International Business and Marketing Management

Case assignment : HTCs growth and danger of decline

16th of March 2012

1 Introduction of HTC : quietly brilliant

High Tech Computer Corporation (HTC) was founded in 1997 and was known as an expert in designing and manufacturing OEM-branded mobile devices back then. In 2006, it released the first mobile device under the HTC brand and has rapidly increased its brand awareness ever since. Currently, it boosts a wide portfolio of smartphones and tablets with the Windows phone or Android operating systems. It is one of the fastest-growing players in smartphone market and the third biggest in the world in terms of market value (BBC, 2011). According to Interbrand (2012), it was selected as the best global brand of 2011. HTC is committed to becoming a leading supplier of mobile and communication devices with its drive to grow in technology and design. It is confident of its R&D capabilities which have enabled them to achieve product innovations constantly. For example, it was the pioneer of Microsoft pocket PC and 4G smartphone. In addition, HTC focuses on empowering the most personal experience by integrating the latest technology (HTC 2012). It aims to offer users a communication experience which is effortless and personalized, enhancing user satisfaction with the device. To achieve this, innovative functions which refine details of the user experience have been implemented. For example, when a friend calls, his/her latest update on social media is shown on the screen. Also, text on webpages is adjusted automatically to fit the screen for browsing convenience. Different from its competitors, HTC not only delivers hardware but is also dedicated to software advancement. It is believed that a key factor in HTCs success is the intuitive user interface (UI) it offers (BBC, 2011). The multi-layered graphical UI, named HTC Sense, is bundled with the Android system and the continuous updates of the two contribute to an enhanced user experience (examples discussed above). Such an advantage has made the devices publicly recommended among mobile phone users.

2 Background of HTC
In 1997, Cher Mi Wang, the richest woman in Taiwan, entered a partnership with HT Cho and Peter Chou, the current CEO of HTC, and founded the company with the goal to provide the market with a combination of a mobile phone and a personal assistant (phoneArena 2008). The company invested heavily in engineering and design resources. Initially, it developed and manufactured gadgets at low margin for western technology companies. One of its first successes was a notebook computer ordered by

Compaq

Computer

Corp.

In

2002,

the

company

started

manufacturing

Windows-based devices after winning a contract with the software leader. The first Pocket PC based on Microsofts system was then developed and soon HTC became the top producer for Windows. In 2008, it also managed to establish partnership with Google and released the first Android-based phone. Currently both Windows and Android based devices are offered. Such success attracted the attention of several key mobile service providers such as AT&T, T-Mobile, Orange, Vodafone, etc. In fact, HTC has established partnership with the leading five operators in Europe, top four in the States and many of the fast-growing operators in Asia (HTC 2012). The company designed and produced units, for example T-Mobile PPC Phone (HTC 2012), for these carriers before it started offering its own branded phones in 2006. Besides, HTC has also done OEM (Original Equipment Manufacturer) projects for brands like Dell, HP, Fujitsu, etc. Through the rich experience, the Taiwanese company has proved its capability of design and production and its popularity has grown gradually. 2006 was a turning point for the company since it launched HTC branded phones with its own advertising campaigns (phone Arena 2008). Same year, it was ranked the third among global IT companies by BusinessWeek and the second of Asias best performing company in the following year. The key elements HTC brings to the market are the innovative ideas. In particular, its popular Touch series deploy the finger friendly interface which convinces consumers that the Windows Mobile devices are not only heavy bricks. Furthermore, HTC is the creator of the first Android phone, the HTC Dream, opening up the systems wide usage. Such innovations have contributed to the companys success so far.

3 Problem discussion : the growth and decline

3.1 The meteoric rise Within around three-year time, HTC Crop managed to become one of the top smartphone players in the world from an unrecognizable brand. Its brand recognition has risen to 4 in 10 in 2010 and sales have been growing rapidly (phone Arena 2010). Net profits rose 160% in the last quarter compared to the previous year. HTC, which sold 5.4 million phones in the second quarter of 2010 to Apples 8.4 million, has been considered a major rival to Apples iPhone (BBC 2011). There is little doubt that its drastic rise is mainly due to its partnership with Google and thus pioneering the Android-based phones; yet, on top of such cooperation, the business strategy adopted

by the company certainly plays a vital role in the drive. Opposite to the market leader, Apple, HTC took a relatively open strategy which enabled them to achieve innovations through collaboration with key technology partners. While Apple is exclusive and proprietary, HTC is open and collaborative in working with a range of carriers. Even more importantly, it is always ready to customize which helped them develop partnership with carries across the globe. By the end of 2011, it has forged strong ties with over a hundred of wireless operators across six continents and was thus able to extend its reach efficiently. Such base has certainly benefited its brand development since 2008 as well. As an OEM manufacturer in the first place, the HTCs forepart success towards a branding company can be further analyzed by using the 4-Ps of marketing mix. In this case, Product and Place is combined. It developed and customized innovative products through cooperation with wireless carriers and then reached end-users through these partners existing channels, namely their contracted customers. By doing so, HTC not only designed products based on latest market needs but was able to push the products to a big audience efficiently. Promotion became also critical after it started selling branded products. Due to its built bond with the carriers, it is expected that it was advantageous in terms of the in-store personal selling, the major promotion approach for cell phones, compared to other vendors in the initial period. The marketing mix was regarded as effective since three of the four hallmarks were well demonstrated (see Figure 1.): it matched customer needs and corporate resources, its R&D capabilities, to create a competitive advantage.

Figure 1: Hallmarks of an effective marketing mix. Jobber (2001)

Except for the collaboration with wireless operators, HTCs open strategy and R&D capabilities made it possible to cooperate with the two dominant software leaders, Microsoft and Google, which led to their core success today. Affiliating with the two, HTC launched phones based on their systems, which are highly popular and familiar to the public. According to HTC (2012), they are not only strategic partners but serve as active research labs for product development and evolution. Moreover, the partnerships help it ensure that hardware, software, and delivery systems are integrated seamlessly. Above all, HTCs alignment with Googles Android, the primary competitor to the iPhone, is believed to be the critical point for it to stand out from the crowd. HTC started the cooperation as the manufacturer of Googles Android phones. Despite Googles ties with two other brands, Samsung and Motorola, HTC was producing the high-end handsets which led to the creation of Google Nexus One, the first mobile phone released by Google. Though HTC was simply an OEM manufacturer in this case, it has quietly gained advantages by building Googles flagship phone. The two most significant ones are: firstly, it won the merit of the pioneer vendor releasing the latest version of Android; secondly, it was a statement that Google highly valued it as a phone manufacturer (Alani, 2011). These are certainly indispensible factors leading to its meteoric rise.

With the solid fundament, HTC started to grow rapidly by releasing its own branded devices, for example HTC Desire, winning several awards in the process and before long firmly establishing itself as one of the worlds leading smartphone brands. To enhance the experience it offers, HTC developed an UI, called Sense, focusing on intuitive operation. Such an interface with detailed functions (discussed above in Chapter 1) differentiates HTC from other Android phones. The efforts have been on the extension of its augmented product aspect (see Figure 2.) where it has always intended to make the user experience unique and memorable.

Core product

Expected product

Augmented product

Potential/ Intangible product

Figure 2: Product layers. Levitt (1980)

3.2 Signs of decline in growth In January 2012, HTC published its financial report for 2011, confirming the 2.49% year-on-year slip in earnings. In the fourth quarter of last year, HTC brought in NTD$101.42 billion, dropping from NTD$104 billion during the same period in 2010. The company also had a low expectation for the first quarter of 2012, with projected revenues of NTD$65-70 billion, relatively negative outlook comparing to NTD$104.16 billion in Q1 2011 and a much lower operating margin of around 7.5% (Dobie, 2012). Apart from the decline in financial performance, the fact that the Android field is getting crowded also poses threat on HTCs growth. Samsung, LG, Sony Ericsson and Motorola are the known competitors using Googles platform and there are others like ZTE and Huawei, whose market share is growing quite fast with low cost. Samsung, in particular, is viewed as the strongest rival to HTC as it managed to generate rapid sales and rise in smartphone market share with its Galaxy S II (sold ten million units in Sep 2011), based on Android system. In fact, Google announced in the end of 2011 that it would now be Samsung that would release Googles flagship handsets (Alani, 2011).

3.3 Analysis of factors contributing to the decline Growing competition HTC has seen profound growth and prosperity under the wing of Android; yet, their partnership with Google is not exclusive. Namely, it was not able to erect the key barrier to enter the android marketplace. Thus, competitors have been launching devices based on the system at the same time. Its competitive advantage due to the operating system was thus less powerful. Currently, it is facing several rivals which offer Android phones at different price range. Positioning is a critical issue for HTC to ponder on with the increasingly fierce competition and the potential cannibalization within the Android ecosystem. Apart from the new Android players, competition is also coming from the threat of substitute products, in this case, smartphones with other operating systems. Leaving out the market leader, Apple, Windows phones can be a growing concern. It is estimated that Window phones will take around 10% of Androids market share over time (Belic, 2011). HTC, who is also a qualified player in Windows phone market due to its established partnership with Microsoft earlier, should take such an industry trend into concern and develop a strategy which can optimize its competitiveness. Low brand loyalty Unlike Apple with its iPhone and Samsung with its Galaxy S II, HTC is yet to create a blockbuster device that achieves significant popularity. It is one of the major disadvantages of it since in the consumer electronic market nowadays, consumers tend to align themselves more with a device linage rather than a brand (Carey, 2011). In other words, brand loyalty is declining and more difficult to achieve, but instead the clinging effect is shifting towards a proverbial lineage of device in the particular industry. To cope with such a phenomenon in consumer behavior, HTC might need to take a different stance when managing its product portfolio. On the other hand, a blockbuster product can serve as the cash cow to support other product lines and the clear feature difference among its models can also prevent cannibalization within own brand products.

4 Conclusion
HTC has proven itself as a company with advanced R&D resources and has grown through bringing innovative ideas to the market. It managed to rise rapidly by establishing strategic partnership with leading software brands whose systems have already been widely used. Its cooperation with Google is considered the most critical one which allowed it to pioneer Android-based phones and become Apples strongest competitor at one point. Yet, with the Android market getting crowded, HTC has begun to suffer slightly from sales drop compared to the impressive sales performance and growth earlier. It is discussed that two major reasons have led to such a decline. Firstly, so far the company has not been able to successfully adjust itself to the growing competition by identifying new competitive advantages. It is no longer the only vendor offering Android phones and a quick response to the market change is required. Secondly, its lack of an outstanding selling device series is viewed as a disadvantage compared to other competitors concerning the current tendency of buying behavior for consumer electronic products. In the above paragraphs, the companys SWOT (Strength Weakness Opportunity Threat) has been covered. Based on analysis of the current challenges, it is proposed that HTC design its future path by looking at the fundamental elements of sustaining an international brand. Repositioning of business strategies and products appear to be necessary. This also involves developing a perceptual map of how customers perceive its products relative to the competition in the market. Aside from the augmented product aspect (discussed in 3.1) it has been working on, the potential product angle can be further developed to achieve a stronger role in such a perceptual map. Lastly, it should be able to strategically utilize partnership with fellow technology brands to obtain and maintain competitive advantages. The alliance plays a key role especially in the technology industry. Above all, a long-term perspective should be adopted by the Taiwanese manufacturer to keep its built leadership in the mobile phone market across the globe.

Bibliography

Weber, T. (2011) HTC is braced for Apple smartphone patent war. BBC News. Available at http://www.bbc.co.uk/news/business-14238741 [Accessed 12/03/2012] HTC (2012) Available at http://www.htc.com/www/about/ [Accessed 12/03/2012] Tofel, K.C. (2011) HTCs meteoric rise is starting to fizzle. Available at http://www.phonearena.com/news/History-of-HTC_id3255 [Accessed 12/03/2012]

Interbrand (2012) Available at http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-global-brands-2 011.aspx [Accessed 12/03/2012] Carey, D. (2011) Could HTCs rise to smartphone fandom be slowly ending? Available at http://www.okaygeek.com/blog/could-htcs-rise-to-smartphone-fandom-be-slowly-ending.html [Accessed 12/03/2012] Schroeder, S. (2011) Samsung, HTC and Apple fuel smartphone market growth. Available at http://content.usatoday.com/communities/technologylive/post/2011/05/samsung-htc-andapple-fuel-smartphone-market-growth/1#.T1tc1jGmjAO HTC snartphone profits rise 160% Available at http://www.bbc.co.uk/news/business-12250494 [Accessed 12/03/2012] Jobber, D. (2001) Principles and practice of marketing. Maidenhead: MaGraw-Hill http://www.computerweekly.com/blogs/inspect-a-gadget/2011/10/the-htc-and-google-stor y-a-love-affair-and-a-tragedy.html [Accessed 12/03/2012] Dobie, A. (2012) HTC posts finals Q4 2011 financials, experts weaker Q1 2012 Available at http://www.androidcentral.com/htc-posts-final-q4-2011-financials-expects-weaker-q1-2012 [Accessed 12/03/2012] Alani, F. (2011) The HTC and Google Story: A Love Affair and a tragedy Available at http://www.computerweekly.com/blogs/inspect-a-gadget/2011/10/the-htc-and-google-story-a-lo ve-affair-and-a-tragedy.html [Accessed 12/03/2012] Porter, M. (1998) Competitive Strategy. New York: The Free Press Belic, D. (2011) Infographic: Androids rise to the top Available at http://www.intomobile.com/2011/10/24/infographic-androids-rise-top/ [Accessed 12/03/2012] Levitt, T. (1980) Marketing Intangible Products and Product Intangibles. Harvard Business Review, May-June 1981, P. 94-102 [Accessed 12/03/2012]