Porters 5 Five Forces

1. SUBSTITUTES

The threat of substitutes in the mobile phone market is extremely low. Mobile phones/Smart phones itself are a substitute to most products such as fixed line phones, camera, media players, CD players etc. They have evolved from being a mere core device easing communications issues to becoming a holistic solution to today’s urgency of staying connected to mails, social platforms. Moreover, they have outgrown from an industry struggling with price wars to the one where phone is status symbol in its self. If ever a technological innovation could create something between a tablet and a smartphone that could be the closest to being a substitute to phone. The tablets today are more a replacement to laptops then phone. However, this industry suffers from intrinsic substitutes - Products that are created due to technological developments leading to 8-9 months product lifecycle.

1. COMPETITIVE RIVALRY

The mobile phone industry has evolved very rapidly specifically post 1990’s. From low cost handsets to feature phone to now smart phones that dominate almost half of the market, the industry has transformed aggressively to increasrd competition. In fact the rivalry in this industry has an added dimension of operating systems and other software sophistications that a handset offers. For instance, Google’s android created in 2008 acquired 52% market share within 3 years of its launch, shrinking Microsoft’s Windows share from 11% to 1.5% and Nokia’s share from 63% to 17%. Hence, phones dependent on these Operating systems gradually phased out of the market specifically Nokia.

The nature of competition in phone industry is largely oligopolistic in nature, mainly driven by product innovation & differentiation coupled with brand positioning. There are key major players such as Nokia, Apple and Samsung that sit on majority of the market share by sales and then there are few other players as well such as HTC, Motorola, LG and Blackberry.

Fig1. Brand Ownership (From Exhibit 11)

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Product Innovation & Product Portfolio: In mobile phone industry with on an average 30%-40% of the gross profit spent on R&D, it is absolutely significant to offer consumers a differentiated experience to grab or hold on to the market share. And along with this a product life cycle of less than a year calls for over anticipation of consumer preferences and re-engineering of products accordingly. But having an extremely diversified portfolio of products with too much customisation can be cost ineffective as it was for HTC. On the contrary Samsung struck the chord with its base model of ‘’Galaxy’’, making only slight modification for different markets.