Drivers of Competition in the Cell Phone Industry

Drivers of Competition in the Cell Phone Industry
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Drivers of Competition in the Cell Phone Industry
Introduction
The 21st century is characterized by globalization and technological advancements that have had an immense impact on operations of businesses. The turbulence brought into the business environment has created a myriad of challenges for contemporary leaders. Addressing the challenges in today’s business environment can be the difference between success and failure. As businesses try to survive and grow their market shares, they engage in various competitive measures. The cell phone industry, in particular, is characterized by high competition as each firm strives to try to increase or maintain its market share. In the industry, the inability to compete effectively can mean the end of a firm’s operations. A firm with advanced technological advancement can easily outcompete those with inferior capabilities. However, given that new technologies are developed regularly, a firm’s market share is not guaranteed. Stiff competition is thus a feature that characterizes the cell phone industry. Companies employ a variety of measures to maintain its existing customer base and capture new ones. This paper proposes a research that would seek to find out drivers of competition in the industry. The research would provide key insights into how competition occurs in the cell phone industry.
Background
Competition is inevitable in any business environment. According to Chen (2015), competition is the rivalry that occurs among organizations as they try to achieve goals such as increasing market share, profits, or sales volume through the variation of the elements of the marketing mix: promotion, distribution, product, and price. Organizations engage in competition as they try to satisfy the needs of the customer. Chen (2015) points out that competition motivates organizations to do better than their rivals and therefore the consumer can benefit through more choices. The way organizations respond to challenges in the environment and the corresponding reactions of competitors help in creating a variety of choices for consumers. Competition thus plays an instrumental role in any industry as it drives innovation and widens the choice consumers have.
Organizations today are operating in an increasingly competitive and turbulent environment. As informed by Lee, Olson, and Trimi (2012), the turbulence in today’s environment is due to a variety of national, regional, global, as well as industry-specific factors. The globalization that characterizes modern business environment means that a ripple in one part of the world may affect operations in another. As pointed out by Lee, Olson, and Trimi (2012), the global marketplace is marred by numerous, unpredictable, and dynamic changes. In a turbulent market, the customers are in constant search for new services and products and their needs are wide-ranging (Tsai & Yang, 2013). As a result of the dynamic change in the needs of the customers, it organizations have to creatively modify their operations and products and services. Failure to make such adjustments means that a firm is not competing effectively. Tsai and Yang (2013) note that organizations that are innovative tend to come up with creative strategies to address the changing preferences of the customers. Therefore, in a turbulent environment such as today’s, a firm’s competitiveness is key to meeting the changing needs of the customer. Therefore, competition is an essential aspect that helps firms survive today.
The cell phone industry is primarily driven by changes in technology. Firms that have superior technologies are likely to succeed given the quickly changing tastes of customers. The advent of the telephone began in 1876 when Graham Bell designed a machine that could transmit voice, which replaced the telegraph (Ha, 2016). It was until 1973 that a mobile phone was launched officially, the Motorola Dyna Tac, which weighed over 1 kg resembled today’s mobile phones. Ever since the launch, numerous developments in the industry have occurred and the evolution has resulted in more compact devices. Newer mobile phones became more integrated and included additional features other than just texting and calling. 2G technology came into place in 1991 while 3G was launched in 2001 and has prevailed ever since (Ha, 2016). As the functionality of the functions improved, they became cheaper as firms in the industry sought to satisfy the increasing demand. The industry is now characterized by smartphones that have revolutionized the way humans interact with one another. The major players in today’s cell phone industry include Samsung Electronics, Xiaomi, Lenovo, Huawei, and Apple. The companies compete against one another in the global marketplace as they try to satisfy the needs of the 21st-century customer.
Samsung Electronics began operations in 1969 primarily dealing with home appliances (Samsung Electronics, 2017). The company now deals with other products and services in the infotainment business. These products and services revolve around audio and video, information, telecommunication, as well as lifecare business (Samsung Electronics, 2017). One of the company’s three divisions, IT and Mobile Communication (IM), deals with products and services related to cell phones. The company is regarded as a global leader and it has about 200 subsidiaries that are spread across the globe. According to its annual report, the company sets itself apart from its competitors through R&D, manufacturing, and marketing. These functions are made possible through its subsidiaries. As of 2016, the company had over 300, 000 employees, 2,468 suppliers, and had operations in 79 countries (Samsung Electronics, 2017). Through its IM division, the company managed to top the global smartphone market. The rise is attributed to its enhanced user experience as well as smarter capabilities of its cellphones. It is evident that technology has been integral in helping it achieve a better competitive position in the global cell phone market. The issue of patent is highly significant in the industry as it is a driver of competition. Samsung Electronics has been at patent wars with its biggest competitor, Apple, in the last several years, experiencing numerous legal battles (BBC, 2018). Technology, which is a big part of the cell industry, is a key source of competition for Samsung and its rivals.
Xiaomi is a Chinese-based cell phone manufacturer whose global market share has been on the rise in the recent past. According to its 2018 interim report, the company has attained significant growth in sales volume as well as profits (Xiaomi Corporation, 2018). The company’s business strategy is characterized by the pursuit of honest pricing and amazing products. As per the firm’s 2018 interim report, the company’s focus has been on improving its technological capabilities in order to develop innovative products. This has soared the company’s position in the industry close to the top brands. The company’s position in the Chinese market had been shaken three years ago by local competition but it took strategic steps that helped it turn around its fortunes. As informed by Wang (2017), the company made changes to its supply chain to develop more devices. The company also placed more focus on advanced technologies; it created Pinecone chip and adjusted to bezel-less phones. This contributed significantly to changing the image of the firm and orienting it as a global competitor (Wang, 2017). It is evident that technology helped in improving the competitive position of the firm and setting it up their close to big industry players like Samsung and Apple. It is through developing its technological capability that the company was able to fight local competition in the Chinese market and claim a place in the global market arena.
Huawei is also another key player in the modern cell phone industry. The firm was founded in 1987 and currently operates in over 170 countries (Huawei, 2017). The company has about 180,000 employees that help in its operations. Just like the other cell phone companies, technology forms a key part of its operations. According to its 2017 annual report, the firm is doubling its investment in technologies. It considers technology a key aspect of its operation and it has recently shifted its focus to digitizing its business. Its immense focus in on technology helped it increase its global market share to 10% in 2017, which raised its position in the industry to third (Huawei Press, 2017). The performance was contributed largely by the Chinese market as the company managed to ship more than 467 million cell phones to the market in the year 2016. Given its performance in the Chinese market and its position in the global market, it is a matter of time before it sights on key overseas markets such as Europe and North America. However, given the dominance of Apple and Samsung in these regions, it is deducible that it will have to employ highly innovative strategies to capture new markets.
Lenovo is also a major player in the cell-phone industry. Apart from manufacturing phones, the Fortune 500 company deals with other products including smart TVs, personal computers, and tablets (Lenovo, 2017). The company focuses on enhancing user experiences through its devices as it recognizes that it is significantly important to win customers’ heart. While the company has seen growth in shipments of cell phones to Latin America (Lenovo, 2017), its recent performance is dwindling. The Chinese based company’s smartphone business has experienced loses due to competition from firms such as Xiaomi and Oppo (Jiang, 2017). Its acquisition of Motorola in 2014 contributed to a great extent to the problems it has been experiencing lately. Given the stiff competition in the cell phone industry, a small failure can lead to loss of significant market share. As informed by Jiang (2017), the company failed to integrate properly Motorola into its operations. With competition from other companies as the company focused on the integration, it is evident that it failed to keep up. In an industry where new technology capability by competitors can mean a decline in the operations of a firm, dependence on brand loyalty is not enough to keep up.
Apple is also a major player in the cell phone industry and it commands a significant portion of the market. The company began operations in 1976 after it was founded by Ronald Wayne, Steve Wozniak, and Steve Jobs (Zylla-Woellner, 2013). It took the company only 10 years to start competing with other big players such as Microsoft and IBM in the computing market. Currently, Apple deals with the manufacturing and marketing of mobile media and communication devices, PCs, software, and applications (Apple, 2018). The major products of the company include iPhone, Mac, Apple Watch, and iPad. The company has online stores and retail stores that are distributed world over through which it sells its products. Its customers include educational institutions and mid-sized businesses, government institutions, and the general public. Just like most firms in the industry, Apple focuses on providing the best user experiences to its customers through inventive software, hardware, and services. Its superior technology has been a source of competitive advantage as it has helped it remain at the top of the cell phone industry in the last decade. Its ability to design its own hardware and software has been crucial to its performance. Apple enjoys a remarkable brand recognition, particularly in the US market. According to its 2018 annual report, the company recognizes the competitiveness that characterizes the cell phone market. The report points out that there are rapid technological advances and frequent product introductions in the industry that impact the operations of the company. It is also important to mention that the company has been on patent wars with its biggest rival, Samsung, for the last several years (BBC, 2018). This show how important it is to attain a competitive edge in order to survive in the industry.
Purpose of the Study
The study will seek to examine the drivers of competition in the cell phone industry. Competition plays a key role in the creation of products and services of superior products in an industry. It also widens the choice that consumers have in the market. In addition, through competition, consumers can acquire products and services at best prices possible as companies try to satisfy their needs. Given the significance of competition, the study will seek to find out the factors that drive it. The cell phone industry is highly competitive as it is characterized by turbulence brought about by rapid technological advancements. As a result, the study will focus on the cell phone industry, with a special attention to the major big players: Samsung Electronics, Huawei, Xiaomi Corporation, Lenovo, and Apple. Examining the strategies these big industry players use as they try to outdo one another will be key to understanding the drivers of competition.
Statement of the Problem
The rapid advancement of technology that is prevalent in today’s globalized business environment has brought about many challenges for modern leaders in business. The cell phone industry, in particular, is affected to a great extent by changes in technology. Failure to address the challenges brought about by the changes in the technological environment can result in the collapse of an organization. A case example is Nokia that failed to keep up with the technological advancement, which is a source of competitive advantage. The company ended up collapsing and it has not managed to make a comeback ever since. Succeeding in a highly competitive industry is thus extremely difficult, particularly for firms that do not keep up with industry trends. While competition can lead to a collapse of some firms, it plays an important role in widening the choices for consumers and reducing prices. It is important, therefore, to examine the forces that drive competition in an industry. This study thus seeks to examine the drivers of competition in the cell phone industry.
Research Questions
The main research question is what are the drivers of competition in the cell phone industry?
The specific research questions are:
1 Does technology affect competition in the cell phone industry?
2 Does patents affect competition in the cell phone industry?
3 Does phone design affect competition in the cell phone industry?
Literature Review
This section discusses both the empirical literature review and theoretical foundation of the topic of study.
Theoretical Framework: Porter’s Five Forces Model
The Porter’s five forces model provides a framework in which competition among firms within a specific industry can be analyzed. The five forces of competition include the threat of substitute products, the threat of new entrants, and rivalry among existing firms, bargaining power of suppliers, and bargaining power of buyers (Rao, 2016). The analysis of these forces provides firms with a view of the profitability and level of competition in the industry.
The Threat of Substitute Products
An industry is said to be facing the threat of substitute products if a new product that meets the same needs exist. Further, if the available substitute products are provided at a cheaper price, then the industry experiences a decline in profit margins because they will be competing for the same market shares with substitute products providers. The threat of substitute products in the mobile phone industry is significantly low since there are no other products that can substitute the functionality of the mobile phones. Personal computers and smartwatches serve some of the functions that a phone does, but they do not meet the basic needs such as making voice calls.
Threat of New Entrants
When new players penetrate an industry, they present a threat to existing players because they increase the competition for the market shares. In turn, this can reduce the profitability of an industry because it will become flooded with firms providing similar products. This threat can be minimized if there exist strong entry barriers in the given industry (Rao, 2016). Some of the entry barriers include high capital requirements, strong brands that have attracted customer loyalty, and access to distribution channels. In the mobile phone industry, the threat of new entrants is low because as indicated by Song (2013), the industry demands high technological know-how and proprietary technology. This means that new entrants will need developers, engineers and other requirements necessary for survival in the industry, all which require high initial capital investment. In addition, the incumbents in the industry such as Apple and Samsu...