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Introduction
HTC Corporation was founded in 1997 and progressed, by 2009, to become the
world’s leading manufacturer of smartphones which run Microsoft’s Windows Mobile
operating system (Yoffie and Kim, 2009). The company operated in two segments
being the original design manufacturer (ODM), manufacturing smartphones for
branded handset companies and its mobile phone operator business, designing
phones for service providers. In 2006, HTC embarked upon branding phones under
its own label which was seen as a risky step by stakeholders. Despite prevailing
challenges the CEO, Peter Chou, was optimistic (Yoffie and Kim, 2009).
The discussion entails strategic actions required to achieve the goal of HTC Corp. to
become the world’s leading smartphone company in the world. An analysis of
resources, strategic capability, the environment and assessing stakeholders will be
undertaken, as well as choosing a strategy by identifying, selecting options, as
indicated in Boojihawon and Segal-Horn (2006).
Various competitors in the mobile phone industry, such as Nokia, maintained cost
advantages and economies of scale in component prices (Yoffie and Kim, 2009).
HTC initiated its brand strategy in 2007 in Europe and Asia, in which it had acquired
Dopod, which was well established in Asia. HTC then penetrated the Chinese
market, however due to barriers to entry into the Unites States (US) market,
challenges were encountered. HTC’s broad differentiation strategy thus became
more focused upon the high end of the consumer market, being both professionals
and consumers.
In 2006, HTC collaborated with Google search engine to create a handset to work on
Android (Yoffie and Kim, 2009). This lead to reduced license fees thereby lowering
overall costs to the company. In 2007, nearing the launch of their touch screen
interface smartphone, Apple revealed its intention to launch a similar product,
which inadvertently created opportunities by familiarizing the consumer with the
product. The success of this product provided a boost to the decision of HTC to exit
the ODM business by the end of 2009. The company has thus focused upon market
penetration through the development of a successful product and directed its
resources in one chosen competitive area as cited by Pearce and Robinson in Viney
and Gleadle (2007)
Furthermore, efforts to control costs meant less customization as per the original
approach (Yoffie and Kim, 2009).
The choice of increased globalization of the company in marketing its own brand
was primarily ignited by technological developments in the industry as well as
deregulation, in partnering with Google, through reduced licensing payments to
Microsoft (Yoffie and Kim, 2009). Strong international competitors such as Nokia
initially deterred the organization from competing on a global scale.
4.1 Consistency
HTC’s proposed strategy to be the leading smartphone company in the world is
clearly inconsistent with it’s high-end target market. Failure to re-focus and
differentiate the product to reduce unit costs through scale economies could prove
detrimental to HTC, an arena in which competitors such as Nokia retain the
advantage (Yoffie and Kim, 2009).
4.2 Consonance
The key strategy of innovation and emergent technology is an indication of the
creation of social value, as mentioned by Rumelt, cited in Viney and Gleadle (2006).
The organization has an extensive research and development component striving to
provide more innovative products to effectively meet the demand of consumers in a
technologically dynamic industry.
4.3 Advantage
HTC is able to maintain the value it creates, superior skills and resources, which
Rumelt, cited in Viney and Gleadle (2006) indicates competitive advantage,
together with a superior position. HTC is striving towards improving their position
through the branding initiative (Yoffie and Kim, 2009). However, geographic
positioning of the organization and sufficient market penetration into US markets is
lacking in the strategy.
A current ratio analysis was conducted for 2008 (1.86:1), 2007 (2.42:1) and 2006
(0:1). This reveals that cash was unavailable in 2006 to cover liabilities. However,
subsequent growth in 2007-2008 adequately covers liabilities.
The debt ratio indicates the level of financial leverage between 2004 and 2008,
changing from 50% to 35% in 2006 and steadily increasing to 47% in 2008 as per
HTC cited in Yoffie and Kim, 2009. Implications of the changes in HTC’s strategy in
2006 lowered the utilization of borrowed money, which steadily increased by 2008.
HTC may be at risk of bankruptcy if unable to repay debt and may also be unable to
find new lenders in the future. Furthermore, this has increased the shareholders'
return on their investment as indicated in basic earnings per share progressively
rising from 2004 to 2008 from 0.17 to 1.16. The gross margin has gradually
increased, declining slightly in 2008. Of concern is the return on sales declining
from 24% in 2007 to 19% in 2008, suggesting that HTC has not recovered from the
strategic changes instituted.
A Sensitivity analysis may reveal the effect of exchange rates and the global
economic recession on outcomes.
The attractiveness of the company to shareholders was displayed in the change in
strategy to create its own brand. Shareholders, considered risks involved as being
ultimately detrimental to the company, thus reducing shares to 50% of its earlier
value in 2006/07 (Yoffie and Kim, 2009). Share prices subsequently rose, stabilized
and dropped during the economic recessions of 2009.
5. Corporate Strategy
Diversification is a key element in corporate strategy (Viney and Gleadle, 2006) and
highlights a move away from a single industry and a relationship with other
organizations, which HTC has indeed accomplished with Google.
4.1. Suitability
The new strategy proposed by the CEO of HTC chiefly focused on branding and
marketing handsets under its own name. Key success factors identified are
emerging technology by investment in research and development technologies,
brand marketing, skill and capability in design and innovation, efficient distribution,
user support, customization to target various market segments, corporate ventures
with various global operators and collaborative learning partnerships with
organizations such as Handspring (Yoffie and Kim, 2009). The structure
characterized by an open work environment encouraged creativity and innovation
thus effectively utilizing capabilities and resources. One identified weakness is the
lack of scale economies leading to higher unit pricing and potentially less
customization.
4.2 Feasibility
The organization may possess the resources from investors to implement the
branding strategy. It is, however, questionable that HTC will be able to fulfill the
vision of being the leading smartphone company in the world. The new branding
strategy caused investors to temporarily retreat (Yoffie and Kim, 2009).
Nevertheless, the organization currently possesses the potential to raise sufficient
capital. In addition, HTC now has to consider operational issues arising from being a
brand name, such as support services, sales and marketing. Furthermore, current
leverage through association with Google, has created a more effective product,
which is not sustainable in the long term. Alternatively should HTC be able to
reduce prices and review its target market, further competition is inevitable. The
implementation of the overall strategy arising from this vision is nevertheless,
arguable.
4.3 Acceptability
This criterion focuses on stakeholder’s perceptions of the results of the strategy
according to Johnson and Scholes, cited in Viney and Gleadle, 2006. This pertains
primarily to regulatory, environmental and fraud risks, profitability, ethics, reward
and relationships. In accordance with these factors and attaining business
objectives, HTC has steadily increased stakeholder value (Yoffie and Kim, 2009),
and has effective business units to administer risks and opportunities posed by
economic, social, human and environmental capitals. Stakeholders should thus be
reasonably satisfied.
APPENDIX ‘C’
Entry Barriers
Numerous barriers prevent entrance into the industry. Amongst the largest are:
• fixed costs – necessary research and development
• reputation of firms – people purchase from companies they trust
• networking – consumers purchase phones used by others
• switching costs – switching phones and service are costly
• differentiation – limited capability to differentiate from other phones
Bargaining Power
Smartphone companies have relatively weak bargaining power. Certain factors
include:
• substitutes – several substitutes
• elastic demand – smartphones are not essential products
• information – customers research capabilities of smartphones because of price
and high product reliance
• differentiation – little differentiation from competitors
• switching costs – few incentives to switch phone companies
Substitutes
There are numerous substitutes for smartphones which are mainly used for mobile
access to information. Substitute products are cellular phones, laptops, organizers
or pagers. Significantly, cellular phones and laptops adequately provide the
services required by the majority of consumers in terms of mobile access to
information.
Complements. Any application that works well with the smartphones is a
complement. These include e-mail, data manipulation applications, maps and GPS,
organization applications, various internet applications and essentially any software
available on phones. Music and media content, computers and travel products are
also complements.
Rivalry
Rivalry is rife in the smartphone industry and despite a few strong competitors, the
industry does not support many organisations. This is due to:
• Differentiation – limited ability to differentiate a smartphone despite much
differentiation between casual and professional users for smart phones. This
permits multiple firms to exist relative to total number being small.
• Networking – People purchase products others use
• Software may be less expensive service between the same phones. Software
compatibility is also an advantage.
• Economy of Scale – minimal scalability to create more software, not directing
market to a small number of firms.
• Prices – Customers generally value quality significantly over price when
purchasing a regularly used product. Also pricing is similar and not important in
comparison to the usefulness and amount of time customers will use the phone.
Consequently, there is limited differentiation for price, and companies with
perceived low quality and low budgets for research and development will
deteriorate.
• Brand Name – consumers wish to purchase from the popular or reliable
company, hence limiting existence of multiple small firms.
As such the industry supports multiple firms due to ability to differentiate between
business and casual users, but does not support a large number of smaller firms.
The smart phone industry is very rivalrous as competitors fight to become one of
these few firms.