Competitive advantage of Motorola mobile phones PDF

Preview

Summary

Essay on competitive advantage of Motorola mobile phones, got a Distinction. Comprehensive analysis of porter's five forces....

Description

Introduction The Chinese PC maker Lenovo has substantial experiences in the PC sector, the company is estimated to worth US$34 billion with markets in 160 countries (Montlake 2013). However, Lenovo’s acquisition of Motorola Mobility is a venture into a new field that should be distinguished from their experience in the PC industry. Despite Lenovo’s CEO’s optimistic outlook, this study examines and concludes that the global smartphone industry limits the likely success of Motorola Mobility, using the United States as an example of global market, the industry possesses strong internal competition and high barriers of entry, although there are lesser substitutes and weaker supplier bargaining power, the moderately strong buying power of consumers also dictates a possible solution for niche products. This study began the analysis with Porter’s five models and concludes that the make or break of a company nevertheless involves an internal look at the firm’s resources. Regardless of the external variants, Lenovo could consider focusing on honing Motorola’s inherent strengths to attract wider consumer base and henceforth, creating profits.

Internal Competition The industry analysis begins with the internal competition for the smartphone industry. Lenovo disclosed an intention of using Motorola Mobility as a gateway to expand into the United States smartphone market. The United States houses the largest smartphone market in the world with 68.4% of their population using smartphones (Statista 2017). Apple and Samsung occupies a substantial chunk of the pie as the key competitors in the field (Statista 2017). Further on, Lenovo’s Motorola Mobility would also be in competition in its home market of China with the likes of Xiaomi, Oppo and Huawei. In analysing the extent of internal competition, lessons could be learnt from the previous ownership of Google in the

challenges they encountered with the subsidiary Motorola. Firstly, under Google’s ownership, Motorola’s market share was boosted by a focus on emerging markets instead of developed markets such as the United States. Motorola performed stronger sales in markets such as India as it is affordable with an emphasis for low-end devices (Winkler 2014). This is in distinct contrast with Lenovo’s plan to tackle on the United States, such market encompasses a range of differing challenges from what the brand has successfully impetrated in the Indian market. The United States market is heavily technology focused, Apple and Samsung are leading rivals in the market for Android smartphones. Apple is a brand that is at the heart and roots of smartphone consummation, its creator Steve Jobs has successfully created an empire where people are not only familiar with the building of the home made icon but also entrusts the familiarity into brand recognition and awareness. On the other hand, Samsung is the key competitor on par with Apple focusing on R&D to formulate technological advantages in securing their position in the market place. Another area in which Google’s ownership of Motorola could provide insight to Lenovo is revealed by the courtroom battles pursued by Apple regarding patent rights. This highlights the high constraints that industry competitors are strategising: instead of promoting innovation and productivity, patent wars are used to prevent competition from getting ahead. According to Drummond (2011), a smartphone could implicate as much as 250,000 patentable claims in the United States. The patent wars lead by Apple and Microsoft to beat Android devices exemplifies the high barrier of deterrence for new entrants into the United States smartphone industry. In addition, Apple has attempted to bar the sale of the Motorola Xoom tablet in Europe when it was under Google’s ownership, this move should not be taken lightly as Apple have successfully done so in the past with respect to competitor Samsung’s Galaxy Tab 10.1 (Drummond 2011). In spite of this, Apple has also engaged in multiple lawsuits with Motorola regarding patent rights. The strong presence of Apple is not only an indicator of the strength of internal rivalry, it is also an

indication of the volatile strategies they can commit to squeeze out competition. To put this in perspective, the intense competition will affect Motorola Mobility from a change of ownership. Lenovo needs to take heed to the existing challenges and potential hurdles set by a high constraint of internal competition.

Barriers to Entry Nevertheless, the intense internal rivalry foreshadows the high barriers to entry in the United States smartphones market. In terms of the current political stance, governmental policies favours local companies, the Trump administration is likely to impose tariffs on Chinese imports as part of the U.S-China trade war (Gurman 2018). In addition to the stringent regulatory process to acquire Motorola Mobility, this current political atmosphere imposes further costs for Lenovo. Further on, the regulatory process within the United States involves striking a deal with a one of the four major carrier distributors. This reflects two distinct challenges: Firstly, it is not easy securing a deal with a carrier distributor. Take Lenovo’s competitor Huawei for an example, Huawei’s first planned entrance into the U.S. market with the flagship Mate 10 Pro faced a substantial challenge as the deals it secured with AT&T and Verizon has collapsed through (Ruddock 2018). This placed Huawei at a position of sales not available on a carrier, Gallagher (2018) claims that the customers in the United States purchases expensive smartphones in the US through a carrier or a monthly payment plan, open channel sales will mostly result in minimal number of devices shipped. Such treatment of Huawei can also be reflected upon as barriers for entry in the analysis for Lenovo’s Motorola. Secondly, even if such a deal has been successfully implemented, Gallagher (2018) states this does not guarantee a strong presence in the smartphone industry. Gallagher (2018) used the example of Google’s Pixel phone, albeit raving reviews and major distribution agreement with Verizon has not helped to prompt decent sales, noting only a 3.2 million units

sale which is less than 1% of all U.S. smartphones in such time. Gallagher (2018) attributed the demise to a single carrier distribution partner when Apple and Samsung are distributed on every major carrier. In evaluation of the two challenges posed by the market, this reveals that competition amongst high-end smartphones in the US is survived only by the cream of the crops. With fierce internal competition and strong regulatory presence, the U.S. smartphone industry presents the problem of carrier distribution as other companies such as Xiaomi, Huawei, Sony and HTC are less likely to be considered by the average smartphone buyer, despite the performance and qualities of their smartphones. This poses a sound reflection of the strength of barriers to new entrants to be substantially high, noting the difficulty of entering and surviving in such industry for Motorola Mobility if its planning to enter the market as a high-end brand.

The experience curve for companies which follows suit in the paths of Apple and Samsung are difficult to mount. However, it is entirely possible for Motorola to create a new experience curve based on innovation. Innovation for smartphones signifies a niche market, and as the trend in most industries, niche markets have a specific set of audiences. This opportunity often opens up new doors and produces benefit for Motorola without the need for a price war with high-end companies such as Samsung and Apple.

Threat of Substitutes In terms of the threat of substitutes, the smartphone industry has a lower risk for threat of substitutes. One example of a substitute is Applewatch, it has qualities and functions similar to a smartphone. However, these are not widely distributed and smartphones still realms the consumer base for a readily available source of contact with society. On the other hand, there is a plethora of complimentary products for smartphones. The smartphone industry

essentially provides bread and butter for carriers, distributors, online sales of cases and protections, aftersales service, redistribution and recycle of phones. The abundant compliments for the smartphone industry is an attractive quality for existing firms as it is easier to reap profits from lower threats of substitutes with abundant complimentary products to boost demand.

Suppliers In favour to Lenovo, there is less of a risk for supplier integration as their OEM for PC components could also manufacture for smartphone components. According to Junmao et al (2015), the core mobile phone chip manufactures and operating system providers serve as smartphone suppliers. For Motorola, most of its external parts are built in Asia (Seifert 2013). This means that suppliers for its parts does not have too much of a bargaining power given the low wages and wide range of options available in the manufacturing business of Asia. Author Simchi-Levi (2010) believes the OEM-Motorola contracts is a positive sum game for both parties, Motorola’s buying power allows it to receive a better price than the contract manufacturer receives from its supplier. Equally important, this stagtegy guarantees that any competitor of Motorola that buy parts from the same contract manufacturer does not benefit from the Motorola’s (the OEM) buying power. Further on, one advantage that Lenovo possess is their established connections with suppliers from the PC industry. Since PCs and smartphones both share a central processing unit, this could be built with similar materials and manufacturing processes (Zwanenburg et al. 2018). When components such as R&D resources, raw materials and vendors could be shared, Lenovo’s capability to produce PCs and smartphones together saves producing costs and maximises manufacture efficiency. Henceforth effectuates the benefits of scales of economy. At the same time, considering Lenovo’s origin country is China, the already established relationship for Lenovo with its

suppliers means a lessen chance for suppliers to forward integrate. They had established a close-relationship with lesser risk for suppliers to vertically integrate.

Buyers The bargaining power of buyers in the smartphone industry relies on individual preference and experience with the product. As the global industry’s buyers are made up of differing people with a range of preferences in their smartphones, despite brand recognition and loyalty to a certain brand, technology stands as innovative creates new experience curves. Lenovo’s CMO David Roman regurgitates the concept of innovativeness by focusing on a consumer led company, Roman states “we look at where we are deficient, and where we have to focus more on being different” (Whitler 2016). This view reflects how Lenovo could focus on honing their individuality and pave a way for a new experience for consumers. The expansion of technology provides such opportunities for uniqueness in a product.

Conclusion In conclusion, the study examines how the global market such as the United States is hard grounds for the smartphone industry. Internal competition is intense with lawsuits as means to strike down competitors, the barriers to entry is also high with the political stance the the U.S. is posing against Chinese owned imports, including electronic parts. Whereas the threat of substitutes products is minimal with abundant complementary products, lower risk of supplier forward integration and moderate buyer bargaining power. The overall results of the five model analysis suggests several constraints that Lenovo’s Motorola Mobility has to overcome before yielding profits. This study purports that it is possible for Motorola Mobility to overcome the barriers with the help of Lenovo’s established connections such as supplier networks and successful carrier contracts, most importantly, the key to differentiate its

product and stand out from the crowd is an enforceable strategy beyond Porter’s five forces model. This resource based view could provide a sound perspective for Lenovo to consider in the tech-focused global smartphone industry. Word Count: 1899

Bibliography 

Drummond, D 2011, ‘When Patents Attack Android’, Googleblog, web log post, 3 August, viewed 9 May 2018, https://googleblog.blogspot.com.au/2011/08/whenpatents-attack-android.html.



Gallagher, D 2018, ‘Why the US Smartphone Market is Hard to Crack’, The Wall Street Journal, 10 January, viewed 10 May 2018, http://www.wsj.com.



Gurman, M 2018, ‘A U.S.-China Trade War Hurts Tech Firms From Apple to Lenovo’, Bloomberg,7 March, viewed 9 May 2018, http://www.bloomberg.com.



Junmao, C, Chung, H & Yang, Y 2015, ‘The Impact of a Conglomerate Merger on its Vendors and Rivals – A Case Study of Google's Acquisition of Motorola’, Technology Analysis & Strategic Management, vol.28, no. 2, p.176-189.



Montlake, S 2013, ‘Lenovo CEO Worth $740M As PC Maker ‘s Stock Hits Five-Year High’, Forbes, 16 January, viewed 10 May 2018, http://www.forbes.com.



Seifert, D 2013, ‘Made in America: A Look Inside Motorola’s Moto X Factory’, TheVerge, 11 September, viewed 8 May 2018, http://www.theverge.com.



Simchi-Levi, D 2010, Operations Rules: Delivering Customer Value through Flexible Options, MIT Press.



Statista 2017, US smartphone market, viewed 10 May 2018, https://www.statista.com/topics/2711/us-smartphone-market/.



Ruddock, D 2018, ‘The US Smartphone market Is Devolving Into a Samsung and Apple Market – and that’s bad for Android’, Androidpolice, 12 January, viewed 10 March 2018, http://www.androidpolice.com.



Whitler, K 2016, ‘From Product-Centricity To Consumer- Centricity: A Shift At One of the World’s Largest Tech Companies’, Forbes, 9 January, viewed 9 May 2018, http://www.forbes.com.



Winkler, R 2014, ‘Google’s Motorola Mobility to Close Factory in Texas’, The Wall Street Journal, 30 May, viewed 10 May 2018, http://www.wsj.com.



Zwanenburg, S.P & Farhoomand, A 2018, ‘Lenovo: Being on Top in a Declining Industry’, Communications of the Association for Information Systems, vol.42, no. 1, p.17....