The Company that Apple is Frightened by: Huawei
How did Huawei surpass Apple without no one noticing anything? And what can businesses learn from that?
Huawei, a Chinese telecommunication multinational company, has officially surpassed Apple by becoming the world’s number two smartphone manufacturer, just behind Samsung.
It is not an easy feat to achieve as it is the first time in seven years that a contender managed to split the top two. The company’s senior management believes that by 2019, it could be number one.
So how did Huawei surpassed Apple, and what are the lessons that we can learn from this historic feat?
Let’s start with the beginning. Huawei’s genesis is quite modest. Akin to many modern success stories, his founder, Ren, established Huawei at the lowest point of his life. He was expelled from the People’s Liberation Army for which he worked as an engineer, and right after being defrauded of 2 million CNY by a customer while also recovering from a divorce at the age of 41¹.
As you can imagine, nothing remotely positive was taking place in his life. It is often during our darkest hours that we find the courage to risk everything that we have since we have nothing else to lose. With that type of spirit, Ren found the determination to start a company with a few of his colleagues, named Huawei.
Huawei did not begin manufacturing telecommunication devices. Its only purpose back then was to make money from anything that could be sold, even venturing into the diet pills industry.
Ren’s curiosity, business acumen and a good amount of luck led him to enter the growing and prosperous telecommunication Chinese market, which was flourishing exceptionally fast while also lacking customer-centric enterprises.
So, the questions that we must ask ourselves ought to be:
- What brought success to this company that Apple and Samsung are frightened by?
- What made this company, which barely was unknown a few years ago to become a global telecom player?
Here’s how Huawei became so prosperous.
A Special type of Love for His workforce
Without people, organizations are nothing. In the competitive world that we live in, knowledge-based firms, which represents 99.9 percent of the tech industry, understand the value that employees bring.
Innovation stems from motivated, inquisitive and brilliant employees who feel as integrated bodies of the firm in which they work. Huawei understood this concept way before it became Silicon Valley HR’s dominant theology. In the 1990s, Huawei devised an employee stock ownership scheme through which its employees’ incomes were based on three elements: salary, performance and stock dividend¹ .
By adopting such approach to compensation, Huawei wanted to deploy a principle known as “knowledge-ism”, which is grounded on letting and encouraging employees to think of themselves as owners who benefit from the overall success of the firm, and not as replaceable staffs whose contributions are minimized.
By transforming Huawei into an employee-owned firm, allowed the company to recruit and keep top talents within its ranks and away from its competitors.
Fun fact: Zen holds only 1.4 percent of ownership in the company while about over 82,000 of the firm’s employees own the rest.
Ren understood the importance of R&D as part of Huawei’s competitive strategy. To do so, he instilled in his top managers a sense of crisis and urgency. Meaning, whatever made Huawei successful in the previous years were automatically assumed to be demoded and, as a result, innovation had to become a continuous effort.
Hence why, since its early beginnings, the company has never failed to re-invest, at the bare minimum, 10 percent of its revenue on R&D. That is 5 percent more than Apple, and about 2.5 percent higher than Samsung.
R&D: a global affair
Rather expanding its R&D department domestically in China, Huawei purposely went externally to establish R&D laboratories worldwide. Indeed, between 2002 and 2010, the giant opened 57 company-owned innovation centers and joint ones in the US, Sweden, Germany, Russia, Sweden, Canada, and the UK based on the regions’ expertise¹.
For instance, since Europe is the genesis of 3G technologies, Huawei opened an institute in Stockholm, Sweden.
To foster and bolster its radio frequency identification capabilities, it opened another innovation-focused institute in Moscow, Russia as it is the current leader in this particular field.
While Silicon Valley’s expertise are cloud computer, coding, and data telecommunication, it opened an institute not only there, but also in Dallas¹.
By the end of August 2015, Huawei had established 255 ICT joint laboratories, research institute, and development centers to further expand into the field of cloud computing¹. By doing so, it enlarged its R&D department by hiring a total of 30,000 new staffs. Out of the 180,000 employees it has, 80,000 are engaged in R&D, that is ~45% of its workforce.
By spreading its innovation centers across the world, Huawei was able to tap into well-established markets that are filled with a diverse, talented, and educated engineers, working on complex issues and producing high-caliber technologies.
Besides, Huawei’s innovation institutes are highly connected among themselves as they operate synchronously to ensure that knowledge-sharing occurs.
It comes to no surprise that Huawei is the 6th largest investor of R&D globally in 2017, surpassing Apple.
Fun fact: Huawei owned at one point over 35,773 patents and was recognized as the most prominent global patent application firm in 2008. By 2015, the number of international patent applications that were submitted by Huawei reached 2180,000, a record.
Leveraging Untapped Markets
Apple’s brand focuses on the wealthy; those who can hastily squander $1000+ on a brand new smartphone. Huawei, on the other hand, has priced its phones to reach the growing middle-class denizens of emerging markets that Apple has failed to target and serve.
It is, indeed, Huawei’s aggressive pricing strategy that secures its growing market shares in countries such as India, Indonesia, China, Russia, South Africa, Nigeria, Indonesia, and Pakistan.
The flourishing appetite for discretionary goods combines with growing investment in networking infrastructures, and the already established brand recognition, Huawei finds itself on the right path of world domination.
Huawei has also been experiencing tremendous success in Europe. Over the past few years, the company diverted most of its marketing budget to the European market by initiating numerous high-profile football (soccer) sponsorships. Huawei’s smartphone retail volume share in Western Europe experienced unprecedented growth as a result.² Evidently, in the first quarter of 2018, Huawei saw sales of its smartphones increased by 38.6 percent, compared to the same period a year ago.
Huawei’s Strategic Partnership
Aside from its aggressive marketing efforts, Huawei established steady partnerships with respected global brands such as Leica Camera AG, Google, and Porsche Design to reach the higher middle-class market that Apple is currently serving. So far, these partnerships have yielded only positive results.
The AI-driven photography proficiency that Huawei has developed blended with Leica Camera brand recognition emerges as a winning strategy. It is not surprising that TechRadar, the online publication focused on technology, crowned close second the Huawei P20, also known as the Triple Camera Smartphone for its three lenses, for the best camera phone, right behind the Samsung Galaxy S9.
Innovation Driven by Customers
Huawei went through a radical shift in the last two decades — it metamorphosed itself from a technological-focused firm to a customer-driven organization. So much so it is reported that over the years, Ren repeatedly told his staff that they had to “turn their eyes to the customers and their backs to the bosses”.
The company’s structure has for main feature to be customer-oriented within its three business units: operations, enterprise, and terminals. With that in mind, all of the business units work in a cross-disciplinary technological fashion to serve customers¹. As a result of such strategy, Huawei’s established 22 regional branch headquarters across the globe to extract as much innovation as it can from its customers².
Furthermore, a study published by a group of researchers from the Hangzhou Dianzi University suggested the receptivity of Huawei when it comes to its customers’ objective reviews and its ability to innovate.
They analyzed an online review website in which thousands of customers have reviewed three consecutively generation of a Huawei smartphone model as follow: Huawei Mate 7, Huawei Mate 8 and Huawei Mate 9.
They analyzed the level of satisfaction — that is, the number of positive reviews over the number of reviews on seven product attributes: performance, appearance, battery, system, screen, user experience, photography, price, quality, audio and video, and after-sale service.
What was outstanding is that the attributes for which the level of satisfaction were extremely low on the Huawei Mate 7 such as performance, battery, photography were tremendously increased by the time Huawei Mate 9 came up. The table below avows of such success.
Considering the concerted effort to stifle Huawei’s plan to penetrate the US market, the Chinese telecom giant is having quite the last laugh. Apple for many years encountered no rivals, except Samsung, which remains as the number one provider of phones. Nonetheless, today is certainly a different day. The smartphone playground is no joke, and Apple has all the reasons in the world to be anguish, and rightly so.
Just to recap, Huawei’s success derives from the following characteristics:
- Strong and motivated workforce
- R&D focused
- Leveraging untaped and emerging markets
- Strategic partnerships with world’s leaders product and service providers
- Attentive to customers’ needs and views of its products
¹ Product Innovation Based on Online Review Data Mining: A case study of Huawei Phones
² EuroMonitor International