Introduction
Background to the study
The mobile device market has witnessed rampant transformation in the 21st century. Currently, the market is characterized by a high degree of complexity and change as a result of rapid technological change. According to Rubinstein and Jeffries, (2009, p.23), the industry is considered to be the 2nd fastest growing industry after the internet industry.
Due to the lucrative nature the industry, the industry has become very competitive. This arises from the fact that firms in the industry deal with similar products and services. However, their products are differentiated in terms of cost and physical features.
Palm Incorporation is one of the firms which operate within the mobile device market. Since its incorporation in the United States telecommunication industry in 1992, the firm has been very successful. In its operation, the firm offers a variety of handheld devices such as handheld computers and smartphones. Some of the firm’s core competitors include Apple, Motorola, Nokia, and Research in Motion, LG, Asustek and Pantech.
In their operations, firms in different economic sectors are affected by internal and external forces. The firm’s management team can influence the internal environment. However, managers do not have control over the macro environment. According to Rob (p.7), macro environment consists of various elements such as the political, economic, social, technological and legal environments.
Considering the competitive nature of the industry, it is paramount for Palm Incorporation to position itself effectively in the market. The resultant effect is an improvement in the firm’s level of sustainability. This can be attained through effective formulation and implementation of various operational strategies. According to Thomas (p.74), managers should undertake a comprehensive environmental scan.
Scanning the environment can enhance a firm’s effectiveness in analyzing the business environment. As a result, the firm’s management team can be able to evaluate the impact of the environment on the business operations. In order to be effective in conducting environmental analysis, Palm’s Incorporation management team should integrated environmental analysis models. One of the models which should be considered includes PESTLE analysis.
Aim
The report is aimed at conducting a PESTLE analysis one the mobile phone industry. The evaluation is conducted with specific reference to Palm Incorporation.
Scope
The report is organized into a number of sections. The first section entails an industry analysis through incorporation of the Porters’ five forces. An environmental analysis is also conducted by integrating the PESTLE model. Strategies which should be adopted in order to attain balance of power is illustrated. The report also identifies the stage of lifecycle the firm is in. Finally a summary of the analysis in addition to a number of recommendations are made.
Industry analysis
There are a large number of players within the mobile phone industry. As a result, the industry has become very concentrated. However, the threat of entrant into the industry is minimal. This is due to the fact that a substantial amount of capital is required to establish a mobile phone company. In addition, new entrants are faced with a challenge of establishing themselves into the market due to high differentiation and operating cost.
Suppliers of raw materials used in manufacture of mobile phones have a relatively high bargaining power. This arises from the fact that there are only a few suppliers. Therefore, firms in the mobile phone industry cannot easily pressurize prices. If the suppliers are not willing to supply the raw materials, the firm’s operation may be affected. In addition, there is an increment in the degree of complexity in relation to procurement procedures.
Mobile phone technology is undergoing intense research and development. This is evident in that firms in the industry are continuously upgrading their networks to 3rd generation. In addition, more features such as the Global Positioning System (GPS) are being integrated in an effort to meet the customers’ product requirement. Industry rivalry is also resulting from formation of mergers hence enhancing the firm’s competitiveness. An example of such merger is the Sprint and Nextel Communication Incorporation which was closed in 2004.
Technology is one of the core driving forces in the industry. There are various wireless networking capabilities that have been developed. Increased integration of these technologies by the mobile phone companies will lead into emergence of more effective capabilities.
Examples of these technologies include the Wi-Fi and the Worldwide Interoperability for Microwave Access (WiMAX).The high rate of technological innovation is creating a panic amongst the firms due to the high probability of customers shifting their tastes and preferences.
PESTLE Analysis
Political environment
The firm’s success has resulted from existence of political stability in the United States. Existence of political stability has enabled the firm to succeed in its domestic market. For example, the US government is committed at reducing the rate of inflation through the Federal Reserve Bank (William, 2010, para. 2).
This will culminate into improvement in the manufacturing capacity of firms due to cost reduction. In addition, there will be an increment in consumer’s disposable income. This means that they will increase their consumption on luxuries such as mobile phones.
Considering the fact that the firm operates on a global scale with some of its manufacturing plants located outside the US, Palm Inc. is faced with a number of political challenges which may result from political conflict. For example, the firm relies on 3rd party manufacturers who are located in foreign countries.
Emergence of political conflicts in the foreign countries may result into closure of such firms. In addition, their suppliers may be affected by imposition of injunction with regard to imports by the International Trade Commission (ITC). This may negatively affect the firm’s production processes.
Economic environment
According to Jutras (2010, para. 1-5), firms in the manufacturing industry were adversely affected by the 2008-2009 economic recession. As a result of the previous global economic recession, firms in the mobile phone industry were adversely affected.
This led to a decline in the firm’s level of profitability. In addition, the firm’s performance was also affected through an increment in the cost of conducting innovation. This arises from the fact that the conducting research and development requires a substantial amount of financial capital. In responding to the economic crisis, firms in the manufacturing industry reduced their capital spending.
The economic recession also led into a decline in the consumer’s disposable income. This is due to a decline in the level of employment as companies implemented downsizing strategies such as laying off some employees. As a result, consumers became more concerned with purchasing necessities such as food products rather than luxuries. However, upon the global economy recovering from the economic recession, there is a high probability of the firm’s performance being improved.
Social environment
Consumers are increasingly incorporating technology in their consumption patterns. Mobile phones are some of the technologies which consumers are increasingly purchasing. Customers are increasingly considering mobile phones to be attractive gadgets. One of the factors which have stimulated the rise in demand includes the improvement mobile features.
Development of smartphones is considered a new introduction into the market. However, a large number of individuals are incorporating them. Currently, firms producing mobile phones such as smartphones are improving mobile features by enhancing their data application capabilities.
In addition, companies are included numerous features such as cameras, music players and calendars. As a result, there is a growing perception of improved functionality with regard to mobile phones. According to Allen, Graupera and Lundrigan (2010, p.1), consumers are considering mobile phones as ‘new personal computer’. Smartphones are increasingly being consumed by more people due to their increased functionality and being cost effective.
A report by BBC revealed that demand for mobile phones was not affected by the global economic recession. For example, in 2008, approximately 282 million mobile phones were shipped globally. This represents an increment with a margin of 14% (BBC, 2010, para. 2). The rise in demand is being witnessed from emerging markets such as Asia and Africa. According to a United Nation report produced in 2009, approximately 6 out of 10 people possess a cell phone (Africa Resource, 2007, para. 1).
The rate at which the society is adopting mobile phones not only for communication purpose but also for other functionalities indicates that there is a high market potential. It is estimated that the total number of mobile phone subscription by 2015 will be 5 billion (Africa Resource, 2010, para. 12).
Legal environment
United States has formulated a number of legislations which support business operations. Some of these legislations relate to intellectual property rights such as patents, copyrights, and trademarks. Through incorporation of these legislations, firms such as Palm Inc. can be able to undertake effective product innovation.
This arises from enhanced security regarding the firm’s products. According to Rubinstein, J. & and Jeffries (2009, p.32), intellectual property rights can enable a firm to enhance the value of its brand. In addition, the US legal environment also enhances business operations by creating a favorable environment for business contracts.
However, firms operating within the US mobile phone industry are faced with a number of stringent legislations imposed by the government. For example, firms are required to adhere to laws regarding environmental issues such as disposal of waste materials.
Firms in the industry are required to operate in a social responsible manner. One of the ways to do this is by collecting, treating and ensuring effective disposal of all their products upon expiry of their effective life. If firms do not comply with the legislation, the government may require it to conduct a recall on its products which may negatively impact the firm’s reputation in addition to increment in cost.
According to Yoffie and Kwak (2001, p.4), such an act can limit the firm’s effectiveness in marketing its products in the foreign market. It is also a legal requirement for firm’s to undertake product redesigning from time to time. This may negatively affect the firm’s performance such as reduction in operating cash flow.
Technological environment
In the 21st century, the technological environment has witnessed a significant development. This has affected firms in different economic sectors. Mobile phone manufacturing companies have not been spared. Firms in the industry are increasingly being committed at delivering unique customer experience. This is being achieved by undertaking continuous product improvement.
In addition, firms are integrating the concept of new product development in an effort to enhance their competitive edge. In developing new products, Palm Inc. core focus is attaining a high level of customer satisfaction. In order to achieve this, the firm anticipates the customer’s product requirements in so as to develop a product which is inline with the market demand. Palm Incorporation has adopted the webOS mobile platform in an effort to enhance its technological competitiveness.
However, introducing a new technology can be a risk to the firm’s operation in relation to customer’s ordering patterns. In addition, the firm may experience a decline in the rate of turnover with regard to the existing inventories. In the initial step, the supplies of the new products developed may not be sufficient to meet the existing market demand. Therefore introduction of new products may lead into a decline in the firm’s financial performance in the introduction stage.
If information regarding the new product that the firm intends to introduce into the market leaks prematurely, the firm’s sales can be negatively affected. This arises from the fact that the customers will anticipate the new product and reduce the purchase of the existing product. This may limit the firm’s competitiveness. This may further increase the customer’s expectations and hence the firm’s cash flow expectations.
Establishing balance of power
According to Doole and Lowe (2006, p.22), firms’ management teams have to be innovative in the process of making decisions so as to cope with the environmental changes. Change in the markets social structure presents both an opportunity and a threat. In order to benefit from change in social change, Palm incorporation should conduct continuous market research.
This will enable the firm to effectively incorporate market changes in its products. The resultant effect is that the firm’s products will appeal to a large number of customers. In addition, the firm should influence suppliers bargaining power by instituting comprehensive selection criteria. Only firm’s which supply raw materials and other inputs of high quality should be selected.
Stage in the lifecycle
The mobile phone industry is in its mature stage of its life cycle. Currently, the industry is characterized by a high level of profitability. In this stage, products in the market are very similar. This is evident in that firms in the industry are increasingly improving their features in an effort to deliver a unique product.
However, it is becoming difficult for firms to differentiate their products. The profitability of firms in the mobile phone industry is dependent on the firm’s ability to attract and retain new customers. In addition, the firm’s profitability is also dependent on its effectiveness in adding value to their products through new product innovation.
Some of the ways through which Palm’s management team may undertake this is by ensuring that its mobile phone products are more affordable. This will play a significant role in increasing demand for the mobile phones considering the fact that consumers are price sensitive. In addition, the firm should undertake an innovative phone style. By adding more features, there is a high probability of the firm attracting new customers and also retaining the existing customers.
Conclusion
From the industry analysis conducted, it is evident that the industry is characterized by a high degree of competition. In addition, the industry is also characterized by a high degree of technological innovation leading into new product development and product innovation.
The analysis also indicates that there are various variables which play a significant role in the success of firm. Some of these variables arise from the business environment. The various macro economic factors arising from business environment are beyond the control of the businesses. However, it is paramount for firms’ management team for conduct a comprehensive analysis on business environment.
Through an environmental analysis, a firm can be able to identify potential market opportunities and threat. Identification of market opportunities will enable the management team to formulate effective strategies which will aid in the firm’s success. The resultant effect is that environmental analysis can aid a firm in attaining its profit maximization objective. In addition, effective identification of threats can enable the firm to undertake formulate effective strategies to alleviate the possible effects.
Incorporation of the PESTLE model is one of the ways through which a firm can undertake environmental analysis. Some of the macro environmental issues evaluated include political, economic, social, technological and legal environment.
From the political analysis conducted, there is a high probability of the firm succeeding due to the political stability existing in the US. However, changes in political environment such as conflict t between the United States and countries in which the firm conducts its operations may affect the firm’s future success.
For example, political conflicts may prohibit importation of supplies necessary for the firm’s operation. Economic environment also indicates that there is a high probability of the firm’s performance being improved upon recovery of the global economy. This will increase the firm’s profitability and hence its financial sustainability.
Some of the core social changes in the social environment include increased adoption of mobile phones by the customers. The shift has arisen as a result of increased functionalities of the mobile phones.
Despite the economic recession, demand for mobile phones is increasing at a faster rate compared to other products. In order to improve its competitive advantage, Palm Inc. should conduct a continuous product innovation by incorporating new features. The resultant effect is that the firm’s products will be able to meet customer product preferences.
Undertaking product innovation and new product development will enable the firm cope with the changing technological environment. This will further add up to the firm’s financial sustainability. The legal environment also presents threats and opportunities to the firm’s success. Support of the legal environment through intellectual property rights will enable the firm to undertake new product development successfully. In addition, legislations regarding environmental regulation will enable the firm to attain environmental sustainability.
Reference List
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BBC., 2010. Strong demand for mobile phones. Web.
Doole, I., & Lowe, R., 2006, Strategic marketing decisions. London: Butterworth – Heinemann.
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Rob, W., 2008, The Business Environment. London: Pearson Custom Publishing.
Rubinstein, J., & Jeffries, D., 2009, Palm Inc. Washington: United States Securities and Exchange Commission.
William, R., 2011. US Fed mandate aims to reduce inflation only. Web. Web.
Yoffie, D., & Kwak, M., 2001. Mastering Strategic Movement at Palm. MIT Sloan Management Review, Vol. 43, No.1, pp. 55-63.