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The mobile phones industry is one of the fastest growing industries in the world. Recently, it has experienced a high rate of growth and development that has been catalyzed by advancements in telecommunications technology. One of the most recognizable developments in the mobile phone industry was the emergence of smartphones.
These refer to the top-notch high quality mobile phones that are put up and assembled on complex mobile computing systems. Most smartphones have high computing abilities, easy connectivity and higher performances as compared to non-smartphones.
History of Smart Phones
Smartphones have undergone a series of development since their inception in 1993. Mennen believes that the first smartphone was introduced by Apple (Mennen, 1996). Apple introduced smartphones into the mass consumer market. Other manufacturers that followed suit include Nokia, Samsung, Microsoft, Motorola and Huawei.
Although the first smartphones mainly combined features of Personal Digital Assistants (PDAs) with those of ordinary mobile phones, the ultramodern smartphones that are currently released into the market by mobile phone manufacturers are more advanced and perform various complex functions that are almost similar to those of a mini personal computer (PC). They have in-built digital cameras, high-speed web browsers, media players, as well as Microsoft Office and photo editors. For example, the Samsung Galaxy tab has a high-resolution touch screen and it is capable of accessing the internet via Wi-Fi. Most smartphones permit transfer of data at very high speeds.
In addition, smartphones use complex, high performance Operating Systems (OS), such as Android that is developed by Google, Symbian of Nokia Corporation and Windows Phone developed by Microsoft. Similarly, some smartphones have additional applications embedded in their operating systems. These operating systems are highly developed and they are capable of being updated regularly. This helps in ensuring that the high performance characteristics of the smartphones are maintained throughout their useful lives.
Additionally, smartphones also have advanced Application Programming Interfaces (APIs) which facilitate the use of intermediary or the third-party applications. This allows for easy integration with other hardware and software other than those of the manufacturer.
Smartphones were initially developed for the enterprise use and were prohibitively expensive for ordinary consumers. According to Ilyas and Ahson, the development of smartphones begun with modest beginnings and grew into complex devices that could play high definition media files (Ilyas & Ahson, 2006). The smartphones industry has been characterized by stiff competition, innovative developments and pricing wars amongst the manufacturers. For instance, iPhone was launched in 2007 and since then, it has ensured customer loyalty through production of cheap smartphones. Its entry into the manufacturing of smartphones stiffened competition in the market.
Description of the Industry Model
The smartphones industry is oligopolistic in nature. An oligopoly is a form of market structure in which the industry is lead, controlled and dominated by a small number of producers or sellers. The sellers are few enough to know the actions of other industry players. Consequently, the decisions made by one seller in the industry affect the whole industry and at the same time are influenced by the actions of the other sellers. For instance, when developing strategic plans, the oligopolists must take into consideration the possible responses of the other industry players.
In my view, I consider the smartphones industry to be oligopolistic, because for many years it has been dominated by a few mobile phone manufacturers such as Nokia, Motorola, Apple and Samsung. These are the major players in the industry. The decisions made by one of these players affect the operations of the others either directly or indirectly. For instance, Microsoft decided to remove its Windows Mobile when iPhone and Android were introduced, and later on developed a better version called Windows Phone (Ferrell & Hartline, 2010).
General Pattern of Change in the Smartphone Industry
The smartphones industry has observed the tremendous changes since 2000. New mobile manufacturers have been flocking the market. This has resulted into an increased competition, as firms strive to maintain their market shares. Similarly, in order to continuously meet the ever changing demands, tastes and preferences of customers, mobile phone manufacturers have become more innovate in design of their smartphones. New sleek phones have been produced and phones with unbelievably high performances developed.
In my view, the smartphones industry is slowly changing from oligopoly to the perfect competition as more and more manufacturers enter the industry. The number of the industry players increases tremendously. Similarly, the number of close substitutes with almost similar attributes has risen. The consumers are now capable of choosing from a wide variety of products. At the same time, consumers have developed the great interest in different products from different firms, acquired reasonable information on these products and they have perfect knowledge of the products that are offered to them in the market by the sellers.
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In the short-run, this oligopolistic smartphone market would be characterized by the existence of numerous barriers that would forbid entry of new firms in the industry. The number of manufacturers is also expected to remain relatively small in the short run. The industry players will be able to set their own prices in order to maximize trade profits. This would be facilitated by the fact that the consumers have fewer choices to make over which goods to consume. Additionally, both producers and consumers shall have perfect knowledge of the products offered for sale.
However, in the long-run, there would be the product differentiation, as the smartphones manufacturers will be trying to differentiate their products from those of the competitors. The number of manufactures will gradually increase as the mobile phone industry opens up for new entrants. There would be a decrease in the total revenue due to new entries into the market. Segmentation of the smartphones market will be a major goal of each producer. The interdependence of firms within the industry would decrease. Additionally, the supply would be more stable in the long run, since many firms would be aware of their respective demand curves in the market.
In my view, the market would be modeled into a dominant firm model in which one or two firms dominate a larger share of the market, as other small firms share the remaining segment of the market. Every firm would strive to produce at a production level where its marginal revenue equals the marginal costs. Similarly, the more the number of smartphone manufacturers increase, the harder it would become for them to effect the planning and marketing strategies of other firms. For instance, Nokia Corporation would not be able to influence the operations of Apple or Samsung. Similarly, Motorola would engage in heavy advertising, in order to retain its consumers and attract potential customers, as well as maintain its market share.
In my opinion, some of the major areas in this industry that would lead to increased costs are heavy advertising, research and development, and expansion goals. Many manufacturers would be involved in heavy advertising and extensive marketing of their products due to the increased competition. Most smartphones today have close substitutes that consumers can easily use to replace them. For firms to maintain their market shares, they have to invest heavily in advertising and marketing. Secondly, the mobile phone industry is a technological in nature and requires daily advancements that can only be achieved through intensive researches and developments. Thirdly, additional costs would be incurred when undertaking expansion projects. This would require huge funding, hence increasing the expenditure of the firms.
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In my view, advertising costs can be reduced through the use of middlemen to sell the company’s products; research and development costs can be cut by adopting already existing technologies whereas expansion costs can be minimized by investing in only those market segments that are promisingly profitable.
In my opinion, the major factors that affect the degree of competition in this industry include technological advancements, similarity of products, globalization of the smartphone market and reduction in entry barriers. Previous researches have shown that smartphones market needs massive development strategies. It is still underdeveloped. Accordingly, government intervention would help regulate the market. Similarly, productivity measures such as production of high quality phones in large volumes would facilitate meeting demand for the smartphones. Cost reduction measures would also help reduce production costs. and hence increased profits for the firms.