Analysis of Nokia's Competitive Policies
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Nokia’s Competitive Policies In Handset Industry in Asia
Chapter 1. Introduction
The progress of technology has altered our daily life routine dramatically. In recent 2 decades, people have seen the big convenience brought by colour TVã€ telephoneã€ laptopsã€ mobile phone and etc. Among them, the contribution of mobile phone is especially prominent: given the integration of technologies of Internet, laptop, and communication etc, the small and good looking handset will enable us ubiquitous application of modern multi-functions. The advantage of 3G even further attracts our minds with colourful imagination.
During the upgradation of our living style, we owe a lot to the companies of the handset industry, especially those popular giants including Nokia, Motorola and Samsung. When they change our living successfully, they realize their developing targets as well. For example, according to the Fortune Global 500 in 2005, Nokia and Motorola ranked 130th and 138 respectively1. Thus, they are recognized by the society.
It’s unpredictable for a company to achieve great goals without correct strategies to employ. In the fierce competition of handset industry in China, the correct competitive strategies are required for the participant to win market shares. Surely, sometimes the right strategies are difficult for survival. Nokia, as the no. 1 in the handset industry of China, is certainly the biggest winner through exertion of correct competitive strategies.
As is mentioned above, the competition in handset industry in China will become even more fiercer along with the emerging trend such as the advent of 3G, the alteration of distributing channels, and the improved leval of industrial centralization etc. So competitors should promptly adopt relevant changes of their competitive strategies to adapt to new environment.
This dissertation aims first to analyze the competitive strategies already employed by Nokia
1 Accessed on Feb.23rd, 2007, The List of Fortune Global 500 in 2005 http://brand.icxo.com/brand500/top500_1.htm
During the progress of Chinese handset industry. To confirm whether the competitive strategies are acurate, I use Porter’s 5 forces theory as the frame to anatomize the factors such as Economies of scale, Product differentiation, Capital requirements, Cost disadvantages, independent of size, Access to distribution channels, Government policies, and Competitor’s Retaliation. Thereby, the rationalities of Nokia’s competitive strategies in Chinese handset industry may be authenticated.
According to the great lots of evidence collected from website newspapers and catena, new trends of handset industry appear gradually. To grasp the future flux on market share and industrial environment, it is necessary for Nokia to nip in the bud.
As a natural extending of the aforesaid analysis on competitive strategies, this paper also expounds the reason causing the new industrial trend in Chinese handset industry and suggests the probable strategies Nokia may adopt.
As is well known, according to the Moore’s law, the chips of the handset is developing at a very rapid speed. Moreover, the handset is still influenced by the fluky vanguard fashion. It is not easy to survive in the fluctuate market, and say nothing of being leading company in the industry. I wish textual analysis might benefit the readers to recognize the industrial situation and use Nokia for reference.
This text takes a logical sequence to discuss the total analysis, so the chapters are in turn as follows: Introduction to Reportã€Introduction on Nokia Corporateã€ The Mobile Handset Industryã€Industrial Analysis Using Porter’s 5 Forces Theoriesã€ Analysis on Nokia’s Competitive Strategiesã€Evolution of Nokia’s Competitive Strategies and Conclusion. The content of each chapter encircles its name, and the detailed discussion will be deployed in the following chapter.
Chapter 2. Introduction on Nokia Corporate
With hundreds of years’ development, Nokia has successfully realized its industry transform within the world-wide range, and gradually established its leading position in the handset industry in China as well as in other area of all the world. The whole experience is full of legendary color, as is introduced as follows:
Section 1. Nokia’s Developing History
1ã€Brief Review on Nokia’s History
According to the introduction from Nokia’s autobiography, the roots of Nokia go back to the year 1865 with the establishment of a forest industry enterprise in Southwestern Finland by mining engineer Fredrik Idestam. Other relative events were the foundation of Finnish Rubber Works Ltd in 1898 and in 1912 Finnish Cable Works began operations. After decades of operation, the three companies were merged to form Nokia Corporation in 1967.
The world's first international cellular mobile telephone network, NMT, was introduced in Scandinavia in 1981 and Nokia made the first car phones for it. At the beginning of the 1980s, Nokia strengthened its position in the telecommunications and consumer electronics markets through the acquisitions of Mobira, Salora, Televa and Luxor of Sweden. In 1987, Nokia acquired the consumer electronics operations and part of the component business of the German Standard Elektrik Lorenz, as well as the French consumer electronics company Oceanic. In 1987, Nokia also purchased the Swiss cable machinery company Maillefer.
In the late 1980s, Nokia became the largest Scandinavian information technology company through the acquisition of Ericsson's data systems division. In 1989, Nokia conducted a significant expansion of its cable industry into Continental Europe by acquiring the Dutch cable company NKF.
In 1992, Jorma Ollila became the CEO of entire Nokia Group, who made a strategic decision to concentrate solely on telecommunications in the coming Digital Age. Thus, during the rest of the 1990s, Nokia continued to divest itself of all of its non-telecommunications divisions. This strategic shift consolidated the foundation for Nokia to become a worldwide famous leading company in telecom industry.2
2ã€Nokia’s Performance in Recent Years
After the strategic shift in 1990s, Nokia has established its leading position in the global telecommunication market. Every business item, especially mobile phone item, has exhibited high-speed of development ever since.
At present, Nokia comprises four main business groups: mobile handsets, multimedia, enterprise solutions, and networks. Among them, the mobile handset is the pillar business for entire group operation.
According to annual report of 2005, Nokia´s net sales arrived at EUR 34 191 million3, realizing an increase rate of 12.56% when compared with EUR 30376 million in 20004. Among the total net sales, sales of mobile phones reached EUR 20811 million, occupying 60.87% of the total net sales. In 1992, the mobile handset business only account for 20% of the total sales of entire group.
Nokia´s operating profit for 2005 reached EUR 4 639 million, representing a 2005 operating margin of 13.6%, and Operating profit in mobile handsets decreased 5% to EUR 3 598 million (operating profit of EUR 3 786 million in 20045), representing a 2005 operating margin of
2 Accessed on Feb.23rd, 2007, The History of Nokia 1865-2002, http://r2.nokia.com/nokiahistory/index.html
3 Accessed on Feb. 23rd, 2007, Key data of Nokia http://www.nokia.com/link?cid=EDITORIAL_4026
4 Accessed on Feb. 23rd, 2007, Annual Information 2000, http://www.nokia.com/A4126501
5 Accessed on Feb. 23rd, 2007, Annual Information 2004, http://www.nokia.com/A4126497
17.3%. However, in comparison with the EUR 83 million in 19926, the operating profit of mobile handset in 2005 represents more than 43 times increase.
As is recognized by the global consumers, Nokia brand was ranked 16th among The World 500 Most Influential Brands in 2005 by the World Brand Lab.
According to the Fortune Global 500 in 2005, Nokia group ranked 130th and represented no. 1 among the Industry of Network and Other Communications Equipment, taking a position higher than any other competitors.
From the aspect of mobile handset, till Sept. 2006, Nokia captures 35.1% of the global market. According to the Gartner institute, Motorola was in second place, with market share of 20.6%, and Samsung of South Korea saw its share of the world market fall to 12.2 % from 12.5 in third quarter 2005. 7
Obviously, Nokia has firmly established its leading position in its industry and has become the world's leading provider of mobile telephones.
Section 2. Nokia’s Development in China
The year Nokia traded with China can be traced back to 1950s. And later, until 1985, Nokia opened its first branch in Beijing to initiate its development of early stage in China.
In 1995, Nokia set its joint venture in China to produce large scale of GSM system equipment. Then, in 1997, Nokia deliver China the first GSM 1800 network. Soon later, in 2000, Nokia started up the Chinese GPRS network that is first one compatible with newest business
6 Martti Haikio (2003) NOKIA THE INSIDE STORY. Published by Edita Publishing Ltd and Nokia Oyj, Copyright 2002, Chinese Edition First Printed in Sept. 2003. pp.272-273.
7 Accessed on Feb. 23rd, 2007, Nokia is top mobile phone maker for Q3-Gartner, Nov. 23,2006 http://telecomasia.net/article.php?id_article=2793
standards in the world.8
In 2001, Nokia invited its main global partners including mainly hardware providers to invest about RMB 10 billion together in Star Net Industry District in order to form integrated production capabilities and to decrease cost.9
During 2003, Nokia released 15 styles of handsets and ranked no.1 of the GSM mobile handset. As is reported, the top 3 brands of GSM in 2003 are Nokiaã€Motorola and Samsung, with market shares respectively 17.23% ã€16.46%ã€and 11.81%.10
When entering into the new century, Nokia strengthens its cooperation with China in the field of communication technology and takes active part in the development of Information Industry in China. At the same time, Nokia commits itself to employment and cultivating of the local talents.
To the end of 2004, Nokia arrived at no. 1 of the whole handset sales in China. In 2005, the rising trend continued. It is calculated that Nokia captures 25.8% of domestic handset market share in 2005, realizing 10.8% more than in 2004. By contrast, the second brand Motorola only gets 8.7% of market share11.
After decades of tillage, Nokia has really established its leading position in the handset industry in China; it is believed that Nokia will actualize greater success in the mobile
8 Martti Haikio (2003) NOKIA THE INSIDE STORY: Beijing Strategies of Nokia, Published by Edita Publishing Ltd and Nokia Oyj, Copyright 2002, Chinese Edition First Printed in Sept. 2003. pp.234-236.
9 Accessed on Feb.23rd, 2007, Explore Star Net Industry District, by Wangshucheng, Huoxiaoguang, Yujingzhong, Source from Xinhua Agency. Yesky.com-Chinese IT website, http://www.yesky.com/135/215635.shtml
10 Accessed on Feb.23rd, 2007, Synthesized analysis report on handset in China by YiGuan, Jun. 29th, 2004, http://www.c114.net/zhuanti_simple/3g/Read_3g.asp?action=3gzlk&styptID=3&articleID=26
11 Accessed on Feb.23rd, 2007, Domestic Handset Market Share Declines March, 28th, 2006, http://www.chinamobile.gov.cn/200603/61242.shtml
communication market in China under the 3G era.
Chapter 3. The mobile handset industry
As is well known, competitive strategy is the outcome resulting from competitive environment. Without given circumstance, it will become meaningless to discuss whether the employment of certain competitive strategies by some enterprises is successful. Therefore, before anatomizing the competitive strategies of Nokia, we need to describe the notion of mobile handset industry and its main composing elements.
—What is a mobile handset
A mobile or cellular phone is a long-range, portable electronic device for personal telecommunications over long distances.
Most current mobile handsets connect to a cellular network of base stations (cell sites), which is in turn interconnected to the public switched telephone network (PSTN) (the exception are satellite phones). Cellular networks were first introduced in the early to mid 1980s (the 1G generation). Prior mobile handsets operating without a cellular network (the so-called 0G generation), such as Mobile Telephone Service, date back to 1945. Until the mid to late 1980s, most mobile handsets were sufficiently large that they were permanently installed in vehicles as car phones. With the advance of miniaturization, currently the vast majority of mobile handsets are handheld. In addition to the standard voice function of a telephone, a mobile handset can support many additional services such as SMS for text messaging, email, packet switching for access to the Internet, and MMS for sending and receiving photos and video.12
2. Brief Introduction on Global Mobile Handset Industry
Broadly speaking, the mobile handset industry consists of upstream suppliersã€whole handset
12 Accessed on Feb. 23rd, 2007, Mobile phone Definition Introduction, Sirchin-The Free Encyclopedia And Other Stuff Beta. http://www.reference.sirchin.com/?wiki:directories:mobile-phone
manufacturersã€network operatorsã€ downstream distributorsã€terminal retailers etc. From raw materials to handset product, from hardware suppliers to software providers, from the handset per se to service and content providers, mobile handset industry can be identified as the whole value chain encircling the handset’s substance concept.
From the narrow sense, mobile handset industry consists of the companies engaging in producing hardwareã€componentsã€and accessories of handset¼Œas well as assembling handset.
As is well known, the world's largest mobile handset manufacturers include Audiovox, BenQ-Siemens, High Tech Computer Corporation, Fujitsu, Kyocera, LG, Motorola, NEC, Nokia, Panasonic (Matsushita Electric), Pantech Curitel, Philips, Sagem, Samsung, Sanyo, Sharp, SK Teletech, Sony-Ericsson, T&A Alcatel and Toshiba. And the world's largest mobile phone operators include Orange SA, China Mobile and Vodafone. According to report on global mobile market in Q4 2005, the top 5 manufacturing companies are Nokia, Motorola, Samsung, LG, and Sony-Ericsson, with their global mobile handset market of 35%, 16.3%, 12.1%, 7.2% and 6.9% respectively13.
As is calculated, the mobile handset sales continue to grow worldwide, going up from 482.5 million in 2003 to 561 million in 2004. This growth rate is expected to gradually slow down over a period of five years. The estimated growth figures for these five years are—10% in 2005, 7.7% in 2006, 6.4% in 2007, 4.8% in 2008 and 2.6% in 2009.14
Clearly, the global handset industry has been growing fast and will continue to grow for next 3 years. However, the rate of industrial growth will calm down, a status leading to prudential optimism.
13 Accessed on Feb.23rd, 2007, Big Six Dominate Expanding Mobile Phone Market, by John Leyden. Feb.28th, 2006, http://www.theregister.co.uk/2006/02/28/gartner_mobile_market_2006/
14 Accessed on Feb.23rd, 2007, Changing Faces of The Global Mobile Handset Market –2007, Research and Consultancy Outsourcing Services, March 2005, Pages: 95 Researchandmarkets
3. Mobile handset Industry in China
Since China ushered in mobile handset in 1987, the handset users has reached 0.443 billion people, with the penetration rate of 33.9%; and the business revenue from mobile communication has occupied about 50% of whole revenue from telecommunication. Mobile communication has grown to be the main impetus of industrial development. 15
—3.1 Network operators
After many years of evolution, there are now 6 network system operators in China: Chinatelecomã€Chinanetcomã€Chinamobileã€Chinaunicomã€Chinasatcomã€and Chinatietong. Till May 2004, Chinamobile is No. 1, because it occupied more than 30% market share according to the business revenue. According to the 2005 annual report, Chinamobile achieved revenue of 243.04 billion RMB and net profit of 53.549 billion RMB, with customers covered 0.257 billion16.
—3.2 Overview of industrial developing situation
Chinese mobile handset industry keeps its rapid development in recent 5 years, and this trend is forecasted to be extended in the coming years. According to the MII, the handset output from year 2000 to 2005 is 52.57ã€83.97ã€120ã€186.44ã€231.75ã€303.67 million units respectively. The relevant yearly increasing rate reaches 59.73%ã€ 42.91%ã€55.37%ã€24.30%ã€31.03% respectively. Along with the high-speed increase in handset output, the handset users reaches 0.3934 billion people, and the popularization rate of mobile handset increase rapidly, arriving at 30.3 units per hundred people. However, compared with 60-odd units per hundred people in western developed countries, the future increasing space for handset is still optimistic.17
15 Accessed on Feb.23rd, 2007, The address on the Seminar of Constructing Green Handset Culture by Mr. Xiguohua, vice Minister of Mii of China in 21st Nov 2006, Beijing, on Website of Ministry of Information Industry of the People’s Republic of China
16 Accessed on Feb.23rd, 2007, the financial highlight, http://www.chinamobileltd.com/
17 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in
China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html
2001-2005 Handset Output in China83.97120186.44231.75303.6759.73%42.91%55.37%24.30%31.03%050100150200250300350200120022003200420050.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%OutputYearly Increasing Rate(%)
(Note: Amounts in millions of units. Source: Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html)
Simultaneously, China has gradually become the export base of mobile handset. According to the statistics of MII, the handset export in 2005 is 228 million units, occupying 75% of total handset production. Compared to the 43.3% of export rate in 2000, the higher rate for export in 2005 indicates the excess capacities of handset production and the advent of market maturation in China.18
It is estimated that in 2006, the output of handset will arrive at 0.34 billion units including 0.25 billion for export purpose19. Generally speaking, the developing trend of handset industry in China will maintain rapidã€healthyã€and harmony progress.
18 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html
19 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in
China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html
—3.3 Brand vendors
As is reported (Aug.13/2002, People’s Post Newspaper), Chinese mobile market was totally occupied by foreign brand handsets before 1998. According to the result of investigation on consumer products in main cities in China in 1998, the market share of mobile is as follows: Motorola 37.3%, Ericsson 28.6%, Nokia 15.6%, and the left 20% market share was distributed among other foreign brands such as Philips, Siemens, Alcater, and Sony etc.20
Following the market booming of handset, Chinese domestic brand vendors began to dissatisfy their original position of OEM only. In addition, with the reformation of approval system, more domestic powerful competitors enter handset industry. As is reported, there are now about 70 companies granted license to produce mobile21.
Although domestic brand vendors showed its competence and achieved brilliant performance in 2003, due to the lack of core technology and small scale of production, their total domestic market shares begin to fall down from the zenith of 60% in 2003 to 40.6% in 2005. And the ranked top 3 domestic brands occupy only 17.5% shares in comparison with 31.6% in 200322.
According to the 2005 rank on sale of GSM handset in China, the top 10 brand is in turn as follows: Nokiaã€Motorolaã€Samsungã€Birdã€Amoiã€Sony-Ericssonã€Lenovoã€TCLã€Koncaã€Haier. Among them, top 3 brands occupy 60.05% of domestic market share, a number overpassing the total result of domestic brands23.
20 Accessed on Feb.23rd, 2007, The competitive situation in handset market in China, http://www.china-qg.com/articleHistory/yingXiao/4/275.html
21 Accessed on Feb.23rd, 2007, Handset Market Increasingly Open, by Zhugangqi, Nov. 29th, 2006, http://www.cww.net.cn/consultation/shownews.asp?nid=207
22 Accessed on Feb.23rd, 2007, Market Shares of Foreign Handset Increasing Rapidly, Mar. 21st, 2006, Source: MII. http://www.ccw.com.cn/news2/mobile/htm2006/20060321_09RRM.htm
23 Accessed on Feb.23rd, 2007, Domestic Rank of Handset Sales, by YiGuan, Source: CNETNews.com.cn, http://www.cnetnews.com.cn/news/review/story/0,3800057985,39445251,00.htm
The following is the overview on the major participants, which probably possess potential capacity to challenge Nokia:
Motorola is known around the world for innovation and leadership in wireless and broadband communications. Motorola came to China in 1987 when it opened a representative office in Beijing. In 1992, Motorola (China) Electronics Ltd. was established in Tianjin, a major manufacturing base where Motorola produces mobile phones, two-way radios, wireless communications equipment for the Chinese and global markets. 24
Today, Motorola has one holding company, three wholly owned companies, five joint ventures, 16 R&D centers and 25 branch offices across China. At the end of 2005, the number of employees exceeded 10,000, and the total cumulative investment in China reached US$3.6 billion, making it one of the largest foreign investors in China. Investment in R&D has reached US$600 million.25
The goal of Motorola's China strategy is to build China into world-class production and R&D bases. While pursuing and maintaining market leadership in both mobile devices and infrastructure equipment, Motorola continues to develop businesses in digital trunking, broadband products, solutions and services.
As a runner-up in the mobile industry, Motorola keeps fighting its way for market leading position all the while. Undoubtedly, relying on its high-tech R&D and cogent brand, Motorola can be qualified as the strongest challenger for Nokia in the mobile handset manufacture industry, no matter in China or in global market.
24 Accessed on Feb.23rd, 2007, Motorola China is the biggest wholly foreign invested enterprise Source: Tianjin Developing District Investment Net, Jun. 26th, 2003, http://www.investteda.org/zxzx/tdtzdt/t20051025_6324.htm
25 Accessed on Feb.23rd, 2007, Motorola in China, http://www.motorola.com.cn/about/inchina/inchina_en.asp
Since it’s founding in 1938, SAMSUNG (Group) has maintained a mission statement that responds both to its own change, and to new developments in the world. After unremitting struggle for decades, the company grows from a domestic industrial leader into a global consumer electronics powerhouse.
Following its management philosophy-"We will devote our human resources and technology to create superior products and services, thereby contributing to a better global society", Samsung achieves quick pace of development. And Samsung’s brand value, a key engine of business growth, increased to US$8.31 billion in 2002 from US$6.37 billion in 2001 and was recognized by Interbrand Corporation as the fastest growing global brand.26
As one of its emphasized fields, Samsung endows mobile handset market with great efforts. It was reported that the expenditure of total R&D in Samsung reached 5 billion USD, including 2 billion especially for mobile handset R&D. Moreover, as an industrial newcomer compared with Nokia and Motorola, Samsung adopt several special developing strategies to overtake advanced companies, for example:
ô€º Samsung prefer cooperation with strong technology leader to research alone. Samsung plays more attention on how to obscure know-how in shorter period, and to avoid confrontation with powerful competitors. Then, through reverse engineering, Samsung can absorb the newest technology with high efficiency.
ô€º Based on owned technology, Samsung inclines not to further dig, but to emphasize on developing additional value of product in order to occupy the market rapidly. It’s not difficult to understand that Samsung’s mobile handset exhibits first design and fashionable appearance, the important feature attracting majorities of users. This feature benefits Samsung to be among global top 3 brands of mobile handset.
26 Accessed on Feb.23rd, 2007, Samsung’s Managing Philosophy, http://china.samsung.com.cn/public/gongyi.asp?sm=menu7
ô€º Expand rationally based on technology on hand. At present, Samsung has occupied already 65% of CDMA market in Korea, and the target at 20%-30% CDMA market share in China has become its next step, which means about 7.5-11million handset units. Believably, along with the deeper cooperation between Samsung and Qualcomm Incorporated, which is the owner of CDMA patent, Samsung will achieve more opportunities on market of CDMA handset, which is used by nearly 1/3 of global mobile user.
In conclusion, Samsung, as an active and ambition participant in mobile industry, has found a unique way to boom, and has grown to be an important industrial power unable to be neglected.
3.3.3 Indigenous Brands
Before 1998, domestic handset comes into the market in the form of joint ventures. During that period, they just assemble international brand handset. After 1998, domestic handset companies began to produce handset through OEM (Original Equipment Manufacturing) for international brands such as Samsung of Korea and SAGEM of France, which still not entered into China at that time. Simultaneously, some companies began to launch its own handset brand such as EC528 of Eastcom. In 1999, the market share of indigenous brand handset is less than 3% in China. However, until 2003, indigenous mobile handset arrived at its height of development, with a market share of 60%.
However, indigenous brand soon began to decline all- the- round, with a market share of less than 40% at the end of 2004. During 2005, this declining trend continues, with 10 more percent market share lost than 2004 at the year-end.
Relying on indigenous marketing advantage and OEM technology, domestic mobile handset manufacturers, as a whole, have grown up and gradually captured medium and low-end market. Although they encounter fierce competition and face present embarrassment, and even 3
brands that is Kejianã€ Pandan and Gaoke fade away in 200527, certain individual brand still actualize rapid development against the current and emerge. It is Lenovo that achieved 4.1% market share and ranked 7th in 2005; by contrast, its market share rises to 6.5% with a rank of 4th in June 2006 (from IDC report), an achievement invigorating all indigenous brands. 28
Considering the advantages of indigenous brands such as: flexible distributing- channelsã€sensitive price reflectionã€strong end-user networks and deep understanding of domestic fashion trend¼Œwe have no reason to doubt the future of indigenous handset development. In addition, Chinese government has shown its resolution to support domestic handset companies; surely the relative policies will be improved further. It is believable that indigenous brands, as a whole, will soon rally to enhance their market position.
Generally speaking, due to the recent situation of handset industry in China including the advent of 3G, all the brand vendors are adjusting each competitive strategies referring to individual inherent and existing advantages. In a word, new turn of reshuffle on handset industry in China is unveiling.
27 Accessed on Feb.23rd, 2007, March 16th, 2006, by Pengxuzhi, http://mobile.csonline.com.cn/jzsl/200512/t20051228_423095.htm
28 Accessed on Feb.23rd, 2007, Lenovo handset’s market share, Source: IDC, http://telecom.chinabyte.com/243/2576243.shtml
Chapter 4. Industrial Analysis using Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is arguably the most influential analytical model in analyzing industrial environment. Logically, it will greatly facilitate comprehending the rationality of Nokia’s competitive strategies to use Porter’s Five Forces model to analyze the competitive environment where Nokia is operating in China, before expounding Nokia’s detailed competitive strategies.
1. Theory Brief
Five Forces Analysis is a method used to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but focuses on an industry. It looks at five key forces namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
Porter’s five-force model is arguably the most influential analytical model in strategy. In practice, it is best applied to cases in which strategic decision-making is closely associated with industry conditions.
Porter’s Five Forces of Competitive Position
New Market Entrants, e.g.:
• Economies of scale
• Proprietary of product differences
• Brand identity
• Switching cost
• Expected retaliation
Supplier Power, e.g.:
ô€º Differentiation of inputs
ô€º Supplier concentration
ô€º Presence of substitute inputs
ô€º Switching costs of suppliers and firms in the industry
ô€º Importance of volume to supplier
Competitive Rivalry, e.g.:
• Industry growth
• Fixed costs/value added
• Intermittent overcapacity
• Product differences
• Brand identity
• Switching costs
• Corporate stakes
Buyer Power, e.g.:
• Buyer choice
• Buyer information
• Ability to backward integrate
• Substitute products
• Buyer switching costs relative to firm switching costs
Threat of Substitutes, e.g.:
• Relative price performance of substitutes versus firm concentration
• Switching costs
• Buyer propensity to substitute
29 Henry Mintzberg, Joseph Lampel, James Brian Quinn, Sumantra Ghoshal, (2002) THE STRATEGY PROCESS Concepts, Contexts, Cases FOURTH EDITH Prentice Hall, Upper Saddle River, New Jersey 07458, pp95.
The only deficiency with his model lies that the same analysis often applies equally well to more than one company (hence, the notion of “strategic groups”). And Porter’s emphasis on the importance of external context is balanced by Barney’s insistence that sustainable advantage depends as much or more on the internal resources of the firm. As Jay Barney argued that sustainable competitive advantage is not the product of correct position in the external environment but is derived from the firm’s internal resources. More specifically, resources must meet four criteria to confer sustainable competitive advantage. They must be valuable, inimitable, rare and nonsubstitutable.30
2. Brief on Mobile Handset Industry in China
According to the statistics from the reports of Ministry of Information Industry of the People’s Republic China (Abbr. MIIC hereinafter), the mobile user in China has experienced a continuous rising up from year 2001 to 2005: the units number of mobile user every year is 144.8mã€207mã€268.69mã€334.82mã€ and 393.43m, with an annual increasing rate of 69.85 %ã€42.96%ã€29.80%ã€24.61% and 17.50 % respectively.
Up to Mar. 2006, the mobile handset output arrived at 103.39m units, with an annual increase of 106.66% compared with 24.11m at Feb.2003.
Moreover, it was optimistic that the Chinese mobile market will further boom up based on the current number of 30.3 units per hundred people (MIIC 2005 communique), which is about 29% converted by penetration rate, less than 80% in western developed countries. Reportedly, Merrill Lynch's recent Global Handset Industry Update reports that the analysts expect China's penetration rate should reach just over 50% in 2010, up from 29% in 2005. This results in approximately 682 million Chinese mobile subscribers by 2010, up from 374 million in 2005, a
30 Henry Mintzberg, Joseph Lampel, James Brian Quinn, Sumantra Ghoshal, (2002) THE STRATEGY PROCESS Concepts, Contexts, Cases FOURTH EDITH Prentice Hall, Upper Saddle River, New Jersey 07458, pp102-105.
growth CAGR (abbr. of compound annual growth rate) of 13%.31
However, under the tremendous attraction of developing space on Chinese mobile handset market in the near future, more and more manufacturers join the industry and competition among contenders becomes much fiercer. The licensed handset manufacturers have increased to 65 units in Nov.2005 from 37 units in the end of 2004.32 Apparently, it’s impossible for a company to win without taking exact competitive strategy.
Section 1. The threat of entry
New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitors that the entrant can expect. If barriers to entry are high and a new comer can expect sharp retaliation from the entrenched competitors, obviously he will not pose a serious threat of entering. There are six major sources of barriers to entry:
1. Economies of scale
From common viewpoints, when more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, economies of scale are considered to be achieved. Certainly, economic growth may be achieved when economies of scale are realized.33
However, the effect of economies of scale deters entry by forcing the aspirant either to come in on a large scale or to accept a cost disadvantage. Scale economies can also act as hurdles in distribution, utilization of the sales force, financing, and nearly any other part of a business.
31 Accessed on Feb. 23rd, 2007, India and China to Drive Handset Market Growth, Cellular-News Source: ML estimates, http://www.cellular-news.com/story/20374.php
32 Accessed on Feb.23rd, 2007, MII Brewing Handset Exit Mechanism, Nov. 2005, Source: First Finance and Economics Daily, http://comm.ccidnet.com/art/1569/20051104/364877_1.html
33 Accessed on Feb.23rd, 2007, What are economies of scale by Reem Heakal, Jan. 27th, 2003, http://www.investopedia.com/articles/03/012703.asp
Theoretically, economies of scale can be divided into internal and external economies of scale34. Generally, when a company reduces costs and increases production, usually through division of labor and specialization, internal economies of scale have been achieved. External economies of scale occur outside of a firm, within an industry. Thus, when an industry's scope of operations expands due to, for example, the creation of a better transportation network, resulting in a subsequent decrease in cost for a company working within that industry, external economies of scale are thought to have been achieved. E.g. In 2002, Nokia invited its main global partners including mainly hardware providers to invest about RMB 10 billion together in Star Net Industry District in order to form integrated production capabilities and to decrease cost. And Motorola invested USD 1.7 billion in Tianjin to build its integrated circuit base. Surely, with external economies of scale, all firms within the industry will benefit.
External economies of scale can be reaped if the industry lessens the burdens of costly inputs by sharing technologyã€well-known brand and managerial expertise. As is well known, transnational companies spare no effort in constructing brand and investing in R&D. E.g. it is as early as 1991 that Nokia established its brand constructing strategy, and from then on, Nokia has invested heavily in brand polish and maintenance. According to the market investigation by IDC on Dec. 7, 2006¼Œthe results of recent multi-client study and survey of mobile phone and smart phone subscribers across five countries reveals that top global brands are in demand not only in developed countries such as the U.S., U.K., and Germany, but also in emerging countries such as India and China. The relative influence of brand on product choice (especially in China and India) suggests that many people seek out global brands and the prestige that they carry.35
34 Accessed on Feb.23rd, 2007, the definition of economies of scale, http://www.investopedia.com/terms/e/economiesofscale.asp
35 Accessed on Feb.23rd, 2007, IDC Finds Mobile Brand Preferences Vary by Country, Dec. 7 2006, IDC-CEMA, http://www.idc-cema.com/newsletters/January07/brand_preference_country.html
2. Product differentiation
Advertising, customer service, being first in the industry, and product differences are among the factors fostering brand identification. And, brand identification creates a barrier by forcing entrants to spend heavily to overcome customer loyalty.
On the one hand, companies may compete by changing the characteristics of the product they sell. The idea is to make product different to appeal to a different "market niche." Thus, competing companies may attain its market share and charge a price premium through reduced price sensitivity and reduced directness of competition.
On the other hand, new comers aim at existing niche market will inevitably face the established brand identification and customer loyalty. Necessarily, large expenditure is needed to fade the brands in a given segment and build own product image.
The objective of this strategy is to develop a position that potential customers will see as unique. If your target market sees your product as different from the competitors', you will have more flexibility in developing your marketing mix. A successful product differentiation strategy will move your product from competing based primarily on price to competing on non-price factors (such as product characteristics, distribution strategy, or promotional variables).
In fact, giant international mobile manufacturers have continuously strengthened their technology investment and developed their core technology, in order to establish their leading positions in the mobile handset industry. Motorola, as an example, has been a global leader in innovation in telecommunications. In China, Motorola has invested US$500 million in R&D, building more than 10 R&D centers and labs in Beijing, Tianjin, Shanghai, Nanjing, Chengdu and Hangzhou. The number of R&D staff has surpassed 2500 in 2005. 36
36 Accessed on Feb.23rd, 2007, Motorola in China -Introduction
Generally, the major sources of product differentiation are as follows:
ô€º Differences in quality or design among output
ô€º Ignorance of buyers regarding the essential characteristics and qualities of goods they are purchasing
ô€º Pervasive sales promotion activities of sellers and, in particular, advertising
ô€º Possibility of developing significant product differentiation through advertising is greatly enhanced for so called “gift goods” or “prestige goods”
Differentiation in the locations of sellers of the same good where the product fills no technical function but rather can satisfy many different sort of personal needs or uses (psychological or physical).
3. Capital requirements
The need to invest large financial resources in order to compete creates a barrier to entry, particularly if the capital is required for unrecoverable expenditures in up-front advertising or R&D. Capital is necessary not only for fixed facilities but also for customer credit, inventories, and absorbing start-up losses. While major corporations have the financial resources to invade almost any industry, the huge capital requirements in certain fields, such as mobile manufacturing, limit the pool of likely entrants.
For example, at the end of 2005, Motorola’s total cumulative investment in China reached US$3.6 billion, making it one of the largest foreign investors in China. Similarly, in 2005, Ericsson further proved its long-term commitment by announcing a USD 1 billion investment for the next five years in China to strengthen its competent capability37. It is arguably that almost all famous foreign mobile companies in China such as Nokia, Sony-Ericsson, and Samsung, along with domestic organisations such as Haier, TCL, and Amoi, possess sufficient
37 Accessed on Feb.23rd, 2007, Ericsson –Taking you forward, China Association of Enterprises with Foreign Investment (CAEFI), http://caefi.mofcom.gov.cn/aarticle/jingmaoxinxi/huiytj/200609/20060903295172.html
Capital to support their industrial investment. Almost every one of them finance their project from stock market.
To sum up, new entries need vast capital input to catch up along the high speed of mobile industrial progress, and bear the high risk of investing lose out.
4. Cost disadvantages independent of size
Entrenched companies may have cost advantages not available to potential rivals, no matter what their potential and attainable economies of scale. These advantages can stem from the effects of the proprietary technology, learning curve, access to the best raw materials sources, assets purchased at pre-inflation prices, government subsidies, or favourable locations. Sometimes cost effective advantages are legally enforceable, as they are through patent.
From the viewpoints of new contenders, they should first persuade customers to try new brand mobiles at the expenses of large expenditure, which is switching cost. Normaly, consumers are sensitive to the relevant advantages and disadvantages of any change from the status quo. Switching costs deter existing consumers to change their consuming habit. When facing switching costs, the rational consumer will not switch his supplier.
Fortunately, the market segment aimed by mobile producer is mainly designed concentrating on the young and active people group, whose major objects are novelty, fashion, and pattern. With the precondition of continuous innovation and technology improvement, such cost disadvantages will not construct insurmountable barrier.
However, in short-term, a vast majority of new comers will be Chinese domestic handset companies because of the new policy limiting the foreign brand in China. Being late in mobile handset manufacturing industry, domestic novices should cost big amount of capital to buy special technology to support each day manufacture. It is without question that both the profit margin of domestic handset and growing potential will be largely limited under the huge technical expenditure.
5. Access to distribution channels
A distribution channel contains individuals, systems, and tools responsible for taking the product from the production has to the consumption phase. Use of distribution channel in the aforesaid process improves the efficiency and ensures that the product reaches the right customer in a cost effective manner. Without available distribution platforms, a new contestant can do nothing but be restricted by the existing channel handling companies or even forced to create its own distribution channels.
Once a company has selected and developed a unique product or service, accurately positioned and targeted to consumers, and devised your packaging and pricing, the selection of distribution channels and sales people are then crucial to successful marketing.
There are a vast variety of possible distribution channels, including:
a) Retail outlets which are owned by your organisation or by an independent merchant or chain
b) Wholesale outlets which are of your own or those of independent distributors or the brokers
c) Sales force compensated by salary, commission, or both
d) Direct mail via your own catalog or flyers
e) Telemarketing on your own or through a contract firm
f) Cybermarketing, surfing the newest frontier
g) TV and cable direct marketing and home shopping channels
So far, the top foreign mobile companies in China such as Nokia, Sony-Ericsson and Motorola, they totally use a mixture of methods to sell their products, but mainly accept ‘general agent’ as their major distribution form. When entrusting several general distributors to sell their products through different agent layers, mobile producers can share the capital advantage and web resources from the agents, and the resulting high speed of distribution. However, this kind of distribution form will also engender such problems as price competition among different agents and lose of control on end-users.
As a contrast, Chinese domestic mobile companies such as Amoi, Haier and TCL, they usually take the distribution form of direct selling via supermarket and build their own sales force. Although this form need relatively long time to train team and extra money to invest, producers can contact retail terminal directly and can attain tough control over market. Under the fierce competition in mobile industry in China, the distribution form accepted by domestic manufacturers indicates an empirical method for other new comers.
6. Government policy
The government can limit or even foreclose industries with such controls as license requirements and limits on access to raw materials. The government also can play a major indirect role by affecting entry barriers through controls such as air and water pollution standards and safety regulations.
In China, companies should obtain the license first from MII before launching new handsets. Up to the end of Jan. 2006, there are totally 70 licenses granted to 57 companies to produce mobile phone, including GSM mobile and CDMA mobile.38
According to Chinese National Development and Reform Commission (Abbr. NDRC hereinafter), from Feb. 2005 on, the former examine and approve system for mobile license will be terminated, and new system by the form of sanction will be carried into execution. Although new system appears to be relatively looser in comparison with previous one for companies to join in handset industry, to prevent mobile surplus due to fiercer competition among mobile industry, MIIC still sets other doorsill such as least investing amount to limit new mobile producers. So, new comers can only join handset industry via 2 appropriate ways: one is waiting for administrative approval (or, sanction), the other is buying license from existing
38 Accessed on Feb.23rd, 2007, 70 license countrywide since the 5th group, Source: South City Newspaper, http://it.sohu.com/20060126/n241617481.shtml
mobile manufacturers or considering co-operation with incumbents. Inevitably, each approach will cost heavy expenditure to the new contenders.
Obviously, government policy do build entry barrier to new entry.
7. Competitor’s Retaliation
Moreover, the potential rival’s expectations about the reaction of existing competitors also will influence its decision on whether to enter. The company is likely to have second thoughts if incumbents have previously lashed out at new entrants.
Evidently, potential rivals should face the following reaction by incumbents:
ô€º As it is mentioned above, there are now about seventy companies granted license to produce mobile, and with the reformation of approval system, more competitors have opportunities to enter. According to the information from NDRC, domestic mobile producing capacities increase fastly, the annual mobile output will reach 0.5 billion, while the estimated operating time is only 50%. Apparently, there exist serious producing capacities surplus.
ô€º The top mobile producing incumbents (especially foreign top 4 companies in China such as Nokia, Motorola, Sony-Ericsson and Samsung) have experienced very long period to strengthen their vertical chain integration, which prevents new comers from sharing upstream and downstream resources.
ô€º Price promotion regularly, gradually becomes a common means to attract potential consumers and compete for consumers sincere to other brands. So, new comers to mobile industry should debase their original profit estimation to adapt to the market shift.
All the above measures construct certain difficult defence barriers by the incumbents. Under the threat of incumbents’ retaliation, new contenders had better to rectify their actual plan to avoid possibly fatal risks. According to the existing position, trans national brands already took up the top position of handset industry in China, grasped developing opportunities, and formed the barrier to after entering rivals.
Section 2. The power of buyers
From the standpoint of mobile manufacturers, their customers are different levels of wholesalers and retailers. Usually, they can force down prices, demand higher quality or more service, and play competitors off against each other, in order to make extra profit from purchase bargaining. Surely, the bargaining power of wholesalers and retailers will be intensified, because end-consumers tend to be more prices sensitive if they are purchasing products that are undifferentiated, expensive relative to their incomes and of a sort where quality is not particularly important.
From the viewpoint of top mobile manufacturers such as Nokia, Motorola etc., they have carried out a series of channel restructuring actions in recent years. Different kinds of sales channels are combined together to realize flat selling net for successful selling performance. Nevertheless, their major selling approach is still general agent of different levels. The mobile giants usually wholesale their handsets to several general agents first, and then these mobiles will again be wholesaled to provincial and local wholesalers, until finally local retailers buy these goods before selling to end-users. This kind of agent system facilitates mobile producers with adequate capital turnover and rapid market launch. As is reported, Nokia cooperates with 7 one-grade agents in China, which own many smaller two and three-grade agents over China. Based on sale channels, overseas mobile companies withstood the offensives from the Chinese mobile handset manufacturers in the front-end channel and even succeeded in extruding domestic mobile handset manufacturers’ survival space with the advanced back-end support.
From the viewpoint of native manufacturers, most of them established their own distribution channels, targeting at the second, third and fourth level markets. One possible reason to carry out direct supply and selling model is probably not able to share the existing channels controlled by top incumbents. The other is that this model benefits terminal grasp and market
influence. However, with a long and deep distribution channel plus a huge number of channel maintainers, the sales cost went high. Moreover, long distribution channels caused overstock and long period of capital return.
In fact, no matter what methods a company will adopt, it should actualize a comprehensive analysis and count the cost before making its final selections, because each approach takes its merit and shortcoming. For example, if general agent system is adopted, the negative effects should like: lack of control on retail-terminalsã€pressure on selling price due to competition among agentsã€difficulty to track goods flowing direction and so on. Practically, manufacturers should adopt some patterns fit for their present distributing need, and moreover, they should modify their channels to keep up with the turbulent selling market. For instance, in order to move close to market and form flexible decision mechanism, mobile manufacturers prefer flat and multi-mode selling structure.
Generally, with the increasingly intensified competition among handset industry and relatively less differentiated handset products, the buyers (from the viewpoint of handset manufacturers, mainly levels of wholesalers) exhibit their strong position in face of manufacturers. In certain situations, some manufacturers can hardly survive without the support of few giant distributors.
Section 3. The power of suppliers
Suppliers of handset manufacturers usually means those upstream factories and companies, which provide handset hardware(such as TFT-LCDã€crystal oscillatorã€linker etc.) ã€driving software and even whole OEM service. In China, mainly Taiwan electronic factories ¼ˆsuch as BenQã€Compal Communicationã€Foxconn etc.¼‰, some of which have located in southeast China, construct the major groups of handset hardware provider.
Theoretically, suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services. Powerful suppliers can thereby
squeeze profitability out of an industry unable to recover cost increases in its own prices. Theoretically, a supplier is powerful if
ô€º It is dominated by a few companies and is more concentrated than the industry it sells to.
ô€º Its product is unique or at least differentiated, or if it has built up switching costs. Switching costs are fixed costs buyers face in changing suppliers. Such as a buyer has invested heavily in specialized ancillary equipment or in learning how to operate a supplier’s equipment, or its production lines are connected to the supplier’s manufacturing facilities.
ô€º It poses a credible threat of integrating forward into the industry’s business.
ô€º The industry is not an important customer of the supplier group. If the industry is an important customer, suppliers’ fortunes will be closely tied to the industry, and they will want to protect the industry through reasonable pricing and assistance in activities like R&D and lobbying.
Actually, successful top mobile manufacturers care every details of cooperation with their main suppliers. Take Nokia as an example, close cooperation with customers and suppliers is one of its core development principles. It allows end-to-end efficiency and speed – key success factors for the entire supply chain. While openness and trust are important aspects when working together with suppliers and driving compliance, Nokia requires that all products and services sold under the Nokia brand be sourced according to practices which uphold internationally accepted standards. These sourcing practices also need to comply legally with human rights and workplace practices throughout the value chain. Nokia is constantly developing its processes and overall supply-demand network set-up to efficiently meet this growing demand. Through regular supplier assessments, Nokia use to promote good performance of suppliers and also to monitor their compliance. 39
Motorola, another mobile giant in China, has goals for inclusion of Diversity Suppliers and
39 Accessed on Feb.23rd, 2007, Corporate Responsibility of Nokia,
maintains management accountability for achievement of these goals. Motorola endeavors to conduct business in compliance with law and widely accepted norms of fairness and human decency (From Motorola Code of Business Conduct40), and looks to its Suppliers to act in a similar manner. These principles are as follows: compliance, anti-corruption, no unfair business practices, anti-discrimination, no forced labor, no-child labor, freedom of association, fair working hours and wages, safe and healthy working condition and environmental sustainability.
Generally speaking, the tremendous upstream factories can ensure sufficient supply of goods, however, the leap of applying new technologies used to disturb the normal rhythm of goods delivering, and thereby to block new handset launch under plan. To iron smooth the possible fluctuation of upstream supply, leading handset manufactures have already been strengthening administration on suppliers to establish solid foundation for stable quality of goods, sustainable development and mutual-benefit in the future. Attentively, neglect of building mutually strategic cooperation with upstream suppliers will lead to out of stock on key hardware sometimes and thereby loss of advantageously marketing opportunities.
Section 4. The threat of substitutes
The substitution effect occurs when the price of a good falls and the consumer substitutes more of this product for others. An example of a substitution effect would be the use of Internet shopping in place of routine trips to the grocery store or the mall, which might reduce personal transportation energy use. Generally speaking, the substitution effect can be classified as follows:
ô€º Product-for-product substitution e.g. email for fax.
ô€º Substitution of need e.g. better toothpaste reduces the need for dentists.
ô€º Generic substitution (competing for the currency in your pocket) e.g. Video suppliers
40 Accessed on Feb.23rd, 2007, Motorola Code of Business Conduct, http://www.motorola.com/content.jsp?globalObjectId=75-107
compete with travel companies.
By placing a ceiling on prices it can charge, substitute products or services limit the potential of an industry. Unless it can upgrade the quality of the product of the product or differentiate it somehow, the industry will suffer in earnings and possibly in growth.
In the field of high technology application, major manufacturers keep heavy R&D investment continuously attempting to lead the new product innovation. And the development of high technology has given birth to high degree of technology-integrated mobile product: smart phone, which is a result combined from PDAã€mobile and other functions. As is reported, the market of smart phone experienced a high sell increase of 120% in 200541. At the same time, the mobile handset becomes more and more multi-functional¼Œwhile PDA equipment becomes increasingly portable. Along with the large scale of launch of smart phone by mobile manufacturers and PDA enterprises simultaneously, the price will hopefully drop at a wide range, a course indicating that the substitute effect of high-end PDA mobile for single function mobile will be intensified.
From another point of view, relying on the advantage of low fee and low cost of handset, wireless local call (named Personal HandyPhone System, abbr. PHS hereinafter) becomes a strong substitute for mobile telephone and attract great lots of low-revenue people. As a means of complement and extend of fixed telephone, PHS user in China has overpass 85million at the end of 2005. With the improvement of serviceã€further exploitation on functions and expanding effectively in the country area, the future of PHS in China can be optimistic. In other words, the substitute effect of PHS for mobile telephone in specific crowd likewise deserves to expect.
In a word, to counteract the substitute effect, mobile functions should be designed to meet the special demand of target people, which should be based on the detailed market investigation.
41 Accessed on Feb.23rd, 2007, The market share of smart phone, by Chengtangan, Apr. 11th, 2006, China Economic Net, http://www.ce.cn/cysc/communications/yjdt/200604/11/t20060411_6659747.shtml
Section 5. Competitive Rivalry
Rivalry among existing competitors takes the familiar form of jockeying for position-using tactics like price competition, new product launch, and advertising slugfests. Theoretically, intensive rivalry is related to the presence of a number of factors:
ô€º Competitors are numerous and generally equal in size and power.
ô€º There exists impulse to reallocate current market share when industry growth is slow.
ô€º The product or service lacks differentiation or switching costs, and is easy to be attacked by market raiders.
ô€º Fixed costs are high or the product is perishable, creating strong temptation to cut prices.
ô€º Capacity augmentation is out of control and often leads to periods of overcapacity and following price-cutting.
ô€º High exit barriers, like very specialized assets or management’s loyalty to a particular business, keep companies competing even though they may even bear negative returns on investment.
These factors build into industry economies. And, due to the interaction and interdependence among industrial members, rational application of competitive strategy such as advertising war and technology upgrade, will improve not only the rival sponsor’s living condition, but also the economic environment of the other participants in the same industry. While, some strategies, such as malicious price cutting, will deprive competitors of potential profitã€impair their potential capacity for future development and even threaten their survival condition.
According to report on global handset market, the top 5 manufacturing companies are Nokia, Motorola, Samsung, LG, and Sony-Ericsson, with their global mobile phone market of 35%, 16.3%, 12.1%, 7.2% and 6.9% respectively. Among the top 5, Nokia attained 35% of the global mobile phone market in Q4 2005. Its market share grew from 33% in Q4 2004, while Motorola climbed to 16.3% on the back of its popular RAZR thin phone and ultra cheap models it has introduced for emerging markets. Nokia’s highest ever market share was in 2002 when it
achieved 35.8% for the year. Its highest market share in a single quarter was 36.9% in Q4 2001. Samsung’s market share slipped to 12.1% from 12.2% in Q4 2004. (blogs.zdnet.com) Apparently, there exists market share gap between no.1 and no. 2; it’s unimaginable to weaken Nokia’s leading position on the international mobile market in foreseeable period.
According to research on Chinese domestic handset market, at the end of 2005, the top 5 mobile handset manufacturers in China are in turn: Nokia, Motorola, Samsung, Bird, and Amoi, with holistic mobile selling market share of 23.8%, 13.3%, 9.6%, 6.1% and 4.2% respectively. Compared with previous top list, the market positions of first 3 companies still keep relatively stable; while the domestic mobile handset producers such as Bird and Amoi begin to make a figure.
Section 6. Conclusion based on Porter’s model
To sum up, the aforementioned analysis based on Porter&rsquo
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