Mobimobile Internal and External Analysis

3583 words (14 pages) Business Assignment

27th Apr 2020 Business Assignment Reference this

Tags: Business AssignmentsInternal AnalysisExternal AnalysisBusinessBusiness Strategy

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1. Introduction

Mobimobile, a US based a mobile handset manufacturing company operates business worldwide. Listed on the NASDAC, the company has been maintaining a steady sales revenue and profitability over the years. In this intensely competitive and price sensitive mobile handset industry, adding a new manufacturing capacity for a product of a short life cycle is quite a challenge. This paper methodically analyses the external and internal environmental factors, capabilities and competencies of the Mobimobile handsets to understand whether the flexibility in R&D and production can be achieved through subcontracting. In addition to this, the report aims to establish and implement functional, global and corporate strategies for Mobimobile.

It is evident from the analysis of Round 1,2 and 3 that Mobimobile’s market leadership in the US market, alongside a steady position in the overall global market shares are attributed to the affordable price points of the Mobimobile handsets, utilization of capacity, as well as networks coverage. However, the brand faces extremely high rivalry from its competitors, and turmoil political and economic conditions in certain markets.

2. External Analysis

As far as the Cesim case study is concerned, Mobimobile is greatly affected by international taxation. For example the interest rate in the US are up by a quarter percentage point. This eventually will have a reverse impact on the overall cost structure of the handsets produced in the US. Moreover, due to the Oilistan war, corporate tax in Asia is risen by an average 22 per cent. Therefore, the outsourcing plant establishments in Asia may highly be discouraged.

Due to the civil war, the oil price has increased. In general economic situation, that rises the transportation cost and logistics. However, due to taking corrective actions, the transportation costs diminish by approximate 6 per cent. Mobimobile, owing to this, gains a competitive edge over the average logistics cost parameter in the Asian markets.

From social perspectives, it is observed that the consumers demand continuous innovations. Thanks to the dynamic nature of the mobile industry. However, an aeroplane crash due to mobile handset explosion in Southern China the demand for new products subsides.

Technology plays a dominant role in the macro-economic conditions. The global telecommunication industry is following an upward growth trend, with a concern of subscribing to the 5G technology embedded on the handsets. However, technology is greatly dependent upon the networks coverage. As in the case, only Tech 1 goods are introduced in the global markets, as the Technology 2 goods cannot be operated in the Tech 1 infrastructure. With a total concentration on the production of Tech 1 handsets, Mobimobile enjoys the greatest advantages in the product price per technology index over all its competitors in the US, Asia and EU markets.

Environmental factors are considered in the production of handsets, whether through in-house or outsourcing facilities. New environmental laws in China to curb greenhouse gases may  increase the production costs of Mobimobile in terms of establishing outsourcing plants in China. The team from McMaster University, Canada suggests smartphones are the most damaging of all devices in the industry, with their bulk emissions that emerge from the production chain. The safe and economic dispose of the lithium ion batteries should also be considered.

Mobimobile’s legal environment is challenging in case of its operation in the EU union or in Asia. Being a US based company, the legal frameworks such as the patent act or partner licensing are required for its manufacturing establishment in the Asian markets, especially in case of offshoring in China.

The Cesim case evidently suggests that the intensity of the existing rivalry is high.  The existing ten (10) handset manufactures are in significant price war to enjoy greater market share.   Mobimobile is the market follower in the global market share index at 12.81 per cent, second to MS& Company at 19.98 per cent with PMP and HMRK are its market challengers (Fig 1).

Global market shares, %
  Happy End RJHS QUEENs Mobimobile DU PMP HMRK MS&Co RJHS QUEENs RedWind MS& companies PMP
Tech 1 0.00 8.85 13.18 10.43 11.94 11.10 17.70 8.85 9.49 17.70 11.94
Tech 2 0.00 0.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 100.00 0.00
Tech 3 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Tech 4 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 0.00 8.61 12.81 10.14 11.61 10.79 19.98 8.61 9.23 19.98 11.61

Fig 1: Global market shares (major competitors)

The increasing growth trend of the mobile handsets has made the market highly promising to the new entrants. The US market shows a consistent drift of demands, with a market growth possibility of 20 per cent p.a in Asia. These make the industry attractive to the new rivalries. Despite that, high capital requirement on R&D and make the new entrant’s threat as relatively low.

The presence of the substituted products, as far as the Cesim case is extremely low. The conventional landline telephones, pagers, PDAs, satellite phones or PSTN, may be considered as effective communication apparatuses, however, these gadgets can never be switched from the mobile phones.

From the standpoint of the bargaining power of consumers, it is observed that the average responsiveness to prices in the Asian market is remarkably high.  Conversely, there is an increasing demand for adopting new technologies is prevalent among the US subscribers. The polarized behaviours of high spenders on technology, and low spenders on price give higher bargaining power to consumers.

The bargaining power of suppliers supply i.e. the hardware, processors, screen glasses, NFC support tend to be least in this industry. Despite the Oilistan war, the component suppliers are able to transport goods at a 6 per cent lesser cost than usual.

The mobile industry is highly reliant on the complement providers. Network coverage, as in the Cesim case is a dominant factor, as it is observed that the network coverage of Mobimobile with its Tech 1 products reaches at 99.99 per cent from its inception point of 70 per cent as the time progresses (Fig 2).

Fig 2 : Network coverage forecasts in the US market

Furthermore the network coverage in the EU and Asian market stands at its prime point, as no production facilities are introduced (Fig 3, 4).

Fig 3 : Network coverage forecasts in the Asia market

Fig 4 : Network coverage forecasts in the EU market

Moreover, this case study is analysed considering its opportunities and threats (Appendix A). It is evident that Mobimobile has a well-defined cost reductions policies through its cost cutting initiatives. This effectively has been achieved through effective outsourcing and managed purchasing. Since, the in-house manufacturing facilities in the US is relatively higher, there is an opportunity of contract manufacturing in Asia. The current 12 per cent stake of the shares in the Asian markets holds tremendous future growth potentials in the near future.

Additionally, since Mobimobile is listed on stock exchange, and outperformed the NASDAQ composite index, the company can reward its investors in the form share repurchases and dividends.

In case of outsourcing, Mobimobile can transfer funds through International Treasury Manargement to have considerable cash reserves for Asia.

The telecommunication industry due to its consistent growth pattern has become highly attractive. Due to high bargaining power of buyers and suppliers, Mobimobile, alongside its competitors are forced to curtail the prices. Additional threat includes continuous large investments in R&D, which may eventually be causing substantial fluctuations to the Mobimobile’s Profit & Loss accounts.

3. Internal Analysis

The internal resources, capabilities and core competencies formed a competitive advantage for Mobimobile. From the internal strengths perspective, the company holds an absolute advantageous position in the US market with its price proposition of $220 for Tech 1 products. This signifies a clear price advantage over RJHS Queens, and MS& Companies at $250 and $251 respectively (Fig 5).

Fig 5: Product price per technology in the US

Mobimobile’s price leadership also gives the privilege of gaining the lion shares in the US market. With over 25 per cent market share, the company strands well ahead of its fellow competitors (Fig 6 ).

Fig 6: US market share by team

Another strength factor for Mobimobile is its resource utilization which stands at 90 per cent in the USA (Fig 7), alongside its network coverage, boasting over 99.99 per cent areas.

Fig 7: Capacity utilisation in percentile point

Conversely, Mobimobile’s internal weaknesses lie in its production planning. The company is In-house manufacturing centred, with considerably low concentration on contract manufacturing (Fig 8).

Fig 8: Product planning graph of Mobimobile

In the context of Value, Rarity, imitability and Organisations (VRIO), the internal capabilities of Mobimobile can be summarised in below Table 1:

            Resources

      and capabilities

Value

 

Rarity

 

Imitability

 

Organisation

 

Product development ability X
Financial management X
R&D X
Network coverage
 Promotion X
 Marketing strategy X

Table 1: VRIO framework for Mobimobile

4. Proposed Strategy

From the operational strategy perspective, Mobimobile should be in an exigency of allocating its capacities and resources to support its production process.

It is observed from the analysis of production planning, that Mobimobile’s core manufacturing plan is predominantly focussed on in-house manufacturing. The company systematically utilizes 90 per cent of its total capacity of production, yet the estimated production units are nearly 5 million lesser than the market demands. (Appendix 2).  Hence, the key focus of the company should be to enhance the capacity allocations by at least 5 to 7 per centile point. Consideration of this strategy shall not only minimize the demand supply mismatch, at the same time the additional production units will cut down the production cost.

The Asian market possesses stiff competitions with tremendous growth potentials. Mobimobile being the market follower, may contract manufacture through outsourcing in Asia. The extra capacity from the contract manufacturing may become useful. The companies in the next few years may begin to promote and seek to make deals with China based manufacturers. (Techwireasia.com, 2012). This idea can be conceptualized through cross licence partnership.

However, the implementation of the operational functions ought to be in consistent with its business strategies. Drohomeretski, et al (2014) suggests it is important for a business to align its operations strategy with the overall business strategies. The outsourcing facilities alongside the R&D licencing partnership will incur additional cost. This is due to the higher corporate tax rate. Mobimobile, being a NASDAQ company can take advantage of large funding through share dividends and new share issues.

The current interest rate for short term loan is 5.4 per cent in the USA (Appendix 3). Mobimobile, hence should opt for short-term debts to ensure its steady cashflow for its 7 new manufacturing plants in Asia (Appendix 4). Since, Rmb has deflated by 10 per cent, therefore this is high time for the company to transfer its internal loans from USA to China through international treasury management.

References

Appendix A

SWOT Analysis

         SWOT Analysis – Mobimobile

 

Strengths Weaknesses Opportunities Threats
         Absolute price advantage over the competitors.          Inconsistent production planning          Contract manufacturing possibilities in Asia.          High bargaining power of buyers and suppliers.
         Largest market shares in the US market.          Avoidance of in-house manufacturing          Growth potential in the Asian markets.          Competitors threats price curtailing.
         Optimum utilization of resources (capacity).          Considerable cash reserves through outsourcing.          Continuous large investments in R&D.
         Total network coverage.

Appendix B

Capacity Allocation and Utilization

In-house manufacturing
  USA Asia
  Product line 1 Product line 2 Product line 1 Product line 2
Technology          
Capacity allocation, %
Production cost per unit, USD 57.3
Scrap, % 1.33
Estimated demand, k units 13 139 0 13 139 0
Estimated production, k units 8 910 0 0 0
Capacity
  USA Asia
Capacity, k units 9 900 3 850
Capacity utilization, % 90.0 0.0

Appendix C

Rate of interests

Interest rates, %
Long term debt, USA 4.4
Short term debt, USA 5.4
Short term debt, Asia 6.9
Short term debt, Europe 5.9

Appendix D

Capacity

 
Decisions USA Asia
Capacity of 1 plant, k units 550 550
Fixed cost of a new plant, k USD 2 601 3 013
Plant(s) under construction 7 7
Investments this round
Payment, k USD

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