Structure and Competitiveness of the Manufacturing of Consumer Electronics Industry in the UK - Essay Example

Consumer Electronics Industry in the UK Table of Contents Introduction 3 Structure of the industry 3 Global share 4 Electronics market of UK 4 Competitive analysis 5 Barriers to entry 5 Bargaining power of suppliers 6 Bargaining power of buyers 6 Threat of substitute products 7 Rivalry amongst competitors 7 Structure and competitiveness 8 Interdependence 8 Advertising and selling cost 8 Indeterminate demand curve 8 Technological aspects 8 Future developments 9 Recommendations and Conclusion 9 Reference list 10 Introduction As per research conducted by European Information Technology Observatory, the UK is regarded as one of the largest markets in Europe for consumer electronics. UK accounts for almost 22% of the European market share in consumer electronics (IBIS World, 2014). The demand for consumer electronics in the UK is high due to strict adherence towards technology and increasing inclination towards gadgets shapes their daily lives. Moreover, price of consumer electronics has appeared to be falling in last few years due to increasing level of competition in this industry. This has further boosted sales. The consumer electronics industry is also characterized with frequent release of new products owing to technological advancements and change in lifestyle (Christensen, Olesen and Kjaer, 2005). Although this industry accounts for a large portion of revenue generated in UK, it is expected that in coming years, revenue would steadily fall, but not at a very high rate. The prime reason for this is stated to be dominance of the consumer electronics firms from Asia and Eastern Europe, that would account for a large portion of sales in this industry, not only in Europe but globally (Yang, et al., 2011. It is also forecasted that general spending of consumers in the UK on fuel, food and other utilities are expected to rise. This might affect purchasing power of consumers with respect to other goods, including consumer electronics (Christensen, Olesen and Kjaer, 2005). This essay focuses upon analysing the telecommunication firms that exists in the consumer electronics industry. The discussion topics are based upon the characteristics of the telecommunication firms such as Apple Inc, Nokia, Samsung and other smaller UK based telecommunication companies. Structure of the industry The consumer electronics industry is diverse with firms producing a wide range of electronic equipments such as, mobile phone, computer, laptop, television, air conditioner and refrigerator. The segment of audio visual equipments of this industry accounts for the highest percentage of sales. Tablets, mobile phones and computers remain to be the fastest growing category (IBIS World, 2014). Electronics is an aspect whose demand fluctuates along with level of development, technological advancement and changes in the economy. The electronics manufactured in this industry can be briefly structured into four main categories, namely government products, consumer or domestic products, industrial products and electronic components (Driffield and Girma 2003). Government products include equipments that are largely utilized for research and development, military, space exploration and communications purposes. These equipments are very highly priced and are manufactured carefully under strictly monitored conditions. Consumer or domestic products are basically equipments that are used by people in their daily lives such as, kitchen appliances, mobile phones and so on and so forth (Driffield and Girma 2003). This essay largely focuses upon the aspects relating to the telecommunication firms that fall in this category. Industry electronic equipments are mainly used for manufacturing purposes and fulfilling needs of the supply chain. Electronic components do not pertain to any particular segment, but are manufactured so as to prevent damages and offer replacements. Apart from this medical equipment also hold a significant position in the electronics industry (Gorg and Hanley, 2005). Global share On a global scale, it is seen that majority of the sales of consumer electronic equipments, especially products manufactured by the telecommunication industries, come from firms of China, Japan and the US. Products that are manufactured in China are of low cost and offer same features as those manufactured in other countries. Also, a major portion of parts and components used for manufacturing different electronic equipments in other countries are procured from China (Kotabe, Mol and Ketkar, 2008). All these aspects have rendered China the leading player of electronics industry. The US is also one of the largest sellers of electronic equipments due to high demand for electronic gadgets. The US electronic market is characterized by domestic as well as international firms. In comparison, UK’s share in the electronic industry globally is very low. This is largely because of slow growth and innovation in this sector (Kotabe, Mol and Ketkar, 2008). Electronics market of UK Figure: Telecommunication market growth in the UK (Source: Quora, 2010) The above figure shows that the products that are manufactured and sold by the telecommunication firms operating in UK have declined considerably in the year 2014 compared to 2013. This fall is expected to continue in the coming years. The reason is lack of growth and innovation in the electronics sector (Quora, 2010). However, it is seen from the figure above that overall revenue generated by this industry has been steadily moving up. The reason behind this is that many firms from Asia and the US have captured the market and been successful at generating adequate sales (Ariffin and Figueiredo, 2004). Competitive analysis Telecommunication firms of UK that form a part of the consumer electronics industry has been analyzed using Porters five force technique. Barriers to entry The electronics industry is characterized by low and infrequent entrants; leading towards less number of competitors for giant telecommunication firms such as Apple Inc. Manufacturing of electronics requires a huge investment. Wherever investment is high, it is seen that the entry of new firms are generally low. In addition, firms manufacturing and selling telecommunication equipments are seen to take a considerable amount of time to reach economies of scale. Hence, prices of products are high initially due to high investment in technology and manufacturing processes (Li, Moon and Wong, 2005). This causes low demand for the equipments. Once economies of scale are achieved, the firm can consider reducing prices. Firms manufacturing electronic products are required to invest heavily in innovation and research (Borrus, Ernst and Haggard, 2004). Through innovation, companies come up with differentiated technology and products that help to capture markets. In the electronics industry, every firm is fiercely in competition with each other, as far as technology and innovation is concerned. Smaller firms that are unable to invest sufficiently in research and development fail to survive the competition existing in this industry. As a result, they soon get expelled from the market (Pecht, Fukuda and Rajagopal, 2004). Also, it is essential to launch products in the market that are differentiated from the existing products. This is an essential factor for achieving competitive advantage and gain the attention of consumers (Pecht, Fukuda and Rajagopal, 2004). Bargaining power of suppliers The bargaining power of suppliers in the consumer electronics industry is seen to be low. The primary reason for this being the wide spread supply chain for electronic components and parts. Concentration of suppliers is low and there are many firms spread worldwide who manufacture electronic components that are required by giant firms producing consumer electronic goods. Due to availability of a large number of suppliers, prices are dictated by the companies who purchase different materials from them (Borrus, Ernst and Haggard, 2004). As a result, suppliers have no power to raise prices. As there are a large number of suppliers, competition between them is intense. Firms are seen to negotiate with suppliers in terms of speed and quantity of delivery (Borrus, Ernst and Haggard, 2004). A major threat for suppliers of this industry is that many companies are seen to produce their own components so as to avoid involvement of external groups and remain self-sufficient. If all electronics manufacturing companies start doing so, then this may wipe off a large portion of sales of the suppliers, thereby forcing them to go out of business (Li, Moon and Wong, 2005). Bargaining power of buyers Buyers in this industry have a significantly high bargaining power. This is due to existence of a number of firms who are in high completion with each other in the telecommunications segment such as, Apple, Samsung and Sony. Consumers gain the advantage of choosing from a wide range of products manufactured by a number of firms. Although firms diversify their products by adding different features, consumers perceive them all to be more or less the same as they tend to overlook minute technical and qualitative differences due to lack of knowledge. The brand that consumers ultimately end up purchasing depends solely upon aspects such as, need of consumers and their brand preferences (Borrus, Ernst and Haggard, 2004). The consumer electronics market is hugely affected by factors like, brand image and popularity. In order to increase demand for products, it is essential for firms to spread correct and adequate knowledge about their products. This may help consumers to choose correctly (Yang, et al., 2011. Buyers of consumer electronic good are sensitive towards prices and demand for very high quality. If consumers are not satisfied on parameters of quality and price, then they may not prefer buying the product and easily switch to another brand. This leads to losing customers to other brands. Also, since the consumer electronics industry is characterized with rapid technological advancements and innovations, it becomes all the more difficult for firms to maintain their customer base (Yang, et al., 2011). Online shopping has also become a growing phenomenon due to its flexibility and ease. Online shopping platforms enable consumers to compare and analyze different brands and bargaining power of buyers is in this way further enhanced (Yang, et al., 2011). Threat of substitute products Electronic equipments have very few substitutes at large. Most of such substitutes are seen to have become obsolete or are unable to fulfil all requirements. For instance, overnight delivery system is a substitute for fax machines (Li, Moon and Wong, 2005). Technological growth and high paced lives of modern day society lead to high dependency upon different types of electronic equipments that help to perform tasks easily (Castellani and Zanfei, 2004). Products manufactured in the telecommunication sector such as mobile phones, laptops and tablets have facilitated easy and fast communication. Electronic equipments make tasks simpler and with the advancement of time and growth in technology, it is possible to develop newer products that are able to perform a variety of functions, thereby rendering the existing products outmoded. Nevertheless, in the current scenario, electronic equipments do not really have many potential substitutes (Castellani and Zanfei, 2004). Rivalry amongst competitors There is a very high level of competition between firms in this industry. Different brands are seen to offer similar products, but with minor differences. In order to influence consumers and attract them, firms spend heavily upon advertising and promotional activities. As a result, net cost of products increase, which is then ultimately borne by consumers (Li, Moon and Wong, 2005). This aspect has boosted growth of media industries, who dynamically promote different consumer products (Castellani and Zanfei, 2004). Firms are seen to come up with new ways of attracting consumers such as, through providing discounts, after sales services, free gifts and so on and so forth. High competition amongst the firms in the telecommunication sector paves way for increased investment in research and development. Firms are in fierce competition with each other in order to develop new types of technologies that can help to gain larger market share. Intense competition is seen to create many issues relating to patent rights and to use of different types of software. High technological advancement has been one of the resultant features of strong competition between firms in this sector (Oliver, Dostaler and Dewberry, 2004). Structure and competitiveness Since telecommunication firms of UK sell similar or slightly differentiated products, it has an oligopolistic market structure. An oligopolistic market is characterized by few sellers and entry of new firms is low (Oliver, Dostaler and Dewberry, 2004). The high level of competition existing in this industry indicates that it shall continue to remain oligopolistic even in the future. As a result of an oligopolistic market structure, competition existing between different firms of this industry is marked by the following features (Christensen, Olesen and Kjaer, 2005). Interdependence There is a very high level of interdependence existing amongst firms in respect of decision making. If a firm is seen to reduce its price for a product, then other firms follow suit and reduce their prices as well. Hence, moves made by one firm have a direct influence upon strategies of other firms in the industry (Oliver, Dostaler and Dewberry, 2004). Advertising and selling cost Firms operating in an oligopolistic market dedicate a huge amount of finance to advertising and promotional activities. This is done primarily to increase market share and develop greater product awareness. Furthermore, through advertisements, these firms are able to portray the ways in which their products are different from those of competitors (IBIS World, 2014). Indeterminate demand curve In the telecommunication sector, firms are extremely interdependent. This makes it difficult for a firm to predict results of its price output policies. This creates uncertainty for all firms. The demand curve of a firm in such a market scenario, hence, becomes indeterminate (IBIS World, 2014). Technological aspects The telecommunication sector is synonymous with technological growth. Greater technological growth paves way for producing better and more effective products. The firms in this sector are at a technological race with each other, where each strives to build better technology so as to gain technological advancement. This is also one of the prime features lacking in the consumer electronics industry of UK. Very few firms operating here consistently improve their technological aspects. This leads to slow growth and lack of differentiation (IBIS World, 2014). Future developments The UK telecommunications industry requires concentrating hugely upon development of technological strength. The growing electronics markets of China and US pose to be a big threat for UK. Unless considerable measures are undertaken to develop the market by launching new products, the UK electronics industry will not be able to sustain global competition and continue experiencing falling revenues (BIS, 2010). Recommendations and Conclusion The falling revenue of UK’s telecommunication firms is caused by the poor economic condition resulting from the financial crisis of 2007 (Oliver, Dostaler and Dewberry, 2004). The US, which was also effected drastically by the crisis, has been able to recover fast. Purchasing power of consumers in many European nations, including UK, has been falling ever since the crisis. It is expected that conditions of the electronics sector of UK will improve with increasing financial stability (Oliver, Dostaler and Dewberry, 2004). Adequate financial resources will facilitate better technological developments and innovations (Euromonitor International, 2013). The major players of the UK electronics industry are primarily global competitors who export their products into the UK market. Domestic UK electronics firms are quite low in number and hold a very small percentage of shares in the overall market (BIS, 2010). Reference list Ariffin, N. and Figueiredo, P. N., 2004. Internationalization of innovative capabilities: counter‐evidence from the electronics industry in Malaysia and Brazil. Oxford development studies, 32(4), pp. 559-583. BIS, 2010. Manufacturing in the UK: An economic analysis of the sector. [pdf] Gov.UK. Available at: [Accessed 28 April 2014]. Borrus, M., Ernst, D. and Haggard, S., 2004. International production networks in Asia: rivalry or riches. 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