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From Product-Driven to Driven by Both Product and Service – The Strategic Transformation of Huawei’s Carrier Business

by Guang Yang | 4月 23, 2015

Huawei held its Global Analyst Summit 2015 (GAS2015) in this week. In the event, Huawei’s Deputy Chairman and Rotating CEO, Eric Xu, announced Huawei’s Service Strategy. Service will become the focus of all three business groups of Huawei – Carrier, Enterprise and Consumer.

For the carrier business, the development strategy will be transformed from “Product-Driven and Service as a Support” to “Product-Driven and Service-Driven.” That means service gets the same weight with product in Huawei’s carrier business.

Eric Xu also announced the first wave actions to implement the Service Strategy. For carrier business, Huawei will strengthen its consulting and system integration capability, improve its managed services and pursue the leader position for network planning/optimization/CEM tools. Huawei will invest US$ 350 million per year on expertise building and methodology research for consulting service to support operators’ transformation. Huawei will also invest US$ 200 million per year on research and development of network planning, optimization and CEM (Customer Experience Management) tools. Huawei hopes it could become:

·         Strategic partner of operators’ transformation

·         Primary integrator of ICT infrastructure

·         Leader of network planning, optimization and CEM

For managed service, Huawei targets to lead the upgrade and transformation of managed service. Huawei thinks managed service should be transformed from an “OPEX Saving” tool to “Value Creator”.  

The new strategy is a big change for Huawei but should have been commonplace for western vendors. Global Service has been one of Ericsson’s strategic priorities since late 2000s. Today, global subscribers managed by Ericsson have been over 1 billion. The global service business has contributed 43% of net sales of Ericsson in 2014. For Nokia Networks, global service business also contributed ~45% net sales in 2014. In early this year, Alcatel-Lucent announced to establish Bell Labs Consulting group based on “multi-disciplinary team of Bell Labs scientists, technologists, modelers and services and solutions experts”.  

All these movements indicate that traditional business model of infrastructure vendors could not be sustainable in the era of everything being software and virtualized. Even though Huawei has large advantage than its western competitors on cost structure, Huawei also has to seek a new model to keep its margin and growth.

The transformation should be challenging to Huawei. The cost advantage of financing and Chinese engineer team is a major strength of Huawei in telecom equipment market. However, in service market, it is difficult to leverage these factors to compete. The competitiveness will more rely on local service team and some “soft power”, like brand strength and the understanding on local business culture. In these aspects, there is still a long way for Huawei to build its momentum.

But on the other hand, we should not underestimate Huawei’s execution ability. We will see how Huawei implements its service strategy and what impacts will be generated on the market.  

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