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LIST OF CONTENTS
1. Introduction 2. Historical strategy of HTC 3. Current strategy of HTC 4. Appropriateness of strategic choice 1. Consistency 2. Consonance 3. Advantage 4. Financial analysis and business risk analysis 5. Corporate Strategy 6. Conclusion and recommendations 6 7 7 3 4 5 5 6 6
Appendices: A: International value chain for HTC Corp. B: Strategic evaluation of HTC using the tests of Johnson and Scholes 10 C: Smartphone industry analysis using Porter‟s five forces 12 9
List of References
HTC was satisfied with the rapid growth and performance of the company and its associated strategy of broad differentiation. to become the world‟s leading manufacturer of smartphones which run Microsoft‟s Windows Mobile operating system (Yoffie and Kim. designing phones for service providers. Costs for research and development to create innovative products did indeed increase unit costs. An analysis of resources. HTC was specializing at a specific level of the value chain employing a horizontal approach. Introduction HTC Corporation was founded in 1997 and progressed. HTC‟s „competitive scope‟ was broad and may be viewed as competing globally and across all market segments. In addition. 3. the company showed no significant financial stress. 2009). HTC employed a competitive strategy to differentiate itself through offering mobile phone operators customized phones which initially provided better returns than the ODM business (Yoffie and Kim. 2009). Peter Chou.1. At this stage. As HTC expanded the business through further contracts from other geographic locations and a collaborative learning joint venture with Handspring. . In addition. This new strategy was disconcerting to investors. previous attempts by various other companies proved detrimental to their respective companies. questioned where HTC would partake in the expanding value chain of phone software and the subsequent actions necessary to enable HTC to be unique in such a dynamic sector (Yoffie and Kim. as indicated in Boojihawon and Segal-Horn (2006). The company operated in two segments being the original design manufacturer (ODM). in 2005. He realized that international growth would be limiting if differentiation into branding did not occur. This is evidenced with the CEO stating. selecting options. diversified into handheld devices. thereby reducing shares by half of its earlier value. as well as choosing a strategy by identifying. HTC embarked upon branding phones under its own label which was seen as a risky step by stakeholders. 2. 2009). 2009). The discussion entails strategic actions required to achieve the goal of HTC Corp. Current strategy of HTC The CEO. by 2009. 2009). 2009: 4). The phone industry. was optimistic (Yoffie and Kim. as per Porter‟s generic strategies framework cited in Viney and Gleadle (2007). predicted the growth of smartphones to comprise a third of the world‟s mobile phone market by 2013 which reinforced the need to review the strategy of HTC (Yoffie and Kim. HTC was not a significant competitor in the mobile phone industry. “We do not plan to be like Nokia or Motorola. In 2006. strategic capability. manufacturing smartphones for branded handset companies and its mobile phone operator business. At this point in 2005. We try to avoid (competing) with them” (Yoffie and Kim. being dynamic. that. Historical strategy of HTC The company‟s initial focus on laptops. to become the world‟s leading smartphone company in the world. Despite prevailing challenges the CEO. the environment and assessing stakeholders will be undertaken.
however due to barriers to entry into the Unites States (US) market. 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) HTC‟s strategy of diversification evolved into an organic strategy. The success of this product provided a boost to the decision of HTC to exit the ODM business by the end of 2009. all is directed at scale operations (Segal-Horn. Furthermore. HTC invested greatly in research and development to create further product innovation. Strong international competitors such as Nokia initially deterred the organization from competing on a global scale.Various competitors in the mobile phone industry. to China. maintained cost advantages and economies of scale in component prices (Yoffie and Kim. 2009). 2009). Furthermore. resulting in the configuration of the value chain becoming international. 2009). 2009). Overall costs were reduced by moving part of the value chain. Apple revealed its intention to launch a similar product. However. for the company to become most efficient there had to be significant relationships amongst all activities. challenges were encountered. In 2006. exploiting the existing product and markets as per Ansoff cited in Viney and Gleadle (2007). 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. 2006). The subsequent differentiation and innovation strategy indeed created a shift in the industry structure as mentioned in Viney and Gleadle (2007). . nearing the launch of their touch screen interface smartphone. HTC initiated its brand strategy in 2007 in Europe and Asia. HTC then penetrated the Chinese market. product. This lead to reduced license fees thereby lowering overall costs to the company. HTC collaborated with Google search engine to create a handset to work on Android (Yoffie and Kim. logistics. efforts to control costs meant less customization as per the original approach (Yoffie and Kim. including design. 2009). such as Nokia. Appendix „A‟ displays the existing and a proposed value chain. in which it had acquired Dopod. The company sought to expand into the Chinese and US markets which were part of the global market penetration strategy (Yoffie and Kim. In seeking overall production scale efficiency. being both professionals and consumers. HTC‟s broad differentiation strategy thus became more focused upon the high end of the consumer market. in partnering with Google. which inadvertently created opportunities by familiarizing the consumer with the product. marketing and sales/service. through reduced licensing payments to Microsoft (Yoffie and Kim. issues of economies of scale in unit pricing proved challenging. In 2007. manufacturing. which was well established in Asia.
42:1) and 2006 (0:1). However. cited in Viney and Gleadle (2006) indicates competitive advantage. feasibility as per Viney and Gleadle (2007).3 Advantage HTC is able to maintain the value it creates. 4. The debt ratio indicates the level of financial leverage between 2004 and 2008. 2009). an arena in which competitors such as Nokia retain the advantage (Yoffie and Kim. feasibility. Business risks will also be identified. 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. cited in Viney and Gleadle (2006). changing from 50% to 35% in 2006 and steadily increasing to 47% in 2008 as per HTC cited in Yoffie and Kim. 2009. superior skills and resources. However. advantage. 2009). A current ratio analysis was conducted for 2008 (1. Appropriateness of strategic choices The strategic choices of the organization will be evaluated against the tests of suitability. which Rumelt. Failure to re-focus and differentiate the product to reduce unit costs through scale economies could prove detrimental to HTC. and acceptability of Johnson and Scholes as per Appendix „B‟. 4.4 Financial analysis and business risk analysis An analysis of financial ratios will be conducted as per Parkinson (2003). 4. subsequent growth in 2007-2008 adequately covers liabilities. This reveals that cash was unavailable in 2006 to cover liabilities. .86:1). 2007 (2. as mentioned by Rumelt. together with a superior position. 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. consonance. geographic positioning of the organization and sufficient market penetration into US markets is lacking in the strategy.2 Consonance The key strategy of innovation and emergent technology is an indication of the creation of social value. the Rumelt‟s tests of consistency.4. HTC is striving towards improving their position through the branding initiative (Yoffie and Kim.
one may consider that impact to the environment was not considered. the company needs to review cost production and further reduce costs in light of the economic recession. The attractiveness of the company to shareholders was displayed in the change in strategy to create its own brand. The gross margin has gradually increased. The move of part of the value chain to China. Corporate Strategy Diversification is a key element in corporate strategy (Viney and Gleadle. stabilized and dropped during the economic recessions of 2009. to effectively compete in the worldwide market.16. Please refer to Appendix „A‟ as per previous discussion. 2006) and highlights a move away from a single industry and a relationship with other organizations. 5. overseas subsidiaries would be differentiated and national units integrated with worldwide operations to suit the relevant markets. knowledge could be developed and jointly shared. due to the target market being the high-end smartphone products. balance . To become more competitive the company would need to consider subsidiaries in other countries and further integration. which steadily increased by 2008. reduced overall costs to the company. HTC must expand and exploit potential scale economies in each activity. declining slightly in 2008. Share prices subsequently rose. From being an international organization. However. assets and capabilities would be dispersed and interdependent. HTC would need to consider becoming transnational.Implications of the changes in HTC‟s strategy in 2006 lowered the utilization of borrowed money. • As per Ghoshal‟s organizing framework cited in Segal-Horn (2006). considered risks involved as being ultimately detrimental to the company. In addition. which HTC has indeed accomplished with Google. Furthermore. In reducing costs by moving manufacturing to China. As per Bartlett and Ghoshal cited in Segal-Horn (2006). 2009). suggesting that HTC has not recovered from the strategic changes instituted. 6.17 to 1. thus reducing shares to 50% of its earlier value in 2006/07 (Yoffie and Kim. A cost benefit analysis considers a greater group of stakeholders including environmental activists who may be concerned with the effects of manufacturing and insufficient recycling associated with the product. Of concern is the return on sales declining from 24% in 2007 to 19% in 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. Shareholders. Conclusion and recommendations • Lack of economies of scale in unit production proved challenging for HTC. this has increased the shareholders' return on their investment as indicated in basic earnings per share progressively rising from 2004 to 2008 from 0. A Sensitivity analysis may reveal the effect of exchange rates and the global economic recession on outcomes.
expand through partnerships and continue to be innovative to secure itself as the leading smartphone company in the world. by 2013 smartphones would represent more than a third of the world‟s mobile phone market and by 2012 mobile internet penetration would be 30%. 2009). As the industry supports multiple firms due to the ability to differentiate between business and casual users. Consequently. APPENDIX „A‟ International Value chain for HTC Corp (adapted from Segal-Horn. Suitability . • An industry analysis (Appendix „C‟) reveals a lack of differentiation in the industry for price with customer preference being functionality (Mcafee. HTC needs to differentiate into the casual user market and reduce unit costs. • One of the core competence areas is the users‟ experience. As brand name is a major deciding factor.1. HTC has to continue to market the brand. 2006) Existing Value Chain Proposed Value Chain [pic] APPENDIX „B‟ Strategic evaluation of HTC using the tests of Johnson and Scholes 4. but does not support a large number of smaller firms. HTC will need to penetrate a broad consumer market and simultaneously create further partnerships in order to sustain its advantage over competing smartphone manufacturers. the industry is very rivalrous as competitors wrestle to become one of these few firms. • If the prediction of eMarketer cited in Yoffie and Kim (2009) is correct. Consequently.scale with strategic operational and strategic flexibility and benefit from experience by innovation and reducing costs. through the current successful association with Google. which reveals an 80% customer satisfaction rating of HTC products.
cited in Viney and Gleadle. Furthermore. HTC now has to consider operational issues arising from being a brand name.2 Feasibility The organization may possess the resources from investors to implement the branding strategy. the organization currently possesses the potential to raise sufficient capital.The new strategy proposed by the CEO of HTC chiefly focused on branding and marketing handsets under its own name. 2009). ethics. The new branding strategy caused investors to temporarily retreat (Yoffie and Kim. It is. Stakeholders should thus be reasonably satisfied. Key success factors identified are emerging technology by investment in research and development technologies. brand marketing. Amongst the largest are: • fixed costs – necessary research and development • reputation of firms – people purchase from companies they trust . human and environmental capitals. In accordance with these factors and attaining business objectives. 2009). sales and marketing. The implementation of the overall strategy arising from this vision is nevertheless. One identified weakness is the lack of scale economies leading to higher unit pricing and potentially less customization.3 Acceptability This criterion focuses on stakeholder‟s perceptions of the results of the strategy according to Johnson and Scholes. corporate ventures with various global operators and collaborative learning partnerships with organizations such as Handspring (Yoffie and Kim. questionable that HTC will be able to fulfill the vision of being the leading smartphone company in the world. current leverage through association with Google. 4. Alternatively should HTC be able to reduce prices and review its target market. arguable. further competition is inevitable. skill and capability in design and innovation. profitability. efficient distribution. Nevertheless. HTC has steadily increased stakeholder value (Yoffie and Kim. The structure characterized by an open work environment encouraged creativity and innovation thus effectively utilizing capabilities and resources. APPENDIX „C‟ Smartphone Industry Analysis using Porter‟s five forces Adapted from Mcafee. such as support services. however. 2009). which is not sustainable in the long term. reward and relationships. 4. environmental and fraud risks. has created a more effective product. In addition. 2006. user support. customization to target various market segments. This pertains primarily to regulatory. social. 2009 Entry Barriers Numerous barriers prevent entrance into the industry. and has effective business units to administer risks and opportunities posed by economic.
data manipulation applications. Substitute products are cellular phones.• 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. Significantly. maps and GPS. organizers or pagers. Complements. various internet applications and essentially any software available on phones. This permits multiple firms to exist relative to total number being small. 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. the industry does not support many organisations. computers and travel products are also complements. This is due to: • Differentiation – limited ability to differentiate a smartphone despite much differentiation between casual and professional users for smart phones. laptops. • Networking – People purchase products others use • Software may be less expensive service between the same phones. Any application that works well with the smartphones is a complement. Rivalry Rivalry is rife in the smartphone industry and despite a few strong competitors. These include e-mail. cellular phones and laptops adequately provide the services required by the majority of consumers in terms of mobile access to information. . Software compatibility is also an advantage. organization applications. Music and media content.
but does not support a large number of smaller firms. Milton-Keynes: Open University. MTN Group Limited: Integrated Business Report for the year ended 31 December 2009 [online]. not directing market to a small number of firms. Strategy: strategy formulation: unit 1. 2006. The smart phone industry is very rivalrous as competitors fight to become one of these few firms. A. 2003. Strategy: strategy formulation: unit 7. 3rd edition. D. No place of publication: no publisher Available from: [Accessed 23 September 2010] MTN Group. hence limiting existence of multiple small firms. LIST OF REFERENCES: Boojihawon. 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. S. 2009. S. 2006. Also pricing is similar and not important in comparison to the usefulness and amount of time customers will use the phone. Segal-Horn. there is limited differentiation for price. As such the industry supports multiple firms due to ability to differentiate between business and casual users.K. Consequently. • Prices – Customers generally value quality significantly over price when purchasing a regularly used product. . Mcafee. Milton-Keynes: Open University. 2010.• Economy of Scale – minimal scalability to create more software. Fairlands: Mobile Telephone Networks Available from: [Accessed 23 August 2010] Parkinson. Fundamentals of senior management: the practice of management for MBA B713: Sessions 5-6. Milton-Keynes: Open University. and Segal-Horn. Google phone positioning strategy [online].
2009. Boston: President and Fellows of Harvard College ----------------------- Logistics Marketing Sales / Service Production Engineer-ing & Design Research & Development Sales / Service Research & Development Engineer-ing & Design Production Logistics .B and Kim.Viney. H and Gleadle. D. Yoffie. in 2009. P. HTC Corp. R. Milton-Keynes: Open University. Strategy: strategy formulation: unit 5. 2007.
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