Case 4: Apples iPhone

International Business

Table of contents

............................................................................................................................................................2 INTRODUCTION...........................................................................................................................2 DESCRIBE THE MOBILE TELECOMMUNICATIONS INDUSTRY IN EUROPE..............2 WHAT ARE THE MAIN DRIVERS OF REVENUE FOR TELECOMMUNICATION COMPANIES........................................................................................................................................3 WHAT IS YOUR OPINION ABOUT THE MARKET ENTRY MODE OF APPLES IPHONE IN EUROPE? HOW DO YOU THINK THIS MODE WILL WORK?...........................4 CONCLUSION................................................................................................................................6 PROPER SOURCE:........................................................................................................................7

Case 4: Apples iPhone

International Business

Introduction
The case describes a successful introduction of a highly innovative and pioneer device for mobile communication. It deals with a touch screen phone branded by the Apple Company. This company released the described iPhone in the early 2007 and due to its huge marketing campaign; this product was facing an extremely high demand, though the price was set on the top of the phone sector. The groundbraking functions of this phone were the dynamic touch panel and a user-friendly and easy to use user interface with lots of applications. Steve Job the Apples CEO promoted iPhone as being almost equal and managing most of the functionalities as a real desktop computer. There have been sold one million units in just 74 days. [Appl08, page 1] Apple considered offering its communicator to the most European mobile telecommunications providers.

Describe the mobile telecommunications industry in Europe.

According to the macro dimension political and legal environment (PEST framework), Apple is in a class apart. The iPhone benefits of an excellent competitive position. We can almost say that it is a monopoly since it is almost alone in its class. Pricing is to the advantage of Apple since the iPhone's success in North America gives confidence for the European sales. Also, Apple is in position to negotiate with the different companies in order to have a revenue sharing deal. The iPhone brought the revenue-sharing to Europe, experts says it will play an important role in the future of converge communication. Not necessary to explain how much exclusivity Apple is having with is distributors. As for the economic environment, Apple decision to introduce the iPhone in Europe makes sense. Since there is nearly no country of low income, European citizens have the power and the resources in order to buy the new device.

Case 4: Apples iPhone

International Business

Also, the European market is for Apple a target of predilection because of its high potential and the concentration of population. Smart phone grew up by 30% in 2006 which represented somewhere around 8% of cell phone sold worldwide. Again, Nokia is the leader concerning the sales of smart phone with 50.2% of the global market. One of the big market break true is the 3G networks. European operators had spent considerable amount of money (100 billion) to secure the 3G networks. The exchange rates are also favourable because of the strong value of the Pounds (UK) and the Euro for majority of Europe. We can say that the situation of telecommunication in Europe is well anchored. Nearly half of the 1.1 trillion of global telecommunication is related to wireless and mobile services. In 10 years, penetration went from 8 in 100 to 95 in 100. Sales are constantly growing in Europe an increase of 7% from 2005 to 2006.

What are the main drivers of revenue for telecommunication companies

There are five main mobile telecommunication providers in Europe, those operators are: T-Mobile, O2, Vodafone, Orange and Movistar. In fact, this sector is driven by oligopoly companies, which try to follow the Bertrand model of pricing. This model is based on low based pricing conditions, which leads to a price leadership in a specific sector. [1] The companies have already set very high entry barriers by offering qualitative services and investing very high initial capital in the mobile infrastructure, so that it is almost impossible for a new company to enter this market, although the revenues in this sector are enormous. Already in the year 2005 the European mobile telecommunications industry was approximately 200 billion dollars worth and 95 % of its population were using a mobile phone. [Appl08, page 2] There are some common drivers of revenue for all mobile telecommunications providers. Firstly, the revenues are achieved by selling mobile handsets produced by a third part companies, the annual sales reached up to 175 million mobile phones in 2006. The biggest market share was held by Nokia almost 33 %. [Appl08, page 3]

Case 4: Apples iPhone

International Business

All the companies also offer mobile telephony, short messages sending and broadband Internet access as well as 3G and GPRS data-transfer, which are altogether mostly used services. The average revenue per subscriber is around 439 dollars per year. Furthermore, all the companies offer content delivery which gives customers the opportunity of downloading contents such as music, ringtones etc. via the mobile network. [Appl08] The following table represents the revenue in Millions of EUR and the Total Net Income for the year 2006 of the four largest telecommunication companies.
Cost of Goods Sold 40 510,70 24 067,90 31 400,80 34 754,80 Total Net Income 19 113,40 6 341,00 5 282,00 3 219,00

Vodafone O2 - Telefonica Orange - France T-Mobile - Deutsche Telekom

Revenue 34 216,30 54 471,70 51 701,70 61 346,70

Gross Profit - 6 294,40 30 403,90 20 300,90 26 591,90

The Total Net Income value shows the profitability of each company. Except of Vodafone, most of the global companies show similar income. Vodafone invested in the short-term assets and showed therefore a deficit. [Appl08, page 16]

What is your opinion about the market entry mode of Apples Iphone in Europe? How do you think this mode will work?
Leadership in the mobile handset business has remained a remarkably stable oligopoly, with todays market share leaders reflecting successful entry decisions made at the beginning of the cellular era. Motorola invented the portable cell phone in 1973, while both Nokia and Ericsson rode the rapid adoption of Nordic Mobile Telephones in the 1980s. Other European makers have come and gone, while Japanese makers have dominated their home markets but have enjoyed limited export success. The only new firm in the list of 2006 top three manufacturers is Samsung of Korea, which has been in 3rd place since 2001 (Table 1). In 2007, a new entrant unveiled its strategy for challenging this stable oligopoly. Unlike the three long-established handset makers or challengers like Samsung,

Case 4: Apples iPhone

International Business

Matsushita and LG this niche player has no manufacturing and has never been a high-volume phone producer. It has pre-announced its product more than a year before entry into the competitive European and Asian markets, giving competitors plenty of time to match its product features. Customers loyal to the incumbents and many analysts dismissed the entry strategy as doomed to fail. However, the new entrant is Apple Inc. and its unreleased iPhone is the industrys most talked-about product of the year. Despite a lack of telecommunications experience, the company can draw upon core competencies in product innovation and marketing developed over its 30 year history. It also hopes to leverage the market-leading ecosystem it has built for online music distribution. Hardmac is reporting that Apple's market share in Europe has risen to 6.8%. That's not quite as high as the around 10% share for computers in the US, but it is a full two percentage points higher than it was last year. Windows still dominates in the EU, with 92% of all computers running some variation of it. Most of the growth in Europe has come from OS X Intel computers, but the iPhone and the iPod touch have contributed about half a percentage point as well (not to mention that interest in the iPhone almost certainly drove some Mac purchases, even if we can't see that directly in the data). In another year from now, Europe may be on pace to match up with the US share soon

For a high-tech company like Apple, it is important to maintain product exclusivity is crucial. Patent right allows high-tech companies to earn profits from their own

Case 4: Apples iPhone

International Business

exclusive products. iphone is not available in the market yet, but lots of mobile companies in many countries have gone on sale the similar cell phones which look like iphone. Therefore, legal issues investigation should be conducted more carefully to avoid unnecessary law suits or fines. To enter into EU market, professional consultants are required. The patent system in Europe consists of major administrative burden for applicants, holders and regulators are more protected in Europe than in U.S, with European products hold longer product exclusivity and patent extension periods. On launching the iPhone internationally it is expected that this product will already have high brand recognition. According to Goggles analytic tool called Goggle Trends (See Appendix D), most of the searches for the iphone keyword are conducted outside of the United States, Singapore ranking first, Greece which is part of EU second, followed by Hong Kong and Malaysia. Apple is already perceived as a superior device and software maker.

Conclusion
Be different from others iPhone combines three products, is a revolutionary mobile phone, a widescreen iPod with touch controls, and a breakthrough Internet communications device with desktop-class email, web browsing, maps, and searching into one small and lightweight handheld device. iPhone also introduces an entirely new user interface based on a large multi-touch display and pioneering new software, letting you control everything with just your fingers. So it ushers in an era of software power and sophistication never before seen in a mobile device, completely redefining what you can do on a mobile phone. It evident from evaluating the existing cellular market that Apple iPhone could find successful and broad acceptance in both the US market as well as the European market. Due to factors of competition, consumer preferences, and lack of proper supportive resources such as iTunes and Apple dealers. In order to assure the success of the iPhone in Europe, it is not only important to address specific consumer preferences, but also the policies and procedures for doing business within

Case 4: Apples iPhone

International Business

the EU, like those regarding packaging or EU commission laws regarding pricing. In evaluating the various factors of the marketing mix, it had been decided that a penetration pricing structure would be the best competitive approach to gain market share necessary for a successful product launch.

Proper Source:
[Appl08] Apples iPhone: Calling Europe or Europe Calling? IESE Publishing, 2008. [1] http://en.wikipedia.org/wiki/Oligopoly, launched on March 25th 2011.