Essay Sample on Case Analysis of Risk, Uncertainty, and Managing Incentives

Huawei Technologies Co. Ltd is one of the leading companies providing information and communications technology (ICT) infrastructure and communication gadgets in the world. The company was established in 1987. Approximately 194,000 employees are working for the company (Ni, 2018). The company mainly operates in nearly 170 countries. According to the 2019 company report, the company serves approximately three billion worldwide (Ni, 2018). The company has been actively involved in technological research to create products that best serve its clients. However, the company faces various risks and uncertainties.

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Huawei's Recent Actions Dealing with Risk and Uncertainty

Huawei has been pursuing one of its most significant moves in history to develop advanced devices and infrastructure that will make it the first telecommunication company to launch a 5G network device. Global cybersecurity experts have hurled critics over this move stating that the process will result in serious security risks. According to intelligence agencies, Huawei Company has poor cybersecurity standards that make users vulnerable to data privacy issues and cyberattacks (Feng, He, Zhu, & Amin, 2017). Political leaders seem to be concerned about the action of the company to transfer users' data to China thus participating in significant data breaches. A significant concern about cybersecurity is China's administration, which compels organizations to render their support to the Chinese Communist Party (CCP) (Mu, 2017).

The numerous criticisms from global parties and political leaders have had negative impacts on the company. There was a healthy business relationship between the company and Google. However, Google had to cancel its Android license with the company. The Android license was an essential component for Huawei as the operating system enabled the performance of most of the global devices. After the company was blacklisted and Google withdrew the android license, the company had to act quickly by developing its operating system known as the Harmony. The operating system will help the company and its users to still access services from the Play Store, which were affected after the ban.

Improving Risk Management.

The technological environment is the most fluid environment changing every minute. The changes in the technical spectrum will bring about considerable uncertainty to the world's economics and transaction models. Huawei is currently investing heavily in research into advanced technological models in these uncertain moments to ensure that its goals and objectives remain intact within the technological waves (Feng, He, Zhu, & Amin, 2017). The company is working around the clock to ensure that it improves as well as maintains its market strength and competitive market advantage.

Geopolitical risks tend to be one of the biggest problems facing Huawei. The company has to make significant adjustments in its numerous operating regions to deal with the ever-revolving uncertainty in the technological environment. There is a potential for the company to face additional risks both within and outside the company.

The legal environment has been among the risks facing Huawei. The company recently faced numerous challenges concerning breach of business ethics. The US government accused the company of interfering with its sanctions on Arab countries by sharing critical information with those countries (Zhang, 2019). Nonetheless, there is a lot of uncertainty in the different countries in terms of the ability of the company to observe and adhere to the local laws and regulations. However, the company, in its mission and vision statement states that adherence to the laws booth locally and internationally is its core value in global operations.

Adverse Selection Problem and Ways to Minimize its Negative Impact on Transactions

Huawei, for a long time, was depending on a foreign company to power one of its essential components, the operating system. Depending on an international company or instead, an independent organization is one of the wrong business decisions that companies make. It was evident right from the beginning that any trade skirmishes between the United States and China would adversely affect the company (Luong, 2019). The ongoing trade war and political atmosphere between the two countries is the reason behind the risk facing Huawei. Therefore, the company should implement plans that will reduce overdependence on foreign companies.

Its employees, particularly the Chinese, privately own Huawei. The company is a multinational company serving various countries across the globe. It would be wise for the company to incorporate other countries into ownership to create a competitive market environment. People associate with what is close to them in terms of land or geographical location. Nevertheless, the company would not suffer the significant ban blow if American citizens had partly owned it.

The Moral Hazard Problem in Huawei

The moral hazard problem refers to the circumstances, especially in business transactions where a party signs a risky agreement with another party anticipating that the later would cover the cost implications of the risk when it occurs (Chade & Swinkels, 2016). Moral hazards become essential when parties involved in the trade agreement do not have full information about the business environment. In the case of Huawei, the concept takes two angles. First, the company operates in different countries with different business environments. Therefore, the company applies the idea of moral hazards to both its customers as well as the governmental institutions in those countries. The ban facing Huawei arises from the risky business environment between the company and Google. The whole issue surrounding the ban indicates that Huawei did not take necessary precautions on the moral hazard.

Principal-agent Problem and Tools for Aligning Incentives and Improve Profitability

The significant problem facing the company at the moment is setting up an efficient infrastructure that will assist in their move to install their operating system. The company is also facing a lot of adverse reactions based on the accusation of personal data breaches in the company. Therefore, there is a need for the company to focus on building customer relations to salvage its tinted image. The company should focus more on creating awareness among its customers on the moves and actions it has taken to respond to the issues of cybersecurity and data breaches. Instead of focusing on developing new devices, the company needs to concentrate on winning global trust back.

Huawei's Organizational Structure and How to Improve the Overall Profitability

The Board of Directors (BOD) runs the company and acts in good faith on behalf of the shareholders. The company allows its employees to be actively involved in running the company by offering shares. The BOD is assisted by an executive committee to help in the management and decision-making in the company (Zhang, 2019). Most of the top management of the company are Chinese citizens. Since the company is a multinational company, it would be necessary for the company to extend its administration to other countries. The move to include foreign countries in the organizational structure of the company is vital to improve the overall profitability of the company. The international management in the organizational structure acts as brand ambassadors in their countries. They are also in a better position to advise the company on various issues that will help in planning and decision-making, thus improving the overall profitability of the company.

References

Chade, H., & Swinkels, J. (2016). The no-upward-crossing condition and the moral hazard problem. Arizona State University Working Paper.

Feng, Z., He, R., Zhu, W., & Amin, F. (2017). Supply Side Risks Assessment of the Supply Chain: A case study of the Supply Side Risks Assessment in HUAWEI's Supply Chain.

Luong, N. (2019). Huawei's strategic efficiency.

Mu, S. (2017). The dynamics study of technological innovation and organizational structure: with the case of Huawei.

Ni, Y. (2018). Analysis of Huawei's Global Supply Chain. In 2018 International Conference on Sports, Arts, Education, and Management Engineering (SAEME 2018). Atlantis Press.

Zhang, A. H. (2019). The US-China Trade Negotiation: A Contract Theory Perspective. Available at SSRN 3462241.