Being the 3rd isn’t the Goal

Xiaomi is a household name in China, but Huawei wasn’t quite noticeable in the country though it was the world’s number three in terms of smartphone productions. Last year, Huawei recorded USD1 billion sales in European markets. Huawei also achieved outstanding results in the first half of 2014, sales generated from Europe regions, Asia Pacific, Middle East and African countries.

Top-Smartphone-vendors-by-shipments-Q1-2014

Source: http://goo.gl/n4Tisr

On 6 August, Huawei Consumer Business CEO Yu Chengdong confidently revealed positive news to reporter of “National Financial Weekly”. The same day in the afternoon, Yu wrote a Weibo post, he said “admire Xiaomi marketing capability, Xiaomi smartphone is China’s number 1 and is a country’s household name, but nobody knows Huawei thought it is the world’s third largest smartphone company in terms of shipments.” In the second quarter of 2014, Huawei’s global smartphone market share rose to 6.9%, dominating as the world’s top 3 (fourth as 5.4%), the volume growth rate was as high as 95.1%, much higher than the second registered at 38.7% .

After 6 months being independent as Honor brand, does it have the ability to challenge Xiaomi?

But for Yu as well as the entire consumer business, being the third isn’t the ultimate goal, but it is just step forward for a long march.

Hard target “help”

From early 2011, Yu had served as Chairman of Huawei Device, later as Huawei consumer business CEO. For about two and half years, Yu Chengdong has been nicknamed by Huawei internal staffs, from the “Yu chief” to “Yu big mouth,” then back to “Yu chief “. Throughout the journey, whether a respect or internal doubts or grievances, he has then reaffirmed his leadership, and successfully turned his leadership to admiration.

In Huawei Group, Yu’s nickname has not been really changed among his peers or other higher-level leaderships, whether in front of or behind him ironically. Most executives would jokingly call him “Yu madman”.

In 2013, Yu’s “strategic ground” the European markets have helped to exceed USD1 billion for the first time, an increase of 41% compared to last year performance, reached USD10.4 billion. According to Huawei consumer business Europe region CEO Ren Hongliang, Huawei Ascend P6 sold 80 thousand units within Europe regions in 6 months. According to its undisclosed internal plan, Huawei attempt to achieve USD4 billion the next 5 years.

According to the data provided by Huawei’s consumer business Deputy CEO Shaoyang to “National Financial Weekly” reporter, in first half of 2014, Huawei’s channel business in Europe (Western Europe and Northeast Europe) grew by 120%, Latin America grew 275 %, 180% in Asia Pacific, Middle East and Africa area grew by 550%.

xiaomi-table

Source: http://goo.gl/h8y7X9

There have been rapid change of data even Huawei executives were unable to ingest. During the interview with “National Financial Week, Yu Chengdong together with his deputy Hegang mentioned about Huawei’s market share in Columbia had achieved 2nd place, right after Samsung. A Huawei marketing representative quickly reminded them, and said: “Yu chief, we managed to achieve 24% market share, and we are number 1 now.”

Huawei’s smart phone shipments reached 34.27 million units in the first half of 2014, represented an increase of 62%. The May released P7 model, the global shipments reached 200 million units within two months.

Huawei internal morale has remained great due to its extraordinary performance particularly the unprecedented success of flagship product P7. Such circulated “deadly engineers’ thinking” criticism had been just vanished.

All business leaders and heads had been pondered at the edge of sword hanging with rigid targets, but became Chengdong “lifesavers”. In about two and a half years, the industry had been rumoured about Yu Chengdong’s acquiescence, there would be at least once every six months. Yu told, “In fact, if the goal of each stage was not achieved, I would do so, and would not have been here.” He also told “National Financial Weekly” reporter, in the process of seeking to change, “the complaint and criticism on me had been tremendous.”

Yu added, my “survival” not only ensued from the results in front us, more importantly, the support and trust from senior management.

Control internal pressure

Yu Chengdong told “National Financial Weekly”, that during the several years of tenure in Huawei, pressures came not only from the markets, but also from within the company. Changing from binding operators to mass market, from low-end market to quality differentiation strategy, such changes were so difficult to go about with nuisance and resistance were all around you. Yu also added, “I‘d been scolded for years, there were many people thought that I was going to step down. Fortunately, I made it.”

2013 was the year to begin “premium” strategy, Yu Chengdong began dramatically to cut low-end products, though such practice would lead to slow growth in overall shipments of Huawei channel business, it improved profitability. “There should have been about fifty to sixty models, but left only fewer models”.

Whether Yu Chengdong or his deputy Hegang, they explicitly mentioned that Chinese consumers are not really ready for 4G phones, far from expectation indeed. But the market had formed a situation where “4G has not arrived, but 3G is dead”.

After Yu’s “crazy cut” on low-end mobile phone strategy, a great resistance from internal was formed. It was indeed Huawei’s culture, dealing with B2B vendors and operators, Huawei would follow whatever requests from its partners, Yu added, “the operators’ goal was to develop more users through lower and lower cost strategy. I personally believe such method was not a customer-centric strategy, it was actually like a one way street with no turning back for Huawei.

Fortunately, “result-oriented” strategy is Huawei’s internal policy, and the latter helped Yu Chengdong in achieving significant results, thus eased internal pressure. With its steady global market share position at third with comfortable more than 1% interval compared to the 4th ranked Lenovo, enabling Yu to “take a breath” comfortably.

Nevertheless, such internal resistance did not melt down, more importantly, the frontline sales department which should have been controlled under consumer business division was actually relocated elsewhere by the Group. When faced with the reporter of “National Financial Weekly”, for Yu, looked like an innocent boy over there with his toy being confiscated from parents.

China market: suspend of 4G
Although Yu Chengdong’s efforts have seen harvesting in 2014, but the overall results of consumer business in Chinese market was not satisfactory in first half of 2014.

In early 2014, Yu Chengdong told “National Financial Weekly” reporter that Huawei’s strategy will move from “2013 premium phone strategy” towards “4G premium phone” direction this year. Hegang added, “our performance in Mainland China was poor, mainly due to its highly priced 4G phone compared with 3G edition. So, it will be difficult to achieve higher volume.”

For now, the focus on global market is Huawei’s priority with its 4G mobile phone though China’s 4G development progress is way behind, hence the intended results may be lower than expected this year.

According to the recently released “Local mobile phone market analysis report, June 2014” by Ministry of Industry and Information Technology, it stated: “Although the first half of China 4G phone shipments reached 40.394 million units, but the Ministry of Industry and Information Technology spokesman, Chief Engineer Zhang Feng told a news conference, as for the first half of 2014, China 4G users marked at 13.97 million only.

The only 3G enabled Xiaomi phones performed well in China market last second quarter, both Samsung and Huawei were left behind the race.

In fact, price war in specific areas of China was not the concern and consideration of Yu Chengdong, such decision has undoubtedly become partial reasons why Huawei’s temporary shortage in terms of consumer business – product direction moves towards 4G, but the market remains still in 3G era.

But, sales generated from Huawei Honor series have been rapidly built, and filled the gap of low sales during transition period.

China Mobile Chairman Xi Guohua told public repeatedly, China Mobile’s 100 million target this year remains unchanged, if the goal is achieved, perhaps this year Huawei is still possible to turnaround in China market.

Marathon
The boost in sales enabled Huawei to invest more in R&D and marketing.
“Early this year, we set marketing costs at 350 million Yuan, later we added 100 million Yuan in the second half.” Shaoyang said. Huawei’s consumer business has actually invested USD 1 billion in R&D costs a year, continuously for two years.

“Among the many mobile phone manufacturers in China, there is none of them like the way Huawei does in terms of R&D investment,” Hegang said. Yu Chengdong told “National Financial Weekly” that Huawei has never been a low cost company anyway.

To compare, Samsung’s marketing expenses have been significantly higher than its R&D costs for the past two years.

Huawei’s consumer business has its consensus internally, that the Samsung’s marketing-led strategy is not a long-term competitive advantage. Market performance evidence was so much proof of Yu Chengdong and team’s point of view. In early 2014, Samsung began to cut marketing costs for its mobile phone products, later its growth slowdown was obviously seen, rebound of channel vendors and even the defected issues related news have surfaced.

For Yu Chengdong, product quality is still the priority of Huawei consumer business management team.

Hegang told the “National Financial Weekly” reporter, when Huawei Group rotating CEO Xu Zhijun found him, have specifically made it clear that Huawei will be in danger even if its phone sales up but not the quality.

“According to Huawei’s internal regulations, you should not need to think about to deliver a piece if inspection does not pass fifth grade, you should not even think to prepare shipment if the sixth grade inspection fails. Each shipment should comply with conditions to apply, whether to meet Xu chief (Xu Zhijun) directly to apply. According to Vice President of Huawei’s product line, Huawei internal control “relies greatly on product quality, but not the face.”

In the European market, product quality improvement will bring significant profit. Delivery cost of a mobile phone in European regions is very high, it costs 15 Euros for a mobile return door-step pick up service. “How much I make for a phone sold?” asked Ren Hongliang.

Yu Chengdong explained that his situation is different from Lei Jun (founder of Xiaomi) and Chen Mingyong (founder of Oppo), that they are their own bosses, they can just make their own decisions, size of the company is relatively, so easy to turn back. In contrast, Huawei is giant, it has platforms and resources that shared. There are a variety of constraints and restrictions to some extent. If you insist to go too fast, you may get yourself hurt easily.

Now, Honor is a separate & unique unit by itself committed towards concentrated consumer focus.

You can join the Honor Family Herehttp://club.vmall.my/

For any official Honor Product News, get daily updates from Herehttp://goo.gl/SLGHxP

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