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PEST Analysis: RIM

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  • 1. Kelsey Andersen Ryan Billdt Eva Collins Tyler McCurry Colin Swanson BUSA 449 - 03 Analysis of the Diversified Communication Services Industry Industry Life-Cycle The Diversified Communication Services industry specializes in the development of wireless communication technologies. Firms in Diversified Communication Services industry have prolonged the life-cycle of their industry by incorporating more and more technology into their products. This continuous inclusion of new technology has lead to the advent of the Smartphone. Relatively new entries into the cellular phone market such as Apple, Research in Motion, and Google have specialized in this new technology. The ease of entry demonstrated by new competitors is an indication that the Diversified Communication Services industry has entered the Maturity stage. This is due to the fact that the maturity stage is generally indicated by the appearance of new competitors with similar products (QuickMBA, 2007). Another sign that the Diversified Communication Services industry has reached the maturity stage is the fact that sales growth has been slowing and is predicted to continue to decrease. According to an industry analysis by Standard and Poor’s, the number of wireless hand-held communication devices sold in 2008 had risen by 9% from the previous year. This number is predicted to continue to decrease to 7% from 2008 through 2012 (Bensinger, 2009). PEST Analysis Political In light of the recent election, a new tax plan has been created by the Obama administration regarding corporate tax policy. Currently, the United States has one of the highest corporate tax rates when compared to other industrialized nations. The ‘statuary’ corporate tax rate (CTR) is 39.3%, compared to Irelands CTR of 11% (Farley, 2008), and Britons CTR of 28%( Werdigier, 2008). In developing nations the CTR is also relatively lower. China’s CTR is 25% for domestic firms and 15% for foreign companies. The new administrations Tax plan includes cutting corporate tax rates for companies that create jobs in America, and giving tax credits for Research & Development expenditures. Obama will also discontinue numerous tax loopholes for corporations. How will this impact the mobile phone industry? Anytime a tax rate is reduced the cost savings from not paying the decrease in the tax rate will put more money in the corporation’s hands. They can use the savings to pay dividends to stock holders, buy securities, or reinvest in growing the company. In addition, a
  • 2. more profitable a company is the more appealing their stock is to an investor. However, this will depend on how much the tax loopholes save corporations already. In regards the plans R&D tax credit, giving tax credits to technology intensive industries like Diversified Communication Services will incentivize them to do what they do a lot of already—reinvest more into R&D. However due to the recent economic crisis, the United States and Canada government have increase their government spending to fix the crisis. This will raise large budget deficits for both countries (Joining the Stimulating Party, 2009), income and corporate tax rates will be increased in the future. Even though increasing tax rates will lower their budget deficits, consumers and businesses will suffer greatly. This will affect the industry because consumers demand for communication devices like the blackberries and iphones will decrease and businesses will have less money to reinvest in their company and their production. Despite government efforts to encourage globalization and research and development, with higher taxes, we could see economic growth suffer especially in this industry. Economic The economic factors that affect the Communication Service Industry’s economic growth in the United States and Canada are trade barriers, foreign tax rates and interest rates. With the emergence of globalization, the United States and Canada have been striving to remove trade barriers with other nations, especially developing nations, to help expand economic growth across the globe. These developing nations have increased their foreign investments into Canada and the United States (Wynant, 2); which have provided reinvestment opportunities for businesses especially in the Communication Service Industry. Businesses like Apple and Research in Motion are starting to introduce their products in these developing markets which has helped expand their market to not just developed nations, but to developing nations as well (Wynant, 3). Canada’s government also encourages research and development in these businesses by offering tax credits (Information and Communications, 2008). With the help from foreign investors and their government; these businesses will have a comparative advantage and create sustainable economic growth. From the previous section, we mention that the United States and Canada have one of the highest corporate tax rates in the world. With developing countries like China and other Asian countries that have much lower tax rates, we could see an economic growth of the communication industry in these countries. These countries are already having a steady increased in their market share (Mobile Phones in Asia 2008, 3-5) and as long as they encourage low taxes, economic growth should accelerate once this economic crisis has been averted. The last economic factor that will affect the Communication Service Industry is monetary policy and interest rates. With our current global crisis, the majority of the developed nation’s central banks have decreased their interest rates to help stimulate the economy (Further Monetary Easing, 4). With these low interest rates, the cost of borrowing and the saving rate will decrease, encouraging consumers to buy more consumer goods rather then save their money. This will help the industry because there will be increased consumer demand for goods such as Blackberries, iPhones and other communication
  • 3. devices. As a result, companies like Research in Motion and Apple will increase their supply to meet their consumer demand. To accompany low tax rate, China’s monetary policy also keeps their currency artificially low (China 2008, 19), so foreign companies will find their cheap goods attractive. With the removing of trade barriers and globalization, many foreign countries are looking for the to trade for cheapest goods. With China’s weak value currency, they can create cheap goods in the Communication Industry and spur economic growth in this sector along with their low corporate tax rates. However due to China’s low value currency, Countries like the United States and Canada are pressuring China to appreciate their currency, so we could see a trade and currency war between developed and developing countries (China 2008, 19-20). Reducing trade barriers, foreign tax rates and lowering interest rates will help create economic growth for the Communication Service Industry. However with the high probability of increased tax rates could reduce the economic growth that could have been produced by the other economic factors. Sociological The communication industry is entangled greatly with sociological factors. Mobile devices have become a fashion statement as well as a primary way to communicate. As a result, these industries must focus on finding out what consumers are looking for regarding mobile devices and must find ways to capitalize on some markets while looking for ways to get into those markets left untapped. One social aspect regarding this industry has to do with the health consciousness of society. Many people have health concerns regarding mobile devices. There are fears of getting conditions such as cancer circulating among many people. There is debate in the medical community regarding whether citizens should be concerned about a potential connection between mobile devices and conditions such as brain tumors. According to an article in Business Week, there has been no conclusive research linking mobile devices to these conditions. However, a comparison is used in the article stating that “’it was 15, 20 years after people began smoking that we saw concerns associated with it…down the road, the same could happen with phones’” (Yarow, 2008, p. 11). Although there has yet to be any concrete evidence linking usage to health conditions, this is still something that needs to be kept in the minds of those in the industry. When one considers the potential that these health concerns could turn out to be proved true years down the road. Another social aspect to be considered is population growth. Overall, the population is increasing, which provides good news to this industry. A higher population provides for more potential customers and a variety of different types of markets. The variety of different markets throughout the population provide for many different opportunities regarding this industry. One particularly large market for communications products is the corporate world. The BlackBerry, for example, is extremely popular among businesspeople. According to an article on the Fox Business website, “’The BlackBerry is now a manifestation of self worth from a professional standpoint…it makes people feel more important to be tapping on a BlackBerry rather than talking to the lady next to them. There’s a feeling that if you don’t appear connected than you’re not busy’” (Tuggle, 2008). Mobile devices have been integrated largely in the world of business and have become practically a necessity.
  • 4. Technological The corporations in the communications industry are in a constant race to be the first to have the newest phones with the latest technology. As a result, research and development play an imperative role in these companies because of the fact that they all want to be known as the innovators. Corporations in the mobile phone industry are constantly trying to outdo each other with having the newest, trendiest, up-to-date technology. For example,” Verizon and RIM rushed the device [BlackBerry Storm] to market, perhaps before it was really ready, according to the Journal article. The newspaper notes that Jim Balsillie, RIM's co-CEO said the companies reached the Black Friday deadline "by the skin of their teeth," after they had missed a planned October debut” (Reardon, 2009). This rush to the market made the BlackBerry lacking in fundamental Smartphone qualities that the consumer was used to. Consumer’s claimed “the accelerometer that senses and changes the view on the screen when it's turned on its side is slow. And sometimes the "sure press" screen is difficult to use because it registers the wrong character (Reardon, 2009). These problems may be due to the rate of technologies change and the want to be the first out. The rate of technological change in this industry is very fast as a result of the need to be the first and the best when it comes to having the newest features. “Mobile phones were as much a fashion statement as anything else” (Bancroft, 1997). One factor to be considered is the fact that what at one particular moment might be considered the most up-to-date technology can, in a very short period of time, be considered yesterday’s news. Certain mobile technologies even become obsolete over what can be considered a relatively short period of time. For example, having a mobile phone that could also act as a camera was, only a few years ago, considered the latest technology. Today, cameras come standard with most mobile phones. “Advanced features and services such as cameras, MP3 players, multimedia messaging, email and mobile TV are increasingly offered as base capabilities on new phones rather than as extras” (Bancroft, 1997). We will continuously see an increase in Smartphone abilities as well as structure. Five Forces Analysis Threat of New Entries New entrants in the Diverse Communication Industry are not as strong as they were before the iPhone entered the market. But there are still moderate threats in this industry. Companies from different but similar fields are trying to expand their market share in this industry (Global Mobile Phones, 2009). For example most recently Google has entered this industry with their new Smartphone the Android. Also, Dell and Microsoft have talked about entering the industry as well with their versions of a Smartphone (Mortiz, 2009). However with these companies following the successes of the Blackberry and the iPhone, they will need to find new market niches to be able to compete with these existing products. Power of Suppliers
  • 5. Suppliers provide software and parts for the manufacturing of mobile phones. Certain companies also rely on suppliers for marketing their products. The bargaining power of suppliers is relatively moderate in the mobile phone industry. There are numerous reasons for this. 1. There are a higher number of manufacturers then suppliers. 2. Some types of technology such as integrated circuits are specific to the manufacturer which increases their dependence upon them. 3. In addition, suppliers serve a wide range of industries in the electronics field, which makes the revenue generated from supplying components mobile phones not very critical to the suppliers’ overall revenue. The same can be said for suppliers that provide advertising and marketing functions (Datamonitor, 2008, p. 12-13). Raw Materials: One raw material needed in the production of smart phones is Tantalum. There is uncertainty in the supply of this raw material because it’s predominantly found in the Congo, which is currently undergoing a civil war. The price for steel has also gone up. Both can adversely affect margins (Datamonitor, 2008, p. 12-13). Power of Buyers The buyers of the products developed by the firms in Diversified Communication Services industry are wireless network service providers and independent retailers. Because these retailers need to supply the newest and most technologically advanced phones in order to attract customers, they have little bargaining power over their suppliers. This is also true due to the fact that the cell phone and Smartphone developers create products and applications specifically designed for their retail customers, creating a higher switching cost for the retailers. (Datamonitor, 2008, p 12) Availability of Substitutes Fixed line phones can be seen as a substitute to smart phones but because of its traveling limitations, the time crunched schedules of today’s work environment, and the importance of fashion accessories; the threat of substitution is relatively low. Laptops can also be seen as a substitute. All laptops have many of the options smart phones have such as Internet, TV, music…etc. In fact, many people who own laptops also own a smart phone. Because mobiles have the ability to synchronize with other devices like laptops, laptops can also be seen to be complementary product to a smart phone instead of just a substitute. (Datamonitor, 2008, p. 13-14) Competitive Rivalry The Diversified Communication Services industry is comprised of 79 publicly traded firms located around the World (Forbs, 2009). Just like other industries in the technology sector, the Communication Services industry has been highly competitive over the past few years due to new entries and rapid technological development. Another factor contributing to the highly competitive nature of Diversified Communication Services industry has been the rapid growth in popularity of Smart Phones such as Research in Motion’s Blackberries, Apple’s iPhone, Google’s Android, and others (Bensinger, 2009). In 2008 Forward Concepts published a study regarding the Smartphone market and
  • 6. the associated technological development. According to this study, in 2008, Nokia was the leader in the world-wide Smartphone market with 34% market share. Research in Motion controlled the second largest portion of the market with 13%, followed by Apple with 9.6%, Sharp with 5.7%, Sony Ericsson with 5.3%, HTC with 5%, Motorola with 4.6%, Samsung with 4%, and a variety of other firms representing the last 18% of the market share (Reuters.com, 2009). According to a Standard and Poor’s industry analysis, the number of wireless hand- held communication devices sold in 2008 had risen by 9%, or 1.1 billion, from 2007. This number is predicted to continue to grow at an annual compound growth rate of nearly 7% through 2012 (Bensinger, 2009). This predicted growth, and opportunity for increased profits, will likely lead to continued technological development and competition in the Diversified Communication Services industry. References Bancroft, M. (1997, October 5). Managing the Mobile Device Life Cycle
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