Business

Economic Environment

1. Introduction
Apple Inc. is an American multinational corporation founded in 1977 by Steven Jobs and Steven Wozniak. The company designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players selling them worldwide. In 2011 Apple became the most valuable company in the world. Apple's products can be grouped into different product lines, which are: Macintosh, iTunes, iPhone, iPad, iPod, peripheral products, software products and computer technologies, and Internet software and services. Apple launched the iPhone in June of 2007. The device combines a mobile phone, a widescreen music player with touch controls, and an Internet communications device in a single handheld product. Based on the company's multi-touch user interface, iOS, iPhone features desktop-class email, web browsing, searching, and maps and is compatible with both Macs and Windows-based computers.

2. The Portuguese Market

The iPhone reached the Portuguese market in July 2008 in association with Vodafone and Optimus, cellular network carriers operating in the Portuguese market.

Picture 1 iPhone 3G First iPhone sold in Portugal
Source: www.apple.com

The cell phone companies operating in Portugal sold 5.6 million phones in 2009. The smartphone sub-market represented 11% of the all-cellular phone market.
Brand Nokia Samsung Vodafone Others Total Sales 2009 2332000 1913000 371000 995000 5611000 2010 2254000 1849000 589000 1409000 6101000 Sales Variation 2010 vs 2009 -3% -3% 59% 42% 9%

Table 1: Cell phone sales Source: IDC European Mobile Phone Tracker, February 2011

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In 2009, Nokia lead the market with a 42% share followed by Samsung with 34% share and Vodafone, as a cell phone brand, with 7% share. In 2010 the top three players of the market kept their positions.

2009 - Market Share

7% 18% 34% 42% Nokia Samsung Vodafone Others

2010 - Market Share

23% 10% 30%

37%

Nokia Samsung Vodafone Others

Graph 1: Cell phone market share by brand

Source: IDC European Mobile Phone Tracker, February 2011

In 2010, 6.1 million phones were sold. The smartphone market increased 93% representing 19% of the all-cellular phone market.
Brand Nokia Research in Motion Samsung Apple Others Total Sales 2009 371000 62000 47000 44200 72800 597000 2010 487000 132000 90000 89000 353000 1151000 Sales Variation 2010 vs 2009 31% 113% 91% 101% 384% 93%

Table 2: Smartphone sales

Source: IDC European Mobile Phone Tracker, February 2011

In 2009 the smartphone market was lead by Nokia with a 62% share followed by RIM with 10%, Samsung with 8% and Apple with 7%. In 2010 the top players kept their positions with RIM and Apple increasing their market share.

2009 - Market Share

13% 7% 8% 10% 62% Nokia RIM Samsung Apple Others

2010 - Market Share

30% 42% Nokia RIM Samsung Apple Others

8% 8% 11%

Graph 2: Smartphone market share by brand

Source: IDC European Mobile Phone Tracker, February 2011

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3. Smartphone market structure

Analysing the smartphone market we found some key points: - Few firms operate in the smartphone market. - The 4-firm concentration ratio represented around 70% of the market. - Every firm attempts to be more innovative than the others in order to increase profits. - Entry barriers are high due the financial strength necessary to enter the market. - The product has some differentiation. - Competitive advantage created through benefits for customers. - Segmentation strategy. Considering all key points we can say that the smartphone market is an oligopoly.

4. Porters Five Forces Analysis

Porter's five forces is a framework for industry analysis and business strategy development that evaluates five competitive forces.

Picture 2 Porters Five Forces Framework

http://www.soopertutorials.com

4.1. Competitive Rivalry We can start our analysis of the smartphone industry looking to its competitive rivalry. If the access to an industry is easy then competitive rivalry will probably be high. This is the case for most of the mobile phone market. If customers can easily choose between substitute products then the rivalry will be high. Competitive rivalry will be elevated if: - It is difficult to leave the industry.

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- There is not much differentiation between the products sold and the customers. - Competitors are around the same size. - Competitors have comparable strategies. A lot of companies are creating smartphones that have some of the features of the iPhone, but almost any of them have the niche market skills that Apple hopes to take. While all cell phones make phone calls, some others play music and offer multimedia features Apple differentiates itself by its integrated system, iOS + AppStore + iCloud. 4.2. Power of suppliers Suppliers are vital for the industry. Raw materials are indispensable to produce smartphones. This means that suppliers have some power. This power comes from: - If the supplier is the only who can provide a particular part or material. - If the cost of changing a supplier is high. - If there is no substitute for their product. The iPhone has very exclusive specifications and is very distinct in sourcing its parts. The touchscreen is one of the most important parts of the iPhone. The supplier from this particular part is Balda, a German company, that makes glass-surfaced screens that are more sensitive, thinner, and harder to scratch or smudge than the usual plastic displays. Apple patented software that allows a user to place thumb and forefinger on the display, and then spread them apart to magnify an image. Balda is the only one who can supply the part making Apple vulnerable for the first rule of the Power of suppliers. 4.3. Power of buyers Costumers can apply great impact and control over an industry in certain situations. This occurs when: - There is little differentiation over the products and where replacements can be found easily. - Costumers are sensitive to price. - Change of product is not expensive. A lot of costumers are price sensitive when it comes to mobile phones. Some only want a phone for free or a very low cost. The high price of the iPhones, 590 to 690, will discourage many, leading to the adoption of other smartphones. The power of the buyer will apply some pressure on the iPhone.

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4.4. Threat of substitutes Are their different products that customers can buy over smartphones that can offer the same benefit for the same or less price? The threat of substitute is high when: - The price of alternative product drops. - It is easy for costumers to change from one alternate product to another. - Customers are prepared to substitute. There is no one substitute for all the capability of smartphones. To substitute a smartphone you need a cell phone, a gps device, a camera, a music player, a netbook therefore the cost to the substitute is higher than the smartphone. 4.5. Threat of new entrant If a company can enter easily into an industry then the threat of new entrants is high. Organizations needs to address some concerns: - Are the customers loyal to existing products? - How fast can new entrants attain economies of scale? - Do new entrants have access to suppliers? Almost all mobile phone companies, Nokia, Samsung, LG, Sony Ericsson, Motorola, launched products addressing the smartphone market. Apple, Dell, Acer, Asus and others, computer companies, enter the mobile phone market lunching smartphones. Others can try to enter the smartphone market but the financial, technical, productive barriers are high.

5. Conclusion and recommendations

Apple transformed the smartphone industry with the 2007 iPhone presentation. Many mobile phone companies add to remake their product to match the iPhone features allowing Apple to guide this new market. Apple is not the top selling company of the industry but is by far the most profitable.

Graph 3: Mobile handsets sold by brand vs. industry profit share

Source: Canaccord Genuity and IDC

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Until now Apple strategy has been very successful. They managed to differentiate their phone from the competitors adding new features at each release, like Siri in the iPhone 4S, enabling them to stay ahead of the competition. Apple had in June 2011 $76.4bn of reserves. Apple could use this money to secure the control of key suppliers, like Balda, ensuring the source of important parts. They also could use their reserves to acquire smaller firms that develop systems that they could add into their devices, like Siri in 2010, enabling them to differentiate even more their product. Apple presented recently is 5th phone iteration, iPhone 4S, but kept the past two iterations on the market, iPhone 4 and iPhone 3GS. In the Portuguese market the average smartphone price is 230 almost half of the cheapest iPhone, 590. Apple could use the three phones they have on the market to differentiate prices allowing to reach a higher range of consumers.

6. Bibliography
Datamonitor, 2011. Apple Inc. Company Profile. London: Datamonitor. IDC, 2010. IDC Notcias - Mercado Portugus de Telemveis Decresceu 7% em 2009, Afirma a IDC. [online] Available at: < http://idc.pt/press/pr_2010-03-22.jsp> [Accessed 27 October 2011] IDC, 2011. IDC Notcias - Mercado Portugus de Telefones Mveis Cresce 9% em 2010. [online] Available at: < http://idc.pt/press/pr_2011-03-16.jsp> [Accessed 27 October 2011] Bernstein Research, 2009. Apple: The next waves of growth. New York: Bernstein Research. BBC, 2011. Apple holding more cash than USA. [online] Available at: <http://www.bbc.co.uk/news/technology-14340470> [Accessed 9 November 2011] OReilly Radar, 2010. Apple's segmentation strategy, and the folly of conventional wisdom. [online] Available at: <http://radar.oreilly.com/2010/09/apple-segmentation- strategy-an.html> [Accessed 9 November 2011]

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