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Competitive Strategies and Government Policies

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Competitive Strategies and Government Policies
Habib Hogue
ECO/365
October 9, 2014
Ronald Merchant

Competitive Strategies and Government Policies
According to U.S. Consumer Electronics Sales and Forecasts 2010-2015, the industry report by the Consumer Electronics Association (CEA), revenues in the consumer electronics industry is projected to increase by 2 percent in 2014. Such growth translates to $211.3 billion of revenue—the highest recorded total revenue for the industry (Consumer Electronics Association [CEA], 2014a). Mobile connected devices remain the top revenue drivers of the industry; particularly, smartphones and tablets represent 35.1 percent of the industry’s total revenue in 2014 (CEA, 2014a). Nevertheless, even with the industry’s revenue reaching all-time highs, the consumer electronics industry is experiencing slow growth. Compared to 2011’s industry growth of 7.7 percent, the industry growth in 2012 and 2013 are only 4.4 percent and 1.8 percent, respectively (CEA, 2014b). Furthermore, the 2014’s estimated growth is at 2 percent, and 2015’s projected growth is at 1.2 percent. Many factors have led to the flat growth such as the increased competition brought by new companies entering the market, mergers, and globalization, as well as government policies and global competition.
Shawn DuBravac, chief economist and senior director of research of CEA, blamed the continued decline of average selling prices for the flat growth of the consumer electronics industry (CEA, 2014a). Decreasing prices is one of the effects of increased competition—a consequence of new companies entering the market. The consumer electronics industry promised to be a profitable industry with many consumers demanding for electronic goods such as smartphones, tablets, laptop computers and televisions, among others. Therefore, it is not surprising that many companies started to offer such products to gain market share. However, as new firms enter the market, competition rises, which promotes innovation that contributes to enhanced productivity. Increased productivity puts a downward pressure on prices since it reduces the production costs of companies. Characterized by rapidly changing technology and increased competition, competitors—both new and old—in the consumer electronics industry are forced to innovate, which enhances productivity and reduces prices.
Another cause of decreasing average selling prices is mergers. In the consumer electronics industry, vertical mergers that involve firms in an input-output relationship (Federal Trade Commission [FTC], n.d.) are widespread. For instance, in 2007, Royal Phillips Electronics acquired Digital Lifestyle Outfitters, a firm that designs, markets and distributes accessories for mobile devices (Phillips, 2007). IBM, known as a giant in computer products and services market, purchased the computer software company MRO Software Inc. in August 2006 (IBM, 2006a). Two months later, IBM acquired FileNet Corporation, another computer software company, in 2006 (IBM, 2006b). For these companies, merging with firms in different stages of the production process means considerable production cost savings and enhanced synchronization of manufacturing or distribution. However, as production cost savings and productivity increases, prices tend to go down, which shows that vertical mergers can put a downward pressure on prices.
Globalization is another cause of increased competition leading to lower prices. According to Colander (2013), globalization is "the increasing integration of economies, cultures and institutions across the world" (p.34). With the integration of economies in a globalized world, firms face an increased number of competitors. Domestic firms would have to compete with foreign countries such as China, which is dominating many segments of the global consumer electronics industry according to the Global Consumer Electronics Market Outlook 2015 (Marketwatch, 2014). With increased competition, firms have to work hard to gain a comparative advantage in the industry that will allow it them to produce a good or services at a lower cost than their competitors. Indeed, increased competition—a consequence of new entrants to the market, mergers, and globalization—results to a decline in average prices, which the reason is given by DuBravac on the current slow growth of the consumer electronics industry.
Government policies on patents may have spurred firms to innovate; however, patents also discourage others to innovate, which may have halted the growth of the consumer electronics industry. Patents award patent holders a limited-time monopoly on their discoveries (Colander, 2013). Therefore, firms that can develop products using patent-protected devices or processes are prevented from producing technological innovations. Furthermore, with patents in place, firms that have developed better technologies than patent-protected devices are unable to sell their products and maximize their profits. This could be a cause of the consumer electronics industry’s slow growth; since, the lack of innovations makes it difficult to differentiate the products in the industry that is saturated of many devices. In fact, the new devices iPhone 5s and 5c, as well as the Samsung S5, are considered to be merely upgrades to their predecessors and do not offer innovative aspects that could differentiate them from other smartphones flooding the market and pushing the prices down (Forbes, 2014).
Other current and expected government policies and regulations affecting the industry are antidumping laws and electronic waste legislation. The antidumping and countervailing duty laws protect U.S. industries from foreign countries “dumping” or selling their products at less than fair value in the country (Tariff Act of 1930). The growth of the consumer electronics industry may be halted if foreign competitors dump their products in the U.S. since domestic firms are forced to lower their prices. Continued decline in prices is a reason pointed out by CEA as the cause of the industry’s slow growth. Expected government regulations on handling electronic wastes brought by increased consumption of electronic products may also affect the consumer electronics industry. Currently, there are no federal statutes concerning the recycling of e-wastes; however, several attempts have been taken. During the 109th Congress, representatives offered H.R. 4316 and S. 510—legislations that would give subsidies for recycling computers and would prohibit the disposal of electronic products in landfills, as well as H.R. 425—a legislation that would impose taxes on electronic product sales (Logomasini, 2008). If more incentives to lower the consumption of electronic devices are present, sales of consumer electronics may fall.
Global competition threatens the survival of domestic organizations such as consumer electronics firms. Management in these organizations needs to understand the changing nature of the global market. Rapid communication and increased expectations by customers, suppliers, and employees are changing the management game. Globalization has changed the complexities of management decisions needed to retain market share and profit maximization. Global competition has caused product demand to fall and brand loyalty to fade. Competitors entering the market are offering suitable substitutes to incumbent firms’ consumer electronic lineups. If the demand for consumer electronics continues to fall due to competitive pricing, labor demand will also fall because firms in the industry will not be able to maintain production as marginal revenue product of labor declines.
Supply and relationship management is critical to remain competitive in today’s global atmosphere. The rapid pace of technological change and product innovation further compounds supply problems. If managers in computer electronics firms do not treat key suppliers with respect, suppliers may lose the incentive to remain loyal and may offer their supply to competitors. If this happens, production could be adversely affected, damaging the companies’ future profits. Relationships between employer and employee can affect a company’s ability to operate at a global level. Employers should treat their employees properly in order to stay competitive. In fact, Josephson (2014) states that employers have “a moral obligation to make business decisions in a manner that demonstrates concern for and seeks to advance the welfare of employees” (para. 3)—a moral obligation that needs to be practiced. Employees are considerable stakeholders in any organization and should be treated accordingly by management.
Management and unions often have different goals. Management and unions are more likely to succeed in their goals by working together through collaboration and cooperation. Consumer electronics companies must manage their unions with care because by busting the union they can cause goodwill to decrease. In a competitive global market, managers and their unions are in the same boat, and neither party should want it to sink. A true partnership is the best method that firms in the industry should use when dealing with labor unions.
Managers must be aware of any laws and regulations put in place to promote good business. According to Colander (2013), “A basic role of government is to provide a stable institutional framework that includes the set of laws specifying what can and cannot be done as well as a mechanism to enforce those laws” (p.63). One characteristic of global competition is the ability of firms to operate in foreign countries with fewer regulations. In an effort to reduce trade barriers, countries around the world have developed organizations in which membership is voluntary. However, the voluntary nature of membership means that the organization is weak to resolve disputes.
Even though the consumer electronics industry is experiencing slow growth, global corporations have ways to stay competitive on a local level. One way is providing global talent by outsourcing jobs. With a global talent strategy in place, companies can use this approach to better develop the local talent, which could become the company’s competitive advantage. Another technique is to offer services in the local market. For instance, consumer electronics firms such as Apple Inc. could offer technology workshops at their local stores and appointments to help solve product issues. Finally, to stay competitive on a local level, global corporations must know their competitors and customers in the local market. By knowing their local competitors and consumers, global firms can better compete on a local level and provide personalized products and services to consumers, respectively. One of the key points to remember is that the consumer electronic industry is consistently changing and advancing. To remain successful in the industry, global and local firms must be able to adapt to the change of the market economy.
The decline of average selling prices is the reason presented by CEA behind the slow growth of the consumer electronics industry (CEA, 2014a). Competitive pricing is a consequence of increased competition brought by new entrants in the market, mergers and globalization. Some government policies such as patent laws and electronic waste legislation may also affect the sales of consumer electronics goods. Therefore, to improve the growth of the industry, consumer electronics firms must continue to innovate and differentiate their products from its competitors to gain a competitive advantage. Moreover, firms must be vigilant on learning about the laws and regulations that affect their industry. Innovative products and vigilance drive the industry; hence, consumer electronics firms should take the front seat in keeping their industry to continue growing.

References
Colander, D. C. (2013). Microeconomics (9th ed.). New York, NY: McGraw-Hill.
Consumer Electronics Association (CEA). (2014a). Consumer electronics industry revenues to reach all-time high in 2014, projects CEA’s semi-annual sales and forecasts report. Retrieved from http://www.ce.org/News/News-Releases/Press-Releases/2014/Consumer-Electronics-Industry-Revenues-to-Reach-Al.aspx
Consumer Electronics Association (CEA). (2014b). Industry sales data. Retrieved from http://www.ce.org/Research/Products-Services/Industry-Sales-Data.aspx
Federal Trade Commission (FTC). (n.d.). Mergers: Competitive effects. Retrieved from http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/mergers/competitive-effects
Forbes. (2014). Samsung's lack of innovation in Galaxy S5 points to a saturated market. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/02/28/samsungs-lack-of-innovation-in-galaxy-s5-points-to-a-saturated-market/
IBM. (2006b). IBM to Acquire MRO Software, Inc.. Retrieved from https://www-03.ibm.com/press/us/en/pressrelease/20062.wss
IBM. (2006b). IBM completes acquisition of FileNet Corporation. Retrieved from http://www-03.ibm.com/press/us/en/pressrelease/20429.wss
Josephson, M. (2014). Responsibilities in the employer-employee relationship. Retrieved fromhttp://josephsoninstitute.org/business/blog/2014/01/responsibilities-in-the-employer-employee-relationship/
Logomasini, A. (2008). Electronic waste. Retrieved from http://cei.org/sites/default/files/Angela%20Logomasini%20-%20Electronic%20Waste.pdf
Marketwatch. (2014). Global Consumer Electronics Market Outlook 2015. Retrieved from http://www.marketwatch.com/story/global-consumer-electronics-market-outlook-2015-2014-05-15
Phillips. (2007). Philips to acquire Digital Lifestyle Outfitters, a leading supplier of accessories for mobile devices. Retrieved from http://www.newscenter.philips.com/main/standard/about/news/press/article-15766.wpd
Tariff Act of 1930, 19 USC § 4

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