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The phone industry is one of the most dynamic and rapidly growing industries globally. Currently the market size for this industry is large and continues to expand globally. This market has been growing steadily as the number of cell phone users continues to increase. Rapid technological advancement has also played a role in the meteoric expansion of the industry and is expected to spearhead further expansion as cell phones become more sophisticated and enabled to perform more roles rather than their traditional role of communication. The industry is also one among the industries in the world that are marred with steep competition and rivalry. Most of this competition is visible in the pricing of the phone products, bundling a collection of functions in a single cell phone, improvements technologically, and improvement of landline services. The life cycle of the cell phone industry is at a mature stage. This means that almost all the potential customer in this industry use the industries products (Chan et al, 2006). This industry having numerous competitors, profitability highly depends on the ability to attract and retain new potential customers. Since technology on its own can never attract customers the companies in this industry employ other value added services to get them. Others employ innovative designs of phone to keep a stream of new customers to them selves.
The cell phone industry in the light of Porter’s five forces of competition
The industry environment normally has numerous effects on the strategic development and competitiveness of any company. The cell phone industry is exposed to stiff completion which can be analyzed through potter’s five forces of competition: Threats from new entrants, bargaining powers of buyers, bargaining power of suppliers, threats from substitute services and products and rivalry and threat from existing competitors (Ireland, Hoskisson & Hitt, 2005).
Threats form new entrants
As a result of high cost of entrance into this industry very few investors try to join it. This considerable reduces the threats from new entrants (Chan et al, 2006). According to Ireland, Hoskisson & Hitt (2005) this industry requires investment of a large sum of money to attain the economies of scale enjoyed by the already established companies of which most are working on differentiation and cost strategies.
The bargaining power of competitions
In countries where the phone user can switch service providers easily customers have a greater power as opposed to places where they are required to pay a contract termination fee whenthey decide to terminate the services of their current provider to take a new one. For instance, a research conducted in Florida revealed that contract termination fee hurt customers and limits their bargaining powers (Chan 2010).
The bargaining powers of suppliers
Though suppliers are numerous and have been receiving the companies in this industry, the suppliers have been very keen not to temper with their bargain powered. Evidently, suppliers in this industry have a considerably high bargaining power as compared to the consumers. However, as Chan eta al (2006) notes, companies are increasing pressure on the suppliers using “reverse e auction.” For instance Chan notes that T-Mobile uses e-auction asking vendors to bid against one another. According to Chan et al (2006) the presence of many suppliers is a diluting ingredient to their bargaining power. In addition to this, technological advancements severely affect the bargaining power of a number of these suppliers.
Threats from substitute services and products
Despite stiff competition from other cell phone service providers, there is also competition from services and products provided by industries that were originally not telecommunication industries. Such include the Satellite and cable TV operators who compete for buyers and bring into homes their direct lines, satellite links and broadband connections that perfect substitutes. The internet through reduced rate calls or internet telephony also provide anther big challenge to the cell phone companies (Ireland, Hoskisson & Hitt, 2005).
Rivalry and competition
The landscape in the phone industry I marred with cutthroat competition that spells doom for weaker competitors. This competition is certainly a product of the receptive market of the 90s and the deregulation of industry which paved way for the entrance on a lot more companies into the market. Technological advancements have further increased the completion a providers struggle to provide differentiated and diverse services and products. Chan et al (2006) also asserts that the companies have to use enticing services and prices to lure customers since the market is mature and no single company can dominate. This exposes all the companies to reduced profits. On the other hand the use of specialize equipment makes exit and liquidation very difficult.
The industries overall attractiveness
The available market prospects continue to be an attraction within the mobile phone industries. The usage of the cell phone is on the increase sincce new users especially teenagers being bought phone by their parents are on the increase. Also the technological development that is ongoing presents an opportunity to develop new unique services and snatch customers from other companies. Services such as access to internet on the phone have made the industry so attractive despite a few like mergers interfering with prices and making the industry unattractive.
Companies that have had a global presence
There are several companies that have managed to withstand the cutthroat competition and made use of every available opportunity to become recognized world wide. These companies include Motorola, Nokia, Siemens and Sony Ericson (Hoskisson, Ireland, & Hitt, 2007). As Chan et al (2006) notes these are the largest mobile phone manufacturers in the world. Nokia poses the largest market capital and equivalent high net income making the larges world producer. Motorola is lies second in terms of net income while Nokia’s Price/Earning ratio is the best. On the other hand, Ericsson posses the best gross margin. Siemens has a high market capitalization almost equal to that of Nokia. However, its net income is way below that of Nokia and Motorola.
Key to success of the cell phone company
There are five keys to the success if a phone company. Theses are basic factors, technical factors, service factors, pricing factors and competition factors. These factors are very important since they determine the satisfaction off the customers. The basic factors include basic services (Plunkett, 2006).
Long-term goals of the cell phone company the long-term goal of this cell phone company are to provide the best services to the customer, emerge as a leading service provider in the mobile industry, acquire a sizable market capitalization and enhance the net revenue.
The competitive environment of the cell phone industry
The cell phone industry is very competitive due to the large number of provider and companies that have been attracted here. According to Plunkett (2006) the companies and service providers have to consistently devise new strategies to remain in competition. Such strategies include amazing designs and competitive designs.
Overall objective of the cell phone industry
The cell phone company that I am designing will aim at making use of high quality low cost raw materials to produced high quality, affordable cell phones that meet the dynamic demand of the diversified market segments.