Industry Competition Analysis Midterm Exam
1. What is Industry Life Cycle Theory?
Please use global mobile phone (cell phone) manufacturing industry as an example to explain this theory. (50%) Industry Lifecycle Theory describes the different phases of growth and decline that an industry moves through. In most examples of industry lifecycles there are either 4 or 5 phases as shown below:
Typical 4 Phase Cycle
| Typical 5 Phase Cycle
The key difference is often how the early or embryonic phases are broken down. Using the global mobile phone manufacturing industry as an example the process would best break down into 5 phases as set out below: * Embryonic (Product Development)
At this point (1960’s through early 1970’s) the product has no supporting industry. It is so revolutionary that the technology is for essential uses only, medical, research, finance, and military etc. For example when mobile telephones were first introduced; they were heavy, bulky and even required a suitcase for the battery. The technology is (by today’s standards) very primitive. * Introduction
Introduction is the very earliest stages of a product being released to the general market. The unique product has been developed and patented, thus beginning a new industry (perhaps the reason why some industry analysis charts start here and do not include the embryonic stage which is more connected to “Product Lifecycles”). At the introduction stage, the firm may be alone in the industry. In this case, in 1973 Motorola was the first to introduce the concept of mobile telecommunications for the everyday consumer (even though it was still quite an elite group of people who could afford them). They began producing the first commercially successful mobile phone the Motorola DynaTAC. At this point the life of the industry was still unproven and unknown. "Early adopters" and “innovators” needed to have the concepts relating to the product explained to foster growth in the industry. Firms often establish a niche for dominance during this phase. Examples of this are Motorola and Nokia. Between 1990 and 1999 they constituted 99% of the market, and if it weren’t for Siemens releasing the M30 in 2000 they would have been the only competitors for a whole decade. As indicated by charts 1 and 2 above a firm's profits are usually negative, even at this stage as they are recouping the heavy development costs. Any profits are usually quickly reinvested into the company to prepare it for the next life cycle stage. Introduction requires a significant cash outlay. * Growth & Innovation
Between about 1998 and 2000 there was an explosion in the mobile phone market where mobile phone holders changed from being a minority group to the majority. Within this time there was a consistent trend of manufacturers toward smaller and smaller handsets (which would continue until the smart phone revolution occurred). The growth period of the industry was prolonged by further technological innovation and upgradeability. * Maturity (Cost & Shakeout)
By the late 2000’s functional phones had entered almost every corner of western society. Grandma’s and grandpa’s have them, people have multiple phones for different purposes and they are commonplace. Growth was slowing as market saturation began to set in. Cash cow products continued to earn some profit for companies like Nokia, and they are still financially strong. A few large businesses like Nokia, Motorola, Sony (Ericcsson) and Samsung were all vying for space in the aging industry. This trend continued and Nokia will was the biggest mobile phone hardware manufacturer until 2010. Around this time “smart phone” industry was still in its infancy. Starting in around 2001 in North America smart phones became more mainstream in 2004 with the so called “feature-phones” but because of price they are still unable to compete for the kind of depth and breadth of market...
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