
Global Strategy 3rd Edition by Mike Peng
Edition 3ISBN: 978-1133964612
Global Strategy 3rd Edition by Mike Peng
Edition 3ISBN: 978-1133964612 Exercise 6
Emerging Markets: HTC Fights Apple
Everybody has heard of Apple and its iPhone, which set the smartphone market on fire when it first appeared in 2007. Fast forward to 2012: Which company had the highest smartphone market share in the United States? Not Apple (20% market share), not Samsung (20%), and not Blackberry (9%). The winner was HTC, which commanded a 25% market share. "Apple iPhone's market share was lower than what?" some of you may ask.
Founded in Taiwan in 1997, HTC was an "unlikely leader" in the smartphone world infested by global heavyweights, according to Bloomberg Businessweek. Founded as High Tech Computer, the firm followed the well-known Taiwanese outsourcing formula of designing and manufacturing gadgets for other companies without a brand name of its own. The plain-vanilla original name (which the firm no longer uses) was as low-profile as a corporate name could be. The firm toiled for a long time in obscurity as an original design manufacturer (ODM), quietly designing and making high-end smartphones for leading Western mobile operators such as Verizon and Orange. HTC's first big contract came when Microsoft asked it to make smartphones. HTC quickly became the world's top producer of Windows phones. It set up its US headquarters in Bellevue, Washington, a Seattle suburb where Microsoft was headquartered. Like many contract manufacturers,
HTC worried that a brandless firm would permanently remain a low-margin manufacturer of commodity products. What was worse was that the already razor-thin margin would be squeezed even further as clients shopped for lower-cost producers (read: China). The solution was usually to launch a firm's own brand to command higher margins and more respect-in other words, to become an original brand manufacturer (OBM) just like Apple. However, Taiwanese (and Asian) firms attempting to overcome this hurdle usually had to face a "double whammy:" (1) a lack of capabilities in innovation and branding and (2) the loss of clients, which did not want to do business with an emerging rival. Such a "double whammy" forced many manufacturers to remain on the low-cost treadmill. How did HTC overcome the challenge?
Three things stand out. First, as emphasized by Cher Wang, HTC's chairwoman, in media interviews, HTC never did original equipment manufacturing (OEM). From the start, it had always been an ODM-emphasizing the "design" function that was lacking among most OEM manufacturers (such as Foxconn or Hon Hai, the largest Taiwanese OEM). The difference was nontrivial: HTC had developed world-class design and innovation capabilities. It began designing some of the world's first touch screen and wireless handheld devices as early as in 1998.
Second, HTC was very skillful in collaborating with larger firms. Such successful collaborations-in combination with its design prowess-led to a series of enviable first-mover accomplishments in this rapidly developing industry. These accomplishments included creating the world's first touch screen smartphones as the Treo for Palm and the iPAQ for Compaq (2000); the first Microsoft-powered smartphone (2002) and the first Microsoft 3G smartphone (2005); the world's first smartphone powered by Google's Android operating system, which was promoted as a free, open-source system (2008); and the first 4G-capable phone in the United States (2010).
Third, unlike many Asian firms that had a hard time globalizing their operations due to language barriers and cultural constraints, HTC was a "born global" firm. Emails and documents were in English from day one. CEO Peter Chou, according to the Economist , sounded more like a Silicon Valley management guru than a typical Asian corporate patriarch. "Instead of telling them what to do, I want people to have the freedom to explore their talent," Chou said. Such an open culture made HTC a more attractive employer for Western talents. In 2006, HTC attracted Horace Luke, a rising star at Microsoft. He had been the creative director of Windows Mobile. At HTC, Luke created an innovation infrastructure of fast-moving development teams. Some of these teams were based in Seattle. In 2011, HTC also opened a research and development (R D) office in Durham, North Carolina. Chou also proudly noted in a 2010 interview that at the top management level, more than half of the CEO's direct reports were not Taiwanese.
Sticking its neck out as a new OBM, HTC started to develop its own brand in 2006. By 2008 when its first Android phone was marketed, it was branded as "HTC." As Google built an ecosystem based on Android to wage its battle with Apple, HTC as Google's leading Android partner gained tremendous visibility. Since then, HTC took off. In 2011, it displaced Acer and was ranked number one among Taiwan's global brands by Interbrand, which listed its brand as number 98 in the world. In 2011, it was named "Device Manufacturer of the Year" by the Mobile World Congress. Also, its market value surpassed that of Nokia to become the third largest smartphone maker in the world (by market value), behind only Apple and Samsung. When asked about Apple in interviews, Chou acknowledged that despite HTC smartphones' attractive features, they would not attract crowds with "midnight madness" outside Apple stores to lay their hands on the new gadgets. "HTC is HTC," asserted Chou. "I don't care about the iPhone. I don't even look at it."
Apple, on the other hand, took HTC's challenge very seriously. In addition to vigorously competing on the product dimension, Apple sued HTC for 20 counts of patent violations in 2010. This was part of a broader Apple strategy to slow the ascendance of Android phones, which were not only made by HTC but also by Samsung and Motorola. Led by HTC, Android phones rocketed from less than 3% market share in 2009 to 48% in 2011. In addition to HTC, Apple also sued Samsung, Motorola, as well as Google itself. In response, HTC sued Apple for infringing on five of HTC's patents and sought to ban Apple products imported into the United States from manufacturing facilities in Asia.
As HTC's fight with Apple spilled over from product markets to courts, HTC, the clear underdog, claimed that it had sufficient patents to deal with Apple. "Patent lawsuits are normal," Wang answered the media. "Chinese firms have seldom used this strategic weapon. So we are setting an example." Likewise, Chou said, "if HTC can do a good job and set an example in innovation, we can inspire other companies to try the same."
Sources: Based on (1) 21st Century Business Insights , 2011, HTC: Can being itself allow it to surpass Apple? October 1: 58-59; (2) Bloomberg Businessweek , 2010, A former no-name from Taiwan builds a global brand, November 1: 37-38; (3) Bloomberg Businessweek , 2011, Android's dominance is patent pending, August 8: 36-37; (4) Economist , 2009, Upwardly mobile, July 11: 68; (5) Economist , 2011, Android alert, July 23: 64; (6) Interbrand, 2011, Taiwan top 20 global brands 2011, www.brandingtaiwan.com.
What are the lessons that ambitious firms in Asia and other emerging economies can draw when they aspire to upgrade their capabilities, become more innovative, and command more respect as OBMs?
Everybody has heard of Apple and its iPhone, which set the smartphone market on fire when it first appeared in 2007. Fast forward to 2012: Which company had the highest smartphone market share in the United States? Not Apple (20% market share), not Samsung (20%), and not Blackberry (9%). The winner was HTC, which commanded a 25% market share. "Apple iPhone's market share was lower than what?" some of you may ask.
Founded in Taiwan in 1997, HTC was an "unlikely leader" in the smartphone world infested by global heavyweights, according to Bloomberg Businessweek. Founded as High Tech Computer, the firm followed the well-known Taiwanese outsourcing formula of designing and manufacturing gadgets for other companies without a brand name of its own. The plain-vanilla original name (which the firm no longer uses) was as low-profile as a corporate name could be. The firm toiled for a long time in obscurity as an original design manufacturer (ODM), quietly designing and making high-end smartphones for leading Western mobile operators such as Verizon and Orange. HTC's first big contract came when Microsoft asked it to make smartphones. HTC quickly became the world's top producer of Windows phones. It set up its US headquarters in Bellevue, Washington, a Seattle suburb where Microsoft was headquartered. Like many contract manufacturers,
HTC worried that a brandless firm would permanently remain a low-margin manufacturer of commodity products. What was worse was that the already razor-thin margin would be squeezed even further as clients shopped for lower-cost producers (read: China). The solution was usually to launch a firm's own brand to command higher margins and more respect-in other words, to become an original brand manufacturer (OBM) just like Apple. However, Taiwanese (and Asian) firms attempting to overcome this hurdle usually had to face a "double whammy:" (1) a lack of capabilities in innovation and branding and (2) the loss of clients, which did not want to do business with an emerging rival. Such a "double whammy" forced many manufacturers to remain on the low-cost treadmill. How did HTC overcome the challenge?
Three things stand out. First, as emphasized by Cher Wang, HTC's chairwoman, in media interviews, HTC never did original equipment manufacturing (OEM). From the start, it had always been an ODM-emphasizing the "design" function that was lacking among most OEM manufacturers (such as Foxconn or Hon Hai, the largest Taiwanese OEM). The difference was nontrivial: HTC had developed world-class design and innovation capabilities. It began designing some of the world's first touch screen and wireless handheld devices as early as in 1998.
Second, HTC was very skillful in collaborating with larger firms. Such successful collaborations-in combination with its design prowess-led to a series of enviable first-mover accomplishments in this rapidly developing industry. These accomplishments included creating the world's first touch screen smartphones as the Treo for Palm and the iPAQ for Compaq (2000); the first Microsoft-powered smartphone (2002) and the first Microsoft 3G smartphone (2005); the world's first smartphone powered by Google's Android operating system, which was promoted as a free, open-source system (2008); and the first 4G-capable phone in the United States (2010).
Third, unlike many Asian firms that had a hard time globalizing their operations due to language barriers and cultural constraints, HTC was a "born global" firm. Emails and documents were in English from day one. CEO Peter Chou, according to the Economist , sounded more like a Silicon Valley management guru than a typical Asian corporate patriarch. "Instead of telling them what to do, I want people to have the freedom to explore their talent," Chou said. Such an open culture made HTC a more attractive employer for Western talents. In 2006, HTC attracted Horace Luke, a rising star at Microsoft. He had been the creative director of Windows Mobile. At HTC, Luke created an innovation infrastructure of fast-moving development teams. Some of these teams were based in Seattle. In 2011, HTC also opened a research and development (R D) office in Durham, North Carolina. Chou also proudly noted in a 2010 interview that at the top management level, more than half of the CEO's direct reports were not Taiwanese.
Sticking its neck out as a new OBM, HTC started to develop its own brand in 2006. By 2008 when its first Android phone was marketed, it was branded as "HTC." As Google built an ecosystem based on Android to wage its battle with Apple, HTC as Google's leading Android partner gained tremendous visibility. Since then, HTC took off. In 2011, it displaced Acer and was ranked number one among Taiwan's global brands by Interbrand, which listed its brand as number 98 in the world. In 2011, it was named "Device Manufacturer of the Year" by the Mobile World Congress. Also, its market value surpassed that of Nokia to become the third largest smartphone maker in the world (by market value), behind only Apple and Samsung. When asked about Apple in interviews, Chou acknowledged that despite HTC smartphones' attractive features, they would not attract crowds with "midnight madness" outside Apple stores to lay their hands on the new gadgets. "HTC is HTC," asserted Chou. "I don't care about the iPhone. I don't even look at it."
Apple, on the other hand, took HTC's challenge very seriously. In addition to vigorously competing on the product dimension, Apple sued HTC for 20 counts of patent violations in 2010. This was part of a broader Apple strategy to slow the ascendance of Android phones, which were not only made by HTC but also by Samsung and Motorola. Led by HTC, Android phones rocketed from less than 3% market share in 2009 to 48% in 2011. In addition to HTC, Apple also sued Samsung, Motorola, as well as Google itself. In response, HTC sued Apple for infringing on five of HTC's patents and sought to ban Apple products imported into the United States from manufacturing facilities in Asia.
As HTC's fight with Apple spilled over from product markets to courts, HTC, the clear underdog, claimed that it had sufficient patents to deal with Apple. "Patent lawsuits are normal," Wang answered the media. "Chinese firms have seldom used this strategic weapon. So we are setting an example." Likewise, Chou said, "if HTC can do a good job and set an example in innovation, we can inspire other companies to try the same."
Sources: Based on (1) 21st Century Business Insights , 2011, HTC: Can being itself allow it to surpass Apple? October 1: 58-59; (2) Bloomberg Businessweek , 2010, A former no-name from Taiwan builds a global brand, November 1: 37-38; (3) Bloomberg Businessweek , 2011, Android's dominance is patent pending, August 8: 36-37; (4) Economist , 2009, Upwardly mobile, July 11: 68; (5) Economist , 2011, Android alert, July 23: 64; (6) Interbrand, 2011, Taiwan top 20 global brands 2011, www.brandingtaiwan.com.
What are the lessons that ambitious firms in Asia and other emerging economies can draw when they aspire to upgrade their capabilities, become more innovative, and command more respect as OBMs?
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Global Strategy 3rd Edition by Mike Peng
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