HTC Company

HTC COMPANY

1

Introduction

The global marketplace continues to experience soaring competition particular  because of introduction of new technologies, and the increasing liberalization of global markets. One of the industries that face such fierce competition is the telecommunication industry. According to Hwang, Jung and Suh (2004), players in this industry face the challenge of retaining their customers, and need to constantly review their strategic position to sustain their competitive advantage. Speaking from this perspective, this paper will conduct a critical review of Porter’s theory of generic competitive strategies, and evaluate HTC’s strategic positioning in relation to generic strategy concepts and theories. Porter’s generic competitive strategies

Prior to the 19th  century, the application of competition concepts in a business environment was limited. In reference to Ghemawat (2002), whereas there was a growing level of competition in different industries, individual firms had no capacity to influence competitive outcomes in their respective industries. However, as competition increase, researchers and scholars began to study how businesses can enhance their strategic position and remain relevant in their respective industries. One of the researchers who work on competitive strategies has been instrumental in promoting the development of strategies in  businesses is Michael E. Porter. In particular, Porter proposed three generic competitive strategies that business can rely on to gain competitive advantage even in low profit industries (Porter, 1985). These include cost leadership, differentiation and cost and differentiation focus. To begin with, Porter argues that firms can adopt a cost leadership strategy in their respective industry as their main strategy (Porter, 1985). In line with this, this generic strategic approach emphasizes on the need for firms to lower their cost of production and as

2

such, be in a position to offer their products and/or services are a low cost as compared to their competitors. Porter (1979) affirms this in an argument that even firms with a stronger  position in an industry will earn lower returns if its main competitors offer substitute products at lower prices. However, there are a number of weaknesses that have been identified in cost leadership as a strategy. To begin with, there is a need to observe that whereas a firm may lower the prices of its products in order to gain a large market share, it may be difficult to raise these prices in order to gain profits (Thompson, 1984). In other words, raising its price may contribute to loss of the market share it had gained and as such, undermining its ability to make profit. Similarly, the costs leadership strategy can easily be copied by competitors, thus undermining its effectiveness as a strategy. Another strategy that Porter proposes to enhance the competitive advantage of firms and enhance their position in their respective markets is differentiation. According to Porter (1985), firms that adopt this generic strategy focus on creating unique products, services or  brand based on dimensions that are highly valued by their target customers. In this case, such firms identify attribute(s) that their customers perceive as important and focus on meeting these needs (Porter, 1985, p. 14). Importantly, for firms to gain competitive advantage and improve their strategic positioning in their respective markets through differentiation, they need to ensure that the price of their products is high above the costs they incur in seeking to  be unique. Despite the fact that differentiation strategy plays an instrumental role in helping  businesses gain a strong position in the market, there are always concerns on whether the  premium price that a firm adopt would be able to cover the overall cost of gaining and maintaining a differentiated position on the market. Lastly, Porter proposes that a firm can adopt focus strategy to gain competitive advantage over others. According to Porter (1985), focus strategy concentrates on a specific segment or group of segments within a particular industry and as such, develop a strategy to 3

reach out to the selected segment. Importantly, Porter (1985) observes that a focus strategy can rely either on cost leadership or differentiation to reach out to the target segment. Importantly apart from drawing its strengths from the strengths of either cost leadership or differentiation strategies, there is a need to observe that the weaknesses of the strategies could undermine the overall impact of focus strategy. HTC’s strategic positioning

HTC was once one of the most competitive firms in the telecommunication industry, and particularly in the manufacture of smartphones that used Android operating system. However, an analysis of this company since 2010 indicate that it market share and as such, its  profitability has dropped significantly mainly due to fierce competition not only from market leaders such as Apple and Samsung, but also from emerging competitors such as Xiaomi, Huawei and Oppo (Williams, 2017). According to Williams (2017), HTC’s smartphone sales declined by 54 percent by the period ending August, 2017, compared to the period ending August, 2016. Importantly, HTC’s has over the last few years focused on deploying different strategic approaches in order to strengthen their competitive capabilities in the telecommunication market. One of the strategies that this company employed in the recent past to enhance its strategic position is adopting a cost leadership strategy. In particular, the company focused on reducing the prices of some of its products as a way of attracting the attention of its target customers. According to Williams (2017), HTC reduced the price of its Vive VR headset from £749 to £599, with the hope that such price reduction will encourage consumers of virtual reality equipment to purchase its products. However, there is an indication that HTC is unable to keep up with its competitors in the virtual reality market such as Facebook and Samsung. Arguably, there is a need to observe that despite reducing its price, other

4

companies have also focused on reducing the prices of their products in a bid to stimulate demand among their target consumers. For instance, Bradshaw (2017) observe that in July 2017, Facebook reduced the price of its virtual reality products, Oculus, by approximately $200 for a limited time. This followed an earlier reduction of the price of its Oculus VR equipment by a similar margin, and as result, it implies that by July, 2017, Facebook was selling its virtual reality products at half the price at which the products were first introduced in the market with. As mentioned earlier, the use of low cost leadership as a way of stimulating demand and gaining market share is often a weak approach to strategic  positioning. This is mainly as a result of the fact that this strategy can easily be copied by competitors, who may end up performing even better using the strategy. Notably, whereas HTC perceived that reducing the prices of its product will strengthen its position on the market, its prices were still higher as compared to what Facebook was offering for substitute  products. In this case, while HTC’s Vive VR headset cost £599 after reducing its price, Facebook’s VR headset cost only $399, which, from the customers’ perspective, was a better deal. Therefore, one can conclude that HTC’s cost leadership strategy is still weak and is likely to fail to improve the overall strategic position of this company on the market. Apart from employment of low cost leadership through price reduction, there is a need to observe that this company also rely on focus strategy as a way of strengthening its market position. In reference to Foster (2017), HTC’s VR headsets target high-end market consumers rather than consumers who prefer low cost VR headsets. However, despite  pursuing the focus strategy in order to enhance its market position, HTC’s still faces stiff competition from competitors who are also pursuing similar strategies. For instance, as mentioned above, whereas Vive VR headset focuses on high-end virtual reality market, it faces stiff competition from Facebook’s Oculus VR headset, which also targets high-end consumers and has a better utilization of its focus strategy by combining both differentiation

5

and cost leadership strategies to reach out to its customers. In addition, HTC’s position is threatened by the fact that there are other powerful market entrants in the high-end market that offer better quality equipment at premium prices. For instance, Kelion (2017) observe that Samsung, which has been success in selling basic VR headsets at low prices, is also targeting the high-end VR market with its HMD Odyssey VR headset that has a better higherresolution OLED (organic light-emitting diode) display as compared to HTC’s VR headset. Therefore, HTC is likely to face a stiff er competition from Samsung’s new entrant in the high-end VR market, thus undermining further its strategic position in this market. In addition, this company has focused on developing intellectual property rights  particularly for its smartphone market as a way of differentiating itself from its competitors (BBC, 2017). In a recent $1.1 billion deal with Google, HTC is expected to offer nonexclusive license for its intellectual property to the technology giant to develop Pixel smartphones (BBC, 2017). Speaking from this point of view, there is a need to observe that  by investing in Research and Development, HTC is likely to position itself as a a unique company as far as development of innovative technologies in the smartphone industry is concerned. However, this success is highly dependent on among other factors, the success of its current deal with Google. This means that if the current partnership with Google leads is successful, HTC will regain a significant portion of its market share and vice versa. Conclusion

In conclusion, the ability of firms to enhance their strategic position on the market is not just dependent on their ability to adopt some of the generic strategies that Porter proposes  but also in their ability to mix these strategies in a way that enhance their competitive advantage. In reference to HTC, there is a need to observe that whereas this company has adopted both all the three generic strategies that Porter proposes in his model, the company is

6

yet to regain its command in the technology market. Therefore, firms such as HTC need to go  beyond just adopting the proposed generic strategies to finding the right mix of such strategies based on their existing strengths and opportunities. Importantly, firms need to evaluate the market dynamics not only with respect such as supply of raw materials and customer demand, but also with respect to aspects such as what competitors are doing and are likely to do when they implement new strategies. Importantly, significant investment in differentiation, and the use of innovativeness to lower the cost of achieving uniqueness is critical to survival of most firms on the technology market.

7

References

BBC. (2017). Google signs $1.1bn HTC smartphone deal. BBC News. Retrieved from http://www.bbc.com/news/business-41343586. Bradshaw, T. (2017). Oculus cuts VR hardware prices to boost appeal. The Financial Times . Retrieved from https://www.ft.com/content/4fa97a8e-6514-11e7-8526-7b38dcaef614. Foster, A. (2017). VR headsets prove popular with consumers. IBC . Retrieved from https://www.ibc.org/consumption/vr-headsets-market-analysis-and-guide-todevices/2030.article. Ghemawat, P. (2002). Competition and business strategy in historical perspective. Business  History Review, 76(1), 37-74.

Hwang, H., Jung, T., & Suh, E. (2004). An LTV model and customer segmentation based on customer value: a case study on the wireless telecommunication industry. Expert Systems with Applications, 26(2), 181-188.

Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, p. 137-145. Porter, M. E. (1985). Competitive advantage . New York: Free Press. Thompson, A. A. (1984). Strategies for staying cost competitive. Harvard Business Review, 62(1), 110-117. Williams, R. (2017). HTC stutters as smartphone and Vive sales suffer. iNews Website. Retrieved from https://inews.co.uk/essentials/news/technology/htc-stutters-assmartphone-and-vive-sales-suffer .

8