It is every company’s worst nightmare. Geopolitics and new regulations destroy your business model and brand reputation, leading to a catastrophic collapse in market share.
That’s exactly what happened to Chinese telecom equipment maker Huawei. It was one of the top three global handset makers. Today the Chinese phone hardware maker’s global market share is no longer considered meaningful enough to be listed in market research.
So, Huawei is pivoting, doubling down on the building of an ecosystem that involves partnerships with a whole host of new players and reaching out to developers.
Corporates across sectors can learn three valuable lessons from Huawei’s platform play, says Michael G. Jacobides, the Sir Donald Gordon Chair of Entrepreneurship & Innovation and Professor of Strategy at London Business School. First, regulation and geopolitics can drastically change your business, transforming where you are allowed to play and making you rethink how you can deploy your skills to add and capture value. Secondly, regardless of whether your company decides to play defense or offense, companies will want to master the skill of competing through a multi-product or experiential ecosystem that offers the customers a bundle that stands out and makes their lives easier. No matter how big and strong a company is, its success will rely on an efficient ecosystem strategy that goes well beyond its own boundaries, says Jacobides, who has written extensively and advised on ecosystem strategy, value creation and the affects of regulation in technology industries.
Playing A Long Game
Huawei’s woes began in 2019 when it found itself on a U.S. trade blacklist due to national security concerns. Although Huawei has repeatedly denied that its equipment is used to spy on foreign governments, the U.S. banned the use of Huawei equipment in telecom networks and pressured allied governments to restrict the Chinese telecom equipment vendor from building their next generation 5G networks. U.S. sanctions didn’t stop there. The Trump administration took a broad-brush approach, additionally forbidding Google from providing technical support to new Huawei phone models and access to Google Mobile Services, the bundle of developer services upon which most Android apps are based. What’s more the U.S. government blocked both American and foreign companies from selling any chips made using U.S. technology to Huawei without a special license. The rule covers even widely available, off-the-shelf chips made by overseas firms.
“The sanctions destroyed Huawei’s international handset business overnight,” says Ben Wood, Chief Analyst and Chief Marketing Officer at market research firm CCS Insight. “The inability to secure chips or software from Google really make it impossible for them to continue to be a top-tier player.”
But the Chinese take a long-term view compared to some Western companies and are prepared to make bets that can take many years to pay off, says Wood. “This is not a company that is going to give up.”
Huawei has built a new operating system called Harmony, an Internet of Things (IoT) platform aimed at connecting devices such as laptops, smartwatches, audio devices and appliances. Since it can no longer play in the international handset market, it is focusing on making all kinds of things work well together, says Wood.
The Chinese telecom equipment giant is betting that there will be a transition to ubiquitous computing, a concept in software engineering, hardware engineering and computer science where computing is made to appear anytime and everywhere. Its ecosystem brings together a collection of new technologies to deliver a seamless connected digital experience which can be controlled by a smartphone and connected by a mobile operating system developed by Huawei.
Huawei calls its strategy 1+8+N. The 1 represents the smartphone, which is central to the ecosystem, connecting and controlling devices from other manufacturers. The 8 refers to Huawei’s own peripheral devices, such as wireless stereo earbuds, tablets and smart watches. The ‘N’ consists of all the third-party IoT devices which can be connected using Huawei HiLink and Huawei Share networking technologies.
This is where the new partnerships come in. For example. Chinese manufacturer 360 Robot vacuum cleaners has been added to the 1+8+N ecosystem, providing an intelligent and automated floor cleaner that can be remotely controlled and monitored using the Huawei AI Life app on a Huawei device. Luggage maker Samsonite is also a partner. 1+8+N users can simply tap their Huawei device on the Samsonite smart lock to lock their suitcase. Kärcher Water Purifiers are also part of the 1+8+N ecosystem. Users can detect their water purifier’s filter life and water quality in real-time using the Huawei AI Life app on a Huawei device.
Meanwhile, Huawei has also been busy building up its AppGallery by enticing developers to join its alternative to Apple’s App Store and Samsung’s Galaxy Store. The strategy appears to be working. “If you are an independent developer Huawei can get you access to markets that are difficult to enter such as China, Southeast Asia and Africa,” says Wood.
Being effectively locked out of the global market for smart phones – the most proficient and profitable consumer device – has put Huawei on the back foot but the company could bounce back, says Wood, given the size of its huge home market and the support of the Chinese government.
Huawei is aiming to have HarmonyOS on 200 million smartphones and 100 million third-party smart devices by the end of this year, Wang Chenglu, president of Huawei Consumer Business Group’s software department, who has led Huawei’s efforts to develop HarmonyOS, told a media roundtable in June
Huawei will have studied Apple’s strategy, says Wood. Consumers are keeping their handsets longer and handset makers are feeling the squeeze. Apple has built a services ecosystem around its hardware to bring in new sources of revenue. Every time someone buys some of Apple’s hardware they are likely to sign up for an Apple ID, allowing the company to upsell services like iTunes, apps, ICloud storage and Apple TV.
So far, no other manufacturer has managed to do that.
By attracting developers to build apps for the Huawei AppGallery, the Chinese telecom equipment manufacturer still has a strategic touch point in the mobile phone business while earning margins. Huawei’s bet on ubiquitous computing could also pay off long-term. At CCS Insight’s recent Predictions Week conference, the market research firm talked about the growing popularity of intelligent devices such as smart doorbells. Today these devices are so-called “point” or stand-alone solutions and can’t communicate with devices from other manufacturers.
“If our vision is right it is going to take another decade to have deeply integrated highly connected devices from different manufacturers to communicate with each other,” says Wood. “This is where you see why Huawei is playing the long game. It has the home market scale and government support to drive that forward and try to position itself as a first mover. Success is by no means certain. It is not going to be an overnight success. It will take years and years of work and tenacity.”
Huawei’s experience may be an extreme case, but it does offer valuable lessons for major corporates, says London Business School’s Jacobides. “The first lesson is that regulation and geopolitics drive businesses much more than they did in the past,” he says. The tech war between the U.S. and China, with Europe caught in the middle, is creating new fault lines and even companies that have no appetite to become engaged will have to adjust to the new reality, says Jacobides. “In the fight for technological supremacy we should expect the return of economic nationalism and the pursuit of narrow national (or regional) economic self-interest to reshape what was a globalized environment but is becoming more fragmented, more brittle and less reliable.” He points out that the increasing regulation of Big Tech is starting to reshape how and where firms compete. “Expect the regulation drive to continue reshaping the landscape,” says Jacobides. “While the impact may not be as spectacular as with Huawei, it will not be any less profound.”
Lesson two is that Huawei’s ecosystem strategy has helped it withstand sanctions and the assault on its reputation by the U.S. “Huawei has followed the lead of other firms, from Apple and Google to Grab and Sber, who are trying to offer packages that cover the needs of customers and create multi-product, or experience bundles that provide convenience, add value and capture customer loyalty,” says Jacobides. “The emphasis is not only a product but a set of connected offerings which relate to experiences.”
The third lesson is that Huawei realized that there is a need to not only identify the right “bundle” and embed customer experience. It is also necessary to create a robust strategy to engage with other partners, “complementors” who can co-create value and leverage your skills and assets, says Jacobides. “In my advisory work with Evolution Ltd. working with large corporates I’ve been surprised to see how much value large corporates leave on the table by not thinking through their ecosystem strategy,” he says. “Huawei had to redefine and sharpen its ecosystem strategy very quickly, and this has surely given it the opportunity to think afresh about how to improve its links with complementors and shape the governance of their ecosystems. This will be an important set of skills for all corporates to develop.”
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