effective mitigation strategies for liability of
TRANSCRIPT
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Effective mitigation strategies for liability of
foreignness and liability of origin: The case of
Huawei in the Netherlands
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Final version Master thesis
Author: Kasper Verhoog | Student number: 11203633
MSc. Business Administration | International management track
Amsterdam Business School | University of Amsterdam
First supervisor: Dr. M.P. Paukku
12th January 2016
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Statement of Originality
This document is written by student Kasper Verhoog who declares to take full responsibility
for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources
other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of
completion of the work, not for the contents.
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Table of contents
Statement of Originality ...................................................................................................................... 2
Table of contents ................................................................................................................................ 3
Acknowledgements ......................................................................................................................... 4
Abstract ........................................................................................................................................... 5
1. Introduction .................................................................................................................................... 6
2. Literature Review ............................................................................................................................ 8
Costs of doing business abroad ....................................................................................................... 8
Liability of foreignness ................................................................................................................... 9
Unfamiliarity costs ........................................................................................................................ 11
Discrimination costs ...................................................................................................................... 12
Relational costs ............................................................................................................................. 14
Liability of foreignness: A different dyadic perspective ............................................................... 15
The unique traits of EM MNEs and the link with LOF ................................................................ 16
Environmentally-derived LOF and the link to discrimination costs ............................................. 18
Firm-based LOF and the link to unfamiliarity/relational costs ..................................................... 19
Liability of origin .......................................................................................................................... 20
Literature overview ....................................................................................................................... 21
Gap and research question. .......................................................................................................... 22
3. Theoretical Framework ................................................................................................................. 24
A high degree of Environmentally-derived LOF ............................................................................ 24
A high degree of firm-based LOF .................................................................................................. 25
A high degree of Liability of origin ................................................................................................ 27
The use of local employees ........................................................................................................... 28
Organizational learning ................................................................................................................. 29
Brand Building ............................................................................................................................... 30
Visual model theoretical framework ............................................................................................ 31
4. Methodology ................................................................................................................................. 32
Qualitative single case study ......................................................................................................... 32
Qualitative data............................................................................................................................. 33
Interview data ............................................................................................................................... 34
The case study: Huawei Netherlands B.V. .................................................................................... 35
Research method .......................................................................................................................... 36
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Acknowledgements
I would like to thank my thesis supervisor Dr. Markus Paukku for his useful advice
and for the time that he devoted to make the best out of my thesis. Without him I would never
have come this far. I am really grateful for his guidance through the whole process. I would
also like to thank Stefan Luiken and Jiyoung Min, the reviewers who helped me to put this
paper in a much better shape. I also want to thank my mom and my girlfriend Tianhui Qu,
they always gave me mental support during the whole process of writing my thesis. Lastly, I
would like to thank all the employees of Huawei who cooperated and were willing to conduct
an interview. Without their valuable input, I could never write my thesis.
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Abstract
A lot of researchers analyzed the additional costs that foreign firms face compared to
local firms when going overseas, which is known as the liability of foreignness. Most
researchers have analyzed developed market multinationals investing in emerging markets To
overcome this geographic bias, this paper focuses on liability of foreignness (LOF) within the
context of emerging market multinationals investing in developed markets. In this paper LOF
is divided into two main components: Environmentally-derived LOF and firm-based LOF.
This paper includes the liability of origin (LOR) in order to describe the full range of
additional costs an emerging market multinational faces. This paper analyzes LOF and LOR
taking the perspective of an emerging market multinational, specifically the Dutch subsidiary
of Huawei. The purpose of this study, is to explore which strategies are effective in
mitigating different forms of liability of foreignness and liability of origin. The researcher
gathered qualitative data by conducting seven interviews with multiple employees of Huawei.
Based on this data, this paper found that emerging market multinationals can use local
employees to mitigate firm-based LOF and environmentally-derived LOF effectively.
Furthermore, this paper finds support for other effective strategies mitigating firm-based LOF
namely organizational learning, sending experienced managers and creating a mutual cultural
understanding. Several effective mitigation strategies for liability of origin have been found:
Brand building, delivering good products/services and bringing the consumers to the facilities
of EM MNEs. This paper argues that firm-based LOF should be divided into two concepts:
internal firm-based LOF and external firm-based LOF. These concepts are not mentioned in
the literature yet.
Keywords: Costs of doing business abroad, liability of foreignness, liability of origin,
emerging market multinationals, Huawei, environmentally-derived LOF, firm-based LOF,
internal firm-based LOF and external firm-based LOF.
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1. Introduction
In 2016 one of the highest bidding ever, was made in the chemical sector by
ChemChina. This Chinese state owned company bid an enormous amount of money in order
to acquire a Swiss company named Syngenta (Blackstone, 2016). ChemChina bid $43 billion,
which is the second highest bidding in the chemical sector in the past year. The companies
agreed in terms with each other and it is expected that ChemChina will acquire Syngenta at
the end of the year. A year before ChemChina acquired the Italian tire manufacturer Pirelli
and a German firm manufacturing polymers (Stoye, 2016). This series of acquisitions show
that multinationals from emerging markets (EM MNEs) are investing seriously in the
developed markets. ChemChina and many other EM MNEs such as Huawei show that FDI is
no longer a one-way street from developed markets into emerging markets.
When multinationals operate outside their home country, they face additional costs
which indigenous local firms do not have. These additional costs arise because foreign firms
are stemming from a country which differs from the country they invest in. Foreign firms
suffer because they lack local knowledge, are subject to local discrimination and have
difficulties operating and coordinating their subsidiary (Eden & Miller, 2004). This
phenomenon is known as the liability of foreignness (LOF). In this paper LOF is defined as
“The additional social costs foreign subsidiaries face, compared to well-embedded
indigenous firms, when they operate outside their home country”.
Most research about liability of foreignness examines multinationals venturing from
developed markets into emerging markets. However nowadays more multinationals from
emerging markets are investing in developed markets themselves (UNCTAD, 2015). The
majority of articles, written in the last 10 years, about LOF took a dyadic perspective from
developed markets into emerging markets, so there appears to be a geographic bias. Denk et
al confirm this bias and state that: “Research appears to lag behind recent developments in
the international business literature” (Denk et al, 2012, p. 330).
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Peng et al acknowledge a geographic bias as well: “Given IB's traditional focus on
MNEs from developed economies, we currently know very little about how firms from
emerging economies internationalize” (Peng et al, 2008, p.931). To overcome this geographic
bias, this paper shifts away from the traditional focus. This paper takes a different dyadic
perspective from emerging into developed markets. LOF within this dyadic perspective has
not been extensively studied yet, which makes this topic scientifically relevant.
Denk et al state the following “These as yet little understood interdependencies
between LOFs hazards and mitigation strategies prevent researchers from identifying the
optimal mix of strategies for managing the outcomes of LOFs. This gap causes managers to
engage in trial-and-error approaches. We therefore encourage the investigation of this
paradox in future studies and the development of effective solutions that take into account the
complexities of LOFs solutions” (Denk et al, 2012, p.329). This paper will explore which
strategies are effective in mitigating different forms of liability of foreignness and liability of
origin (LOR). Therefore, this study gives rise to the call proposed by Denk et al which makes
this paper scientifically relevant as well.
This study finds mitigation strategies EM MNEs can use to overcome the specific
types of LOF and LOR they face when setting up a subsidiary in a foreign country. Managers
can use these strategies to overcome different types of LOF and LOR instead of the trial-and-
error approaches they are using now (Denk et al, 2012). As more and more EM MNEs invest
abroad an effective mitigation strategy for LOF and LOR would be very valuable in practice.
Therefore, this research is also practically relevant.
This paper is structured as follows: The next section contains the literature review.
This part defines various concepts related to the research question. In the end of this section,
the research question is posted and the scientific and practical relevancy is identified.
Afterwards, a theoretical framework is posted which contains six working propositions about
firm-based LOF, environmentally-derived LOF, LOR and effective mitigation strategies to
overcome them. The methodology section explains how this study gathers and analyzes first
hand data. The results section presents anecdotal support for the findings of this study. In the
discussion, the findings are compared to the existing literature. In this section, the theoretical
contribution of this paper is clarified as well. Afterwards, several limitations of this study are
mentioned. Furthermore, some directions for future research and practical implications for
managers are given. In the last section, the main findings are summarized in the conclusion.
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2. Literature Review
This literature review compiles a list of different articles which can be related to firms
who internationalize. This review start conceptualizing the constructs costs of doing business
abroad (CDBA), liability of foreignness (LOF) and liability of origin (LOR). To fully
understand LOF, this paper analyzes this construct using the theoretical lens of Eden &
Miller. Afterwards, this paper uses a different dyadic perspective by applying LOF and on
emerging markets multinationals entering a developed market. LOF is split into two
concepts: Environmentally-derived LOF and firm-based LOF. Liability of origin is
incorporated in this section to identify all the additional costs EM MNEs face when they
venture abroad. At the end of the literature review a research question is posted and a
scientific gap is identified.
Costs of doing business abroad
Hymer was the first scholar who argued that foreign firms face additional costs when
doing business abroad, which he called the costs of doing business abroad (CDBA). In his
paper he argued that foreign multinational enterprises face costs that indigenous firms do not
have. In his original work he stated: “National firms have the general advantage of better
information about their country: its economy, its language, its laws, and its politics “(Hymer,
1976, p.34). In the last forty years a lot of research has been conducted which build upon the
influential theory of Hymer.
More recently, the influential scholar Zaheer elaborated on the work of Hymer. In this
paper the author stated that MNEs face liability of foreignness when operating abroad.
Zaheer defined liability of foreignness (LOF) as “All additional costs a firm operating in a
market overseas incurs that a local firm would not incur” (Zaheer, 1995 p.343).
By comparing the previous mentioned authors, the constructs liability and foreignness
and CDBA seem synonymous to each other. However, these definitions are not exactly the
same. According to a more recent paper of Zaheer these definitions differ. CDBA consists of
“Additional costs that foreign firms have when entering abroad, which indigenous firms do
not have”. One type of costs, which are a precursor of CDBA, are economic costs. Economic
costs are related to geographic distance such as exporting costs. Zaheer stated that economic
costs are not related to LOF (Zaheer, 2002).
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CDBA can be divided into 2 costs: Infinite and finite. One type of the costs could be
quantified and anticipated (Calhoun, 2002). These costs can be finite, such as the costs of
exporting. The second type of the costs are difficult to quantify, anticipate, and manage.
These costs are related to uncertainty and persist over time (Calhoun, 2002). The finite type
of costs resembles the market-driven costs. The infinite type resembles the liability of
foreignness as proposed by Zaheer in 2002. Therefore, the market driven-costs can be
anticipated, measured and easily be managed. Following the same logic this paper argues that
liability of foreignness is not easy to measure, manage and it is infinite. The main problems
for managers of MNEs arise because their firms face liability of foreignness. Therefore, this
paper will focus on LOF instead of CDBA.
Zaheer & Mosakowski found that LOF decreased the chance of survival in a foreign
market of foreign firms. Domestic trading rooms had a higher chance of survival, compared
to foreign ones (Zaheer & Mosakowski, 1997). Another quantitative study in the banking
sector found that domestic firms are more efficient compared to foreign MNEs. Therefore,
the financial performance of domestic banks was higher (Miller & Parkhe, 2002). These
studies show that LOF matters and that foreign firms are heavily influenced by it. Therefore,
this paper focuses on the concept of LOF in-depth.
Liability of foreignness
Zaheer was the first scholar who introduced the term “liability of foreignness” (LOF).
The author used this term to state that foreign firms face additional costs compared to local
firms, when they operate outside their home country (Zaheer, 1995).
In her first paper about LOF she argued that liability of foreignness can be divided
into four different costs (Zaheer, 1995). Firstly, there are costs resulting from a geographic
distance between a home and a host country. These costs are labeled as spatial distance costs.
Secondly, a foreign firm faces firm specific costs. These cost occur when the foreign firm has
insufficient knowledge about the local environment and their practices. Thirdly, there are
costs resulting from the host location. These can be costs that arise because of lack of IP
rights or because there are people in the host location who favor national over foreign brands.
Lastly, there are cost due to the rules in the home country of the foreign firm. These costs can
arise because of the legislation in the home country. For example, when a foreign firm is not
allowed to export products from their home country (Zaheer, 1995).
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In 2002, Zaheer analyzed LOF in a different way: The author stated that LOF consists
of two types of costs: structural/relational costs and institutional costs. The former describes
the costs which occur due to a lack of access to the local network and a lack of relations with
important local actors. The latter describes the costs which occur because the MNE is
operating in different institutional environments (Zaheer, 2002).
Eden & Miller analyzed LOF using another perspective. They state that foreign
subsidiaries face extra costs because they are operating in an environment with different
institutions. Eden and Miller argued that LOF is decomposed into three costs: Unfamiliarity
costs, discrimination costs and relational costs. Firstly, subsidiaries face unfamiliarity costs
because they lack local knowledge and experience. Secondly, subsidiaries are discriminated
because local stakeholders favor national firms. Lastly, subsidiaries face extra organizational
costs when they venture abroad (Eden & Miller, 2004).
Liability of foreignness is an empirical concept, which states that foreign firms face
additional costs compared to local firms when expanding abroad. Many articles analyzed
LOF, using different perspectives (Zaheer, 1995); (Zaheer, 2002); (Eden & Miller, 2004).
This paper uses the structural analysis which was proposed by Eden and Miller to identify
this concept. This paper is used because it is one of the most cited and influential paper in the
literature of LOF. In the following table, the most important articles that analyzed LOF are
shown in a visual way. In the following section LOF is examined through the lens of Eden &
Miller, which is indicated by the arrow.
Author(s) , Year Definition LOF LOF Consist of
Zaheer, 1995 “All additional costs a firm operating in
a market overseas incurs that a local
market would not incur”
1 Spatial distance costs
2 Firm- specific costs
3 Host country costs
4 home country costs
Zaheer, 2002 “All social costs a firm operating in a
market overseas incurs that a local
market would not incur
1 structural relational costs
2 institutional costs
Eden & Miller, 2004 “All the social costs of doing business
abroad”
1 Unfamiliarity costs
2 Discriminatory costs
3 Relational costs
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Unfamiliarity costs
“Unfamiliarity costs reflect the firm’s lack of local knowledge of or experience in the
host country, which places the foreign firm at a disadvantage compared to local firms” (Eden
& Miller, 2004, p. 10). Often local firms have more knowledge, compared to foreign firms,
about the institutions and the local culture because they are already operating in their home
country for a long time (Elango, 2009).
Local knowledge consists of know-how about the local economy, culture, politics and
business customs for example. A qualitative study showed a positive relationship between the
amount of local knowledge and performance. When firms possess more local knowledge they
can make more efficient decisions, this improves their performance (Makino & Delios,
1996). Therefore, this paper argues that a lack of local knowledge results in costs for a
foreign firm.
Local firms are often more socially embedded in a network compared to foreign
firms. Therefore, local firms have more long-lasting embedded relations with other
unaffiliated organizations (Elango, 2009). In an embedded relation there is extensive
communication between firms which can be beneficial for enhancing organizational learning
(Uzzi, 1996). In an embedded relation firm A may learn about the local context from firm B
and vice versa. This embedded relations help the local firms to acquire local knowledge.
Foreign firms lack embedded relations, so they are more likely to acquire less local
knowledge.
According to the literature, foreign firms lack local knowledge because they spend a
short time in a host country and they lack embedded relations. This paper assumes that the
low degree of local knowledge is the main driver of unfamiliarity costs, and this assumption
is important in this study. This paper will focus on the degree of local knowledge that EM
MNEs have when they venture into developed markets.
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Discrimination costs
Discrimination costs are the second component of the LOF. Discrimination costs are
“Costs which a foreign firm faces when they go overseas because they are treated differently
compared to the local firms in the host country”. Companies can be treated differently by
local stakeholders such as customers, suppliers and governments because they are foreign.
When foreign firms enter a host country they face a different institutional environment
compared to their home country which can put them at a disadvantage (Eden & Miller, 2004).
An institutional environment can be characterized by three pillars: regulative,
cognitive and normative. The regulative pillar consists of all the rules and laws which
promote or restrict certain behavior. The cognitive pillar reflects the cognitive categories
widely shared by the people in a particular country. This is the framework people use to
assess the reality, for example American citizens use a monetary perspective to explain
whether a firm is doing well or not. Lastly the normative pillar consists of the values and the
norms which are held by the people (Scott, 1995).
North defines institutions as “The humanly devised constraints that structure political,
economic and social interaction” (North, 1991, p.97). Institutions are the rules of the game,
which determine how the economic game is played. Institutions influence transaction and
production costs. These costs affect profitability and affect the feasibility of engaging in
economic activities (North, 1991). “According to new institutional economists institutions
matter and are susceptible to analysis” (Matthews, 1986, p.903). Therefore, it is important to
take the institutional context into account.
North defines 2 types of institutions: Informal and formal. The former is about the
social norms, taboos, customs, traditions and codes of conduct which are in place (North,
1991). These rules are based on implicit understanding of rules and they are not written down
in a book. It derives more from a social perspective, these rules “should be followed”. The
latter is about the rules which are more explicit. These rules are written down in books and
have to be followed. Examples of this are laws and property rights. These rules derive more
from a legal perspective. These formal rules “must be followed” (Zenger et al, 2001)
Slangen & Beugelsdijk argued that formal and informal institutions create
institutional hazards for companies. They argued that formal institutions cause the highest
institutional hazards for a foreign firm because foreign MNEs are not able to resolve them.
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A low quality government system increases the risk of less favorable policies towards foreign
companies. In their study they showed that cultural distance and a low quality government
system increases the risk of institutional hazards (Slangen & Beugelsdijk, 2010).
Informal rules, which are related to the normative and cognitive pillar, can cause
institutional hazards for foreign firms. These institutional hazard arise because firms are
treated different by customers, vendors or suppliers in an informal way:
Consumers may display consumer ethnocentricity, which means that consumers see
the foreign firm as an “outsider” (Lantz & Loeb, 1996). A quantitative study showed that
Canadian customers prefer domestic over foreign products. Interestingly, the net effect was
greater when the foreign firm was coming from a developing country compared to a
developed country (Lantz & Loeb, 1996). Canadian people have the custom to value
domestic over foreign brands, which causes costs in terms of missed sales for foreign firms.
Local suppliers and vendors can have national tendencies as well, therefore they
rather do business with local firms compared to MNEs (Elango, 2009). To overcome these
national tendencies MNEs need to obtain external legitimacy (Eden & Miller, 2004).
Legitimacy is achieved when the company has a license to operate. MNEs can obtain
legitimacy by constantly acting in a way which is desirable or appropriate within some
socially constructed system of norms, values, beliefs, and definitions (Suchman, 1995).
Governments can discriminate a particular MNE by setting up formal institutions
which affect them negatively, such as high taxes or the presence of tariff barriers (Henisz &
Williamson, 1999). This is done in order to protect the domestic industry or it can be driven
by strategic concerns (Ramachandran & Pant, 2010). Host firms may approach governments
to set up rules which are negative for the foreign MNE as well (Lantz & Loeb, 1996).
Discrimination costs arise because MNEs are facing a different institutional context
when they go abroad. This paper assumes that a MNE faces discrimination costs when formal
and informal rules favor local over foreign firms. This assumption is important in this study.
This paper focuses on informal and formal institutions that cause extra costs for EM
MNEs. This study will investigate if there are any formal regulations that discriminate EM
MNEs when they enter a developed market compared to local firms. Furthermore, this paper
will assess whether suppliers, governments, vendors or customers discriminate EM MNEs in
an informal way when they enter a developed market compared to local firms.
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Relational costs
Lastly, relational costs play a role when looking at LOF. Relational costs are
“Additional organizational costs a MNE faces when they go overseas”. Firms have two kinds
of organizational costs: Intra-organizational costs and inter-organizational costs.
Intra-organizational costs occur because the organization has to be managed
internally. An MNE has to manage different subsidiaries from a distant location (Eden &
Miller, 2004). Geographic distance creates difficulties managing the subsidiary. For example,
when distance increases employees will deploy behavior which will benefit themselves
instead of the firm. This kind of behavior results in higher costs (Hennart, 2001).
When firms operate in multiple countries, managers have to deal with differences
between subsidiaries. Every subsidiary has employees stemming from different cultures, this
makes it highly complex and increases the management costs substantially (Hitt et al, 1997).
For example, Research conducted by Mezias has shown that foreign subsidiaries have more
labor lawsuits in America compared to their domestic counterparts as they are not able to
fully understand the motivations of their employees (Mezias, 2002).
Inter-organizational costs arise because an organization needs to manage their
relations with other external stakeholders. Foreign firms have difficulties setting up a trust-
based relation because they lack the capability to set up this kind of relations with third
parties. Furthermore, MNEs stem from a foreign country with a different language, culture,
business practices and habits. This makes it harder for them to set up a trust-based relation
with a local firm compared to other indigenous firms. Trust decreases the monitoring costs
and it decreases the chance that the other party ends the relation. Therefore, a trust-based
relation decreases inter-organizational costs (Uzzi, 1996).
Based on the previous paragraphs this paper states that relational costs derive from 3
main drivers: The fact that subsidiaries need to be managed from a geographic distance, the
diversity of employee’s cultures and the inability to set up trust-based relations.
This paper will investigate whether EM MNEs venturing into a developed market face
additional organizational costs. The focus on this paper is on the two last drivers. It will
investigate if the inability to set up trust-based relations and the cultural differences between
employees are causing relational costs.
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Liability of foreignness: A different dyadic perspective
A lot of research has been conducted which covers the topic of liability of
foreignness. Most scholars researched LOF using a dyadic perspective from a MNE coming
from a developed market investing in an emerging market. A minority of all the articles in the
last 10 years about LOF took a dyadic perspective from emerging markets into developed
markets (Denk et al, 2012). This geographic bias was justified because most of the FDI was
done by MNEs from developed markets (DM MNEs) into emerging markets.
Nowadays more MNEs from emerging markets (EM MNEs) are investing foreign
direct investment into developed markets. In 2014 the level of outward foreign direct
investment (FDI) from developing countries reached the highest level ever. In 2014 this
outward FDI increased by 23 percent to $468 billion (UNCTAD, 2015). In 2015, the FDI
outflows from developing economies decreased by fifteen percent. However, the FDI outflow
from developing economies still remains 23 percent of the total FDI outflow. Some
developing countries do increase their FDI outflow: China spend in 2015 $128 billion, an
increase of 4 percent. China remains third on the world ranking list for FDI outflows, only
Japan and America have more FDI outflows compared to China (UNCTAD, 2016).
EM MNEs are still an important factor, as their portion of total outward FDI almost
equals 25 percent. The amount of investment from EM MNEs investing in developed markets
increased significantly compared to five years ago (UNCTAD, 2016). This phenomenon
turns EM MNEs into a very interesting unit of analysis. In the past scholars had the tendency
to research DM MNEs. In order to overcome this geographic bias and to acknowledge the
fact that EM MNEs are becoming more important, this paper will take a different dyadic
perspective: From emerging markets into developed markets.
The unit of analysis of this paper is the subsidiary of Huawei that is operating in a
developed market, namely the Netherlands. In this paper the definition of an EM MNE will
be in line with Luo & Tung. This paper defines an EM MNE as “International firms that
originate from an emerging market, that perform outward FDI in one or more foreign
countries in which they undertake value-adding activities and exercise effective control” (Luo
& Tung, 2007, p.482). EM MNEs have to undertake value-adding activities overseas to be
recognized as such. Therefore, this paper excludes MNEs which operate overseas because of
tax reasons and EM MNEs which are just exporting.
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The unique traits of EM MNEs and the link with LOF
EM MNEs have unique traits, for example these firms lack the precious firm specific
advantages that DM MNEs possess. EM MNEs don’t have the same capabilities and
resources compared to their counterparts from developed markets, this is known as the
capability/resource gap (Gaur et al, 2011). EM MNEs lack capabilities and assets, such as a
strong brand name, managerial expertise and technological know-how. However, they do
possess some unique firm specific advantages, such as the ability to perform low-cost
products and the ability to offer the right mix of price-quality products (Ramamurti, 2012).
Johansson and Vahlne argued that DM MNEs internationalize in a gradual way,
which is known as the Uppsala model. This model states that DM MNEs expand overseas in
small incremental steps. First a DM MNE expands to a foreign country which is close to their
home country in terms of psychic distance. Later, a DM MNE invests in countries that are
more distant (Johanson & Vahlne, 1977).
DM MNEs take small incremental steps in order to learn “How to internationalize”.
For example, DM MNEs learn how to set up operations in a foreign market and how to get
access to local knowledge (Johanson & Vahlne,1977). By internationalizing in small
incremental steps DM MNEs learn how to become embedded in a network in a foreign
context. Furthermore, they get a better understanding of their own capabilities when they
internationalize incrementally (Johanson & Vahlne, 2009).
Other authors hold an opposing view: They argue that DM MNEs are doing
international business from inception because they want to leverage their firm specific
advantages, this is known as the born-global view. These firms see international markets
from the beginning as an opportunity to increase their sales. Therefore, they are present in
multiple countries from inception (Chetty & Campbell-Hunt, 2004).
The internationalization process of EM MNEs is different compared to DM MNEs.
EM MNEs do not internationalize according to the Uppsala model nor are they born-global.
EM MNEs expand a few years after inception immediately to a country which is totally
different than their home country, this is known as springboard behavior (Luo & Tung,
2007). EM MNEs springboard for different reasons: First to compensate for their competitive
disadvantages. By acquiring foreign firms, they buy firm specific advantages such as
technological know-how, brand image and managerial expertise. Secondly, EM MNEs use
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springboard behavior as a way to bypass trade barriers and to avoid the domestic institutional
constraints. Thirdly, firms from emerging markets want to secure preferential treatment by
their home government. By going abroad EM MNEs can benefit from the preferential
treatment which foreign firms take advantage of, such as lower taxes. Lastly, EM MNEs want
to exploit their firm specific advantages. In developed markets EM MNEs can offer lower
price products as they are specialized in mass production (Luo & Tung, 2007).
The springboard behavior of EM MNEs doesn’t allow them to accumulate
international experience and places them in a country which is very distant from their home
country. Because of these reasons they have difficulties going overseas. Moreover, EM
MNEs lack precious firm specific advantages such as a strong brand name and managerial
expertise which can help them overcome these difficulties.
EM MNEs possess less firm specific advantages and they springboard to other
countries. Because of these reasons Gaur et al state that MNEs which internationalize from an
emerging market into a developed market face a high degree of LOF (Gaur et al, 2011).
Given that EM MNEs face a high degree of LOF and still invest in developed markets it is
questionable whether LOF is a huge issue for EM MNEs. This makes it very interesting to
research liability of foreignness within the context of EM MNEs investing in developed
markets. The following figure is a visual representation of the unique traits of EM MNEs and
the link with LOF.
Gaur et al argue that EM MNEs face two sources of LOF: Environmentally-derived
LOF and firm-based LOF. Environmentally-derived LOF has its source in the home and host
country, as the institutional context between these countries differ. Environmentally-derived
LOF states that firm faces LOF because of external sources, it deals with the exogenous
nature of LOF. Firm-based LOF derives from firm specific characteristics. Firm-based LOF
increases, for example, when EM MNEs lack management expertise or local knowledge
(Gaur et al, 2011). Firm-based LOF deals with the endogenic nature of LOF.
EM MNEs springboard to other countries
EM MNEs lack firm specific advantages
EM MNEs face a high degree of LOF
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Environmentally-derived LOF and the link to discrimination costs
Environmentally-derived LOF arise because firms are doing business in a particular
environment. In this paper environmentally-derived LOF is defined as “Costs EM MNEs face
when they invest overseas because the institutions in the host country are less beneficial for
them, compared to the local firms”. In the business environment of EM MNEs institutions
play a major role (North, 1991)
This paper argues that discrimination costs are related to the environmentally-derived
LOF. Firms are getting discriminated by actors in the environment of the firm such as the
government, suppliers, vendors and customers. This happens because the institutional context
in the host country is different. Therefore, this paper relates discrimination costs to
environmentally-derived LOF.
EM MNEs have to operate in an institutional context that is very different compared
to their home country (Gaur et al, 2011). Therefore, it is likely that EM MNEs face a high
degree of environmentally-derived LOF when they invest in developed markets.
Environmentally-derived LOF put EM MNEs at a disadvantage because it creates extra costs
for the firm.
Environmentally-derived LOF can be a significant issue for an EM MNE. Therefore,
this paper investigates whether environmentally-derived LOF is an issue for Huawei in the
Netherlands or not. This paper assumes that environmentally-derived LOF only consists of
discrimination costs.
This study analyzes environmentally-derived LOF by looking at discrimination costs.
It analyzes whether formal and informal regulations in the Netherlands create
environmentally-derived LOF for Huawei. Huawei is present in multiple environments: they
are selling IT business solutions to other businesses and they sell consumer goods like mobile
phones and routers. This paper analyzes whether Huawei faces environmentally-derived LOF
by looking into multiple industries. It analyzes the environmentally-derived LOF in the
context of the B2B business and the B2C business.
19
Firm-based LOF and the link to unfamiliarity/relational costs
The second type of LOF EM MNEs face when expanding to developed markets is
firm-based LOF. This LOF is based on endogenous factors which are related to the
capabilities/assets a firm has. In this paper we define firm-based LOF: “Costs EM MNEs face
when they go overseas because they do not have the same firm capabilities/assets which
enhance their competitive advantage, compared to the local firms in the host country”.
Firstly, EM MNEs often lack local knowledge. These unfamiliarity costs can be
classified as firm-based LOF. Secondly EM MNEs lack managerial expertise. Thirdly, EM
MNEs have difficulties setting up trust-based relations because EM MNEs are unable to set
up these relations according to the local business practices (Ramachandran & Pant, 2010).
These relational costs are an example of firm-based LOF as well, because specific firm
characteristics are causing this type of LOF.
This paper argues that relational costs and unfamiliarity costs are related to firm-based
LOF. Both costs are arising because the firm itself has some capability/resource gap when
they enter a developed market. This paper will investigate whether EM MNEs lack the
resource local knowledge but it will also investigate if EM MNEs are lacking more resources.
Furthermore, it will investigate whether EM MNEs are facing a capability gap, such as the
inability to set up trust-based relations. This paper will investigate if EM MNEs are lacking
capabilities that DM MNEs do have. This paper will also investigate if cultural differences
between employees have an influence on firm-based LOF.
20
Liability of origin
Environmentally-derived LOF and firm-based LOF are not sufficient to describe the
full range of costs EM MNEs face when entering a developed market. This paper introduces
another concept that complements LOF, the liability of origin (LOR). LOR is defined as “The
disadvantages foreign firms face because of their national origin”. LOF and LOR both state
that foreign firms face costs when they go abroad, but they are not exactly the same concepts.
LOF assumes that firms face costs because local firms have advantages over foreign firms.
LOR assumes that firms face costs as a consequence of where they are from (Ramachandran
& Pant, 2010).
To clarify this distinction between LOF and LOR this paper applies these concepts to
discrimination costs. Before this paper stated that consumers have nationalistic tendencies so
they like to buy products which stem from local firms. This is an example of LOF, as the
consumers do not like to buy foreign products.
Next to this firms can be discriminated because they are coming from a particular
foreign country, the country of origin. A study in 2011 showed that consumers, both in
developed and emerging markets, prefer to buy products from developed markets over
products from emerging markets. Consumers in developed markets hold a very negative
image about countries from emerging markets. The country of origin lowered consumer’s
purchase intention from emerging market products significantly. This example shows that
country of origin matters and that emerging market multinationals present in developed
markets suffer from this. EM MNEs venturing into a developed market are more likely to
suffer from liability of origin because consumers living in developed markets are more likely
to buy products from DM MNEs (Sharma, 2011).
This paper will focus on liability of origin by taking a look at the image consumers
and governments hold about the country of origin of Huawei as perceived by this EM MNE.
This paper assumes that a negative brand image of a country harms the brand and that it
results in missed sales. In this way liability of origin causes costs for EM MNEs.
21
Literature overview
The image below provides an overview of the literature review so far. CDBA is the
overarching concepts which consists of LOF and LOR. Based on the literature LOF can be
divided in environmentally-derived LOF and firm-based LOF. This paper argues that
discrimination costs are related to environmentally-derived LOF. Furthermore, it states that
unfamiliarity and relational costs are related to firm-based LOF.
Costs of doing business abroad (CDBA): “Additional costs that foreign firms have when entering abroad which indigenous firms do not have”
Liability of foreignness (LOF): “The additional social costs foreign subsidiaries face, compared to well-embedded indigenous firms, when they operate outside their home country”.
Liability of origin (LOR): “The disadvantages foreign firms face because of their national origin”
Environmentally-derived LOF: “Costs EM MNEs face when they invest overseas because the institutions in the host country are less beneficial for them, compared to the local firms”
Firm-based LOF: “Costs EM MNEs face when they go overseas because they do not have the same firm capabilities/assets which enhance their competitive advantage, compared to the local firms in the host country”
Discriminations costs: “Costs which a foreign firm faces when they go overseas because they are treated different compared to the local firms in the host country”
Relational costs: “Additional organizational costs a MNE faces when they go overseas”.
Unfamiliarity costs: “Unfamiliarity costs reflect the firm’s lack of local knowledge of or experience in the host country, which places the foreign firm at a disadvantage compared to local firms”
22
Gap and research question.
“To succeed in a target foreign market firms need to overcome LOF” (Dunning,
1995). For an EM MNE it is not easy to overcome LOF as these costs are classified as
infinite and they are not easy to measure (Calhoun, 2002). Managers have difficulties
managing LOF as they don’t know which methods are viable to overcome this problem.
Managers engage in trial-and-error approaches to find the solution that can overcome the
LOF their company is facing (Denk et al, 2012).
This paper will explore which strategies are effective to mitigate different forms of
LOF and LOR EM MNEs face. This paper includes the liability of origin because LOF itself
does not describe the full cost range EM MNEs face (Ramachandran & Pant, 2010). The
research question that this paper tries to answer is the following:
How do EM MNEs mitigate environmentally-derived LOF, firm-based LOF and
liability of origin when they expand to a developed market?
In the past FDI was a one-way street: DM MNEs invested FDI into developing
markets. However, nowadays EM MNEs invest FDI themselves in developed markets. The
amount of FDI from EM MNEs which are investing in developed markets is increasing every
year. India, China and Brazil are all increasing their outward FDI into developed markets
(UNCTAD, 2015). This research question incorporated this trend by focusing on EM MNEs
investing in developed markets.
EM MNEs concern about LOF as these costs are not easy to manage. LOF affects
financial performance negatively because it lowers the efficiency (Miller & Parkhe, 2002).
Firms which experience a high degree of LOF are less likely to survive and therefore it is
important to mitigate LOF (Zaheer & Mosakowski, 1997). Firms would be highly interested
in methods which can help them overcome specific LOFs they have to face. This research can
help in developing a successful method which decreases a specific type of LOF. Therefore,
this research is practically relevant.
23
A lot of researches have been conducted which investigate FDI flow from a
developed market into an emerging market. A minority of recent papers about LOF took the
dyadic perspective from emerging markets into developed markets. Given that it is not proper
to generalize the LOF concepts from DM MNEs to EM MNEs, as they fundamentally differ,
more research has to be done which research the degree of LOF that EM MNEs face (Denk et
al, 2012). In order to overcome the geographic bias this paper takes the dyadic perspective
which is under-researched. This makes the research question scientifically relevant.
Furthermore, Denk et al state that there is a lack of knowledge about which mitigation
strategies are viable for which LOF. This gap prevents researchers from identifying the
optimal mix of strategies for managing the outcomes of LOF. Denk et al state that “We
therefore encourage the investigation of this paradox in future studies and the development of
effective solutions that take into account the complexities of LOFs solutions” (Denk et al,
2012, p.329). This paper will explore which strategies are effective to mitigate different
forms of LOF and LOR EM MNEs face. In this way, this paper develops effective solutions
that take the complexity of LOF and LOR into account. In this way, this paper contributes to
the existing literature.
24
3. Theoretical Framework
In this section, several working proposition are posted which make predictions about
the degree of environmentally-derived LOF, firm-based LOF and liability of origin EM
MNEs face. Furthermore, based on the literature, mitigation strategies for different types of
LOF and LOR are incorporated in the working propositions. Six working propositions are
written down, and these propositions will guide the direction of this paper. In the end of this
section a model is presented that is a visual representation of the theoretical framework.
A high degree of Environmentally-derived LOF
The first type of LOF is the environmentally-derived LOF. Environmentally-derived
LOF is defined as “Costs EM MNEs face when they go abroad because the institutions in the
host country are less beneficial for them, compared to the local firms”. The main driver of
environmentally-derived LOF is the fact that foreign firms are discriminated by governments,
suppliers, vendors or consumers in a formal or informal way. Foreign face a disadvantageous
institutional context compared to local firms. Eden and Miller argued that institutional
distance and environmentally-derived LOF are positively related to each other (Eden &
Miller, 2004).
EM MNEs face a high institutional distance when they venture into a developed
market (Gaur et al, 2011). For example, in China Guanxi is an effective method to form
relations. Guanxi are inter-personal relations between an MNE and people in the local
community such as suppliers, government officials, buyers and wholesalers. In China Guanxi
is developed first, afterwards managers start to talk about business and they set up contracts.
In the West it is the other way around: Managers start doing business by setting up contracts,
afterwards they develop personal relations (Luo et al, 2002).
Because of the different business practices, which are reflected in a high institutional
distance, it is likely that EM MNEs cannot secure preferential treatment by governments.
Furthermore, it is likely that suppliers and vendors value domestic firms over EM MNEs
because it is easier to do business with them.
25
Consumers tend to value domestic products over foreign products. This effect is
stronger when a foreign brand is coming from a culture which is very dissimilar. The study
from Watson confirmed that cultural distance plays a role: Consumers from New Zealand
were less likely to value Italian products over domestic products compared to German
products. This happened because of cultural distance: Italy and New Zealand are culturally
more distant from each other compared to New Zealand and Germany (Watson, 2000).
Therefore, multinationals which venture abroad into very dissimilar cultures are more likely
to be discriminated by the consumers.
EM MNEs are more likely to face a high degree of cultural dissimilarity when they
venture into a developed market. EM MNEs stem from a country that possess totally different
business practices, a different language, different rituals, different values etc. Therefore, it is
more likely that EM MNEs get discriminated by consumers when they venture into a
developed market.
These, and many other examples show that the institutional context in an emerging
market is totally different compared to the institutional context from a developed market.
This distance results in discrimination costs, EM MNEs get discriminated in a formal or
informal way. Based on this section and on the literature review the following proposition is
made:
Proposition 1: EM MNEs venturing into developed markets face a high degree of
environmentally-derived liability of foreignness.
A high degree of firm-based LOF
The second type of LOF is the firm-based LOF. Firm-based LOF is defined as “Costs
EM MNEs face when they go overseas because they do not have the same firm
capabilities/assets which enhance their competitive advantage, compared to the local firms in
the host country”. This firm-based LOF is especially a problem for EM MNEs because they
engage in springboard behavior and because they lack precious firm specific advantages that
DM MNEs do have (Gaur et al, 2011). This paper argues that the unique traits of EM MNEs
increase the costs associated with firm-based LOF.
26
Most of the EM MNEs are considered as latecomers in Europe because they started
engaging in outward FDI many years later compared to DM MNEs. EM MNEs didn’t have
the same time to develop their capabilities. Therefore, they suffer from a capability gap such
as managerial expertise. Furthermore, EM MNEs face a resource gap: They do not possess a
lot of local knowledge and a valuable brand name because they just ventured into developed
markets. This creates extra costs for EM MNEs that local firms and even DM MNEs do not
have (Ramamurti, 2012).
EM MNEs internationalize in a fast way: They springboard immediately to a country
which is totally different from their home country (Luo, & Tung, 2007). Contrary, DM MNEs
internationalize by taking many small incremental steps (Johanson, & Vahlne, 1977). DM
MNEs “learn how to internationalize” by doing this. They learn for example how to set up
trust-based relations with third parties. EM MNEs deploy springboard behavior which does
not allow them to acquire these skills.
EM MNEs face high cultural distance when they venture into Europe. This cultural
distance will cause difficulties managing the foreign subsidiary. The employees working in
Europe are likely to have different norms, beliefs and values compared to the employees of
the home country. It is difficult for EM MNEs to manage their employees effectively, as the
management style needs to be adapted to the local culture. Furthermore, employees might
have difficulties understanding or accepting the corporate culture because it is based on a
culture which is very distant. It is more likely that conflicts arise between the management
and the employees (Chang et al, 2012). Especially for EM MNEs this is an issue because they
lack managerial expertise.
The previous paragraphs have shown that EM MNEs are likely to face firm based
LOF. Firstly, EM MNEs face a capability gap: DM MNEs have more capabilities such as
managerial expertise and the ability to set up trust-based relations. Secondly, EM MNEs face
a resource gap: DM MNEs possess more assets like local knowledge and a valuable brand
name. Thirdly, EM MNEs are more likely to suffer from different employee’s cultures
because they lack managerial expertise. This leads to the following working proposition:
Proposition 2: EM MNEs venturing into developed markets face a high degree of firm-based
liability of foreignness.
27
A high degree of Liability of origin
Liability of origin assumes that EM MNEs have extra costs because they are coming
from a particular country, which is called the country of origin. A study conducted by
Magnusson et al confirms this: Consumers leverage associations from the country of origin to
the brand, these associations affect product evaluations and buying behavior. Consumers
leverage negative and positive associations from the country of origin to the brand. Brands
can use country of origin in their favor: Volkswagen is emphasizing that their cars are
“German made” to leverage the association quality from Germany. For some brands the
country of origin is negative. “Haier” is a Chinese brand that adopted a German name to
avoid negative associations from China (Magnusson et al, 2011).
Customers have perceptions, stereotypes and beliefs regarding products or service
quality which is associated with the country of origin (Ramachandran & Pant, 2010). Country
of origin matters a lot: Veale and Quester showed that country of origin heavily influences
the buying decision of consumers. The country of origin was more influential compared to
the taste of wine (Veale & Quester, 2009). Another study conducted in 2008 found that
Australian status-seeking students did not want to buy any fashion products which were
“made in China”. Chinese fashion products were regarded as inferior to products which were
made in Australia, Japan or Italy (Phau & Siew Leng, 2008). Products made in China were
labeled as cheap and low quality.
Governments can discriminate a particular firm as well based on where they come
from. In 2008 the France government initially rejected a takeover from Arcelor by an Indian
company because they preferred a takeover by a Russian company (Ramachandran & Pant,
2010). This is an example of LOR because this rejection was based on the country of origin.
The consumers in developed markets have more negative perceptions about the
country of origin from EM MNEs compared to DM MNEs (Ramachandran & Pant, 2010).
Furthermore, governments from developed countries are more likely to hold negative
perceptions about the country of origin from EM MNEs. Therefore, it is likely that EM
MNEs face a high degree of LOR. The following working proposition is based on this.
Proposition 3: EM MNEs venturing into developed markets face a high degree of liability of
origin.
28
The use of local employees
Luo and Tung stated that offensive and defensive mechanisms can be deployed to
mitigate LOF. One of the offensive strategies that can be used to mitigate LOF is local
networking. “Local networking can reduce LOF via localization by making use of local
production factors such as workers, engineers, and managers” (Luo et al, 2002, p.288).
EM MNEs must understand the formal government structures that dictate their
relation with other external parties like the government, vendors, suppliers and consumers.
However, they also have to understand the informal practices that play a role in the business
environment. The information asymmetry between foreign firms and indigenous firms is the
highest with respect to informal practices (Calhoun, 2002). Hiring local employees is an
excellent way to overcome this issue because they know about these local informal practices.
A local employee can build a relationship more effectively with local government
officials. Employees from emerging markets will try to build a relationship with the
government in a way that does not match the local practices. Therefore, local employees are
more likely to secure governmental preferential treatment compared to foreign employees.
Secondly, a local employee like an account manager is more likely to form profitable
relationships with external parties such as vendors and suppliers. People sharing the same
cultural traits have a more profitable relationship when the two parties engage in an
aggressive bargaining strategy. Participants who share the same culture can withstand the
tension and achieve a better outcome together (Ribbink & Grimm, 2014).
Lastly, local marketers know how to target consumers in a developed market. They
know the local marketing practices and the environment. Furthermore, they have no barriers
in language and they share cultural traits. Therefore, they are able to target consumers in a
more effective way (Liu & Li, 2002). This will result in campaigns which make the brand
more valuable for the consumer, which decreases the discrimination costs by the consumers.
Because local employees act in a local way they are an excellent mean for EM MNEs
to mitigate environmentally-based LOF. Therefore, the following working proposition is
posted:
Proposition 4: The use of local employees is an effective mitigation strategy to overcome
environmentally-derived LOF.
29
Organizational learning
Organizational learning consists of two things which occur not simultaneously. First
organizations learn when they are present in a particular country. Firms learn and retrieve
information about their environment and their own organizational capabilities for example.
Secondly, firms use this information to change the status quo in order to build a more
efficient organization. This paper uses the definition of organizational learning that is widely
used: “Organizational learning means the process of improving actions through better
knowledge and understanding“(Fiol & Lyles, 1985, p.1).
Organizations consist of people, if employees are learning about the local
environment the organization as a whole becomes more acquainted with this matter. When a
subsidiary of an EM MNE learns about their local environment, they can make decisions
based on the preferences of the local market. This results in a more efficient organization
(Daamen et al, 2007). In this way the firm-based LOF is decreased.
When a subsidiary learns it can alter their strategies or procedures to tackle certain
problems. “Organizational learning can be observed when strategies or procedures change
as a result of previous experience” (Daamen et al, 2007, p.30). Employees, working in a
subsidiary of an EM MNE can acquire knowledge which allows them to build a trust-based
relationship. They can use this knowledge to alter their strategy and become more effective in
setting up these relations. In this way the organization as a whole becomes more skilled and
develops capabilities that helps them to decrease firm-based LOF.
EM MNEs face management problems because they have to manage a subsidiary
from a distance and they have to manage employees from different cultures. EM MNEs
should learn as an organization and get managerial expertise to solve this issue. Firstly,
managers should learn how to set up a foreign subsidiary. Secondly, managers and employees
need to learn about each other’s culture and trust each other. Thirdly, it is important that
managers and employees know and accept the organizational culture (Daamen et al, 2007)
Organization learning is important because subsidiaries of EM MNEs acquire assets
and develop capabilities in this way. Therefore, the following working proposition is posted:
Proposition 5: Organizational learning is an effective mitigation strategy to overcome firm-based LOF.
30
Brand Building
Ramachandran and Pant argued that EM MNEs should manage their brand image to
mitigate the LOR they are facing. In this paper brand image is defined as “Perceptions about
a brand as reflected by the brand associations held in memory” (Keller, 1993, p.3). EM
MNEs have to build positive aspects of their image and downplay the negative ones, to suffer
less from liability of origin. Furthermore, EM MNEs should use brand-building tools which
help them to create a more positive brand image (Ramachandran & Pant, 2010).
EM MNEs are suffering from their country of origin. Emerging countries like China
are often associated with “low quality” and “cheap products”. These associations cause costs
for the EM MNE (Phau & Siew Leng, 2008). EM MNEs can build a brand image that doesn’t
incorporate any associations with the country of origin. In this way, the EM MNE downplays
the negative effect because the brand is not linked to the country of origin. Another method is
to link a brand to another country, this is called a foreign branding strategy. The Chinese
company Qingdao refrigerator changed their name into Haier. This German name helped
them to generate a more positive brand image (Magnusson et al, 2011).
EM MNEs can use brand-building tools to create a positive brand image. EM MNEs
can leverage positive associations by sponsoring events or using endorsers. These events or
endorsers can build brand image in a positive way (Gwinner & Eaton, 1999).
Alternatively, a more positive brand image can be created by linking the brand to an
organization that has a non-economic, social objective. For example, BMW devoted 1 dollar
for every driven mile to Susan G. Komen Breast Cancer Foundation (Hoeffler & Keller,
2002). Lastly, EM MNEs can form alliance partnerships with other credible firms to build
their own brand image. EM MNEs can partner up with partners that hold strong, unique and
favorable associations. If there is a degree of fit positive associations can transfer between
partners, in this way the brand image becomes more positive (Ahn et al, 2009).
Positive associations can counter the effect of liability of origin. If the brand image is
positive enough, people will buy the product despite the country of origin. Based on this text
the following working proposition is posted:
Proposition 6: Brand building is an effective mitigation strategy to overcome liability of origin.
31
Visual model theoretical framework
In the previous section, this paper argued that EM MNEs face extra costs due to a
high degree of environmentally-derived LOF, firm-based LOF and liability of origin.
Environmentally- derived LOF, firm-based LOF and liability of origin are positively related
to costs. Based on the literature, several effective mitigation strategies have been found.
Firstly, local employees can mitigate the costs related to environmentally-derived LOF.
Secondly, organizational learning can mitigate the costs related to firm-based LOF. Lastly,
brand building is an effective mitigation strategy for EM MNEs to overcome the costs related
to the liability of origin. These mitigation strategies moderate the positive relationship
between LOF/LOR and the costs associated with it. This is summarized in the following
model.
Visual model mitigation strategies
I
II
III
Environmentally-derived LOF
Costs
Costs Firm-based LOF
Liability of origin Costs
Use of local employees
Organizational learning
Brand Building
32
4. Methodology
In this section, the methodology used in this research is explained. In this study
qualitative research is conducted in order to obtain rich empirical data. The research method
this study engages in is a single case study. These choices will be justified and explained in
the following paragraphs. The case studied in this research is the subsidiary in the
Netherlands of the Chinese MNE Huawei. In the last part of this section, information about
Huawei Netherlands B.V. is given.
Qualitative single case study
This paper opts for a qualitative singe case study. A case study is defined as “A
research strategy that can be qualified as holistic in nature, following an iterative-parallel
way of preceding, looking at only a few strategically selected cases, observed in an open-
ended way, making use of analytical comparison of cases or sub-cases, and aimed at
description and explanation of complex and entangled group attributes, patterns, structures
or processes” (Verschuren, 2003, p.137)
According to the influential scholar Yin a case study is appropriate when: The
research question is a “why” or “how” question and the contextual conditions are important
and (Yin, 2003). This paper analyzes different strategies EM MNEs can use in order to
overcome LOF, therefore a “how” research question is used. Contextual conditions are
important for this study, as LOF and LOR are highly dependent on the context namely the
firm itself and the environment they are operating in.
LOF and LOR are complex constructs which are hard to measure by conducting a
quantitative study. The use of figures, numbers and tables are not appropriate in order to find
several strategies which help firms to overcome LOF and LOR. The strategies which are
developed now are developed and used within the context of a firm. Therefore, a research
strategy which takes into account the context, such as a case study is a good option.
33
Verschuren argued that a case study is appropriate when the phenomena studied is
highly complex and/or embedded in their cultural context (Verschuren, 2003). As outlined
before, there is still a lack of knowledge about which mitigation strategies are viable for a
specific form of LOF (Denk et al, 2012). This causal link is hard to identify as this
phenomenon is highly complex. Furthermore, LOF and LOR are highly embedded in their
cultural context as culture determines the degree of LOF and LOR firms face partially.
Therefore, a case study is particularly suitable for this study.
It can be a challenge for novice researchers to find the appropriate unit of analysis
(Verschuren, 2003). To avoid this challenge, this paper uses the following clear unit of
analysis: The strategies the Chinese MNE Huawei displays to overcome different types of
LOF and LOR. China is still regarded as an emerging country and therefore this paper
investigates Huawei, a Chinese MNE (UNCTAD, 2016). Huawei is chosen because they are
one of the biggest emerging market multinationals operating in various industries in the
Netherlands (Zhan, 2011).
This research opts for a single case study, this enables the researcher to engage in a
rich analysis of the case (Baxter, 2008). Within this single case different embedded units are
researched. The embedded units of this analysis are the three different departments Huawei
consists of: Consumer business group, Carrier business group and Enterprise business group.
This study tests six working propositions that are based on the literature. Propositions
increase the feasibility of completing the research and it enables the researcher to narrow the
scope of the study. Only six working propositions are chosen because too many propositions
might cause difficulties when analyzing the data and report the findings (Baxter, 2008).
Qualitative data
This research uses qualitative data in order to support or contradict the working
propositions. This qualitative data is gathered by conducting semi-structured interviews. In a
semi-structured interview, the order of the questions is in line with a paper-based interview
guide. Semi-structured can provide reliable, comparable qualitative data (Cohen & Crabtree,
2006). Therefore, the researcher opted for semi-structured interviews. In this study the
interviewer used an interview guide to make sure that all the interviewees understood the
concepts and that all of them touched upon all of the topics. This guide is presented in
Appendix 1. The interviewer deviated from this guide when there was a discussion.
34
Preferably, interviewees are the managers who have to manage or monitor the
performance of Huawei in the Netherlands. This study aims to conduct seven interviews in
different departments within Huawei. Namely the Consumer business group, the Carrier
business group and the Enterprise business group.
In the beginning of the interview the constructs of LOF and LOR are explained, as the
researcher wants to make sure that every interviewee understands the concepts of LOF and
LOR. During the interview, the interviewer took notes. All interviews are recorded with
permission of the interviewees. The interviewees stay anonymous and their answers are
handled in a confidential way.
Interview data
The results are based on the interviews that are conducted in-between September and
November 2016 at different offices of Huawei in the Netherlands. In total seven interviews
are conducted, that took on average forty-eight minutes. The first interview is based on field
notes because the interviewee did not give permission to record the interview. The other
interviews were all recorded with permission of the interviewee. The transcripts of all the
interviews are shown in appendix 2. The researcher investigated the B2B and B2C industry
Huawei is operating in: Four interviews are conducted at the consumer business group, two at
the enterprise business group and one interview is conducted within the carrier business
group. People with multiple functions have been interviewed. The researcher interviewed two
Chinese employees and five Dutch employees. The variation of functions, industries and
nationalities helped the researcher to cover a wider perspective. In the following table the
descriptive statistics are visually represented.
Company Group Function Nationality
Huawei Netherlands B.V Enterprise Business group Senior logistics manager Chinese
Huawei Netherlands B.V Enterprise Business group Solution Sales Manager Chinese
Huawei Netherlands B.V Consumer Business group Data Analyst Dutch
Huawei Netherlands B.V Consumer Business group Public Relations manager Dutch
Huawei Netherlands B.V Consumer Business group Account Manager Dutch
Huawei Netherlands B.V Carrier Business group Head of Business development Dutch
Huawei Netherlands B.V Consumer Business group Digital marketing manager Dutch
35
The case study: Huawei Netherlands B.V.
Huawei Technologies Corporation (Huawei) is a Chinese multinational. Nowadays, it
is a leading global company that offers hardware, mobile networks and ICT solutions for
consumers, businesses and governments. In 2015 the company achieved a revenue of 60.8
million dollars, a 39 percent increase compared to the previous year. The growth rate of
Huawei’s profit is also staggering: In 2015 Huawei achieved a profit of 7.0 million dollars, a
29, 1 percent increase compared to 2014 (Huawei, Building a better connected world, 2015).
In total over 170.000 employees work for Huawei worldwide, 76.000 of their employees are
working in the R&D department.
In 1996 Huawei started doing international business: Huawei formed a joint venture
with a Russian telecommunications company. Two years later Huawei was present in other
parts of Asia, the middle East, Africa and the Pacific. The last international market Huawei
entered was Europe. In 2004 Huawei got their first contract in Europe: The Dutch company
Telfort asked Huawei to build a 3G network (Zhan, 2011). The internationalization process of
Huawei is very successful, in 2005 the international sales exceeded the domestic sales.
Huawei did not engage in springboard behavior because they expanded in a gradual
way to more distant countries. Huawei made the strategic decision to enter Europe as the last
continent. Huawei felt that Europe required the highest level of international experience.
Therefore, Huawei build up international experience in foreign markets like Africa, America
and other parts of Asia before they ventured into Europe. Huawei entered Europe after
accumulating a lot of international experience in other continents (Solution Sales Manager).
In 2005, Huawei set up the Carrier Business Group in the Netherlands. In 2011,
Huawei added the Enterprise Business Group. One year later, the company set up the
Consumer Business Group. Huawei Netherlands B.V. consists of three main departments:
Carrier Business Group, Enterprise Business Group and Consumer Business Group (Head
business Development). Huawei Netherlands B.V. employs 650 people and connects more
than 10 million Dutch consumers. Huawei Netherlands B.V. has multiple offices in the
Netherlands. The headquarter of this company is located in Amsterdam.
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The Carrier business group provides the main network for multiple telecom
companies. Huawei provides the network for KPN, T-Mobile and Vodafone in the
Netherlands. Furthermore, Huawei works closely together with the Dutch government to
develop efficient technological solutions. These solutions are helpful to build smart cities, for
example (Head Business Development)
The Enterprise Business group is providing other businesses IT solutions. This
department helps other businesses to integrate their networks. Furthermore, the Enterprise
Business Group consults other companies and assist them in changing their IT structure. Next
to this, this department offers cloud-based solutions (Solution Sales Manager)
The Consumer Business group deals with all the products Huawei sells to consumers
and other big vendors such as Mediamarkt. Some of the products Huawei sells are:
Smartphones, tablets, watches, Routers and storage servers. This department is performing all
the functions related to selling a product such as marketing, analyzing data, sales, managing
relations etc. (Account Manager)
Huawei is facing fierce competition in the Netherlands because there are already a lot
of companies on the market (Solution Sales Manager). In some markets Huawei is operating,
the main competitors are non-Dutch. The Dutch smartphone market is dominated by the
American firm Apple and the Korean firm Samsung. In other Dutch markets, such as IT
consultancy, there are Dutch competitors like KPN (Data analyst).
Research method
“Qualitative research involves analyzing and interpreting text and interviews in order
to find meaningful patterns of a particular social phenomenon” (Auerbach & Silverstein,
2003, p.3). This paper analyzed the data using a method proposed by Miles, Huberman and
Saldana. In their book they stated that qualitative data analysis consists of three steps: Data
condensation, data display and drawing and verifying conclusions (Miles et al, 2014)
Data Condensation
The first step of qualitative data analysis is data condensation. Data condensation is
defined as the “Process of selecting, focusing, simplifying, abstracting, and/or transforming
the data that appear in the full corpus (body) of interview transcripts” (Miles et al, 2014,
p.3). The researcher attached codes to the interview data to condense the data. Codes are
labels that assign meaning to the information that is gathered during the study. Codes help to
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categorize a lot of data into similar data chunks related to a research question. This enables
the researcher to engage in further analysis (Miles et al, 2014).
This research used first cycle codes and second cycle codes to organize the data. First
cycle codes are determined before the researcher start collecting data. These codes are based
on the research question and on the working propositions the researcher brought to the study.
The first cycle codes of this research are: Environmentally-derived LOF, firm-based LOF,
liability of origin, mitigation strategy for environmentally-derived LOF, mitigation strategy
for firm-based LOF and mitigation strategy for liability of origin.
The second cycle codes, which are written in green, arise from the first cycle codes
and from the interview data. These second cycle codes group the first cycle codes into a
smaller number of categories. Furthermore, these codes reveal important information that was
not incorporated in the research question. These codes pull the information of the first-cycle
codes into more meaningful sub-categories. All the coded interviews are shown in appendix
2.
Data Display
After data condensation, the data is transformed into an array of individual first and second
cycle codes. In this form it impossible for the researcher to link the codes together and to spot
the main pattern. In order to solve this problem, the qualitative data is displayed in networks.
In a network it is possible to map the relationship dynamics between different variables, in
this way the codes are related to each other in a visual way (Miles et al, 2014)
This research uses network mapping to discover the relationship between the codes.
In the first round of network mapping, all the interviews are mapped on a separate basis. This
resulted in seven mapping networks that show the main pattern of each interview. These
separate network mappings are shown in appendix 3. In the second round of network
mapping, all these separate network mappings are integrated with each other. This resulted in
an integrated network map, which shown the main patterns when all the interviews are
combined. The integrated map is shown on the next page.
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Drawing and verifying conclusions
Qualitative researchers work to some extend by insights and intuition. When
analyzing qualitative data, a researcher easily infers conclusions out of the data by linking
things together. However, the problem is that the researcher could be wrong. This results in
false conclusions. In order to avoid this problem this study engaged in counting. Counting
involves assigning numbers to qualitative data. “Doing qualitative analysis with the aid of
additional numbers is a good way of testing for possible bias and seeing how robust our
insight are” (Miles et al, 2014, p.284).
This study assigned a number to every box of the integrated network map. The
number, which is indicated by N, stands for the amount of interviewees that said something
similar as the box in the integrated network map. This study counted the codes in the
following way: The researcher started counting the number of interviewees that mentioned a
code. For example, the use of local employees was mentioned seven times during all the
interviews. Afterwards, the researcher checked whether the construct was mentioned in a way
that is in congruence with the map. For example, the use of local employees was mentioned
four times as a mitigation strategy for environmentally-derived LOF. The maximum number
is 7 because this equals all the interviewees. In the following map the numbers are
incorporated. This map is used to draw and verify the conclusions in the results section.
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5. Results
In this section, the six working propositions that have been posted are examined. This
paper will argue whether the propositions being made are correct or false by using first-hand
interview data.
Environmentally-derived LOF
In six interviews, questions about environmentally-derived LOF were asked. In five
interviews the interviewees stated that environmentally-derived LOF is not a big issue for
Huawei. In the literature review it was argued that EM MNEs are discriminated by
governments, vendors, consumers and suppliers. Therefore, this paper takes a closer look at
the different actors.
Government
The government is an important factor in the institutional context: they set up the
formal regulations that affect firms. In the Netherlands the institutional context is not putting
foreign firms at a disadvantage compared to domestic firms. All firms are required to pay the
same tax rate:
“I don’t know about the tax rate we have to pay, but I know the law requires us to do
so. I believe this is the same for foreign and domestic firms and it is not lower for domestic
firms” (Senior Logistics Manager).
The government created a beneficial institutional context for foreign companies
because they want to attract foreign direct investment. For example, foreign employees can
exchange their driving licenses and they are allowed to deduct 30 percent of their tax rate
(Senior Logistics Manager). Huawei is not suffering from disadvantageous regulations at all.
Actually, one of the reasons for Huawei to set up the headquarters of Western EU in the
Netherlands might be the regulations:
“You know there is a reason Huawei set up their headquarters of Western EU region
in the Netherlands. One reason is the excellent level of English here, the other reason might
be the regulations. Beneficial regulations are all set up here and it is all in place that is really
convenient for us” (Senior Logistics Manager)
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Vendors
Huawei works together with Dutch vendors who are selling their products like
Mediamarkt, KPN and Vodafone. These vendors do not discriminate Huawei because they
rather work with local firms. Nowadays, it is really common to do international business for
these Dutch vendors. Therefore, Huawei does not suffer from discrimination costs due to
vendors:
“I think in the business that we are in international business is done quite frequently
and that it is done quite often. Being a Chinese company doesn’t create perse more cost for a
Vodafone or a KPN than being a German company or a Dutch company even” (Account
Manager)
Huawei does not face extra costs because vendors are unwilling to do business with
them. Actually, the vendors are really eager to work with this EM MNE because it is a new
player on the market. The vendors have a really positive attitude towards Huawei:
“Our business partners they are really open to work with us. They are willing to work
with us, because they are happy, a new kid in town, except Apple and Samsung, who is
willing to change this business. So everyone is really open and inviting” (Account Manager)
Suppliers
The relationship between Huawei and Dutch suppliers is a very formal one based on
contracts. Companies have to deliver what is written in the contract, otherwise they have to
pay the other party. Suppliers are very dependent on Huawei because they order huge
volumes. Huawei is a good business partner for suppliers. Therefore, Dutch suppliers are not
discriminating this EM MNE. Huawei does not suffer from extra costs due to suppliers:
“Huawei is a huge company and we always order a huge volume, therefore we can
negotiate a good price. It is a really formal relationship we do our job and they do theirs. We
pay each other when we do not deliver what we promised in the contract. You know Huawei
is a really big company, we are in the global 500 fortune list. The brand is well known. We
are so powerful, our suppliers are really dependent on us. We have a lot of choice and
everyone wants to supply us. It’s all about the volume” (Senior Logistics Manager)
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Consumers
In general Dutch consumers do not discriminate against foreign firms per se. In the
Netherlands we buy a lot of foreign products, especially in the phone market. Apple
(America) and Samsung (Korea) have captured the biggest market share. The Dutch
consumers do not favor domestic over foreign firms:
“Dutch people like foreign products. They love Samsung devices, which is Korean,
they are the number one in terms of market share. Note 7 was a little bit unfortunate for them.
But Dutch people like to buy foreign phones, also Apple, Sony, Samsung” (Data Analyst).
In sum the government, vendors, suppliers and consumers do not discriminate Huawei
compared to local firms. In total five out of seven interviewees argued that environmentally-
derived LOF is not an issue. Based on the previous section this paper concludes that EM
MNEs venturing into developed markets face a low degree of environmentally-derived
liability of foreignness. Working proposition 1 is not correct according to this study.
Firm-Based LOF
It has been argued that EM MNEs face firm-based LOF because they lack capabilities
that DM MNEs and domestic firms do have (Ramamurti, 2012). All the interviewees did not
mention this during the interviews. Interestingly, Huawei possesses a lot of firm specific
advantages such as the capability to produce high quality phones. Huawei is able to
manufacture high quality smartphones: their phones won the price of best smartphone of the
year and best buy in the Netherlands (Digital Marketing Manager). Huawei possesses
capabilities that domestic and sometimes even DM MNEs do not have:
“It is the fact that we are making good products and especially if you look at our
competitors they scare shitless because of what we are doing. We are producing really high
standards” (Digital marketing manager)
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In the literature it was also mentioned that EM MNEs have less assets compared to
domestic firms (Gaur et al, 2011). This assumption seems right: In many interviews the lack
of local knowledge was mentioned. The lack of local knowledge results in extra costs, for
example when the company tries to hire new local employees. Huawei don’t know how to
approach new talents, to overcome this issue Huawei uses local expensive headhunters. This
causes a lot of extra costs:
“I feel that they experienced the liability of foreignness when they want to hire
someone. The top management of the HR department was sent from China. So they didn’t
know the market. They didn’t know the way to approach candidates. The only way they
could find local talent was by outsourcing it to local headhunters. And that cost them a lot”
(Solution Sales Manager)
Huawei stems from a foreign country and they have a lot of foreign employees. This
creates difficulties because the foreign employees of Huawei are not used to work according
to the Dutch practices. They need to adapt to the local business culture and they need to learn
how things are done in the Netherlands. Huawei is facing extra costs because their employees
are not used to work here:
“I think the Chinese companies, maybe not specifically Huawei but also other
companies are not quite used to work like we are used to work in Europe or in the United
states. So the Chinese people, the country and therefore also the people coming from China
they have to get used how things have been done here for ages, and that’s what I think is
creating extra costs” (Account Manager)
A foreign company need to manage their subsidiary from a distance and this can
result in extra costs. Huawei faces these costs because they have very long inefficient
communication lines. Information is transferred from the subsidiary to the headquarters of
Western EU, from here it is transferred to China. This results in a system which is very
inefficient because the transfer of information takes a lot of time:
“I think it has to do with the way the organization is build. So there is HQ in China
and for us it’s Western EU. So we have the boss of the Western EE and they are making their
decisions and the HQ is making their decisions. And we can make some decisions but we
need to get approval of the HQ in China. This communication line is so long, so inefficient”
(Account manager)
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The subsidiary of Huawei in the Netherlands employs a lot of people with different
cultural backgrounds. Within Huawei Netherlands B.V. mainly Chinese and Dutch people are
working together. Sometimes it is difficult to work with each other because the employees
are stemming from very different cultures. For example, Dutch people are very direct while
Chinese people display the opposite behavior (Head Business Development). Within Huawei
the cultural differences of employees cause internal frictions:
“I think as a global player you always have to deal with different cultures. And
different cultures always uhh asks for uhh yeh things costs more time. I mean if I can explain
something very quickly in Dutch to a Dutch person because I know he will perceive my
words in the right context. For Chinese it is very different. A very small simple example
when I tried to convince my boss that we worked with Linda magazine, he asked me the
question who is Linda. So it makes it more difficult to explain and get aligned with
colleagues internally and this is just a very simple example. So in terms, not in terms of
money, but in terms of time, it costs more time. “(Digital Marketing Manager)
Next to this, cultural differences can harm the relationship with external parties.
Cultural differences can cause external frictions with third parties like suppliers. In a buyer
seller-relation the cultural differences harm the relationship for Huawei sometimes:
“You know you have 2 sort of costs: Yeh you have costs like in real money. And
costs that it can harm your relationship. That is also a cost more an emotional cost. And I
think it is mostly about buyer-seller relation it is mostly about the second one. People do not
always understand the way our company works and where it comes from. And the cultural
difference is huge, that is a problem (Public Relations Manager)
In sum Huawei is facing firm-based LOF because they lack local knowledge and
because the business practices are not aligned to the local practices. Furthermore, Huawei has
more internal and external frictions due to cultural differences. Lastly, Huawei has long
inefficient communication lines. In total six out of seven interviewees mentioned that firm-
based LOF was an issue for Huawei. Based on the qualitative analysis of all the interviews
this paper states that EM MNEs face a high degree of firm-based LOF, which is in line with
working proposition 2.
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Liability of origin
Previously, it has been stated that consumers in general do not discriminate against
foreign firms per se. However, emerging market multinationals suffer from negative country
of origin effects. All the interviewees mentioned that liability of origin is an issue for
Huawei. The home country of Huawei is China and this is a major issue for the company.
Huawei is discriminated by local stakeholders just because they have Chinese roots. The
Chinese roots are mainly a problem when Huawei is trying to sell products to consumers,
other companies or the government. In the following section the evidence is presented.
Consumers
Dutch consumers hold negative associations about Chinese firms. Chinese firms are
linked to cheap and low quality products. Huawei suffers from this because these associations
are leveraged to them. They need to convince the consumers that they are producing good
quality products, but this is difficult:
“You still see that people said ahh that Cheap Chinese firm. Because Chinese is
always cheap and low quality because 20 years ago the Chinese came up and they put all this
shit on the market. And they are not used that Chinese also have quality. They are not aware
of the fact that most factories of Apple and Sony etcetera are based in China. Soo if you are
going to talk about people that know you they say ahh that cheap brand. And to change that,
that is really hard” (Data Analyst).
Another example shows that consumers still associate Chinese products with cheap
stuff. Huawei wants to create the image of an innovative company that is creating high-end
affordable devices. The fact that Huawei is Chinese, is not helping them because people have
the tendency to link Huawei to cheap products. Consumers do discriminate Huawei just
because they are Chinese:
“China is of course very well known for producing low products for a very low price.
Uhhm and also known for. So products are cheap. And the quality of products is also very
low. And this is of course something that harms our business because we are very innovative
company and we produce electronic goods and we produce them ourselves. Uhhm and we
don’t want them to be perceived as cheap. We want them to be perceived as affordable
premium.” (Digital Marketing Manager)
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Business consumers and the Dutch government
Other big companies hold negative associations about Chinese firms as well. Huawei
sells business IT solutions to major firms like BMW and Ziggo. One of the IT solutions
Huawei offers these companies, is to store their data on the server of Huawei. These
companies are very reluctant to store the data on a Chinese server because they think that
Chinese firms copy and spy on everything (Data analyst). Huawei needs to work harder to
convince other companies doing business with them, just because they are Chinese:
“Yeh and it was not easy. I get very basic questions about security, and our equipment
and network. How does it work? What is the data doing? Is the data from us? That kind of
questions. But we convinced them you know everything is safe (Head Business
Development)
The country of origin also affects the relationship building process of Huawei: it takes
more time to develop trust-based relations with Dutch firms and the Dutch government.
These actors have negative presumptions about Chinese firms. For example, they think that
the level of English is bad in Chinese companies. Huawei is suffering from this because they
are considered as a company that is difficult to work with, even before they started to do
business with each other. It is more difficult for Huawei compared to other foreign firms to
develop trust based relationships because of the negative associations people hold about
Chines firms:
“You cannot express it like cost but maybe I have an example that it always takes
extra costs. When I started at Huawei 3 years ago and I opened the door at Ziggo. I had
personal contact there from my former companies. But they asked me okay Hans you are
welcome but why should we talk with Huawei. Because Huawei is a Chinese company. You
know and there is always something, do they talk English very well? So it cost me more time
maybe 2 times more to build up a relation there and trust. And if you translate that to costs
yes that costs in times of investment and time etcetera. So if you talk about that area it is
definitely extra costs. The fact that you are a Chinese company it’s a fact. And it not only
with Ziggo but I also have it now in the local government. We have to build up a relation, 2
times more investment “(Head Business Development)”
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In sum, Huawei suffers from their country of origin. People hold negative associations
about China and this harms Chinese firms such as Huawei. Huawei needs to invest more time
and money to convince people that they are producing high quality products. Next to this, the
country of origin makes it more difficult to create trust-based relations with external parties.
Huawei is discriminated by local stakeholders such as consumers, other companies and the
local government because they are coming from China. All the interviewees stated that
liability of origin was a big issue for Huawei. Based on the qualitative data analysis and the
counting this paper draws the following conclusion: EM MNEs venturing into developed
markets face a high degree of liability of origin. This conclusion is in line with working
proposition 3. Therefore, in this study working proposition 3 is correct.
Mitigation strategy environmentally-derived LOF
Environmentally-derived LOF is not a big issue for the company. This is mainly
because Huawei has found an effective mitigation strategy for environmentally-derived LOF:
The use of local employees.
Local employees work according to Dutch business practices. Therefore, they are
very useful in departments that require a lot of contact with consumers. Local employees are
mainly used in sales and marketing because they are able to communicate with consumers in
a more efficient way. In this way the company is suffers less from environmentally-derived
LOF:
“For the consumer market you do not have a lot of extra costs mainly because the
Dutch people are working there. When I look into the smartphone division half of them are
Dutch and half of them are Chinese. And especially marketing and sales are Dutch. And then
more supportive departments like services or procurement, logistics are mainly Chinese”
(Data Analyst)
By using Dutch people Huawei suffers less from being a foreign company. The
consumer does not face more difficulties buying a product from Huawei compared to an
indigenous company because they can talk to local employees. Local employees know what
the consumer wants and they know how to approach them. Using local employees is an
effective strategy to mitigate environmentally-derived LOF:
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“Uhmm well for marketing it is very important to have local employees because you
are communicating towards a Dutch audience. And there are cultural differences between the
Dutch and the Chinese. And it is really important for us that every message that we put out
through marketing gets reached and understood and has an impact by the Dutch consumer.
Uhhm and that is why it is more efficient to have local employees talk to loyal customers
then to have Chinese employees talk to local customers because their might be
miscommunication” (Marketing Manager, 2016)
Local employees are an effective way to overcome environmentally-derived LOF:
they erase a lot of difficulties regarding doing business with a foreign company for suppliers,
governments and vendors. Local employees speak the same language and they know the
Dutch business practices. Therefore, these third parties have the feeling that they are working
with a local company because they are treated in a Dutch way. Difficulties regarding different
business practices are discussed and solved internally. In this way the relationship with third
parties is not harmed:
“Yes because the local, at least for the account management they have hired people
like me. And we know how we do business in the Netherlands but then the friction is called
internally again with the Chinese colleagues that we have. On how they think that we should
treat our customers” (Account Manager)”
In sum using local employees is an effective mitigation strategy to overcome
environmentally-derived LOF. Local employees treat local stakeholders in a Dutch way and
they speak the same language. Huawei uses local employees to decrease the discrimination
costs. Three out of the seven the interviewees mentioned that local employees were an
effective way to overcome environmentally-derived LOF. Based on the previous section this
paper concludes that the use of local employees is an effective mitigation strategy to
overcome environmentally-derived LOF. This statement is in congruence with proposition 4.
Therefore, this working proposition is correct.
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Mitigation strategies firm-based LOF
Working proposition 5 stated that organization learning is an effective mitigation
strategy to overcome firm-based LOF for EM MNEs when they venture into a developed
market. In this study the researcher found support for this working proposition:
Organizational learning is an effective mitigation strategy to overcome firm-based LOF for
EM MNEs. Organizational learning enables the organization to alter processes into more
efficient ones. Huawei learns about the Dutch environment and it learns how to design an
efficient organization as such. Furthermore, the employees of Huawei are getting educated so
they are able to work with each other in an efficient way:
“Well liability of foreignness an issue but we have a solution. So we are working on a
solution. And I think that is the main thing that a foreign company always needs to invest in
learning. You need to know the environment, and also how to design your organization. That
is important, and the investment in the beginning are higher than when you have been in the
country for a couple of years so that investment decreases. Educating your staff, both Dutch
and Chinese is also important and the company invest a lot in that” (Digital Marketing
Manager)
Interestingly local employees are an effective way, next to organizational learning, to
overcome firm-based LOF. Huawei uses local employees because they possess a lot of local
knowledge. Huawei bought a lot of local market knowledge when they came to the
Netherlands (Data Analyst). This local knowledge helps Huawei to mitigate unfamiliarity
costs. Huawei is not paying more compared to indigenous firms because they have local
employees who possess local knowledge:
“I don’t think we pay more because we are a foreign company. And I think one of the
reasons is that the marketing investments are always done by local people. So they have
experience in the local market. So you don’t get situations where you pay huge amounts for
something that is worth less. Because we are aware of the TV, radio, online, rates that apply
to the market. So in that sense I don’t think that we pay too much”
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Huawei suffers from extra management costs compared to other Dutch firms because
they have to deal with a lot of subsidiaries in different countries. Furthermore, they need to
manage these subsidiaries from a distant location. To overcome this issue Huawei sends
Chinese experienced senior managers. These managers are used to work with different
cultures and they can communicate easily with the headquarters in China. Sending
experienced managers from China is an effective mitigation strategy to overcome firm-based
LOF for Huawei:
“All our senior managers have experience dealing with different cultures because
everyone worked in another country before. When I look at myself I manage 10 countries.
That is a lot but it is also very efficient, I feel like Huawei is managing their management cost
very well. And we do not face substantial problems managing multiple subsidiaries in
different countries” (Senior Logistics Manager)
Huawei suffers from cultural differences because they are a foreign company. As was
outlined before, these cultural differences cause internal and external frictions. For Huawei it
is important that there is a mutual cultural understanding between Chinese and Dutch
employees. Employees who start working for Huawei in the Netherlands get a training that
stresses the cultural differences between China and the Netherlands (Account Manager).
Furthermore, it is important that external parties understand some cultural traits of the
Chinese employees and vice versa. Huawei organized a cultural workshop to spur mutual
cultural understanding:
“Especially the presumption that working with a Chinese company brings
communication issues and therefore what I did is I organized a cultural workshop between
my costumer and Huawei. And that was 1 day so we can learn from each other. And after that
it went very well. So the Dutch people we have to understand them as Huawei but the Dutch
people they also need to understand the Chinese way of working. And after the workshop it
went well” (Head Business Development)
In sum, this paper concludes that EM MNEs can deploy multiple effective strategies
EM MNEs to mitigate firm-based LOF: Organizational learning, use of local employees,
sending experienced managers and create a mutual cultural understanding.
Organizational learning is the mitigation strategy that was mentioned most: Four out of seven
interviewees stated that organizational learning is an effective mitigation strategy for firm-
based LOF.
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Mitigation strategies liability of origin
Working proposition 6 stated that brand building is an effective mitigation strategy to
overcome the liability of origin EM MNEs face when they venture into a developed market.
The qualitative data analysis is in congruence with this, six out of seven interviewees
mentioned that brand building can counter the negative effects of liability of origin. Huawei
is building their brand and they are trying to set Huawei in the market as a global brand:
“What we decided to do is not to communicate that we are a Chinese brand. Yeh we
are not a Chinese brand. We are a global brand and we are from China. But so we are trying
to stay away from everything that is connected to China. So we try to stay away from that, do
only general or local marketing. And that helps us to disconnect ourselves from China in a
way. Samsung is also not perceived as a Korean company. It is being perceived as a global
player. And that is also the direction we are going to” (Digital Marketing Manager)
Huawei is using several brand building tools to create a more valuable/global brand.
First, they make use of endorsers from Hollywood and they create special campaigns. These
campaigns are more universal and less Chinese (Digital Marketing Manager). Next to this
Huawei is also building their brand by sponsoring football clubs like Dortmund, Ajax,
Arsenal and Atletico Madrid (Solution Sales Manager). Huawei also builds strategic
partnerships with external parties to build their brand:
Yes, well I think the main problem we try to address is just we don’t want to Huawei
or even a Chinese company as one that is, you know, that is being cheap, or you know that is
not able to provide good quality. But I mean apart from those football clubs we are
sponsoring. We are doing a lot more. Also we have strategic partnerships. We are making
more effort with big companies. This is what we call light-house projects or deals. So for
example CERN, the Swiss company. We have been trying to sell them products and of course
there is already a fierce competition for every vendor. We just try to sell whatever the costs.
We want to build a good reputation” (Solution Sales Manager)
From the interviews it was clear that consumers hold very negative presumptions
about Chinese firms. To counter these presumptions Huawei brings consumer to their
headquarters and show them their products in a demo room. In this way consumers can
experience that Huawei is a reliable and mature company. Bringing consumers to the
company is a mitigation strategy that Huawei uses to overcome liability of origin:
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“Well also we also think, I mean China has a reputation of selling cheap stuff. Which
automatically meaning low quality. And that is also something we have to fight. This is
basically why we invite our customers very progressively to come to our demo room. In
almost every area so they can literally see and physically touch our product and feel it. And
then they are also invited back to the headquarter, so anyway as soon as they see the facilities
and the productions they automatically gain the confidence that we are not a tiny company
that is just talking about all those storage” (Solution Sales Manager)
Liability of origin is countered by providing good quality products to
consumers which are well priced. People are focusing on the value for money, a good
money/value proposition provides a reason to buy. Huawei is offering high quality phones for
a good price compared to other premium brands such as Apple and Samsung (Data analyst).
Huawei delivers good products and this is an effective mitigation strategy for the liability of
origin they are facing:
“And the whole branding starts with devices mobiles and watches. Not with
infrastructure business because no one knows that we have infrastructure within a KPN
account nobody sees it. But more and more in the devices. And there is one ambition in the
coming 5 years and that is especially in the device business. And then you can see that it will
change. It is already changing. If you look at the P8 P9 the mate 9. Everybody is now looking
into the quality of the devices. You know and the beauty. And also in terms of pricing you
know we are very low on pricing. And that really has impact” (Head Business Development)
Huawei is also facing a liability of origin in the B2B context. In this context they also
counter the liability of origin by providing good products and service. It really helps to
provide the other company an excellent service. In this way the negative presumptions about
a Chinese company fade away:
“Uhmm ye by doing. You know after the discussion with Ziggo, before the workshop
I said to Ziggo hey guys don’t talk anymore. Let’s do it. Then you can see and experience
how we work. And especially in the communication and interworking. We put some
equipment there and then we connected to the Ziggo network. And then we play. And then
they were surprised about our technology. And they were surprised about our interactive
approach. With good knowledge, good people and that is the way of working Huawei like to
do. Don’t talk too much but let’s do it” (Head Business Development)
52
In sum, EM MNEs venturing into developed markets can deploy multiple mitigation
strategies to overcome liability of origin. Brand building is an effective mitigation strategy
to overcome the liability of origin EM MNEs face. EM MNEs can build their brand using
endorsers, sponsoring, build strategic partnerships and create universal campaigns. Next to
this, it is important for EM MNEs to show their consumers what they are capable of. An
effective mitigation strategy is to bring consumers to own facilities. Lastly, EM MNEs
should deliver good products and service.
53
6. Discussion
Previous findings have shown that liability of foreignness and liability of origin is an
issue for EM MNEs venturing into developed markets (Gaur et al, 2011) ; (Ramachandran &
Pant, 2010). A study from Gaur et al recognized that there are two sources of LOF:
Environmentally-derived LOF and firm-based LOF (Gaur et al, 2011). Unfortunately, little is
known about the interdependencies between specific LOF hazards and effective mitigation
strategies (Denk et al, 2012). The purpose of this explorative study was to find effective
mitigation strategies for specific LOF and LOR hazards. This paper argued that different
mitigation strategies are effective to overcome specific LOF and LOR hazards, in this way
this paper contributed to existing research.
Based on past literature this paper argued that EM MNEs face a high degree of
environmentally-derived LOF. Interestingly, this paper found that EM MNES face a low
degree of environmentally-derived LOF. In this study the Dutch institutional environment
turned out to be beneficial for EM MNEs. There is no evidence of explicit discrimination by
environmental actors in the Dutch environment compared to domestic firms. This evidence is
in line with another case study about LOF: Korean companies venturing into the Netherlands
were not discriminated by local actors compared to local firms (Daamen et al, 2007). This
can be due to the fact that Dutch people are very open and that they are always taking
business considerations into account (Daamen et al, 2007).
This paper found that EM MNEs face a high degree of firm-based LOF. This finding
is in line with previous literature (Gaur et al, 2011). The main finding is that a high degree of
firm-based LOF is mainly caused by cultural differences, the lack of local knowledge and the
way an organization is build and designed. This finding was again in line with the study
conducted by Daamen et al (Daamen et al, 2007).
Another finding of this paper is that EM MNEs face a high degree of liability of
origin. This finding was the most robust one because it was mentioned by all the
interviewees. This finding is in line with other literature which stated that Chinese products
are regarded as inferior because people associate them with low quality and cheapness (Lantz
& Loeb, 1996). The country of origin also cause difficulties forming a trust-based
relationship. Surprisingly, in the literature the liability of origin is not mentioned as a driver
of the lack of embeddedness in a local network for foreign companies.
54
This paper studied the complexities of LOF in depth and argued that LOF consists of
two constructs: Environmentally-derived LOF and firm-based LOF. Interestingly, firm-based
LOF can also be divided into two main constructs: Internal firm-based LOF and external
firm-based LOF. These constructs are not mentioned in the literature yet. By adding this
constructs to the existing framework this paper contributes to the existing literature.
Huawei faces internal firm-based LOF within the company. Internally Huawei is
facing problems because of their foreignness. For example, Huawei is facing firm-based LOF
due to cultural differences between Chinese and Dutch employees. It takes more time to
communicate and understand each other, which results in costs. Huawei has long inefficient
communication lines in-between the headquarter and the subsidiary. This is another example
of internal firm-based LOF because all the costs are caused by internal frictions within the
company. Internal firm-based LOF is defined in this paper as: “Costs EM MNEs face when
they go overseas because they have internal frictions within the company”
Huawei experiences external firm-based LOF because they are a foreign company
interacting with local Dutch actors in the environment. Huawei is facing external problems
due to their foreignness. For example, the Chinese management lacks local knowledge which
results in company practices that do not match the local business culture. These company
practices frustrate Dutch consumers and cause external frictions. Other external frictions
come up when Chinese employees communicate with external parties. Due to cultural
differences the Chinese employees and the external parties do not always understand each
other. This lack of cultural understanding causes frustration and external frictions. In this
paper external firm-based LOF is defined as: “Costs EM MNEs have when they go overseas
because they face external frictions when interacting with their environment”.
Internal firm-based LOF are extra costs due to frictions within the company. External
firm-based LOF are extra costs that arise because the firm is interacting with their
environment. In the following image the two constructs are clarified in a visual way.
Internal firm-based LOF External Firm-based LOF
Emerging market multinational
Environment
55
In the literature it is stated that EM MNEs possess less capabilities compared to DM
MNEs and that EM MNEs engage in springboard behavior (Gaur et al, 2011); (Luo & Tung,
2007). In this study no evidence has been found that supports these statements. Firstly, this
particular EM MNE is not inferior compared to DM MNEs because they do not lack certain
capabilities. No evidence has been found that EM MNEs lack the capability to form trust-
based relations, for example. Secondly, as mentioned before, this EM MNE made the
strategic decision to expand gradually into distant countries. This is not in line with the theory
of springboard behavior which states that EM MNEs expand immediately to a distant
country. Surprisingly, the internationalization process of Huawei is not in line with the
existing literature.
This paper found an effective strategy to mitigate environmentally-derived LOF: The
use of local employees. The researcher found some anecdotal support for this: Several
interviewees mentioned that local employees act according to the Dutch business practices
and that they talk the same language. Local employees are an excellent mean to overcome
difficulties related to doing business with a foreign company. This finding is not a total
surprise, as previous studies also found that local employees are an effective mean to
overcome environmentally-derived LOF ( Luo et al, 2002); (Liu & Li, 2002) .
Multiple strategies have been found that are effective in mitigating internal or external
firm-based LOF: Using local employees, organizational learning, create a mutual cultural
understanding and sending experienced managers. Every strategy mitigates a specific type of
firm-based LOF.
EM MNEs engage in organizational learning, this finding is consistent with another
study (Daamen et al, 2007). Organizations can learn and change their internal processes to
decrease internal frictions. Furthermore, organizations can learn how to do business with
environmental actors in a local way. In this way external frictions are decreased. Therefore,
organizational learning can mitigate external and internal firm-based LOF.
Using local employees can mitigate external firm-based LOF because they possess
local knowledge. Local employees decrease the difficulties for an EM MNE when they
interact with environmental actors. Local employees speak the same language and they know
about the local business practices (Account Manager). This finding is in line with the study of
Daamen et al (Daamen et al, 2007).
56
Another way to mitigate external and internal firm-based LOF is to create a mutual
cultural understanding. EM MNEs can create cultural workshops or give cultural lectures to
educate their employees about each other’s culture. Cultural events can also be organized to
bridge the cultural differences between Chinese employees and employees working for
external parties. A mutual cultural understanding is important to decrease internal and
external frictions. Create a mutual cultural understanding was not mentioned as an effective
way to overcome firm-based LOF yet. This paper adds this to the existing literature.
This paper found that sending experienced managers is an effective way to mitigate
internal firm-based LOF. Experienced managers know how to manage different cultures. In
this way internal frictions are decreased. This mitigation strategy is not incorporated in the
literature so far. This paper adds this mitigation strategy to the existing literature
Another finding is that EM MNEs can mitigate liability of origin by building their
brand. This finding is not very surprising because in the literature it is already explained that
positive associations help to create a more positive brand image (Ahn et al, 2007).
Alternatively, this paper finds that good products and services are essential to overcome
liability of origin. This is not mentioned in the literature about liability of origin so far, maybe
because it is so intuitively logic that good products and services help to overcome the costs
related to liability of origin. Lastly, this paper find that it is very effective for EM MNEs to
show their consumers the facilities in a B2B context to overcome liability of origin. This is
also an interesting finding because it enriches the existing literature.
In the images below the mitigation strategies are linked to a specific type of LOF and
LOR. The mitigation strategies that were not mentioned in the literature framework are
labeled with a D. These mitigation strategies were discovered when the researcher analyzed
the in-depth interviews. The mitigation strategies are numbered from I to II to III to IIII per
category. The numbers indicate the order of importance, which is based on the counting of
the interviews.
Environmentally-derived LOF
I
Environmentally-derived LOF
Costs
Use of local employees
57
Internal and external firm-based LOF
I
II (D)
III (D)
IIII (D)
Liability of origin
I
II (D)
III (D)
Internal/External Firm-based LOF
Organizational learning
Costs
Internal/External Firm-based LOF
Costs External firm-based LOF
Create a mutual cultural understanding
Costs
Send experienced managers
Internal firm-based LOF
Costs
Liability of origin
Liability of origin
Costs
Costs
Brand Building
Deliver good products and service
Use of local employees
Liability of origin Costs
Bring consumers to own facilities
58
Managerial implications
This study found that the use of local employees is a very effective strategy to
mitigate environmentally-derived LOF and external firm-based LOF for EM MNEs venturing
into developed markets. Therefore, managers should employ a lot of local employees
especially in departments which require a lot of contact with external parties.
Alternatively, the use of local employees creates internal frictions within the EM
MNE because employees stem from different cultures. It is important for managers of EM
MNEs to bridge these cultural differences. Social events and cultural workshops should be
organized to create a mutual cultural understanding. Managers should be aware of the fact
that cultural differences create external frictions as well. In order to solve this problem non-
local employees should talk to local external parties. Managers should encourage non-local
employees to visit local external parties or organize events that create a mutual cultural
understanding.
It is important for EM MNEs to learn as an organization as such. Therefore, EM
MNEs need to train and educate their employees continuously. It is especially important to
provide the employees with local knowledge because this is often something they are lacking.
Liability of origin is a significant issue for EM MNEs in the Netherlands. Because of
this, EM MNEs operating in the Netherlands should engage in brand building. Especially
local marketing people should be employed by EM MNEs because they can create a positive
brand image. It is important that all the marketing people are aware of the fact that country of
origin has a huge influence on the brand image. Most EM MNEs suffer from their country of
origin and therefore it is important that marketing managers market the EM MNE as a global
company,
Lastly, all the employees of EM MNEs should know how they can change the
presumptions consumers have about security, low quality etc. It is important that employees
are aware of the presumptions the local people have and that they know how to counter it. For
example by bringing the consumers to facilities of the EM MNE. An important role for a
manager is to educate his staff about this so they know how they should do business with
external parties.
59
Limitations
This study opted for a qualitative single case study. The downside of this approach is
that it is difficult to generalize this results for a large group. In this study Huawei is the only
case which is representing EM MNEs. Huawei might be an outlier that is not a good
representative of the average EM MNEs. Preferably, this study used multiple cases to study
EM MNEs but this was not possible due to time constraints.
This study collected qualitative data. Qualitative data is more prone to own
interpretation: a researcher need to interpret the data in his own way and form conclusions
based on it (Miles et al, 2014). The researcher might be biased in the way he interpreted the
data. In order to counter this the researcher used the process of counting but the conclusions
are still less robust compared to pure quantitative data.
The sample of this study only consisted of seven interviewees. Preferably, 10-12
interviews were conducted but this was not possible due to time constraints and a lack of
access. Some conclusions are only based on three statements from interviewees, which is a
small number. Furthermore, all the conclusions are only based on the interviews. Preferably
the research used multiple sources of data to base the conclusions on. For example,
comparative financial data between Huawei and domestic firms/ competitors about
purchasing costs would be really useful in this study. Unfortunately, the researcher could not
get access to this data.
The conclusions are based on the subsidiary of Huawei that is operating in the
Netherlands. The country effect of the Netherlands might influence the results. Some results
about environmentally-derived LOF might be explained by the country instead of the EM
MNE. For example, local firms are not present in the Dutch smartphone market. Because of
this, it is more likely that foreign firms face a low degree of environmentally-derived LOF.
Suggestions for future research
This study provides some interesting findings but these are based on a on a specific
country, The Netherlands. It would be interesting to conduct future research that uses the
same case study approach in other countries in Europe such as France, Germany and Belgium
to eliminate the country effect. It is also interesting to look into other developed markets that
have a lot of local companies who compete against Huawei, such as America.
60
These findings are based on a particular EM MNE namely Huawei. It might be very
interesting to research whether other EM MNEs in the Netherlands face the same difficulties.
Especially EM MNEs stemming from other countries such as Malaysia and Indonesia, can
make up an interesting case because liability of origin can affect this companies in a different
way. Future research that applies this research on more EM MNEs help to generalize the
findings of this paper. Therefore, I ask future researchers to investigate EM MNEs with a
different country of origin operating in the Netherlands.
This research found that the existing literature describing EM MNEs is not in
congruence with the capabilities and internationalization process of Huawei. Future research
can examine if this applies to more EM MNEs that venture into a developed market. Because
EM MNEs develop very fast, literature describing them might be outdated. Therefore, this
paper encourages future researchers to examine the internationalization process of other EM
MNEs. Furthermore, it might be interesting to study whether the capabilities of other EM
MNEs are still inferior compared to DM MNEs that are competing against them.
Lastly, I encourage future researchers to conduct research regarding the new
constructs internal firm-based LOF and external firm-based LOF. It would be interesting to
see whether other EM MNEs are also facing internal and external frictions when they venture
into a developed market. Future research testing the credibility of these new constructs would
be very interesting.
61
7. Conclusion
In the beginning of this paper this study enhanced our understanding of LOF and
LOR. However, the main purpose of this study is to explore which mitigation strategies are
effective to decrease LOF and LOR. Therefore, this research conducted seven qualitative
interviews. These interviews are transcribed and analyzed using coding and counting. This
analysis helped the researcher to interpret the data and to draw main findings.
Based on the in-depth interviews with employees of Huawei this paper identified four
sources of firm-based LOF: Cultural differences, long communication lines, company
practices not adapted to local business culture and the lack of local knowledge. An interesting
finding is that firm-based LOF can be divided into internal firm-based LOF and external
firm-based LOF. This paper identified one source of liability of origin: The negative country
image people hold about China. This paper did not identify any source of environmentally-
derived LOF. Huawei is not discriminated by local actors compared to local firms.
After analyzing the sources of LOF this part explored effective solutions for different
forms of liability of foreignness and liability of origin. This part answered the following main
research question of this paper: How do EM MNEs mitigate environmentally-derived
LOF, firm-based LOF and liability of origin when they expand to a developed market?
This paper found that EM MNEs expanding to a developed market can mitigate
environmentally-derived LOF and external firm-based LOF by using local employees.
Internal firm-based LOF can be mitigated by organizational learning, sending experienced
managers and creating a mutual cultural understanding. Organizational learning and creating
a mutual cultural understanding help to mitigate external firm-based LOF as well. Mitigation
strategies for liability of origin that have been found are: Brand building, delivering good
products/services and bringing the consumers to the facilities of EM MNEs.
Overall this study offers some field-based insights about the mitigation strategies that
decrease the negative effects of specific types of LOF and LOR. This study is explorative and
therefore the conclusions should be seen as the basis for further studies. The discussion
presented a detailed list of mitigation strategies related to specific types of LOF and LOR.
Future research should test this list in a different country with different EM MNEs. In this
way the results can become generalizable to other EM MNEs investing in different countries.
62
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9. Appendices
Appendix 1: Interview guide
Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself: I am Kasper Verhoog and I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Country of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to record it for my own purposes, is that fine by you? Furthermore I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct.
1. Can you tell me something about yourself? 2. What is your career history at your company? 3. What is your current position in Huawei?
4. Within your company is the word Liability of foreignness ever mentioned when they
entered Holland? 5. Do you think the subsidiary in Holland faces Liability of foreignness? 6. Are there any drivers of liability of foreignness? 7. What are main drivers of liability of foreignness in your opinion?
(own research low familiarity with environment ( 1 less knowledge about environment in host country) 2 treated different by customers ( informal) or government ( laws), suppliers. 3 extra organizational costs ( within company or subsidiary headquarters)
8. Do you think the liability of foreignness is more driven by internal factors ( within the company) or external factors ( outside the company)
9. What strategies it the company using to mitigate the liability of foreignness. (becoming embedded, isomorphism, use FSA)
10. Within your company is the world liability of origin ever mentioned? 11. Do you think liability of origin is an issue for the subsidiary in Holland? 12. What are the main drivers of liability of origin? 13. What strategies is the company using to mitigate the liability of origin?
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Appendix 2: Coded Interviews
Interviewer: Kasper Verhoog (I) Interviewee: Senior logistics manager (LM) Group: Huawei Enterprise Business Group Date: 26 September, 2016 Duration: Forty-five Minutes Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself. I am Kasper Verhoog. I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Liability of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct. I: I would like to record it for my own purposes as I need to transcribe my interviews, is that fine by you? LM: I am not very confident about recording. If you record it I have the feeling I cannot speak freely and my answers will be less relevant. I: How about I turn the recorder on and when you tell me you are not confident I immediately put the recorder off? LM: I am sorry I really cannot allow you to record it, I do not feel confident about it and I want to speak freely. I: No problem I will not record it. Is it okay if I take notes during the interview? LM: That is not a problem, you can make as many notes as you want. I: Okay so let me start, what is your working career in Huawei?
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LM: I am working for Huawei quite a long time now. I started as sales operation manager. I also did planning. Currently I am working as a senior logistics manager. I am in charge of ten countries located in the Western European Union region. I: Which countries are in your portfolio? LM: Countries such as Germany, England, The Netherlands and France are all in my portfolio. I: That’s very interesting! Could you tell me if the word “Liability of Foreignness” is ever mentioned within Huawei? LM: Actually the word Liability of foreignness is never mentioned in our department. Of course we sometimes discuss about the costs of our products we are buying from our suppliers. But we never have the feeling that these costs are extra high just because we are foreign. Actually I think we do not have problems with liability of foreignness, at least not from the logistics perspective. I: Can you tell me why you think Liability of foreignness is not a problem for your department? LM: I work in supplier teams. So we, as Huawei, go to a supplier and we buy something from them. We are working on the basis of contracts. Huawei is a huge company and we always order a huge volume, therefore we can negotiate a good price. It is a really formal relationship we do our job and they do theirs. We pay each other when we do not deliver what we promised in the contract. You know Huawei is a really big company, we are in the global 500 fortune list. The brand is well known. We are so powerful, our suppliers are really dependent on us. We have a lot of choice and everyone wants to supply us. It’s all about the volume. I: So there are never any problems when you go to a warehouse and you do not have the feeling that Huawei has higher costs compared to Dutch firms when ordering? LM: Of course there are problems sometimes. There is a language barrier sometimes. For example we use some warehouse providers in Rotterdam. Sometimes it is really difficult to communicate with the people on the ground floor, their English level is not so good. But again we can solve everything by setting up formal contracts. Also we make use of local employees who can help us. I really do not think liability of foreignness is a big issue here. It might be a problem for foreign small companies because they are more dependent on their suppliers and they have less power.
I: Okay that is very clear to me. Do you think there are any extra costs Huawei has because they lack understanding of the environment? LM: I personally feel that we do not have extra costs because of unfamiliarity with the environment. Eight-ten years ago we really had a problem because we did not know our environment very well. We had difficulties getting to know the surrounding environment such as the opinion of our customers. We were not aware of the product they wanted for example. But you know now we are already here for 10 years and we get to know the environment here. We have many ways to tackle this problem: We make use of local expats,
Comment [HD1]: Environmentally-derived LOF
Comment [HD2]: Logistics wise no extra costs
Comment [HD3]: Environmentally-derived LOF
Comment [HD4]: Volume is important, therefore no extra costs
Comment [HD5]: Environmentally-derived LOF
Comment [HD6]: Language differences can be a problem
Comment [HD7]: Mitigation strategies for environmentally-derived LOF
Comment [HD8]: Use of local employees and contracts
Comment [HD9]: Firm-based LOF
Comment [HD10]: Not unfamiliar with environment anymore because of long time in the Netherlands.
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we regularly check websites about Holland which are all in English, we make use of consultants who send out surveys so we become pretty experienced at this. In Holland it is so easy to communicate English with the people, this makes it easier to get to know the environment. In France for example this is more difficult because the English level is not so high as in the Netherlands. So again I feel the unfamiliarity with the environment might cause us some extra costs because we need to make use of consultants and expats which are expensive. But it is a small issue and we are not concerned about it. I: You spoke very clear about the environment. Can you tell me something about the laws which affect Huawei and are especially applicable to foreign firms? LM: I don’t know about the tax rate we have to pay, but I know the law requires us to do so. I believe this is the same for foreign and domestic firms and it is not lower for domestic firms. Maybe our tax rate is even lower because we are a big company and we negotiated with the Dutch government. Overall the Dutch government set up really good regulations for multinationals. Did you know that foreign employees can deduct 30 percent of their tax rates? I: No I didn’t know that. LM: That is funny because most of the time local people do not know about the regulations for foreign employees. I also had a friend in America, he had no idea how difficult it was to get a working visa there. But here it is more easy to get a working visa. We can also exchange our driving license as foreign employees. I really feel the Dutch government sets up beneficial rules for foreign employees. They also want to attract foreign direct investment and they try to make it easy for us. You know there is a reason Huawei set up their headquarters of Western EU region in the Netherlands. One reason is the excellent level of English here, the other reason might be the regulations. Beneficial regulations are all set up here and it is all in place that is really convenient for us. I: Thank you for your information about the regulations in the Netherlands. I really did not know this. Can you tell me something about the management costs Huawei is facing. I would like to know whether you think Huawei has more managing costs because they have multiple subsidiaries in different countries? LM: That is a good question , and Huawei is trying to manage their management costs as efficient as possible. You know we should always focus on the costs because the competition is fierce and we need to keep our costs low. But honestly speaking Huawei is already quite experienced in this. Huawei ventured in Europe after going abroad to America, other Asian countries and Africa. Furthermore all our senior managers have experience dealing with different cultures because everyone worked in another country before. When I look at myself I manage 10 countries. That is a lot but it is also very efficient, I feel like Huawei is managing their management cost very well. And we do not face substantial problems managing multiple subsidiaries in different countries. I: Are there a lot of costs related to the transfer of knowledge from the subsidiary to the headquarter in China? LM: No not at all, I personally feel that it is very efficient. I am the region manager of Western European Union and all the country managers report to me. I am the only one who sends the information to the headquarters. So already it is quite efficient. When looking at
Comment [HD11]: Mitigation strategies for firm based LOF
Comment [HD12]: Use local employees and consultants
Comment [HD13]: Environmentally-derived LOF
Comment [HD14]: Same laws for foreign and domestic firms
Comment [HD15]: Environmentally-derived LOF
Comment [HD16]: Beneficial laws for foreign companies
Comment [HD17]: Firm-Based LOF
Comment [HD18]: Management costs are quite low
Comment [HD19]: Mitigation strategies for firm-based LOF
Comment [HD20]: Organizational learning and using experienced managers
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management costs I also feel that Liability of foreignness is not really a big issue. I think Dutch multinationals have the same management costs. And again we are an efficient company who are used to deal with managing multiple countries. I: So to wrap up: You don’t think liability of foreignness is an issue for Huawei. Because Huawei got experienced in going abroad. By making use of local expats, third parties and Huawei’s own management expertise it managed to decrease the problems Huawei experienced 10 years ago. LM: Yes I totally believe that. I: Okay so now I want to move on to the next topic liability of origin. To make it clear Liability of origin means that the foreign firm has more costs just because the firm is coming from a particular country, in this example China. Do you think liability of origin is an issue for Huawei? LM: I definitely think Huawei is facing liability of origin but it is changing. I like to read about history and Japan had the same problem 20 years ago when they were going abroad. Because everyone perceived Japanese products as cheap products but this attitude changed. I think China is facing the same problem as Japan 20 years ago. Customers perceive” made in China as cheap”. I always like it to frame this way: we provide good quality for a fair price. I think the opinion of the costumers is already changing. There are so many Chinese brand which provide good quality now such as Xiaomi, Huawei, OneNote etc. Customers also see this and it will change. The biggest problem is the opinion of the costumer we always need to prove that we provide quality. But you know the cost of products become more and more important. Costumers are paying more attention to the price they are paying so they are becoming more price sensitive. I: How does Huawei mitigate the liability of origin? LM: The most important thing, is that Huawei always tries to deliver high quality products and services for their customers. Every day we need to prove that “made in China” doesn’t mean a bad quality product. Instead , we need to show them that Huawei can offer the costumers the same quality but for a much cheaper price. I think this transmission is already taking place and the brand attitude towards Huawei is becoming more positive. But we are not there yet. We also partner up and link our brand to other western brands like Volkswagen and BMW. By partnering up we show that we provide high quality products which are even used in high end cars. Furthermore it is our philosophy that the customer should be regarded as the number one. If a customer has a request we always try to customize our service or product for him. These are some strategies we use in order to decrease the liability of origin. I: Thank you for participating it was really helpful. I will send you the content of this interview later so if you want to erase anything you can do that. I hope you found this interview interesting LM: Yes it was nice to participate in this study and the questions were nice. I: Okay great. I will send you an email with the content tomorrow. Is there any possibility I can talk to a colleague of you about this subject?
Comment [HD21]: Firm-based LOF
Comment [HD22]: Efficient company, low degree of firm-based LOF
Comment [HD23]: Liability of origin
Comment [HD24]: Country Image: China is perceived as cheap
Comment [HD25]: Mitigation strategy for liability of origin
Comment [HD26]: Offer good quality products
Comment [HD27]: Offer good quality service
Comment [HD28]: Partner with Volkswagen and BMW
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LM: I will do my best finding another colleague for you I: Thanks a lot! Interview 2
Interviewer: Kasper Verhoog (I) Interviewee: Solution Sales Manager (SSM) Group: Huawei Enterprise Business Group Date: 26 September, 2016 Duration: Forty-six Minutes Gender: Male
Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself. I am Kasper Verhoog. I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Liability of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct. I: So is it okay if I record it? SSM: Yeh no problem, that’s totally fine! I: Hey, Yeah great. So first I would like to tell you something about yourself. What is your career history and what is your current position in the company?
SSM: So officially I am a solution manager, officially we call it a solution sales manager. We are actually approaching customers. Well you know maintaining the relationship and at the same time we are also selling our products, . You know we are doing presentations and we are having talks with people both with technical one and commercial people from customer side… Yeah that’s about it and also we are attending those exhibitions just to make more exposure as a company.
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I: Okay. I would like to know within the company Huawei, is the word Liability of foreignness ever mentioned?
SSM: Uhhh.. No. Not exactly no.
I: Okay so it’s not like the word liability of foreignness exactly. But is there anything something mentioned which is related to extra costs due to the fact that Huawei is foreign? Are there different cultures or are there a lot of costs?
SSM: Yes, the differences in culture is often mentioned somehow. So, especially for the expats. So they have been constantly reminded that they should be aware of the cultural differences. But they are mainly just being reminded to respect the local culture. Yeh, culture or customs.
I:Okay, so it’s not a big issue. So when you start at the company, you didn’t have a training where they stated that Huawei is a foreign company entering Holland which has more costs?
SSM: That I honestly don’t know. I mean I am a local hirer. Its normally meant for expats, they probably have the training.
I: Do you think, from your own perspective, that the subsidiary of Huawei in Holland face any liability of foreignness? So that they have more costs because? And then I want to ask you if there are extra costs. If the company has extra costs I want to make you a distinction. Is it because Huawei is foreign or is it because the company is Chinese.
SSM: Uhh… well actually I can personally feel that on both perspectives. So first of all as being foreign from the market or from the country. Uhmm. Yeh I know when Huawei just entered the market they had, well ofcourse they had to look for local employees. Or local talents. At that time they, the first time they experienced the liability of foreigness. I feel that they experienced the liability of foreigness when they want to hire someone. The top management of the HR department was sent from China. So they didn’t know the market. They didn’t know the way to approach candidates. The only way they could find local talent was by outsourcing it to local headhunters. And that cost them a lot and also, according to what I heard, at least the first 2 batches of employees, were not very successful, or at least they couldn’t they justify their salary let’s say. But of course the company slowly learned. And yeh they slowly adjusted their policy.
I:Do you think that these extra costs was due to the foreignness or was it because of the fact because they were Chinese?
SSM:I would say that it was truly due to the foreignness. They didn’t know the market.
I: So the company just didn’t know how to enter the market and they did not have the experience to go abroad and to move to another market.
SSM: Exactly.
Comment [HD29]: Firm-based LOF
Comment [HD30]: Lack of local knowledge resulted in difficulties hiring employees
Comment [HD31]: Lack of experience
Comment [HD32]: Mitigation strategy for firm-based LOF
Comment [HD33]: Organizational learning
Comment [HD34]: Firm-based LOF
Comment [HD35]: Lack of local knowledge
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I: And they didn’t know the environment. You just mentioned the employees. Do you think there is any other thing related to the environment?
SSM: I mean their thought was to spend whatever is necessary and hire high quality employees or candidates. So they immediately, you can say buy the knowledge of the local market. But that’s where it started to go wrong because they couldn’t manage to find the top tier employees. Well it has to do with the incapability of the headhunters. Okay in that perspective it also has a little bit to do with the fact that it is a Chinese company. You know high-end people at that time would not consider joining a Chinese company because of the uncertainties. They didn’t know about this company. Also about Chinese
I: When the company started were there any more difficulties, like you just mentioned the employees. Were there any other problems maybe within the company? Or with any suppliers?
SSM: Uuuhmm… That part I didn’t hear off. I mean I wasn’t there and I can only tell what I heard. In that perspective I didn’t hear too much. So Europe is in factly the last continent to expand. So they already had experiences in Africa, other parts of Asia and even in America. So this is like a strategic market for Huawei. And they decided to reserve it until they are thought they are ready.
I:Well is that due to the fact that the European market is so hard to approach?
SSM: It has to do with the majority of the market where everything is already in place. You know vendors, players, regulations and everything. The majority of the customers already had at least 1 or 2 suppliers. Huawei also figured that much. It is a common perception for European people that you don’t change something that already functions. At last there is a big enough motivation.
I:Do you also feel that the level of competition is quite high in Europe? And that’s maybe why Huawei waited a little bit and wanted to put a good product on the market?
SSM: Well.. I, I , honestly don’t think it has to do with the level of competition. I think competition in America and Asia is even more fierce. Because the majority of the competitors they are from the US. And also labor costs in Asia is much lower. So also the costs in both markets are just lower. So competition is automatically more fierce. The main reason they decided to enter so late, is because they know that they probably don’t get a second chance in this market.
I: They just want to do it right from the beginning?
SSM: Yeh,Yeh
I: So that’s nice. We talked about 8-10 years ago. I want to change to now. So do you feel that now Huawei has any costs which local firms do not have?
SSM: Uhhmm.. I can only speak for Huawei. It only applies to Huawei. But I think it is a classical approach for Huawei to send people from headquarter to become the top
Comment [HD36]: Liability of origin
Comment [HD37]: High end people do not consider joining a Chinese company
Comment [HD38]: Europe last continent Huawei ventured in
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management team in each area. And that alone costs a lot. I mean we have a lot of local employees, relatively high end, we think they have a very good package. And sometimes they see me as a local peer. Sometimes I can see they are under the impression they make more money compared than those players send from China. However then they were shocked when they found out those guys were actually much richer than them. Not only do they have salary but they also have stock shares they are getting paid dividend and get bonuses.
I: What you are saying now is very interesting. So you are saying the local employees are more useful compared to the Chinese employees?
SSM: No, No. What I am saying is that the expats are actually making more money.
I: Are you talking about salary or making money for the company itself?
SSM: Uhmm I am talking about their income. But I want to say it costs the company more to send those people and to train them.
I: So that costs Huawei a lot of money?
SSM: Yeh, so again. I think it still has to do with the fact. I mean Huawei has already gained some knowledge about the commercial market. But they are still quite unfamiliar with the local labor market. And that is basically why they prefer sending people from the headquarter in China because at least they have a much higher certainty about the loyalty of the employees.
I: So they are sending Chinese employees from China to know the local Dutch labor market better?
SSM: That wasn’t even a purpose. I don’t think the company focused enough attention of getting attention to get knowledge of the local labor market. They realized that labor law is quite in the favor of employees. You can lose a good employee in a couple of months sometimes even one month. So that’s basically the best way to think of just to send their own loyal employees from China.
I: Was that a problem or is that a problem for Huawei?
SSM: It is a still a problem.
I: Can you apply this lack of knowledge only on the labor market or are there any other fields where Huawei lacks knowledge of the Dutch environments?
SSM: I mean, thiss….
I: How the legislation works maybe the use of consultants?
SSM: No I am just saying that the company doesn’t feel assured enough or comfort enough to grow the local high-end to the top management because they don’t know when they are leaving.
Comment [HD39]: Firm-based LOF
Comment [HD40]: Send managers from abroad
Comment [HD41]: Firm-based LOF
Comment [HD42]: Lack of local knowledge about labor market
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I: But do you think that this strategic decision will cost the company a lot, because it is quite paradoxical to send high-end employees from China. They have a lot of costs of running a company but that is in China, and running a subsidiary in Holland might be different, do you feel anything on the work floor. Maybe people feel that they know more compared to their top management? Or that the people coming from China need a lot of training?
SSM: I would say it also induces costs. Factually there is only one way to keep those local employees quit. Just pay them more money. This is what I observed. It doesn’t matter how much smarter or are how much more experience they have compared to their top managers or bosses. As long as they are seeing the right number.
I: And do you think this is a specific issue for a foreign company or do you think this applies to all companies because the labor market is so fierce and employees are becoming less loyal?
SSM: Uhhm..
I: Or do you think that working for a Dutch company is more intrinsic rewarding?
SSM: These local companies should have an advantage over foreign companies. First of all they should have some image or statue. I personally, well even in my MBA classes I see that many of my dutch classmates they are basically quite proud of being able to work for some Dutch company like Heineken or KLM. I think they resemble the national pride and for them I think just the fact that they are working for this companies is already motivating them a lot. And also I say the local companies know more about the sources of talent. So either they already started hiring those people immediately after graduation. So there is automatically a loyalty. Or stickness. They can easily find any replacement if they lose any high end employee.
I: That is really interesting. So in the field of employees you think that Huawei has a liability of foreigness but in another field there is not a big liability of foreignness problem for Huawei. For example when you think about suppliers. I can remember that you told me a story about the fact that you always need to prove suppliers that you provide quality. And that you take them to your department to really show that you are delivering a good product. Why is this?
SSM: I think this has to do with the country of origin. I mean especially in the It industry, the majority of our competitors are American. I mean for them it is also a foreign market, although they have entered the market much earlier than we did. Uhmm yes that has to do with liability of origin I would say.
I: We are talking about a lot of factors which are outside the firm, for example we talked about the labor market which is a big issue for Huawei. We talked about suppliers and legislation. But there is not much going on for Huawei.
SSM: I personally didn’t see too much. In that case I think there is already a very mature industry in the Netherland. That there are companies who already know about the legislation.
Comment [HD43]: Environmentally-derived LOF
Comment [HD44]: Liability of origin
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. The product we are selling is in fact knowledge. As you know you hire the right consultant or company you automatically gain this knowledge. And I believe that all the domestic and international firms face the same legislation
I: And also internally, because some companies also have a lot of costs when they go abroad they lack the management expertise or they lack the knowledge when they go abroad to manage the process of going abroad, do you feel that there are some firm specific advantages in this sense that local firms do have compared to Huawei? Or do you say Huawei is such a mature company we already developed over such a long time, so we see ourselves at the same level as American companies?
SSM: I think, but again. This is already the last market Huawei tried to invade, or enter. So there already is I would say a mature approach to enter a foreign market. Of course it takes a lot of time to get used to and get to know the environment for the top management. But you know the majority of the expats, this is what I heard. Everyone that is send from headquarters must have had at least one experience in another continent before. So all of them are experienced in working abroad.
I: That is good to know. And to come back to the labor market. Do you think that this is especially because Huawei is Chinese or because Huawei is foreign?
SSM: I think it has to do with.Well I think Huawei is already one of the biggest companies in China and still we have not a good enough reputation or big enough fame for taking care of employees. So I don’t think anyone would be really proud of working for Huawei. So it has to be compensated and the simplest way is just to give the employees a package.
I: Do you think the classmates you talked about don’t want to work for Huawei because of the company culture or because it is because they want to work for a Chinese company?
SSM: I think in most cases it is about the fact that Huawei is a Chinese company, especially in the Netherlands. They mention they don’t want to work for a Chinese company and that they rater work for a Dutch company. It also has to do with the company culture. Huawei has had the problem that people were thinking that they overused the labor of the employees.
I: So now I want to move on to the liability of origin, actually to wrap it up: You think that Huawei is not facing a lot of liability of foreignness. Firstly because Europe was the last country Huawei entered, so they already developed a lot of capabilities. Furthermore there are a lot of third parties which can help Huawei.
SSM: Legally wise I don’t see too much but commercial wise there are still seen a lot of liability of foreignness. I mean we still don’t have enough access to the market. But again the company was hoping to rectify this problem by hiring local employees who have the knowledge. It is getting better but it is not enough yet.
I: You say that they have problems reaching the market, why is that?
Comment [HD45]: Environmentally-derived LOF
Comment [HD46]: Mature industry, legislation knowledge easy to gain and same laws targeting foreign and domestic firms
Comment [HD47]: Mitigation strategy for firm-based LOF
Comment [HD48]: Send experienced mangers
Comment [HD49]: Liability of origin
Comment [HD50]: Dutch people don’t want to work for a Chinese company
Comment [HD51]: Firm-based LOF
Comment [HD52]: Lack of acces to the market
Comment [HD53]: Mitigation strategy for firm-based LOF
Comment [HD54]: Hire local employees
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SSM: Because, I mean. So we always compare Europe to China and America. The market is huge. So being able to open one new account or attract one customer already means a big growth in your revenue. But it is actually not the case in Europe, especially in the Netherlands.
I: You have difficulties capturing market share?
SSM: Well, noo. It has to do with the size of individual companies. The majority of Dutch companies are small or medium. So it is not that one extra account immediately increases your revenue by a two digit percent. Sometimes you need to open at least 200 account to keep up with the growth we are expecting.
I: What do you mean by accounts?
SSM: I mean the customers. We are selling It solutions. And getting 200 new customers who need an It solutions is quite hard to find.
I: Do you think it is hard to attract new customers due to the foreignness or due to the country of origin?
SSM: This part I think because of the foreignness. We don’t know the environment enough.
I: Now I want to move on to the next topic which is liability of origin. We already touched upon it a little bit but is there within your company the word liability of origin ever mentioned?
SSM: No, never.
I: Do you think liability of origin is an issue for the subsidiary in Holland. So that the company just have extra costs because they are Chinese. Before you told me that you always need to show the customer that the product is really providing the solution which they are supposed to do. Do you think that customers are specifically asking for this because you are Chinese?
SSM: I say it has to do. In many cases they literally asked why would I choose a Chinese company for my IP products. And especially IP products.
I: IP is intellectual property?
SSM: No, no it means internet protocol. But yeh so basically storage, server and network products. Because I mean in fact it goes down to intellectual property because that is where data and information are going through. Yeh so it was a huge problem at the beginning. It only got better since the breakout of the prison scandal in the US, you know Snowden. The American guy who worked for the NSA. The big scandal with the information right. Then it is proved that the Americans are monitoring the entire road. That, I mean it is an assumption that Chinese are trying to do that but there is no proof. So it only started to get slightly better since the breakout of that.
Comment [HD55]: Firm-based LOF
Comment [HD56]: Lack of local knowledge
Comment [HD57]: Liability of origin
Comment [HD58]: Liability of origin
Comment [HD59]: Assumption that Chinese data servers are not a safe spot to store your data on
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I: So there are some customers literally asking why should I choose a company to store my valuable data on your server? SSM: Exactly
I: Okay and is there anything else why I should choose a Chinese company?
SSM: Well also we also think, I mean China has a reputation of selling cheap stuff. Which automatically meaning low quality. And that is also something we have to fight. This is basically why we invite our customers very progressively to come to our demo room. In almost every area so they can literally see and physically touch our product and feel it. And then they are also invited back to the headquarter, so anyway as soon as they see the facilities and the productions they automatically gain the confidence that we are not a tiny company that is just talking about all those storage.
I: So you need to deal with the assumption that Chinese companies provide low quality products and you people do not easily share their data with a Chinese company server because they don’t trust Chinese companies, is that correct?
SSM: That is correct.
I: So the main drivers of liability of origin is basically the perception of Huawei, or is it about the perception of China?
SSM: I would say it has to do with just China.
I: So you think that is still quite negative?
SSM: Uhm.. Yea. It is getting a lot better. In the past 2-3 years.
I: Is Huawei doing anything to decrease the liability of origin costs? So you already mentioned that you show the consumers that you are providing good products, what do you show them exactly? SSM: So first of all we show them our products, we give them a taste of our quality.
I: So you always show them that you have high quality products, are there any other strategies that help you to overcome liability of origin?
SSM: Yes, so we are trying to sponsor some local events. Sometimes there are events or exhibitions that we sponsor. And also we started to sponsor football clubs like Ajax, Dortmund in Germany, Arsenal in the UK, Atletico Madrid in Spain.
I: Just to build the brand and to show the consumers that Chinese brands are credible. You want to build positive associations?
SSM: Yeh, basically we just want to establish the image of existence. We want people to know that we are there and that we will be there.
Comment [HD60]: Liability of origin
Comment [HD61]: Reputation of selling low quality stuff
Comment [HD62]: Mitigation strategy for liability of origin
Comment [HD63]: Invite costumer and show them HQ + facilities+ products
Comment [HD64]: Mitigation strategy for liability of origin
Comment [HD65]: Let consumers taste the quality
Comment [HD66]: Mitigation strategy for liability of origin
Comment [HD67]: Sponsoring, local football clubs like Ajax or Dortmund
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I: But is it just about building existence or is it also about creating positive associations which are linked to Huawei? Like we are Chinese companies we are not only focusing on profit. We really care about the environment. I think that a lot of people already know about Huawei but do you think that they sponsor to increase brand awareness or to counter the effect of negative image which is linked to Chinese companies?
SSM: Yes more or less it counter the liability of origin.
I: Do you think partnering with European third parties, not only football clubs but also to companies such as BMW and Volkswagen helps to mitigate the liability of origin?
SSM: Umm. Yes well I think the main problem we try to address is just we don’t want to Huawei or even a Chinese company as one that is, you know, that is being cheap, or you know that is not able to provide good quality. But I mean apart from those football clubs we are sponsoring. We are doing a lot more. Also we have strategic partnerships. We are making more effort with big companies. This is what we call light-house projects or deals. So for example CERN, the Swiss company . We have been trying to sell them products and of course there is already a fierce competition for every vendor. We just try to sell whatever the costs. We want to build a good reputation.
I: So basically Huawei just want to have a relation with CERN to prove others we are Huawei, we can even deliver to CERN which is a super high qualified strategic center. Even if there is not so much profit we want to deliver them because they help us to build our brand. And to counter the effect of liability of origin.
SSM: Yes exactly. So I mean it is a very common practice, at least in the It industry that vendors try to build their image. And sometimes we are also being countered Ffrly by the customer so they are, have the perception that Chinese companies are just cheap. So it made us a lot easier to just deny or changing that statement when telling them CERN, Mercedes, BMW are also using our products.
I: I missed one question. We talked about the labor market and the liability of foreignness? What does or what did Huawei in order to mitigate the Liability of foreignness. You mentioned the local expats does that works?
SSM: Yes expats do work. Uhmmm… Well you can say on the other hand this is also another attempt to gain local knowledge of local market. Again I speak for the enterprise. It is a quite typical approach to have channel business. So we have local partners who have enough access and local knowledge. The problem is that already the big players already have a vendor and they have a very good relation with them, they just have being looked after for a very good reason. Everyone want them so Huawei started to approach the smaller ones. At least Huawei for the first 3-4 years Huawei allowed them to get more profit. So Huawei is trying to get access to the local market by building relationships with small local companies. By giving them higher margins you either grow a tiny partner to a bigger one or you show your capabilities to the existing vendors.
Comment [HD68]: Mitgation strategy liability of origin
Comment [HD69]: Strategic Partnerships: Huawei is connected to CERN
Comment [HD70]: Mitigation strategy liability of origin
Comment [HD71]: Strategic partnerships: CERN, Mercedes, BMW use Huawei’s products
Comment [HD72]: Mitigation strategy firm-based LOF
Comment [HD73]: Use local employees, they have access and local knowledge
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I: So or you attract local talent or you partner up with small local companies? Is there also some outsourcing Huawei uses like consultants?
SSM: Uhmm. Not much I am only seeing the legal part that is being outsourced.
I: I think it was interesting.
SSM: I hope it will help a lot!
I: Thank you I will stop recording it.
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Interview 3
Interviewer: Kasper Verhoog (I) Interviewee: Data Analyst (DA) Group: Huawei Consumer Business Group Date: 12 October, 2016 Duration: Forty-one minutes Gender: Male
Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself. I am Kasper Verhoog. I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Liability of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct. I: So is it okay if I record it? I will send you the content of this interview and if you do not agree with the content you can erase anything. DA: Yeh no problem, that’s totally fine! I: So can you tell me something about yourself?
DA: Yeh sure I am …. I work at Huawei.I have been working there for two years. I work as a data analyst . I work in the smartphone department where I perform daily activities. Like market research, sales analysis, channel analysis but also marketing activities. Everything that is related to data I research.
I: So your current position is data analyst within the smartphone department?
DA: Within the smartphone division. Specifically within the product team, I am working in the product analysis team. For example when a new product is launched we investigate how the market is reacting to it.
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I: So you are investigating the consumers or are you investigating data about anything related to smartphones? DA: Uhmm what I do is I look at social media data, also market information from GFK. That’s a market research institute in the Netherlands. Specifically, I think they are involved with many markets not only smartphones. I look at that data to see what our competitors are doing but also look at our sales data. We get of course data from our customers like Mediamarkt,Vodafone. They give information about the numbers and what kind of products they sold and also information from internally, for example from logistics. Uhhm I try to integrate as many data sources as possible to provide our management, sales and marketing a good base for their decisions.
I: I think that is really interesting and I think it can be really useful for my research as well. I want to ask you within your company is the word liability of foreignness, or anything related to we have more costs because we are foreign ever mentioned in the subsidiary in Holland?
DA: Uhhm. Well Huawei when they came to the Netherlands they hired a lot of Dutch people. They bought expertise from the Dutch market. For example if you use Chinese managers to manage Mediamarkt or Vodafone then they will become disconnected. What they did is they hired local employees to deal with those companies to negotiate etcetera. So I don’t think there are any costs involved looking at that part. However, one thing currently happening in the market is that Huawei is a new brand in the market. It is a Chinese brand and currently Chinese brands suffer a little bit from image problem because you know it is a Chinese building quality etcetera. So we have to convince the Dutch people that our products are good and they are good. And it is actually the same situation as Samsung had or the Korean manufacturers in the 1990s. Japanese Producers had it in the 1980s. So that is the current position we are in. We are trying to fight in the Dutch market. And the fact that we are a Chinese company it is not helping because the image is not that good… yet.
I: You keep mention because we are Chinese, so do you think this problem is particular a problem for Huawei because they are Chinese or is it because consumers don’t like foreign products?
DA: Uhmm.. Dutch people like foreign products. They love Samsung devices, which is Korean, they are the number one in terms of market share. Uhhm. Note 7 was a little bit unfortunate for them. But Dutch people like to buy foreign phones, also Apple uhhm Sony, Samsung. So currently China is uprising and becoming into the market. And we grew already to the third player in the dutch market so we are convincing the dutch people but it takes some time.
I: Do you also see the view of the consumer reflected in your data, on social media or anything can you tell me something about that?
DA: Well we get data from GFK as I mentioned before. And in two years’ time we doubled our market share and we have more and more products. The reaction from our costumers they are really happy with our products. So our brand perception is changing also when I
Comment [HD74]: Mitigation strategy for environmentally-derived LOF/firm-based LOF
Comment [HD75]: Using local employees to do business with Dutch parties and who have local knowledge
Comment [HD76]: Liability of origin
Comment [HD77]: Chinese brand suffer from an image problem related to building quality
Comment [HD78]: Environmentally-derived LOF
Comment [HD79]: Dutch consumers like foreign products
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look at the social media data. And if you ask people have you ever heard of Huawei every year it is getting more and more. I will not be surprised if we are much bigger in two years and maybe we are even bigger than Samsung, who knows.
I:That’s a nice goal to achieve but also you talk about the brand awareness but do you also see that the meaning of Huawei is changing, that people now see it as a better brand or reliable brand. What is the opinion about Huawei now?
DA: Uhhm. A few years ago Huawei had only low end devices which were less than 100 euro. Uhmm so we are now introducing more and more expensive products. And what you see is that we are shifting to that segment. We are shifting to the high end devices. In the end we want to sell as many high end devices as Samsung and to be honest before I joined Huawei I was also skeptical about the devices that they have. I was like a Chinese brand cannot be as good as Samsung or Apple. But when I took one of the devices and started playing with it I was wondering what the difference with Samsung or Apple is? Why am I paying 700 euro for an apple device while a Huawei device is maybe 400 euros. So we are specifically on the value for money proposition.
I: And is that already paying off? Do you see that consumers are becoming more positive?
DA: When I look at the data the average price is increasing every year. Most of the market share is increasing and there is still a lot of work to be done. Uhhhm Huawei is a difficult name for people to remember. I mean it is a Chinese name so we need to work on that and need to improve.
I: But would you say that it is a liability that Huawei is so closely linked to China, so they might change their name or introduce a subbrand?
DA:We have a sub-brand at the moment.
I: Yeh honor.
DA: Honor yeh. Honor is mainly online brand. So you can only purchase the device online. And it aims specifically on the young people and on the brave people we are targeting. And those devices are really good. And of course it is also an answer to xiaomi. Honor in China is really big at the moment but in the Netherlands it is still small.
I: But do you see difference in opinion which is against honor and Huawei, do the opinions of the consumer differ?
DA: Uhhm.. I am not too much involved in Honor. So we had not too many activities with honor so it is hard to judge. Uhhm also in the market data the volumes are too low to really make a statement about it. But at least the name is better to understand for people. But in the end Dutch people mainly focus on price. So it doesn’t matter too much if it is a Chinese device or Samsung, they just look at the price. But for the high end segment they look at brand mainly. So for the high end segment let’s say above 400 euro then it becomes really
Comment [HD80]: Liability of origin
Comment [HD81]: Country Image problem: A Chinese brand cannot be as good or Samsung or Apple
Comment [HD82]: Honor the sub-brand of Huawei
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important your brand awareness is good. That people know Huawei and that they think good phone, good service and so we are moving to that. Brand image is really important for us.
I: And is that brand image increasing now?
DA: Uhhm Yeh ofcourse it is not only on smartphone level. We are also involved in carrier business. So Huawei provides all the network equipment for T-Mobile, Vodafone and also KPN. It is quite unique, for example in the US. Uhh Huawei needs access to the market also to the smartphone market but the US government they are blocking Huawei. Because there is suspicion that the Chinese government is behind it and for cyber security reasons etcetera. But in Europe Huawei get access and if I look at what Huawei does to make sure the cyber security at a high level is that they invest a lot of money in trainings and extra mechanisms in the software to prevent backdoors in software and make sure the products are completely safe. And that is also what I experienced within the company. So maybe, I am not sure I can say it 100 percent but in the West there is always a kind of how to say it, uhh a negative image of China: They copy everything, they are spying etcetera. And this image I think is not correct maybe it happens but when I look at Huawei I think the company risk is too high if there is any backdoor in the software or whatever. So that’s why I know for sure Huawei doesn’t do these things.
I: So Huawei is really trying to build up their image and you say they are doing that by providing consistent quality and really making sure that their software is not flawed, that their can’t be any backdoor and that they don’t have a lot of scandals, is that correct?
DA: That is correct.
I: So to sum up you think that Huawei doesn’t face liability of foreignness when we talk about consumers because consumers like to buy foreign products. They are not really into Dutch phones or Dutch networks that’s not very important. But what is important is that Huawei is a Chinese company and in this aspect they face some costs because they really need to build up their brand image by providing consistent quality.
DA:Exactly, it is like every foreign brand. I think a French brand called Wiko they also try to fight into the Dutch market and you have to fight against the existing players like Samsung and Apple I mean those are really big. And our devices are also good. I don’t know if you ever used a Huawei device before?
I: Not yet.
DA: Well go to the store and just use the P9 for a minute. I think you will think why do I have an iphone.
I: Actually I was thinking this already when I had my Iphone because I don’t think it is very innovative anymore.
DA: And that what is happening to smartphones in general they become a commodity. So you just go to Mediamarkt and all the devices become more or less the same. Uhhm if you
Comment [HD83]: Liability of origin
Comment [HD84]: In America Huawei is blocked because of links with China
Comment [HD85]: Liability of origin
Comment [HD86]: Negative image of China: Spying, copying etc.
Comment [HD87]: Mitigation strategy for liability of origin
Comment [HD88]: Provide consistent quality
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look at the Apple devices. They are really good, I don’t say anything about that. But you pay a lot of money for the same features Huawei offers. Value for money proposition Huawei offers is better in my opinion.
I: But you make the comparison between Huawei and a French company, do you think that the French company has less troubles compared to Huawei because they are French and they are more easily accepted. Let’s sketch the situation that Wiko and Huawei both sell exactly the same product. Do you think consumers would rather buy the French phone?
Da: I think the people mainly focus on brand. So do I know the brand? I had a Samsung before so I buy a Samsung again. So that’s most important I think. And based on the name WIKO you cannot tell it is French. It could be any manufacturer in the east. So I don’t think it is a big issue. For the consumer market you do not have a lot of extra costs mainly because the Dutch people are working there. When I look into the smartphone division half of them are Dutch and halve of them are Chinese. And especially marketing and sales are Dutch. And then more supportive departments like services or procurement, logistics are mainly Chinese.
I: Okay so we talked a lot about consumers now from the consumer point of view. Do you see any data that Huawei has more costs in any particular area for example maybe certain specific laws targeting them or they have any issues here in the Netherlands, which is strange to their competitors? Or any management costs?
DA: Uhhm. I am just looking ofcourse there is a lot of tax specific rules compared to other countries. But most European legislation is European and it is all the same for foreign and international companies. So I don’t think there are a lot of extra costs we have to make compared to the … I think maybe the copy tax…
I: Can you elaborate on that?
DA: Uhmm I am not sure. We have to pay “thuiskopieheffing” to the government. I think this is an extra tax compared to other countries.
I: But that is targeting other foreign companies as well?
DA: I think it targets all the companies in the Netherlands, so it is not unique to the Netherlands.
I: But there are not specific regulations for Huawei? Or anything related to hiring employees for example?
DA: No, so you mean for hiring employees what do you mean?
I: Yeh for example that Huawei has problems hiring employees because they need to stick to certain rules because of the government.
DA: Yeh well we have a lot of expats working in the firm. But this is the same in Apple and Samsung. We don’t have a Dutch phone manufacturer here. So all the companies face the same issues. They have a little bit more experience than Huawei has. We are active since
Comment [HD89]: Mitigation strategy environmentally-derived LOF
Comment [HD90]: Using local employees
Comment [HD91]: Environmentally-derived LOF
Comment [HD92]: European legislation is all the same for foreign and local companies
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early 2013 and we need to build up that experience. But there are not specific costs that are involved to Huawei specifically.
I: Okay, you talked about experience, in what field does Huawei especially need to build experience?
DA: Mainly you know you need to….. to get confidence of the parties like Vodafone, KPN , Mediamarkt. You need to gain their confidence. And you need to show them you are a serious brand with good devices. And also in a lot of other things like payment you need to be on time. And of course Huawei is a multinational company where a lot of regulations are in place but those are meant for the world and not especially for the Netherlands. Sometimes those regulations collide a little bit with the business culture in Holland, that happens.
I: And you were talking about the use of expats does Huawei use them because they have a lot of knowledge about the environment here or did Huawei hire them for another purpose?
DA: Uhhhm they got ofcourse experience in HQ and they need to speak English very well. I think when they go to Europe they are already experienced. The main reason because they have worked in China before. And uhhm speaking English is very important. Communication is one thing that is very important. Uhhm Chinese and English are so different from each other. And the level of English in Asian countries in general is not too good. So I am not sure. But compared to other brands like Samsung and Apple. How to say it we have more Chinese or foreigners in the company.
I: And do you think that this causes extra costs, in terms of management and coordination costs, do you feel that yourself?
DA: Definitely, I mean communication is important. I mean when you have two different business cultures so also working times etcetera but also different languages you get confusion and mistakes. what I understood is that within Huawei the ratio of Chinese people compared to Samsung the ratio of Korean people is higher. So that is one of the main differences.
I: So that is really an issue for Huawei how to increase the communication?
DA: Communication is important.
I: Between employees or between department is sometimes not that streamlined yet?
DA: No and we are also a young company. So the department didn’t exist 2 years ago. So we need to build experience. We need to learn from our mistakes. So yeh.
I: And I was wondering how does Huawei learn about the environment as such in the Netherlands, do you hire any consultants? DA: Uhhmm we don’t have any consultants. We mainly hire people that have expertise in their area. For example marketing we hire Dutch marketers. Also for sales we have the
Comment [HD93]: Firm-based LOF
Comment [HD94]: Company regulations are not adapted to business culture in Holland.
Comment [HD95]: Mitigation strategy firm-based LOF
Comment [HD96]: Send experienced managers who can talk English
Comment [HD97]: Firm-based LOF
Comment [HD98]: Extra management costs due to (cultural) differences
Comment [HD99]: Mitigation strategy firm-based LOF
Comment [HD100]: Organizational learning
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account managers who have experience in telecom. Uhhm so we don’t have any consultant no not for the smartphone department.
I: Okay. So that’s interesting because nowadays companies make use of consultants a lot. But Huawei makes a strategic decision to not hire any consultants so they can build the knowledge in-house?
DA: Yeh that’s correct.
I: We talked about the Netherlands, are there any other countries in Europe where Huawei really faces problems? I am not sure if you also analyze those data.
DA: Let me think. No not really. I think the same thing apply as I mentioned to any other countries. Every country is different. One thing I think from China they see Europe as one piece. They don’t see it as individual countries. So sometimes there is a tendency to see it as one piece and not as individual countries that have different laws and different markets. So that causes conflicts. So that is also maybe a cost but that is mainly because of the structure of Europe. That also happens to Apple, they also see Europe as a whole.
I: Do you think that is because they are Asian or do you think that all foreign companies see Europe as 1 part?
DA: In general it is the same when you go to America and you ask where is the Netherlands they cannot point on the map. They are used to 1 big country. So they also think of Europe like that.
I: But the strategy of Huawei is not different from the one of Apple or Samsung.
DA: I don’t know the details of that but the strategy is not fundamentally different.
I: But this can cause cost, to what extend? When can it cause cost? Are there any examples of the same type of product launched in several different countries but that did not work
DA: Uhhm let me think we have a lot of products. No so far you know all the smartphones have to comply with the European regulation. You always have the European certification on the back. The CE complies all over Europe. But for example also internally we have some unique situation in the Netherlands. We have a different market compared to the UK. For example it was really popular to have 0 euro phone for your phone. You pay 0 euro and every month you pay a subscription. So that was unique to the Dutch market. And costumers got spoiled by the free devices. So then we have to explain guys this is the situation in the Netherlands so please give us some support in this.
I: Mainly to report it back to the headquarters?
DA: We have a regional officer in Germany.
I: Do you think that is efficient?
Comment [HD101]: Firm-based LOF
Comment [HD102]: Foreign entity regards Europe as one peace
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DA: uhhm yes. I think it is good to have a regional office. It always depends a little bit on what they do. Sometimes they are macro managing so we are not that happy. But I think that it is good that there is 1 coordinating department in Europe. And that is the interface with the HQ again in China.
I: But sometimes you are not happy because they make..
DA: There are always discussions of course. About choices about marketing strategy, you know marketing strategy has to be applicable to whole Europe and sometimes it does not match the Netherlands.
I: So Huawei does not have separate marketing strategies for the Netherlands and Germany for example?
DA: Uhmm we have a marketing strategy for whole Europe and our marketing team can color in the boxes. But there are guidelines. So they lose money because you cannot specify it to the Dutch market.
I: Do you have any other thought yourself you didn’t mention yet which can be quite important for my research? You analyze a lot of data, have you seen data you were very surprised about except from the market share.
DA: No not specifically nothing to add. No that’s it.
I: Thank you for the interview.
DA: Yeh you’re welcome
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Interview 4
Interviewer: Kasper Verhoog (I) Interviewee: Public Relation Manager Group: Huawei Consumer Business Group Date: 17 October, 2016 Duration: Fifty-three minutes Gender: Male
Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself. I am Kasper Verhoog. I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Liability of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct. I: I would like to record the interview is that fine by you?
PRM: Yes I am totally fine about that. It is not a problem.
I: Is the explanation about the concepts clear to you?
PRM: Yes you have been very clear so far, so you can start.
I: Okay, so can you tell me something about yourself?
PRM: That’s a good question. As I told you I started my working life as an entrepreneur most of the time. And about 2 years ago I have been asked by Huawei to join them. Particularly because of my work with android World.nl, a big internet website about technology and Android. And I started off as a marketing manager for Honor. And after a year they asked me to do the position of public relation manager of CBG, consumer business groups. So I have two jobs actually at the moment until now. And I am going for.. In January it will be 2 years that I am in this company yes.
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I: So uhhm.. So your current position in Huawei is a PR manager of consumer business group?
PRM: Yeh so mainly a PR manager and I am also responsible for the brand Honor in total.
I: Can you say more about that, so what are you specifically doing for Honor?
PRM: Well.. Honor, actually at the moment I am doing everything. From arranging sales to arranging the marketing etcetera. Which is not doable actually but at the moment we are a little bit shorthanded and also the PR side takes a lot of time so I am a little bit in a squeeze at the moment so I am trying to get out of that. But in the next year hopefully it will get better you know it is a human resource question but it is also a budget question.
I: Can you give me a short explanation of Honor?
PRM: Yes, Honor is a new brand that was started about 3 years ago. Because Huawei saw that a lot of internet brand were coming up like Xiaomi, Oneplusone, oneplus. They seem to gain market share very quickly. Because they were modern quick, appealing to the young audience and they were very much internet-centric. And they had short lines, so from factory to the consumer via the internet. So the prices were very sharp. They can do that because they have less costs. Because if you have retail you can imagine you have to supply the stores etcetera. So they said we need to be in that kind of configuration. So they started the brand Honor. What they did not expect is that it started off so hard because in China it is a big part of the overall percentage of market share, it is almost 50 percent. So they started to roll it out in Europe and recently in America. Which is kind of interesting because Huawei is not present in America, because the Americans don’t trust Huawei because of the political China-American thing spying backdoors in devices etcetera. Honors seems to be that second brand that is not associated with Huawei, so now they started with the Honor 5x and now the Honor 8 and they are doing a really good job.
I: That is very interesting and that is actually where my research is about. Can you create new brands? But this is in America and I am investigating it within Europe. But it is a very interesting point that you mention, thank you for that. I want to ask you within your company is the world liability of foreignness ever mentioned? Or is there ever mentioned we have more costs because we are foreign or are there some difficulties because we are foreign?
PRM: No, it’s not a thing. In the case that there are regulations or meetings or that we are aware of that. On the high level.
I: Is it ever mentioned between employees, that they say we have such difficulties because they see us as foreign?
PRM: Sure we are a Chinese company. And we have a Chinese name. Huawei that’s the first thing they cannot pronounce our brand name. That’s the first hurdle.
I: You are talking about consumers now?
Comment [HD103]: Honor is an online brand not linked to Huawei
Comment [HD104]: Liability of origin
Comment [HD105]: Difficulties pronouncing name
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PRM: Yeh. Most of the time I am talking about the consumers. Because there is only one client in the world and that is the consumer. So that is the first hurdle. And the second hurdle is we do things differently because we have Chinese roots. This can be a good thing but it can also be a bad thing. It is communication, the way you treat suppliers, the way you pay your bills etcetera and that is something that can be an advantage and also most of the time it is a disadvantage.
I: Okay, can you elaborate on that because you say the way we do things for example the way you treat suppliers, what is the Chinese way?
PRM: Chinese way.. As you know Chinese are very hard working people. So there is not something like no I cannot do it. It is always possible, you just need to work harder. Second is that the.. If you compare the relationship between the boss and the employee is in the Netherlands in Europe is much closer to each other. As a European you can tell your boss I don’t you’re right. We need to discuss this. But in the Chinese culture it is the boss who takes the decision and most likely as an employee you are going to follow. So uhhm a second thing in the Chinese way of working you have multiple touch points. So I talk to you about something but after we talked I talk to your boss and his boss etcetera. So it is much more political. And in the Netherlands if I am the buyer and you are the seller we only have contact because that is faster. So that’s a thing. That people need to get used to. Because how hard you try you never let go of your roots. And that’s also with the Chinese. For a Dutch guy it is easier because that is in our blood. We are tradesmen. We assimilate into new countries we know that it is very important to learn the language, learn the way they eat and the way they work because then we get accepted and we can make the deal. For a Chinese this is harder.
I: And do you think that this creates costs, for example when you try to close a deal with suppliers, especially when there are Chinese employees , that it is more difficult for Huawei?
PRM: You know you have 2 sort of costs: Yeh you have costs like in real money. And costs that it can harm your relationship. That is also a cost more an emotional cost. And I think it is mostly about buyer-seller relation it is mostly about the second one. People do not always understand the way our company works and where it comes from. And the cultural differences is huge, that is a problem. And it need a lot of explanation uhh we have a lot of processes in the company that slows things down. But all.. it has a reason. It is not always very easy to explain to people.
I:Yeh but in the end this results in costs if you need to explain a lot.
PRM: Every system every rule can result in costs.
I: But that is not the fact because you are foreign but because the fact because it is Chinese?
PRM: It is because we are foreign and Chinese. We are coming from a culture where we know that bribery, and you know hush money. It is very common because people were poor they have low wages and if they can earn some extra money that is a thing. And we are a company that deals with data. So reliability and safety and cyber security is a big thing for us. We are very strict on those kind of things and we are also very strict about the way we spend
Comment [HD106]: Firm-Based LOF
Comment [HD107]: Foreign firms do things differently, amplified by Chinese roots
Comment [HD108]: Firm-based LOF
Comment [HD109]: Difficulties for foreign employees to adjust to local business practices
Comment [HD110]: Environmentally-derived LOF
Comment [HD111]: People do not always understand how the company works causes emotional costs
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money etcetera. Just keep everything in control to prevent people doing bad things with the money. So that takes a longer time. And in European especially a Dutch Environment there is more trust.
I: Yeh its very funny that you mention it because in all the interviews this comes up that they really try to assure the consumer or the buyer that Huawei is a trusted, reliable company because you really need to change that Chinese Image. But I think you are talking more about liability of origin now. Because all the time you are talking about Chinese culture, am I right? Because Liability of foreignness is more just because of the fact that you are foreign. Like when an English firm enters, I wonder whether they have the same issues.
PRM: No of course not. Then you go back again to culture. Their culture is quite similar. Their home is maybe 1 hour away. If you take an employee of an English firm. I think most of them have visited Holland twice or maybe four-five times in their life so they are acquainted they know the Dutch movie stars televisions. So the whole culture is more interlocked. If you take a company from China or another country it is more diverse. It is all the small things in life.
I: So basically to sum up you think that cultural distance really affects the emotional relationship between Huawei and the buyers:
PRM: Absolutely, in all effects. Because when you are Chinese and you work in Holland and you want to talk to your parents. You cannot do that during the daytime. Because of the hour difference. You know this is a small thing but if you are from England and you want to call your parents that is only one hour difference. If you want to see your parents you drive 8 hours and then you are in the most corners of Europe right? If you have your parents in China you need to book a flight of 1000 euro. So that’s all.
I: Okay. So you don’t think liability of foreignness is a big issue but you keep talking about liability of origin and I want to zoom in on that. Because is that word ever mentioned?
PRM: No
I:Do you have meetings where problems related to the Chinese origin are discussed? Or do the employees get any training?
PRM: Uhhm when you start working for Huawei you get 1 week training. And in this 1 week training they try to explain to you where we come from as a company. So we get you know how did we start. Our founder was a military guy who started in the army and you can some of those things in our DNA. It talks a lot about how a European works and how a Chinese guy works. There are differences that cannot be bridged. And they try to make an understanding about that. Actually a good thing. Sometimes also a bit scary because there are differences which are really big. I will give you one example. If you and me we are having a meeting and if one of my Dutch colleagues see me and they need to ask me something he sees I am in a meeting and he will wait or ask me sorry can I interrupt? In Chinese culture it is very normal to just enter and ask me a question. So for them it is very normal. There is no
Comment [HD112]: Liability of origin and firm-based LOF
Comment [HD113]: Country image of China is related to spying and hush money
Comment [HD114]: Firm based LOF
Comment [HD115]: Cultural differences
Comment [HD116]: Liability of origin
Comment [HD117]: Emotional relationship affected by cultural differences
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problem, in the Netherland this is rude, very rude. You know you can get a fight over that. You know this is just a small thing but you can never change that.
I: Are there some frictions within the employees, not because they are unwilling but just because they are not aware?
PRM: Sure and I give you another example, if a Chinese boss tells his employee okay I wanna have 10 the employee says okay I am going to negotiate 10. And then when the supplier asks why he wants 10 he will just say well I want 10. The supplier wants a reason. But there was no reason. And we Europeans are like why do you want 10, if you have a good explanation we can work with that. And that is a small thing.
I: So within employees but also with suppliers it causes fricitions?
PRM: Yeh you have to get used to each other.
I: And that is sometimes lacking?
PRM: Yeh and I am blessed with Chinese colleagues that really try to see my side of the things or our side of the things I am also telling you. When we are going to a soccer game I tell them join then you can eat “bitterballs”.
I: Just to bond?
PRM: Yes just to bond.
I : I want to talk with you about the consumers, as you are mainly dealing with them. And I was thinking can you tell me a little bit about how the consumer think about Huawei?
PRM: Yeh. Interesting. We started around 6 years ago by selling devices in the Netherlands. And at that moment we really had cheap devices with great technology. And we really had an impact at that moments. So now we are gradually changing our way of working our devices are getting more expensive. Still the price is really good for what you get. You get a lot of technology for a strict price. The price is going up but we want to be affordable premium. That’s another approach compared to 6 years ago when we said we want to be cheap. You still see that people said ahh that Cheap Chinese firm. Because Chinese is always cheap and low quality because 20 years ago the Chinese came up and they put all this shit on the market. And they are not used that Chinese also have quality. They are not aware of the fact that most factories of Apple and Sony etcetera are based in China. Soo if you are going to talk about people that know you they say ahh that cheap brand. And to change that , that is really hard.
I: Are there some examples where you base this on, are you talking to consumers?
PRM: Yeh that’s what I as a pr guy. I am trying to do more offline things. I am more an online guy but I see also the bonding the connection with online and offline. And you know what I do talking to the tech guys is really easy because they are always interesting in your product but we more and more trying to do some lifestyle events. I ask consumers Do you
Comment [HD118]: Firm-based LOF
Comment [HD119]: Cultural differences cause internal frictions
Comment [HD120]: Firm-based LOF
Comment [HD121]: Cultural differences cause external frictions
Comment [HD122]: Liability of origin
Comment [HD123]: Chinese firms are considered as cheap and low quality
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know the brand, what do you think of the brand? And that gives me a lot of insights on what people think.
I: And words that come out most are cheap, low quality?
PRM: Yeh it’s getting better. But you know as a person it is easier to make from something positive negative than from negative to positive. Getting to the top is easy but staying at the top is hard. So that your cheap is a thing but turning that around that takes a lot of time. So you have to show that you have great products, great prices. But also as a brand that you are a reliable brand. That you are here to stay and that you want to interact with consumers on different levels but that takes time. And for some companies long terms are very difficult.
I: And you are mainly talking about phones now?
PRM: Phones mainly. Because consumers do not know what we do apart from the phones. Because we have big carrier division with KPN. And if I tell people do you know Huawei they say no. I say every day you are in contact with the Huawei products. They say it is not possible. I say yes because you are calling via KPN, T-Mobile. You are using our equipment. That is something I would love to have a campaign in which I can tell the people we are not just that device but we are also build the whole environment around that. That will give people more trust and respect for us.
I: So that you show people we are not just offering a product but also a solution?
PRM: Yeh well my dream is and that cost a lot of money but that we make some videos for instance you are at home and you text your girlfriend, who is on the other side of the Netherlands. And then you are going to follow the text. So youre there and youre texted and then we go to the poll. And then in all the steps where the Huawei innovation is involved we are going to show the people. On a low technical level explain the people how cyber security is used how 4g 5g is used. And then at the end youre girlfriend receives her text on her Huawei phone etcetera.
I: So actually this is a big point and also the marketing strategy is focusing on this to make the transition to update the brand image to a more positive one:
PRM: Yeh because I am.. In Holland we have an aided brand awareness of 80 percent. So the aided brand awareness. So if I ask you do you know Huawei as a mobile phone you say yes. But if I ask you name three mobile phone manufacturers you say Apple Samsung, Sony. And only in a few percent of the cases you name Huawei. And that percent need to raise. And after that the brand love needs to raise. People need to love a brand and when they need a phone or tablet they should say I want Huawei because it is the best.
I: So you are trying to get up the pyramid, I don’t know if you know the pyramid of Keller?
PRM: Yeh
I: But I think youre talking about that. Brand awareness Brand resonance.
Comment [HD124]: Mitigation strategy Liability of origin
Comment [HD125]: Deliver good products
Comment [HD126]: Mitigation strategy Liability of origin
Comment [HD127]: Campaign that stress that people are already using Huawei’s devices
Comment [HD128]: Mitigation strategy Liability of origin
Comment [HD129]: Campaign that shows how reliable Huawei is
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PRM: Yeh brand resonance etcetera etcetera. You know of course brand awareness lovely. But it is not where we want to be. If you are going to a shop and you want to buy a new car or shoes you always have 2 or 3 brands in mind. For shoes I want Nike, Aesics and Adidas. But we want to be one of those 3. And if you go to the shop then the present in the shop will determine if you will have our product or not. We have influence on the brand awareness in the shop because we pay for that. But we don’t have influence directly on what is in your head so you have to work on that.
I: So you are talking very marketing wise how Huawei can change the brand perception are there any other things Huawei can do?
PRM: Well you have to know Huawei is a very sales oriented company. And as you experienced I am a very marketing oriented person. So I think more in long term and sales is more in short term, you know 6 months 6 months. So what we try in all the countries to convince our leaders in long term. Because if you create real fans the second model of your devices or whatever will easily be sold. Because they already like you so if they have a need for a new phone they buy you. So it is not cultural but it is a difference.
I: Do you already see a huge difference compared to when you start at Huawei 3years ago, is the transition already starting? I think it is also good that Apple is getting less and less innovative.
PRM: Yeh but it’s kind of. It also depends on who is your leader. We have now a new Dutch leader Richard de Worst. And besides him there is a Chinese leader and we just got a replacement because in Huawei every 3years as Chinese you go to another country or you go to another part of the company. And the Chinese leader we have now, he is the boss of the BeNeLux, he has worked for a lot of years in Germany. So he is more used to the way we work so that is a huge difference. He is more of a listener. He needs to know that he listens to us and also he gives explanation and so the working together is much better than we are used to because he is much more into the European. So you see that things are getting much more easier compared to the last year. So there is a. That’s a small thing on micro level. On macro level we see that every campaign is better. Every campaign is more universal less Chinese. When I started the company the Huawei P& had a lot of fire and dragon and a lot of mystic thing. Because the Chinese like mystic things and we were like wtf is this so we created our own materials because we know this would not work in our country. We hire movie stars
I: Endorsers
PRM: Yeh it is more like an Apple approach. Modern soo you see that the transition is there: And that transition is working?
PRM: Yeh because when I started at Huawei we were at 5 percent and now we are at 11 percent market share. So the approach is working and we see that more and more people buy Huawei. So more and more people talk about you and more and more people. You are in the mind of more and more people so they buy more products. That’s normal but it is again you are as good as your last product. So that is the problem Samsung is facing is they have a real
Comment [HD130]: Mitigation strategy firm-based LOF
Comment [HD131]: Skilled leaders
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big dent in their company faith, trust. Because they made phones that are dangerous. And that how are they going to overcome that. So they are lucky it was in their note serie. Because the galaxy is their biggest money maker. So you know this is like the worst that can happen. So it is very interesting to see how they are going to recover from this
I: Yeh and Huawei. So Huawei keeps putting good products on the market. And they are really aware that there are multiple potential flaws.
PRM: Yeh when I visited the factory and the R&D department where they do the testing it is really thorough. In the production line where they have a few hours reserved to test the screen the battery. But if you produce 100 million phones. There is always a small thing which goes wrong. If I tell you put 100 million bottles of water on the table you will always spoil one or drop it down. It is normal but we try to minimize it. Sometimes it happens that a batch of components is not as good as we hoped it will be. Our internal tests didn’t show it because sometimes things show up after the tests and then you have to give it back and give the people new devices.
I: So that is the strategy of Huawei to cope with any errors. And do you think that if there is an error for Huawei it will have more impact on sales, compared to Apple or Samsung?
PRM: Well at the moment the good or bad thing was that the note was not yet delivered in the Netherlands. So it is more a problem in America. They have a big market share over there but the Americans don’t like the Koreans etc. Uhh there is the biggest problem because it is very visible. In the Netherlands I don’t know what is going to happen. Because we don’t have a. This is our P8, that is from last year. And we will have a new one, that is still a secret. But I am putting it on tape now.
I:I can erase it if you want
PRM: No that’s no problem. But we have a follow up of this device and that will be a real competitor of the note 7. So it is a good thing for us but we decided not to something with the failure of note. We thought about it because as a marketer you always see opportunity. But the problem was with the note 7 it was dangerous. People got hurt and you don’t make jokes about that. That is the worst nightmare to tease a company with that kind of things. But it gives us an opportunity for sure.
I: Okay that’s good. So we talked about positive brand Image how to build that. Do you feel that there are any problems with the environment that Huawei does not know about, how business is done. I heard that they hired a lot of Dutch guys. Do they have contact with the costumer or do Chinese guys do that?
PRM: Uhhm in my part of the company so consumer business groups we have a lot of native people so all of them are in sales. So they do the contact. I don’t know that is on other parts of the company. In my part most of the Chinese guys are on products and on the financial. Uhmm they don’t have that much or almost none contact with customers. But that is not like a rule or something. Because when you have contact you need to be very aware of the Dutch
Comment [HD132]: Mitigation strategy environmentally-derived LOF
Comment [HD133]: Use local employees who do the contact
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market. You cannot just go to a costumer and sell him something. You have to know something. So over here it is mainly because.
I: So you say it is a problem but that Huawei counters it by employing local people and don’t put Chinese into contact?
PRM: Yeh but that is for every company. If you don’t master the language. And in the Netherlands that is easy because we talk English. You know when you are here and I know you’re not from Holland I talk English. We are very friendly in that. If you go to France they don’t do that. You speak French or go away. It is easier to have an good easy communication when you go to sales. But you have to make appointments and prices but there is easily something misunderstood. But sometimes they go with the sales guy to the consumer. I am a huge fan of doing that it’s just bringing the Chinese to the costumers or consumers because it works 2 ways. Then you can show your Chinese colleagues how your market works and on the other hand the Dutch people find it very interesting to talk to Chinese. Because the culture is so different. So it is a good thing.
I: So it also has an advantage sometimes to be Chinese?
PRM: Yeh ofcourse. From the Netherlands the Dutch people are very interested in other cultures. Because we like to travel so much and we have all those nationalities so it is not like a real problem.
I: So sometimes you bring your Chinese employees to your consumers?
PRM: yeh what I did last year with Honor was to organize a party over here because we had a new device. And then I asked 3 or 4 of my Chinese colleagues to be present and I introduced them to the press, to consumers to some students and tell them this is my colleague and they do logistics. And they really enjoyed it.
I: Okay and I also wanna talk with you about suppliers. I don’t know if you get in contact a lot with suppliers?
PRM: Not a lot of them but some of them.
I: Do you feel that there are any problems?
PRM: The only problem there is, is that we have a very strong financial system. That has a lot of steps. And you really have to upfront tell somebody we are going to be tough. We are good for our money but the way from starting to work to getting your money is a long way and you need to provide a lot of documents. But after that we are a good customer because we bring a lot of business.
I: Does that scare any suppliers?
PRM: To be honest. I told some companies it is not wise for you to have business with us. If you are a small supplier, you are relatively new, you don’t have that much money, you don’t have that much personnel, well you know it is better not to work with us. Because we are
Comment [HD134]: Mitigation strategy firm-based LOF
Comment [HD135]: Organizational learning ( bring consumer and Chinese employee together)
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such a big company. We are almost having 200.000 employees worldwide, so don’t do it. Because from my own company I worked also with very big companies and then it is. They don’t understand you that you need your money fast and they have their regulations. Their system they cannot make an exemption. Sometimes it is better to let it go.
I: Is this a problem of big companies or is it because this is the way a Chinese firm works?
PRM: I know we are kind of hard to work with. When you are in you are in but that’s though. They just want to get our numbers. And they always want to get a better price. But be honest that is what we want as well. They try to negotiate everywhere where it’s possible, that’s business.
I: Okay I have 2 more points one is about the laws, are there any specific rules targeting Huawei because they are foreign or is it all the same
PRM: Local Laws?
I: Yes
PRM: I am really not aware of that.
I: Okay that’s clear. Do you think, the last part is about organizational costs, do you think it is mainly the Netherlands and China do you think this communication is very fluent?
PRM: Likeee..?
I: Like between the subsidiary in Holland and between the headquarters in China
PRM: Yeh well it’s a multiple step. You have HQ and you have regions. We are in the region Western Europe. And Western region then you go to the countries like the Netherlands. We are communicating with Western Europe and Western Europe is communicating with China and that is not easy. Because there are so many people in-between. And as I told the lines can be very curly and have a lot of side steps. It is sometimes the message there is a lot of talk to get the message right. I give a stupid example which is not the case but to clear it up for you: In a Dutch company you would say okay everybody we are going to go left, point. And in a Chinese company it can be that in-between where the message started and where the message is received there are a lot of: you know we go left but when the sun is shining and when it is raining we go right. And that is not a bad thing but that is the way they work. And you have to understand HQ is in China. So they have to deal with almost 200 countries in the world. So the Netherlands or Belgium or England is just one of the.. So you have to understand that. It’s easy to shout and scream, to have a bad mouth. But you also need to understand their point of view.
I: So is the subsidiary here very autonomous?
PRM: No no it is very much attracted from Western Europe. Always when you try to negotiate or give your own.. If they so you go left there is a big area to go left. Left can be very big. So you have to adjust it to the local environment of course that is allowed.
Comment [HD136]: Firm-based LOF
Comment [HD137]: Many people in-between the massager and receiver
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I: Okay so then the last question, we talked a lot about negative things and I want to end with something positive.
PRM: That’s very good
I: What are the main firm specific advantages of Huawei, so what are they doing really well?
PRM: At first and outmost we are making great products. Second is we spend a lot a lot a lot of money and time and people on research and development. And that’s the only way we can survive. And third you know the Chinese culture is never give up. And that can be annoying but you have to respect that so as a.. You know if there is a saying if you work for Huawei you can work for everybody. Because you have seen it all you have experienced it all. You have seen this strange things happening in the company because there is a cultural difference. So when you leave here you are experienced, you can work for any company. Another Chinese firm or American and you won’t be surprised. And that is interesting. And for the consumer is that we can bring products that are different. And we can compete with the top 2. We give better products for good prices.
I: Okay thank you, do you have something else to add, something I missed?
PRM: No What is interesting is that this cultural differences that comes up regularly. I think when you talk to anybody this comes up. It is always about cultural differences. But that is the beauty people are different, if you move to China they think that guy is nuts. He eats at six o clock why is that. You know or you always have breakfast with bread and Chocolate sprinkles. But you have to embrace it and try to understand it and then it will be easier. So see that as a learning and experience but that is still hard
I: Well thank you a lot.
PRM: No problem I enjoyed doing it.
Comment [HD138]: Firm specific advantages Huawei: Great products, spend a lot on R&D, Never give up, better products for good prices
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Interview 5
Interviewer: Kasper Verhoog (I) Interviewee: Account Manager (AM) Group: Huawei Consumer Business Group Date: 17 October, 2016 Duration: Forty-seven minutes Gender: Male
Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself. I am Kasper Verhoog. I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Liability of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct. I: So let’s start the interview. We already discussed the way how we are going to deal with the recording. So after the interview I will send you the content. Is it all clear?
AM: Yeh perfect.
I: Okay, so first can you tell me something about yourself and your position within Huawei?
AM: My name is ….. responsible for the operated sales mainly. I am an account manager responsible for Vodafone, KPN, Tele2 and Ziggo. So all operators except for T-Mobile. So that’s basically 50 percent of the market let’s say, so yeh sales responsible.
I: Okay and you are responsible for which sales, just for the phone?
AM: No consumer business group. So that is phones, tablets, watches but also wifi repeaters home mbb products like mobile wifis etc.
I: And you are mainly dealing with business 2 business?
101
AM: Only business to business, so its b2b to c. I deliver to the operator and they deliver to the consumer.
I: Have you always been doing this within Huawei?
AM: No before I started at Huawei I was working at Vodafone actually. I was exactly at the other side of the table so I was responsible for purchasing products. Well we call it portfolio management purchasing the hardware portfolio Vodafone had in the Netherland. Once the portfolio was designed we negotiated the prices of the products and the marketing campaign, joined marketing campaigns with the vendors. And now I am exactly on the other side of the table.
I: Okay that is quite interesting so maybe you have a lot of knowledge about Vodafone as well and you can create some comparison.
AM: That’s at least valuable for Huawei yes.
I: So within Huawei is the word liability of foreignness, or anything related to that, so that the company has costs just because they are foreign, ever mentioned within a meeting?
AM: Maybe not just because they are foreign but more in the way they are working. I think liability of cost more. I think in the business that we are in international business is done quite frequently and that it is done quite often. Being a Chinese company doesn’t create perse more cost for a Vodafone or a KPN than being a German company or a Dutch company even. There is obviously differences in delivery times from the devices coming to the Netherlands but you know Apple is producing also in Asia so the difference is not that big. So being a Chinese company perse doesn’t create any cost but the way of working might.
I: But specific for Huawei, is that concept ever mentioned, so when you have a meeting with your manager, did someone ever mention okay because we are foreign we need to deal with so many things we are not acquainted with so that really causes friction
AM: Friction with the costumer or internal?
I: It can be anything Internal, or with the customer, it can be with any suppliers.
AM: I think China is business wise a very young country. Not only our company but the whole country. And I think the Chinese companies, maybe not specifically Huawei but also other companies are not quite used to work like we are used to work in Europe or in the United states . So the Chinese people, the country and therefore also the people coming from China they have to get used how things have been done here for ages, and that’s what I think is creating extra costs.
I: Actually you are moving to the next topic now which is liability of origin because you are talking about a Chinese company, about Chinese. And this is what I found as well in my previous interviews that it is not about liability of foreignness as such because you say it is an international business environment, it is not a problem of being foreign. There is Apple.
Comment [HD139]: Firm-based LOF
Comment [HD140]: Differences in way of working
Comment [HD141]: Firm-based LOF
Comment [HD142]: Company business practices not adapted to local market
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AM: There is Apple, there is Samsung market leader coming from Korea. LG is there. From the consumer point of view being foreign is not a problem.Everyone is from abroad, no one is from Europe. Even Alcatel which used to be French is now Chinese so that’s not a problem I think.
I:But the fact that Huawei is Chinese results in some problems and I would like to focus on that, because this is what I find in the previous interviews as well. And I want to ask you what are the frictions within the company or with consumers or within anything that causes problems, within Huawei? And maybe it is interesting to start within your own field because you are always negotiating
AM: There are a lot of things I think that make it more difficult to work with a Chinese company compared to an European one. But well since you are talking about negotiation there is a trust issue even within Huawei. People are not used to give someone a certain responsibility and trust him that he will do his job. As good as he can. So they don’t leave him to do his job let alone trust him with the budget. So I think what a non-Chinese company or a more matured company will do is give a sales director or an account manager a certain budget or target, wish him goodluck with it. Maybe that’s exaggerated but they would trust him that he would get the most of the money in return. And Huawei is not like that, first you have to deliver and then you get a little bit of money. Or you have to negotiate go back get your approval get back to the costumer and back and forth a few times which is not helping at all. Its causing frustration at the account management side but also at the customer side. They think man dealing with Huawei is very difficult. So that is one thing. That is causing difficulties in the negotiating part.
I: Do you ever feel that you need to convince the supplier more that you are a matured company and that you deliver what they ask
AM: I think it is the other way around. We have shown in the last few years we are a company which is producing good products, well designed products they look nice and we have shown by investing in this market we are here. And we are here to stay. We have been growing market share pretty good other than the other small partners. So our business partners they are really open to work with us. They are willing to work with us, because they are happy, a new kid in town, except Apple and Samsung, who is willing to change this business. So everyone is really open and inviting. We, as an organization are causing the difficulties, we don’t want to invest too much. We think that we are in a position that we can already go to premium products and less investments. While for example our competitor Samsung keeps investing heavily in marketing and also in their partners. That you know they push us out if we don’t watch out. So the problem is not that the customers think aa it is difficult to work with Huawei. No we think that we should treat our costumers differently.
I: And that sometimes causes a friction?
AM: Yes
Comment [HD143]: Environmentally-derived LOF
Comment [HD144]: Everyone is from abroad, that is not a problem
Comment [HD145]: Firm-based LOF
Comment [HD146]: Different management practices: Not giving the employees responsibility
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I: Can you maybe state an example of that what happened in your personal career when lead times where so long?
AM: Yeh lead time is one thing. The lead time is 6 weeks while other companies have 4 weeks. But that is a choice, maybe it’s good maybe it’s not but that’s a fact we have to live with I think. Uhh but what I mean people, customers like Vodafone or KPN sometimes give us such a big opportunity to jump in a marketing campaign. Or jump in a hole in the market saying guys you can take this business. But then you have to invest a certain amount of money. But we are so slow, we need to talk about it think about it and then talk about it again that the opportunity is gone. And they say thank you but another guy already has it. And that is creating a lot of missed opportunities.
I: And do you feel that within your own work that other employees have the same issues?
AM: Yes I think so. Because we are so internal oriented and the reason why is because where I started with. We are not used to do work here and we have to learn how to do business. So we are really internal focused because we have to get our processes right. And being so internally focused is creating a lot of extra really long decision making lines. That we sometimes miss an opportunity. And I think that is not only at my side but I think at the whole organization.
I: And is this happening because there has to be communication between Chinese and Dutch or is this purely because of other reasons?
AM: Fcult. The other thing is that we are a carrier business organization. And we are not used to work with the time lines that a consumer business group needs. So the whole process is way too long for the consumer business, so there are 2 reasons.
I: So just to recap. There are 2 main reasons, just the fact that you are new in the carrier business but also that there is a little bit of Chinese mentality that you don’t trust each other and that we want to business in A Chinese way with suppliers in the Netherlands and that causes frictions
AM: Yeh
I: Okay thank you for that. Furthermore, I also did my own research of course and I found in the literature that there is very low unfamiliarity with the environment when MNEs move into another country. So what are things Huawei need to learn about the environment? Like laws, is that how the consumer things or.
AM: It is a very good question. I think. Laws you know, you can learn laws and then you will be fine. Of course there is a learning curve there also. You have to adjust to the local laws so we will do that All the laws for foreign and domestic companies are quite similar so we just need to learn the local laws. I think the difference is also the way how we treat our customers. We think that we have a business relation with our customers like we are used to have in China. In China for example a business partner would come to your home party or when you marry your wife your business partner will visit your house. And we don’t do that. Chinese
Comment [HD147]: Firm-based LOF
Comment [HD148]: Lack of local knowledge
Comment [HD149]: Firm-based LOF
Comment [HD150]: Long communication lines
Comment [HD151]: Environmentally-derived LOF
Comment [HD152]: Laws are not a big problem
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also expect that I can go with my counterpart to some festival in the weekend and he will take his wife and kids and I can give them some presents. But we don’t do that there. We are used to close our door of our home at 5 o’clock in the afternoon and then the weekend is for family and then in the week it is business time again. But in China that split is not there so we really have to get used to that. That is the way you treat your customer let say. But also in business sometimes we make a proposal to a costumer. And in the Netherlands we are used to get a counter proposal and then meet in the middle. Uhhh in the end someone is going to say this is the final offer. But the word final does not seem to exist in the Chinese language. Because they always think if the final answer is no there is still an opportunity. So there is always negotiating. Even when the negotiation is done they think they can continue negotiating. And especially the Dutch guys they say okay this is it and this is it. And then you have to stop and lick you wounds. But yeh you have to stop
I: so basically it is just the way of doing business which is sometimes causing frustration especially from the other side.
AM: Yes because the local, at least for the account management they have hired people like me. And we know how we do business in the Netherlands but then the friction is called internally again with the Chinese colleagues that we have. On how they think that we should treat our customers.
I: Do you think that this results in missed sales or deals which are not made in the end?
AM: It’s really hard to make such a claim but I think yes.
I: Or maybe that the process is always very long because of that?
AM: That for sure causes missed opportunities.
I: Okay and do you also feel that, because of that, you are treated different by suppliers you are dealing with, is it sometimes like you also have long lead times that they want to have more contracts.
AM: You know I said that people are really willing to work with us. Because they are happy that there is a new partner. And they accepted the way of working for a long time. Now that we become a little bit bigger they start to complain about it. Yeh guys we cannot make exemptions for you all the time. Samsung has a 3 week lead time, you have 6 weeks maybe we should go to 4. They start treating us as a mature business partner. Which we are not I think so that’s difficult.
I: But do you say, I heard that before, that it is just about the numbers, that Huawei is a good business partner they are willing to adapt to the Huawei way of working do you also feel that?
AM: Can you repeat that?
Comment [HD153]: Firm-based LOF
Comment [HD154]: Cultural differences cause external frictions. Different way of treating vendors, lot of negotiating
Comment [HD155]: Firm based LOF and environmentally-derived LOF
Comment [HD156]: Internal frictions because of different business practices mitigation strategy environmentally-derived LOF, use of local employees.
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I: So because of big opportunity Huawei is offering customers are willing to adapt the way Huawei works. So the money Huawei spends is huge. So they don’t like it but they accept it because Huawei is a really good opportunity for them. So they still want to make the deal.
AM: Correct but I think that will end. Because you know if you stop spending huge amount of money and go to a lower investment. And you will become a more mature partner they will treat you differently. And then they will not accept it anymore and I think this is a treat.
I: We already touched upon this a little bit but I want to talk about the organizational costs and especially within the company. So within the subsidiary in Holland but also about the relationship with the subsidiary and headquarters. But I first want to talk about within the subsidiary are there any frictions?
AM: I think this has a lot to do with Chinese culture and the way people are. And I have to be careful because I don’t want to offend anyone. But I think when you are born in China people have made a lot of decisions already for you. So you don’t have to think that much as that we are used to do here. To make your own decisions. People are not really used to have their own responsibility and live up to it. So and that is in the internal organization whether it is in the Netherlands or anywhere in Europe causing a lot of inefficiencies. If you give Chinese a task he will do that task and he will do it very thoroughly, especially when you give him the responsibility. But he won’t look further than that specific task and that’s not efficient. I sometimes give the example if you have 5 houses. And you put in front of each house 1 employee. And you give them the task that they have to make sure that every house doesn’t go on fire. They will do that. But if they see the house of the neighbor on fire they won’t act upon it. And that is creating a lot of inefficiencies and extra costs in my opinion. So for every task there is a person responsible for that. While we are used to the fact that if any task is around my scope I should ring the bell if something goes wrong. And that is the huge cultural difference and creating most of the unnecessary costs.
I: And that is also creating a lot of frustration at the Dutch side because they are expecting the Chinese are more helpful?
AM: Of course if I send an email the question. Then maybe it is the wrong assumption but if I send it to a Dutch guy he will not only specifically answer that question but he would understand on the challenge that I have or the bigger underlying problem. But a Chinese colleague would just answer with a yes or a no and that’s it. And that is you know that is creating a lot of frustrations. Because then you say this answer is not complete while my Chinese colleague thinks why I answered the question right I answered the problem. And it is really not finger pointing because they are used to work like that and we are used to work like that and we have to find each other somewhere in the middle, and that’s difficult.
I: Are there some other cultural differences which are really striking out, maybe the way of meeting?
AM: The way of being frank and open with each other. In the Netherlands if I don’t like you I just tell you and we go on and its fine. In Chinese that is a little bit more difficult. Especially
Comment [HD157]: Firm based LOF
Comment [HD158]: Cultural differences internal frictions
Comment [HD159]: Internal friction
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on hierarchy, if I don’t agree with my manager I can say to my manager I don’t agree with you because. And then give a reason for it. But in China if the manager says you go right you go right and you don’t ask any questions. And that is yeh I think that is very difficult to work with.
I: Maybe especially for Huawei because the culture of the Netherlands and China is so different?
AM: Yes the culture in the Netherlands, also the working culture.
I: Yes so the working culture of Huawei is very different. Especially in the Netherlands. And as Huawei uses a lot of local expats so they really suffer from this
AM: We are very direct in the Netherlands. Maybe especially here in de Randstad but sometimes they get offended by it while we don’t mean anything wrong. And that is at least interesting.
I: How is the communication with other departments, do you feel that you connect more to Dutch employees?
AM: Can you specifiy other departments?
I: For example for consumer business groups with the Marketing department.
AM: I think we are a small team, we have 21 people now including the Chinese colleagues. And we discuss everything with everyone. Uhhm Of course it is easier to talk to the Dutch guys because we know what we mean and we share the same culture. But also with the Chinese people I can communicate quite well.
I: But do you feel that there is a Dutch versus Chinese?
AM: Yes sometimes I do.
I: Like for example when you go to an informal meeting that the Dutch and Chinese side is separated?
AM: Unfortunately that’s the case yes. I think that’s a shame. We are one team we are a small team. Why don’t we do things together. But again it’s not that we don’t want to or that they don’t want to but the culture is so different that you move towards your own culture.
I: How about the relation between the subsidiary and headquarters, can you tell me something about that?
AM: I don’t have any communication with the headquarters because I don’t speak Chinese. And that’s already a big problem for example our logistics department it could be a Dutch guy because he knows what the Dutch will expect in terms of stock, logistics lead time etcetera. But that is impossible because the people in China they don’t speak English. So you need to have , it could be a Dutch guy who is very good in Chinese but even then you won’t be accepted like a Chinese person. So then it’s like, yeh its difficult.
Comment [HD160]: Firm-based LOF
Comment [HD161]: Internal frictions because of cultural differences
Comment [HD162]: Moving to employees with own culture
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I: Ohh yeh that’s interesting. I didn’t hear it so clear from someone yet.
AM: A lot of people in HQ only speak Chinese. And yeh my Chinese is not that good. A bit rusty.
I: Do you feel that it is more easy and efficient communicating with your Dutch colleagues compared to your Chinese, do you learn a lot from your Dutch colleagues and how do you feel about which group is the most helpful?
AM: I think the Dutch guys are more helping each other in term of doing business with our business partners. And how we make sure with the differences that we have can do our business as good as we can. Where the Chinese guys can help us very good is also maybe not explaining but giving us an insight on how their culture and how their business culture works. You have to truly understand how they adapt to it and how they make the most out of it. I think if you are not interested in their culture and how they are raised you will never succeed because there will always be a big clash in culture.
I: Are there any specific events or meetings that are hold to bridge these cultural differences and that are designed to solve this liability of origin?
AM: In the 2 years that I am working now at Huawei we have had a few events with our own team with our CBG department. Uhh unfortunately I could not join but a month ago we went skiing went for a dinner and had some fun with each other which I think is very good. There are some parties organized by Huawei such as the Christmas party but that is so Chinese that the Dutch guys don’t go there and that’s unfortunate. So there are things that people do join but that’s more within the department. But the bigger organized Huawei events is really Chinese oriented and then the Dutch guys don’t join.
I: But you never had a lecture how the lecture are raised?
AM: Yes when you start at Huawei you get this book. So an explanation of the cultural differences. But you know its halve an hour or forty five minutes while you could talk 2 weeks about it. So it is really brief but there is touched upon it a little bit.
I: But you feel that it can be solved more thoroughly or that the company can do more about it?
AM: No I think not the company. It is the persons inside the company. I think the local guys we have to accept from one side that we are working for a Chinese company and be interested and make the most out of it. And Huawei maybe could do a little bit more at least to try and organize at least the European organizations like the business are used to be organized in here. So I think it should be organized for both ways.
I: Are the Chinese employees are also less in contact with the suppliers, so the Dutch guys are the front end and the Chinese guys are the back end?
AM: Yes, absolutely like that. And of course senior management meet each other. Our CEO meet the CEO of Vodafone for sure. But those guys are you know really the top level guys
Comment [HD163]: Mitigation strategy firm-based LOF
Comment [HD164]: Organizing events together
Comment [HD165]: Mitigation strategy firm-based LOF
Comment [HD166]: Lecture about cultural differences
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speaking very good English. Also sometimes in the lower regions in the organization let’s say the Chinese logistics guy from Huawei talks to a logistic guy from another company to align deliveries and stuff like that but usually the front end is Dutch.
I: Also to make sure there are not so many cultural differences. So this is mainly a problem within the company?
AM: And I think this is very good.
I:And in the end the suppliers will encounter it because of the lead time because you have to deal with those employees indirectly. But Huawei tries to solve most of this problem by having local employees who can talk to them and know how to work.
AM: So I have to fight let’s say internally for an answer he is expecting. And a lot of times that works well and then my counterparts at the costumer doesn’t notice any of the cultural differences. Sometimes it does not.
I: Okay, the last thing I want to talk about is brand image, and especially how is the image of Huawei in the mind of the consumers which are buying the consumer goods?
AM: I think that is changing rapidly but it is still an issue. In 2013 we hit the market with our first Huawei branded devices. And then we were really perceived as a Chinese company making cheap phones. Which were good but cheap not that beautiful but they did what they had to do. And now slowly people start to recognize it as a company who is really making good products. If you look at our brand awareness it rose to 85 percent at the moment. But still people are starting to look at us as a serious partner. We are still a bit Chinese that is also incorporated in the logo. I think when you look at it that is still seeable, but I think it is improving.
I: And how Huawei is improving this brand image? AM: Sponsorships. You know we have a sponsorship with a lot of European football clubs in many European countries. We have been working with celebrities from Hollywood in our marketing campaign. I think the whole marketing image is more premium and less Asian let’s say less Chinese. And that is also slowly changing the perception of the consumer.
I: So you think brand building is really important for Huawei.
AM: It is key because I think the differentiation is not anymore on the quality or the design. Because a Samsung, Apple or Huawei device in the end they can do the same and the design is also almost the same. And then the only differentiation that you have is the brand. So I think if we want to go to 20-30-40 percent market share the brand is the success and not the device itself.
I: And don’t you think that the service around a mobile phone is very important?
AM: Yes very important. Huawei develops a lot of things. We have the VIP service, instead of 2 years you get 3 years warranty. We have within the VIP service the promise that we
Comment [HD167]: Liability of origin
Comment [HD168]: People linked Chinese companies to making cheap phones
Comment [HD169]: Mitigation strategy liability of origin
Comment [HD170]: Sponsorships
Comment [HD171]: Endorsers
Comment [HD172]: Marketing campaign that is more universal
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repair and deliver your device within 3 or 5 days. So we try to give the consumer the trust that they can buy a Huawei device and don’t have any difficulties. We are now starting … I can’t say that. No I will leave it out. So service is really important for us to make sure that the consumer trust us.
I: Are there any things I didn’t touch upon, things that I didn’t mention which you have ever experienced?
AM: No I think it is a complete interview.
I: Okay thank you!
Comment [HD173]: Mitigation strategy liability of origin
Comment [HD174]: Deliver good service
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Interview 6
Interviewer: Kasper Verhoog (I) Interviewee: Head of Business Development Smart Industry (HBD) Group: Huawei Carrier Business Group Date: 3 November, 2016 Duration: Fifty-five minutes Gender: Male Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself. I am Kasper Verhoog. I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Liability of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct. I: Okay, so all the concepts are clear and the recording is fine?
HBD: Yes all the concepts are clear and the recording is fine!
I: So first can you tell me something about yourself and about your carreer history?
HBD: Yeh my name is … and I am now for more than 30 years in the telecom/ict industry. Uhh I work always in the commercial side at the director level within for instance Samsung, Ericsson. And the last 3 years I am working for Huawei. The first 2 years I was responsible for the amazon market, that means Ziggo all the cable and media industry. And since a year I am responsible for business development for smart city. Smart city development, within Huawei we are looking for new sales channels. And Huawei asked me to set up a smart city department to hand on that for new business. I am almost the oldest within Huawei,56. So they see me as a senior, so it’s okay. That is a little bit of my background.
I: Okay I saw your current position is a senior manager?
HBD: Senior manager head of business development for smart cities.
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I: And youre mainly focusing on smart cities?
HBD: Smart cities, new technologies uhh via also with our current partners like KPN/Ziggo. But for smart city development.
I: Okay, and within Huawei is the word liability of foreigness, or anything related to that, so more cost because we are foreign, is that ever mentioned in a meeting?
HBD: You cannot express it like cost but maybe I have an example that it always take extra costs. When I started at Huawei 3 years ago and I opened the door at Ziggo. I had personal contact there from my former companies. But they asked me okay Hans you are welcome but why should we talk with Huawei. Because Huawei is a Chinese company.. You know and there is always something, do they talk English very well? So it cost me more time maybe 2 times more to build up a relation there and trust. And if you translate that to costs yes that costs in times of investment and time etcetera. So if you talk about that area it is definitely extra costs. I am not talking about products but to build up relations. The fact that you are a Chinese company it’s a fact. And it not only with Ziggo but I also have it now in the local government. We have to build up a relation, 2 times more investment. You build up trust and then you do business. Definitely
I: But do you think because this is because Huawei is foreign or particular because Huawei is Chinese? Because this is exactly the difference between liability of foreignness and liability of origin.
HBD: Yeh its mainly because of the Chinese roots of the company
I: Okay what are the challenges they see with a Chinese company?
HBD: Uhh. If you look in the telecom industry in the Netherlands it is a very small market with a lot of dynamics in the market. A lot of companies as you look there are a lot of mergers going on UPC with Ziggo Vodafone with Ziggo. So there is a lot of dynamics. Relative if you look to the newcomer Huawei we are new since 10 years ago. Normally they talk with Cisco, Ericsson, the normal Western companies. So we are new. So you can imagine that also our customers are a little bit afraid. Who is Huawei? You know a Chinese company. And as I said when I opened the door there were very basic questions to me. You know your Chinese colleagues can they talk English? How can we work together? How is the interaction and communication? That kind of stuff.
I: And what are the presumptions they have about a Chinese company?
HBD: Especially the communication and therefore what I did is I organized a cultural workshop between my costumer and Huawei. And that was 1 day so we can learn from each other. And after that it went very well. So the Dutch people we have to understand them as Huawei but the Dutch people they also need to understand the Chinese way of working. And after the workshop it went well.
I: And what is your normal way of building a relationship with a client?
Comment [HD175]: Huawei is working on smart cities
Comment [HD176]: Liability of origin
Comment [HD177]: Other business and governments don’t build trust very easily with a Chinese company
Comment [HD178]: Liability of origin
Comment [HD179]: Environmentally derived LOF: cultural differences cause external frictions
Comment [HD180]: Organize cultural workshop so people learn about each other’s culture and way of working
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HBD: First of all it is always person to person business. So I know Ziggo very well. But then the second phase they are talking about your organization. How is Huawei organized and what is the quality of people/knowledge. And as third phase they are talking about our products. What kind of products do you have etcetera. So it was more a trust issue in the organization and later on, on the products. But it starts with yourself.
I: So basically you always have to persuade them that you are a reliable company etcetera. ?
HBD: Yes
I: And you need to counter those presumptions when you step into the door? Specifically when you walk in as a person from Huawei.
HBD: Yeh and it was not easy. I get very basic questions about security, and our equipment and network. How does it work? What is the data doing? Is the data from us? That kind of questions. But we convinced them you know everything is safe. And also some persons from the Netherlands, for example from KPN went to China went to our R&D Lab. Saw the source so they know everything is safe. You know and so then we convince them step by step.
I: Can you maybe elaborate more on the products from Huawei? Because a lot of people only know Huawei from the phones, but you are talking about security as a carrier.
HBD: Yeh for instance if you look, Huawei is split up into 3 departments. The enterprise business, the consumer business. Everyone knows that from the devices the hardware. But we are in carrier business in every operator. We are building the core , core network for KPN, for T-Mobile we are doing the radio network. So T-Mobile is red Huawei. If you look into the fixed network of Vodafone we build it. The core network of tele 2, we build it. So we are in every operator Huawei is presented. So if I tell this story on a holiday party they don’t know what Huawei is doing. They only know Huawei from the devices. So we are more than just devices and we are a pure ICT technology company.
I: Okay so we already talked about from the supplier side. You talked about that it is sometimes difficult to build trust and that it is mainly a trust issue Huawei is Chinese. Does Huawei do more to counter the difficulties of building trust?
HBD: Uhmm ye by doing. You know after the discussion with Ziggo, before the workshop I said to Ziggo hey guys don’t talk anymore. Let’s do it. Then you can see and experience how we work. And especially in the communication and interworking. So we set up a very small POC. P O C is a proof of concept. We put some equipment there and then we connected to the Ziggo network. And then we play. And then they were surprised about our technology. And they were surprised about our interactive approach. With good knowledge, good people and that is the way of working Huawei like to do. Don’t talk too much but let’s do it. So after convincing the trust it is part of build up the trust.
I: So you basically say it is a 2 way step. The first is get the deal by overcoming the trust issue. Once you get the deal you should always provide good service and a good concept.
Comment [HD181]: Liability of origin
Comment [HD182]: People are concerned about security and products Chinese companies have
Comment [HD183]: Mitigation strategy liability of origin
Comment [HD184]: Show suppliers the facilities and R&D lab
Comment [HD185]: Mitigation strategy liability of origin
Comment [HD186]: Deliver good products and service
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HBD: Yeh and work together. In a proof of concept you can learn from each other. And also after the proof of concept there was a concern about the communication. Sometimes we had in our way of working a misunderstanding. And therefore I organized a cultural workshop. And that was the outcome.
I: So we talked a lot about suppliers now , what about consumers because you already touched upon that a little bit during your birthday party. Do they know about those kind of products. Are you mainly dealing with big business?
HBD: Maybe I am not a good representative in this topic because I am Mister Telecon in my family. When I worked for Samsung I was mister Samsung and when I worked for Huawei I am mister Huawei. So everybody knows Huawei. They advise me via Facebook about the P8 about the P9. So everybody in my network knows Huawei of course. So I am not really, you know the right person to talk. Because I am an ambassador also in my private life.
I: Okay well you mentioned something about the local government. You say when I walk in I need to convince them. How does that work exactly?
HBD: That’s exactly the same when I do business with a business like Ziggo. Step by step don’t push too much. Talk about the broad portfolio of Huawei. Bring them to the headquarter. Bring them to the demo center in Amstelveen. And don’t talk about in the first phase about pushing on sales or whatever. But bring the beauty of Huawei to them and build up step by step with trust. It is also your personal opinion and your knowledge that you bring to your costumer, to the local government. And then you can see they get some trust in you because how can you measure that, is that if they have a technical question they are calling you. And nobody else. Then you can see you build up trust.
I: But you deal a lot with government because they have specific regulations in your carrier business?
HBD: No if you look in my current role for smart city. What is a smart city? Make the city more attractive for civilians. A city that is more attractive in terms of efficiency via technology. And we Huawei have the technology vision so we bring the vision how the world will look like in 5-6 years. Including 4/5G, Narrow band, IOT all the new stuff. And bring it to the government. And bring them hand in hand in a new journey. You know and if you look to the local government. They have no clue what is happening in changing technology. So we bring them hand in hand step by step in a new world. And that is my approach.
I: And that cooperative approach is really working out?
HBD: Yeh well it has to be focused within Huawei as well. Since a year were on the smart city as a team fully focused and now you see the traction. The traction is happening now. You know 3 weeks ago they went into China, the government of South-Holland, including the commissioner of the king we had them in the headquarter. They see our R&D lab and they were very impressed. And as you can see now there is a follow-up. We have a meeting with several directors because they want to work with us. In proof of concepts so the traction is starting now.
Comment [HD187]: Firm-based LOF
Comment [HD188]: Misunderstanding with each other
Comment [HD189]: Mitigation strategy liability of origin: Bring the government to your HQ to the demo center etc.
Comment [HD190]: Cooperate with government
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I: Can you maybe mention some products which show how innovative Huawei is compared to other competitors, which impressed the commissioner?
HBD: Yeh some products are new on smart cities. But also for smart cities you can use current technology. For instance if you have bad Wifi in the city of Utrecht. You can talk about to replace that together with a partner like Ziggo. You know you know due to the fact that we are talking to the local government on a weekly basis also the pain points come up. Bad connection, bad cameras you know. And from there you can see new opportunities. If you talk about new products. We are going to start very soon with narrow band IOT.
I: Which is?
HBD: Well that is narrow band IOT. That is internet of things. That you connect sensors to the networks. We are working with operators as I said very closely and for instance with T-mobile. Narrow band IOT will be very launched very closely in a few weeks. And then we can play together with local governments on that technology. That is for instance, a really new product.
I: So basically you deal with a lot of suppliers, governments, is there any other party you have a lot of contact with?
HBD: Yes, well now. If you look to the smart city approach. We are also working with a lot of eco partners.
I: NGOs
HBD: Yea. So we are building now the eco system. That means we talk for example with Microsoft. Because if you want to build a new technology in a city of Utrecht or Rotterdam Microsoft is always there. You know in the back end. With their platform. If you are building a new infrastructure there will be data over the infrastructure and that data will be somewhere in the back end. And now Microsoft is knocking on our door. Hey guys what are you doing in the city. We are doing this can we work together? So Microsoft is an example but we have more. An ecosystem where we can talk. And recently our headquarters in China signed some global deals for instance with Honeywell. They take care of temperature within homes. With Schindler for elevators. You know but also with the car industry in Germany. You can see that everything is coming together. So that means that it also translates to the Dutch organization and we also need to talk to Honeywell. You see what kind of opportunity we can have.
I: And so do you see these agreements, which are made in China, do you see that these agreements do give you a positive spillover to Huawei also to the image?
HBD: Absolutely, definitely.
I: And that you also feel that is getting more and more easy to get into touch with suppliers, other parties etcetera, that those presumptions about Huawei or Chinese companies in particular are slowly fading away?
Comment [HD191]: Internet of things
Comment [HD192]: Work together with other partners
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HBD: Well I can tell you it was always very easy to talk with other parties in the market. Because Huawei is a very dominant party. Very good in technology. And they knock on our door. Can we work together. And sometimes in a conversation we bite each other and we split our way. But in a lot of examples we can work together. So it is not that everybody is afraid for Huawei, because they see what we are doing as operator, in terms of security technology, proof of technology, in terms of services everybody is seeing that.
I: So we talked a lot about building the relationship now. Once the relationship is there do you feel that there is any disparity between 2 parties. That there is a Chinese way of working and Dutch way of working?
HBD: Uhhmm. I work 9 years for Asian companies 6 years for Samsung and 3 years for Huawei and there is always a sort of chicken egg story. In terms of you cannot deliver its not on time you know. But if you look at the Dutch way of working when I look at a project the Dutch people left the building 5 o’clock. And then we are starting. Its day and night its 24/7. We as Huawei work 24/7. But you need the customer. You know. But the Dutch say I have a private family I need to go home. Chicken egg story so then I explain to the costumer if we go in then you also have to be available in the evening. If we want to achieve that deadline. So you know it’s from both sides.
I: And as you also worked for Samsung maybe it’s nice to compare it a little bit, do you feel that it is more difficult for Huawei to build a relationship or is it all the same?
HBD: Same yeh. I don’t feel any significant differences.
I:But you do feel in both cases that there is some liability of origin and that they are still perceived as Asian companies and not as global companies?
HBD: No but I can guarantee you, for the last 10 years I think in the beginning. When I worked for Samsung in the 2000s it was very different I think it was for Huawei the same. But I can guarantee you within a few years that is no issue anymore. Then you can see the power from Asia. And as we speak now, and you are recording this, when I drove with the car here. The Chinese government invest a lot in innovation and you can see that also the Chinese government and industry is changing from a follower into an innovator. And you can see that a lot of companies like Huawei but also Indian companies, who are very innovative, and within a few years there is no any discussion about Asian companies. They are the most innovative companies in the world. Like the Japanese, Chinese.
I: So you think that is going to change?
HBD: It will go away.
I: And that is mainly because the imago of the country is changing?
Comment [HD193]: The Liability of origin will be an issue that matters less and less for Asian companies
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HBD: Yeh the image of the country is changing. Its innovation its quick development. That’s the whole thing. And the last century was the century from the west.” The golden egg”. But the coming years it will be all from Asia. The whole technology. Look to Samsung. You know.
I: Do you feel that Huawei has less knowledge about the environment, for example about the regulations or suppliers? Because I think it is quite difficult for a Chinese company to get knowledge about the Dutch Business environment.
HBD: Not anymore. Because they arrived 10 years ago. So that is all under control, tax regulation etcetera and the same laws apply to all of us and we mastered them . What is different for Huawei is the dynamic in the market. The dynamic of the market in the Netherlands especially the acquisition and the mergers are very difficult to understand what’s happening. I think the Netherland is an area with a very high density of companies and a lot of operators. And if there is a sort of merger going on it is very difficult for vendors and especially for Chinese vendors to understand what is going on. But you know that is different. And they have to understand people like myself what’s is happening. And in terms of timing how can I do business. And that is a point that is very difficult.
I: But that’s for all companies and especially Chinese companies?
HBD: Yes for all companies. But I am not sure if there are some countries in the world with so many mergers as in The Netherlands. It is starting now. The shakeout in the telecom industry is starting now. And we are in the middle of it. So call it a digital transition you know in general yeah you have to face that.
I: Well that’s clear. So we talked a lot about the cost outside the company. How do we deal with suppliers, governments, NGOs etcetera. So now I want to talk within the firm. Do you feel that there are any frictions between the Chinese and the Dutch side.
HBD: Always but that is healthy, you know. Uhmm. But it can be overcome. We are working in a transition internally. Starting out some programs. The thing is in a Chinese company there is always a board and a Ceo and they always left after 5 years, it is normal. So what we have to do is that you have the layer below. Or maybe the third layer below is that we have to continue the business for maybe 10-15 years over there. So if you talk about friction yes. There is always a friction, especially when a Chinese management and Dutch employees come together but we know what the frictions are lets work on it. That is most important. And we have to respect we are working for a Chinese company. There will always be Chinese management and a Chinese board. And it has to be balanced. With the Dutch people to serve the market. And especially in a dynamic market yeh we have to help each other as one company one family. And now we are working on that step by step. And it is going well, in my opinion.
I: You said something very interesting, with the local Dutch people. Is it In your business the case that there are a lot of Dutch people working in the front-end and that the Chinese work in the back end?
Comment [HD194]: Environmental related LOF
Comment [HD195]: Huawei is used to the tax regulations that is not a big issue
Comment [HD196]: Firm-based LOF
Comment [HD197]: Cultural difference always cause friction
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HBD: Yes it’s a mix of course. It’s not only that Chinese people work in the background. I bring them to the costumers of course. Because they are the guys with the knowledge about the products and the solutions etcetera. Uhhm but if there is a little bit turbulence with the costumer or in the market mostly the Dutch people show up. Because you have to understand also the Dutch way of working. Yeh we have to balance in that. You know. And after three years in Huawei I think it is going very well. Step by step it went well.
I: And why is this? Is it the right mix or is it because Chinese employees learn the Dutch way of working?
HBD: Exactly to learn from the Dutch. Therefore I organized at that time the cultural workshop. Learn how they think, learn how they work. And the difference is that the Dutch people, you know that, are very direct. Very direct you know and it is black or white. With Chinese there is a lot of grey, it’s not black nor white and how do you manage that? You know that is the way know each other, inter-working, not only working go out with the costumer have fun and then you learn each other. In the end of the day it is person to person business.
I: And that is key?
HBD: That is key. Very key. And in my experience working for Huawei so far. I get compliments for the Chinese people that support the costumer. And that is a compliment, they say I like that guy. He is very quiet but he is very good and very innovative , that is a compliment to my Chinese colleagues. And I like to hear that.
I: And you see that perception is slowly changing? And in the beginning they were not super positive about Chinese employees?
HBD: No but you know. Chinese people, what I know, from myself is that they are followers. If you say we go left they go left. But I tell them don’t go left. Listen to the costumer you are the Guru. You are the specialist you can design, otherwise I won’t bring you to the costumer. Face to face meeting with Ziggo and then they say ahh he is really good, I like him. And that’s the way of working. Don’t do it only with Dutch people, it is not working.
I: And how does the communication work with the Dutch employees and the Chinese management? Because the Chinese management style is very different compared to the dutch style, do you think this causes some costs?
HBD: Yeh definitely. Allthough that is more personally and also I don’t know the age and the experience I have, I have easy access to the board. If you are younger and you are 30 or 33 it is very difficult. However if I compare it with for instance Korean companies. The top management of Chinese companies are more open, much more open. They share as a family in the Netherlands.
I: And when you compare it to Vodafone?
Comment [HD198]: Mitigation strategy firm-based LOF
Comment [HD199]: Bring the employees with knowledge to the costumer
Comment [HD200]: Mitigation strategy firm-based LOF
Comment [HD201]: Cultural workshop.
Comment [HD202]: Bring Chinese employees also to consumer
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HBD: Yeh that’s different. That’s western western. You still have a gap with Asian style and the west. It is also the way of thinking. Black white versus mingling and the problem will solve it self.
I: Can you maybe give an example of an issue when there was an issue between the management and the employees? That the employees thought in the Dutch way versus the managers thinking in the Chinese way.
HBD: Well the thing is if you are working in the front office and you have to bring a proposal to your costumer and you have to ask for a price internally and I have to wait 4 hours or 4 weeks for pricing it is not acceptable. … I told you I want my prices next week. You know. And then you have to escalate. And I escalate in the western way. So I send a mail every Chinese was pissed off. Why you send an e-mail to everybody. At the end of the day we had a talk you know and I get the price I want and we drink a beer. Sometimes we have to escalate. Then prefer face to face war, explain. Sorry sorry something. That is the way sometimes you have to learn also in the timing to escalate.
I: Do you think you can do that because you are the senior management and have experience,. Because I think this would be very hard to do as a junior manager.
HBD: Very difficult. They use the Dutch people, the senior Dutch guys. That is my learning also to be a newcomer. Otherwise it won’t go. But Chinese, as I experienced they are open. Sometimes in other companies, and I don’t want to mention names. But sometimes even in Western companies who are you, you are a youngster why do you ask this. In a Chinese company Huawei you can ask everything. So that is the way. The thing is, is there a follow-up but you can ask anything.
I: Okay and this is more about the company. But what are the main strength of the company Huawei?
HBD: Powerful, Passionate and an extremely drive. And how can I translate this extremely drive. The sales is getting started if you hear you are not selected. Nothing is impossible that is Huawei.
I: And why very powerful?
HBD: Really Powerful in products. We are far, far ahead in some technology. Everybody is talking about IBM the big companies but we are more innovative in our products. Powerful. And also what I saw in the Koreans 6 years ago they are building their own Chipsets. They are not depending on American vendors. Because we want to have an attack on the devices of Samsung and Apple. Then you have to control your own devices, uhh chipsets. That is powerful. I saw it 6 years ago and look where Samsung is now worldwide. Number one. No depending one. Of course we are a little bit dependent on American companies. But slowly we are building our own chip sets. That is powerful. And if you tell the story that we have 170.000 people and 60.000 are R&D that is powerful.
I: So innovative, powerful and passionate?
Comment [HD203]: Firm based LOF
Comment [HD204]: Different management style
Comment [HD205]: FSA Huawei: Powerful, passionate and an extremely drive
Comment [HD206]: Building own chipset, more innovate in products compared to IBM or other big companies
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HBD: Yeh passionate
I: Mainly about the employees?
HBD: Absolutely going for the business. Nothing is impossible.
I: So that is a good way to describe Huawei? Powerful, innovative and passionate?
HBD: Otherwise we are not the number one in infrastructure for the Netherlands. I worked for Ericsson a big company. But we are now number one in the Netherlands. We are everywhere.
I: So it is getting and better? And I also see that you are very passionate about it. Uhmm and I want to talk a little bit about the communication of the subsidiary in Holland and the headquarters in China how does that go? And do you personally have any contact with the headquarters?
HBD: Yeh Yeh, some people within Huawei are selected for an elite training. And I am one of them. So I build an international network. Also from headquarters but also international. 40 class members you know from Peru to headquarters. So I have good contacts. The difference is when you are in a project yeh and there are some issues you know or pricing. Tell the story to a local Chinese and let the local Chinese have contact with the headquarters. Don’t interrupt in that. You are just a local westerner. That is the game that I learned working in an Asian company and that I also bring the message to the newcomers, Dutch people. Don’t interfere in it bring the story to local people. And they will bring it to the headquarters that is the game that you have to play in Huawei.
I: So that is kinda inefficient? Because first you need to tell the local employee and then it is transferred to the management and they need to transfer it?
HBD: No because in the end of the day its efficient. If we are doing it there is misinterpretation we are impatient. In the end of the day it is efficient via a local Chinese senior guy. They talk Chinese you know we have to talk 1 hour . A Chinese can do it in 20 minutes. And touching the senses of strings. At the end of the day it is more efficient.
I: So basically the communication is always via the Chinese employees, they translate it and they pass it on?
HBD: Yeh mostly yes. And in my cases I will advise that to everybody.
I: And then they also transfer it back via a Chinese person? HBD: Yes sometimes we are in a call for 5 minutes. And then they go over in Chinese and then we leave the room. Leave it because when they start talking Chinese they can express their emotions and yelling to each other. But it’s okay at the end of the day I want to have a pricing and a solution there.
I: and that works? Let your hands off.
Comment [HD207]: Organizational learning
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HBD: Of course. If the output is negative or you know of course you say I am not accepting it I can’t tell this to the costumer. Call back, please. But that is okay. That is the way of working within Huawei.
I: And do you think, because you are Chinese that you have more communication cost compared to a Western MNE?
HBD: Yea at the end of the day what we are doing is locally. Misinterpretation and it cost 2-3 days. If it is in Chinese it can be managed in 1 day. So in terms of costs you save 2 days costs that is the whole thing and frustration of course. So that is always the finding, finding the way of working especially in Huawei how to handle this.
I: Okay well to summarize it. You mainly think that liability of foreignness is not a big issue especially in the carrier business there are so many foreign companies and Huawei is not suffering from that. However, Huawei is a Chinese company and sometimes they are suffering from this because consumers have presumptions about it. But you think that is slowly changing because mainly the country itself is changing.
HBD: Yeh
I: I had one more question about Huawei itself, because of course they are not only leveraging the image of the country but they also build the image themselves. How can they counter those presumptions about being a Chinese company? So how can they build the brand Huawei?
HBD: Uhhm 7 years ago when I had a Samsung phone everybody was laughing at me. What the hell with a Samsung because the Nokia was in. And look where they are 4 years later, the number one worldwide. Good products good technology own chipset and power branding. Good quality. Huawei can do the same with Huawei mobile devices. Maybe not that strong and dominant as Samsung. But step by step we will attack them. And the whole branding starts with devices mobiles and watches. Not with infrastructure business because no one knows that we have infrastructure within a KPN account nobody sees it. But more and more in the devices. And there is one ambition in the coming 5 years and that is especially in the device business. And then you can see that it will change. It is already changing. If you look at the P8 P9 the mate 9. Everybody is now looking into the quality of the devices. You know and the beauty. And also in terms of pricing you know we are very low on pricing. And that really has impact. And after that next to the devices, you also see that Huawei has the ambition to have more branding. Be more in, work together with universities ,if you look to smart cities you will later see the brand that we build up with the local government. Look to the arena we are sponsor there. Huawei get more and more penetrated in the market. We don’t have the money as Samsung had in terms of budget. But step by step we wanna grow in that image.
I: And that’s very important for Huawei and also a strategic point which is mentioned a lot in your meetings?
Comment [HD208]: Mitigation strategy liability of origin
Comment [HD209]: Good products/Technology
Comment [HD210]: Branding. Work with universities, local government
Comment [HD211]: Sponsorships such as in Arena
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HBD: Uhh yeh. And it is also you as a person that work for Huawei as an ambassador has a very important role in that. Because of other people in my network and that’s a lot of people in private but also in the telecom world ask me why you switch from Samsung to Huawei can you explain? And that is the first step already. You know why you work for Huawei what is the ambition that you see and wat is the challenge. Start with yourself as an ambassador. And yeh
I: And maybe it is interesting that you answer the question why you swapped from Samsung to Huawei?
HBD: It was especially the challenge that I can break open a new domain. The amazon market. They had no contact within Ziggo and the cable industry and that was the challenge. And we break it open. I was also able to work for T-Mobile account or KPN account but that was wireless. I already did that. That was the reason I swapped and also the nice conversation that I had with the top management. We didn’t talk about the business we talked about the person who is ,… attitude you know. That I liked.
I: Okay so I think I touched upon all the points. Do you have any questions or comments yourself?
HBD: No not really
I: Okay then I would like to thank you for the interview.
HBD: You are welcome, more than welcome.
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Interview 7
Interviewer: Kasper Verhoog (I) Interviewee: Digital marketing manager (DMM) Group: Huawei Consumer Business Group Date: 10 November, 2016 Duration: Thirty-six minutes Gender: Male Welcome, First I want to thank you for participating in my research. Firstly I want provide you with the information about my research and myself. I am Kasper Verhoog. I am a master student at the University of Amsterdam. In Amsterdam I am following the master International Management. Currently I am working on my master thesis which is the final step in order to achieve my master certificate. My research is about liability of foreignness and liability of origin. These term are describing the phenomenon that foreign companies have more costs, compared to local firms when they perform value adding activities overseas. Companies could have extra costs because they are not local, this is called liability of foreignness. For example the environment is not beneficial for the foreign firm, some tax rules may put foreign firms at a disadvantage or it is harder to set up a relation with local suppliers. Liability of origin is about extra costs foreign firms face because they stem from a particular country. For example when a Chinese company start selling their products in Holland they might face problems because people have negative feelings about products which are made and designed in China. I would like to talk about Huawei who entered Holland. Now I would like to start the interview. I would like to tell you that the interview will be completely confidential. After the interview I will send you the content of the interview so you can check the content and erase if I wrote down things which are not correct. I: Is it okay if I record it?
DMM: Yeh that is fine I don’t have any problems with that.
I: Are all the concepts clear to you?
DMM: Yes everything is very clear, thank you for the introduction.
I: So can you tell me something about yourself and your Carreer history within Huawei?
DMM: Uhh yes. I am …. 37 years old. Joined Huawei Februari 2015 so a little more than a year and a halve now. I work here as a digital marketing manager. Uhh responsible for all the digital touch points that we have with the consumers. And uhhmm uhh I am also responsible for running most of the campaigns. In order to promote the products. So whether it is go to market or introduction of new products or when we need to start selling more and more and more it’s called sustained phase. So that is basically what I am doing every day.
I: So you are in the consumer business group. You belong to them. Do you only market the products like phones, just consumer goods?
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DMM: Yes only consumer goods. Not Huawei as a brand as a whole. I: So which products do you market? DMM: Uhhmm all of them. Smartphones, tablets, wearables uhh MBB. Which is mobile broadband. Of course MBB not that much because we are mainly focusing on our flagship models. And most of the time that is the smartphone. I: Okay and what are you currently working on?
DMM: Uhhhm I am currently working on a P9 campaign. Which was launched yesterday. I am working on a Huawei Nova campaign which was launched this Monday. I am working on the mate 9 campaign the product was introduced last week in Munich. Uhhhm and yeh those are the main three campaigns I am currently running.
I: Okay and I want to ask you: Is the word liability of foreignness, or anything related to that , such as the company has more costs because we are foreign, ever mentioned?
DMM: Uhhm no. I don’t think we pay more because we are a foreign company. And I think one of the reasons is that the marketing investments are always done by local people. So they have experience in the local market. So you don’t get situations where you pay huge amounts for something that is worth less. Because we are aware of the TV, radio, online, rates that apply to the market. So in that sense I don’t think that we pay too much. We also have a very well structured procurement system. Procurement is always based on two things: The commercial part, which is the price we pay. And the technical part which is the strategic thinking of the campaign. The strategic campaign is mainly done by the locals and the negotiating of price is mainly done by our procurement. And our procurement system works like this that all prices which are being paid in Europe uhhm are known by procurement. So they always, even if they don’t have knowledge about what they are buying they can always benchmark prices within European countries. And one of the conclusions from procurement is that often the prices in Holland are lower, than for example Germany. So if you do a TV advertisement in Germany the marketing cost are a lot higher than the Netherlands. So they are still uhhm the local procurement department still needs local advise from Dutch people to tell them if the prices are regular or not. Because if they compare the prices to Germany than all the low prices feel like getting a bargain. But actually for Dutch senses they might pay too much.
I: You talked about knowledge, you talked about we don’t have so many costs because we have knowledge about the Dutch market. In your field what kind of knowledge is very important to have, which is the reason to have local employees?
DMM: Uhmm well for marketing it is very important to have local employees because you are communicating towards a Dutch audience. And there are cultural differences between the Dutch and the Chinese. And it is really important for us that every message that we put out through marketing gets reached and understood and has an impact by the Dutch consumer. Uhhm and that is why it is more efficient to have local employees talk to loyal customers
Comment [HD212]: Environmentally-derived LOF
Comment [HD213]: Environmentally-derived LOF not a big issue because of local people who have experience
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then to have Chinese employees talk to local customers because their might be miscommunication
I: okay.
DMM: And I think that is the basic. And then of course if you go into depth, for example digital. Uhhm yea I have so much experience within digital. That uhmm that I am a specialist. And you need to be a specialist with the knowledge of the Dutch market. To get the best deal out of the euro you have.
I: So basically you say that in marketing, in your department, there are a lot of local employees and they target the Dutch audience.
DMM: Yeh our marketing team consists of three people. And all the three of them are Dutch. It is divided into a marketing manager, who is responsible for all the marketing activities, then we have a PR manager and he is responsible for the relationship with the Dutch press and also of course their output. And we have a digital marketing manager, which of course is me. And so in all fields you have a local person talking to local consumers. That is.. very important I would say.
I: And how do you reach the local consumer, you talked about digital, do you make use of facebook?
DMM: Yeh we have a uhhm we … uhhm So for example when our P9 was introduced which is our flagship model we need broad reach. It is very important when you have your flagship model that is on for sale. When it is available in the store that everybody in the Netherlands gets to know this message. So we advertise on TV because TV has a very broad reach. But we also do, for example, major digital takeovers. For example on news sites like nu.nl, uhh because two million people visit their website every day, unique visits. So the moment that you have a home page takeover there it is very difficult for the consumer not to see your message. UHHm and of course with social media we are very active on Facebook, Instagram, twitter, YouTube, currently investigating Snappchat. But within these social platforms we can reach very different audiences and we can target our message very well. Facebook being the biggest social media platform there is, so we can basically reach everybody in the Netherlands. Uhmm Twitter is a little bit more higher in age so 25 and older. Instagram is the young kids up to 40 years old, being active there. Mainly focusing on photography, which is interesting for us because we have a partnership with Leika. And snappchat is for our new costumers or future costumers.
I: Okay, so we touched upon the liability of foreignness a little bit, you were very clear in that . You said our department uses local expats and in that way we can counter it. However when we talk about liability of origin, we talk more about that Huawei is a Chinese company, do you think marketing wise this costs any costs? And I am not talking only about prices but it can also be that it is harder to persuade any consumer.
Comment [HD214]: Mitigation strategy environmentally-derived LOF
Comment [HD215]: Use local employees to match local consumers
Comment [HD216]: Mitigation strategy environmentally-derived LOF
Comment [HD217]: Local people talk to local consumers
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DMM: Ohh yes it is. China is of course very well known for producing low products for a very low price. Uhhm and also known for.. So products are cheap. And the quality of products is also very low. And this is of course something that harms our business because we are very innovative company and we produce electronic goods and we produce them ourselves. Uhhm and we don’t want them to be perceived as cheap. We want them to be perceived as affordable premium. So basically what affordable premium means for us is that you get a good product for a good price. And uhhm yes the stigma which is stucked to China is of course not really in our benefit. Because we really have to convince the consumer that this is not a typical Chinese product but this is high standard. And uhhm I think slowly we are getting there but especially in the early years so Huawei entered the Dutch market in 2013. And in 2013,2014,2015 we were perceived as an affordable or value for money. And that can also be good for a brand especially if you are entering a new market. Value for money gives the consumer a reason to buy. Uhhm but there is not much brand love when you have value for money. But when you create brand love then you get fans, and then you got advocates, ambassadors and all those things. And then the fact that we are a Chinese company is making it extra difficult to reach that goal. But it’s not impossible. And I think we are doing a really good job. I think it is not the marketing that is fixing the problem it is the fact that we are making good products and especially if you look at our competitors they scare shitless because of what we are doing. We are producing really high standards , P6 P7 P8 P9 all got awarded with smartphone of the year within Europe. P9 Smartphone light got awarded with best buy by the “Consumentenbond”, which is a major trustworthy institution which protects the right of the consumers and advices what products are good or bad. And these awards really help to convince consumers that we are not value for money but we are actually making really good products for an affordable price. And that is helping us.
I: And as a marketer I also think you do consumer research?
DMM: Yes
I: So can you tell me maybe a little about the shift consumer had or that you didn’t see. How they perceived the brand of Huawei. What were the most prominent words that popped up the recent years?
DMM: Uhhm in recent years well I think we have a long way to go. Well research explains to us that we are still perceived as value for money. That is uhhm but you can also see that our low price is also actually marketing. So we don’t invest. So we have a product which is 600 euros and the competitor is 800 euros. So the fact that we have a lower price is already marketing. It is making our products stand out based on price. So it is not strange that most consumers still perceive us as value for money. But they also think that we are innovative, a new sound. The .. We are disrupting the Dutch market, the smart phone market by putting these really good devices onto the market. That Samsung and Apple are looking at us WTF is going on there. And yeh Uhhm so main keywords are all focused on pricing but also innovation ofcourse also Chinese.
I: Is that coming back a lot.
Comment [HD218]: Liability of origin
Comment [HD219]: China is associated with cheap products, with low quality. This doesn’t benefit us
Comment [HD220]: Liability of origin
Comment [HD221]: For a Chinese brand it is more difficult to create brand love
Comment [HD222]: Mitigation strategy liability of origin
Comment [HD223]: Make good products
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DMM: The innovation yeh
I: No the Chinese
DMM: Yeh people know that we are a Chinese company
I: And does that impose a liability?
DMM: For some customers yes. It is being perceived both as positive and negative. Positive because in general there is a shift in opinion about China. The Chinese market is booming uhhm and Uhmm Asia is booming. Korea as well. And that makes us interesting in a way because there is a lot of good things coming from China now. So people are more open minded towards China than before. But also for a lot of people it is still perceived as Cheap, bad quality that’s it.
I: Okay, so we talked a lot about consumers now.
DMM: Ohh sorry can I say one more thing. Service. Because of being perceived as cheap and bad quality. I think we invest in more service than our competitors. So the people that purchase our products. We really want to get them the experience that the product is good that the service is good. That we care about our customers, ask about an extra investment of course. But it helps us to create these ambassadors. Because you have the phone, you have the experience. And then you are more likely to talk positively about the products to your peers.
I: And marketing wise, because that is your field so I want to zoom in mainly on that field, do you do something with the fact that you are being perceived as Chinese, that you know that image is sometimes not positive, do you try to turn that around?
DMM: Yes what we decided to do is not to communicate that we are a Chinese brand. Yeh we are not a Chinese brand. We are a global brand and we are from China. But so we are trying to stay away from everything that is connected to China. Uhh even though Chinese culture has some really nice stories to tell, I mean China invented gunpowder, the fork, the noodles there are really strange innovative things coming from China. But the main perception is cheap and bad quality. So we try to stay away from that, do only general or local marketing. And that helps us to disconnect ourselves from China in a way. Samsung is also not perceived as a Korean company. It is being perceived as a global player. And that is also the direction we are going to.
I: So the direction Huawei is going to, do you think about changing the brand elements, like logo, name?
DMM: No. I would never change the name. In the Netherlands we say “Hoeawei”. The Chinese say “Huawei”. If it was up to me I would have sticked to Huawei. I think it gives a more exotic ring to it than, “Hoewei” which sounds sort of farmer like. Uhhm the logo we try to change it last year but it got rejected. Because now we have red and I think red is not very premium. I think you can’t make it premium when you look at Ferrari, Marlboro or
Comment [HD224]: Liability of origin
Comment [HD225]: China is perceived as cheap and bad quality, still
Comment [HD226]: Mitigation strategy liability of origin
Comment [HD227]: Create excellent service
Comment [HD228]: Mitigation strategy Liability of origin
Comment [HD229]: Stay away from China as brand, be a global brand
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Vodafone. But it also has a dangerous feel and that is that it is perceived as cheap. So that is why they wanted the logo black. I really supported that because it is more fresh and clean look. But it was decided not to do that. But what we are doing is that, our users are very young, so below 24 years old. Or older than 45. Communication is focused exactly in-between. Because this pile is the biggest and these guys have a huge influence on their peers. So we communicate on this but we know that the guys who are purchasing our products are without that target audience. And what we do to convince these people in the middle is that we uhhm uhh communicate more premium look and feel. No more quick cheap communication, no everything needs to be really good. Really well done. And for this we look for partners. So for example for Huawei Nova which is a relatively cheap product 36o euros uhh we work together with Linda magazine. Because Linda magazine is a premium magazine in Holland. Linda is a premium ambassador. And working together with a title like that will give us more leverage to become premium and valuable.
I: So you basically say that you are really trying to build the brand Huawei and that you, what is very interesting is that you try to stay away from China, because you don’t want to be perceived as a Chinese brand. But you want to be perceived as a global brand maybe with
DDM: Chinese roots
I: Chinese roots and you want to focus on the global brand.
DDM: Yes.
I: And is it also communicated marketing wise in that way and do you think about that?
DDM: Ohh of course always. So we don’t do anything with Chinese new year. So that is very clear. Even though it is very easy to do things with new year we stay away from that. So it is just a strategic decision. I have to convince some of my colleagues sometimes but it’s, I think it will pay off in the end.
I:Okay that’s quite interesting. Okay well we talked about consumers now, and we talked about the environment and local knowledge. You said we can use local employees. The last thing I want to touch upon inside the firm itself. So do you feel that there is any liability of foreignness or any liability of origin and I mainly want to focus on management costs. So that there are more difficulties because you are a global firm or a Chinese firm.
DDM: I think uhh as a global player you always have to deal with different cultures. And different cultures always uhh asks for uhh yeh things costs more time. I mean if I can explain something very quickly in Dutch to a Dutch person because I know he will perceive my words in the right context. For Chinese it is very different. A very small simple example when I tried to convince my boss that we worked with Linda magazine, he asked me the question who is Linda. So I thought yeh who can I compare her with so he understands. So I said well she is sort of the Oprah Winfrey. And then he asked who is Oprah Winfrey. So it makes it more difficult to explain and get aligned with colleagues internally and this is just a very simple example. So in terms, not in terms of money, but in terms of time, it costs more time. So that means that you have to catch up that time somewhere else, or make longer
Comment [HD230]: Mitigation strategy Liability of origin
Comment [HD231]: Strategic Partnership with Linda magazine
Comment [HD232]: Firm-based LOF
Comment [HD233]: Different cultures cause internal frictions
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hours. So asks for more investment, which results in more costs eventually. This is the reason I worked for Huawei. I think this is a very interesting game. Especially when you hear Trump yesterday I think it is really important that you work together with different cultures and find alignment between the two. But it takes time. And China is so different compared to Holland. We are very liberal, they are not. Yeh I mean that already has a culture clash. I can tell my boss his idea is shit. A Chinese colleague can never tell his boss his idea is shit.
I: No then he get fired.
DDM: Exactly, well not fired but.
I: Do you think, because you have Chinese management, that it is more difficult compared to other foreign firms.
DDM: Ohh definitely. China is uhhmm a huge country with lots and lots of people. But it has only started developing since eighty-eight. So what you get is that the young guys know quite a lot but the older people they have less experience because they did not have the opportunities before. So what you see in terms of branding, a Chinese colleague in Management it is very important to have the Huawei logo on everything as big as possible which is out there. From a local perspective we know that this doesn’t work, that people will hate you for it. People want to have a meaningful conversation and then they will remember the brand. So there is a difference in pushing the message, so basically kicking it through the throat of the consumer then to have an interaction with the consumer that sticks in their mind. Because thy get confronted with 900 commercial messages every day. So you need to stand out, so that’s differences. And also negotiations take extra time. I: And how does Huawei stand out in commercials? DMM: Well it’s always a combination. You need to get alignment. You also need to give the Chinese colleagues some room. To have them deliver input, let them have their say. But I think the Chinese colleagues they trust us a lot when it comes to marketing. They have real faith in us, but they need some convincing before we can execute. I: Okay that’s quite clear. Just to sum it up. You think that liability of foreignness is not a really big issue. You can easily counter that by making use of local expats. And actually the consumers are all buying foreign products so that is not a really big issue especially in the smartphone industry. DMM: Well liability of foreignness an issue but we have a solution. So we are working on a solution. And I think that is the main thing that a foreign company always needs to invest in learning. You need to know the environment, you need to know how to design your organization. That is important, and the investment in the beginning are higher than when you have been in the country for a couple of years so that investment decreases. Educating your staff, both Dutch and Chinese is also important and the company invest a lot in that. In employee trainings and stuff. So you can get this alignment sooner, and they know it takes
Comment [HD234]: Firm-based LOF
Comment [HD235]: Cultural difference results in external frictions
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time. And time is something that this company doesn’t have. And everyone works very hard, really hard I: Okay and you think that liability of foreignness is an issue but this is mainly about the environment that you do not have a lot of knowledge, but not from the consumer side that they discriminate you or something. DMM: No, no I: Okay so that is a very clear point. So you think liability of foreignness is an issue and that is mainly because you need to learn and get knowledge about the local, maybe local laws, traditions, business practices etcetera and in your marketing field especially about the Dutch consumer how they think. DMM: Yes I: However, Liability of origin is still an issue for Huawei. It is decreasing already but it is not that solved as liability of foreignness yet. DMM: Exactly. I: And you try to solve that by putting marketing campaigns on the market, you use TV commercials , you use sponsorships. Maybe you have more? DMM: Sponsorships of course is a very easy way to get inside the local markets. We have a sponsorship with Ajax. And I love to do with charities. I think if I can convince Chinese to also invest in Charities I think our brand love will increase. I: Are you already doing that at Huawei? DMM: No not yet. I: So that is maybe a future. DMM: Yeh for the future. I:And that is maybe also something that will contribute a positive image of Huawei? DMM: I think so it will help us. Make us more loveable. I: To create brand love and to get away from the negative perceptions the consumer hold due to the fact that people have negative perceptions about China and that this automatically transfers back to Huawei.
Comment [HD236]: Mitigation strategy firm-based LOF
Comment [HD237]: Educating staff, organizational learning
Comment [HD238]: Firm-based LOF
Comment [HD239]: Company lacks local knowledge but does not get discriminated because they are foreign.
Comment [HD240]: Mitigation strategy liability of origin
Comment [HD241]: Sponsorships
130
DMM: Exactly. I: I touched upon all the points and you need to go to your meeting so I will round off. Thanks for your time. DMM: No thank you. I really like it how you structured the interview and that you were well prepared with a good introduction etcetera I: Thank you
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Appendix 3: Separate Network Mapping
132
Company practices not adapted to local business culture
133
Environmentally- derived LOF is not an issue
134