This Economics HL IA talks about the difference between GSM and CDMA and how a developing country like India has benefitted financially and economically from CDMA.
Article 27 July 2009, India times talks about Multinational companies and their pricing strategies. The product they are going to launch is Open Market Handsets (OMH). It is a US-based global multinational company aiming to capture a large market share i.e. it is aiming probably of becoming a monopoly by adding specialized features (internet browsing, e-mail access, downloading clips, music, and video streaming). It knows that it will receive all profits resulting from any successful introduction of new features and better designs and sleek models.
It follows a competitive pricing strategy by keeping the price just below/above the competitor’s price. The article says GSM (Global System for Mobile Communications) subscribers will only have SMS and voice facility, whereas for the same price CDMA (Code Division Multiple Access) subscribers will have additional features like internet browsing, e-mail access, downloading clips, music, and video streaming. The market CDMA Development group targets middle to high-income groups as given in the article. According to the given article, India is a natural choice for the global launch as India being a developing country the CDMA can get the factors of production at a cheaper and can minimize its costs of production. The developing countries like India will also welcome such companies to invest (FDI-Foreign Direct Investment) which helps India to get the mobile handsets at a cheaper rate and it also helps in accumulation of the foreign reserves with the central bank which in turn helps in the economic growth of the country. This also helps in increasing employment, output and tax revenue, bring in new technology and management ideas and helps in the development of infrastructure. Their size and their ability can put pressure on the government to change policies in their favor like tax concessions and not to penalize them for poor safety standards. In addition, although MNCs may increase employment there is a risk that they may drive domestic firms out of business. They avoid Tariffs by setting up their business in developing countries. But there may be some disadvantages for the host country - The profits are given to the shareholders in the other countries rather than being reinvested in the host country. It helps in raising the standard of living of the people and increases the tax revenue for the government and thus helps in increasing the GDP of the country which in turn helps in an increase in aggregate supply thereby leading the country towards economic growth. According to the article, the CDMA market crossed the 100 million – subscriber mark in just six years with just tow operators which clarify the point that it is a ratio of capital is more (more specialized). Whereas GSM reached this mark in seven years with a large number of operators which shows that the ratio of capital is much less in compared CDMA (less specialized than CDMA). The article says that CDMA Indian subscribers are globally the highest India continues to add 2.5 million CDMA subscribers every month (highest globally). The reason behind this is as it is domestically produced it is affordable. The consumers pay less compared to other countries i.e. the other countries have to pay a higher price because of the tariffs/quotas. CDMA –OMH launch has provided consumer sovereignty in terms of choice and flexibility to expand its market. India is a mixed economy but such companies as CDMA do possess some features of a market economy like it ensures efficiency. According to the article Reliance and Tata are encouraging customer migration to their new GSM networks, which will hurt growth.
Tata and Reliance are their operators but they have only GSM facilities and they don’t have access to additional spectrum for CDMA. As per the article, a drop in 42% of tariffs has led to a fall in the price of the product this, in turn, has increased the teledensity by 1.7%.