Critical Analysis of The Mobile Phone Industry

Navy company ventures into mobile phones and has been at the forefront of providing customers with unique features in USA, Asia, and Europe. With presenting rivals such as Green, Red, Blue, Orange, Grey, Milestone, and Tech Mobile, Navy has been able to remain at the edge of competition owing to its chosen business model that does not focus on pricing as a selling strategy but looks at other product penetration strategies such as differentiation. The current political dynamics in its three markets threatens its growth in the future, but with robust measures and strategies, it can overcome them. Compared to its competitors, Navy enjoys a bigger share of the market in USA, Asia and Europe, which comes as a result of its sound and effective strategies, especially with the introduction of Tech 3 and 4 features. However, Navy suffers from lack of heavy investment on R&D, which is a setback to its future competitiveness if the rivals decided to divert from pricing as their selling strategy. Navy pays great attention to its stakeholders who constitute its current success and competitive advantage. When all stakeholders are managed and handled ethically, the company will be able to remain at the edge of competition.

Table of Contents

Executive Summary. 2

Part 1. 5

Introduction. 5

Critical Analysis of the Mobile Phone Industry. 5

Current Market Situation. 5

External Factors. 7

Porters 5 Forces Model 9

Industry Rivalry. 9

Buyers bargaining power 10

The threat of new entrants. 10

Suppliers bargaining power 11

Threat of substitutes. 11

Industry Life Cycle. 11

PESTEL Analysis. 12

Competitive Map. 13

Critical Evaluation of Sources of Competitive Advantage. 13

USA.. 14

ASIA.. 14

EUROPE.. 14

Critical Analysis of the Investment in R&D.. 18

Recommendations for the Company’s Performance over the next three years. 19

Part 2. 21

Stakeholder Analysis. 21

Stakeholder Management 23

References. 24

Part 1

Introduction

Whereas mobile devices have become an indispensable commodity in the modern world, its acceptability by users remains a matter of competitive advantage (Abolfazi et al., 2014). This is well understood by Navy Company that has grown tremendously for the past year and is headed to become amongst industry leaders in the telecommunication industry. Quality, service nature, pricing strategy, and reputation has kept the company at success margins. In our company, we offer a broad range of handsets that range from mobile phones, tablets, and their accessories. We provide mobile devices at competitive prices, and we have readily available stocks for the top brands, something that we have applied in ousting our rivals when the demand is high. Unlike most of our competitors such as Green, Red, Blue, Orange, Grey, Milestone, and Tech Mobile, our sales division adopts a customer-centric approach that focuses on world-class services in the USA, Europe, and Asia. Nonetheless, we face several business hitches internally and from external factors. These factors influence our cost of doing business, but due to proactive measures were taken in times of economic and political throbs, we have managed to sustain the profitability, unlike the rivals. Hence, this report outlines strategic approaches that we are applying in response to internal and external variables.

Critical Analysis of the Mobile Phone Industry

Current Market Situation

For the past year, that Navy has been in operation, we have witnessed an increase in demand for mobile devices in USA, Europe, and Asia. The demand is likely to continue growing rapidly as more customers believe the presence of competition would significantly reduce prices. According to analysts’ forecasts, the sales of mobile handsets in the three markets will likely be very strong within the next five years. For instance, in Asia sales’ growth rate is expected to be 25-30%, USA at 15-20% and Europe at 6-10%. These predictions are complemented by a report by Tecno Analytics Inc. (TA) that discovered that in Asia and Europe, there is a hype cropping out around the next generation of mobile handsets (Tech 2), which seems to be driving customers ‘peanuts’, as CEO Bruce Summersteen once stated(Information Cesim R-1, 2018). In this case, TA tested the feasibility of introducing Tech 2 handsets to the market by targeting 100 customers in both Asia and Europe and discovered that most of the customers experienced withdrawal symptoms. Such a move by this competitor compels Navy to move beyond the simple handset introduction strategy and instead look at possible competitive approaches centered on customer preferences, tastes, and desires.

Nonetheless, most customers in USA, Europe, and Asia are seemingly more interested in Tech 4 mobile handsets, but for Navy to succeed in research, development, and incorporation of this technology in the manufacturing portfolio, it intends to find alternatives means of compensating or reducing the extreme costs likely to be incurred in pursuit of this idea. Some companies such as Techno Inc. that have introduced Tech 4 devices still faces several drawbacks in having to meet their expenses while also pricing Tech 4 mobile handsets at rates that customers can afford. To overcome such a challenge, Navy intends to incorporate comprehensive and intensive market surveillance personnel who will gather data about consumer buying habits and what drives them into buying, whether pricing, features or brand and hence have those preferences prioritized during the manufacturing process. Following a steady growth rate for the past one year due to product introduction and customer desire to try out new commodities, there are expectations that the rate will decline in a few years when all the three Navy’s markets mature. However, recently growth rate of 15% in Europe, 20% in the USA and 30% in Asia offer Navy with a chance to evaluate, assess, scrutinize and understand its strengths and weaknesses relative to those of competitors. Such a discovery would likely auger well for Navy when the markets mature, as it would be easy to discern possible differences between the company and its rivals.

External Factors

The external environment influencing Navy’s ambitions to become the leader in telecommunication industry include political, environmental, social, technological, and economic. Political tensions between major countries the USA and China would likely trigger an increase in taxes and hence it costs of production for the company (Davis & Meunier, 2011). However, due to stringent measures were taken by the USA (tariffs increase by $15) to safeguard locally operating companies, this is not going to greatly affect the company as production costs are expected to fall by 5%. On the other hand, economic factors such as production and outsourcing costs would affect the company’s future productivity, especially owing to intense price competition. To ensure the survival during such competition, we have recently engaged in segmenting the market such that we can secure loyal customers through attracting, converting and advocating its products. Using the customer experience maturity model, several steps can be developed: initiate, radiate, align, optimize, nurture, engage, and finally acquire lifetime customers (Wedel & Kamakura, 2012).

Fig 1. Customer Experience Maturity Model

In contemporary business practices, customers have become more conscious of sustainability in their purchase decisions (Green, Zelbst, Meacham & Bhadauria, 2012). Whereas our focus is on mobile handsets, we have also embarked on a strategy touching on consumer consciousness to environmental sustainability. We are going to achieve this by ensuring mobile phone batteries are energy efficient and would not require constant recharging. Social factors such as connectivity, entertainment, and other customer want shape the direction that Navy is moving its products. To meet most of customer social needs, we intend to introduce the concept of augmenting reality in mobile devices. This is a concept that enhances our customer’s perceived senses using highly refined computer-based sensory inputs such as graphics, videos, sound, GPS data, etc. The augmented reality idea comes at a time when competitors such as Tech Mobile Inc., Milestone, Green, Red, Blue, Orange, and Grey are intensely competing to differentiate their products while also meeting customer tastes at their heart.

Porters 5 Forces Model

Industry Rivalry

Factors

Analysis

Industry demand

Navy’s three markets are experiencing fast growth, but it is expected to slow down in the future.

Number of competitors

Navy has seven competitors (Green, Red, Blue, Orange, Grey, Milestone, and Tech Mobile)

Diversity of competitors

All the competitors are using identical business manufacturing, distribution, and retail business models.

Product differentiation

Navy’s intends to differentiate its mobile phones by coming up with flexible screens, inbuilt projector, seamless voice control, and 3D screens and holograms.

Excess capacity and exit barriers

Due to the company planning to have a constant supply of mobile handsets to customers, there is the likelihood of excess capacity that will increase rivalry amongst competitors.

Cost conditions (Fixed/Var. Costs)

The plant and machinery used in the production are the fixed costs while variable costs include production, outsourcing, and transportation costs

Table 1: Industry rivalry

Buyers bargaining power

Due to the intensive research and development process that Navy is currently pursuing to come up with differentiated mobile gadgets, the expenditure is likely to be high. To compensate for this, we plan to raise the price for the products. However, we face a challenge due to the increasing number of competitors, resulting in buyers more bargaining power, resulting in lower sales. However, by differentiating the products, we intend to maintain the same pricing while focusing on unique phone features other competitors do not provide. Asia, USA, and Europe are countries with a higher population, and thus segmentation of the market is crucial in understanding what brands particular segments can afford or their willingness to spend.

The threat of new entrants

Telecommunication industry is an ever-growing industry due to increasing customer demands as more people are born. Consequently, we face the threat of new entrants enticed into this industry by fast gains. However, most of the new entrants are not likely to survive owing to huge capital investments needed to establish themselves. In addition, since the market will likely mature within the next five years if current factors remain stable, most customers will have become loyal to either Navy or its current competitors, and thus new entrants will find it hard to secure a strong customer base.

Suppliers bargaining power

As demand for mobile handsets increases, the demand for supplies in the factories also increase. Consequently, we are experiencing problems with the increased bargaining power of suppliers. Higher costs of supplies, in turn, compels most companies to increase their prices. In addition, our desire to differentiate our product calls for more inputs, which also makes suppliers raise the cost of supplies. Shortage of suppliers is also triggering the rise in costs of inputs. Unpredictable increases in the cost of supplies and the consequent increase in consumer price make it difficult for buyers to switch to such changes, thus significantly slowing the company’s growth rate.

Threat of substitutes

Owing to the unique features that we incorporate into our products, the threat of substitute is contained. Most customers want to connect with the social world, run different programs at the same time with their gadgets and communicate with their loved ones. Apart from mobile phones and iPad, it is highly unlikely that customers will opt for landlines as a way to communicate due to the limited nature of the service it can provide. Hence, Navy does not consider substitutes as a threat to its future growth.

Industry Life Cycle

In the Strategic Management Journal, Karniouchina et al. (2013) describe the various stages an organization undergoes when venturing into the market. These stages constitute the industry life cycle and include introduction, growth, maturity, and decline. When Navy was introduced, customer demands was low due to unfamiliarity with the company’s products. As such distribution channels were all under-developed. Eventually, Navy entered the growth stage where its products slowly attracted attention from larger market segments. As demand increased, revenue rose significantly until it became established. Due to its selling strategy, Navy has managed to establish itself in the market. Within the next three years, the company will reach maturity where there is no further growth. To maintain profitability, Navy has laid down strategies of deterring new entrants. Within the next five years, the growth rate is expected to decline due to intense competition. However, the company has proactive measures that include a focus on the most profitable brand.

PESTEL Analysis

Political tensions between the USA and China increased tariffs for products moving from the USA to Asia from $7 to $12. In most scenarios, such a move would increase firms’ production costs. However, USA retaliation with similar tariff has offset the imbalance created. This has enabled Navy’s production costs to remain stable, making it easier for the company to determine the strategy to oust its competitors in either product quality or pricing. Technological evolution with the introduction of Tech 4 designs poses both benefits and challenges to Navy due to the higher costs of research and development needed to incorporate this technology into mobile devices. Retaliatory actions against increased interests’ rates in any country within our markets offsets any possible increase in production costs.

Competitive Map

Fig 2: Competitive map

Currently, every organization wants to come up with a strategy that enhances profitability and strong customer base. As seen in the competitive map above, Navy is experiencing more profitability and a stronger customer base than its rivals. Consequently, Navy has the potential to continue growing until it is well established in the market to be able to deter other competitors. The strong customer base and profitability are due to differentiated products that have amazing features that customers want.

Critical Evaluation of Sources of Competitive Advantage

From the financial data presented, it is evident that the Navy is doing well in the three markets. For instance, its profit and loss statement for USA, Asia and Europe markets indicates profits that are higher than competitors, despite some competitors trading publicly. However, for Europe, the penetration of the product is lower compared to the other two markets.

USA

Company

Green

Red

Blue

Orange

Grey

Milestone

Tech Mobile Inc

Navy

Profit/loss

-28,206

-17,915

-185,214

-51,483

74,779

-146,022

-976,739

217,740

Table 2: Profit and Loss Statement

ASIA

Company

Green

Red

Blue

Orange

Grey

Milestone

Tech Mobile Inc

Navy

Profit/loss

99,738

155,055

66,520

62,980

95,811

93,625

290,831

380,949

Table 3: Profit and Loss Statement

EUROPE

Company

Green

Red

Blue

Orange

Grey

Milestone

Tech Mobile Inc

Navy

Profit/loss

150,725

210,798

24,940

9,140

136,611

405,881

-3,848

307,835

Table 4: Profit and Loss Statement

Navy prides itself from several sources of competitive advantage on its resources, capabilities, and competencies. Due to the recent higher growth rate in Europe of 15%, and Asia over 30%, Navy is going to capitalize its strategy in these countries before the market matures by introducing both Tech 3 and 4, which has been in the USA markets that are currently going down. Using the VRIO (Valuable, Rare, Imitable, Organized) tool, several of our competitive advantages can be discerned. First, Navy seeks to further differentiate its products through the “augmented reality” concept that offers customers the opportunity to access more information through integrating computer data to real-life view. For instance, one can point the camera somewhere and then it generates an overlay of information regarding where to find nearest dining places or cafes as shown below.

Fig 3: Augmented reality screen

Secondly, Navy has a brand with a screen that can be folded and unfolded. The Organic Light-Emitting Diode (OLED) has permitted the implementation of this concept that provides customers the flexibility to play games and movies while maintaining the pocketable size.

Fig 4: Flexible screen

We are currently working on further differentiating our mobile phone by coming up with a design that contains in-built WVGA projector (Digital Light Projection) that can project up to 15 inches and its experimentation has been successful for companies such as Samsung.

Fig 5: In-built projector

The production costs are at an all-time low while the outsourcing costs are currently up 2% worldwide. However, this does not deter our efforts to continuously review our strategies in capitalizing on Tech 3 and Tech 4 that are gaining considerable demands especially in Asia and Europe. Navy is lenient to suppliers of the rare tantalum component, something that has created good relations that enable them to maintain a constant supply to the company. The production of unique devices has rendered competitors unable to imitate this due to their incompatible business model. Due to the size and different location of our company, there is a well-established chain of command, organized systems, processes, culture, and structure. Also, Navy competitive advantage is evident due to its higher profitability in all the three markets compared to that of competitors.

Critical Analysis of the Investment in R&D

Navy company is one year old and has not given a great deal of attention to research and development. Globally, the profit and loss statement indicate zero investment in R&D in all its three markets as compared to Red and Orange $55,000 each. Navy’s major strategic focus is how to remain competitive while not lowering its price rates but doing so through differentiation, quality products and integration of amazing features in the mobile phones. With its profits reaching at an all-time higher in round six due to reduced production costs, it would be advisable that measures be taken to direct some of the revenue into research and development to come up with more distinct products that will keep customers buying its products despite higher prices as compared to those of competitor.

In Europe, people are very appreciative of Tech 3, which the company has not given more attention but rather focused on Tech 1, 2 and 4. Researching on consumer preferences and buying patterns would be the first step of pursuing differentiation endeavors. Navy’s product introduction was robust through differentiation of its mobile devices but to ensure survival and continued profitability when the market matures, investing in R&D is critical. Also, most of its competitors apart from Red and Orange have not invested in research and development, owing to their common price selling strategy. However, if these competitors would decide to diversify in their strategy through research and development, they would likely threaten the comfort that Navy is enjoying. Navy has not considered this as a threat to its strategy, and thus it is likely to suffer when competitors change their tactics.

According to Coghlan and Teresa (2014), R&D is the cornerstone of competitive advantage in organizations. For instance, despite Apple Inc. products’ pricing remaining high than most of the competitors, the company still enjoys considerable customer base (Heracleous, 2013). The secret to Apple’s success is robust R&D processes, where highly skilled personnel spend nights trying to come up with distinct product features that get the first attention of buyers. As such, R&D has enabled the company to differentiate its devices from those of its competitors through a focus on unique and amazing features. This example shows just what the Navy is missing and the risk to its future survival in a highly competitive industry. Therefore, the adoption of R&D would enhance differentiation, lower cost structures and increase focus on the core business processes.

Recommendations for the Company’s Performance over the next three years

1. Despite several challenges that curtail or prevent Navy from fully taking advantage of the market opportunities, there are several functional, business and corporate strategies that can be adopted in the company. Due to the great potential for continuous growth, each year should come with additional mobile handset features that for differentiation.

2. Navy should develop and implement a translational strategy that is based on Tech 2, 3 and four while at the same time discontinuing the sale of Tech 1 due to its outdated features.

3. Next year should be defined by coming up with products such as Tech 2 (premium) and Tech 4 (mid-range) in the USA, Tech 2 (premium) and Tech 4 (mid-range) in Europe and Tech 2(premium) and Tech 4 (mid-range) in Asia.

4. The Tech 2 features required should be acquired while the research and development focus on the development and integration of Tech 3 and Tech 4.

5. Since the market is expected to grow by the next year, it would be wise to replace Tech 2 with Tech 3 in the three markets while initiating the launch of Tech 4 in Asia.

6. Create a signal to competitors that pricing is not the company’s selling strategy and offering products at a consistent price for the next three rounds.

7. The enhanced revenue generated (profitability) should be channeled into R&D so that the company can come up with even more enhanced product features.

8. To ensure sustenance or retention of its staff in all three markets, the company should consider performance appraisal as one way to motivate employees while also championing for their training and development.

9. The company currently experiences higher costs of production owing to its unique selling strategy as compared to the competitors. To ensure more revenue and further investment, the company should consider seeking constant suppliers of inputs so that the company can bargain the cost of supplies.

10. Evidence from the financial data shows that the company has inadequate sales personnel and should thus recruit through agencies or internal means skilled sales agents in all the three markets to ensure more reach to particular market segments.

Part 2

Stakeholder Analysis

Without stakeholders, the Navy would not have any projects in progress. Per se, stakeholders embody all interested parties in the company and are external (secondary) and internal (primary) in nature. For continuity in performance regarding profitability and customer satisfaction, stakeholder identification and mapping is a crucial step in every organization. Stakeholder mapping offers a visual representation over which they are organized based on criteria that can be used in managing them. The key criteria used include influence, interest, emotional stake, financial stake and those on the periphery and are still important to the organization. Navy has both internal and external stakeholders who play a critical part to ensure the day to day operations of the company. These are shown in the table below.

Fig 6: Stakeholder analysis

Internal Stakeholders

Stakeholder

Justification

The intensity of role played

Employees

They run operations and processes

Very active

Managers

They supervise operations and processes

Very active

Board members

They oversee the company direction

Active

Donors

They support the company through donations

Passive

Investors

They provide capital to the company for returns

Passive

Owners

They start the company

Least active

External stakeholder

Customers

They purchase final products

Very active

Suppliers

They provide inputs

Very active

Government agencies

They regulate practices

Active

Creditors

They finance the business

Active

Labour unions

They protect employees

Active

Community groups

They hold the company responsible/accountable for its activities

Active

Table 5: Stakeholder analysis

Navy’s internal stakeholders’ interests are based on employment, investment or ownership, and charity. They are directly linked to the success of the company since it was established. On the other hand, the external stakeholders are outside the company and are indirectly impacted by the decisions made or outcomes of its activities. External stakeholders’ stake in the firm is more representative than direct.

Stakeholder Management

The management of stakeholders is considered the most critical ingredient for the success of any organization. When making business decisions or undertaking analysis, Navy considers both its external and internal stakeholders. During stakeholder analysis, the evaluation of the influence and demands of stakeholders is done to come up with a ranking of those most likely to be affected by the company’s actions or influence the process in the company. Using the ranked stakeholder list, the management is then able to make more effective and balanced business decisions. Also, such a move leads to the exploration of various stakeholder motives and concerns that leads to the creation of positive relationships. According to Bourne (2016), a business is an open system that is founded on relationships and that no part of this system can be taken to be isolated. As such, all stakeholder must be treated ethically regardless of the level or nature of contribution they channel to the company. Also, sharing company performance reports or information with stakeholders is one way Navy engages them, which creates a good relationship that has translated into its current success.

References

Abolfazli, S., Sanaei, Z., Ahmed, E., Gani, A. and Buyya, R., 2014. Cloud-based augmentation for mobile devices: motivation, taxonomies, and open challenges. IEEE Communications Surveys & Tutorials, 16(1), pp.337-368

Bourne, L., 2016. Stakeholder relationship management: a maturity model for organizational implementation. Routledge.

Coghlan, D. and Brannick, T., 2014. Doing action research in your organization. Sage.

Davis, C.L. and Meunier, S., 2011. Business as usual? Economic responses to political tensions. American Journal of Political Science, 55(3), pp.628-646.

Green Jr, K.W., Zelbst, P.J., Meacham, J. and Bhadauria, V.S., 2012. Green supply chain management practices: impact on performance. Supply Chain Management: An International Journal, 17(3), pp.290-305.

Heracleous, L., 2013. Quantum strategy at apple inc. Organizational Dynamics, 42(2), pp.92-99.

Information Cesim R-1. (2018, December 30). Cesim Global Challenge. Retrieved from Information Cesim R-1: https://vdocuments.mx/information-cesim-r-1.html.

Karniouchina, E.V., Carson, S.J., Short, J.C. and Ketchen Jr, D.J., 2013. Extending the firm vs. industry debate: Does the industry life cycle stage matter? Strategic management journal, 34(8), pp.1010-1018.

Wedel, M. and Kamakura, W.A., 2012. Market Segmentation: Conceptual and methodological foundations (Vol. 8). Springer Science & Business Media.