Porter’s Five Forces Model
Porter five forces model, developed by Michael E.Porter of Harvard University in 1979, holds the purpose to analyze the industry in order to determine the level of intensity reardin the competition and attractiveness of the industry. !he attractiveness of an industry is measured in terms of profit" more profitability means a more attractive industry and lo# profitability means a lo# attractive industry. industry. Porter referred to these forces as micro environment rather than macro environment because these forces are nearest in the sense of affectin a ffectin the oranization. $ranizations have to re%assess the mar&et if any of the forces chane, it does not necessary that the oranization should leave the industry if the profitability is lo#, because most of the oranization are ma&in ood profits by applyin their core competencies to ain competitive ede over their rivals and increase their profits. !he #ord '(tratey) is very common in this advanced era of the business and technoloical #orld, it is used even in our daily life routine, you may have heard at times that lots of people discuss about strateies *plans+ to achieve somethin. somethin. ou must must be thin&in that strateies are developed in dreams or common sense by hiher manaement of the company but that is not the case, even the best of the strateies al#ays comes after proper evaluation of internal and e-ternal environment of the company. !he strateies are made by strateists to achieve obective or oals to allo# the business to compete in industry. Porter five forces model of competitive analysis is a #idely used approach for developin strateies in many industries. !he intensity of competition varies across the industries. !he intensity of competition is hiher in lo# return industry as compared to hih return industry due to less re/uirement for capital and common co mmon products that re/uire minimum 0 2 *0esearch 2evelopment+ and efforts for production. 3ccordin to Porter, the nature of competitiveness in a iven industry can be vie#ed as a composite of the follo#in five forces4 1. 0ivalr 0ivalry y amon amon comp competi etitiv tivee firm firmss 5. Potent Potential ial entry entry of of ne# ne# compet competito itors rs 6. Potent Potential ial develo developme pment nt of substit substitute ute product productss . 8arai 8arainin nin po#e po#err of of sup suppli pliers ers . 8arai 8arainin nin po#e po#err of of consume consumers rs
Figure: Porter’s Five competitive forces
Threat of New Entrants
!he telecommunications industry is comprised of an enormous number of technoloical firms. !he evolvin nature of innovation and desin increases the threat of ne# competitors. !herefore, the use of technoloy, fi-ed costs, brand a#areness, 02 costs, the economic scale and scope #ith overnment policy comprise a hih level of threat to :o&ia. ;irst, the emerin trend in the mar&et is 6<, #ith hih fi-ed costs, ma&in the mar&et very competitive and difficult to enter. (econd, brand a#areness in this industry is also hih because customers believe that the better brand can provide stability, /uality, and added services. !hird, 02 costs are aain very hih both in the 6< and <(M mar&et. =t is important to stay abreast of trends and create ne# fashions because customers al#ays #ant the ne#est technoloies and desin. ;ourth, economies of scale and scope are hih due to lare company>s ability to mass produce products to receive larer profit marins alon #ith the ability to limit pricin to deter smaller competitors from enterin the mar&et. ;inally, overnment policy stronly influences the introduction of ne# technoloies that re/uire certain advances in infrastructure to provide innovative functions. 3n additional threat can be traced to :o&ia>s relationship #ith select partners. !he nature of the relationship
can effect :o&ia>s product distribution, if the service provider offers poor service. $n the #hole, :o&ia>s threat of ne# competitors is very hih.
Power of Suppliers
!he po#er of suppliers relates to the suppliers> level of intensity, the chip ma&ers leverae, the transfer cost of appliances, the transfer cost of s#itchin chips or soft#are, and the deree of partnerships. ;irst, the supplier>s level of intensity is lo# because :o&ia uses its o#n factories to ma&e its product. ?hen :o&ia order outside parts, it can receive ood deals because it buys in bul&. (econd, the technoloy of the chip ma&ers is medium because it is held by a select roup of firms includin !e-as =nstruments *!=+, =ntel, and Motorola. !hird, the transfer cost of appliances such as the &eypad is lo# due to the availability of manufactures of these specific items. ;ourth, the transfer cost of s#itchin ships is hih. !he transfer cost is directly related to the costs associated #ith s#itchin desin and manufacturin functions. ;ifth, the po#er of net#or& suppliers in the <(M area is medium. @ustomers can chane to other suppliers easily usin their oriinal cell phones. :et#or& suppliers can>t control or handle all of the communication net#or&s industry. (i-th, the po#er of information technoloy suppliers in medium. 3 lare company #ants to reduce costs by sinin #ith an =! supplier so that =! suppliers #ill become more important durin this trend. ;inally, the 3!! partnership is hih because of the ris& pf loosin the partnerships" therefore, loosin the mar&et share. 3ll in all, the po#er of suppliers is rated in the medium rane.
Power of Buyers
!he areas to be discussed include the buyers> level of intensity, transfer costs, the buyers> information, and for#ard interation po#er, loyalty, choice and finally the purchase /uantity. ;irst, #e have the buyers> level of intensity #hich is relatively lo#. :o&ia is a lobal company #ith customers located in various countries around the #orld. (econd, the transfer cost is also /ualified as a lo# threat. @ustomers can easily use other brands. !herefore, customers do not need to be concerned #ith transfer costs. !hird, the buyers> information is also hih due to the advent of the =nternet #here customers> have access to an unlimited amount of buyin information. @ustomers can compare brands #hile educatin themselves on the ne#est technoloical offerins. ;ourth, the buyers> for#ard interation po#er is mar&ed as lo# because of the buyers> ability to select for#ard and bac&#ard compatible products. ;ifth, the buyers> loyalty is rated in the medium rane. !his is directly related to the improvement in technoloy. @ustomers> #ant the ne#est in fashion #ith the price bein the limited factor. =f another manufacturer produces the product that customers> desire, then price and service may be the only thin customers> are loyal too. (i-th, the level of buyers> choice is very hih. ?ith constant innovation, the consumer is continuously offered ne# products #ith the ne#est technoloies. ;inally, the separation bet#een the end user and the company user or dealers is necessary. !he
end user purchase /uantity is lo# because that are enerally limited to usin one phone. Ho#ever, a ro#in trend has centered on chanin phones yearly, to &eep up #ith the latest desins and technoloy. !he company or dealer purchase /uantity is hih due to their desire to distribute and sell the product and a mar&up cost. =n the 3merican mar&et, #ireless net#or& 3!! and (print are handlin the industry because of the special system. !heir roles are both supplier and buyers. =n most <(M systems areas, the net#or& companies only can become buyers. 8y the lare the po#er of the buyer is rated as a hih averae.
Product Sustitutes
!he maor substitutes for the mobile telephone industry can be influenced by technoloical products that include paers, #al&ie%tal&ies, cellularA=nternet P23 devices, toll phones, 6< products, and smartphones. 3 maority of these substitutes are outdated technoloies that no loner classified as stron substitutes for the mobile phone. $n that note, the introduction of consolidated products has stronly positioned themselves in the mar&et. ;or e-ample, the smartphones serves the function of a cell phone, #ireless =nternet device, paer, and P23. !his ro#in trend is not a lare threat because of the innovation behind the partnerships as #ell as innovation of the products.
!ntensity among "ivalry
!he intensity amon rivalry are functions based on loo&in at the ro#th of the industry, capital intensity to produce the product, product differentiation, brand differentiation, transfer cost, information comple-ity, and competitiveness. ;irst, the ro#th industry is hih. !he ro#in trend is a shift to#ards ma&in products in line #ith 6< capabilities, ro#in at a rate of 5BC annually. <(M mar&et sale is still ro#in in the developin countries in 3sia and is a very lare business opportunity. <(M cell phones are the main mar&et for cell phones producin companies. !hese companies earn most profits from these <(M areas. (econd, the capital intensity is very hih for the industry, for 02, for development, and for manufacturin. !hird, the level of product differentiation in shape and desin is very hih #ithmany companies producin their o#n version. ;unction of the product is ran&ed at the medium rane because of the ability of companies to reverse enineer products. ;ourth, brand rivalry is very hih due to the importance of brand a#areness sho# four main characteristics. 1+ Easy to use 5+ product desin 6+ /uality and stability,and + customer service. ;ifth, the information comple-ity is mar&ed as bein in the lo# rane because consumers can educate themselves easily. ;inal, the level of competitiveness is hih. Dery fe# firms control the lobal mar&et. Many firms such as Motorola, and Ericsson, are tryin to reach the number one position in the industry. =n various countries, many small companied #ant to rab hold of a piece of this mar&et comprised of products offerin e-clusive desin to attract ne# customers.
mar&et can be summarized as hih for the intensity amon rivalry section. !he subse/uent #ill provide and in%dept analysis of the t#o main competitors for :o&ia.
#ompetitive $nalysis
3cross the lobe, telephone service providers are e-pandin net#or&s for #ireless and #ireline communications. 3nd, the industry has also underone dereulation #hich spa#ned a #ave of smallerreional net#or& operators. 2evelopin nations have stepped up efforts to e-pand basic telephone service.!he lobal telecom e/uipment mar&et bro&e 65 billion in 1999 and #ill continue to ro# by about 1C annually. !he U.(. telecommunications e/uipment industry re# to 91. billion in 1999. 3s the #ireless sement has heated up, so has competition to be the top provider of mobile stayin ahead of Ericsson, #hich has focused on becomin the industry leader in #ireless infrastructure e/uipment sales.
Ericcson
Ericsson has al#ays been a runner%up to :o&ia in terms of its telecommunications technoloies. Ho#ever, it #as lac&in in desin, eronomics and user%friendliness. Ericcson successfully established itself amon the top three companies in the industry. Ericsson has successfully established itself amon the top three companies in the industry. !hey had reat success in Europe and 3sia, but its :orth 3merican product line proved une-citin for the consumer. =n 3pril 5BB1, Ericcson made a very interestin decision opened the door to directly compete #ith :o&ia, not only in terms of communication technoloy, but also #ith their innovative desin and 8lue!ooth technoloy interation. Ericsson has formed a strateic alliance #ith (ony Electronics @orporations and areed to share technoloies in the field. (ony a consumer electronic iant, already has not only a number of fashionable cellular phones and accessories, but also a reat customer base, and reconition and brand loyalty. (ince the formulation of this oint%venture, both companies came out #ith a ne# line of technoloically advanced and very user%friendly phones. !oday, Ericcson phones are reconized more not only in the European and 3sian customers but also reatly #elcomed by the recently discovered :orth 3merican mar&et.
Motorola
Motorola, the former dominant company in the telecommunications industry, is currently strulin from fallin sales and reduced mar&et share. !o find the reason one does not need to loo& bac& very far. =n 199F, :o&ia introduced the ne# diital standard #hich not only dramatically improved the /uality of voice communications, allo#ed for smaller phones, and improved battery life, but also became the foundation for the ne# standards #hich eventually led
to the development and introduction of 5<, <(G, 5.< and 6< *not all standards are available in all areas+. Motorola failed to reenineer their products and ado pt the ne# diital standard. !hey seceded to stic& to their analoue 'flip) phones #hich shortly became unpopular due to their user%unfriendliness, bul&iness and enerally problematic nature. (ince then, :o&ia>s mar&et share re# dramatically and shortly overtoo& Motorola>s domination. ;e# years after the s#itch to diital, Motorola unsuccessfully tried to reain their position in the telecommunication industry buy #as not able to do so. @onsumer behavior had chaned. !hey no# demanded slic&, stylish and user friendly phones, #hich Motorola could not deliver .
