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GRAINGER
Organisation background
Grainger designs and manufactures mobile phones.
The company is based in Deeland, which is a developed and industrialised country. Deeland requires the application of IFRS for financial reporting. The country’s currency is the D$.
Since it was founded in the 1950s to manufacturer consumer electronics, such as radios, Grainger has developed and adapted its product range over the years in response to developments in consumer tastes and trends. By the early 1990s, Grainger was a major manufacturer of mobile phones and by 1998, it was making nothing but mobile phones. Grainger is a global manufacturer and its products can be purchased in most countries around the world.
Grainger was quoted on the Deeland stock exchange in 1999.
Mobile network infrastructure
Mobile phones themselves would be useless without the extensive infrastructure created by the network providers that make it possible for the phones to make or receive calls from almost any populated area on Earth.
The infrastructure is based on relatively low-powered radio base stations that have adjoining or overlapping coverage, so that a phone user is always within range of at least one base station.
The base stations can be free standing, or mounted on top of buildings. In cities, there are often small systems mounted on the sides of buildings. The base stations have a relatively short range and so establishing a mobile phone network is a complicated and expensive undertaking, in order to ensure that population centres are covered. It is also necessary to build and operate base stations alongside motorways and other major roads.
Mobile network providers
Mobile phone manufacturers such as Grainger do not provide the phone services or infrastructure. Most countries have several network providers who compete to sell connections to phone users. Users pay to use these services in two ways: ‘pay monthly’ and ‘pay as you go’.
Under a pay monthly contract, the customer pays the mobile network provider at the end of each month for calls made and other services that have been used. There is usually a fixed element to the monthly payment, which covers access to the network and also some calls and other services. There will be an additional variable element to the payment if the customer uses additional call time or other services. The network provider has the customer’s bank details and collects monthly payments by direct debit.
Pay monthly contracts are typically for two years. The network providers usually give the customer a phone as an incentive to sign the contract and a replacement (or ‘upgrade’) phone when the user renews at the contract’s end. Those phones will either be ‘free’ or will require the customer to pay a heavily discounted price that is usually 20-25% of the phone’s retail value. The networks are effectively selling these phones on credit because they recoup their costs by building a repayment into the fixed element of the monthly fee.
Pay monthly customers are effectively being sold new mobile phones every two years, whenever they renew their contracts. As an incentive to attract or retain customers, the network providers use their buying power to obtain discounts when they buy phones and they pass much of that discount onto their customers.
A pay as you go customer must pay in advance to use the mobile network. Advance payments can be made by buying a voucher from a shop, by making a card payment or by using some bank automated teller machines (ATMs). The resulting credit is tracked by the network providers’ systems and is used whenever the phone makes a call or accesses another service.
The network providers ensure that pay as you go phones are sold at a discount to their full retail value, again as an incentive to attract customers. That discount is less generous for a pay as you go phone than for pay monthly because a customer who buys a pay as you go phone is under no legal obligation to buy further credit.
Mobile phones and their uses
When mobile phones were first developed, their primary function was to enable users to make and receive phone calls when they were away from home. Over time, various functions have been added and voice calls have become increasingly irrelevant to many users. For example, SMS text messaging rapidly gained popularity and it became commonplace to communicate by text message in place of making voice calls.
The function of mobile phones is constantly being redefined, thanks to the flexibility associated with the underlying technology. A mobile phone is essentially a handheld computer that incorporates radio facilities for wireless communication. In addition to the wireless connection to the mobile phone network, most phones have the ability to connect directly to wireless local area networks through Wi-Fi and to other nearby electronic devices through Bluetooth.
Mobile phones are frequently used to access the internet and email and are frequently used to update social media accounts and to engage in online commerce.
Many phones come equipped with cameras. Many users rely on their camera phones for their photographic needs, to the point where phone cameras are rivalling basic digital cameras in terms of quality. Camera sales are declining because of improvements in phone cameras. Phones are also used as personal music players and handheld games consoles, again displacing audio players and portable games devices. It is becoming increasingly common for householders to dispense with traditional landlines for making phone calls. Landlines are often used for internet access and mobile phones are used for all voice calls.
Quite apart from the technical developments, many users regard their phones as fashion accessories. Perfectly functional phones are often replaced in order to remain abreast of current trends. So-called ‘smartphones’ offer the level of functionality described above, although there is also a market for basic mobile phones that may be used by those who find smartphones too complicated or who need an inexpensive phone to allow, say, a child to stay in contact when away from home.
Most manufacturers, including Grainger, concentrate their development efforts on their smartphones. Upgrades to existing models are often incremental, for example a slightly better camera or a slimmer, more lightweight or attractive case.
Software issues
All electronic devices, including mobile phones, rely on operating systems to enable the hardware to function.
In the early days of mobile phones, each manufacturer developed a basic operating system to translate, say, key presses into electronic instructions such as accepting an incoming call.
Over time, mobile phones have become increasingly complicated to the point where it would be uneconomic to develop separate operating systems. Most manufacturers use an open source operating system that has been adapted slightly to meet their specific needs. Open source means that the operating system’s owner grants permission to install it free of charge and to adapt it as required. For example, Grainger’s smartphones display the company’s logo when the phone is being powered up and the various screens that the users interact with were all designed by Grainger.
Users can also buy software applications (known as ‘apps’) that enable them to add functions to their phones. A wide range of apps is available, ranging from games to business software such as word processors. Some apps are free to download and use and others must be paid for. Many electronics companies release apps that enable the user’s mobile phone to operate as remote controls for their products. For example, some televisions can be operated using apps running on compatible phones. Apps may have also have specialised uses, such as assisting pilots to prepare and file flight plans.
Grainger’s use of the open source operating system that has become the industry-standard is very much a mixed blessing. On the plus side, it means that it need not incur the costs associated with developing and updating its own operating system. The operating system’s owner does not charge for its use. Potential buyers know that they will be able to install a wide selection of apps. The operating system can also exchange files with their laptops and tablets. On the downside, most of Grainger’s direct competitors use the same operating system, which gives their phones a similar appearance to Grainger’s.
Mobile phone generations
Each generation of mobile phone has been numbered. Today, most mobile phones operate as either 3G or 4G. 3G remains in widespread use around the world and offers features such as basic internet browsing, receiving and transmitting data files (such as photographs). 4G phones are faster still in comparison to 3G, and 4G networks are now generally available. Phones are generally ‘backwards compatible’ which means that they can use older networks when required. So, a 4G phone that is out of range of a 4G network can connect to any available 3G or 2G network, albeit at the slower speeds specified by those earlier generations.
Latest developments 5G is the name given to the latest generation of wireless networks. The relevant standards are still in the process of being defined. The ambiguity around 5G is because it’s still largely a concept at this point, and the wireless industry hasn’t settled on any standards around the new network. Some key goals of 5G include:
Significantly faster data speeds: Currently, 4G networks are capable of achieving peak download speeds of one gigabit per second (Gbps), though in practice it’s never that fast. With 5G, this would increase to 10Gbps.
Ultra-low latency: ‘Latency’ refers to the time it takes one device to send a packet of data to another device. Currently with 4G, the latency rate is around 0.05 of a second, but 5G will reduce that to about 0.001of a second. This is a significant improvement when data has to be communicated in as close to real time as possible. For example, the precise operation of remote industrial equipment or the safe navigation of driverless cars will benefit from this reduction in latency.
A more ‘connected world’: a phenomenon referred to as ‘The Internet of Things’ involves building connectivity into products and devices such as domestic appliances, cars and even wearable devices. So, if your car develops a fault it could email details to your local garage and enter the service appointment into your online diary. The growth in this technology will cause an exponential growth in the number of devices connected to the internet and will require a network that can accommodate billions of connected devices. Part of the goal behind 5G is to provide that capacity, and also to be able to assign bandwidth depending on the needs of the application and user.
Clearly, 5G offers capabilities that go far beyond enhancing the use of mobile phones. For example, the 5G network would have sufficient bandwidth for household appliances to communicate routinely over the internet. A domestic fridge could have a scanner that reads the barcodes on products as they are purchased and subsequently used. The fridge could then order replenishments from an on-line supermarket or its owner could use an app to check whether there is, say, fresh milk in the fridge before coming home.
Each new generation of phones has created opportunities and challenges for phone manufacturers. Grainger’s earliest models were made for 2G. Now the company offers a range of 4G smartphones. Grainger’s management team is studying the potential created by 5G, even though it is unlikely to be operational before 2020 and, even then, it is likely to be another two years or more before 5G networks become widely operational across most of the countries in which Grainger operates in. Thus, although work continues on developing a new range of 5G ready smartphones, Grainger’s current focus remains on improving the company’s range of 4G phones to further exploit the opportunities offered by new and
improved versions of the operating systems and the ever-increasing range of smartphone apps that are being developed.
Extract from Grainger’s Integrated Report
Our Vision
To be recognised globally as the number one manufacturer of smartphones
Our Mission
To provide high quality products and industry leading levels of customer service, delivered by experienced and empowered staff. We aim to recognise the needs and desires of our stakeholders in all of our operations.
Staff
We recognise that, in order to satisfy the needs of Grainger’s other stakeholders, it is vital that we attract and retain the best people. We are committed to providing industry-leading career opportunities for all staff and are proud of our record as an equal opportunity employer, dating back to well before legislation was introduced to ensure such practices were adhered to.
All staff are encouraged to develop a tailored training programme, in agreement with their line manager. We also encourage our staff to engender relationships with the local community and, in addition, provide up to 5 additional paid days annual leave for them to dedicate time to their chosen charitable causes.
We offer a competitive remuneration package that includes above average basic salaries, a profit-related bonus scheme and other incentives such as private health care, generous maternity and paternity leave and staff discounts
Shareholders
Our shareholders range from individual investors to venture capitalists and large institutional investors. However, regardless of the level of shareholding, we are committed to building strong, transparent relationships with all of our investors, through regular shareholder meetings and email communications as well as the dedicated investor section of our corporate website.
We fully recognise that, without the continued support from our shareholders, we would not be able to maintain the growth strategies that we need to pursue in order for us to maintain our competitive advantage and sustainability.
Customers
We aim to always deliver only high quality products and services to our customers. Our staff are thoroughly trained to produce value-adding and defect-free products and exemplary levels of customer service, based on constant feedback obtained from regular customer surveys and day to day interaction with customers.
We are very proud of our record of being amongst the top 3 mobile phone suppliers globally for product quality and customer service, for each of the past 10 years, and our aim is to become the number one supplier every year.
Suppliers
We continue to build relationships with our suppliers and see them very much as part of our organisational ecosystem, along with our other key stakeholders. A reliable supply of quality components is vital if we are to provide products to the standards that our customers have come to expect from us.
We have invested heavily over the past couple of years in a number of joint projects with several of our suppliers, resulting in mutually beneficial outcomes for all parties.
Grainger’s sales graph
Grainger is one of the largest global mobile phone manufacturers, expressed in the
number of phones sold.
0
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2013 2014 2105 2016 2017 2018
Grainger - Annual phone sales (millions of units)
The cost of manufacturing a mobile phone
The cost of manufacturing one of Grainger’s most popular models is shown below:
- Job description Contents Page
- Organisation background`
- Mobile network infrastructure
- Network providers
- Sim cards
- Mobile phones and their uses
- Software issues
- Radio frequencies and data connections
- Mobile phones generations
- Latest developments
- Battery technology
- Extract from Grainger’s Integrated Report
- Management Structure
- Grainger’s sales graph
- The cost of manufacturing a mobile phone
- Extracts from Grainger’s Financial Statements
- Exhibits
- Memory 28. D$
- Display screen 57.
- Processor 26.
- Camera 18.
- Wireless section 44.
- User interface and sensors 21.
- Wireless connectivity 5.
- Power management 10.
- Battery 5.
- Case and buttons 39.
- Box contents (charger, earphones, etc) 9.
- Total materials 266.
- Manufacturing labour and overheads 11.
Grainger consolidated statement of financial position
As at 31 December 2018 2017
D$ million D$ million
Non-current assets
Goodwill and intangible assets 282 266 Property, plant and equipment 3,820 3, 4,102 3,
Current assets
Inventories 6,233 5, Trade receivables 9,249 8, Cash and cash equivalents 10,456 7, 25,938 21,
Total assets 30,040 24,
Equity
Equity attributable to owners 20,496 17, Non-controlling interests 200 187 20,696 17,
Non-current liabilities
Loans 2,614 1, Deferred tax 46 38 2,660 1,
Current liabilities
Trade payables 6,133 5, Tax 551 503 6,684 5,
Note 1 – segmental information
Revenue 2018 2017 D$ million D$ million Europe 12,708 10, Asia 9,531 9, America 7,148 6, Middle East 4,368 2, Other 5,957 5, 39,712 34,
Operating profit 2018 2017 D$ million D$ million Europe 1,830 996 Asia 1,321 868 America 813 579 Middle East 457 321 Other 661 450 5,082 3,
