Threats of New Entrants
- 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
- 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
- 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
- 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.
- 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.
- Patents also limit innovation and this will potentially deter new entrants.
- 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
- 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.
- As one of the leading mobile phone company in the industry, they will most likely have a strong position when bargaining with their suppliers
- The current software supplier for their Smartphone is Microsoft and the operating platform is Windows. Microsoft has a high bargaining power.
- 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.
- 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.
In conclusion, there is a moderate threat from the powers of suppliers as the hardware suppliers have very low power. The threat from the powers of suppliers will only continue to be lower after the merger of Nokia and their main software supplier Microsoft.
Power of Buyer
- The bargaining power of customers rising because of the increasing number of choices in the mobile telecommunication industry.
- Many of Nokia’s competitors offer similar packages (e.g unlimited text and calls, data plan) and the consumers are extremely price sensitive when it comes to seeking out the best value for money.
- Many of the consumers are also tied down into long term contracts (e.g 2 years plan) so switching from one phone to another will be difficult and costly for the consumers. Therefore, the number of consumers present in the market without any long term binding contract is limited.
- Nokia is currently the only phone brand operating under the Window Software. Due to the product differentiation, it may appeal more to Window users and hence the strength of consumers is reduced to the inability to readily substitute the product.
- In this globalised world, consumers readily have access to information about different products and the specifications of the products online. Due to the availability of such information, the consumers may compare and choose the different phone models available hence, power of buyer is high.
EV : The competitive nature of the market whereby the number of choices are wide, results in a high bargaining power of buyers as they can readily choose to go to Nokia’s many competitors if they are unsatisfied with Nokia. Furthermore, Nokia does not deal with direct store sales to their consumers, unlike Apple. Intermediaries such as Carphone warehouse or network stores such as Orange also have other handsets readily available, which makes it difficult for Nokia to have a direct impact on the selling of their handsets2. Hence, bargaining power of buyers is high.
Threats of Substitute’s Product
- While brands differentiate between different Smartphone to a certain extent, smartphone in the same price range have mostly the same function3.
- Another factor to note is the availability of other electronic devices which has the same, if not better, functions than the smart phone. Eg. Digital camera can take better photos than smart phone, tablets can surf the web as well and the screen is bigger for reading.
- It can be argues that Smartphone are increasingly becoming an everyday necessity in people’s live because of the important functions that they can do and the fact that they are all available in just one handset.
EV: Generally, the threat of substitutes is low in the smartphone industry as there are not definite products that can readily substitute the smartphone. Consumers rely heavily on Smartphone and would not be able to find a close substitute that has all the function of a mobile phone. Furthermore, Nokia is a long and established company with many loyal customers. These people may continue to stay faithful to Nokia and are hence less resistant to change. Also, the perceived level of product differentiation varies according to the usage of the people.
In the long term, Nokia and Microsoft should try to invest more into product differentiation in order to appeal to the customers and to keep the threats of substitute’s product low.
- Nokia faces strong competition from its rivals such as Apple and HTC due to the highly perishable nature of the product. The Chinese ZTE Corporation is also a strong rival to Nokia as they are supplying cheap smart phones to consumers in the emerging market such as China and East Asia .This makes is more difficult for Nokia to breach into the emerging smart phone industry in Asia.
- Furthermore, the Android market and the Apple market are relatively well established as they have more apps to be downloaded as compared to Nokia’s Ovi market.
- Barriers to exit are also low so unprofitable companies can leave the industry easily.
- The fast industry growth rate also encourages competition as each firm will compete vigorously to gain more consumer base and gain market shares.
- Price wars and intensive advertising are common in this industry as big companies will have the resources and financial means. This will have a long-term negative impact on Nokia.
- The products sold have little degree of differentiation between competitors which means that any new smartphone in the market, like Nokia Lumia, will find it difficult to tempt existing iPhone and Samsung consumers to switch.
- Smartphone are highly perishable products that depreciate quickly in the market. Producers need to sell quickly and this
EV: in conclusion, the overall threat of competitive rivalry is very high. After Nokia’s slow move into the Smartphone market, it has left them trailing behind their rivals, and the release of their Lumia phones will find it difficult to compete and win over consumers from rival firms.
Going forward, Nokia and Microsoft must be aware of the threat that competitors have on their business especially with the growing popularity of Apple’s iPhone and Samsung’s Galaxy. The competitive rivalry is the biggest threat to Nokia and Microsoft because of their slow start up. Moreover, Microsoft does not have any experience in the Smartphone industry and this may prove to be a potential challenge if they wish to continue competing with Apple and Samsung.