Demand for cell phone is increasing globally. Analysts estimate that over 282 million hand sets were shipped in the first quarter of the year 2008 which was 14% more compared to the same period in the previous year. Most of these growing markets are in Africa and Asia. With this increases, demand for accessories is also on the rise in similar magnitude if not higher. The major industry players are Nokia who hold about 40% of the global market, Samsung are second holding 16.4%, Motorola 9.7% while LG Electronics hold 8.6% of the market share. Others are Sony Erickson holding 7.9% while the other smaller companies hold about 16.4%.
The dominance of Nokia is due to its ability to develop a wide range of phones with different features to serve a large pool of tastes in the world. Notably, the mobile phone market can be divided into two parts; the high-value part and the low value part. The high value consumers are driven by the extra features added to the handsets beside the normal services. The low value market is mainly driven by competitiveness in market prices.
Developing a new handset manufacturer will require relevant experience in developing cheap and high quality phones. Max Fischer has been an engineer for Nokia and fully understands the production processes involved in manufacturing high quality handsets with numerous features. He also has an extensive technical network and background in manufacturing. He is expected to apply these skills to manufacture handsets and phone accessories for the global market.
As has been mentioned the market for handsets is highly competitive. To penetrate, the firm has chosen a strategy focusing on lowering costs to the lowest possible values. This will be achieved through the employment of several strategies at the corporate level business level as well as functional level. At the corporate level the most feasible strategy is the global strategy. This strategy will see the company seek to produce for the global as opposed to the local market. Extensive partnerships will be developed with existing distribution channels before the expansion of the channels with continued growth of the firm (QuickMBA.com, 2007, Par 6).
The enlarged market will see the firm gain the ability to utilize economies of scale hence reduce unit costs. The firm will position itself as the lowest cost firm but producing high quality products. The two main paths towards global acceptability will be the competitive pricing of the firm’s products and differentiation.
In ensuring competitive pricing, the firm will leverage the advantages availed by the knowledge wielded by the founder in developing working processes which are most efficient for mass production. The choice of machinery and other relevant equipment will mainly determined by their efficiency and cost saving abilities.
Business partnerships will be based on the simplest and well crafted effective terms and conditions to facilitate smooth dealings requiring minimal employees and cost implications. Instead of developing own outlets, the firm will offer substantial margins to existing retailers in a bid to woo them into selling the handsets. Constant monitoring of the market trend will be conducted so as to improve in on areas with weaknesses.
In addition to taking advantage of economies of scale in adopting a global strategy, we will seek to exploit the availability of cheap labor in some of the countries of expansion. It would be prudent to establish plants in countries like China and India where labor is abundant and cheap. This will help boost the cost cutting measures adopted by the firm. Similarly, there are countries which are rich in some of the raw material required in the production of handsets. Silicon and other metals as well as plastics are cheaply available in India and China as compared to the US.
More importantly, expansion to global markets will ensure that the product life cycles are lengthened. This is because on introduction of new products, the immediate markets will be the western countries. With time the new products will be overtaken by the development of other more exciting products as is the norm with electronic products. The changes in technology occur so fast that in one year, a handset previously viewed as the most exciting product may be declared obsolete. However, the dynamics are more pronounced in the rich nations where the customers have high incomes to support frequent purchase of handsets.
Expansion of markets in to the developing economies in Africa and Asia will ensure that products considered obsolete in the west find new markets and continue generating profits for the firm. The effect of these elongated product life cycles is that expenditure in Research and Development will not only be lower but also optimized. R&D will focus on generating new products but the span between the introductions of these new products will be longer due to the longer product lifespan. This will give adequate time for quality products to be enrolled into the market at the lowest possible prices resulting in better acceptability (QuickMBA.com, 2007, Par3).
In adopting the global strategy, we will take advantage of differences in exchange rates as well as tax regimes to improve on cost reduction aspects of finance and boost sales. Producing in countries with historically weak exchange rates against the world’s major currencies will ensure that exports are cheaper in the international markets than those produced in economies with strong exchange rates. The savings resulting overtime will be high and will boost the attainment of low prices while remaining profitable..
Advantages of cross subsidization of country operations will also be utilized. This is a practice where relatively higher prices may be charged in some high income countries and the extra revenues used to subsidize lower prices in the low income countries. This consideration is in recognition of the fact that in many high income economies customers may have a negative perception of goods which are too cheap relative to those offered by the competition despite the positioning adopted. It would thus be sensible to price the products close to those of the competition.
In addition, we will be well placed to learn different lessons from different countries in areas like sales and marketing. The lessons learnt can be applied in other areas of operations as a proactive measure hence contribute to cost reduction
As mentioned above, the firm will generally position itself as one offering low cost products of very high quality. Producing high quality goods is not always cheap. The resultant margins may be squeezed. However, the firm will seek to secure large markets for the goods in order to ensure voluminous sales. The high volumes will ensure the low margins per unit accumulate to offer reasonable profits well for the firm. The aim here is to lower prices and attract customers thus breaking barriers to entry (Wal-Mart’s Cost Leadership Strategy, 2004, Par5).
The risks involved are also reduced by the diversity in macroeconomic environment. When markets in some markets are shrinking due to regional or national factors, others are at their peak. The reason is because business cycles cannot be perfectly correlated among nations. The effect is that at no one time will the firm experience extreme drop in market size resulting from changes in the macroeconomic environment such as the onset of a recession which reduces incomes for customers (Grant, 2008).
Differentiation of the products will be the hallmark of our operations. Adequate R&D will be conducted to establish dynamics in tastes and preferences. Developing this wide range of handsets with different features will appease a large number of customers as opposed to a single product. The turnover rates will thus be drastically increased hence higher profits will result. Again the firm will also engage in the manufacture of phone accessories such as batteries, earphones, Bluetooth sets and others which can be used on a wise range of phones including those produced by competition.
A centralized management structure will be adopted for the firm. Most significant decisions will be made at the headquarters and communicated to the subsidiaries and branches internationally. This will ensure that the product and pricing strategies adopted for the global markets are strictly adhered to. Uniformity in application of the strategies will greatly aid the positioning of the firm as a true low cost high quality producer. It will be difficult for different areas of operations to have significant different pricing strategies for their own benefit.
Despite the centralized management, some relevant allowance shall be availed for country managers to assess local conditions and recommend or make certain decisions especially in cases of unique circumstances prevalent in to certain countries (Grant, 2008, Par 4).
At the business level, the firm will apply efficient processes in all the profit and cost centers. The production process will adopt a smooth transition from the very first steps to the end. The production plants will be engineered to enhance this. The production employees will largely be former employees at Nokia. The extensive networks already established will be harnessed to develop the most efficient production plants (Wal-Mart’s Cost Leadership Strategy, 2004, Par 7).
The human resource policies will be ensuring only the best are hired. Emphasis on soft skills as opposed to academic qualification will be the focus. The department will make best efforts to ensure optimal interrelationships among workers in various departments. Again, the compensation strategy will be competitive. It will be adopted to the different economies the firm operates. Employees working in economies with high living standards and high tax regimes may require higher packages than those working in the developing countries with lower costs of living.
The sales and marketing teams in the different regions shall be adequately trained and more importantly composed of the local population to enhance the integration and acceptability of products among the local people. However management level posts will be largely handled by staff sourced from the headquarters as they best understand the firm’s cultures and communication procedures (Kotler, & Keller, 2009, p14).
The financing mechanisms will largely be chosen taking to consideration the level of risk, costs as well as timeliness. The largest form of financing will be through private share holding. The two directors will fully fund the equity portion of financing. This means that the senior management will be slim which will ensure faster decision making process. The second form of financing is expected to be obtained through venture capitalists. Despite the higher costs towards this form of financing, extra services such as business advisory may be offered. Again, there is greater flexibility in this financial option. Best financial experts will be hired to continually advice on the optimal short-term financing options suitable for the firms operations.
In a bid to cut on costs of maintaining inventories, the Just In Time (JIT) distribution model will be adopted. The production processes as well as transportation logistics will be arranged in the smoothest possible ways possible. The contractual arrangements with suppliers will seek to enhance efficiency by ensuring that materials arrive timely so as to follow the production plans developed in consideration of the output requirements at any particular moment. The overall effect of this will be reduced costs maintaining inventories.
Incorporating all these strategies to support the global strategy will undoubtedly see the emergence of another formidable player in the production of prepaid cell phones. The target is to acquire at least 10% of the global phone market within the first five years and continue this growth to 30% by the tenth year of operation. Adopting a culture which adheres to these strict propositions will greatly drive the business to unimagined heights.
Reference List
Grant, R. M. (2008). Contemporary strategy analysis (Sixth ed.). Oxford, UK: Blackwell Publishing Ltd.
Kotler, P., & Keller, K. L. (2009). Marketing management. (Thirteenth, Ed.) Upper Saddle River, NJ: Pearson Prentice Hall.
QuickMBA. (2007). Global strategic management. Web.
Wal-Mart’s Cost Leadership Strategy. (2004). Web.