Ren Zhengfei, celebrated founder of Huawei
Technologies Company Limited made the classic strategic choice in 1990s.
Instead of making profit he decided to make his own technology.
During this time the biggest telco company in China
was Shanghai Bell
that operated on joint venture with Alcatel beginning 1983. It was the biggest supplier
on B2C Company distributing telephones and related instruments. Competing with Shanghai
Bell was not an easy task. Ren Zhengfei decided to develop his own technology. He
started recruiting production and R&D staff on the ratio of 2 to 5. Fat
with R & D staff he concentrated on hitherto neglected areas in rural China
as well as technology that is affordable.
Having found the gap and after introducing his own technology
into the telco products Ren stormed the rural market. By 1995 his sales
expanded to US$ 250 million. He boosted R&D expenditure and almost 12.5% of
his sales revenue went into the R&D segment. When he introduced Huawei mobile
in 1998 he had two pluses working for him: low cost of production and domestically
produced mobile equipment that was sleek in appearance and light in weight.
In sum, business strategy of Huawei is centred on
the concept of leveraging high-tech with low cost an ideal that is beyond the
means of joint venture companies that are compelled to pay huge amount of
royalty fees for using foreign technology. Huawei per instrument cost of production
was a mere 30% of her competitors.
Moreover, the low margin the company rakes in per
unit sold need to be compensated with high volume of sales. Hence, the company
used its connections with the government of China to gain favourable treatment
in awarding tenders for rural area telecommunication development.
Cheers!
Muthu
Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business
Strategist
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