This paper analyzes the success of Huawei Technologies Co., Ltd., one of the largest telecommunications equipment manufacturers in China. This paper applies two prevalent organizational theories: the ecological and evolutionary approach and the resource-based view, to interpret the causes of the success of Huawei. Based on the strength and weakness analysis of each theory in the explanation of the same phenomenon, the resource-based view is recommended as a more effective theory to examine the organization structure and business strategies.
Established in 1998, Huawei Technologies Co., Ltd. has become one of the largest telecommunications equipment manufacturers in China. As a private company devoted to the R&D, production, marketing and support of communications equipment and solutions for telecom carriers, Huawei achieved great success in just 16 years. From the financial highlights of Huawei below, we can see its growth in the recent years:
Chart I Financial Highlights of Huawei
(Sales based on annual signed contract value)
Then, the research question would be: What is the cause of such great success of Huawei in such a short period of time? Here I would apply two different organizations theories: the ecological and evolutionary approach and the resource based view, to analyze this phenomenon in quite different ways to compare the plausibility of these two theories.
Analysis Based on the Ecological and Evolutionary Approach
The ecological and evolutionary approach is focused on the effects of environment on organizational structure. Based on this theory, the evolutionary process of the organization will experience the following four steps: 1) Variation, which means changes from current routines and competencies; 2) Selection, which means differential elimination of certain types of variations. There are two types of selection. One is external selection which indicates forces external to an organization that affects its routines and competencies. The other is internal selection which indicates forces internal to an organization that affect its routines and competencies. 3) Retention, here selected variations are preserved, duplicated, or otherwise reproduced. 4) Struggle, which means contest to obtain scarce resources because of the limited supply.
From the ecological and evolutionary perspective (Nelson and Winter, 1982), the environment is full of uncertainty, the assumption that “ Firm Maximizes Profit” is no longer valid and the effective way to deal with uncertainties is routine. Due to the uncertainty and the bounded human rationality, good luck is a very important factor for the success of the organization and the future of the organization is largely unpredictable.
Coincidently, when we check Huawei’s profile (Huawei Company Profile, 2004), we found the following missions: “Huawei does not strive to maximize its profit, but to achieve sustainable growth and success through prolonged, close cooperation with customers and partners.” So it sounds reasonable to examine Huawei’s organization structure and interpret Huawei’s success with the ecological and evolutionary perspective.
Based on this theory, we can interpret the success of Huawei in the following ways:
Firstly, the previous success of Huawei is due to the specific environment. As Mr. Ren, Zhengfei, the president of Huawei said: “Huge market generate big company”. Huawei established in 1988, when the telecommunication market is very prosperous in China. Actually, around that time, lots of IT companies established and many of them survived and gained considerable profits. However, the products from several giant foreign companies such as Siemens, Motorola and Lucent still dominated most of the telecommunication market share in China. Secondly, during the adaption to the changing environment, Huawei had to constantly made important business decisions...