Five Forces Analyses
Discuss about the Five Forces Analysis for Mobile Telecommunication in Australia.
“Five forces analyses” also known as “Porters Five Forces model” refers to a framework whose aim is to investigate the various levels of competition within an industry and used to develop a business strategy (Porter 2008). This depends on industrial organizational economics that determines the competitiveness and profitability of an industry. This analysis was developed by Michael E. Porter of Harvard University (Grundy, 2006). He came up with this analysis in relation to then SWOT analysis (Strength, Weakness Opportunities, and Threats) that he established not being accurate and provisional. This forces or the microenvironment as referred to as by Porter, consist of forces that affect the ability of an industry to deliver to its customers and generate profits. (Barton and Teicher, 1999). Any adjustment of these factors makes the industry re-evaluates its market given the overall change in industry information. This strategy has been used to the different scope of obstacles; from aiding enterprise making lots of profits to aiding states’ maintain businesses. This paper will focus the analysis on the telecommunication industry in Australia, the market definition and highlight the five forces and the dangers to the industry. It will also summarize the threats of these forces to the profitability of the business.
“Five Forces Analysis” or “Porter’s five forces” that recognize study and help to evaluate the strengths and weaknesses of an industry are:
- Rivalry in the trade;
- Power of the suppliers;
- Buyers’ power;
- Potential of new market players;
- Substitute products threat.
They are further put into two categories of these forces; horizontal and vertical. Horizontal forces include; rivalry/ competition, substitute products threat and the threat of new businesses while Vertical forces include the buyer buying power and supplier power.
Telecommunication industry in Australia is performing strongly over the years and the daily innovations provide ground for continued achievement. Telecommunications in Australia covers availability and utilization of electronic services and appliances or devices like telephone, radio, television and computer network, or telemetry with the sole aim of exchanging information and ideas over a distance. Telecommunications is a huge industry made up of three main sectors thus and other three smaller ones that are of increasing in importance:
Hardware sector that builds and maintains the infrastructure like fiber-optic cables and as well end user devices like handsets. It comprises of the large international firms and smaller ones which mostly provide final user appliances.
Carriage services providers like those supplying telecommunications services for instance internet access to the public using carrier network infrastructure. This includes carriers like Telstra, Optus, Vodafone and Hutchison and many others that own and provide mobile network as well as various resellers and mobile network operators. It is the biggest single section in the mobile telecommunication industry (Fairholm, 2009).
Retailers that offer mobile services to final end users on daily for Carriage service providers. Consumers can buy mobile telecommunication services and handsets from different retailers that are branded as well as retailer shops that sell the devices of various ranges of the products.
Content providers, program developers, and content aggregators are also of much significance. Content developers establish and supply of entertainment information of phone devices. Content aggregators control numerous content providers and aids like sourcing, reporting, quality control, cross referencing and formatting of multiple streams. Program developers create new uses that create more market opportunity for all the players involved that is content providers, content aggregators as well as themselves. In this study we will confine the frame of the analysis only to the mobile telecommunication.
The mobile telecommunication is clearly part of day to day life of individuals, communities and businesses over time. It has changed the way businesses are done by people and management of the lives daily.it also represents the scope of the revenue significance of mobile telecommunication as far as the economy at large and the telecommunication industry is concerned.
Mobile telecommunication is high cost, high revenue industry that plays an important role in the growth contribution to a wider Australian economy of telecommunication industry. The Industry gross product of mobile telecommunication has greatly increased over the years. It is believed contribute largely to the revenue more than television services that is free to air industry and also more that newspaper publishing and printing sector.
The industry contributes majorly to government incomes via the levies and industry specific change also the state industry taxes and standard commonwealth taxes. It is estimated the ongoing industry specific payments by the mobile telecommunications industry to the federal government are in the order of two percent of revenue annually. The industry contributes through compulsory payments and voluntary to support some associations like the telecommunication Industry Ombudsman among others.
The increase in demand of the products and services provided by mobile telecommunication, there has been an increase of personnel to deliver quality products and services thus creation of more job opportunities. The mobile telecommunication accounted for 30 per cent of the total telecommunication employment in 2004 -2005.
The capital expenditure of the mobile telecommunication has been huge. The industry’s capital expenditure to support new network, expansions and upgrades to the existing networks has been continuous over the time. This makes the mobile services available to more populations in different places as well supporting of development of innovation.
Rivalry or Competition in the Industry: High
Mobile telecommunication industry revenues have been significant. In 2004-05, the mobile revenue represented 30 per cent of the total telecommunication revenue.
There has been tremendous growth in telecommunications; the traffic in networks growing faster in this time and era and digital technology changing our world. The Industry keeps evolving and advancing daily in technology and communication over the years. The industry developments continue to be driven by competition, innovation and customer wants and needs. Strategies and policies for these industries to stay relevant and profitable in the global market revolve around the “Porter’s Five Forces” model (Eom, 2006).
Like other industry, the intensity of competition is the biggest determinant in the telecommunication industry. The competition is stiff majorly because of telecommunication companies supplying relatively similar products. The factors that a rival business may cause include; competition through innovation, high level of advertising, firm concentration ratio, customer analysis, and powerful competition approach among others. The major competitors in the telecommunication industry include Vodafone, Orange, Optus, and Primus among many more others. Buyers and suppliers explore company’s competitor if they are unable to get a suitable deal. With the high number of competitors with the same kind of products and services, each different player has had to claim their best position in the telecommunication industry, by delivering excellent customer experiences, excelling in the things they do that they are good at and making changes that ensure their business is sustainable, efficient and profitable (Pucko & Cater, 2008).
It is also referred to as market of inputs. The bargaining power is high for sellers of the latest technology and devices. Telecommunication companies cannot afford to lose to the competitors as many of the consumers determine buying of these devices and technologies and sellers of specific items are limited. This includes components, raw materials, labor and services like expertise. Suppliers can easily escalate the prices of goods and services. It is influenced by numbers of the suppliers of key elements of a service or good, the uniqueness and how much it would cost a company to change its supplier (Brown, Fee and Thomas, 2009). If there are few suppliers, the company relies more on a supplier thus the suppliers hold more power. Suppliers may choose not to work with the firm or overprice their unique resources. Some of the potential factors include; the level of differentiation of inputs, weakness and strength of distribution channels, availability of substitute inputs, the cost of inputs and supplier competition among others ( Aitken & Kathryn, 2014).
Suppliers’ Bargaining Power: Moderate
This is the ability of buyers to affect the prices of a service or commodity; it is also known as market outputs. The buyers can put the industry under duress, which in turn affect buyer’s awareness in price changes of commodities and services of the firm. The bargaining power of the buyers is high when the relative ease of switching is put into consideration (Kempster, Higgs & Wuerz, 2014). Some of the factors the influence the power of the buyers include; gross trading, the uniqueness of the products, availability of existing substitute products, the level of dependency on existing distribution channels, bargaining advantage, customer values studies, availability of information, client or customer base and buyer price sensitivity, among others (Crook and Combs, 2007). It is also influenced by the number of customers or buyers available, how of importance the customer to the industry and the cost of the customer is changing to another company. The fewer the customers, the more power they have. Firms may have strategies in place of reducing buyer power like implementing loyalty programs. There are so many similar product and service providers in the industry (Maritz, Pretorius & Plant, 2011). The changing or switching in between the service providers is cheaper than before deregulation in 1997 has added pressure to the industry to provide quality products and services which are the key to a bigger clientele base (Eustace & Martins, 2014).
Any profitable markets with high yields attract new players in the market. This could decrease the probability of the firms in the industry. In this Industry, there is high barrier to making it possible to enter into the business Some of the various factors that could have an impact on magnitude of the threat of new business players could pose: legislative policies, capital requirements, patent rights, branding, customer loyalty, and accessibility to distribution, retaliation, probability of the industry, difference in products, scales of economies, product difference economies (Gerrand, 2016). The power of a market’s new entrants may be weakened as it will find hard to stay in the competition. If an effective competitor uses less money and time to enter into the company market, the more the position of the company may greatly be weakened (Tebogo & Steyn, 2015).
Development and competition in technology have brought about reduced profit margins in the industry. There may be an existing product that could substitute a goods and service offered by one firm that may cause the customers to switch to the alternatives, for example from telephones to over the internet calls, telegrams to emails. Some of the potential factors that play a role with this threat include; buyer willingness to substitute, prices of the substitute, various substitutes available in the market, how easy the substitution is, availability of the substitute, depreciation in standards of the product or service, switching of costs by buyers, There has been a drastic reduction in prices in the market for local and long distance calls and mobile calls. This has led to a reduction in the prices of a range of telecommunication services resulting to reduced profits in the industry (du Preez & van Zyl, 2015).
With the increasing trend of being independent on connected lifestyles, buyers are willing to pay for more unique and different conectivities.to meet these demands the mobile telecommunication have to in place digital technologies and strategies that integrate the core businesses. The telecommunication providers are offering state of the art, reliable and high quality services that are customer friendly with support on websites. The mobile telecommunication dominates the local call market and has a leading hold of a market share of another industry segment, this makes it yield a favorable profit to maintain its Research and Development and maintenance of the network. With market deregulation and profit decreases, mobile telecommunication will suffer a decline in profits. With a cost competitive measure in place, it would be critical for mobile telecommunication to maintain its market share while sustaining profits. In order to reach this strategy, the following essential features are most important factors needed to succeed:
- Corporate productive structuring by rationalizing business segments, it can definitely reduce operation cost, raise output and reduce the impact of industry environment and improve shareholder value.
- The human factor is very important. The common perception that involves improvement of staff commitment and customer services, granting customer value-added and integrated services at fairly low prices.
- Focus on investing in Research and Development and initiating new projects with a potential of making higher profits.
- Improvement of retail and wholesale sectors which make most of the profits for the Mobile telecommunication industry. Holding on to its market power in the segments by taking advantage of the current network capacity would put Telstra in a better competitive place. Enhancement of network infrastructure and operations that is transparent to the buyers/customers of the business vital measure to attract new customers.
Companies such as Telstra believe when more people are connected, many opportunities arise. The main reason of creating connected future for everyone, every day. The customer experiences aim at delighting them by providing best services and products on one of the best networks, service, sales and network support.
They aim to build simple and easy to use technology including the country’s fastest and largest mobile provider, thus drive value and growth from the focal point of view. The changes made ensure the focus of the business efficient, can be sustained and make profits putting in mind buyer and returns growth, superior networks and driving productivity by making business simple.
The mobile telecommunication strives to serve and knowing its clientele better by offering a choice of digital connection and content.
The mobile telecommunication industry dwells on building form the core skills and strengths. International enterprise ventures and expanding the International footprint. Telstra has increased its impact on the businesses in the region in that it currently has an International presence in 22 countries.
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