The business environment of ARM along with an appraisal of the organizations strategy - Essay Example

?Strategic Management [The of the will appear here] [The of the will appear here] [The of the [Date] Introduction ARM Holdings is a British founded company that has presented itself as a world leader in the semiconductor market. ARM is the leading semiconductor intellectual property (IP) supplier in the mobile market and other home consumer products (ARM, 2012). ARM is gradually extending itself in the tablet market. In the recent, ARM may see itself in the PC Market in direct competition with Intel. Intel, initially operated in the PC Market and both the companies, though manufactured microprocessors, catered to different markets entirely. Intel had strong hold over the PC industry while ARM boasted sales in the mobile industry. However, in the recent years, with the PC market coming to a cooling phase, Intel has decided to enter the mobile market and make competition tough for ARM. In this paper, we attempt to analyse the business environment of ARM along with an appraisal of the organization’s strategy. The aim of the paper is to understand the effectiveness of the strategy adopted by ARM in the increasingly competitive world of today. Analysis of Organization’s Business Environment Porter’s Five Force Model Threat of New Entrants: The possibility of new entrants in the market is quite low. New entrants in the case ARM are only occurring in the shape of Intel that previously went with capturing the PC market; and even though Intel is a huge company as compared to ARM, it will still be facing difficulty in competing with ARM. This makes threat of new entrants low. There are two reasons behind the low threat of entrants. Firstly, ARM has been able to develop a near monopoly in the cell phone market. The buyers of ARM are satisfied with ARM at this point of time and do not wish to switch to new substitutes. Another reason is that ARM has developed specific software that work with its microprocessors; and asking buyers to switch would be asking to invest money and time in understanding and adapting to different software that could complicate issues. Threat of Substitute Products: Threat of Substitute Products is medium for ARM. At this point of time, the threat of substitute products is balanced for ARM. While the semiconductor industry is quite competitive with the presence of industries such as Intel, Samsung, Toshiba etc, ARM is able to generate revenues because of its software and licensing. This makes it difficult for competitors to replace the ARM chips in 95% of the cell phones (Clara, 2012). Manufactures of cell phones have adapted to the technology of ARM and do not wish to switch over to substitute products that may not generate the same value as that of ARM. The cost of switching over to substitute products is quite high for the buyers which include additional risk; but this is counterattacked by the presence of giants in the semi-conductor industry that could take hold of the ARM market with some effort. Bargaining Power of the Buyers: Bargaining Power of the Buyers in the case of ARM is quite high. This is because the buyers mainly include chipmakers such as Qualcomm, who would likely produce their own semiconductors if the prices of the chips exceed further. At the moment, ARM is generating profits through royalty and license fees on the chips that it sells with royalty as low as 1 percent for each chip (D’ Altorio, 2010). Bargaining Power of the Suppliers: Bargaining Power of the Suppliers in this case is medium. This is because ARM does not manufacture its own microprocessors but is dependant of outside suppliers. ARM has its own RISC chips that are energy efficient and sell the most; therefore supplier power is low as compared to the buyer power Competitive Rivalry: From the above analysis, we can conclude that competitive rivalry for ARM in the cell phone market is low but in the semiconductor industry, ARM ranks quite low in terms of its sales. ARM enjoys a significant power in the market due to its licensing but other than that, ARM is a small company in comparison with the big giants in the semiconductor industry. Industry Life Cycle At this point of time, the market of semiconductors is moving towards the maturity stage. The maturity stage of the semiconductor market is characterized by the saturation of the industry with many competitors. During the maturity stage, rivalry among the competitors is quite high as demand for the product begins to slow down (Perreault and McCarthy, 2007). This can be observed in the case of both Intel and ARM as each are trying to enter into the other’s market as demand for the product is not what it was during the last decade. However, growth in the semi-conductor industry is still possible to some extent as the ‘worldwide sales of semiconductors were $25.03 billion for the month of August, a slight increase of 0.7 percent from the prior month when sales were $24.9 billion’ (Kazmierski, 2011). However, growth in the industry is possible only because existing products have to be replaced by new products and organizations have to come up with suitable differentiation strategies in order to develop a competitive edge within the market. It is also quite possible that with the introduction of new gadgets in the market, the industry life cycle may begin from the start as new innovations are made possible through research. Analysis of Organization’s Strategy Positioning ARM has positioned itself in the semiconductor market as a chip provider for the cell phone industry and other small electronics. Though ARM is a small company as compared to the big giants in the semi-conductor industry, ARM has positioned itself as the provider of energy efficient microprocessors at a time when energy has become quite precious and efficiency of energy is particularly important in cell phones. Differentiation Strategy The Differentiation Strategy adopted by ARM holding that ensures competitive edge over the rest of the market is building energy efficient microprocessors mainly for cell phones and some other consumer items. These energy efficient microprocessors ensure longer battery time for the cell phones and reduce the need for energy (Pimentel, 2012). These energy efficient microprocessors would further allow ARM to increase market penetration which is one of the strategies adopted by ARM. However the main strategy that ensures competitive edge of ARM over giants in the semi-conductor industry is the development of its own software and its licensing. ARM has built its own software that compliments its software, thus reducing the chance of competitors snagging the market by building similar microprocessors. Value Chain Value Chain is the activities within the supply chain of an organization that add value of the product at each stage. The value chain of ARM begins with manufacturing of its products. ARM does not manufacture its own products and by doing so, it outsources the risk associated with manufacturing to its suppliers. The RISC (Reduced Instruction Set Computing) Architecture provided by ARM to its manufacturers adds value to the product in the manufacturing stage. The costs, revenues and profits of the manufacturing are shared between the manufacturer and ARM as ARM licenses the products and sells it to other semi-conductor manufacturers. Value is added during the time when ARM licensing its products that are energy efficient rather than being fast. Later these semiconductors are put in cell phones and other electronic products before finally reaching the consumers. ARM’s Strategy and Strategic Resources ARM’s has four long term plans in terms of its strategy and these include market penetration, increase value of devices through its semi-conductor, generate additional royalties and increase shareholder’s return on their investment (ARM Holdings Plc, 2011). In order to increase market penetration, ARM is moving towards making its technology more applicable in non-mobile devices also including Mobile computers, Digital TVs, Microcontrollers and PC and its peripherals. Recently, ARM moved on to making Apple iPhones and in the later years, ARM may be moving on to the PC and will be coming in direct competition with Intel. HP and other computer manufacturers are willing to invest in ARM due to their energy efficiency and cooling mechanism behind the chips which makes battery life longer. ARM is also continuously investing in its research and development so as to work on its strategy of market penetration. ARM’s low energy chips allow them to be used in portable devices including cell phones, smart phones, tablets and laptops. Furthermore, in order to work around its limited capacity, ARM allows for multi-chips to be placed within the device. This increases their revenues through royalties sold per chip. Also market penetration increases ARM earning profits through also royalties. Though ARM may not be a giant among the semi-conductor industry when compared with Intel and Toshiba but ARM has been able to develop a strong position, a position that is difficult to compete with given the percentage of market share that ARM has captured. Critical Appraisal of the Strategy ARM, so far, has been able to develop a good strategy that has allowed them to not only capture 95 percent of the mobile devices and other non-mobile devices. The business environment appraisal of the semi-conductor industry reveals that the semi-conductor industry is in its maturity stage with limited growth still observable. In the maturity stage, the strategy that should be employed is to look for a differentiation strategy and to develop a specific target market. ARM has been able to accomplish this by developing a differentiation strategy where they sell energy efficient products with their own licenses. In this way, ARM has been able to target to a specific market and also have been able to keep down the threat of substitute products to a great extent. This strategy has allowed ARM to develop a strong position for itself in the mobile market and thus gives them the opportunity to move into other markets including other portable devices. ARM has been able to do this by capturing Apple iPad and this allows ARM the possibility of moving on to explore the other Apple products. Having captured a good share of the mobile market, ARM has adopted a good strategy of moving on to other products such as tablet and smart phones. Tablets and smart phones are a developing technology and could very well adopt ARM products for their energy efficiency (N.V, 2012). However, ARM has not focused on exploring more of the server market. The server market at this point of time is a vastly expanding market with the increase in social networking websites and their activities. ARM could do well by also capturing this market at this developing stage. Outsourcing the production of its chips also allows ARM considerable advantage. One advantage of outsourcing is that it allows organization to focus on other important areas such as research and development, marketing, reach etc (Quinn and Hilmer, 1994). In the case of ARM Holdings, it allows the organization to focus on its research and development which further improves the quality of the products. This has allowed ARM to introduce its “Flycatcher” architecture that increase the internet reach of traditional electronic devices such as kitchen equipment (Kelion, 2012) Conclusion Even though, ARM Holdings is a small company in the semi-conductor industry when compared with giants such as Intel and Toshiba but despite this ARM has developed a strong market position. This market position has been developed as a result of the differentiation strategy adopted by ARM where they understood that their energy efficient chips would work best for portable devices. This strategy has allowed ARM to capture 95 percent of the mobile industry. With such a strong position, ARM is set to explore the non-mobile industry including portable devices such as smart phones and tablets. 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