WG is one of the world’s leading makers of mobile phones, withmarket share of approximately 20%.Unlike any of its majorcompetitors, it is based in Narnia, a high-cost, developed country.Narnia has very limited natural resources, but has developedsignificant expertise over the decades in high-end precisionengineering and efficient use of materials. WG is quoted on theNarnian stock exchange, where it is the largest company by marketcapitalisation. It has a wide shareholder base including mostNarnian institutional investors and private individuals. Itslargest three shareholders are institutions who each own around 2%of the company.WG was founded in the 1960s to make telephoneequipment and in the 1990s managers made a strategic decision tofocus on the then-tiny mobile phone market. This was partlyattributable to the Narnian government being among the first tofully deregulate their telecoms market, which lead to lower callcosts. Narnia and its neighbouring countries are also fairly rural,and its populations were enthusiastic early adopters of mobilephones. WG was given a particular boost in 1995 when thetransmission standard they had pioneered was adopted as the basisfor calls by the government in Narnia and many other governmentsaround the world. Serving a rapidly growing market, WG quicklygained economies of scale that allowed cheaper production thancompetitors emerging later. WG then exploited these to open upexport markets all over the world,enhancing their advantagefurther. Unlike many of its competitors, who subcontract theirmanufacturing to others, WG assembles most of its own handsets. Itsfactories are mostly in Narnia, where it benefits from the highlyeducated population and the presence of high-quality localsuppliers to carry out increasingly high-tech manufacturingprocesses. Narnia has very good communication links, which helpssuppliers to deliver rapidly. Technology is advancing all the timeand WG regularly launches new, more sophisticated devices, mostrecently a suite of smartphones. However, the fastest-growingdemand is for cheaper, basic models which just carry out voicecalls and text messaging. This demand is driven by users indeveloping countries, who are concerned to keep costs down, butalso want the status of using a well-known brand such as WG. WG hasinvested significant resources in building up a local salespresence in these markets, which allows it to spot trends andproduce phones tailored to local tastes and languages. Competitionin the industry is intense, and has become more so due to a recentglobal economic downturn. The Narnian government has also announcednew anti-pollution measures that will result in large-scalemanufacturers having to pay more than previously to dispose oftheir waste products. Shortly afterwards, WG announced that theywill increase the proportion of handsets manufactured in lower-costcountries from 15% to 40% over the next three years. Componentmanufacturers announced plans to follow them to the new locations.This will involve cutting over 1,000 jobs in Narnia. A spokesmanfor the Narnian government called the decision “disappointing”. Atrade union official said, “WG has increasingly been puttingpressure on its suppliers to lower costs and respond more quicklyto market fluctuations. This has made it unprofitable for them tooperate in Narnia and lead to decisions like this”. Required:
(a) Analyse WG’s environment using two appropriate models
(b) Discuss the main stakeholders in WG and how management couldtry to retain their support as it seeks to reduce costs.
