Trends and Growth in Cell Phone Usage - Essay Example

? Feasibility study of cell-phone store in Riyadh, KSA Contents Contents 2 Introduction 3 Riyadh Business Overview 4 Mobile phone Business in Riyadh 4 Trends and Growth in Cell Phone Usage hence Growth Opportunities in Riyadh 4 Market Size 6 Extent of Competition 7 Life Cycle Stage 8 Political Environment 8 Economic Environment 10 Finance and financial Environment 11 Liquidity Ratios 11 Asset Management Ratios 11 Debt Management Ratios 12 Technological Environment 12 Technology and Innovation 14 Product Characteristics 14 Camera cell phones: 15 Application should be Downloadable 16 Legal Environment 17 Conclusion 17 Bibliography 19 Introduction For the last three decades, the citizens of Saudi Arabia have been empowered in terms of effective communication, owing to the introduction of mobile phones. The introduction of cell phones in Saudi Arabia in the year 1997 not only enabled Saudi nationals to communicate in an improved manner with each other, but it also created a lucrative business opportunity for small to medium enterprises. One such small enterprise that embraced this opportunity is KSA, a cell phone store, which operates in Saudi Arabia’s capital city, Riyadh. The cell phone store has continued to grow over the years, with rates almost equivalent to cell phones’ evolution. However, this enterprise is not exempt from external pressures, which affect virtually all business in Riyadh, among other places in Saudi Arabia. These external influences constitute the Saudi Arabian business environment, and they include aspects such as political, economic, social, technological, environmental, and legal considerations. In technical business terms these business environment elements make up a model referred to as PESTEL framework. With the remarkable evolution of cell phones in Saudi Arabia, KSA has to evolve in a similar trend, in order to conform to the surrounding environment and adapt to the ever changing business trends. Critically evaluating its external environment and taking proper measures to exploit available opportunities while overcoming challenges encountered; will enable KSA to benefit extensively from the constantly growing demand for up-to-date mobile phones. Additionally, strategies made after extensively considering external business factors, will enable KSA to extend its operations beyond Riyadh, to rural townships that do not have direct access to stores where they can purchase trendy mobile phones (Latham and Watkins, 2010, p.6). Riyadh Business Overview It is important to make note of the fact that use of mobile phones, not only in Riyadh, Saudi Arabia, but also in the entire world has grown tremendously. Cellular phones are currently considered to be a crucial part of people’s social, as well as, business lives. Being an integral part of a person’s life implies that people have to buy phones thus guaranteeing constant business opportunities for establishments like KSA. For specificity, however, it is noteworthy to mention that, Saudi Arabia is currently ranked number one in terms of market size and fast growth, in the Middle East region. This ranking particularly focuses on the Kingdom’s demand for electronics and since Riyadh, is the Kingdom’s Capital city; businesses here are bound to benefit from this remarkable growth. Additionally Riyadh provides diverse opportunities in virtually every chief economic sector, thus offering individuals a suitable platform to benefit from Saudi Arabia’s strong economy which gains significantly from religious tourism and oil investments. Riyadh has excellent infrastructure, and since the Kingdom’s economy is largely diversified through sale of processed foodstuffs, petroleum products, and diversified agricultural practices; the city is undoubtedly a hub for foreign investors thus creating additional development opportunities for the small businesses. Further, Riyadh hosts numerous international business expos and shows, providing the small businesses with an opportunity to showcase their products, hence increasing chances for small enterprises to mature and reap the benefits of the stable and growing economy (Latham and Watkins, 2010, pp.10-14). Mobile phone Business in Riyadh Trends and Growth in Cell Phone Usage hence Growth Opportunities in Riyadh In Saudi Arabia, and especially Riyadh, individuals have depicted great potential in adopting new mobile phone technologies. This is evident from the large scale adoption of emerging cell phones over the past decade and a half. In cities like Riyadh, users’ adoption of phones with innovative technologies is not a problem, on condition that they can afford the phones. In reality, the affluent life style of the Saudi people, particularly the rich in Riyadh, compels them to purchase the latest and most expensive phones, not just for the purpose of communicating, but to enhance one’s social image, as well. Further, individuals concerned about their social status may even go to the extent of purchasing more than one phone, since unique phone numbers are a sign of affluence. These aspects provide a profitable operation environment for cell phone stores like KSA (Latham and Watkins, 2010, pp. 48). A recent survey carried out by United Nations Conference on Trade and development (UNCTAD) showed that Saudi Arabia is ranked first globally, among nations that have the largest number of cell phone users. This was made evident by the cumulative high percentage of 188%. The percentage, acquired over a period of 6 years, from 2005 to 2010, showed that Saudi Arabia is the Middle East leader in terms of adopting mobile phones. This remarkable growth is attributable to a wide array of factors. For instance, the country’s diversified economy is relatively stable and showing positive growth, meaning that individuals have attained a high purchasing capacity. Additionally, there is a high and increasing presence of foreign laborers in the country, who continually communicate with their friends, families and employers in their native countries. The high potential for growth in mobile phone usage is also as a result of the increasing use of cellular phones among children ranging in age from 9years to early teenage. This is a trend propelled by increased use of internet among these kids. The trend boosts sales of mobile phones in Riyadh, since virtually every youngster wants to be considered trendy by his or her peers and all want to actively engage in social networking, school research work and online social gaming, among other stylish activities. For these reasons, KSA and other cell phone stores in Riyadh must strive to avail the desired phone models in the market. Such stores also have to ensure that they provide the required mobile phone applications. For instance, they have to change phones that only supported 2G networks and instead start selling 3G and 4G Smartphones, as well as, computer devices like computer tablets, among other peripherals. This transformation would serve to ensure that KSA keeps paces with the most recent cellular phones and computer gadgets thus effectively meeting customers’ demands, retaining its market niche and upholding competitive advantage over rival cell phone stores. Market Size Besides the internet sector, the mobile phone industry is evidently one of Saudi Arabia’s fastest growing industries. Mobile phones have undergone significant changes in the Kingdom, with their use increasing threefold, over the six-year duration between the year 2005 and 2010. Additionally, the country’s mobile phone market is expanding rapidly owing to the constant emergence of new technologies and creative ideas incorporated in contemporary cellular phones, as well as, computer gadgets. Unlike in the traditional Saudi Arabian setting, where individuals were too cautious to adopt societal changes, Saudis in the contemporary environment have diversified culturally. This implies that more individuals are willing to accept and utilize new technologies. Research has shown that Saudi nationals, especially in urban areas like Riyadh readily utilize cellular phones, not only to catch up with friends and family, but also to surf web content, to download programs and applications, particularly games and business supporting software. Additionally, cell phones are considered to be a necessity, as shown by parents’ willingness to purchase them for their kids, in case of emergencies. For all these reasons, the market size for phones, which is available to KSA and other phone and smart devices stores, has increased significantly (Latham and Watkins, 2010, pp. 20-28). Extent of Competition As shown in the discussion above, the mobile phone sector in Saudi Arabia, and particularly Riyadh, has grown extensively over the past decade; a trend that can be attributed to an increase in phone affordability, reduced mobile service expenses and increased internet popularity. For these reasons, mobile phone stores in the city are constantly competing with each other, in order to gain the largest number of customers. This market is highly competitive since the stores offer customers similar services and products and services. The only differentiating factors, on which KSA can compete, therefore, are service quality, product cost and diversity of phone of smart gadgets. These attributes can attract customers who want unique products, that meet their money’s worth and those that appreciate courteous treatment, as opposed to basic customer requirements. The principal factors forming the basis for competition include: Cost of the mobile phone: Buyers usually demand highly quality products and services at the lowest cost possible. Diverse mobile phone features or specifications available in one phone or smart gadget: For instance, customers would settle for a phone that has text messaging services, one that is internet enabled, has Bluetooth, camera, as well as, audio and video supporting features Advanced technology: For instance, improved internet access speed. Principal competitors for KSA in Riyadh include: Abu Ahmed Communication Store and Air Corner Telecom Equipment. Life Cycle Stage A mobile phone industry is considered to be mature in the event that, every potential customer in the market has the industry product, that is, a phone or a smart device. This is a crucial determinant of a mobile store’s continued growth and profitability, since the mobile phone industry’s advancement depends wholly on its capacity to lure more customers. In Riyadh’s case, it is safe to say that the industry is not mature yet, since not every citizen owns a phone, and especially not the children who are below the age of nine. This means that, if KSA continually increases and improves its mobile phones, as well as, services, then it will still have the capacity to draw additional prospective customers. The popular cell phone company can achieve this through: Offering quality services: this can include increasing mobile phone affordability, and serving customers in a friendly and courteous manner thus attracting additional buyers. Providing phones with innovative designs: newly styled phone models and additional specs not only improve the phones’ physical style, but their functionality as well, thus drawing new buyers. Political Environment A business’ political environment comprises of policy or politics elements and the manner in which these aspects affect a venture’s operation. This sphere of business environment is crucial in enabling an entrepreneur or company as a whole, to comprehend business laws or guidelines, which constitute results of a political process. This implies that, the political environment is a fundamental or core concern for business managers. There are certain strategies that firms utilize, in order to operate effectively under a given political setting. For instance majority of business enterprises opt to adopt the proactive model, whereby the enterprise actively engages in industry improvement, and avoids political or government interventions, by strictly adhering to stipulated business guidelines. Relatively small businesses like KSA are not exempt from the influence of administrative or government controls. For instance, prior to commencing its operations, the mobile phone store had to obtain an operation license, which enabled it to conduct its business as a supplier of cellular phones. At the same time, the business contributes to the city’s finances hence its advancement, by diligently paying taxes. These practices serve as a clear indicator that the mobile phone business’ operations are affected by political elements to a large extent (Latham and Watkins, 2010, p.52). The other crucial consideration is the political climate in terms of peace and stability. Other than the occasional insurgence of radical groups, Saudi Arabia’s political environment is highly stable and friendly. Riyadh is a metropolitan city, comprising of individuals from all cultural, national, ethnic, as well as, religious background. Therefore, there is a guarantee of cohesion and stability, making the city a suitable operation environment for businesses like KSA. All the same, the cell phone store has to account for prospective changes in political decisions and legislation, while formulating its marketing and sales strategies. This is because; even if changes occur in future, it will be the business’ responsibility to formulate relevant solutions and the not the new political regime. For instance, in the current political environment, the mobile phone store is allowed to provide all phone models, incorporating every available application and feature. This is because; the prevailing government fosters liberalism of business ventures. If hypothetically, the political regime was replaced by a more conservative one, the liberal operation of the business may be limited. This would further translate to restriction of certain programs or applications deemed inappropriate for a conservative society. The business would, therefore, have to adjust to such a situation and still strive to make profits and effectively meet the customers’ requirements. Overall, as long as the business conforms to guidelines set by the political system, such as timely payment of taxes; keeping business surroundings safe, as per health sectors regulations; observing city council regulations and regularly renewing operating license, then it would succeed and sustain performance over a long duration of time (Latham and Watkins, 2010, pp. 65). Economic Environment The economic environment is dependent on a certain countries economy. In case a country is poor the mobile phone business cannot start up very well to become a sustainable entity in the mobile phone business entity. In this Riyadh is the capital city of Saudi Arabia and with the strong and improved economy being experienced in the country the business is safe in terms of the economic venture. This is because customers will have strong buying power and will be able to buy the phone. This means that the country’s economic environment is dynamic, and it needs to constantly get monitored as well as adapted in the business marketing strategies that are going to be applied in the mobile business. The business also needs to continually monitor the economic environment at both the local and country wide level. This is because there are some government policies that can be unrealistic for a small business. This means that they might end up spending more than they could use in starting up and maintaining the business. Economic aspects can be looked at as a source of opportunities as well as threats for the mobile business. Therefore, the business should carefully monitor and comprehend the economic environment. This will enable them in management, in order to better position the business in terms of reducing any available threats to the business (Valdez and Wood, 2003, pp. 59-63). The changes in the world economy are another factor that is very crucial to the mobile phone business. This is particularly because the phone industry is very dynamic. Therefore, it is imperative for the management to comprehend the domestic economic changes that are available as well as those that can affect the country in diverse ways especially in the marketing sector. Finance and financial Environment The finance and financial environment basically deals with the fundamental ratios and financial statements that determine the revenue or the breakeven point of a business. Some of these ratios are covered herein. Liquidity Ratios Liquidity ratios help to determine whether a firm has the capacity to repay borrowed loans when payments are due. This further examines the credibility of a company and, consequently, its capability to build investors’ confidence. Analysis of a firm’s liquidity entails comparison of its current assets to current liabilities. Asset Management Ratios Asset management ratios assist in computing the effectiveness of a company in managing its assets. These ratios assist companies in acquisition of capital from banks and other sources. Companies should ensure that there is a balance in the number of assets, in that it should neither be too low nor too high. Debt Management Ratios Debt management ratios are used in determining a firm’s potential benefit and the risks that are related to debts. These ratios assist the company to know how to pay debts and learn how the firm should avoid risks by financing its operations by equity. Financial ratio Estimates for Saudi Arabia in comparison to the industry Formula Computations 2013 Industry Liquidity Ratios (LR) CR CA/CL [44,988/27,970 1.60 1.6 QR [CA-inventories ]/CL ([44,988-776]/27,970) 1.58 1.5 Asset Management Ratios (AMR) DSO Receivables/[sales/365/ 5369/296.5726 18.10 16 IT Sales/Inventories 64431/776 83.03 81 FAT Sales/F. assets 108,249/71383 1.52 1.3 Total Asset Turnover Sales/T. Assets 108,249/116,371 0.93 1.1 Debt Management Ratio (DMR) DeR T. debts/T. Assets 39756/116,371 0.342 0.03 TIE EBIT/Interest charges 34,205/8,283 4.19 3.0 Profitability Ratios OPM EBIT/sales 34,205/108,249 31.60% 35% NPM N. Income/Sales 25,922/108,249 23.95% 9% ROA N. Income/T. Assets 25,922/116,371 22.28% 29% ROE N. Income/Equity 25,922/76,615 33.83% 44% BEP EBIT/Assets 34,205/116,371 29.39% 25% Market Value Ratios Price/Earnings Ratio Share Price/Share Earnings 636.34/42.54 14.96 14.5 M/B Market price/Book price 636.34/119.22 5.33 5.19 Note: The industry ratio is meant for 5-Yr average. Technological Environment Technology is a principal environmental that influence the phone business. This is because of the diverse changes and development that is being experienced in the technology world today. Technology is not only affecting the prices of the phones, but it is also affecting the consumers’ lifestyle, as well as, consumption patterns. The business management is supposed to be very keen on the impact of technology modifications. As stated by Valdez and Wood (2003, pp. 86-90), the impact of new technology is particularly seen in the phone industry. This is because the mobile has introduced numerous applications that make work easier, for customers. Therefore, every person is interested in a mobile phone that will not only call and send short messages, but also browse the internet. Technology has a big impact on development of the phones. Some of the aspects that are being experience in the mobile business today have been cause by the numerous changes to the original phone that was initially used for communicating. This is because of the presence of like the applications digital cameras which have all come to extensive use in the past few years. The technological rate in the mobile industry is increasing drastically. The mobile phone business is also playing a crucial role in the technology advancement. This is because they are supposed to ask themselves the kind of phones that will be in demand in the market in the present and also in the next ten to twenty years. Therefore the management is supposed to anticipate technological impacts and changes not only in the business but also in the macro-environment factors. There will be continuous change in technology in the mobile phone technology. This is because massive mobile applications are being introduced every day. In the past, people were comfortable calling and texting. However, as technology is developing, it is possible to transfer information form one mobile gadget to the other which was impossible in the past. In addition, many people are using their phones in accessing social media. This is why; the company should consider selling phones which support the internet as well as the social applications (Latham and Watkins, 2010, pp.30-51). Therefore, it is good to consider mobile phones that have recent technologies and innovations. Technology and Innovation These are two factors that improve each and every year especially in the mobile phone industry which is extremely competitive. Cell phone organizations that make and design evolutionary upgrades are making the market more competitive compared to the past years. For instance, Samsung is one of the mobile phone companies that produce mobile phones. The new release of Samsung S4 has made the business change extensively especially in Riyadh. Therefore, the business in Riyadh should consider buying phones with the new technology. Some of the recent technologies and innovations on cell phones are discussed herein. Unlicensed Mobile Access (UMA) This is a mobile phone application that is extremely helpful to people with high-speed Wi-Fi routers in overcoming poor reception coverage. This is a mobile phone application that is very important for a person whose houses or apartments experience problems with reception. Mobile phone tour guide Applications The purchase is provided with a guide of interesting or important places that one need to see. This technology is supposed to be extra vivid, as well as, than using maps and books in finding places or for live tours. The technology saves a lot of time and money. iTunes Application This is basically an application that assists people to have access to different songs when the shuffle is inbuilt. Product Characteristics In the mobile phone business, it is imperative to ensure that the products are highly standardized. The products got differentiated in the past in the cell phones and also in the services. In the present world, technology is more enhanced in order to differentiate the products that seem similar but from different companies. Therefore, the mobile phone business should embark in making sure that they have the recent mobile phones which customers can choose from. This will assist them to reach a vast customer base because and they will be able to make more revenues in the competitive market. With the different phone models, they will be able to choose the phones of their choice and also fare prices. Some of the characters observed by consumers in Riyadh are discussed herein. Camera cell phones: This is one of the characteristic that is considered by many customers when choosing a mobile phone to purchase. The phones that have the ability to take images, video as well as photos or still images are considered by 40% consumers in Riyadh (Latham and Watkins, 2010, p. 63). However, many people have discovered that there is more to the camera than just capturing of images. For instance many people have the knowledge that such cameras should have higher and better resolutions. Therefore, customers are attracted towards acquisition of such mobile phone thus the management should ensure that they have stock phones that have different resolution factors. The business should have numerous models of camera phones because customers are getting attracted to the convenience of being with an imaging gadget all the time. As technology is advancing and especially with the introduction of 3G the phones that people 3G activated. This way they can be able to take photos and share them on the web using their mobile phones instead of using another gadget like a computer. Therefore, the business should consider stocking more phones that have a camera and 3G network. 3G network introduction accelerated the massive adoption of camera phones in Riyadh (Latham and Watkins, 2010, pp. 78-80). Many people prefer to use such phone in order to save time and money of buying a separate camera as well as posting and sharing their images. With the 3G network, they are able to share their photos with friends and also have better resolution in the images taken. Therefore the mobile phone business should embark on having multimedia phones because people are more interested in such applications in order to keep in touch with their families easily. Some of the characteristics in the 3G network on mobile phones are: The 3G network is able to transmit at 380 K bps There is improvement on the image megapixel Phone have bigger and better storage capacities With the aspects, it means that people will be able to have better pictures, storage and also sound which are factors that are being considered by the Riyadh customers and also all over the world. This is because consumers will not have to money to acquire a camera because it is part of the phone. These are factors that the company should be considering because it is appropriate to have a variety of mobile phones that will fit all customers. Nevertheless, there are disadvantages that are experience in Camera phones. For instance, people like sending messages of their pictures to others especially family and these photos are usually not quality. Therefore, the management should also embark in stocking mobile phones that have better image resolutions and that can be transferred without changing the image quality. Application should be Downloadable Recently mobile phones have been programmed in a way that they can download applications. This is god for young people who have the passion of owning mobile phones that have different applications especially the ones that would enable them to better browse the internet. Additionally, there are game applications that can be downloaded and installed in the phones. This way, people ate able to even ply such games online with their friend. These kinds of phones are expensive but they are also good for people who are willing have better applications available to them. Additionally, these applications should be high speed and not change another application I the phones. These are some of the mobile phones that should be stocked in the stores in order to have a variety for young people. Legal Environment Since it is a small cell phone store, it falls under the individual company category of legal Saudi Arabian business organization. Supporting SMEs is one of the principal aspects in the government policy. However there are legal issues that are established in Saudi Arabia in order to deter people from indulging in illegal business ventures. Additionally, the country maintains the traditional liberal open market for open enterprise policies. This means that there are no restrictions on foreign exchange. Therefore, for a mobile phone shop, there are diverse legal standards that should be maintained. For instance, the company should make sure that it has acquired some of the imperative licenses from the government. Additionally, there are rules and regulations provided by the government that should be followed. It is important for the company to establish regulation that assist in protecting confidential commercial data. Conclusion Riyadh is a place that is stable economically and politically. Therefore for a mobile phone business, it can flourish within a very short period of time which will enable them to have god market for their goods. Recently, mobile phones have become a necessity to people especially I Riyadh. It is not like the past the mobile phone was associated with status. Therefore, the store should stock diverse mobile phone models and make sure that they have types that customers can choose from. Additionally, increase in technology is another aspect that is very imperative in mobile phone business. This is why; the store should also consider the new technologies that are common to customers in Riyadh (Latham and Watkins, 2010, p. 89). For instance, many people in this region are Muslims; therefore, the mobile phones being stocked should also have the Koran as one of the mobile applications. This shows that the business management is valuing their customer’s culture which is extremely important for such a business. The business management should also ensure that they cater for the prices of the phones but also sell quality products. With Riyadh’s external environment being stable for mobile phone business, it means that people will have the capability to purchase the phones. Bibliography Valdez, S., and Wood, J. 2003. Introduction to global financial market, Palgrave Macmillan, New York Latham and Watkins. 2010. Doing Business in Saudi Arabia. [Online]. Available at < http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/SAU.pdf> [Accessed 29 April 2013] Read More