Porter’s Five Forces on Smart Phone industry
Threats of New Entrants
1. The Smartphone industry is a well established market and the threats of a new entrant is low, as technology needed to rival the devices already available is quite advance if they want to differentiate from them 2. Barriers to entry in the mobile phone industry is high because any new entrants will need high investments in R&D, capital investment, technological investment and marketing in order to compete with the established organisations 3. Currently, Apple holds 39.2% of the market share, followed by Samsung 23.0%1. This makes it hard for new entrants to obtain their own market share 4. Product differentiation needed especially in this market. Nokia has created an established brand name for them internationally and this makes it hard for new entrants to compete. 5. Big firms may retaliate and try to prevent companies from entering the market by giving out special deals or lowering price to the point where it is not viable for new entrants to compete. 6. Patents also limit innovation and this will potentially deter new entrants. 7. Due to the size of the big firms such as Nokia, they will have an advantage over new entrants in terms of Economics of Scale. For example, Nokia is able to gain cheaper deals with its suppliers as it has been in the market for a longer period of time. Moreover, financially, Nokia has the advantage as it is able to obtain more funding from banks, shareholders or even the Finland government for R&D
EV: Threats of new entrants is very low and not a factor which Nokia should worry about. This is because the new entrant will need very high investments on product differentiation, marketing strategies and a long period of time to build their customer base and establish their company name.
Furthermore, after the merger with Microsoft, Nokia may prove to be a stronger force in the market especially now that Nokia will be able to have financial backings from Microsoft to invest in new technology innovations. Hence this may further deter new firms from entering the market.
Power of Suppliers
1. Nokia rely on its suppliers to supply equipments and parts for their mobile phones. Due to the various suppliers present in the market and the presence of overseas suppliers (e.g Foxconn), Nokia can easily switch to other suppliers. 2. As one of the leading mobile phone company in the industry, they will most likely have a strong position when bargaining with their suppliers 3. The current software supplier for their Smartphone is Microsoft and the operating platform is Windows. Microsoft has a high bargaining power. 4. With Nokia currently under Microsoft, the cost to switch to other software providers such as Android or IOS may be extremely costly as they will need to revamp their entire marketing strategy and so on. Hence, the power of the Microsoft is great. 5. The Windows platform is very different compared to other platforms like IOS and Android. The differentiation of Microsoft's Window software causes Microsoft to have an advantage over its rival, Google's Android.
EV: Overall, the power of software suppliers like Microsoft is high due to the limited number of suppliers in the market, the highly differentiated operating software, and the high switching cost. However, since the recent merge of Nokia and Microsoft, this bargaining power may not be so significant. Therefore, in the long term, the cost of using Windows may decrease and hence profit may increase, provided that the revenue generated is positive.
However, Nokia is in the position where they can bargain and negotiated with any mobile phone hardware maker due to the high volume of equipment suppliers especially in this globalised world. Nokia is one of the leading firms in the mobile phone industry so hence their suppliers would attempt make their prices competitive as they would not want to lose such an illustrious organisation.
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