Smartphone Industry Rivalry, Supplier Power & Competitive Advantage

Intensity of Rivalry in the Smartphone Industry

The worldwide smartphone manufacturing industry is significantly competitive. The top four competitors — Samsung, Apple, Huawei, and OPPO — together command close to half of the global market. According to statistics from the third quarter of the 2016 fiscal year, Samsung led the industry with a market share of 21 percent, followed by Apple at 12.5 percent, Huawei at 9.3 percent, and OPPO at 7.1 percent. A fifth competitor, Vivo, held a market share of 5.9 percent. All other smartphone manufacturers worldwide accounted for a combined share of 44.2 percent. The combined market share of the top four competitors amounts to approximately 49.9 percent (IDC, 2016), placing the industry in the 40–50% concentration range.

Degree of Product Standardization and Price Differentiation

One of Samsung's key marketing strategies is competitive pricing. A comparison of similar products between Samsung and Apple reveals a substantial price gap. For example, when the Samsung Galaxy S6 launched, it retailed at £410, while the iPhone 6S launched at £539 — a price difference of approximately 23 percent for technologically comparable devices. This indicates that the difference in price between competitors' similar products exceeds 15 percent, signaling low product standardization across the industry (Rogerson and Peckham, 2015).

Approximately 25 percent of products sold to consumers are sold at a discount rather than at the full retail price.

Brand Awareness

Consumers in the smartphone industry demonstrate a high ability to recognize and distinguish brands. Brand awareness refers to the degree to which consumers can readily recall a brand when making a purchase decision. Research indicates that approximately 50 percent of consumers can identify the Apple brand, while around 25 percent can readily recognize Samsung products. This reflects a high level of brand differentiation within the industry (Eom and Cho, 2015).

Switching Costs

Switching costs in the smartphone industry are high. A primary driver of this is the operating system: when a smartphone manufacturer owns both the operating system and its associated app store, consumer lock-in increases substantially. The two dominant manufacturers, Samsung and Apple, use fundamentally different operating systems — Android and iOS, respectively — making it costly and inconvenient for consumers to switch between ecosystems (Cromar, 2010).

Industry Growth Rate

Global smartphone shipment growth slowed considerably in recent years, declining from 27.8 percent in 2014 to 10.5 percent in 2015. Shipment volumes were anticipated to reach approximately 1.48 billion units before growing to 1.84 billion by 2020 (Framingham, 2016). The forecasted growth rate for the worldwide smartphone industry in 2016 was 3.1 percent, placing it in the 3–5% range.

Unused Production Capacity

Industry-wide production capacity currently in use is estimated at less than 70 percent. This is evident from the rapid entry and expansion of Chinese smartphone manufacturers such as Huawei, OPPO, Vivo, Lenovo, and Xiaomi, all of which have significantly increased global production capacity. Collectively, these entrants indicate that the industry's production capacity is far from fully utilized (Wu, 2016).

Storage Costs and Product Perishability

The degree to which products have high storage costs or are perishable is high in the smartphone industry. Smartphones become outdated and obsolete relatively quickly. If a device is held in inventory for an extended period, newer and more advanced products are likely to emerge, shifting consumer preferences and reducing demand for older models.

Exit Barriers

Exit barriers in the smartphone industry are low. When exit barriers are low, weaker firms are more likely to leave the market, which in turn can improve profitability for the firms that remain (Porter, 2008). Companies with high operating costs are particularly prone to exit, as the financial burden makes continued participation unsustainable.

Overall Intensity of Rivalry: Fiercely Competitive

Taking into account all the factors discussed above — market concentration, price differentiation, brand recognition, switching costs, growth rates, production capacity, perishability, and exit barriers — it can be concluded that the overall intensity of rivalry in the global smartphone industry is fiercely competitive.

Supplier Power in Smartphone Manufacturing

Supplier power within the smartphone manufacturing industry is high. Entry into the industry requires substantial capital investment, which limits the number of viable suppliers and gives existing suppliers considerable leverage. If a smartphone firm were to switch suppliers for key components, the change would likely have a significant impact on the company's operations and performance — a risk most firms are unwilling to take.

The relationship between Apple and Samsung illustrates this dynamic clearly. Samsung has served as one of Apple's most critical suppliers since the early days of the iPhone, manufacturing A-series processors and supplying both NAND flash and DRAM memory chips. Among the most expensive components in an iPhone are the display panel and memory chips. In the production of the iPhone 7, these components alone accounted for more than a quarter of the total bill of materials (Kang, 2016). This dependency demonstrates the substantial bargaining power that key suppliers can hold over even the largest manufacturers in the industry.