PESTLE Analysis of Hi-Fi Industry with Threats and Opportunities - Report Example

Question one PESTLE Analysis of Hi-Fi Industry with threats and opportunities A critical analysis of the Hi-fi industry reveals the following from the case study. First, the political aspects affect the industry in a number of ways. Porter (1979; 1980; 2008) notes the importance of government regulation in the HiFi industry. Tighter regulation will imply higher costs translating into learner profits threatening the expansion and survival of the industry (T) Second, the presence of special tax in some regions threatens the profit margin in the industry by squeezing the income of firms.(T) Third, the patented products are threat in the industry such that it locks out potential competitors from participating in the production of equipments. This is a threat such that it prevents health competition. Research indicates that this threatens the improvement of quality of products in the industry due to monopoly-related perspectives. (T) Another threat is the concerns of environmental pollutions that is lobbied by different support groups. This tightens the manner of technology employed, dumping process and recycling procedures undertaken. (T) Theft of video and other gadgets have also acted negatively on the reputation of consumers and forced the customers to question the safety of the products (Hartley, 2008). Further there is window-dressing data that used by audiophiles about the efficiency and effectiveness of the products. This affects their perception about certain such as speakers, amplifies and other-related product in the market. (T) Consumers, on the other hand, are protected from exorbitant prices that might be charged from the retailers, producers and other distributors of HIFI equipments. (O, benefit for consumers) Moreover, frequent changes in tax systems lower the confidence and perception of manufacturers such as AVI, Apple and Linn HiFi by disrupting the normal manufacturing processes. For instance, increase in costs is uncertain. It negatively affects the morale of manufacturers.(T) High tax on equipments decreases demand of the overall products. For instance, due to doubling of prices of HiFi equipments, there has been a decrease in their demand. (Dress, 2005; Porter, 1980). (T) Technological advancements in the industry have created both opportunity and threats. Due to technology, there is a massive efficiency and innovation breakthroughs in the manufacturing processes. Many firms in the industry have differentiated their products, which in turn have reaped more profits. New orders, process and customer response tracking mechanisms in the industry have been intensified.( Porter, 2005).(T/O) On the other hand, technology has reduced the life cycle of video equipments as more and more are manufactured to replace the old-fashioned products. Shorter life cycle has meant that firms stay competitive by investing heavily in research and development, which implies higher costs. (T) Further, due to the economic crunch, there has been limitation on the availability of credit for consumers. This has adversely affected the market demands as consumers channelled the funds to the basic and highly prioritised goods other than equipment, which is a luxury good (Porter, 2008). (T) Another issue is noted by Dress et al (2005); Porter (1980) provides that social aspects play a crucial role in forecasting and subsequent determination of business models. For instance, certain life styles positively lure consumers to purchase products such a stereo equipment (speakers, amplifies and films). According to Eurometer international (2009), music is omnipresent and found and appreciated by all cultures, everyone looks for music. Therefore, the means and nature forms in which music presents itself is vital in determining the nature of machines to purchase and use. (o) Higher inflation in most regions has threatened the industry as it reduces the disposable income of the consumers. This implies reduced real income that in turn reduces the purchase for luxurious goods such as hi-tech films and video equipments for domestic use (Porter, 1980) (T) The continued advancement of technology has affected the hi-fi industry (Porter, 1979). In the positive sense, it has brought new and sophisticated machines that produce high quality sound, faster and ease of use.). In addition, they have saved costs for manufacturers thus improving on their financial statements.(o) Porter also provides that due to new technology, there has been an emergence of new business models, forms of competition the industry. Existing manufacturers have begun losing the market share while consumers are reaping price reduction benefits as well as improvement in the quality of products. (O) The survey by Dress et al (2005) also notes that the emergence of new technology has negatively affected manufacturers and producers. This has necessitated a continuous research and development in the industry to keep up with soaring competition. This has sliced the profit pies. However, wide distribution of physically stores means that produces can have access to wider market all over the world (Porter, 1980). (T) Another issue is the legal framework in the industry is slowly gaining momentum. This implies that the legal environment of the HIFI industry is not as strong as other sectors Porter, 2008). For instance, due to technology, there is an introduction of an online site for piracy. The legal infrastructure has not fully developed to especially deal with online legal lawsuits. This has negatively impaired the performance in the si9ndustry. Furthermore, the Porter notes that mobile, ecommerce and other ecommerce transactions are risky and mostly marred with fraud and deceit. This takes time to settle such disputes and can impair the manner of transactions. (T) Finally, Porter stresses that the per-capita income in various nations have altered and distorted the consumption function on the HiFi products. For instance, in third world countries, there is reduction in consumption of luxury goods such as video and film equipment. This threatens the survival of the industry. (T) Drivers of change in the industry Key drivers of change in the HiFi industry will shape and spearhead the industry in future. Porter (2008) and Dress et al (2005) has noted two greater drivers of change. First, technology will create demand for new products while rendering obsolete the old-fashioned products. Second, the growth in economy will increase demand for sophisticated products while reducing demand. This also implies that there will be a substantial growth of audiophiles. These lovers of music will increase in number and will send a positive signal to the demand of HiFi equipments. This will greatly boost the sales volume of the industry. Question two A critical analysis of the industry using the Michael Porter five forces will determine the industry attractiveness and performance in both short-term and long-term aspects. These forces determine the competitive forces that suggest either an opportunity or a threat in the operating environment. The strength and degree of strength is determined by qualitative factors and may take time to quantify. Porter uses five forces to scan the business environment so that strategists can take effective responses, survive recessions and reap profits. Risk of entry by potential competitors Porter (2008) notes that due to emergence of new technologies, competition has intensified to remain competitive in the market. The risk of entry of competitors in the HiFi industry is low and weak. The reasons are that the industry is losing market to more sophisticated and digital gadgets. The already established players in the industry have taken are fighting for patents and other rights to flush away the would-be competitors. This makes the potential competitors have a relative easier route to explore the ever volatile and expanding market. Bargaining power of buyers The bargaining power of buyers is a function of the government legal protection rights, consumer lobby groups (labour unions) and the awareness of their rights. Michael Porter notes that the better and enlightened consumers become, the stronger the bargaining power (2008). In the HiFi industry, the buyers’ bargaining power is relatively strong as buyers decide what to buy from dealers, when and in what terms. It is also pointed out today’s buyers, mainly affluent youths and city dwellers, are fully aware of their rights. This makes them undertake serious complains if exploited, and perhaps violated. For instance, tastes and preferences determine the type and quality standards that market needs. Bargaining power of suppliers HiFi industry has developed a chain of powerful suppliers who have exclusive powers in determine the supply chains and type of dealers to select in the business chains. In the chain of distribution, suppliers determine the manner and location of product delivery. As noted by Porter, the stronger the bargaining power of the suppliers and distributors, the stronger the competitive threat in the operating environment of the business. This has adverse effects on the attractiveness of the industry (2008). Intensity of rivalry among established firms There is a high intensity of rivalry of established firms in the industry. The need for faster and shorter life cycle products as evidenced in firms such as Apple and Linn HiFi, implies that there is a higher intensity amongst firms. The analysis further points out that the audiophile market is growing slowly around 4%. However, a similar reports notes that sales began to decline due to the installation of home-based HiFi software. It can also be attributed to higher cost of audio/video products that the author notes of being hit hardest. According to world investment (1999), there will a drop due to the demand for new and sophisticated technological equipments that will mocve with the current time. Threat of substitutes HiFi industry produces analogue products such as amplifiers, speakers and music systems. However, due to new technology and ever-changing needs, there is an introduction of more powerful and wide range of quality products that are digital in nature (Porter, 2008); Dress et al (2005). These products are more reliable, consistent and suitable at all places. For instance, the IPODs are digital products that are customised and can operate a larger range of dimensions. They are versatile and can offer a range of services. This implies that high demand for substitutes threaten the existing and potential firms in the industry Second, the introduction of HiFi software in home systems is gaining access in much of the customers. The paradigm shift towards smaller and cheaper yet more powerful gadgets is on rapid increase(Eurometer international, 2009). The diagram below illustrates the M. E porter’s five forces. They are highly interconnected such that no single force works alone. Further, Porter’s forces apply in the microenvironment. According to the recent survey, the threat of substitutes is moderate through on an increasing rate. Fig 1 : Porter five forces diagram A time, the impact of inputs on the generic strategies of cost or differentiation is used. However, Porter (2008) still retains the basic five forces that have been useful for managers and consultants in assessing the strategic posture of the firms in given industry. This is because they explore the basic environmental dynamics that revolve around the customer and the quality of products. b) Assessment of the attractiveness of the industry Porter’s model focuses on five forces that shape and determine the competition within the a given industry. He notes that the stronger each of these forces, the more limited is the ability both the established firms in raising prices and earning greater profits. A critical analysis of HiFi industry, all the above forces are relatively strong and therefore have sliced the profits of firms within the industry besides limiting the ability to charge higher prices by firms. This in turn limits the attractiveness of the entire industry. However, the bargaining power of buyers is weaker in some regions as there lacks government support to protect consumers from exploitation for unscrupulous manufacturers. Lack of universal and efficient legal protection around the globe presents buyers and manufacturers with weak platforms where they cannot lobby successfully for their right. Conclusion In conclusion, the HiFi industry from the above analysis is unattractive as four out of the five forces are strong. However, due to emerging technologies and volatility, the future if the industry remains uncertain. References www.avihifi.co.uk. Customer testimonials www.meridian-audio.com; Euromonitor international.2009, Global consumer electronics: Trends, Developments and insights, Euromonitor, Global Market Information Database. Interviewed in Engineering and Technology, vol. 4, no. 12. pp. 60-2. Dess, Gregory G., G.T. Lumpkin and Marilyn L. Taylor.2005, Strategic Management. 2 ed. New York: McGraw-Hill Irwin Porter, Michael.E.1979, How Competitive Forces Shape Strategy, Harvard Business Review, March/April 1979. Porter, Michael. E.1980, Competitive Strategy, New York: Free Press. Porter, Michael, E. 2008, The Five Competitive Forces That Shape Strategy, Harvard business Review, New York: free press, January. References Grant, R. M. (2010). Contemporary Strategy Analysis. 7th ed. West Sussex: John Wiley & Sons: pp.12-34 Stahl, M. J. and Grigsby, D. W. (1997). Strategic management: Total quality and global competition. US: Blackwell. Pp67-78 Porter, M. E (2005). Competitive Strategy. US: Free Press. Pp55-78 Plunkett, J. W (2007). Plunkett’s Automobile Industry Almanac. Texas: Plunkett Research Porter, M. E. (Jan 2008), “The Five Competitive Forces that shape strategy, Harvard Business Review. Pp.34-54 Hartle, A., (2008). Hi-fi industry feels credit crunch http://www.techradar.com/news/audio/hi-fi-industry-feels-credit-crunch-419699 Read More