Market Saturation in Smartphone Industry

Introduction

Among the essential aspects in life is communication. People communicate in different ways and for separate reasons. In the business world, communication is important in the running of organizations. Communication is the cornerstone of successful sharing of organizational objectives and the laying out and implementation of strategies in any organization. The smartphone industry is a significant part of communication. It is an industry that is associated with contemporary communication technology which has undergone several phases of change and improvements. Smartphones are a result of technology change experienced with conventional cell phones, and the sale of smartphones is recognized as a booming business today. The industry is dominated by devices operating with the Android and iOS operating software. Smartphones have become popular in the current world, and they keep unlocking new series of possibilities regarding mobile working, entertainment, and exchange of information, anywhere and anytime. Some of the top smartphone manufacturers, who are the key players in the industry include Samsung, Apple Inc., and Xiaomi. This paper presents research which assesses the smartphone industry through environmental analysis, industry analysis and identification of opportunities and threats in the industry from the perspective of Apple Inc.

Environmental Analysis

To perform an environmental analysis, a PESTEL analysis shall be used. A PESTEL analysis is a tool or framework that marketers use in the monitoring and analysis of the external environment of Apple Inc. The PESTEL consists analysis of the environment in terms of political, economic, social, technological, environmental and legal factors.

Political Factors

Plotting of Criminal Activity

Apple’s smartphones provide access to online social media platforms such as Whatsapp, Facebook, and Twitter. However, these social networking sites are prone to misuse in a manner that leads to political tension. For example, in 2011, the government of the UK was seeking to ban the use of social media networks. This was following spreading of violent incites through services and websites such as BlackBerry Messenger Service. If the idea was implemented, the Apple’s smartphone market would have been negatively affected in Europe (Halliday, 2011).

Political Unrest

Apple Inc. gets affected when social and political unrests occur in some nations, such as China, which is relied upon by smartphone manufacturers for their cheap operational costs. Apple would face challenges of disrupted and an increase in costs of manufacture of its smartphones due to the political tension in China (Weberience LLC, 2015).

Economic Factors

Market Saturation

The smartphone industry is growing and so is Apple Inc. However, the rate of growth is beginning to decrease. In 2013, the sale of smartphones was projected to have increased by 30% from the previous year. This growth stagnated for the years that followed, 2014 and 2015, at 50%. This signifies saturation of Apple’s products in the developed markets while the developing economies are still experiencing market growth.

Cheaper Smartphones

Customers have different buying powers in any economy. This has caused some manufacturers to turn to satisfy budget clients for smartphones. The international Data Company reveals that nearly 50% of all the sales of smartphones are sold lower than $100 after tax (Yueh, 2014). Cheaper smartphones are flooding the market due to the standardization of smartphone technology. Also, customers in developed markets are getting more sensitive towards price and pay less focus on brands.

Social Factors

Entertainment

As aforementioned smartphones have advanced technology which allows users to access social networking and online streaming services. The existence of social media and its growing essence in people’s day to day activities increases the attractiveness of smartphones. People have the urge to share their daily activities with their online friends, and modern smartphones are designed to have cameras which people can use to record videos and take pictures. To add, smartphones are like portable music players which people use to listen to music anytime anywhere (Cecere, et al., 2014).

Increased Smartphone Adoption

Apple seeks to expand their target markets, by extending into African developing countries where people have little knowledge about certain smartphone brands and technology. By 2012, over 1 billion people made up the global audience for smartphones. By 2014, the audience was at 1.75 billion. Mobile phone users, too, are shifting to use smartphones. By 2019, over 50% of mobile phone users have become part of smartphone penetration.

Technological Factors

Fifth Generation Telecommunication Technologies

As a way of expanding coverage, attracting more users and improving services, telecommunication providers invest in the mobile network. Telecommunication technologies have evolved from first generation networks until the recent move towards fifth generation (5G) networks. In order to meet the demands for industrial users and consumers, smartphone devices have to be 5G-enabled to facilitate the expansion of services to consumers and support the new uses in the industry (Gallagher & DeVine, 2019).

Flexible in Operating systems

Smartphones, unlike cell phones, have an operating system. The most popular operating systems are iOS and Android. The smartphone industry is dominated by Android-powered devices, and this poses a challenge in the adoption and progress of other operating systems, like iOS. Whereas iOS is exclusive to Apple’s products such as the iPhones, MacBook, and iPad, more and more smartphone manufacturers are making devices with the Android operating system. By 2012, over 500 million smartphone devices running on Android are used on a daily basis (Kustaev, 2019).

Environmental Factors

Electromagnetic Radiation

Apple’s smartphone devices usually emit non-ionizing radiation, the kind which is different from ionizing radiation, like gamma rays, ultra-violet light, and x-rays. Non-ionizing radiation has a lower frequency which could be considered dangerous but has harmful effects on human health. Exposure to electromagnetic radiation affects a person’s working memory and the proliferation of the hippocampal progenitor cell (Choi & Choi, 2015).

Toxic Material

Electrical components that are packed together with an Apple smartphone, such as the chargers, are the main cause of damage in the environment. The chargers have boards of print wire which when incinerated, they emit carbon dioxide to the atmosphere. The smartphones are also made up of substances like ceramics, metals, and polymers which can be regarded as hazardous (Zahoor & Ali Shah, 2017).

Legal factors

Intellectual Property Rights

The smartphone industry is riddled with lawsuits regarding patent and copyright infringement cases. Handset manufacturers are growing aggressive in protecting their ideas in an environment in which competition is high. For instance, in 2010, HTC got sued by Apple for infringing some of its patents. On the same year as well, Apple sued Nokia for similar infringement of patents. Smartphone manufacturers are using patents for their ideas as a way of restricting new entrants in the market as well as having the edge over competitors.

Key Issues

The key issues in the environment of the smartphone industry are intellectual property rights and the introduction of fifth generation telecommunication technologies. They are the key drivers of change. One idea is patented; competitors will be forced to develop unique ideas which will offer improvements to the standardizations. Also, 5G technology will allow for the better provision of services to industrial users and consumers.

Industry Analysis

Porter’s Five Forces shall be used to carry out an industrial analysis of the smartphone industry. The analysis will be done from the point of view of Apple Inc. as a smartphone manufacturer.

Competitive Rivalry: High

In the smartphone market, competition is high. This is due to the existence of many manufacturers, each of them making smartphones with different features in an effort to outcompete each other. On the case of Apple, its main competitors include Samsung, Huawei, and Xiaomi. According to the diagram below (Figure 01), Apple is at the third position considering the number of units that its vendors have shipped across the world during the fiscal quarterlies from 2017. From Figure 01, it is evident that companies like Samsung makes the largest worldwide shipments, followed by Huawei, then Apple. The last shipment is made by OPPO. The other companies make the most shipments due to their manufacture of cheaper smartphones which make up 33.9% of total worldwide shipments per quarter year.

Other contributing factors to competitive rivalry include the progressive change in technology and price wars. Smartphones also grow obsolete and lose value quickly in the markets. Manufacturing companies, therefore, have to make sales at a faster rate in order to have the edge over competitors. The smartphone industry also has high exit barriers and high fixed costs. Brand identity bears great significance in this industry, and this is the reason why Apple smartphones make sales due to its brand positioning.

New Entrants – Low

The threats of new entrants in the smartphone industry are of low intensity. The low-intensity force is due to brand loyalty in the industry. Apple has a strong brand name, and new entrants would have to toil to build a brand name that is as popular and well-recognized for quality as that of Apple. A new player needs a high initial capital in order to succeed in the smartphone industry. New entrants will have few economies of scale, and there currently exists high regulatory policies in the market such as patents and copyrights which could easily bring about lawsuits of infringement.

Substitutes – Medium

The substitute factor operates at a moderate or medium level in this industry. A product will be considered a substitute in the smartphone industry if it has nearly the same features and performs nearly the same functions as another smartphone device. A substitute can be relatively cheaper. For instance, there exist companies which build clone iPhones which could end up acting like a substitute to Apple’s products. Nowadays, smartphone users value performance, quality, and innovation that is why they would prefer to spend more money buying the best technology like Apple’s iPhones. Substitutes have a moderate force because some factors of a substitute could either bear a high or low force.

Buyer Power – Medium

Buying power exists in two groups, buyers as individuals and buyers as organizations. Both buyers have little influence on a smartphone manufacturer’s price. The power of buyers could, instead, be increased due to the existence of many other smartphone manufacturers and they can compare the performance and price of each product.

Supplier Power- Medium

Supplier power in this industry is also moderate or medium. The suppliers can be placed into two categories; the software and hardware suppliers. Apple makes its own software, iOS. Therefore, it does not incur any costs to software suppliers. However, Apple’s hardware is sourced from external manufacturers such as Samsung, Nokia, and LG. These suppliers, who consist some of Apple’s competitors, make the intensity force of suppliers’ power high, although, this is balanced off by the existence of many other suppliers in the market who could deliver the same hardware to Apple at a lower price. Also, Apple could opt to manufacture the sourced hardware by itself.

Opportunities and Threats

Opportunities

These are the external changes which result in the creation of possibilities or openings. One of the opportunities for Apple, which is related to the developing countries, is the increase in smartphone penetration. The number of mobile subscribers increased to over 5 billion in 2017, a figure which is projected to top over 6 billion by 2025. This growth is largely accounted for by emerging markets in developing nations. By 2025, over 75% of the mobile connections will be through smartphones while the number of mobile users of the internet will have increased by 1.75 billion (Kustaev, 2019). These statistical findings create an opportunity for companies in the smartphone industry to explore deeper into the developing markets.

As more people are adopting and being able to access mobile internet and smartphones, the quality of life will improve and regions which once had no mobile technology will be in a position to access services and information. There is a diminishing gap between the developed and developing markets with regard to smartphone penetration, and this will translate to a relative increase in living standards. With mobile technology being used by nearly everyone, people will be in a better position to receive financial services, healthcare, education and any other necessity (Kustaev, 2019). With more people owning smartphones, internet usage increases. It has been noted, however, that the level of internet use is lower in developing countries than the developed countries. An opportunity which increased smartphone ownership brings about is that efforts will be made by communication authorities to set up necessary infrastructure which will result in the decreased costs of internet browsing in the developing nations. The use of social media in developed nations is high, such that two out of three adults in nations like Australia, Korea, Canada, Sweden, and Israel use social media. In developing nations, like Jordan, eight out of every ten adult uses the internet. 94% of all social media users are active on social media platforms (Chwe, et al., 2018). This is an opportunity for Apple to market their products using social media advertisements as a way of influencing consumer decisions.

Threats

Developing countries could be experiencing smartphone penetration, but developed nations are experiencing stagnation in smartphone purchases. In 2018, Samsung’s release of the Galaxy S9 was not accompanied by heavy sales as anticipated, and Apple forecasted a decline in its revenue for iPhones by the end of the same year. This sent a simple message to the smartphone manufacturers that people who want a top-notch smartphone are already in possession of one. This message was highlighted by Apple’s CEO, Tim Cook accounting it for the decline in revenue from the iPhone in the last fiscal quarter of 2018 (Savov, 2019). Already, there are many top-quality smartphones in the market, signifying that the market has reached a point of saturation. Globally, the shipment of smartphones has declined for two years consecutively. This similar threat was faced by personal computers for some years in the past (Ovide, 2019). People are buying fewer replacements even though the devices are good enough and useful. The effects of this threat are that smartphone companies can be discouraged to manufacture more devices or they could lower their prices to the point that consumers can be convinced to make replacements.

Conclusion

To conclude, an environmental analysis through Apple reveals that the smartphone industry has the likelihood of being misused by plotting criminal activities and pollute the environment by electromagnetic radiation and release of toxic waste materials. In addition, the industry is good for entertainment and has flexible operating systems. The fifth generation of telecommunications technology will boost communication services, and intellectual property rights will protect patented ideas in the smartphone market. In Porter's five forces analysis, competitive rivalry turned out to have a high-intensity force in the market. The threats of buyer, substitute, and supplier power are medium, and the threat of new entrants is low in the market. The opportunity in the smartphone industry is the increased smartphone adoption in developing countries, although, the decline in smartphone purchases in developed nations has deleterious impacts on the future of Apple. Therefore, efforts of market analysis can be made for companies to understand the needs of customers in developed countries so as to build technology that presents new solutions and benefits compared to the old ones.

Bibliography

Cecere, G., Corrocher, N. & David, R. B., 2014. Innovation and competition in the smartphone industry: Is there a dominant design?. Telecommunications Policy, 39(3-4).

Choi, Y.-J. & Choi, Y.-S., 2015. Effects of Electromagnetic Radiation from Smartphones on Learning Ability and Hippocampal Progenitor Cell Proliferation in Mice. Electromagnetic Radiation Effects of Smartphones in Mice, 7(1), pp. 12-17.

Gallagher, J. C. & DeVine, M., 2019. Fifth-Generation (5G) Telecommunications Technologies: Issues for Congress.

Zahoor, S. & Ali Shah, M., 2017. The Green 2020: Impact of Smartphones on the Environment in Present and Future. International Conference on Communication Technologies, pp. 91-100.