Structure in the Mobile Phone Industry - Assignment Example

The Mobile Phone Industry The Mobile Phone Industry The Structure Conduct Performance approach is employed in analysing the connection between the structure of the industry along with the performance of firms in the industry through their conduct. Structure deals with the amount and distribution of firms in the industry, entry barriers and advertising. Conduct covers pricing by the firms, output decision and attitude towards rivals and performance will be indicated by efficiency, profitability and market growth. Structure in the Mobile Phone Industry Since there are many buyers of mobile phone in UK market who individually have very limited purchase power, the number and size distribution of mobile phones is a one structure variables. The price power of mobile phone is strongly controlled by manufacturers who also play the real seller roles (Gee, 2013). The biggest mobile phone manufacturers in the United Kingdom include Apple,Inc., Samsung, Nokia and. The rest, HTC, Motorola, LG and Sony fall behind. It is obviously from figure 1 that the UK mobile phone market was dominated by 3 biggest firms which are Apple, Samsung and Nokia which occupied 65% market share in sum in 2013. It is significant also to note that even though Nokia has been placed among the biggest brand, its popularity has been declining of the past few years since it was number one on the list but recently overtaken by Apple, Inc. and Samsung (Gee, 2014). Figure 1. (Gee, 2014) From figure 2 below, we can see that the concentrate ratio of the 3 biggest firms has been constantly increasing regardless of the slight fall in 2011, mostly because the significant market share of Nokia fell from 26% to 21%. As revealed in the previous paragraph, Nokia lost its position because of its slow response to manufacturing smart phones (Gee, 2011). Samsung and Apple, on the other hand, took advantage of this and even occupied more than Nokia lost. Their growth was 17% from 2010 to 2013 compared to the market share loss of 10% for Nokia. Figure 2. Year Number of large firms CRN CR3 Herfindahl-index 2013 (1) 8 0.9 0.65 0.1812 2012 (2) 8 0.94 0.6 0.1536 2011 (3) 8 0.93 0.58 0.1534 2010 (3) 7 0.89 0.6 0.1524 (Adopt from Gee(2014) (1), Gee (2013) (2), Liao (2012) (3) ) Although different mobile phone brands are similar judging by their function, which mainly is calling, messaging and accessing the internet, they can deeply be subdivided by some standards, such as feature phone and smart phone depending on their operate systems and 4G phones and 3G phones according to network type etc. Nokia launched 5 new products in 2013 which consisted of a feature phone Asha 502 and a smart phone Lumia 1320 (Business Today, 2013). This creates a barrier to other potential entrants who planned to enter the market by market segment. However, the smart phone is the future direction. Smart phones enjoy over 50% of the market share and there will be more and more in the future (Gee, 2014). The product in the market therefore can be defined as differential goods arise from 3 biggest manufactures devote to develop different operate system of product. As the core feature of smart phone, their operate system market share has been demonstrate in figure 3.Moreover, the mobile phone industry requires high volumes of production as well as sells in order to attain lower marginal cost via economic of scale , which is a another barrier to firms that do not have ample resources. However, the heterogeneous nature of product represents an opportunity for potential entrant to innovation and diversification. iPhone, for instance, has helped Apple occupied 19% market share. Figure 3 (Gee, 2014) Conduct in the Mobile Phone Industry From the view point of neo-classical economicstheoryof firm, the UK mobile market has an oligopoly mobile structure (Fjeldstad et al. 2004). Only a few large firms dominate the market and they are interdependence , meaning that they sit together and agree on the prices they will charge (Lipczynskiet al, 2005). In addition, large firms acting as an oligopoly market are not willing to start a price war with rivals as the market demand is inelastic; leads to a situation where the price is lower than the equilibrium price according to Paul Sweezy’s Kinked Demand Curve. One the other hand, raising of prices is another bad opinion because market demand is elastic when the prices of product are higher than the equilibrium price that will cause significant sales loss to arise from raise price. The rivals will not follow to price up but takeover the market share which that firm lost unless there is collusion. Thus, all large firms would like to keep pricing policy which at equilibrium prices in order to maximization their profit (Rothschild, 1992). Research and development competition between these large firms is also more intense than ever before (Lemstra& Melody 2014). All large firms in the market have poured a lot of capital into their own research and development department. Maintaining a high level of technology and innovation is essential for mobile phone manufacturers. That is why companies with better operating systems and hardware tend to win in the mobile phone industry. Good performance of R&D provides high performance hardware, lower cost of production and attractive designs, etc. which contribute to a companys to market share and profit. On the other hand, patent wars as the result of R&D competition that highlight the intensity of competition has been related to regulation issues. Patent is government protection that arose from, R&D that prevents rivals from plagiarizing own intellectual property for reducing R&D cost illegally. According to Narumon (2014), there were over 50 lawsuits between Apple and Samsung relating to patent plagiarism in 2011, alone. Apple was awarded over $1.05 billion from Samsung for copying their design alone. These lawsuits made Samsung delay in launching new products worldwide including the UK market and 7% drop of stock price after that (Narumon, 2014). This patent war negatively affects the Samsung market conduct and cause a change in the market structure. Moreover, patent is also a barrier for the potential entrant which set by government policy. PerformanceWithin the Mobile Phone Industry Figure 4-value of mobile phone sales in UK (Gee, 2014) As figure 4 shows, total mobile phone sales within UK market is continuous growing after modifying the inflation effect. Excellent performance and increasing demand within the UK mobile phone market give opportunities for large firms to perform better toachieve the technology progress and profit maximize.The need for access to business information and application through mobile technologies like Mac OS, IOS, Android, Windows or RIM for BlackBerry is swelling as consumer preferences and behaviour spill into the mobile phone technology industry.(Lemstra& Melody 2014, p. 92) The substantial growth of endorsement of such technologies in the United Kingdom has these phone companies thinking of how to successfully position their organisation to profit highly from the trend. Against this thrilling mobile background, having mobile access to e-mail is deeply inadequate for rising productivity and creating better-educatedworkers. The integration of mobile devices likesmartphones, laptops, tablet computers and PDAs along with their numerous applications and software, makes it much easier than ever for people to collaborate and businesses to interact with customers, staff and vendors(Lemstra& Melody 2014, p. 93). There is the viewpoint of the Chicago school where business have to ensure efficiency and profitability at the same time(Lipczynskiet al, 2005). The firms have to be invest in R&D for product attractive and also make the organization profitablein the meantime. Figure 5 demonstrate the financial performance of large firms worldwide. All 3 biggest firm within UK market have operated profitable and achieved huge sales revenue compare with other firms. Huge sales volume will help these organizations attain economic of scale in a breeze thereby further shaving marginal cost for gaining abnormal profit. Moreover, international producing such as material purchase internationally and labor recruit internationally has cost efficiently allocated production resources. All the previous strategies will further strength the monopoly power for these biggest firms to drive rivals out of the market. Figure 5. (Gee, 2014) Ways In Which New And Existing Firms Attempt To Enter The Industry And To Expand? What Barriers To Entry And Mobility Exist And How Do Firms Overcome Them? People have asked how firms such as Apple, Inc., Nokia, Samsung and BlackBerry have managed to maintain high shares of the UK mobile industry when firms such as LG, Lenovo, BlackBerry and even old names such as Sony Erickson and Motorola have been passed by these 3giants (Lemstra& Melody 2014, p. 76). These firms came into the UK market and managed to tap into it with their advanced technology and attractive design concept which are also the key barriers for potential entrant. When you look at these three firms, they know how to combine the amazing design with advanced technology and make products stand out in order to attract the market. These 3 companies know how to make clients feel value for their products. For instance, Apple phones go for around £699, but they boost that their Mac OS is to strong that it can never crash. Also, they claim that their software cannot be affected by any virus (Stilgoe 2007, p. 87). Samsung, on the other hand, is known for coming up with sleek designs and stylish handsets that can serve any purpose from entertainment to business matters. This is what a majority of clients want to feel from a mobile phone unlike other models, which these all are result of outstanding performance of R&D department. Meanwhile, almost every outcome from R&D department has applied for a patent that make sure no way for entrant by copying. On the other hand, Some of the barriers to entry include economies of scale and scope for reducing cost and enhance customers’ stickiness. It is reported that about 80 million IPhone6 were manufactured with selling price of at least £539 per unit, however, the production cost of an IPhone 6 is only about $200 (Time, 2014). Enormous production volume significantly reduced the marginal cost of product by meeting the economics of scale production quantity. In addition, Economic of scope made firms further recuing the production cost and behavior more dynamic in competition. All 3 biggest firm have achieve the product diversification which including computer, PDA, laptop, software and numerous applications. However, this barrier play an limited role when rivals and potential entrant with huge firmsize and great performance outside the UK market such as Sony, HTC, Blackberry etc. these transnational enterprises have already achieve economic of scale and scope in term of international production. New firms enter the mobile phone industry through methods such as innovation and mergers and assuming market segments with clients who would like to use their products. Companies are coming up with innovate technologies, which have not been tried out by previous companies in order to peruse the market. For instance, companies such as Huwei, Blackberry and HTC among other companies are coming up with mobile phones that incorporate almost the same functions that phones from the three giants incorporate. The main difference is that some of these handsets are development a few outstanding features which 3 firms did have. For instance, Sonycomes with enhanced cameras than what Apple offers and Blackberry announced their product are most private that impossible to be monitor and hacked into (Lemstra& Melody 2014). Merger is also another way that new firms have used to penetrate the market. For instance, Microsoft knew that it would be hard for them to sell mobile phones that use windows OS to people and they have even ever produced a mobile phone. Their merger with Nokia helped them not only in marketing their phones that use windows OS, but also gaining the trust of their clients that the phones are worth their hype. Nokia also had slip from the market but this merger helped them gain their feet (Lemstra& Melody 2014). Companies venturing into the UK mobile industry via merger in order to acquire the marketing and distribution channel, brand recognition andpatent thereby best to access the new market. Which Approach(Es) Provide The Most Valid Insight Into How Markets Develop Over Time? SCP model points out that the structural characteristics of the market influence the conduct which in turn influence the performance of the firms in the mobile industry. Nevertheless, there are some forces which provide an understanding of the competitiveness of the mobile industry (Bijl&Peitz 2003). It is in line with this that makes me believe that the most significant approach to show how markets develop over time is the Austrian school and approach of Joseph Schumpeter. Austrian school rejects the worry circulating the state of equilibrium in a market plus its properties from which the neo-classical competition point of view (Stilgoe 2007, p. 60). The Austrian school considers more dynamic approach of non- static view of competition such as entrepreneurs and innovation (Lipczynskiet al, 2005). These are the people who have all the insight that enables them to see fresh opportunities and also risk exploiting them in order to make that much needed profit (Buigues& Rey 2004, p. 90). Furthermore, innovation creates changes in quality of product made product profitable as well. We can see that Apple, Nokia and Samsung are leading the innovative growth in the mobile phone industry. The Austrian school claims that greater profits are a great indicator of efficiency with regards to power of the market (Canning 2006, p. 76). Abnormal profit is considered as a return for innovative business leadership. 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