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In the recent past, organizations have been concerned about the external factors that affect their operations. Analysis of the external environment of a company refers to the process of studying the forces in the organization's environment that are beyond its influence. Virtually all organizations engage in the analysis of their ability to suite in the environment and how they can cope with factors that may threaten their survival. The analysis of the external factors of an organization involves the application of diverse methods that engage different external factors. In the analysis of the external strategic factors of an organization, pest analysis and Porter's five forces are mainly used. The combination of these factors provides a deep understanding of the position of the organization in terms of the various external forces. Similarly, the analysis enables an organization to prepare adequately to face all these factors in order to avoid being driven out of the market. All organizations have a strategic plan that shows how they expect to fair in the market some years to come. This is the strategic plan of the organization. The strategic plan is set in accordance to the external factors that influence the organization. In this paper, Huawei, a Chinese multinational is analyzed through the Pest model and Porter's five forces. Therefore, a combination of pest analysis and Porter's five forces model provides an elaborate basis for the understanding of the external environment of Huawei and its external strategic environment.
Pest Analysis of Huawei Technologies
Pest analysis involves the review of four factors that are very essential for the continued existence of an organization. The four factors are very critical for the strategic goals of the organization to be achieved as they directly influence all plans made (Anonymous 2010,). The first factor is the political environment and the existing legislations. In any nation, the government has a very important role to play as far as organizational environment is concerned. Due to the influence that government possesses over organizations, no organization would risk its existence without considering the policy set by the government. Legislations are very important to any nation, therefore all national and multinational organizations need to consider these legislations as they set their strategies (Child & Rodrigues 2005). Different ways that a government influences the external environment of an organization could be through issues on taxation, control of the environmental degradation, legislations on quotas as well as subsidies, labor and employment regulations, legislations on consumers, competition, safety as well as issues on health.
China government has various political legislations that affect Huawei's external strategic environment. As a multinational, the company has to adhere to all these regulations and ensure that no strategy is set without full consideration of the government legislations. For Huawei, the Chinese business political environment is very serene for growth. In the part of the government, all possible measures have been undertaken to ensure that businesses are provided with the right environment to perform. The Chinese government is communist in nature. However, it provides a political environment that is based on incremental consensus between the different leaders of the government. In the recent past, the government has introduced reforms aimed at offering an environment that favors business growth (Preeg 2008). The reforms are open and transparent as well as suited to the most appropriate style of government. Similarly, China government has undertaken every measure to ensure that corruption and other vices are completely stumped out. This has facilitated the growth of Huawei Technologies due to the confidence with the government. Any concern raised to the government is well and hastily responded to ensuring that the political government has set a platform for business growth.
The second factor is the business economic environment. An organization would want to operate in an economy that provides the highest possibility of good returns and growth. Huawei Technologies is not an exception in this case. It favors an economy that provides it with the best returns (Anonymous 2009). There are several factors that influence the business environment of an organization. To start with, the growth potential of an economy is very important factor to consider in external strategy. Secondly, the organizations have to consider the level of investment in that economy, supply stream and raw material costs. Availability of energy, shift in supply, behavior of consumers, rate of inflation, indicators of macroeconomics, rate of unemployment, patterns of borrowing, structures of loans as well as prospects in the future. All these factors are very essential in establishing the economic environment of a business. China is no doubt a perfect place for the thriving of a business. The economy being the second largest globally following that of the US provides is simply the best. Therefore, Huawei has a golden opportunity to expend its operations not only internally but also globally. As a multinational, it has a strong economic background that enables it to effectively compete globally without expecting major challenges from other similar multinationals.
The third factor in pest analysis has to with the society. There are various influences associated with the social settings of an organization's environment such as the demographic factors. In any country, there are changes and shifts in demographic factors. In this area, the organization looks at factors such as the distribution of wealth, mobility in terms of social factors, the education and schooling available in the country, trends of lifestyle, time usage and leisure, work attitudes, family and relationships, fashion, tastes, preferences, interests in development, religious tastes, cultural aspects, values and norms. All these factors are very crucial in analyzing the external strategic trends of an organization. Huawei Technologies prides in the social factors provided by the people of China (Greenberger 2005). The country provides a highly potential social environment that facilitates growth rate. As a matter of fact, the people of china are experiencing a highly growing rate of living standards. Nevertheless, the level of living standards is not similar to all people. Few are living in low standards. Mainly most manufactured goods end up in global markets and do not benefit all the people of China. It is this factor that facilitates an opportunity for Huawei. The multinational not only wishes to serve the global market but also the national Chinese market. Thus it has an opportunity to expand its production to serve more markets.
The fourth factor in Pest analysis is the level of technology. A number of factors are associated with the technological factor. Firstly, the rates of innovation, times taken in development, as well as level of investment in technology are very critical factors to consider. Secondly, the incentives that are availed to developers of technological products are very important towards external strategic environment (Wen-ping 2006). Similarly, the manner in which technology is adopted in a country has profound influence on the growth of an organization. Technological factors are very crucial for the growth of an organization. The government needs to highly support moves towards technological advancement by investing directly in technology. For instance, the government should strongly support developments in cross networking technologies. Huawei is a technological multinational. Technology is at the helm of its very existence. Therefore, the factor on technology cannot be overemphasized. The growth of the multinational has been highly influenced by the fast growing technology in China. The government of China has been very concerned about its technology. In fact, it has taken very serious steps towards transforming the level of technology by investing highly in universities and colleges. This fact offers a very great opportunity for Huawei's growth.
Porter's Five Forces analysis
These forces are external and therefore outside the control of the organization. They are very essential as they determine the profitability of an organization. When the five forces interact, they bring about a competitive environment for the organization. The first force is the extent of rivalry in the industry (Jameson 1986). If an organization has to be attractive, it has to be set in such a way that it is competitive. For instance, an organization producing products with close substitutes needs to be prepared for competition. The level of rivalry that Huawei faces can now be looked at as a race involving three horses: Nokia Siemens Networks (NSN), Ericsson and Huawei. These three mobile networks are engaged in intense competition such that the NSN is slowly catching up with the two market leaders. Nevertheless, Huawei is determined to maintain its control by specializing in the developing world. Its operations in lucrative markets like USA and Europe have been curtailed grossly by internal companies (Zhu 2008).
The second factor is entry threat. Several barriers exist for Huawei in several markets. This is mainly influenced by the level of competition in such markets. Several barriers to entry are created by the respective governments with the aim of protecting the incumbent companies from external competition (Chan 2010). Some of the ways of creating these barriers include legislations by governments, costs involved in entry, product differentiation, economies of scale, channels provided for distribution as well as legal hindrances. For instance, it has been particularly difficult for Huawei to enter into the US. Several reasons have been the factors for this trend: Chinese companies' reputation, culture of the Chinese companies and Political aspects of China. These barriers have been the reason for the inability of Huawei to completely take over markets in developed nations.
The third force is threat provided by the availability of substitutes. If there are threats available for an organization's products, they pose a threat in relation to the comparisons between prices and performance of the products (Xiong & Shang 2007). Huawei operates in the communication industry by producing equipment on telecommunications. Several products include mobile phones, fax machines as well as answer machines. It also produces internet connection products such as broadband. As a matter of fact, there are various other companies producing similar products posing substitutes. It is only through effective pricing and performance that Huawei can stand this threat.
Consumer power is the fourth force. An industry has to create value to the consumers of its products. This is due to the fact that consumers have power to thwart an organization's pursuit of growth. Huawei considers concentration and size of consumers. Similarly, level of buyer information and competitor differentiation are essential factors. The focus on the developing economies has its advantages. Most of the consumers in these markets are not very well informed. Besides, competitors are not highly concentrated (Ordonez & Lytras 2008). Thus Huawei gets a chance to advance in these markets. The fifth force is the power of the supplies. There is a direct relationship between consumer power and that of the supplier. Just like the analysis of consumers, suppliers are analyzed on concentration and size. Thus Huawei carefully analyses its suppliers in order to provide the best value.
Pest analysis and Porter's five forces are elementary factors that affect an organization's strategic plans. Huawei is a Chinese multinational that adopts its market based on these factors as without this, survival in the market is in shambles. The organization has been able to withstand competition due to proper use of this vital information.