Five+Forces

Porter five forces - finished! Just needs a proofread

__ The threat of potential new entrants (Low) __

High capital is required to enter into the mobile industry. It is difficult to start up in an industry where the existing firms already operate on cost and differentiation strategies (Chan et al, 2011, p.12). However, with the commoditization of parts, finding vanilla solutions for a simple alternative product might be possible. Differentiation, however, is another story. New entrants would have issues with overcoming patent issues if they didn’t plan on investing in their own R&D to create a unique product. These things together would require a new entrant to establish a competitive brand name while achieving economies of scale via investments in a supply chain process and developing a distribution infrastructure to remain competitive. The costs of accomplishing these things make a very strong barrier to entry.

Even then, overcoming issues such as customer loyalty and switching costs would be another large barrier to entry.

__ The threat of substitutes (High) __

For Samsung, almost any phone that performs the same functions as a Samsung phone could be considered a substitute. This includes other devices running the Android OS and not made by Samsung, (Motorola Droid comes to mind) as well as other devices like the Apple iPhone or Blackberry. All of these are in high abundance with similar cost and highly competitive.

The threat of substitute products within the industry, however, is low. Although there is an increased popularity of Tablets, they are generally too bulky to be considered as straight substitutes. They don’t offer traditional mobile phone capabilities, which makes them inadequate. Laptops have the same problem. PDAs are no longer a viable substitute in 2011. For some time they had productivity features that the average mobile phone didn’t have, but now mobile phones have all those capabilities and more. With that said, the buyers’ propensity to substitute is low.

As for things like relative price performance, perceived level of product differentiation and the number of substitute products available in the market, most of these issues become irrelevant as neither laptops, tablets or PDAs offer enough of the same services to be able to replace Samsung smart phones.

The only other viable substitute would be “dumb phones” which, due to the lack of features and capabilities, come as a very cheap or even free substitute to the average smart phone. They are a substandard product. Buyer switching costs are noticeably lower, but product differentiation only comes in the lack of features. Today, even lower-end smart phones can be purchased at very cheap prices, and sometimes come free with certain contracts.

__The bargaining power of buyers (High)__

Buyers have good leverage when it comes to bargaining because of their access to information and how competitive the mobile phone industry is. With so many similar products from other carriers, buyers have several points on which they can bargain. Whether it is by OS, price, tech specs such as camera quality or screen resolution, carrier availability, or something more. Buyers easily switch cost with the increased of choices of mobile companies and furthermore their products are quite similar to one another; they will switch to those who have better features or price points.

Switching costs, however, can be very high in some cases. Usually a phone will come at a lower cost to a buyer if it is purchased with a 2 or 3 year contract via a service provider. Should this agreement be terminated before the contract is up, extremely large fees can be incurred by the customer. Should the customer want a new phone before the end of the contract, they will need to pay full price for it, assuming their carrier even allows a non-contract purchase (which is not the case for high-end smart phones in Canada).

__The bargaining power of suppliers (Low)__

In Samsung’s case, the bargaining power of suppliers is low because Samsung is its own supplier of most components. Samsung also happens to be its own supplier for raw materials.

In the industry, however, the bargaining power of suppliers is high because suppliers’ goods are critical to the buyers’ marketplace success (Huvard et al, 2011, p.8). This means they are more important to the consumers than the mobile carriers themselves. A mobile phone manufacturer could always integrate forward into the industry without the middlemen such as Rogers, Bell or Telus. (In fact, Samsung has already done this within Korea---source).

Presence of substitute inputs: none

__ The intensity of competitive rivalry (High) __

The smart phone industry has many competitors that are equally balanced, and thus rivalry is high. The market for smart phones has slowed in growth since its boom, so pressure to take customers from competitors is also high. Differentiation in the smart phone industry is also at a point where it is very short-lived (Huvard et al, 2011, p.9).

Sustainable competitive advantage through innovation is an unknown. While Samsung has been doing great keeping up with the industry and even leading in some areas, everything is short-lived due to the extreme level of competition.

Refs:

1. Huvard, Sky, Rodrigo Salcedo, Lateshia Tuppince, Matt Wentz, and Lindsay Zolad. //Vodafone Air Touch: The Acquisition of Mannesmann//. Rep. May 2006. Web. 5 Oct. 2011. .

2. Chan, Joshua, Zhisui Chen, Irene Cormane, Nou Her, and Renie Thomas. //Cell Phone Industry Analysis//. Rep. 12 May 2006. Web. 5 Oct. 2011. <http://www.csus.edu/indiv/h/hattonl/industryanalysis.doc >.