Driving Forces of the Mobile Phone Industry Growth in India: Based on the PESTLE Framework

Transcription

1 Vol. 6, No. 7, 2015, Driving Forces of the Mobile Phone Industry Growth in India: Based on the PESTLE Framework Nan Cong 1 Abstract This paper explores the significant trends in the mobile phone industry in India, and gives a detailed explanation of the driving forces of the trends from the perspectives of politics, economics, society, technology, law and environment. The finding is that India s mobile phone industry has been booming substantially these years and India s mobile phone market is going to expand in the future. This paper adopts the PESTLE Framework to analyze the driving forces of the mobile phone industry growth. The rapid development of Indian mobile phone industry is attributed to government incentive policies and comprehensive telecoms infrastructure, rapid economic growth, increasing public awareness and booming telecommunications technology. However, there are some challenges for the mobile phone industry in India. Mobile phone manufacturers should consider a series of restrictions related to human health, staff safety and environment protection in order to comply with laws and achieve sustainable development. Besides, mobile phone companies should understand the needs of customers. Keywords: Mobile Phone Industry, India, PESTLE Framework 1. Introduction India s telecommunications industry is booming significantly these years, and India mobile phone industry is developing at an incredible speed and nowadays has been one of the fastest growing industries in the world. According to Market line statistics, the market value of India mobile phones increases by $11.2 billion from 2007 ($4.4 billion) to 2014 ($15.6 billion). And the market volumes of India mobile phones in 2014 are up to million units, nearly 2.5 times compared with Despite a large number of research on the Indian mobile phone industry, most previous literature is based on Five Force Model, describing the current situation of Indian mobile phone industry from the perspective of buyer power, supplier power, new entrants, threat of substitutes and degree of rivalry. There is very limited literature that analyzes factors that affect the industry s development from the aspect of industry external macroscopic environment. PESTLE Framework is a comprehensive methodology evaluating the macro environment for the operation of organization. To my best knowledge, research on India s mobile phone industry based on the PESTLE Framework is scanty. So the paper chooses PESTLE Framework to analyze the driving forces of mobile phone industry in India. This paper describes the most important current trends in the mobile phone industry in India and gives a detailed explanation of the trends. The paper covers the present situation of the mobile phone industry and analyzes the industry by using PESTLE framework, including political factors, the major economic trends, culture and society elements, technological advances, legal factors and ecological and environmental challenges. The remaining part of this paper is organized as follows. Section 2 is devoted to the description of current trends in the mobile phone industry in India. Section 3 briefly reviews PESTLE Framework and gives 1 SHU-UTS SILC Business School, Shanghai University 2015 Research Academy of Social Sciences 332

2 a detail analysis of mobile phone industry growth in India based on PESTLE Framework. Section 4 concludes the paper and proposes some policy suggestions that may improve India s mobile phone industry. Background India s mobile phone industry has developed rapidly these days. According to the Marketline statistics, the market value of mobile phone industry is steadily rising from 2007 to And the market volume is also increasing from 83.1 million units to 211 million these years. Figure 1 shows India mobile phones market value. Figure 2 shows India mobile phones market volume. Figure 1: India Mobile Phones Market Value: $ billion, Figure 2: India Mobile Phones Market Volume: $ billion, Globalization has enabled India to attract abundant foreign investment and led to a more competitive landscape in the mobile phone industry. According to the study of Industry Profile (MarketLine 2015), the leading companies in India are almost foreign corporations like Samsung Electronics Co. Ltd, Nokia Corporation, Microsoft Corporation, and Sony Mobile Communications AB. Nokia Corporation was the leader in sales volume in phones, but their share has been steadily declining these years from 70.2% (2006) to 51.0% (2010), because many other manufactures such as iphone have entered into India market and 333

3 N. Cong introduced many stylish looking models (Passport GMID 2011). In 2014, Samsung Electronics Co. Ltd occupies the largest market share in the India s mobile phone market. (Passport GMID 2014) What is more, globalization has gradually stimulated the development of domestic mobile phone company in India. Domestic players such as Micromax Informatics, Karbonn Mobiles and Spice Mobility Ltd are emerging as good competitors to multinational players. It is statistical that the share of Micromax Informatics is nearly zero in 2007, but in 2010 it has reached 5.7%, which is more than that for Sony Ericsson. (Passport GMID 2011) Domestic corporations do well in the feature phones area, especially Micromax and Karbonn Mobile, gaining much share via the launch of a number of affordable phones in (Passport GMID 2014) In the forecast period, the market volume and market value of mobile phones in India are expected to increase. Sanjay (2008) predicts that mobile-density (number of mobile phones per 100 inhabitants) will increase to 71 in 2016 by using S-shaped growth curve models. Multinational companies will still dominate the mobile phone industry. But the domestic companies will still play an important role and their share is going to increase. (Passport GMID 2014) 2. Analysis Based on PESTLE Framework The following gives a detailed explanation of the driving forces of mobile phone industry growth in India based on PESTLE Framework. PESTEL, also known as PEST analysis, is an effective tool for business analysis of macro environment. PESTEL Framework is able to identify all kinds of macro forces that affect industries and enterprises. It is a good method to investigate the external influence factors of the organization. PESTEL Framework includes six factors, and each letter represents a major factor. Political factors (P) refer to the strength of actual and potential political impact of the organization s business activities such as relevant policies and regulations. Economic factors (E) refer to the organization s external economic development, future economic trends, consumer price index, inflation rate as well as exchange rate and so on. Social factors (S) refer to the trends of population development, cultural traditions, customs demand and lifestyle. Technical factors (T) mainly refer to new technologies. Environmental factors (E) refer to sustainable utilization of natural resources, environmental pollution control and waste management. Legal factors (L) mainly refer to external laws and legal awareness of citizens. Political Factors Political and legal factors are the most fundamental factors of the development of mobile phone industry in India. As the mobile phone industry was in its initial stage ten years ago, it extremely need the government support such as incentive polices and comprehensive telecoms infrastructure. The enormous growth for mobile phone industry in India these years should be attributed to the government incentive polices. In 2003, the rural teledensity rate is rather lower than that in urban area. The government aims to link India s huge rural population to the telecoms networks, and to address the issue, the India government set a target in the 11 th Five Year Plan ( ) of having 600m wireless connections (Telecoms Industry Report 2012). According to the government s 2009/10 economic surveys, 85% of the target had been met. The availability of telecoms networks makes great contribution to the development of mobile phone industry. Besides, the government has invested heavily in telecoms infrastructure, including under the Ministry of Communications and Information Technology s Rural Telephony Project, which is worth Rs 25 billion (Telecoms Industry Report 2012). This facilitates the popularization of mobile phone in India and leads to rapidly falling mobile-phone prices. In 2015, Telecom Regulatory Authority of India (TRAI) announces that Mobile Number Portability (MNP) regulations take effect on May 3, This MNP policy allows users to freely choose operators and 334

4 number attribution without replacing a new number. The new policy brings great convenience to the mobile phone users and stimulates the development of mobile phone industry once again. In brief, India s government incentive polices have a big influence on the development of mobile phone industry in India. Economic Trends There are several macroeconomic indicators that can be used to interpret and forecast the trends of mobile phone industry in India, including GDP, consumer price index, inflation and exchange rate. The economy is moving ahead at a good rate these years, and India gross domestic product (GDP) has increased by $839.8 billion from 2007 ($ billion) to 2014 ($ billion). Table 1 reveals the Indian GDP. According to Lagarde (2015), economy of India will expand by 7.2 percent and India s GDP will exceed the GDP of Germany and Japan. The substantial growth in GDP reflects that the India s economy has been developing vigorously; the national income has been on the rise; and the standard of consumption and living for Indian has improved these years (Hamilton & Webster 2012). This demonstrates that people s purchasing power has been raised and leads to increasing demand for mobile phones. Table 1: Indian GDP (current prices, $billion), Year Current prices, $billion %Growth % % % % % % % % However, India s consumer price index and inflation have both increased in recent years. Table 2 provides the Indian consumer price index (absolute) and inflation rate. When consumer price index rises, the purchasing power of currency declines and workers real wages reduces. According to Simran (2015) s study using annual data over the period , the level of inflation (including CPI) has negative but insignificant effect on economic growth. So the increasing inflation has adversely affected but not significantly on the development of mobile phone industry in India. Table 2: Indian Consumer Price Index (absolute) and Inflation Rate, Year Consumer Price Index (2000=100) %CPI Growth Inflation Rate % % 6.4% % 8.3% % 10.9% % 12.0% % 9.1% % 10.2% % 9.5% % 7.7% India Rupee is currently losing its value to the Dollar, which could certainly be seen to affect the Indian economy adversely. One US Dollar s value has increased Rs. from 2007 ( Rs) to

5 N. Cong ( Rs). Table 3 shows Rupee exchange rate. Gurmeet (2015) finds a long-run equilibrium relationship between exchange rate and stock price over the period 2007 to Table 3: Rupee Exchange Rate, Year Exchange rate ($/Rs.) Exchange rate ( /Rs.) Although the inflation and exchange rate may affect the economy in India, the economy is moving ahead these years. This creates a good economic environment for the development of mobile phone industry. People s living standard is steadily improving, and the demand for mobile phone is increasing as well. Culture and Society Elements Culture and social elements mainly refer to the trends of population development, customs demand and lifestyle. These factors are important to the functions and features design of mobile phones. The size of population in India is one of the factors that lead to increasing mobile phones market volumes. And increasing size of population expands the needs of mobile phones in India. Table 4 provides Indian population. Indian population has steadily increased at a rate of about 1.2% from There is appropriately 1130 million to 1230 million populations from 2007 to 2014 in India. However, until 2014 there were only million mobile phones sold in India market, only accounts for one-sixth of total number of population. According to Philip (2011), Maharashtra, Uttar Pradesh and Gujarat that occupy a big proportion of the size of total population in India have also made great achievement in digital mobile telephone marker, with nearly percent of the latent demand in Philip (2011) predicts that the demand for mobile phone is still going to expand with the continued increase in population in India. Table 4: Indian Population (million), Year Population %Growth % % % % % % % % Customs demand and lifestyle are another important element that affects the design of mobile phones in India. According to the industry profile (Passport GMID 2011), battery backup and looks have been important influences of consumers purchasing decisions in feature phones, especially for rural customers in India. The special needs of customers have affected the phone models. For example, Micromax Informatics, Karbonn Mobiles and Spice Mobility Ltd provide phones with all the desired features and long battery backup of 30days at considerably lower prices to attract rural customers (Passport GMID 2011). And Das & 336

6 Mohanty (2007) finds that customers pay more attention to the cost of mobile phones. The most significant launch of 2010 was the Vodafone 150 phone, with the price of Rs 700, which is the first kind of phone in Indian with cost below Rs This phone is also designed to attract the rural and the lower-income customers. While there is also growing preference for the more expensive smart phones, the retail number of luxury mobile phones has increased 5 times from 2007 to (Passport GMID 2014) As the popularity of social networking, the demand of mobile phones users has changed. Nowadays, many young users download all kinds of application on the phones. For example, the social messaging app Viber gains larger market in India as compared to the US. (Software, 2014) Fayaz et al. (2011) recommend that companies need to concentrate on new features, quality and after sales service, which are still going to impact consumers in the future. In a word, the increasing size of population in India expands the demand for mobile phones. And the mobile phones manufacture needs to keep an eye on the need of the users and customers lifestyle. Technological Advances Telecoms Industry Report (2012) describes that India s telecommunications industry is booming. As a result of technological advances, mobile phones have more features, such as Internet access, video calling, , TV, music and portability (Passport GMID 2011). Smartphones with attractive functions have been the fastest-growing category with 40% volume sales growth and Euromonitor (2011) forecasts that the sales of smartphones will continue to increase in the next few years. Arpita (2012) reports that technology stimulates mobile devices to enable the use of various communications technologies including wireless fidelity (Wi-Fi), Bluetooth, third-generation (3G) wireless network and general packet radio service (GPRS) services. And a nationwide wireless broadband fourth generation (4G) network will be built by India for its armed forces. Telecommunication Company Nokia Networks has received contract from telecom company Bharti Airtel to build the India's first 4G network in the 1800-megahertz band in six telecom circles. Generally speaking, technological advances make mobiles phones have more functions and lead to the rapid growth in smartphones in India. Legal Factors There are legal restrictions in the mobile market, most of which are related to human health, safety and environmental issues. There are stringent laws relating to science-based regulation and the adoption of emission guidance by the International Commission on Non-Ionizing Radiation (MarketLine 2011). Studies have been conducted on the possible side effects to the electromagnetic radiation produced by mobile phones, so that the influence on the safety, human health and environment needs to be considered when producing for mobile phone companies. In short, these stringent laws stress the issues that mobile phones manufactures need to resolve, and these laws ensure the long-term development of industry in India. Ecological and Environment Challenges Sustainable development is an important trend for future development of mobile phone industry in India. In order to achieve sustainability, ecological and environmental factors must be considered, such as environmental pollution and sustainable products. The environmental pollution comes from electromagnetic radiation, fuel burning and so on. Many companies have paid great attention to this issue. For example, the telecommunications firm Vodafone India moved 265 cell phone towers on green technology in the financial year, making diesel consumption fall to 44,372 kilo liters during the period. (Telecom, 2014) Liao et al. (2013) argues that mobile phones companies could adapt environmental criteria in designs of different components in cell phone products, including recycling, low-impact disposal and resource and energy conservation. 337

7 N. Cong In short, mobile phone manufactures need to consider environmental protection issues and design sustainable products. 3. Conclusion and Policy Suggestions The paper explores the most important current trends in the mobile phone industry in India and forecasts the future development of the industry. Globalization has facilitated the mobile phone market and led to a competitive landscape. Government has taken incentive actions to link India s huge rural population to the telecoms networks. And Indian economy is booming these years, which increases the demands of mobile phones. Customers need for mobile phone has gradually turned to lower cost, more features and good looks. Technological advances have attributed to many new functions of mobile phones and promoted long-term development. There are also some challenges related to human health, safety and environmental issues, which need to be considered for the mobile phone companies. In conclusion, the India s mobile phone industry is booming significantly recent years, and is going to expand. However, there are still some challenges for mobile phone companies to deal with. Based on the analysis of PESTLE Framework, this paper gives a few suggestions on the development of India mobile phone industry. Firstly, the mobile phone companies in India should give priority to customers needs. Customers demands have a great influence on industry trends. Companies can collection information by interviews, questionnaires or surveys. Secondly, the mobile phone manufactures in India should develop an environmental product line by using new material and guarantee no lionizing radiation to meet the goal of sustainability. References Arpita, S. 2012, Mobile Technology Driving Social Change, viewed < Das, Mohanty, 2007, Service usability and users satisfaction in India: an exploratory study on mobile phone users, Journal of Services Marketing, vol. 5, pp Gurmeet, 2015, the relationship between exchange rate and stock price in India: An empirical study, Journal of Financial Risk Management, vol.12, pp Hamilton and Webster, 2012, The International Business Environment, 2 nd Edition, Oxford University Press. Lagarde, 2015, India s GDP will be bigger than Japan, Germany combined in 4 years: IMF, FRPT-Finance, pp Liao, C. S., Lou, K. R., Gao, C. T., 2013, Sustainable Development of Electrical and Electronic Equipment: User-driven Green Design for Cell Phones. Business Strategy & the Environment, vol. 22, pp MarketLine, 2015, Mobile Phones in India, Mobile Phones Industry Profile: India, pp1-36. MarketLine, 2012, Mobile Phones in India, Mobile Phones Industry Profile: India, pp1-32. Philip, 2011, The Outlook for Digital Mobile Telephones in India, Country Outlook Reports, 319p. Passport GMID, 2014, Mobile phones in India, Euromonitor International. Passport GMID, 2011, Mobile phones in India, Euromonitor International. Simran, 2015, Inflation, inflation volatility and economic growth: the case of India, Journal of Applied Economic, vol.14, pp Sanjay 2008, The diffusion of mobile phone in India, Telecommunications Policy, vol. 32, pp

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