Huawei’s R&D Is a Key Enabler in Its Bid to Become #2 in the Smartphone Market

As the world’s third-largest manufacturer of smartphones, China-based Global ICT Solutions provider Huawei has managed to further consolidate its position over the past year. The company is now the largest smartphone seller in China, and overseas shipments have risen to represent around 50% of its overall handset sales.

In the face of a challenging smartphone environment over the past year, where both Samsung and Apple market shares declined, Huawei saw its market share climb. Analyzing YoY trends in the global smartphone market share, it is evident that Samsung’s share decreased from 23.7% in 1Q 2016 to 22.9% in 1Q 2017. Apple’s share declined from 15.3% to 14.7% during the same period, while Huawei managed to increase its market share from 8.5% to 10%. 

Key drivers of Huawei’s success, according to its leadership team, are its strong commitment to research and development, emerging technologies, and cutting-edge innovation. This has propelled Huawei to reach third place in the global smartphone market in terms of shipment volume and market share.   

Huawei invested an estimated US$38 billion in total R&D over the past decade, placing it among the world’s highest R&D spenders along with Intel, Microsoft, Google, and Amazon. The company also made significant investments in leadership and talent development programs to enhance management quality, an initiative advocated by the founder and CEO. Huawei has identified successful companies and conducted detailed assessments of its leadership and management capabilities, and disseminated this knowledge to its management teams through special development programs. Moreover, Huawei has a unique employee shareholding mechanism to allow employees to share in the success of the company, with a significant number of employees owning shares in the company.

The growth in Huawei’s market share has been propelled by a number of factors. Perhaps the largest enabler has been the phenomenal growth in the Chinese domestic market, where Huawei retains the dominant position in terms of market share. Large production scale, strong supplier relationships, sales/distribution assets, brand marketing, and service support have presented Huawei with a significant competitive advantage over rivals such as Lenovo, Xiaomi, and Oppo. Moreover, R&D investments have been beneficial with flagship models like the P9, P10, and P10 Plus, boasting innovative and advanced features such as rear dual cameras, high resolution front cameras, high quality video, NFC chips for contactless payments (Huawei/Android pay), Google Assistant (artificial intelligence (AI)/intelligent digital assistant), and USB Type-C connectors. Indeed, there are few high-end smartphone models available at present that come packed with all these features, including those from both Samsung and Apple.

Huawei is reportedly testing its own Intelligent digital assistant, similar to Samsung’s Bixby, to be introduced in future flagship models. It even plans to launch an AI-focused super smartphone by 2020. Huawei has maintained focus on product leadership to make its smartphones more secure, as well as to develop and integrate virtual reality (VR)/augmented reality (AR) applications, which represent the next wave of emerging technologies. Moreover, Huawei’s ownership of chipset supplier HiSilicon has allowed it to source chips internally to control costs, as well as to optimize chip design to attain superior performance and integration. 

Engaging with mobile network operators/telco carriers globally as strategic partners has enabled Huawei to boost sales of its smartphones and attain interest and loyalty from a growing subscriber base. While this has not been possible in the U.S., as a result of Apple and Samsung’s strong dominance and national security concerns posing an impediment to partnering with carriers, Huawei remains determined to grow its presence there by selling unlocked phones to users directly via online sales. Considering the U.S. to be a strategic priority, Huawei announced plans to establish customer service centers there to complement its Internet sales and to better support users with extended warranty offers, reiterating its customer-first value proposition. Huawei’s marketing research efforts have been constructive, providing great insights into customer behavior and preferences, as well as industry practices, and allowing Huawei to be more flexible and responsive to emerging trends in the smartphone market. Changing preferences are captured and expeditiously incorporated into new product designs to gain early mover advantage. 

Huawei’s shareholding pattern is conducive to hard work and productivity growth, with a strong focus on maintaining efficient operations. The large scale of production presents Huawei with economies of scale, allowing it to produce at a lower cost and to source at lower costs relative to most competitors. In addition, its financial standing is very strong, as the company not only makes smartphones, but also sells mobile network infrastructure including antennas, managed services, tablets, laptops, Wi-Fi routers, and other devices. The Huawei Group generated revenues and profits in excess of US$75 billion and US$5 billion respectively in 2016, with total assets close to US$64 billion. With strong financial and technical resources, Huawei is in an advantageous position in terms of being able to invest even more in R&D to drive innovation to release smartphones with advanced features across price points targeting various market segments, both in China and in overseas markets.

With more than 180,000 employees and a history spanning three decades, Huawei has been able to attract, develop, and retain talent. Investing in the development of talent management programs and workforce training has yielded significant benefits. Huawei has made a number of strategic hires from international and domestic firms, often from major players and with generous emoluments, to complement its talent pool and to maintain diversity, as well as to leverage its backgrounds in management, design, marketing, and sales excellence. By building internal resources and capabilities across management, R&D/technical, and sales/marketing domains, Huawei has forged its competitive advantage. Moreover, to ensure its key resources and capabilities are not easily replicated, Huawei has filed thousands of patent applications in key emerging technologies such as 5G networks, established top-notch talent development programs, integrated supply chain management systems, built state-of-the-art facilities and other supporting infrastructure, adding a much greater degree of sustainability to this competitive advantage.  

In summary, Huawei has been able to take its place as the world’s third-largest smartphone vendor as result of a host of factors; especially operational efficiency, customer relationships, brand management, and R&D-driven product leadership. Using these strategies, Huawei will continue to grow its position in existing and new markets, reinforcing its worldwide reputation as a producer of reliable, high-quality smartphones, which could ultimately enable it to displace Apple to become the second-largest smartphone vendor at some point over the next few quarters.