Macroeconomics: Research In Motion - Case Study Example

Research In Motion Research In Motion (RIM) is a company whose headquarters are in Canadian. It was founded in 1984. It is primarily known as the maker and provider of Blackberry devices and wireless services (RIM, 2012). The company was listed in 1997 in the Toronto Stock Exchange. The blackberry line of products was launched in 1999 and it served as a personal digital assistant. As the Blackberry devices become more popular, cell phone services were incorporated. The Blackberry phones grew to become the mobile phones of choice for business executives due to their versatility in handling electronic mails and office applications. The Blackberry phones pioneered the era of smart-phones although the competition has grown in the recent years from other platforms such as Android, iPhone and Windows. The demand for Blackberry phone has significantly increased because most businesses have adopted enterprise technologies and there is a growing concern of employees who want to gain access to corporate data securely while out of office. Most cellular networks provide data services hence the Blackberry phone fits perfectly in the ecosystem. Demand has also been fuelled by the growing changes in buyers’ preferences. The smart-phone market is now majorly based on platform rather than hardware and this has increased the applications available to the buyer hence increasing the demand for the smart-phones. The mobile phones have become a central part of an individual’s life hence buyers require a device that can offer extra features (Baumol & Blinder, 2011). The customer base has also grown significantly due to an increasing middle class who are attracted to buy the Blackberry phones. The increased demand has resulted in the exponential increase in sales and profits. The supply of smart-phones has also increased due to technological advancements that have made it easier and cheaper to produce them. They are many companies producing smart-phones and as such the numbers of phones manufactured is high. From the aforementioned, we realize that the supply has increased over time. Therefore, it is evident that more units have to be sold to attain profit. Smartphone demand growth The market structure of Blackberry phones can be described as a oligopoly. The main players in the smart-phone market are Apple (iPhone), Nokia (Symbian), Google (Android) and Microsoft (Windows Phone). The product offered by these competitors is differentiated through various tweaks to the operating system. The barriers to entry in the smart-phone market are very high. Infact, a company has to lay a huge capital investment and extremely aggressive marketing tactics in order to start off in this market. The pricing in this segment is fairly uniform and high. The smart-phone market is characterized by constant innovation if only to remain competitive. The turnover of clients is high since buyers would wish to try out the new and fancy applications in the different smart-phone platforms. Market Share Comparison (January 2012) In order for Blackberry to continue prospering in this market, there is need for continuous innovation and launching of new product. The market of smartphones is very dynamic and this requires that a company stays on the forefront of innovation. The other trend that has a promising future is the applications (apps) market. The buyers need applications in their phones that make their lives easier and full of fun. To prosper in this segment, Blackberry should seek to have a robust community of developers through giving of incentives. The recent data outages experienced should be a thing of the past as this may lead to mass exodus of current users of the services (Redo, 2008). The core datacenters should be backed up and multiple fail-over mechanisms put in place to guarantee subscribers service availability. Blackberry phones have very low price elasticity. This implies that even if the price changes, it has very little influence on demand. With more income, there is a likelihood of more buyers of the product. This implies that it has income elasticity of demand. Comparing to other smartphones, the Blackberry phones are not so much affected by price changes in other products. Analyzing the cross price elasticity of the device, we realize that Blackberry phones are highly differentiated and serve a niche market. It is specifically designed to suit the needs of a suave businessperson and it has a firm hold on this niche market. Research In Motion as a company is performing well in its area of specialization. Specifically, the company has made significant investments in research and development so produce next generation products (Sweeny, 2008). The annual budget for the research department is approximately ten percent of the company’s revenue. However, the company needs to improve the core data service provision to avoid the catastrophic data outages that have occurred in the recent past. Macroeconomic Analysis The economic growth rate has slowed down in the recent years. This has negatively affected companies operating in the country because of reduced profits. With a low economic growth, even the support industries that provide critical parts for Research in Motion are grounded. The other effect of the low economic growth is that some staff has to be laid off as the company strives to stay afloat (Blanchard, 2008). As such, some of the company’s top talent that oversees the development of the products may face the sack. Hence, the whole production cycle is compromised and the net effect is reduced overall productivity. The global recession has also worsened an already deplorable situation by making it difficult to even find financing for research and production of products. The high unemployment rates are also a cause of concern for Research In Motion. The ripple effect of low economic growth is a high rate of unemployment. Due to this, the amount of disposable income an individual is greatly reduced and most of the non-essential purchases are not given a priority. The meager financial resources available to individuals are now allocated to cater for the very essential needs such as buying food and paying rent. The pricing of the Blackberry phone is a bit high and as such, an un-employed person would rather purchase a simple feature phone and use the remaining amount on other needs. At the moment, the average unemployment rate in the country is about eight percent and some states have a rate as high as fourteen percent. The economic crisis is far from over and so there will still be high unemployment rates for sometime. This spells a bleak future for a top notch technology company like Research In Motion that specializes in premier products such as the Blackberry phone. The inflation rates are also at an all time high. There has been a rather high rise in the general price levels. This automatically leads to a reduced purchasing power assuming that there is no commiserating increase in one’s income. The spending habits of people tend to reduce meaning that a person is likely to spend less money. To put this in context, the prices of the Blackberry phone increases due to high inflation and as such, since people are more pressed with other financial obligations they tend to brush aside purchasing the phone. This translates in low volume sales of the devices and hence reducing the profit margins for the company. Some companies may decide to keep the prices constant despite inflation. But, still the overall profits are significantly reduced since the company’s expenses would have already skyrocketed. Until the global economic crisis is resolved, the prospects of Research In Motion and other companies are really bleak. The balance of payments is a key factor to be considered in macroeconomic analysis. Essentially, balance of payments shows a country’s share in international economy. The balance of trade specifically points out how much a country pays and is paid by the international trade. The Research In Motion Company is based in Canada. A comparison on the balance of trade between Canada and our country shows that the balance is tilted in our favor. Therefore, the trade is biased and therefore we may conclude that this negatively impacts the general quantity of products that are imported from Canada. Business cycles are fluctuations found in the overall economic activity of countries that have invested in enterprises. Generally, a cycle consists of a period during which expansions occur at a similar time in most of the economic activities. This is followed by period of recessions and contractions in the economy (Barro, 2008). After another period, the cycle of growth starts again. Usually, business cycles can range from one year to ten years. At the moment, the country is undergoing an economic recession characterized by low employment rates and high inflation. As previously discussed this factors impact negatively on the purchasing power on individuals and ultimately affecting the profitability of all companies. Although the global economy is in recess, the future of technology companies is bright. The demand for smartphones is on the rise and Research In Motion Company can take advantage of this to keep producing products like the Blackberry phone. Handheld devices are replacing the traditional computers and laptops hence the market will keep growing. Bibliography Barro, R. 2008. Macroeconomics:a modern approach. New York: Cengage. Baumol, W. J., & Blinder, A. S. 2011. Economics: Principles and Policy. New York: Cengage Learning. Blanchard, O. 2008. Macroeconomics. New York: Pearson Prentice Hall. Redo, P., 2008. Economics: An Introduction. 3rd ed. London: Open University in assoc. with Sage. RIM. 2012. Company. Retrieved March 21, 2012, from RIM: http://www.rim.com/company/ Sweeny, A. 2008. BlackBerry planet:the story of Research in Motion and the little device that took the world by storm. New York: John Wiley and Sons. Read More