The Mobile Phone Instrument Industry: Sony Erricson
Introduction
Technology offers a perfect platform upon which business competition can be sustained. Companies which directly manufacture devices that use information technologies, such as mobile phone manufacturers, have witnessed heightened competition in the recent years as technological advances continuously get integrated into their devices. In other words, innovation plays a crucial role in determining the success and growth of a player in this industry. This paper seeks to discuss the competitive position of the mobile phone instrument industry in the United Kingdom market, but in particular will focus on Sony Erricson, one of the major players in the industry.
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Porter’s Five Forces Analysis of the Industry
Supplier power
Suppliers in this industry have the power to drive up prices due to their limited numbers. As competition in the mobile phone instrument industry now zeroes in on smartphones, microchips have particularly become integral in the industry. However, few companies, such as Samsung, can supply the industry with quality microchips at a fair price. It is expensive to switch between suppliers because at the moment, only Samsung deals in substantial quantities. In essence, this means any company that relies on Samsung for the supply of microchips will benefit from economies of scale in comparison to the other suppliers (YLE News 2010).
Buyer power
Buyers have the power to lower prices in the industry because of their trends in demand. According to data released by the World Factbook in 2010, the UK market had a total number of 80.79 million users of mobile phone users. This is a huge number whose trend in demand can force device manufacturers to reduce price in anticipation for attracting and maintaining market demands (Thomas 2011). It is fairly cheap for users to buy different handsets and swap their SIMs as they search for the best experience with their devices. A majority of the users are seeking to own quality smartphones and, therefore, their action and demand has the potential of driving price down (Singh & Goyal 2009).
Competitive rivalry
Competition is high in the market as many players are available in the industry and they attempt to outdo each other in attracting the market. Both Apple and Samsung have been wooing consumers with their quality smartphones while other players, such as Nokia, LG, Black Berry, and Sony Erricon have been making forays into the smartphone market. Although Apple’s
iPhone still enjoys a bigger market share, there has been increasing competition, particularly from Android based handsets, as well as from RIM’s Black Berry smartphones (Associated Press 2012).
Threat of substitution
All the industry players face the challenge of being substituted by their rivals. Innovation is the most important factor here as each mobile phone instrument manufacturer is seeking to avail devices that meet consumer’s demands. It is worth noting that as at present, almost all the mobile applications that are traded by Apple, for instance, can be accessed by Android users, or by Nokia’s and Black Berry users. Equally, smartphone designs and capabilities currently remain similar across all the mobile phone manufacturers (Tzu & Giles 2008).
Threat of new entry
It is a bit difficult for new players to venture into the mobile phone instrument manufacture industry. The costs involved are too high because current market players have invested heavily. Any new entrant will find it difficult to compete with such established manufacturers as Samsung, Nokia, or Apple mainly because of the economies of scale that these players enjoy. There are also too many existing patents which ideally discourages new entrants from venturing into the market (Lipsey & Chrystal 2007).
Three Major Threats to Sony Ericsson and their Implications
Supplier power
Sony Ericsson has relied on one particular supplier, based in Japan, for its materials and parts. However, following the early 2011 massive tsunami and earthquake that hit Japan, disruptions in supplies were felt, a scenario that negatively affected performance of the manufacturer. As a result, Sony Ericsson recorded slow growth as shipments of its mobile
devices were limited in markets. This occurred at a time when the manufacturer had anticipated resurgence with the launch of a series of new smartphones in the market (World Trade 2011).
Competition
Sony Ericsson has lagged behind in the mobile phone market competition. Its market share has been dwindling for a series of time as is the case with its profitability. The poor performance is attributable to the manufacturer’s delay in venturing into the smartphone market. As such, other major players such as Apple and Samsung have been enjoying massive market growth while Sony Ericsson has continuously recorded losses and its market share has dwindled to a paltry 5% (Pearce 2011).
Threat of substitution
As consumers of mobile phones continue to seek for devices with superior performance and innovation, Sony Ericsson faces the threat of its devices being substituted by other devices with greater performance. Innovation is significant in this aspect but the company’s power to innovate has been whittled down following a poor spate of performance. In this regard, therefore, Sony Ericsson’s financial base cannot support expensive research and development as is the case with its main rivals, Apple and Samsung.
Potential Strategies to Lessen these Impacts
Alternative suppliers
The company needs to seek different suppliers of its important materials and parts. This will reduce the risk of the company being affected by problems faced by a single supplier. It is advisable to have different suppliers from different countries so as to be certain of steady supplies. In this instance, when a natural calamity, like the earthquake and tsunami, hits a
particular supplier country, a different supplier from another country can be relied upon (Parlane 2001).
Cooperation with different industry players
Sony Ericsson can effectively compete with its rivals by cooperating with other industry players for purpose of improving its services. For instance, Google’s Android software for smartphones has been phenomenal in sustaining exemplary performances for such manufacturers as Samsung and HTC. By basing their handset on this software and others which are also well established, Sony Ericsson can build a competitive advantage with the potential of making it a market dominator. Already, the company managed to break even in the third quarter of 2011 following the release of its Xperia model which is based on the smartphone software Android (Hurwitz, 2011).
Financial support
A bail out from the current financial quagmire that has been occasioned by continued poor performance could easily see Sony Ericsson acquire the financial power necessary to undertake extensive research and development. This area is expensive yet its success mainly determines market performance for players. The two companies that have merged together, that is Sony Inc of Japan and Ericsson of Sweden need to contribute money for purposes of raising Sony Ericsson’s stake. The other industry rivals, mainly Samsung and Apple are enjoying huge capital base following their excellent market performance. The two companies, by virtue of their financial prowess, also lead in market research and innovations (Financial Times 2009).
Strategic External Uncertainties Faced by Sony Ericsson
Both the global economy as well as the dynamic nature of information technology poses external uncertainties which Sony Ericsson has to grapple with.
Different Scenarios for Economic Uncertainties
Fast growth
The global financial crisis could ease up as a result of the collective mitigation mechanisms employed by the different countries in the world. This would occasion a highly paced growth in economy as different countries seek to recover from lost opportunities. To sustain the growth, different authorities may lessen tax requirements which in essence could mean relatively cheaper cost of acquiring materials. The users will also have an improved disposal income, which means they can afford several high-end mobile phone handsets.
Negative growth
The uncertain nature of the global financial crisis can continue ravaging economies indefinitely. This would mean that more buyers slump into poverty as their buying power keeps dwindling. Demand for goods, such as mobile phones, will also reduce as buyers only seek to acquire basic commodities, such as food, shelter, and clothing. Companies, such as Sony
Ericsson, will lose out business as their markets continue shrinking
Different Scenarios for Technological Uncertainties
Low technological innovations
As growth in technology is continuously being witnessed, companies run the risk of their products and devices being rendered inferior in terms of the technology employed. For instance, since the introduction of smartphones and touchscreen technology, previously released mobile phones with high performance and special features, like cameras and integrated web browsers, have all been rendered as second-rate. Companies have been forced to slush prices beyond their incurred costs as they struggle with diminishing demand.
Super-high technological innovations
Using unique technology that has superior capabilities has the potential of creating competitive advantage and attracting huge market demands. Apple’s innovation in smartphones has enabled it to gain a huge market share as well as substantial revenues and customer trust. The company’s overall business performance in the mobile sector has since been experiencing overall growth (Leach 2012).
Strategic Implications
Fast economic growth
Buyers will have more disposable income which they will use to acquire quality, highend smartphones manufactured by Sony Ericsson, such as the Xperia Arc, Xperia Neo, and Xperia Play.
Manufacturers of mobile phones will also increase their capacity as a result of increased revenues from sales. The acquired revenues will be channeled towards research and development activities as every industry player will be seeking to build competent advantage through innovations.
Because of the heightened innovation activities, there will be too much competition between the industry players. Users will benefit from this competition because it will result in quality products while prices will remain affordable. In other words, consumers will obtain products and services that are commensurate to their expenditure.
Negative economic growth
With a poor economy, most users of mobile phones will be deprived of financial power. Their small disposable income power will occasion a scenario where high-end mobile phones, particularly the expensive smartphones, will be less marketable. The users will, instead, acquire
affordable, low-end mobile phones as they save their incomes for other basic expenditures, such as buying food, medicines, shelter, and clothing.
Industry players and manufacturers will negatively be affected as they will record low revenues. This will result in losses, forcing the manufactures to employ cost cutting techniques such as laying-off workers and reducing their production scales. They will also reduce prices of their manufactured products so as to attract substantial market demands.
Quality of manufactured mobile phones will also reduce considerably. This is because companies need to spend a lot of resources in order to be able to sustain research and development activities. Thus, in the absence of revenues companies will lack the necessary financial power needed to invest in research and development (Ireland, Hoskisson & Hitt 2005).
Low technological innovations
Consumers are likely to shun Sony Ericsson phones in case they will suspect or experience low standards of technological innovations. This is because many buyers are seeking for highly innovative technologies and will spend a lot of money to acquire such innovations. Thus, this will result in low demands for the company’s devices.
Because of the low market demands that have resulted from the use of poor technology, Sony Ericsson will be forced to lower its prices in order to attract high demands. However, the reduction in prices could affect business because the profitability margins will be too low.
The poor experience that farmers will encounter through the use of such poor technology and innovation will also result in a poor profile for the company. This means that even in the future when the company finally improves on its innovations and research, few buyers will be convinced.
Super-high technological innovations
With a state of the art technological innovation, Sony Ericsson will attract huge market demands as consumers will be seeking to acquire its services. The rise in demand will effectively occasion a price hike as more people will be willing to pay without putting emphasis on the cost.
The company’s global market share of mobile phone instruments will also increase tremendously. As such, its profits will rise considerably as well, as more and more users will be seeking to acquire its products. Additionally, the company will attract the best technologies in the market, such as the Android software, so as to effectively maintain its top market performance (Viardot 2004).
Comparison of Proposed Scenarios with Existing Strategies of the Company
Fast economic growth
Sony Ericsson is targeting to maintain its focus on the Xperia model alone. This smartphone model of the company is Android-based and has particularly been responsible for the company’s turnaround in business fortunes towards the end of 2011.
Negative economic growth
Sony Ericsson could be subjected to a buy-out incase poor economical growth persists. Sony Inc, Japan’s giant electronics manufacturer, which also co-owns the company with the Swedish company Ericsson, is set to buy out the venture and use its technological prowess to sustain it in the face of competitive forces from major players (Sweney, 2011).
Low technological innovations
Sony Ericsson’s spate of poor performance has been associated with little research and innovation development. This area, in particular, requires substantial funding which cannot be sustained by a financially weaker entity. As such, the company was looking up to its two main
parent firms, Sony Inc of Japan and Ericsson from Sweden to bail it out through company donations (Buddelmyer, Jensen & Webster 2010).
Super-high technological innovations
The collaboration between giant internet search engine Google and Sony Ericsson has seen the latter’s Xperia phone model based on the smartphone software Android. The Google software is of high technological quality which has been cited as the reason behind the tremendous growth recorded by such companies as Samsung and HTC, which also use the same software base (Thomas 2011).
Possible Strategic Changes
Sony Ericsson’s performance has adversely been affected by the series of losses that it has registered in the past couple of years. With the financial muscle that its main rivals, Apple and Samsung are enjoying, it sounds almost impossible for the company to catch up with the two market leaders and eventually turn the tables in its favor. In this regard, therefore, it would be appropriate for the company to seek a merger with another industry player so as to join forces together. This will give a boost to both its financial standing, as well as technological requirements (Stern Stewart & Company 2004).
Conclusion
The mobile phone instrument market in the UK is highly competitive owing to the existence of numerous established players in the industry. Higher innovations and research has boosted the performance of such players as Apple Inc and Samsung. The trend has shifted gradually towards smartphones as many consumers seek for their high performance capabilities. However, players who were slow to read the market mood and act accordingly, such as Sony
Ericsson have continuously suffered the consequences. The industry also has barriers to entry as it is highly costly to operate in and majority of the players rely on their economies of scale.
List of References
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