Electronic Industry
The electronic industry in United States consists of electronic and computer products and this industry engages in production, assembling and retailing of mobile phones , computers , communication equipments and other similar products and their accessories. The industry is also comprised of different companies that have established electronic components products. The production of such products depends on technology that is highly innovative, and which is continuously integrated into designing of products so that they are smaller and even more powerful (IBM, 2008). Research and development has defined the structure of this industry in terms of innovation, productivity and even growth over the past two decades. This is also translated into the cost, demand and pricing in the market structure and which have been used to emphasis and formulate business strategies. The effects of such strategies can be seen in production, pricing, scale economies, switching costs and even transaction costs. The electronic market is made of consumer products and consumer products retailing (Bajaj, 2011).
The consumer electronics sector is a very big industry that is defined by great innovations, a lot of disruption. The innovation results to a market with electronic products that are increasingly connected due to digitalization. The digitalization has led to disruptions which have forced the firms to place more focus on consumers, and their interaction with technology. Due to such changes, the industry has seen fall of barriers and formation of new alliances between firms from varying backgrounds which greatly affect the consumer electronic business (Bajaj, 2011). The industry is also influenced by emerging revolutionary products such as 3D printers that reshape the relationship between the producers, marketers and even consumers who are the end users. The market is wrought with consumers with increasing disposable incomes and whose steadiness has improved purchasing powers to the advantage of manufacturers and retailers. Between 2005 and 2014, personal disposable income has risen by over 4 percent every year and by 2015 the rises was recorded at over 3.9 percent (Moizo, 2016). This has been an important driver of the sector and has continued to grow very steadily, as increase in income remains subdued by low rate of inflation. The prices in the electronics industry have been shifting between high and low, while efforts to produce innovative products with high value have been met with collapse and the stagnation in prices over the past years.
Between 2005 and 2011, electronic products‘s price index reduced by -15 percent. From 2012, the price index has remained low and stable at 84.8 in value. This means that there is high pressure on profit margins due to high competition. On the other hand, the ratio of income to revenue in the industry was at a high of 7.5 percent in 2014(Moizo, 2016). This kind of performance can be attributed major to the performance of most innovative firms who are also the market leaders. For companies which are not able to sustain such kind of competition, a very fierce competition affects their performance and thereby limits the ratio of net income to revenue. The US electronics industry is also faced with reduced leadership in the market as global competition intensifies and other markets produce innovative but low priced products. These foreign markets are able to produce electronic products of the same quality but retailing at lower prices since they enjoy economic of scales associated with lower production costs (Moizo, 2016).
The structure of this industry has also been facing swift changes especially in market landscape, since the market is constantly being re-defined by various forces related to the aforementioned changes in product innovation. The changing landscape is forcing the whole consumer electronic industry to face these challenges on a number of fronts. The issues include the emergence of a sophisticated and frugal consumer market due to various economic situations such as Great Recession experienced in 2008; incapacitating price wars that are being fought by various formats of industry trade which include pure-play vs. discount, the two versus online retailing; the online retailers in the industry enjoys a considerable competitive edge thanks partly to reduced overheads and even tax laws that are not at par with retail games’ new rules; preferences for millennial consumer are always demanding and changing (Moizo, 2016). The result of such a market structure has been manufacturers and retailers who have been adopting strategies to protect against risks of such an onslaught. Major retailers such as Wal-mart, Target and Best Buy have been forced to have strategy re-evaluation and re-alignment in order to survive the new realities of such a market (Diagne, 2012).
To succeed in this industry, firms have to re-align their strategies so that they remain competitive, increase growth and profitability. The firms have to ensure that their investment in research and development translate to creation and designing of innovative and high quality products that meets not only the domestic quality threshold but international standards. This is because the competition has gone global with other firms in foreign markets integrating big technological innovations into their electronic products so that they are gaining a large market share in the international electronic market. In addition, retailers in consumer electronics sector have to focus on consumers especially the millennial population whose preferences are constantly changing. Firms have to be aware of the defining characteristics of consumers who are technologically savvy and with increasing demands. The change in strategy has to include retail approaches since pricing and convenience as other important factors defining the present market. Consumer electronics retailers have to adopt combined strategies like supply chain, pricing, merchandising, customer services and inventory management so as to offer consumer experience with no store limitations (Moizo, 2016). This also involves adjusting to the new distribution patterns in the market such as online retailing. The changing markets and increased competition means that consumers will continue having many options for same electronic products .their decision to buy being informed by the innovation, quality and pricing of these products measured against their preferences.
There are some government policies in United States relating to electronics industry, and especially consumer electronics. These policies aim at protecting the consumer against any unreasonable deaths and injury risks relating to these products. The Consumer Product Safety Act (CPSA), which was enacted in 1972, established an agency to offer safety standard so as to prevent any risks related to consumer products. Under this Act, any consumer products considered substandard are prohibited and such products can be recalled once they are considered to be hazardous (United States, Office of the Federal Register, n.d). The Act provides for assistance to consumers in their efforts to assess the relative safety of such consumer products. The Act also facilitates any researching and investigating the cause and deterrence of injuries, illness or deaths related to consumer products. So as to improve the safety of consumer products, the CPSC recommend that firms should totally comply with mandatory standards and voluntary standards in the private sector (United States, Office of the Federal Register, n.d). These regulations implies that firms in the electronic industry have to design and manufacture products that are meets the set standards while preventing cases of injury and even deaths. The failure to comply with such standards may lead to recalling of consumer electronic standards and even negative publicity that can dent the image of firms’ brands. To achieve the set standards, firms have to design and develop high quality and innovative electronic products.
An analysis of China, Brazil and South African in terms of competitiveness can give an insight into the expected performance of the electronic firms in United States in these markets. The country’s competitiveness is determined by the social, political, economical and technological factors which determine the success of an organization in such a market. These aspects have a combined impact on any business that desires to carry out business activities in such regions.
China
China has been able to acquire a distinct competitive edge against majority of countries in the world including Brazil and South Africa. The largest inflows from foreign direct investment in the world can be attributed to this country which stood at 46 Percent in 2013 (Schwab, 2016). The figure has increase in recent years as the economy of the country continues with a forward surge. The government has ensured there is an improvements depicted by market- oriented reforms through policies and market principles that have led to a remarkable growth of the economy. The political environment of China has been stable aided by a one –party political system. The country also has a large market size at around 1.35 billion people , part of which is a middle class that is raising rapidly with higher income and hence, purchasing power(Schwab, 2016). The country’s robust economy has been able to weather down the various economic downturns experienced globally so that its growth has been consistent. In fact, economic analysis shows that the performance of the economy will perform better than that of Brazil and South African in the future. In 2016-2017 period, China has ranked 28th, in terms overall competitiveness scores. The ranking is attributed to a number of progresses in competitiveness’ sophisticated areas that have had considerable contribution to innovation ecosystem of the nation. Such areas include higher education at 54th place, up 14, innovation at 30th place, up 1; and business sophistication at 34th place, up 4(Schwab, 2016).
The Country’s currently the largest consumer of electronic products especially mobile phones in the world and this is making it to emerge as an innovation center for technological innovation including advances in software and telecommunication. In fact, the mobile phone has been the best platform for consumers globally and Chinese innovation in communication and other electronic devices has placed it at an advantageous position in global market (ECSIP Consortium, 2016). Adoption of various technologies including mobile telephony has placed the country on a good position in terms of market size and opportunities for firms seeking growth (Schwab, 2016). As the largest market for various electronic devices especially smart phones and with a population that is becoming increasingly wealthier, China has stood out an attractive market for many foreign firms. The society in the country is, therefore, composed of many consumers who are ready to buy premium electronic products as they intended to improve their lifestyles. This means that an investor should consider such potential in the market represented by an increasing spending for highly innovative and quality electronic products. The middle class section of the country’s population is expected to increase from 6 percent to 51 percent in a decade which shows the rising purchasing power for premium electronic products (Schwab, 2016).
In addition, China offers a relative lower cost of production for manufacturing forms due to its large human resource. The labor in the country is readily available at a comparatively cheaper cost, which means that a firm can manage to offer lower prices for its products in the market. Apart from the cheaper labor, the literacy level in the country is constantly improving which provides a large pool of skills for firms in this market.
Brazil
Brazilian governments have embarked on a journey to modernize the electronic industry with an aim of ensuring that economic development balance is achieved. The previous decades have been wrought with development of electronics and electrical complex, which have been poised to spearhead the modernization process in the industry. Various policies have been enacted by these governments that borders on protectionism, so as to protect the Brazilian firms against cheap products from foreign market (Wetering, 2015). This adds up as preferential treatment of domestically produced electronic products. Other policies also include important taxes that are high for imported products, so as to protect the country’s manufacturing sector (Wetering, 2015). Such policies have actually affected the competitiveness of the country in the global economic arena in comparison with other countries like china.
The country has a population of over 200 million people most of whom are experiencing improved living standards, and this presents a large market for any multinational company wanting to expand into this area (Wetering, 2015). Over the past decade, the country has also undergone a robust economic growth which makes one of the top ten largest economies in the world. The electronic market has been part of this expanded growth, with an oval earning of $ 50 billion as at 2014, even though it stills a small portion in comparison with other larger industry complexes. There are also improvements in areas such as property rights protection amd other measures of excessive influence. The country has also bounced back from past sharp drop in judicial independence and corruption cases .
Despite of such growths, the country has other challenges relating to political turmoil and trade shocks which have seen it fall 6 positions to the 81st competitive country. This is majorly due to deterioration of goods and labor and even financial markets. The country also experiences high rates of insecurities and hence, the administration of public sector has come to be perceived as poor. The political uncertainty in the country and the continued deepening finances are still a roadblock to improving the competitiveness of this country. The current recession being experienced in the economy can be seen in a steady deceleration of growth rate from 4.5 % average growth rate for 2006-2010 periods to 2.1 % for 2011-2014 periods. Actually the economic growth rate of the country had been expected to be negative for the 2015-2016 periods (Schwab, 2016). The country is also facing a macro-economic imbalance including expanding current account, rising inflation and government deficits which represent poor productivity. This shows that the macro-economic of the country is not as good as that of China and requires dealing with market distortions that continue to negatively affect the market. Statistics have shown that after a period of growth in revenues in the electronic industry, the sector has undergone great pressure over the past decade or so. This can be attributed to aforementioned economic downturn and in combination with consumers choosing to buy cheaper electronics other than the expensive gadgets. The expansion of domestic market of this industrial shows been positive and has not even contributed positively to the country’s trade balance. In fact, this industry had more importation of around 41.1 billion in comparison with exportation which was only 6.5 billion US $ which represents a deficit of USD 34.6 billion (Schwab, 2016). Such happenings in the economy can be attributed to stagnation in innovation related investments especially by bigger firms in the industry. In addition, the lack of robust revenue growth in the local market has affected the market negatively. The cost of products from the Brazilian industries has increased over the past decade because of higher wages and little growth in productivity; this can be attributed to combination of various aspects including inadequate infrastructure, inefficient skilled manpower and even bureaucracy (Schwab, 2016). This shows that in comparison with China , the country’s global competitiveness is wanting.
South Africa
The electronic industry in South Africa is relatively has a positive future drive by expectation of better future performance of the market. The country’s has seen an improvement in scoring and ranking at 47th place in the world an increment of 2 places (Schwab, 2016). The South African market has seen relative effect of commodity reduced commodity price in comparison with other regional countries The country has also undergone improvements marginally when compared to almost every other competitiveness aspect. The major areas where such progress has been recorded include improved competition at the local continent and international market. The improvement is 13 places and 16 places locally and internationally respectively (Schwab, 2016). The most improved areas that shows competitiveness for the country include better usage of talent in regard to how pay indicates productivity and a significant, though small improvement in equation quality. This improvement in education quality is an indication that the market has more qualified skills needed in the electronic industry sector of the economy (Schwab, 2016).
In addition, the sector is expected to attract more players in the market due to increased adoption of technology and level of innovation, where entrepreneurs are able to develop their own products and sell them locally and internationally. With a lot of technical expertise, the country can manage to export more electronic industry products to the international markets. The retail of electronic and related appliances in South African forms a major part of consumer sales a trend that has continued into recent years. There is a large opportunity for retailing of electronic products especially the ones which are portable such as smartphones. The largest retailers of these products include the supermarkets and departmental stores with help of institutional help like banks that have enabled retailers to expand their operations in the country (Deloitte, 2015). The preferences of consumer in the country are very similar to global preferences and this has given international brands to set up operations in the market to serve the consumer needs across every category of electronics products (Deloitte, 2015). The presence of leading multinational firms is a vote of confidence to the competitiveness of the country especially while serving the regional market.
On the other hand, there are various shortcomings which may limit the country’s competitiveness when compared to China and Brazil. A major shortcoming involves infrastructure development which has stopped. Major developments that have stalled include electricity and transport, so that power shortages have become rampant while movements of goods have been poor. The quality of the country’s institutions in terms of service delivery has diminished due to lack of political stability and reduced transparency (Schwab, 2016). There have rising security concerns which have led to several business leaders not having trust in political leaders. In addition, the slowing economic growth that has seen the country drop 11 places by 2015 also reduced competitiveness of the country when compared to China whose economic growth has been relatively stable (Schwab, 2016). This means that the high rate of unemployment in South Africa is not likely to diminish in the near future. This hampers country’s capacity to leverage in terms of demographic dividend (Schwab, 2016). The high unemployment means that the purchasing power of a large part of the population is very low and hence, presenting a problem to a business that wants to expand in this market.
The comparison of competitiveness between China, Brazil and South Africa indicates the advantage enjoyed by each country at the global market level. China has the best business environment among the three due to its large market, improved government intervention through policy, political stability and high level of technology that encourages better production.
Apple Inc., entry strategies into Chinese and South Africa markets
Apple can generate a lot of revenues if it expands into the Chinese and South African markets since the business environments are generally conducive for setting up their operations. In China, the company should consider using Partnership as the entry strategy. This strategy involves ownership of production and operation in a foreign market through partnership with investors in that specific country. In this strategy, two or more parties make an agreement where they combine effort through pooling of resources so as to accomplish a given objective (Markman & Phan 2011). In this case, the partnership may involve co-marketing arrangement or even strategic alliance in the manufacturing process. Partnership will be a useful strategy in the Chinese market where culture is different from the Western Culture, including both the social and Business culture. By brining local partners into the business operations, the company will familiarize itself with the consumer behavior and build electronic products with quality and design that aligns with that culture. Since the local partners are familiar with this market, they can help in evaluating and understanding this target market before determining how and when to launch the company’s operations. These partners will also go a long way to provide the necessary financial resources needed especially if the firm is not financially stable(Markman & Phan 2011). The Chinese market is expanding with expansion of middle class hence there is a need to exploit that market.
The entry into South African market should be through indirect exporting where Apple Inc. will sell its product through a certain channel. Thus channel should be through an established relationship with a supplier or vendor in the market. Vendor relationships usually involve low cost and Apple can agree with such suppliers for their exclusive sale of the particular electronic product. Since setting up production in South African market like in China, the company should focus on retailing its product through indirect exporting. Vendor relationship is a strategy that enables have a competitive edge of its rivals since such focus will enable to firm to target specific customers within a given market in the country. This means that the firm can establish different relationships with many vendors who will have a direct contact with the customers (Griffin & Pustay, 2012). The vendor relationship or rather supplier relationship should be strategic where multiple but controlled interaction points between the firm representative and major suppliers are established. Aligning the supplier relationship throughout the market and in the firm needs a structure that is clear and involving corporate interaction (Griffin & Pustay, 2012). There should be sustainable value created through a structure that comprises of segmentation of supplier, supplier relationship governance, management of supplier performance and development of supplier capacity (Griffin & Pustay, 2012). This will ensure that the supplier is able to reach a larger market while at the same time offering high quality service to consumers.
Supplier relationship creation
This will ensure that retail business of Apple is monitored and the performance enhanced so as to give the firm a competitive edge over neighbors.
References
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https://www-935.ibm.com/services/us/gbs/bus/pdf/gbe03105-usen-ceo-electronics.pdf
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https://www.cognizant.com/InsightsWhitepapers/Understanding-US-Consumer-Electronics-Retailing.pdf
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http://www.esa.doc.gov/sites/default/files/made-in-america-computer-and-electronic-products.pdf
Schwab, K. (2016). The global competitiveness report 2016-2017, ed. In WE Forum.
ECSIP Consortium, (2016). Study on the Competitiveness of the Electrical and Electronic Engineering Industry
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15 U.S. Code Chapters 47 - CONSUMER PRODUCT SAFETY
Deloitte, (2015).Competitiveness: Catching the next wave Africa
Wetering, H. V., (2015). Brazil, the new manufacturing hotspot for electronics?. Retrieved from: http://reporterbrasil.org.br/wp-content/uploads/2016/09/Brazil-the-new-manufacturing-hotspot-for-electronics.pdf
Markman, G., & Phan, P. H. (2011). The Competitive Dynamics of Entrepreneurial Market Entry. Cheltenham: Edward Elgar Pub. 452-454
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