For this case, we could divide constraints that Huawei faced during its internationalization into 2 main layers, unfamiliar formal and informal institution of the host country. Constraints of Formal Institution: Regulation Eventhough Huawei were successful in their local market, they failed to enter the US market during 2001 to 2003 as being careless of the regulation in the host country. By that time, Huawei challenged CISCO’s telecommunication products with high quality and low price strategy.
They launched a fierce marketing campaign and hit CISCO hardly with 30% lower prices. This strategy would be successful if Huawei recognized that they had not registered its patents of such products in the US market. Finally, CISCO countered back by suing Huawei for intellectual property rights infringement. Eventhough Huawei tried to reduce the impact by joint venturing with 3Com to build up a bargaining power toward CISCO, they had to withdraw almost of its product from US market. Another case is that Huawei tried to take over 3Com in 2007 by being a partner with Bain Capital.
Unfortunately, the acquisition is failed due to the Committee on Foreign Investment view that it is harmful to national security. This is normal as the government always ban foreigners from owning assets in certain strategic sectors. Constraints of Informal Institution: Culture, and Brand Perception Huawei’s military culture of sensitive nose, aggressiveness, and persistence on attack led to a huge success in their local market. On the other hand, it was too aggressive when dealing with US Market.
During a fierce competition with CISCO, even though CISCO tried to compromise by divided a market share into 2 segments; low-end and high-end and let Huawei occupy the low-end market, Huawei refused such negotiation. In other perspective, if Huawei cooperated with CISCO as a strategic alliance, they might be able to occupy the low-end market in the long-run with less competitive stress. In other meaning, it is hard to be lone wolf in the foreign market. Another informal institution constraint is the awareness of the consumer in the US and EU market toward Chinese brand.
Eventhough Huawei position themselves as high quality and low price, the consumer still think of it as dirty and cheap and not reliable whether it shall presence a long haul service. Solutions to Overcome Formal Institution Constraints: Regulation After Huawei learnt a painful lesson of Intellectual property rights infringement, Hauwei starts to apply numerous US Patent and trademarks, Then, after resolving the charges of CISCO’s intellectual property right, they return to US market to launch wireless technology with protection from rightful patents.
In the other perspective, Huawei learn that they can not succeed as being a lone wolf in the global market, and began to realize the cooperation with firms in the host country to break the barriers to entry and gain access to the market. They choose the equity mode as a mode of entry. In the US market, they established joint R&D lab with numerous large firms. Huawei also join with Vodafone to enter the EU market. As being a strategic alliance, Vodafone helps Huawei to penetrate Greece, Hungary, Spain, Turkey, and Romania. Rather than Joint venture, Huwei also build up over 100 subsidiaries abroad.
Further than entering the foreign by equity mode, Huawei also consider alternative market like emerging countries as the regulations in those countries do not present a strong resistance. Huawei was successful in Asia Pacific, Southern Africa, Middle East and the North Africa as not being troubled by allegations of its intellectual property law. Solutions to Overcome Informal Institution Constraints: Culture, and Brand Perception The market entry strategies by Joinventure and wholly own subsidiary do not only present the advantage to gain access to the country, but also, the marketing advantage.
It helps to improve the brand awareness of consumer toward Huawei’s product. Huawei would not be able to expand market through out EU without the supportive brand image of Vodafone. Also, the equity mode of entry helps to create reliability of the product toward consumer as it shows an attention that the firm will stay for long-haul. Besides market entry strategy, the market selection will also, benefits the firm. Most of low-budget carriers in emerging economies we attracted by Huawei low cost and high quality products.
Huawei faced no negative awareness of their products and successfully penetrate EE market, enjoying sales of 1 billion USD by 2013. Conclusion To be a global business player, it is very challenge to survive and succeed in such an unfamiliar environment. There are always liabilities of foreignness which the firm shall face in the host country because of its non-native status. Inevitably, the firm have to be prepared to handle with numerous constrains in both formal and informal institutions of the target market before entering the foreign market. Market selection is also crucial.
The deregulation countries, on the other hand, may present lower constraints, thus, higher opportunity for the firm to approach. Further than formal and informal institution rules, the firm also, has to be careful of when and how to enter the market. If the firm selects the right mode of entry, they shall be able to gain advantage to access the target market. Being a strategic partner with major firm will help to improve firm’s brand awareness and reliability in the consumer eyes. Also, the strategic partner could help firm to expand the network in the host country or even to other region.