China upholds strict FTT policies aimed at augmenting foreign-domestic technology transfer, which has the effect of simultaneously flagging the appropriability of foreign innovators. In countries where Huawei has established its operations, such coerced tech transfer policies are deemed to be against antitrust laws, for example, in the United States. This means that adhering to them could adversely damage Huawei’s relationships with foreign innovators from these countries.

Competitive Challenges

One competitive challenge that Huawei could potentially encounter in its international business setting is the inadequacy of intercontinental experience in handling global stock markets. Quartey (2013) argues that insufficient experience in dealing with international stock markets is a challenge to many Chinese multinational corporations such as Huawei in that they become inclined to compromising and sacrificing their total quality standards in host countries, culminating in them selling their products cheaply. Another potential competitive challenge is deficiencies in cross-cultural marketing communication competency. A general lack of cross-cultural communication competency would be a challenge to Huawei’s human resource management in host countries. This is because the HRM function would find it difficult to adapt Huawei’s human resource management policies appropriately to host countries’ cultural environment, culminating in negative consequences to the company’s competitive advantage. The last potential competition-related challenge is the type of government policies in host nations. Some government policies restrict foreign direct investments, which are the primary foundation for Huawei and many other Chinese multinationals. Such policy restrictions could be based on the fact that these multinational firms are unsupportive of collaborative business models, contributed weakly to capacity building, and endorse poor business sustainability and labour practices in some developed countries (Quartey, 2013).

Physical/Natural and Demographic Challenges

The key potential natural challenge that Huawei might encounter is adverse weather conditions. This may be a challenge in that it might hamper Huawei’s capability to transport raw materials and finished products to the target market as Dellink et al. (2017) suggest. Another natural environment challenge is compliance with global environmental protection regulations. Huawei produced plastic wastes. While the firm is doing reasonably well in waste management, a slight failure to manage plastic wastes properly could land the company into problems with environmental protection agencies of host countries. As regards demographics, the key potential challenge would involve establishing the appropriateness of some of its products for specific ages and genders in the host countries.

Section 2: Effects of International Trade Theories

The two theories of international trade that have influenced the global business practices of Huawei include mercantilism and international product lifecycle.

Mercantilism

The theory of mercantilism is an international trade principle that posits that governments can regulate trade activities and the economy to promote domestic industries, typically at the expense of other nations (Pincus, 2012). From the mercantilists’ perspective, governments ought to encourage exports while controlling economic activities by imposing restrictions on imports if necessary to ensure their countries’ export surplus. In other words, the essence of mercantilism is the opposite of free trade as it entails governments establishing policies that restrict imports as a mechanism of protecting domestic industries while augmenting their export surplus. Contemporary mercantilism involves policies such as currency devaluations, protectionist sentimentalities, and government subsidies for local industries to achieve unfair competitive advantage.

In recent times, China has been accused of adopting some of these policies to encourage mercantilism that has influenced Huawei. For instance, the country has been adopting currency manipulations or devaluations where it buys foreign currency assets to keep the global exchange rates undervalued aiming at making exports from local industries more competitive (Atkinson, Cory, & Ezell, 2017). Such mercantilist policies have been in favour of Huawei. The Chinese President agrees with this assertion by acknowledging that “Huawei is the spearhead of China’s global mercantilist expansion.” President Xi attributes this to Huawei’s sophisticated utilisation of Western human resources and technologies to manufacture advanced and highly competitive products that have already enabled the partial attainment of the dream of a new eminent China (Zhang, 2019).

Huawei has been influenced by what is termed innovation mercantilism. The government of the People’s Republic of China establishes mercantilist policies to protect Huawei from other international technology multinational corporations because the stake of Beijing in Huawei is incredibly high. Zhang (2019) argues that Beijing believes that the future will be controlled by whosoever has control over 5G technologies. Since Huawei had already made steady and significant strides in these technologies, China is prepared and committed to protecting the firm against ostracism emanating from the United States’ sanctions by using proactive mercantilist policies.

International Product Lifecycle

The theory of international product lifecycle was coined by Raymond Vernon in 1966 to describe international trade developments and patterns that could not be explained using earlier trade paradigms such as Hecksher-Ohlin’s model. The theory posits that a product traded in international markets develops in four stages, namely, introduction, growth, maturity, and decline as shown in the diagram below.

Figure SEQ Figure * ARABIC 1: International product lifecycle

Source: Adapted from Urhan (2017)

So, Vernon identified three product categories based on these stages and their behavioural patterns in the international market. The first is a new product, which is found in the introduction stage of the cycle. This product is developed in the most advantageous nation that has technological and research, and development capabilities. Here, developed countries accept innovation as the existence of high-income product consumers makes it easy to buy the new product (Urhan, 2017). The new product enters the local market to meet new consumer demand while lessening uncertainty and risks (Tanner & Raymond, 2012). Limited international trade occurs at this phase of the product life cycle.

In the second stage, namely, growth, the product undergoes further development due to the introduction of new product standards and features. Sales, profits, and foreign demand for that product grow, and domestic and overseas competition surfaces (Tanner & Raymond, 2012). With the development of foreign direct investment in this stage, production costs for creating the product are decreased as labour and transportation costs are minimised. Production advantage is relocated, allowing for international mobility of capital and management. Consequently, this encourages a higher utilisation of mass-production techniques that lead to product volume augmentation and production cost reduction (Urhan, 2017).

The third stage is where a mature product emerges because it entails advanced innovation and use of technology, entry of many competitors into the market, and reduction of potential new clients, leading to the loss of comparative advantage by the country of product origin (Tanner & Raymond, 2012; Urhan, 2017). Companies dealing with the product adopt process and product standardisation as a way of lessening production costs. The domestic production of the product begins to collapse and eventually stops in the nation of product origin. So, the country concentrates on relocating the mass production of the standardised product to other countries, especially developing countries (Urhan, 2017). Developed countries continue to work on further product innovation. In the last phase, namely, decline, the demand for the product stops because the market is satisfied by the existing product offerings. The entrance of new innovative products contributes to this stage (Urhan, 2017).

Most models of Huawei’s mobile phones have undergone the first three phases of the international product lifecycle. This is evinced by the global presence of many Huawei brands manufactured in the last few years. Even so, the company has a strategy to manage its international product lifecycle effectively to ensure that its offerings remain in the market, despite some reaching the decline stage. The strategy entails the norm of continuously replacing old products with new innovative products at a reasonable pace to attract more users while enhancing the corporation’s competitive advantage in the global markets (Huawei, 2013). The company manages its international product lifecycle based on current industry conventions.

Section 3: Effects of Foreign Direct Investments on Huawei

The concept of foreign direct investment (FDI) encompasses an investment made by an enterprise in one nation into business-related interests that are located in the company’s parent country. So, FDIs occur when investors either established business initiatives or operations overseas or acquire foreign business assets in a corporation abroad (European Commission, 2019). Foreign direct investments provide a means by which multinational corporations in one country control business ownership in business operations in other countries. Savsin (2011) submits that developed countries utilise foreign direct investment as a source for recycling their comparative advantage to less-developed nations. Foreign direct investments are also a source of additional productivity, economic growth, employment, and wages for both the origin and host countries. According to Carril-Caccia and Pavlova (2018), the expansion of multinational enterprises via foreign direct investment comes along with the establishment of complex cross-border chains of production that have significant implications for these MNEs.

For Huawei, foreign direct investments have had important effects and implications. This multinational corporation has extended its ICT investments geographically across all continents in the world. One of the ways these foreign direct investments have influenced Huawei’s business is by allowing the company to learn new approaches to enriching its global competitiveness. Through direct investment overseas, Huawei has learned new methodologies of leveraging and optimising its market competitive variable to its advantage. Secondly, FDIs provide Huawei with access to company-specific assets, including advanced technologies, production knowledge, and expertise needed for innovative product development. In agreement with this point, Konara and Wei (2017) sustain that FDI is the quickest and most effective avenue for MNEs to access enterprise-specific assets as domestic corporations are in direct contact with these MNEs.

Thirdly, foreign direct investments have enabled Huawei to expand its bottom line. Huawei’s parent country, China, is a speedily developing economy, which means ease of capital availability for Huawei to establish FDIs that are critical to spurring development while stimulating a competitive spot for Huawei in the international marketplace. Fourthly, foreign direct investments have influenced Huawei positively by enabling the corporation to cut production costs, secure the supply of minerals and natural resources needed for phone manufacturing, and attain and maintain sustainability in global competitiveness (Beiguang, 2008). Furthermore, foreign direct investments have enabled Huawei to diversify its investment portfolio through expanded overseas holdings that multiply the firm’s returns without increasing risk. Lastly, FDIs have been fundamental in facilitating Huawei’s internalisation strategy aimed at enabling this multinational corporation to internalise its ownership-specific advantages to lessen transaction costs during international production (Beiguang, 2008).

Section 4: Manipulates International Financial Markets & International Monetary System

International financial markets include institutions such as international capital markets, foreign exchange markets, and the international money market. These financial markets allow entities such as institutional investors of multinational corporations to buy and sell financial assets such as currencies, bonds, securities, commodities, and stocks across borders (Darškuvienė, 2010). The only way in which Huawei leverages and manipulates international financial markets is by taking part in the foreign exchange market. This is because operating on foreign soil requires Huawei’s investments and transactions in the Chinese Yuan to be converted to the local currencies of the host nations. Chen (2018) acknowledges that Huawei maintains several strategies for managing its foreign exchange rate risks, including market development and the utilisation of scientific forecasting financial instruments. Huawei is not publicly traded but rather privately held, implying that it does not participate in stock markets. Also, being a Chinese-based MNE means that Huawei is not obliged to submit fillings to the United States Security Exchange Commission.

The international monetary system encompasses an operating framework of conventions, rules, standards, and supporting institutions in the global financial environment that enable cross-border investments, international trade, and capital movement and reallocation between nations (Farhi, Gourinchas, & Rey, 2011). This system also establishes the guidelines and procedures for universal payments and exchange rate determination. Since Huawei takes part in foreign exchanges, it manipulates the international monetary system for its competitive advantage in two ways. The first is by maintaining offshore treasury operations in London aimed at catalysing the business use of the Renminbi in the future (Chatham House, 2015). The second is by exploring new ways of taking advantage of China’s calls for the diversification of the international reserve currency system and the improvement of the associated regulation regime.

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