HUAWEI’S INTERNATIONALIZATION STRATEGY

INTRODUCTION

In October 2016, Shenzhen-based networking and telecommunications equipment and services company Huawei Technologies Ltd. (Huawei) unveiled its 14-port and 3-D Hexa-beam antennas to address the challenges associated with the 4.5G and 5G era at the 5th Annual Global Antenna and Active Antenna Unit Forum held in Paris. Commenting on the launch, Zhang Jiayi, president of Huawei’s antenna business unit, said, “Huawei focuses on satisfying the requirements of operators in the MBB (mobile broadband) era.”

Founded in 1987 in Shenzhen by Ren Zhengfei (Ren), a former military engineer in the People’s Liberation Army (PLA) – the unified organization of the armed forces of China, Huawei started as a sales agent for a Hong Kong-based company selling private branch exchange (PBX) switches. Soon, the company innovated and started selling its own PBX switches. Having established its domination over the Chinese telecommunications market, the company entered the global markets of Russia and Africa in 1996 and later mature The origin of Huawei Technologies Ltd. (Huawei) dated back to 1987 when Ren Zhengfei (Ren), a former military engineer in the People’s Liberation Army (PLA), founded the company in Shenzhen with the aim of making it the backbone of China’s communications industry.

The company started as a sales agent for a Hong Kong company selling private branch exchange (PBX) switches with an initial investment of US$ 3400. By 1990, it had acquired enough resources to open its first research laboratory. In the same year, i.e. 1990, the company made its own PBX and started selling the switches to hotel networks at prices lower than those of imported devices

HUAWEI’S INTERNATIONALIZATION STRATEGY

In the mid-1990s, the Chinese domestic telecommunications networking equipment market was dominated by giant international telecom equipment companies. Their dominance led to Huawei having a relatively weaker position in China. Ren believed that the Chinese telecommunications market was the largest and among the most open markets in the world attracting global telecommunication giants to the country. As a result, he felt, “The best food has all been eaten up by the global giants and what we can do is to have those leftovers.” This prompted Huawei to consider entering international markets. Commenting on its international expansion, Ren, said, “We were forced to go into the international market for our very survival.”

CHALLENGES IN THE GLOBAL TELECOM MARKETS

Though Huawei achieved huge success in several global markets, the US was a different story altogether. Despite bidding several times since the company first entered America, Huawei failed to win a single big contract from top-tier carriers such as AT&T, T-Mobile, and Verizon. The US telecom companies had had long relationships with home-grown suppliers such as Lucent, Motorola, and Cisco. Moreover, the US telecom majors felt that while the telecom equipment manufactured by Huawei was fine for emerging markets, it was not reliable or suitable for the 24/7 service required by networks in the US. Though by 2011, Huawei had developed some of the most innovative and fastest equipment in the telecom industry, it continued to face resistance in the US.

THE CHALLENGES CONTINUE...

While Huawei was making several efforts to crack the global telecom markets, in July 2015, Malcolm Turnbull, Communications Minister, Australia, stated that amidst security threats, telecom companies in Australia had been barred from using equipment from Huawei and ZTE. This meant that Huawei would lose its existing business in Australia since it provided equipment for consumer devices and backend networks for Vodafone and Optus. There could also be more trouble in store for Huawei with the Pentagon and the US military announcing plans in October 2015 to ban the use of Huawei equipment.....

LOOKING AHEAD

In November 2016, when the US telecom market announced its plans to build the nation’s 5G wireless network, Huawei was also gearing up to roll out its 5G wireless network by 2020. Though Huawei had earlier stated that it had given up on the US market, Ren hinted that the company had not given up on the country permanently and that it planned to make a “glorious” return to the US. However, Huawei stated that it would not focus on the US market currently but would concentrate on other global markets. According to Ken Hu (Hu), Huawei’s CEO-in-rotation, “For our 5G strategy, we currently focus on markets like China and Japan among others. In the US right now, we’re not making significant progress and we don’t have big plans for that market.”

Case study question

In the context of Huawei discuss the strategies for having a global footprint which is followed by companies in an International Business setting.

Which of the following is NOT a red flag of related party transaction that may be a sham?

Marin Industries has the following patents on its December 31, 2019, balance sheet.

The following events occurred during the year ended December 31, 2020.

The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

Compute the total carrying amount of Marin' patents on its December 31, 2020, balance sheet.

Additional Information:

12. Patents were acquired at a cost of $80 000 on 1 July 2016. They have an estimated life of 16 years, of which 12 years remain on 30 June 2020.
13. The brand name is stated at fair value and is internally generated.
14. The licence, acquired one year ago, has a 10-year life of which nine years remain. The licence can be traded in an active market and has a fair value of 1.1 million.

Some of the treatments by XYZ may be inconsistent with the accounting standards AASB 138 “Intangible Assets”.

REQUIRED:

For EACH intangible asset, specify and briefly justify the following accounting decisions in accordance with AASB 138 ‘Intangible Assets’:

1. How should the intangible asset be initially recognized?
2. What is the appropriate subsequent measurement basis (i.e., measurement model) of the recognised asset?
3. Is the recognised asset subject to amortization?

4. Calculate the carrying amount of each asset at 30 June 2020. No journal entry is required.

Black Co. acquired 100% of Blue, Inc. on January 1, 2020. On that date, Blue had land with a book value of $38,000 and a fair value of $49,000. Also, on the date of acquisition, Blue had a building with a book value of $250,000 and a fair value of $460,000. Blue had equipment with a book value of $340,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2020 related to the acquisition allocations of Blue

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1. Review   and discuss the collapse of the Futures Oil Market, which   fell into the negative realm in May 2020.                                                                                      

What were the main reasons for this fall into the negative realm? Critically discuss.

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Problem I. On January 1, 2019, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000 cash. On that date, S Company’s stockholders’ equity consisted of common stock, $150,000; other contributed capital, $200,000; and retained earnings, $350,000. P Corp paid more than the book value of net assets acquired because the recorded cost of S Corp’s equipment (5 year remaining useful life) was $40,000 less than its fair value; the remainder was allocated to goodwill. There were acquisition related costs of $40,000 at the date of acquisition.

During 2019 S Corp earned $240,000 and declared and paid a $80,000 dividend. P Corp used the equity method to record its investment in S Corp. In addition, P Corp sold (transferred) $100,000 of goods to S Corp on account. The goods cost P Corp $60,000. At the end of 2019, approximately $20,000 of the transfer remains unsold.

During 2020 S Corp earned $280,000 and declared and paid a $90,000 dividend. The unsold goods from 2019 were all sold to 3^rd parties. In addition, P Corp. sold (transferred) $120,000 of goods to S Corp on account. The goods cost P Corp $90,000. At the end of 2020, approximately $30,000 of the transfer remains unsold.

1-. Prepare the journal entries on P Corp’s books to record S Corp’s income and dividends during 2020, as well as any other necessary journal entries during the year.

2-Prepare the worksheet entries at December 31, 2020