Company Risk Analysis

Boston University - Questrom School of Business - Team G4

Abdul Akula
Anthony Trigoso
Bridget O’Brien
Jacquelyn Holt
Jetro Pergentino
Matthew Storm
 Introduction & Company Context
Founded in 1987 Huawei
Technologies is a global leader in the ● Huawei Generated over $90 Billion (USD) in
information and communication revenue in 20222
technology (ICT) space, and is the ● Not publicly traded, but have an employee-owned
world’s largest Telecommunications structure
equipment manufacturer and second
largest mobile phone manufacturer 1

Located in China Business is

heavily focused in China.

Over 60% of Revenue in 2022, with

recent growth in Europe, Middle
East, and Africa 3

Figure 1: Huawei’s revenue by geographical region.

1“Milestones,” Our Company, Huawei, accessed November 26, 2023.

2 Huawei Investment & Holding, “2022 Annual Report,” 2023, 21.
3 Ibid.
 Company Context Cont.
● Customer Centric philosophy,
Major Competition Includes:
Dedicated to creating value for Cisco, Ericsson, Nokie, Samsung,
our customers by offering and Apple. These competitors offer
innovative technologies at product and services which overlap
affordable prices with Huawei.
● Boston Consulting Group
named Huawei #8 in its 2023
“50 Most Innovative
Companies”4 for the third year Major Partners Include:
after first appearing on the list
in 2012 Intel, Microsoft, Qualcomm,
Broadcom, and ARM Limited

4 Justin Manly et al, “Reaching New Heights in Uncertain Times: Most Innovative Companies 2023” Boston Consulting Group, May 23, 2023.
 Matt
Geopolitical Tensions Risk - Medium Term - External
Details:
Tension: ○ US Banned Huawei from using Google apps or
Operating System with 2019 Executive Memo6
○ US Commerce Department added Huawei to it’s
In 2012, US House of Representative
trade blacklist
issued a 52 page report detailing
concerns that Huawei Technology
could be used for Espionage, due to
their close friendship with the
Chinese Government5
Effects of Sanctions:
Several countries including the US, ○ Phone Sales declined 41.1% Year over
UK, Australia, and 10 European Year in the fourth quart of 20207
countries have restricted or banned ○ Revenue by region declined
the use or sale of Huawei’s
significantly in every region Except
equipment on their 5G networks, due
China
to these National Security concerns.

Figure 2: Huawei Investment & Holding, “2022 & 2028 Annual

Report,” 2023, 21.

5 Jay Greene and Shara Tibken, “Lawmakers to U.S. companies: Don't buy Huawei, ZTE,” CNET, October 8, 2012.
6 Natalie Weinstein, “Google cuts off Huawei phones from future Android updates,” CNET, May 20, 2019.
7 Sean Keane, “Huawei ban timeline: Detained CFO makes deal with US Justice Department,” CNET, September 30, 2021.
 Geopolitical Tensions Risk - Medium Term - External
Refocused Market Share:
● Huawei focused on Revenue
Domestically
● In the 4th Quarter of 2020,
Huawei remained Profitable,
despite Revenue decline by
region, thanks to the
offsetting increase in
Revenue 8
Risk Management Strategies:
Increased Lobbying Spending: Increased Transparency
● Huawei uses political Lobby ● A renewed dedication to
in an attempt to shape compliance transparency
favorable regulations through comprehensive
● In the face of the the 2019 third party audits and
Executive order, Huawei training programs will
increased lobbying spending alleviate eternal concerns
dramatically

$165,000 $2,985,000 $470,000

2018 2019 2020
Lobbying Spending by Year
Figure 3: “Huawei Technologies Lobbying Profile,” OpenSecrets

8 Sean Keane, “Huawei ban timeline: Detained CFO makes deal with US Justice Department,” CNET, September 30, 2021.
9 “Huawei Technologies Lobbying Profile,” OpenSecrets
 Supply Chain Risk - Short-Term - External
○ US sanctions significantly challenged Huawei's supply chain since 2019 and lost
access to critical US components like semiconductors and software. This impacted
roughly 33% of Huawei's US suppliers representing $11 billion in lost revenue.

10 The Economist. Huawei is at the centre of political controversy. The Economist. April 26, 2019.
11 Tan,Joy. Banning Huawei means its U.S. suppliers will lose $11 billion annually. (n.d.). Huawei Technologies USA.
12 Carrara, S., et al. Supply chain analysis and material demand forecast in strategic technologies and sectors in the
EU – A foresight study. JRC Science for Policy Report. European Commission. 2023: 103-107, 166-168.
 Supply Chain Risk - Short-Term - External
Risk Management Strategies:

● Prioritize suppliers ● Scenario-specific ● Increased

with multiple stockpiles maintaining investment in R&D
manufacturing sites, safety stocks during mass after US sanctions;
avoiding dependence production of raw materials, 25% of its annual
on a single supplier or semi finished, and finished revenue by 2022
region to ensure a products. rather than 14% by
secure and continuous 2018.
supply.

Huawei introduced the Intelligent Operation Center (IOC) to leverage automation

technologies and made substantial investments in HiSilicon, dedicated to crafting 5G chips
within China, spending USD 15 billion in 2019 and an additional USD 20 billion in 2020.

13 Juan Pedro Tomás, "Huawei speeds up R&D investments to develop own technology: Report," RCR Wireless News, March 26, 2020.
14 Lening Xiong, "How Huawei Transformed Its Supply Chain In the Digital Era," Huawei, June, 2022.
15 Huawei Investment and Holding. “2022 Annual Report.” 2023: 70-73.
 Cybersecurity Threats (Short Term)

Managing Cybersecurity Risk at Huawei

IAM Legal Operations Financial Brand

Regulations, regulatory Impact on supply chain, Potential fines, revenue loss, Brand impact, customer trust
Identify compliance, contractual product development, service security costs
obligations delivery

Risk of non-compliance, Vulnerability to cyber attacks, Financial loss quantification Public perception and market
Assess Litigation risk by other parties impact on operations (fines, lost business, security share impact
investments)

Compliance programs, Legal Cybersecurity protocols, Budget allocation, Insurance Stakeholder communication,
Manage teams and expertise Regular updates and audits, for cyber risks, Legal costs Incident response
Staff training effectiveness
 Risk of Innovation Lag - Medium-Term - Internal
● Technology industry face distinct obstacles due to its rapid expansion & change.
● Digital transformation is forcing companies to adapt their business models to the new market
● Over $900B of the $1.3T digital transformation investment was wasted, higher failure rate
● No human can anticipate all the effects of an innovation, no matter how obvious they are.

Accelerated Technological Innovation: 16

○ Spike in Digital Transformation & Technologies at an incredible speed. Abdul Akula
○ AI Demand Heats Up Huawei Vs Nvidia in the Chip Dominance Battle.
Gartner - Hype Cycle for Emerging Tech. 19
○ 2024 top predictions reveal that GenAI in every strategic conversation
○ AI market to reach $407B by 2027, grow 37.3% year until 2030, GDP $15.7T

Talent Shortage:17
○ Talent shortage is the biggest obstacle to tech adoption, ahead of cost.
○ Lack of cultural change readiness, leadership alignment, functional silos
○ Koren Ferry Report: skills shortages leave 85 million jobs vacant by 2030
○ Emerging tech adoption is most difficult at 64%, up from 4% in 2020

Demand for Sustainable Technologies: 18

○ Forecasted market growth from $14.3B in 2022 to 19.5% in 2023-2032
○ Sustainability is becoming essential, & expected to gain market share
○ By 2030, the tech industry aims to achieve net-zero emissions
16. Forbes.com, "The Top 5 Technology Challenges In 2023" 18. Deloitte Insights, "Tech Industry’s climate commitment" Figure 4: Gartner.com - Hype Cycle for Artificial Intelligence, 2023
17. HBR Magazine, “Innovation Risk: How to Make Smarter Decisions.” 19. Gartner, “What’s New in AI from the 2003 Gartner Hype Cycle.”
 Risk of Innovation Lag - Medium-Term - Internal
Risk Management Strategies:
● Huawei must be proactive & watch industry trends to anticipate challenges and opportunities
● Digital and AI changes should begin with the problem, not the technology. 20
● Adopt innovative approaches to outperform competitors & thrive into new demanding market
● Strive for an ideal balance between short-term profitability and long-term sustainability.
Abdul Akula
Innovation Strategy: "Innovation = Invention x Commercialization" 21 Digital Talent Management Framework 22

Figure 5: Clayton Christensen’s concept of Sustaining & Disruptive Innovation Figure 6: Gartner - Digital Talent Management Framework

20. McKinsey, "In digital and AI transformations, start with the problem, not the technology" 21. Medium.com, "Innovation = Invention X commercialization”” 22. Gartner, “Digital Talent Management Framework”
 Reputation Risk Medium-Term - Internal &
External
Reputation Scores per
Huawei’s reputation lags compared to its top Reputation Institute RepTrak23
competitors’ Figure 7: Graphic by Team G4
● Less well-regarded
● Less well-known

“Meta Risk”
Multiple potential triggers for reputational 64.4 70.6 73.3
catastrophe include:
● Geopolitical tensions
● Cybersecurity (external breach)
● Privacy/security (internal failures) Worldwide Interest per Google Trends24
Figure 8: Graphic by Team G4
● Labor grievances

Not all potential triggers can/should be

eliminated. Management strategies must focus
on proactive relationship building and
preparedness for crisis communication if/when
necessary.

23. Reputation Institute, "Why Apple (and Samsung) Should Be Worried About Huawei”
24. "Huawei, Samsung, Apple," Explore - Google Trends, Google.
 Reputation Risk Medium-Term - Internal &
External
Risk Management Strategies:

A Framework for Managing Reputational Risk25

Figure 9: Graphic by Team G4 based on Harvard Business Review design26

Determinants of Reputation- Changing beliefs Weak internal Strategies:

reputational risk
Ways to manage
reputational risk
reality gap
Objectively assess
reputation versus
reality
Examine the gap between
the company's reputation
and actual performance;
make necessary
improvements.
and expectations
Assess and accept
impact of changing
expectations
Know that stakeholders’
changing expectations
will affect reputation even
if they seem
unreasonable at the time.
coordination
● Manage stakeholder
Explicitly focus on expectations
reputational risk
Recognize that this is a
distinct kind of risk and
● Solicit stakeholder input
manage it in a proactive
and coordinated manner.
Assign one person the
● Proactive messaging
task of managing
reputational risk.
● Prepare crisis
communications

Strong and reliable reputation

25. Robert G. Eccles, Scott C. Newquist, and Roland Schatz, "Reputation and Its Risks," Harvard Business Review, February 2007.
26. Ibid.
 Foreign Exchange Risk - Medium-Term
`` - External
CNY to USD (5 Years history)27

What is it ?
Foreign exchange risk is the chance
that a company will lose money on
international trade because of
currency fluctuations. It describes the
possibility that an investment’s or
liability increase or decrease due to
changes in the relative value of the
involved currencies.

Cryptocurrency Global Inflation/

De-dollarisation
Blockchain technology and
Sanctions and Global tensions have Government Debt
cryptocurrency transactions are China's average annual inflation
triggered BRICs nations to initiate talks
automated, digitized, and tracked rate was about 1.9% in 2022, same
on the need of an alternative trading
on a ledger that can never be year China recorded a Government
currency to the US Dollar.
manipulated by people, companies, debt to GDP of 77.10% of its GDP. 28
or governments.
27. Google Finance,CNY/USD Currency Exchange Rate & News.”" 28. China Government Debt to GDP, Trading Economics
 Foreign Exchange Risk - Medium-Term - External

Impacts:
Learn from others
Debt Increase
Huawei had total borrowings of Vicentin, once a major company in
USD 26.5 billion being 71% unsecured. In this Argentina was burnt by external
Industry, it’s common for companies, such as samsung,
debt and currency fluctuation. In
to have an average of 10 times of cash on hands
versus debt ratio29 2019.collapsed without prior
warning and shut down its
Higher Cost of Imported Goods Huawei Debt Chart by operations, due to debt of $350
China imported more than $300 billion
currency 31 million to local farmers and grain
worth of computer chips in 201830
traders, who stopped supplying
Impact on Budgeting/Operations raw materials and forced a halt to
Currency fluctuations changes the cost of international suppliers operations
and make final product less attractive for overseas customers
Hedging Currency Risk
Losses on Foreign Investment Forward Contracts
Key international acquisitions, such as 3Leaf Systems are
negotiated in foreign currencies Currency Diversification
Currency Hedge Funds
Buying option contracts
29. Google Finance,CNY/USD Currency Exchange Rate & News.”" 30. China to Import $300 Billion of Chips for Third Straight Year, Reuters”” 31. Huawei Investment & Holding, “2022 Annual Report,” 2023, 21.
 Conclusion

Huawei seeks to expand digital connectivity globally, fostering a fully connected and
intelligent world. The company faces challenges like geopolitical tensions impacting global
operations, supply chain disruptions due to international events, technological dependence,
cybersecurity threats, reputation management issues, and foreign exchange challenges.

These interconnected risks demand a comprehensive strategy for identification, assessment,

and management. To navigate these challenges successfully, Huawei must prioritize
diversification, implement robust security measures, transparent communication, hedge its
financials risks ensuring resilience in the dynamic global landscape.
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