Phones 4U: When suppliers become competitors (“Bargaining power of suppliers”)

Phones 4U collapses into administration.  PWC has been called. This certainly does not make for savoury news especially with “up to 5,000 jobs at risk” in the run up to Christmas.  A few days after the announcement, the suppliers are being touted as potential buyers of some parts of the business – shops and stock.  Phones 4U has not stopped blaming the suppliers; the suppliers (EE & Vodafone) have turned around and blamed the owners saying “they had ladened the business with debt”.  The founder has also joined in the debate, blaming the suppliers!

Whatever your view points, whichever side you stand, whether you see Phones 4U as the victim, or you see the suppliers as predators or “barbarians at the gate”,  it is simply an industry with a lot of competition and Phones 4U could no longer compete. Phones 4U was swimming in shark infested waters and she had no defence to cope with the ‘onslaught of sharks’.

From the information that is available, what seems apparent is: there had been ongoing change in the industry and the suppliers had become competitors for a while (did Phones 4U not spot that!), however, what has suddenly changed is: they have now become more ‘aggressive‘ competitors. And why not? Why do they have to share their revenues with a 3rd party when they can sell directly to the customer?

Michael Porter in his seminal work on competitive strategy, “The five competitive forces that shape strategy” discusses the “bargaining power of suppliers” as one of the factors that should influence business strategy. Certainly, when you have 2 suppliers you are indeed at their mercy; when it becomes only 1 supplier, your whole business becomes endangered. If the supplier or those suppliers become competitors and you have no competitive advantage, you are probably waiting for the onset of myocardial infarction.

Porter’s five force analysis has been in existence for quite some time, so it is indeed amazing that the owners of the business did not foresee this, more so O2 (Telefonica) had decided to ditch Phones 4U not quite long ago. One could argue that perhaps 2 suppliers walking out simultaneously hardly happens, but would having only 1 major supplier i.e. either EE or Vodafone led to a sustainable business?

If the management of Phones 4U had been sensitive to the external environment, perhaps they would have exited and sold the business (a year earlier) before being forced out of business. Unfortunately, that is the nature of the competition in the industry.  All organisms, animals (including humans) and organisations have to adapt in other to survive, and go beyond adaptability in order to thrive.

“Every morning in Africa, a gazelle wakes up, it knows it must outrun the fastest lion or it will be killed. Every morning in Africa, a lion wakes up. It knows it must run faster than the slowest gazelle, or it will starve. It does not matter whether you are the lion or a gazelle – when the sun comes up, you had better be running.”

Phones 4U did not outrun the fastest lion. The suppliers did not want to starve; they ran faster than Phones 4U. Phones 4U did not adapt and she becomes another casualty of the tough competitive landscape.

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