CESIM Global Challenge Analysis Report with Mobile Phone Industry (GC0398)
Table of Contents
- Introduction.
- Market Analysis.
2.1 Competitors.
2.2 Geography and Technology.
2.3 Buyers’ preferences and Market Segmentation.
2.4 Sub-strategic Groups in the Mobile Phone Industry.
2.5 Market Shares.
2.6. Porter Five Forces Analysis.
2.7 Power of Complement Providers.
2.8 Industry Lifecycle Analysis.
2.9 PESTEL Framework.
- Competitive Advantage.
- Outsourcing Manufacturing.
4.1 Definition and Scope.
4.2 Global Trend of Outsourcing.
4.3 Trends in Manufacturing Outsourcing.
4.4 Outsourcing in Cesim.
Future Recommendations for NEFLA.
Conclusion.
APPENDICES.
Introduction
The United States Dept. of Justice, 10 years back decreed to major mobile phone manufacturers to change and appoint new top management for improving the mobile handsets industry. NEFLA also hired new managers to compete with other reorganized organizations (Ego-phone, Orange, and Smartphone). Research and development (R&D), production, marketing, and promotion were the core operations of mobile phone manufacturing companies. In the beginning sales revenue was more than one billion dollars which was a good starting point for NEFLA to compete.
This paper will give an insight into the performance analysis of NEFLA and its comparison with other competitors. Focusing on market and industry analysis, competitive advantages and capacity utilization, outsourcing, and future recommendations for better performance.
Market Analysis
A market analysis was done by using the following approaches.
2.1 Competitors
‘Competitive rivals are organizations with similar services and products aiming at the same customer groups’ (Johnson et al., 2014a). By considering these criteria there were 4 mobile companies in cesium simulation competing with each other and focusing on the same customer groups.
Named as:
- NEFLA
- Ego Phone
- Orange
- Smart Tech
2.2 Geography and Technology
Geographically mobile phone industry targeted three markets including:
- USA
- Asia
- Europe
Globally each market has variation in demand. Different technologies were ideal at different times in different regions. An increasing trend in both total demands by regions and Tech demonstrates that markets are not static and still in the growing phase (see Fig. 1). Though demand for Tech 1 and Tech 2 is declining at the same time it is uplifting for Tech 3 and Tech 4. It means that customers will be more inclined towards higher technologies in the future.
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Figure 1: Total Global Demand by Region and Tech (Source: D. Jones)
2.3 Buyers preferences and Market Segmentation
Analysis of customer demand facilitates to determine the potential of product characteristics, the willingness of customers to pay for any differentiation, and the company’s competitive position. (Grant, 2015)
Customer’s buying preferences were different because of that mobile companies opted for ‘Segmentation Strategy’. In Europe, people are more inclined towards technological advancement that’s why Tech 4 was launched in year 2 by Smart Tech but it was wrong timing because the industry was at the embryonic stage. While in Asia customers are more price sensitive. Therefore, companies (i.e. Orange) selling at low prices were ideal in Asia.
2.4 Sub-strategic Groups in Mobile Phone Industry
Strategic groups are positioning companies by making themselves significantly different from other companies by improving R&D and investing more in advertisements and using a better pricing approach. (Hill, Schilling, and Jones, 2014) Figure 2 depicts that Ego Phone spend more on R&D and promotion due to that it had the highest ROS of 23.68% (see Fig. 1 in Appendix for details). One reason for spending more money on R&D by Ego Phone was, as they bought licenses for new features and technology whereas NEFLA did more In-house R&D. Because of that NEFLA spend less on new technologies and features than Orange and Ego-Phone but compete at the same level and had 22.66% ROS in year 10.
Figure 2: Strategic Grouping on basis of Investments on R&D and Promotion (Source: Adapted from Johnson et al., 2014)
2.5 Market Shares
Market share is defined by the percentage of sales by each company. (The Economic Times, 2017) In year 10, the highest market share was gained by Orange (38%), followed by Ego Phone (25%), SmartPhone gain20% whereas NEFLA had the least of only 17%.
Figure 3: Average Market Share (%) in all-region by 4 companies (Source: Author)
Reasons: In the year FY1, NEFLA had a share of 32% of the market globally. But later on due to focusing more on Europe and Asia and leaving the niche market of the USA, the market share went down gradually. Aggressive pricing (extremely low pricing) and marketing by Ego Phone and Orange lift them up and NEFLA start drowning and had a loss of $65,133K in FY3 and market share was reduced to 21%. In FY4, NEFLA changed its strategies of pricing and went towards stability and had more profit than Orange in FY10.
2.6. Porter Five
Forces Analysis
Porter’s five forces analysis help to describe a stable industry structure that is attractive for new entrants and makes a potential profit over the period of time. (Hill, Schilling, and Jones, 2014) Figure 4 illustrates NEFLA’s competitive forces analysis. Five forces are as follows:
2.6.1 Risk of New Entrants
The mobile industry is quite attractive but now there are high entry barriers for new entrants. It is very difficult for new companies to jump into the industry because it is in a mature phase and there is high rivalry among existing companies in terms of price and technology features.
Apart from high entry barriers, Smart Tech is struggling to sustain and facing higher exit barriers because of huge investments in assets.
Because of industry maturity, it would be expensive for new companies to meet some level of production due to higher unit costs. Whereas with the progression of time existing companies have economies of scale and learning curves which results in lower costs. Figure 5 represents the difference between unit costs of Tech 2 of NEFLA (including averages of both in-house and outsourced production) during years 1-10 which reduced significantly due to the gain of learning and experience curve. The threat of entry is possible from the Outsourcing supplier as they also achieved these curves over the period of time.
2.6.2 Power of Buyers
The power of buyers is more in the mobile phone industry because they have several options for buying at different price range with a variety of latest technologies. Which reduced their switching costs and enhanced power.
Figure 4: NEFLA Competitive Forces Analysis (Source: Adapted from Hill, Schilling, and Jones, 2014)
Figure 5: Effect of Learning Curve on Economies of Scale in terms of Tech 2 in NEFLA (source: Adapted from Hill, Schilling, and Jones, 2014)
2.6.3 Power of Suppliers
The bargaining power of suppliers would be higher if there is no substitute and material is essential for companies. Suppliers can also threaten to enter companies’ customers. (Hill, Schilling, and Jones, 2014) Not enough information regarding suppliers in cesium.
2.6.4 Threats of Substitutes
No substitute industry is competing right now but maybe there would be any industry (e.g. landline phone) in the future.
2.6.5 Competitive Rivalry
Rivalry states the competitive tussle between companies to achieve maximum market share. (Hill, Schilling, and Jones, 2014) Competitive rivals of NEFLA includes Orange and Ego Phone
2.7 Power of Complement Providers
Some companies provide complementors, which add value to existing products and sometimes necessary for the product utility. (Hill, Schilling, and Jones, 2014) In cesium, the power of complement providers is more, as network coverage is a vital thing for the functionality of mobile phones. Providers of features also have power as well. They can raise selling prices of features to force companies to buy it if there is no alternative provider. Fig. 6 shows network coverage over a period of time. The scope of Tech 3 and Tec 4 is more in the future…………………..
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