The smartphone industry is marked by heavy competition. The leading brands in this industry with the highest market shares are Samsung, Apple, and Huawei. In recent years, the demand for smartphones has plateaued. Overall while adoption and use throughout the world have grown, smartphone demand fell in 2018 and 19 compared to previous years. To maintain their competitive position in the industry, smartphone companies are focusing heavily on research and development and marketing. Several forces affect the competitive function and success of smartphone companies. Porter’s five forces model is an analytical tool to analyze the competitive situation of businesses and the profitability of a particular industry. These five forces are a part of every industry. They also play a critical role in the smartphone industry and affect the profitability of individual brands. Following is a five forces analysis of the smartphone industry.
The bargaining power of suppliers in the smartphone industry is generally low except for a few large players like Google. Google is one of the largest suppliers in the smartphone industry. Most smartphones run on the Android operating system. Recently, the ban on Huawei related to the use of Android OS caused its sales to fall. Otherwise, most of the suppliers are smaller players, and most are located in the Asian region. Apple has its operating system, so in its case, the bargaining power of suppliers is even limited. Some of the main factors that determine the bargaining power of suppliers in the smartphone industry include their smaller size and lower financial strength compared to smartphone makers. Leading smartphone brands like Apple, Samsung and Huawei are comparatively larger firms with enormous financial strength than suppliers. It is why suppliers have to follow the quality standards set by the smartphone makers, and their bargaining power remains limited. Moreover, most suppliers lack forward integration capability, which also leads to lower control.
The bargaining power of buyers in the smartphone industry has increased owing to several factors. One of the primary reasons behind the growing bargaining strength of the customers is the high number of substitutes in the industry. Increasing competition in the industry has added to the bargaining strength of customers worldwide. Moreover, customers are well informed and have several choices before them. While the number of smartphone models has grown in the market, they are now more affordable than some years earlier. Companies invest aggressively in marketing and customer retention. Apart from that, they also invest aggressively in research and development to make their smartphone models stand out from the competition. The focus on customers and customer experience is much higher than ever before. Overall the bargaining power of customers is moderate. Some of the factors that control the bargaining power of the customers include product quality, brand image, and prices. Products with higher quality are higher in demand. For example, smartphones with higher processing power and efficient cameras are higher in order than other models.
The threat of substitutes in the smartphone industry mainly comes from rival brands and their products. There are several smartphone brands in the market. The top five brands with the largest market share include Samsung, Huawei, Apple, Xiaomi, and Oppo. Except, Apple’s iPhone rest of the smartphones run on the Android OS. The number of models with large screen smartphones is very high. While Apple makes only premium models, its products compete with the premium offerings from Samsung and Huawei, and Xiaomi. The threat of substitutes emerging from competing products also grows higher because differentiation has become difficult. Most models in a category come with similar features and nearly identical processing power. To overcome the threat from substitutes, brands invest in marketing and product innovation. Achieving differentiation is difficult, and so apart from technology, companies focus on their pricing strategies and customer experience. However, some factors that can moderate the threat from substitute products include product quality and brand image. The overall danger arising from substitute products is moderately high in the smartphone industry.