1. External environmental analysis
1.1 Micro environmental analysis
Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E. Porter of Harvard Business School as a straightforward structure for estimating and measuring the competitive strength and position of a business corporation. The Five Forces recognized five components that together determine the nature of competition within an industry, including:
1) Threat of new entrants to a market
According to Potter's view, the competition in the industry is facing the entry barriers of the industry. On telecommunications products market, Huawei, due to early access into the market and have many years of experiences which have created a reputation to customers, which helps Huawei avoid competition from new entrants in a certain extent. In particular, Huawei after years of strong development, the growing scale of enterprises can be achieved by comparable scale or diversification so that production cost can be evaluated. However, since the government's support for the telecommunications industry these years has continuously increased, Huawei in this regard may face several strong competitors.
2) Bargaining power of suppliers
According to Potter's research, the supplier industry by several companies in Chengdu is high; supplier's products are the main products in the customer's business. Therefore, the suppliers have a strong bargaining power, a significant impact on profit and cost controlling ability, so as to reduce corporate profits. Nevertheless, Huawei is its own supplier. Such as in mobile phone production, Huawei is in top three global leading cell phone brands, just ranks after Apple and Samsung, due to the knowledge and experiences of supplying software and chips for phone industries.
3) Bargaining power of customers
The bargaining power of customers is also described as the market of outputs: customers’ ability to put the firm under pressure, which also has a significant impact on the customer's sensitiveness to price changes.
For instances, the case of cooperation and the European telecom operator Vodafone, Huawei in order to obtain the orders, has accepted the evaluation of covering company Vodafone for up to one year of all business units. In addition, some wholesalers and retailers also have a strong bargaining power, which have a greater impact on the enterprise.
4) Threat of substitute products
In accordance with Potter's point of view, if there are many credible substitutes to a firm’s product, they will limit the price that can be charged and will reduce industry profits. For Huawei, although it has been in the leadership position of the industry, still need to pay attention to the existing and potential alternatives to competition. In particular, it is highly valued for improving the quality of existing products and the products with high performance to price ratio. Furthermore, if the substitute is produced by a highly profitable industry, it will be more competitive. In this regard, Huawei should increase product research and development efforts, improve product technology content, make the product more competitive.
5) Degree of competitive rivalry
The domestic telecommunications industry, Huawei is competing with Datang ZTE and many other old rivals. However, these companies, due to their leading position in the industry, can have great impact on the market price, play a coordinating role. In contrast, the strength of foreign enterprises to enter the industry is more likely to have a greater competition for all enterprises in the industry. Due to the rapid growth of the telecommunications market, the relatively substantial profits will encourage new entrants and existing competitors in the industry, forming a great competition for Huawei.
1.2 Macro environmental analysis
There are four factors which are very critical for the strategic goals of the organization to be achieved as they directly influence all plans made. The first factor is the political environment. Government could influence the external environment of an organization through issues on taxation, control of the environmental deprivation, legislations on consumers, competition, safety as well as issues on health.
1.2.1 Political Environment
China government has numerous legislations which influents Huawei's external environment. Huawei is a multinational business organization, the company has to observe all these regulations and make sure to set any strategy with total deliberation of the rules. This has enhanced the growth of Huawei Technologies by the confidence with the government.
In February 2011, Huawei was hindered from securing the advantages of a US networking hardware start-up. The US again blocked Huawei from taking part in the development of the nationwide public-safety LTE network construction. In October 2012, the US congress asserted that Huawei postured security dangers to the US since “their equipment could be used for spying on Americans” (Gorman, 2012).