1Introduction

1.1 Why choose the Smartphone industry?

The convergence of mobile telephony, Internet services, and personal computing devices is

resulting in the emergence of a “mobile Internet” (Ishii 2004; Funk 2001).In the present

society, smartphone is the key device that could provide the ‘mobile Internet’ service as well

as some other fundamental functions like the traditional mobile phones. The main features of

the smartphone can be summarized as owning one operating system such as Symbian, SIM,

Android and iOS and software along with the keyboard and some others. Nowadays, the

functions and usages of the smartphones are increasing gradually. In 2010 smartphones

made up almost 20% of that total (Gartner, 2010; Ahonen, 2010). Sales of smartphones are

increasing almost 100% per year, and total global sales volume is expected to surpass that

of PCs by 2012 (Gartner, 2010). The smartphone industry is undergoing some huge

opportunities as well as some fierce competitions among several competitors such as Apple,

Blackberry, Nokia and Motorola.

1.2The introduction of this report

This report aims to analyze the smartphone industry mainly focus on the Chinese

market .Basically four main competitors in China which are Apple, Blackberry, Nokia and

Google will be discussed. In this essay, it will provide both the external and internal factors

and use two different tools to identify these elements which are PEST analysis and Porter’s

five forces analysis. Besides these, this report will attempt to predict the near future of the

development of the smartphone industry based on the current situation and Chinese market.

2Overview of the Smartphone industry and the four main competitors

2.1 The development of Smartphone industry in China

In China, smartphone industry is growing rapidly and an increasing number of customers

tend to use smartphone in their daily life. In 2010, Chinese smart phone market has

witnessed fundamental changes and now it has 11million users of the smartphone and it has

grown 70% in the last year according to the marketing analyst comScore (2010). In terms of

brand, there are several brands which are popular in China and they have established their

customer loyalty. The brand value for each manufacture in smartphone industry is vital.

Regards the framework of the smartphone industry in China, the most potential one is

3G smartphone with high competitive power compared with GPS and Music phone.

The competition is vigorous among different manufactures with various operating systems.

The most popular operating systems which are Symbian, Android, iOS and RIM can be seen

in the following diagram They have taken up a large market share in the smartphone market

and the smartphone industry in China is largely influenced by the manufactures that adopt

the above operating systems.

Figure 1

2.2 Main players in the Chinese smartphone market

Nokia with Symbian System

Nokia, a Finnish mobile phone giant, has become the world’s No.1 maker of mobile phones.

In terms of the Operating System, the Symbian system is in the leading position in 2010 and

the market share of it is 44%. The main features of Nokia’s smartphone are as following: first,

the price is reasonable. For Nokia, its smartphones have various prices for different

customers including the high-level and low-level. Next, the network of Nokia is relatively

broad because it has been in the Chinese market for years and has established thousands of

outlets to sell its phones.

Iphone with iOS system

Iphone is owned by Apple Company which launched the new smartphone in 2007 with the

system of iOS. Iphone is known for its high quality and simple design which is unique and

popular. In the first half year of 2010, it is estimated that there are 570,000 iphone that have

been sold which makes iphone the most popular smartphone among Chinese customers.

With its special design and high quality, more and more customers are attracted and it holds

a large part of the market by having a large fan base.

Motorola with Android system

Motorola is the second biggest market player in Chinese market and its phone adopt the

system of Android, launched mainly by Google, which is popular in China. There are more

and more supporters.

Blackberry with SIM system

The blackberry is a powerful phone targeted towards business and the system of blackberry

is called SIM system. In China, the market share for blackberry is relatively small compared

with other competitors but it has drawn large amount of people’s attention with its specialty.

Windows mobile with Windows system

The windows mobile phone is launched by Microsoft and it has been divided into two parts:

PPC and smartphone. In China, the phones based on the windows phone systems do not

increase very rapidly

2 PEST analysis of the Chinese smartphone market

PEST plays a pivotal role in analyzing the external factors of the industry. PEST analysis is

used to describe the macro environment that affects an industry which stands for Political

factor, Economic factor, Social cultural factor and Technological factor. (Svend Hollensen,

2006). The following are the PEST analysis of the Chinese smartphone market.

Political factor:  

The political stability of China attaches great importance for the development of

smartphone industry. This stable environment provides a good trading opportunity for the

manufactures especially for companies like Nokia, Iphone, Blackberry and Motorola and

reduces the risk for them to do business with Chinese. In order to make the smartphone

industry run smoothly, the Chinese government puts plenty of efforts in investigating the

illegal smartphones and limits them into market. In 2007, the total sale of illegal phones

was 2343 and accounted for 25% of the whole domestic market, which to a certain

extent affect the normal market; therefore, the Chinese government is strongly against

this way of doing smartphone business and has made some policies to make sure that

the smartphone industry has run successfully.

After entering into WTO, the tariffs for the importing products is decreasing gradually

which is beneficial for the organization to purchase the raw material and lower the cost,

in this case, the organization could have more money to invest into the technological

area and do more product research and development. On the other side, this policy

would result in more foreign corporations into Chinese market such as Blackberry which

has entered into Chinese market recently; consequently, with more suppliers the

competition in this field would be boosted.

In 2007, the State of Council has passed the ‘planning the revitalization of the culture

industry’, in which it puts the mobile phone and television industry as the first one to

promote in the whole country which is useful for the development of the smartphone

industry. In this case, both for the foreign companies and domestic companies, they

could design and put some new phones with some latest programs into market.

In China, there are totally 12 big foreign smartphone suppliers and they take up over

70% of the total sales of the smartphone (Chinese smartphone industry report, 2010).

The Chinese government now has made some policies to limit the overproduction

problem of the phone industry based on the fact that the smartphone industry has been

saturated to some extent. This would kick some manufactures out of the Chinese

market, but for the suppliers mentioned here, they would be still in the Chinese market

for the following reasons. For Nokia and Motorola, they are the most important suppliers

in this market and their operating systems which are Symbian and Andriod are very

acceptable. For Iphone, it has signed some contract with one of the Chinese

telecommunications---China Unicom---which could make sure they have their customers.

For Blackberry, it becomes one of the competitors recently and receives a warm

welcome from the businessmen in China; therefore, this policy would affect some

corporations but not all of them.

Economic factor:

Based on the statistics from the National Bureau of Statistics of China, in 2010, the GDP

of economic in China has increased 10.3% and the CPI has an increase of 3.3%

compared with 2010. Figure 1 is the growth of economy from 2003 to 2007 which proves

that China’s economy undergoes a steady period. With the stable growth of Chinese

economy, people have more disposable money. Under this circumstance, they would

spend on the things that they are interested in such as technological products. Based on

the research conducted by the phone users in China, the average phone users have at

least 4 phones, among which one or two are smartphones

(http://tech.chinawin.net/mobile/article-2167.html).

Figure2: China’s economic growth

The income and wealth of China are increasing gradually. In China, the new five year

planning would have a huge influence on the global economy. Chinese focus would shift

from investment in other countries to expand its own market and stimulate the

consuming power, in this case, the income have been undergoing an increase especially

for the country area and suburb area in China. The average income in the middle cities

in China is around 1800 RMB and 2200RMB in some big cities such as Shanghai,

Guangzhou. (http://iask.sina.com.cn/b/6043.html).This income level changes could help

the manufactures to understand the purchasing power of customers which provide a vial

opportunity to the industry manufacturers to gain more profit from the enormous potential

market.

The interest rate in China is relatively complicated compared with other countries in the

world. In 2011, the interest rate has the tendency to decrease which is beneficial for the

enhancement of the consumers’ buying power. Because the instability of the interest

rate, consumers would be mentally worried about putting money in the band, therefore,

they are willing to spend them. In this case, the smartphone industry has more chances

to sell the phones to them and with the powerful functions of smartphones; it has drawn

an increasing amount of people’s attention.

Social factors:

According to Maslow's hierarchy of needs, there are five needs which are physiological

needs, safety needs, needs of love, affection and belongingness and needs for esteem.

When one is satisfied by one need, he goes to the next stage.

(http://honolulu.hawaii.edu/intranet/committees/FacDevCom/guidebk/teachtip/

maslow.htm). Therefore, this theory could be adopted when people in China pursue the

smartphones when one traditional mobile phone cannot meet their needs and they would

like to have a higher-level of using phone which could provide them the functions of

helping their work and entertainment. With the development of smartphone with more

and more functions such as Nokia’s N95, Iphone and Blackberry’s 9750, consumers

would have the need for them based on the Maslow’s hierarchy of needs theory which

explains why smartphone industry develops rapidly. In the present society, mobile phone

is not only a communication tool but also be regarded as an entertaining tool.

In China, people concentrate on the effectiveness of purchasing products and emphasis

the mental satisfaction that is brought by shopping. After entering into the new century,

real estate, telecommunications and its products and automobile have become the

highlights of the consumers’ attention. Smartphone is one important element in

telecommunications; therefore, these consumption concepts would be helpful to the

development of the smartphone industry. The telecommunications always corporate with

the smartphone industry. For example, Iphone in 2009 coordinated with China Unicom in

order to promote Iphone and raise consumers’ awareness.

Apart from the consumption concept, the renewal of the mobile phone especially

smartphone is at an accelerated pace and it is faster than Japanese. Based on the

research done by sociologists in Peking University, the appearance, functions and

changes are the fastest in Asia and once the new phone is seen to the public with

refresh appearance and rich functions, it prevails rapidly in China. Iphone and Nokia C6

are the persuasive examples to prove this.

(http://zhidao.baidu.com/question/133171086.html) On the other hand, Chinese

consumers require the smartphone is supposed to be equipped with some practical

functions. To be specifically, the phone could help them both in working and entertaining.

According to the calculation of the Chinese Academy of Social Sciences (CASS), the

middle income class in China accounted for 15 percent in 1999. It is expected that the

middle income community would amount to 40 percent of the whole society by 2020.

China’s cities can be divided into three Tiers. Tier-1 refers to the cities like Beijing,

Shanghai, and Guangzhou, Tianjin, Shenzhen, and Dalian belong to the Tier 2 and Tier-

3 cities include Wenzhou and Guilin and so forth. The popularizing rate of these three

levels of cities is 28.1%, 14.0% and 10.8% separately in 2002. In these cities, they would

like to pursue a fashion and enjoyable life especially for the young generation.

Smartphone has become a fashionable thing and offer both joy and leisure to people.

Technological factor:

The convergence of communication technologies is the real excitement in IT over recent

years. The convergence includes the telephony, television and the internet. The merging

of these three make people enable to choose to have only one piece of equipment with

one network doing all. Therefore, smartphone is researched by plenty of corporations

who are willing to follow this trend and increase the profitability of its own. They put large

amount of money in researching and developing new smartphones which shall meet the

customers’ wants and needs. For example, the average money that is required when

design and launch a new smartphone is 5 million. In terms of designing and developing a

collection of phones, majority of the mobile phone companies would put a large amount

of money every year in order to using the latest hi-tech and making the phone smart

enough.

In China, manufactures are attempting to make the smartphone smaller and more

fashionable as well as using more steady operating systems. They devote every effort in

putting more added values to the smartphone for instance, accessing to the Internet and

being compatible with plenty of software programs. In 2009, Nokia launched the N95

with both trendy appearance and powerful functions which could be compatible with

some websites which were not accessed before. In order to meet the desire of Chinese

young people, Iphone designed the Apple QQ which is in accordance with Chinese

young generation. Blackberry could send and reply emails freely just like with a laptop at

hand. All of these bring large amount of revenue and stimulate the manufactures to

combine more high technologies with the smartphones.