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DD202A Economics and Economic Change : Supply Curve

Question

Mobile phone markets in the Arab States

The mobile phone market is a good example of how to explain some basic concepts of supply and demand. The good news for users is that over the next five or ten years, the price of mobile phones is forecast to fall. This is primarily due to some factors affecting the demand and others affecting the supply. Mobile marketing in the Middle East is starting to see the initial stages of huge growth in the online advertising industry.  With many Arabs having their first experience with the Internet on their smart phones, mobile advertising will be one of the best ways to reach a wide Arab audience over the coming years.  

According to Google’s Our Mobile Planet, smart phone penetration in Saudi Arabia is 60% of the population.  The United Arab Emirates has a smart phone penetration of 61%.  39% of those that own smart phones in the UAE have used them to make a purchase online.  On average 70% of smart phone users in these countries said that they noticed ads at least some of the time they were using their phone.  With such large adoption numbers that are growing every day, it is clear that Arabic mobile advertising is and will be a great source of online business.  Despite this fact, few companies are effectively marketing on mobile phones in the Middle East. Consequently, there are some large opportunities in this market just waiting to be taken advantage of.

Yes, that’s correct Arabs who couldn’t afford a traditional PC or laptop computer are now having some of their first experiences with a smart phone.  Why is this?  Smart phones are becoming more and more affordable and in many ways are seen as a status symbol one cannot live without in the Arab world.  

The TMA

This TMA requires you to write a structured essay , in which you attempt to answer the following question:

Use demand and supply graph to explain and discuss the factors affecting the demand of and supply for mobile phone in the country you are living in.

Answer

Introduction:

At present, mobile phone has huge demand across the world and this in turn influences producers to produce and supply this product by large number. Kuwait also experiences the same thing, as it has huge demand for and supply of mobile phone in market. The country has experienced high growth in mobile phone penetration since the last few years. As a result, the growth rates based on handset shipments have increased significantly from all over the world (Jaz, AlSabah and Sarfraz 2018). According to the report of International data Corporation (IDC), mobile phone shipments in this country have increased by 159% between 2012 and 2014 due to arrival of smart phones in market. This in turn has increased the shipments of Samsung and Apple by 272% during the same period. Due to increasing usage of mobile broadband, the number of smart phone grows continuously. During the second quarter of 2015, Kuwait has adopted 70% smart phone while global average and Arab States average have remained at 41% and 33% respectively (Kuwait Times. 2015). From here a positively sloped supply curve of mobile phone in Kuwait can be drawn.

                       

                     Figure 1: Supply curve of mobile phone in Kuwait

                                                                          Source: (created by author)

Price has influenced this smart phone penetration significantly. According to IDC, phones below $150 has higher rate of shipments compare to those that have price above it. For instance, in 2014, mobile phone shipments, priced below $150 were increased by 275% while shipments of other phones, priced higher than $150, were increased by 17% only (Aljaber, Almutairi and Alkandari 2018). This trend has been continued in the next year as well. Hence, demand for mobile phone in Kuwait has increased over the year for lower price and vice versa. Thus, the demand curve in this country has a negative slope.

                                                   Figure 2: Downward slopping demand curve

                                                                                Source: (created by author)

Description:

Kuwait has a brand-centric market, which means, some particular mobile phone companies have captured maximum share of the market irrespective of their higher prices. This taste and preference influence demand for mobile phone of Samsung, Apple, Huawei and Lenovo to develop further. During 2017-2018, Samsung has captured almost 45% market share while Apple has captured almost 30% market share (StatCounter Global Stats. 2018). Thus, except price of this product, taste and preference of consumers plays significant role to determine demand for mobile phone in the market of Kuwait. Number of population also influences the demand for mobile phone inversely. The population growth rate in Kuwait has decreased since 1960, which in turn has reduced the number of potential mobile phone users in this country significantly.

                                         Figure 3: Population growth rate in Kuwait since 1960

                                                                    Source: (Data.worldbank.org. 2018)

Figure 3 has represented the trend of population growth rate in Kuwait since 1960. According to this figure, it can be noticed that population growth rate has decreased continuously after 1960 and has fluctuated drastically after 1985 (Data.worldbank.org. 2018). Moreover, this population growth rate has fallen drastically after this year. Thus, the number of mobile phone consumers, especially young population has decreased in this.

Income of the people in Kuwait has also affected negatively due to falling oil priced in world market. This oil and gas market generates 95% of total export revenues and contributes 60% of the country’s total national income (Alawadhi, Mohaddes, Burney and Al-Khayat 2018). Hence, falling oil price has reduced national income of Kuwait significantly and this in turn has reduced the demand for mobile phone among citizens of this country. Thus, overall shipments have decreased during 2015 (E.gov.kw. 2018). However, the country has two trends for which demand and supply of mobile phones in Kuwaiti markets have not suffered by large extend. Firstly, people of this country intend to buy and use multiple phones at the same time and this in turn increases the demand for this electronic gadget for a single buyer noticeably. Secondly, people of this country use mobile phone for short period and replace within immediately for another one. The country has highest ratios regarding possession of smart phones per person all over the world. For instance, around 1.6 smart phones have been shipped every year per person and this further has increased smart phones penetration in this country (Al-Anzi, Al-Burait, Thomas and Ong 2017). The growing number of mobile phone use in Kuwait has occurred due to launching of new brands with comparatively lower prices like Xtouch, VSun and so on. In addition to this, established companies such as Samsung have offered phones, which have price below $150. Thus, these factors have significant influenced the demand for mobile phones in Kuwait. In this context, it can be said that, consumer income and preference for any particular brand can shift the demand curve of mobile phones towards right indicating that at a fixed price level, aggregate demand curve can be increased.

                                                 Figure 4: Change in demand for mobile phone

                                                                               Source: (Created by author)

Moreover, strong 4G network across the country along with strong infrastructure have provided significant opportunity to smart phone suppliers. The rate of mobile broadband penetration in Kuwait is 77% high, consequently data are used heavily for video streaming, and other purposes (E.gov.kw. 2018). Hence, suppliers intend to supply large number of mobile phones with comparatively cheaper price to earn higher amount of revenue.

                                        Figure 5: Device penetration among households in Kuwait

                                                                                  Source: (E.gov.kw. 2018)

This above figure represents that almost each households use mobile phones and smart phones in Kuwait and suppliers supply this gadget due to its excessive demand compare to any other electronic devices.

Conclusion:

According to demand law, there is a negative relationship between price and quantity demanded for any product. On the other side, supply law states that price and quantity supplied of any product has positive relationship. However, some other factors like income of consumer and improving technology can influence these two economic concepts as well. From the above discussion, it is seen that mobile phone including smart phones have huge demand in Kuwait as they use more than one phone at a time and replace these within short period. Moreover, they prefer standard brand and lower price for which Samsung has launched new mobiles priced below $150. In addition to this, almost every household in this country uses mobile phones and most of them uses 4G network for searching videos and so on. Hence, mobile manufacturers get higher opportunities to produce and supply this product. Consequently, the number of mobile phone shipments has increased over the year. In this context, it is essential to mention that Kuwait has the highest rate of mobile phone penetration. This analysis can help policymakers to implement new policies regarding mobile phones and to modify the old one. This discussion about demand and supply of mobile phones in Kuwait can help them to understand about the mobile market scenario within this country. First, the government can impose tax on mobile phones to earn higher amount of revenue. This further can prevent the trend of using mobile phones among teenagers due to its higher prices. On the other side, the government can provide various facilities and can reach to common people easily with the help of mobile phones through introducing new apps. Moreover, by improving network system, the government of Kuwait can develop its infrastructural facilities across the world to develop supply of mobile phone further.

References:

Al-Anzi, B.S., Al-Burait, A.A., Thomas, A. and Ong, C.S., 2017. Assessment and modeling of E-waste generation based on growth rate from different telecom companies in the State of Kuwait. Environmental Science and Pollution Research, 24(35), pp.27160-27174.
 
Alawadhi, A.S., Mohaddes, K., Burney, N.A. and Al-Khayat, A., 2018. Kuwait's Macroeconomic Performance in the Global Context. Arab Journal of Administrative Sciences, 25(1).

Aljaber, S., Almutairi, N.M. and Alkandari, A., 2018. Internal and External e-Customs Services IOS Application Case Study: Kuwait Customs Department. Indonesian Journal of Electrical Engineering and Computer Science, 10(1), pp.400-408.

Data.worldbank.org. 2018. Population growth (annual %) | Data. [online] Available at: https://data.worldbank.org/indicator/SP.POP.GROW?end=2016&locations=KW&start=1960 [Accessed 27 Jul. 2018].

E.gov.kw. 2018. [online] Available at: https://www.e.gov.kw/sites/kgoarabic/Forms/FinalConsolidatedEnglishReportSinglePages.pdf [Accessed 27 Jul. 2018].

Jaz, F.J., AlSabah, F.H. and Sarfraz, M., 2018, March. Mobile Commerce Applications and Adoption for Kuwait. In Computing Sciences and Engineering (ICCSE), 2018 International Conference on (pp. 1-6). IEEE.

Kuwait Times. 2015. Kuwait's mobile handset market set to shrink in 2016 - Kuwait Times. [online] Available at: https://news.kuwaittimes.net/website/kuwaits-mobile-handset-market-set-to-shrink-in-2016/ [Accessed 27 Jul. 2018].

StatCounter Global Stats. 2018. Mobile Vendor Market Share Kuwait | StatCounter Global Stats. [online] Available at: https://gs.statcounter.com/vendor-market-share/mobile/kuwait [Accessed 27 Jul. 2018].

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