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Case 3 Debrief Students

The document discusses Huawei's evolution from importing equipment to innovating and becoming a global leader in 5G network equipment. It describes the US government placing Huawei on an entity list and extending a reprieve on restricting US companies from supplying Huawei, which has hurt Huawei's revenue. Huawei offered to sell its 5G technology to another company to address the US ban, but no buyer emerged in 2019.

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Jeffrey O'Leary
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46 views3 pages

Case 3 Debrief Students

The document discusses Huawei's evolution from importing equipment to innovating and becoming a global leader in 5G network equipment. It describes the US government placing Huawei on an entity list and extending a reprieve on restricting US companies from supplying Huawei, which has hurt Huawei's revenue. Huawei offered to sell its 5G technology to another company to address the US ban, but no buyer emerged in 2019.

Uploaded by

Jeffrey O'Leary
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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A key point of this case is the fact that Huawei has evolved from simple

equipment importing, to copycat manufacturing for the domestic market, to


innovating to produce its own products for domestic and overseas clients, to
attaining a world market–leading position with competitively priced and
technically superior offerings. The conclusion from this transition is that the
business model has changed substantially over time. By contrast, the control of
the company has not changed, as founder Ren Zhengfei remains its leader.
O ne cr iti cal point t o n ote is Huawei’s governance and transparency. Its
critical to note that the company is owned mainly by its employees, and that it
publishes audited annual reports even though it is not required to do so.
The benefits of 5G and the industry description are shown in the case section
“5G Technology and Industry Structure.” A critical analysis would note that the
industry has progressed through successive generations, each developing its
own standards. One should observe that this form of progression means that
a dominant player in a previous generation will not necessarily dominate in
later generations if its technology does not continue to lead. Therefore, with
each new generation comes the opportunity for new industry leaders to
emerge, and Huawei has become the leader for 5G. Nokia and Ericsson are in
second and third place, respectively, with no US firm providing 5G network
equipment offerings in 2019. The centralized nature of the clients (mobile
carriers), and the impracticality of changing equipment often all imply that the
industry would be naturally concentrated, with significant first-mover
advantages.

The weakness of the US position could be further illustrated by a review of


radio spectrum use. The lower- to mid-spectrum bands are technically more
appropriate for 5G networks; thus most countries planned to use these lower
bands. Since the US Department of Defense already occupied much of the
lower band, US 5G services would need to occupy higher bands. Therefore,
5G equipment used in the US would need to be somewhat different from
equipment used elsewhere. As a result, US networks would be costlier than
others because of both the lack of scale and the lower range that would require
more base stations. Thus, US equipment makers would not be competitive in
the 5G network market.

A great example of global business can be seen by the global nature of the
industry supply chain, with network equipment makers buying chips from US
providers, and all three 5G equipment market leaders manufacturing their
equipment in China.

Huawei suffered a revenue (and probably profit) reduction in 2019, as


described in the section “US Actions Toward Huawei.” Further damage to
revenues, especially to Huawei’s mobile phone business, seemed likely if its
new phones were unable to carry the popular Android operating system. In

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the long term, the US actions are spurring Huawei to become more self-
sufficient in components such as chips, which it had previously sourced from
US companies.

The US would also suffer economic loss. US firms that could no longer supply
Huawei and others on the Entity List would lose revenues and likely need to
cut jobs. In addition to the direct financial cost, the US might suffer because
some parts of the country, especially rural areas, would be unable to receive
5G services owing to the prohibitive cost of removing and replacing existing
Huawei equipment in those areas.

In Europe, Nokia and Ericsson might gain business as some network carriers
choose to buy equipment from them instead of from Huawei. But these carriers
might face higher costs and delays in building their networks, since Huawei
equipment is more advanced and less expensive than that of Nokia and
Ericsson.

Aftermath

The case section “US Actions Towards Huawei” describes the 90-day reprieve
for US companies affected by Huawei’s placement on the Entity List. When
this reprieve expired in August 2019, the US government extended it for
another 90 days, through mid-November. In mid-November, the US looked set
to further extend the reprieve. As a result of the extended reprieve, US
companies were allowed to continue to supply Huawei with goods and
services, including chips and other hardware as well as software such as
Google’s Android operating system. These extensions do not substantially
change the threat to Huawei’s businesses described in the case, but they do
give Huawei additional time to stockpile supplies or develop alternatives to the
US products.
On 10 September 2019, Ren Zhengfei announced that Huawei would be willing
to sell access to its 5G technology (patents, licenses, code, technical
blueprints, and production engineering knowledge) to another company for a
fee to be negotiated. The value of the offer was estimated to be in the tens of
billions of US dollars. By sharing its technology, Huawei could earn a large fee,
ensure its technical standards spread farther, and potentially ease US fears
about Huawei’s network equipment security. However, it was unclear who the
buyer might be and how much the move might help Huawei’s business. In late
2019, no potential buyer had emerged. Ren’s offer illustrates Huawei’s creative
approach to addressing the problem of the US ban.

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