Table of Contents
Factors affecting demand and supply of Huawei Company.
Price elasticity of Huawei Company.
How Huawei is affected by the ongoing war between China and USA..
Huawei Company is a Chinese multinational company which deals with technology. It was founded in 1987 and it’s currently deploying its services and products to more than 170 countries. Huawei initially began its business while focusing on the manufacture of phone switches, but it expanded its operations to include telecommunication networks. The company also works with some of the largest telecommunications operators in the world such as British Telkom, Vodafone, etc and its progressed success has attributed to it being one of the most valuable telecom infrastructure brands worldwide and has been a threat to other telecoms such as Apple and Ericson (Shaolong, 2016). Huawei is a Chinese multinational telecommunications equipment organization which is based in Shenzhen, Guangdong, South China. Its founder was Ren Zhengfei in the year 1987. Huawei has proven to be one of the leaders in telecommunications due to its many innovations in its manufacture of new and exciting products such as smartphones. Other competitors for Huawei Company are companies such as Samsung, Apple, and LG.
Huawei applies an oligopolistic market structure. This is a type of market framework with a minimal number of business firms and not even a single of the firms can keep the other from having a major influence. Most of the companies that manufacture smartphones fall under this market structure. This is because, for an oligopoly market structure, it’s shared by only a small number of firms and there is limited competition hence meaning that such markets are profitable. There are a few other competitors in this kind of market and for Huawei; some of its competitors include Samsung, Apple, Ericson, LG among others (Grosse, 2015). The number of sellers in the Huawei kind of market structure is few and each of the sellers occupies a sizeable proportion of the market structure. Many telecommunication companies fall under the market structure of oligopoly which is characterized by several players in the market, (Alhassan, 2019). Therefore, competition based on the innovations, model designs, and advertisement of the respective firms. Huawei, just like other players strives to invest in advertisements as well as market structure in order to attract more customers as well as maintain a good relationship with its consumers.
Apple Inc. is often considered as a monopolistic competition. As much as there are other competitors in the telecommunication market with significant market shares such as Huawei and Samsung, Apple continues to hold, maintain, and control its position in the market, (Kantarelis, 2019). According to the game theory, Apple will face some economic implications in the event it becomes an oligopoly firm. For instance, the company will have to reduce the high cost of its products for it to sustain in the market. In turn, this will affect the company as a whole including its production, sales, and profits. Establishing business-driven data and correspondence innovation foundation by intently working with fortune 500 organizations have helped the organization in being seriously competed with its rivals.
There are few competitors within the Huawei kind of oligopolistic market structure something which is attributed to the high costs incurred in setting up such a company and also aspects such as consumer loyalty to already existing brands such as Huawei. Price elasticity in this type of company is considered relatively inelastic when it lowers its price and relatively elastic when it increases the price (Lars, 2015). Price rigidity in its market is used to explain these kinds of changes in demand. In cases where an oligopolistic firm such as Huawei lowers its price, its few rivals will make a reaction of trying to match that price as they try to avoid losing their customers. As a result, the lowered price, will not increase its demand by a great margin hence the price is relatively inelastic in this regard. However, if it raises its price, its competitors will not increase its price too hence its quantity demanded will fall considerably. In this regard, the demand curve is relatively elastic. Therefore, for both situations, the price rigidity is used to explain why a company such as Huawei may have a kink in its demand curve at the prevailing market price (Jhinghan, 2016). This can be shown as:
The Kinked Demand curve representation for an oligopoly, as shown above, indicates that an oligopoly maximizes its profits at Price and Quantity P1 and Q1 respectively where Marginal Cost (MC) is equal to Marginal Revenue (MR). A change in Marginal Cost, therefore (as shown) does not change the Prices. Prices are quite stable. The kinked demand curve makes an assumption that market players are profit maximizes, if one business raises the price, other firms won't follow the action done by its rival. Therefore, for a price increase, demand is price elastic, and that if one firm lowers its prices; other firms are likely to follow their rivals.
The company's CEO and founder Ren Zhengfei is said to have been an officer in China's People's Liberation Army, the armed forces of the Communist Party of China continue to have deep connections with the Chinese Government. BBC (2019) indicates that the fast growth and global reach of Huawei have made countries concerned that the company might use such devices to counterspy on the clients. Espionage allegations are said to have emerged in 2012 when a congressional committee alleged that Huawei and ZTE (also a Chinese company) pose a security threat to the United States. This was compounded by a senate Intelligence Committee’s finding in 2018 that Huawei and ZTE posed a national threat to American security and demotivated American companies from doing business with the two Chinese Companies. US Intelligence agencies have in the past also, without evidence to substantiate their claims, alleged that Huawei might have installed software backdoor which would enable them to spy on Huawei device users.
While Huawei might have reported an equivalent of $104 billion and robust financial revenue output in the first quarter of 2019, BBC (2019) postulates that the ensuing trade war between China and global suspicion has reduced consumer confidence which has adversely affected sales. This is in addition to the fact that both New Zealand and Australia have excluded Huawei from accessing their 5G networks. This string of actions by countries across the globe have destroyed consumer confidence and reduced Huawei sales by extreme margins this lead to the decrease of both consumer and producer surplus of the company as it leads to a decrease in the demand for the Huawei products. This can be depicted as:
Huawei which is a telecom giant from China is in the middle of a war that is experienced between the USA and China currently. Huawei is facing rising opposition from many foreign governments. Moreover, there are rising concerns about the company's links to the Chinese government, though it has insisted that it has no ties to the Chinese government and is an independent company (Miroux and Casanova, 2019). Trade disputes between the US and China are due to factors such as allegations of China being an unfair trader by the US and the criticism of China towards the US assessing the rise of China as a threat hence initiating obstacles that would affect china’s trade. Due to its great expansion and big sales that it currently sells millions of smartphones annually, this has prompted other countries such as the USA to grow concerned and suspects that Huawei may use its technology to spy on its customers across other countries. The US president recently issued an order that banned US companies from making use of information and communications technology from parties considered as national threats and this included China (Singh, 2019). Amidst the ongoing trade war between the USA & China, President Trump issued an executive order that banned all U.S. firms from using information and communications technology from any party that may be considered as a threat to national security. The future of Huawei is surely in doubt. The ban on Huawei by the U.S. will lead to a substantial loss of sales, affecting the company's profits and growth.
Trade wars between the US and China have also affected Huawei as a company whose origin is China. Claims of fears of the US being threatened economically by China and China not adhering to laws of fair trade have led to impositions of regulations and restrictions that have affected Huawei Company (Miroux and Casanova, 2019). Such include recent restrictions made by Donald Trump the US president against the use of information and telecoms that originate from countries that pose threats to national security where China is one of them. Banning a massive, global company from buying the U.S.-made products affects companies in the U.S. particularly in the long-term.
Alhassan, S., and Alajmi, D. 2019. Huawei. Journal of the community development in Asia, Vol. 2, No. 3, pp. 37-44.
BBC. 2019. How damaging is the Huawei row for the US and China? [Online]. Available at: https://www.bbc.com/news/business-48361473 [Accessed on: 21st October’ 2020].
Grosse, R. 2015. Emerging Markets: Strategies for Competing in the Global Value Chain. United Kingdom: Kogan Page.
Huawei. 2020. Supply Chain Responsibilities. [Online]. Available at: https://www.huawei.com/en/sustainability/win-win-development/develop_supplychain [Accessed on: 21st October’ 2020].
Jhinghan, M.L. 2016. Microeconomic Theory. New Delhi: Vrinda Publications
Kantarelis, D. 2019. Brand Loyalty in a Bertrand-Type Oligopoly Setting. American Journal of Industrial and Business Management, Vol. 9, pp. 2250.
Lars, B. 2015. Cost innovation in global supply chains: The case of Huawei Technologies. International Journal of Logistics Systems and Management. Vol. 3, No. 2, pp. 32-46.
Miroux, A. and Casanova, L. 2019. The Era of Chinese Multinationals: Competing for Global Dominance. United Kingdom: Elsevier Science.
Murmann, J. P., Huang, C., Guo, B. and Wu, X. 2020. The Management Transformation of Huawei: From Humble Beginnings to Global Leadership. United Kingdom: Cambridge University Press.
Shaolong, Y. 2016. The Huawei Way: Lessons from an International Tech Giant on Driving Growth by Focusing on Never-Ending Innovation. United States: McGraw-Hill Education.
Singh, G. 2019. China–US Trade War: An overview. Management and Research Economics Journal. Vol. 5, No. 1, pp. 26-31.
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