Analysis of Mobile Industry - Assignment Example

Running Head: MOBILE INDUSTRY Analysis of Mobile Industry Name Institution Date Table of Contents 1. Introduction................................................................................................................................................................. 4   2. Industry Analysis   2.1 Macro-Environmental analysis   PESTLE Analysis ……………………………………………………………………………………………………… 4   2.2. Micro-Environmental Analysis   a. Five Forces Analysis................................................................................................................................................... 7   b. Main Opportunities and Threats .................................................................................................................................. 9   3. Analysis of Strategic Capabilities   3.1. Value Chain Analysis................................................................................................................................................10   3.2. Benchmarking ..........................................................................................................................................................10   3.3. Main Strengths and Weaknesses ............................................................................................................................. 11   4. Market segmentation …………………………………………………………………………………………….. .. 11   5. Challenges in Strategic Change ……………………………………………………………………………………. 12  6. Conclusion................................................................................................................................................................ 12   7. References ................................................................................................................................................................ 14     8. Appendices  A. Distribution of subscribers ………………………………………………….………..…………………………... 16    B. Worldwide Mobile Sales........................................................................................................................................... 17   C Five Forces Analysis................................................................................................................................................... 18       Analysis of Mobile Industry 1. Introduction The mobile industry is among the fastest growing in the world. It is amongst the most fast changing (Cyganski, Orr & Vaz, 2000). With the growth, there is therefore exposure to more risk hence need for careful management in order to make the achieved development sustainable. Issues arising include the possible inability of consumers to adopt new products, the large quantity of resources needed for investment in networks and unpredictable legislation. As the industry develops, it is likely to experience even greater development. There is rapid improvement in the services offered and a growing demand from new markets (Cadle & Yeates, 2007). As at 2007, O2 had a total of 17.9 million subscribers. Vodafone had 17.647 million, as at June 2007 while T-Mobile had 17 million, orange 15.4 million and 3 had about 3.75 million. The manufacturing sub sector is on its part dominated by five companies, Nokia, LG, Samsung, Sony Ericsson and Motorola (Plunkett, 2009). 2. Industrial Analysis 2.1. Macro-environmental Analysis PESTLE Analysis Political The communications act of 2003 is the main policy framework governing mobile industry operations. Within this, there is the use of competition law rather than sectoral regulatory powers. It promotes enough competition to ensure maximum outcome for consumers. In addition to the internal regulations, there is the influence of the European Union. The industry faces the challenge of adapting all practices to the shared vision of the Union hence politics. At the national level, the political establishment is highly supportive, recognizing that it employs many people and should therefore be protected. At the Union, there is emphasis on legislation that harmonizes all legislation and creates standards to be upheld. There have also been apprehensions concerning the safety of mobile devices and the possibility of them giving off dangerous radiation. Anti- mobile technology activists claim that the sources of information on the safety of mobile gadgets are unreliable as they originate from the manufacturers (Baskoy, 2008). Economic There are frequent fluctuations in the economy. This impacts on the industry as it affects aspects of its operation such as foreign exchange and the public’s purchasing power. Just like any industry, economic problems have an effect on the firms’ profitability, especially in relation to international trade in inputs, gadgets and services (Cyganski et al., 2000). Social The concept of mobile internet has a significant effect on the industry. With more people accessing the net from their handsets, production and service provision has ended up requiring that the phones be enabled with value added services that will make the provision of the services possible (Senn, 2003). Technological The rate of technological growth has generally been quite high. There has been the adoption of new methods in manufacturing and service deliverance, resulting into greater competence. This has resulted in lowered operational costs, leading to cheaper prices for consumers. There is stiff competition between firms especially in the provision of value-added services, especially internet. The changes have led to the call for continuous training as well as development in so as to catch up. New ideas in management have also been embraced. There exits greater emphasis on value and customer satisfaction as a result (Gershon, 2008). Legal Government policies seek to avail competitive mobile services to the consumer. It encourages competition and dynamism in the industry. There is the protection of citizens against exploitation by businesses. In general, the legal environment is such that the consumer and mobile providers’ interests are protected. There is the placement of high value on the acceptability of aspects for instance promotion of competition within concerned markets, the promotion and facilitation of self-regulation, encouragement of innovation and investment within the markets and encouragement of the use and availability of high speed data transfer across the UK (Baskoy, 2008). 2.2. Micro-Environmental Analysis a. Five Forces Analysis Barriers to Entry The possible barriers include legal ones (Khan, 2006). These are set by the government. They exist due to varied reasons. For example, there exists the need to protect local industry. In the UK, there is however no barrier. Any company is free to enter the market provided it meets the general conditions for registering a company. There is however the domination of the industry by four main providers and five manufacturers, within a competitive framework created by government. In addition, there is the natural barrier that occurs due to the expensive nature of mobile operations. A lot of capital is required for instance in the development of a network, making it difficult for very small firms to enter the market (Madsen & Brownstein, 2007). The Threat of Substitutes Substitute as used here refers to how the service provided to a company’s target market may be used as an alternative of the specific service to attain the same end and satisfaction to the target market (quickmba.com, 2007). In case there are not many potential suppliers within the market, the problem is intensified further. In this case, a mobile phone may be substituted by for instance e-mail, landline phone or snail mail (Pride & Ferrel, 2007). Supplier Power Suppliers in several industries are potential threats, because in the absence of adequate supplies, services or items may be impossible to deliver. This is also the case in the mobile industry, whichever the context. First, a service provider that does not offer SIM cards is not able to offer its services to the targeted customers. The presence of the mobile phone handset is also arguably a necessity in case the customer is to get the service or communicate in general (Kotler & Armstrong, 2007). Buyer Power This raises a number of issues. There is the need to ensure that the level of information possessed by consumers is up to date. Price sensitivity and brand loyalty are also important issues. In the mobile industry, buyers are generally highly price sensitive. Service providers and manufacturers thus need to consistently adjust their prices. In case this is not done, there is likely to be the risk of being uncompetitive. Buyers can therefore be a threat to service providers or manufacturers due to the risk of leaving in case of failure of the company to give attractive prices (Green, 2001). Threat of Rivalry Among the factors that may affect organizational performance is the presence of competitors. Issues here include the number of competitors, their size, strength and philosophies or strategies. There are several providers because the market is open to competition. In the earlier days of the industry, competition between the main firms was rough. There was emphasis on the acquisition of new contractors. At the moment, there are many such contractors hence a need to persuade consumers of the superiority of their services or gadgets (Williamson et al., 2003). b. Main Opportunities and Threats The onset and development of the information age is a source of opportunity for the industry. Modern society prefers fast and convenient information transfer, making mobile data a potential goldmine in future. There are high prospects for greater growth. The idea of internet at home is also an opportunity. Mobile firms may take advantage of this by investing more in offering data services, especially portable internet devices. The main threat is the possibility of competition getting even stiffer. With the expected rise in demand for services and gadgets, there is the possibility of even more firms getting in and offering lower rates in order to gain brand recognition and attention from the consumers. This will influence price setting by the companies (Pride & Ferrel, 2007). 3. Analysis of Strategic Capabilities 3.1 Value Chain Analysis Value chain analysis involves the assessment of the stages in organizational operations to identify the value addition that is achieved. From this, it is possible to note ways of increasing the product’s differentiation hence competitiveness. At the moment, most revenue is derived from voice services. While SMS has been gaining significance, other innovations for instance WAP have not been able to get extensive customer acceptance. There is however the projection that within a year, gross revenues from voice services are likely to stagnate and industry expansion will be led by data services. The data services will constitute over 60% of Mobile network revenue. In order for such growth to occur, there is however needs for development of greater network functionality and capacity, services and applications (Madsen & Brownstein, 2007). 3.2 Benchmarking Benchmarking refers to the continuous and systematic measurement of an organization’s products or services in relation to the best judged ones within the industry. In the case of the mobile phone industry, this is usually done in reference to the major service providers. These are also in most cases listed blue-chip companies. Due to their high revenues and ability to access capital, they usually are able to set up the best infrastructure and services. The effectiveness of the strategies informs the decisions of the smaller firms. Information on the high performers is in most cases adopted (Camp, 2006). 3.3. Main Strengths and Weaknesses The main strength of the industry is its increasing relevance in society. With population growth and technological change, there will be more demand, making it among the most potentially profitable industries. The industry has healthy competition and due to its nature, there is interdependence between firms. The main weakness is however its unattractiveness to older generations. Mobile technology, especially data tends to appeal more to younger people, necessitating measures to promote it. The relatively high cost of mobile gadgets is also a challenge. The export of services is limited by inability of some people especially in the developing countries to buy them (Senn, 2003). 4. Market Segmentation The industry may be segmented along the firms that are available. There are four main service providers. There are also five main manufacturers in the industry. The services that are offered by the firms are essentially similar, with bulk of it being voice service. The data services are also in a state of growth, with projections indicating the possibility of greater interdependence between the companies in the market (Kotler & Armstrong, 2007). 5. Challenges in Strategic Change The change necessitates measures to adapt. In most cases, change in price is passed on to consumers. The other way of coping is the promotion of training in order to adapt to the changes. The embracing of new technologies is another way because some of the older technology becomes obsolete. This may be achieved through innovation such as developing new marketing initiatives and products as much as it is unlikely that such a strategy will work considering that the price significantly dominates the market. The lowering of prices and innovations are likely to persist in the near future. Training of personnel and embracing of new technology are the main strategic approaches to coping with change (Gershon, 2008). 6. Conclusion The mobile industry is amongst the highly vibrant industry in the world. The government has done a lot to improve make entry free for any firm that is intending to. The major strengths and weaknesses of the industry relate to the openness to competition and vulnerability to competition respectively. The opportunities and threats on the other hand relate to the possibilities of growth and demand in future and inability to expand to other places, especially the developing countries. Generally however, the industry is set to expand and gain even greater sophistication in the future, raising the possibility of it becoming a major driving force in economic development, an aspect that is already evident. References Baskoy, T. (2008). The Political Economy of European Union Competition Policy: A Case Study of the Telecommunications Industry. London: Macmillan. businessballs.com (2009). Michael E Porter's five forces model & diagrams. Retrieved 25 August 2009 from Cadle, J. & Yeates, D. (2007). Project Management for Information Systems. New York: Prentice Hall. Camp, R. (2006). Benchmarking: The exploration for Industry Quality Practices Which Lead to Superior Performance. New Jersey: Lawrence Earlbaum. Cyganski, D., Orr, J. & Vaz, R. (2000). Information Technology: Inside and Outside. New York: Prentice Hall. Gershon, R. (2008). Telecommunications and premeditated Planning: Company Structures & Planning Strategies. London: Routledge. Green, J. (2001). The Irwin Handbook of Telecommunications Management. London: McGraw-Hill. Plunkett, J. (2009). Plunkett's Telecommunications Industry Almanac 2010: Telecommunications Industry Market Research, Statistics, Trends & Leading Companies. Berkeley: University of California Press. Pride, W. & Ferrel, O. (2007). Marketing. London: Kogan Page. Kotler, P. & Armstrong, G. (2007). Principles of Marketing. New York: Prentice Hall. Khan, F. (2006). An Evaluation of Porter’s Five Forces Model. New York: McGraw Hill Madsen, B. & Brownstein, R. (2007). The New Industrial Revolution: The Power of Dynamic Value Chains. Westport: Greenwood Press. quickmba.com (2007). Porter's Five Forces: A model for Industry Analysis. Retrieved 25 August 2009 from Senn, J. (2003). Information Technology: Principles, Practices, and Opportunities. New York: Prentice Hall. Williamson, D., Cooke, P. & Jenkin, W. (2003). Strategic Management and Business Analysis. London: Heinemann. Appendices 1. Table showing the distribution of subscribers among the main mobile companies in the UK 2. Worldwide Mobile Sales in 2009 (Thousands) Company 2009 Sales 2009 Market Share (%) 2008 Sales 2008 Market Share (%) Nokia 105,413.3 36.8 120,353.3 39.5 Samsung 55,430.2 19.3 46,376.0 15.2 LG 30,497.0 10.7 26,698.9 8.8 Motorola 15,947.8 5.6 30,371.8 10.0 Sony Ericsson 13,574.2 4.7 22,951.7 7.5 Others 65,260.2 23.0 57,970.6 19.0 Total 286,122.7 100 304,722.3 100 Porter’s Five Forces Model Source: businessballs.com (2009) Read More