AFRICA STRATEGY

IN TELECOMMUNICATIONS INDUSTRY
TEAM 9 GREENWICH COHORT Thu Ha Le Almudena Jimenez Cruz Stephano Bosman Clarisse Herbreteau Nabila Laraki Jacob Parackal

AFRICA STRATEGY IN TELECOMMUNICATIONS INDUSTRY

Competitors
The organization

Industry environment

Macro environment
Political, economic, social, technological, environmental, legal

Markets

Political factors: Many African countries are just out of the civil war. Corrupt previous governments have left behind them disorderly regulatory regimes. Governments tend to intervene in the industry.

Economic: factors: 6% growth rate predicted in the sector for the year 2011 in Africa. Very fertile market, with a significant increase in consumption of new technologies. Sensitive economical disparity depending on the regions of the continent Tremendous investment in the sector since 2007.

Legal factors: Unified licensing introduced in 2006. Continuing liberalization of VOIP (Voice Over Internet Protocol). Privatization of national telecommunications services in the region is continuing with significant premiums over reserve prices being paid.

MACRO ENVIRONMENT OF AFRICA

Socio-cultural factors: Women in sub-Saharan African countries contribute over 40% of the economic activity of most nations. The literacy of women is low. Increase in the use of mobile phones.

Environmental factors: Stress on saving energy due to high energy consumption in the industry. New technologies for energy saving network towers and grids.

Technological factors: 3G mobile services Expansion of GSM networks Upgrades in data transmissions due to rapid growth of ADSL and wireless broadband services.

COMPETITIVE ADVANTAGE OF AFRICA (PORTERS DIAMOND)

Firm Strategy, Structure and Rivalry
Good local Competition Imitation of technology Profit maximization using low CAPEX

Demand Condition Factor conditions

Abundant, cheap and qualified human resources Tax breaks offered to encourage additional investment Unsophisticated local demand to high demands Fresh to segmented and sophisticated local markets Wants in North Africa and South Africa are similar to the Western world

Related Supporting Industries

Can find isolated supporting firms for BPO, Network rollout and for other related industries. Services and machinery are imported

TELECOMMUNICATIONS INDUSTRY PORTERS FIVE FORCES MODEL

LOW / MODERATE

HIGH HIGH

LOW

LOW

Capital requirements? Huge.

Are the substitutes better (quality)? No.

Market size? Huge and increasing.

Few dominant suppliers? Yes.

Equality size competitors? No.

Facilities to access to distribution channels? No.

Are they more convenient? No.

Are products very differentiated? No.

Are brand of the suppliers strong? Yes.

Has the Industry high fixed cost? Yes.

Brand loyalty? Yes.

Are they cheaper? Yes.

Are buyers usually tough? No.

Is strong their role in the quality of the service? Yes.

Can buyers switch company easily? Yes.

Can new entrants get subsidies by the Government? Yes.

Are buyers willing to switch to them? No, at the moment.

Threat of backward integration into the industry? Absolutely not.

Is the Industry a key consumer group to the suppliers? Yes.

Are high the barriers to leaving the Industry? Yes.

Threat of new entrants: LOW

Threat of substitute products or services: LOW / MODERATE

Bargaining power of consumers: LOW

Bargaining power of suppliers: HIGH

Competitive rivalry within an Industry:

HIGH

IS THE TELECOMMUNICATIONS INDUSTRY

ATTRACTIVE IN AFRICA?

YES

WHY AFRICA?
-

Telecom Industry in developed markets has been saturated Africa market: Cellular and fixed-line telephone penetration rates are low, offering significant customer and revenue growth potential. Wages are low; many workers speak English, French along with the enormous number of the available workforce. Government policies attract FDI: improved environment, economic reform, private sector encouragement and better FDI regulatory framework (allow profits to be repatriated freely or offer tax incentives etc)

Transnational strategy

SUMMARY AFRICA STRATEGIES

IN TELECOM INDUSTRY

Target new emerging market Takeovers, buy-outs, joint ventures Direct marketing Nation wide network coverage Cheap pricing Limited services Colonial entry barriers Rural area vs major cities

POSSIBLE BENEFITS AND PROBLEMS

OF CURRENT STRATEGY
BENEFITS Integrate into an existing business that already knows the culture and how the country does business Able to use partners network to offer its customers a range of service, which utilize home network capabilities as well as extended coverage within Africa Enable to meet their needs for unified communications, centralized customer care and services using local network. Lower cost of operation Benefiting from lower roaming charges

Powerful brand association

PROBLEMS Cultural, administrative, geographical and economical distances (CAGE framework) Increase in cost of integrating and management Decreased corporate performance and services Potentially lowered industry innovation Suppression of competing businesses Decline in equity pricing and investment value Conflict for control and decision-making between Parent company & subsidiary Governments support could decline (E.g: Vivendi and Morocan government)

APPENDIX

2 - POTTERS FIVE FORCES MODEL

The most attractive industry is one in which barriers are low which means that few can hardly enter in the market and nonperforming firms can exit easily.

Threat of new entrants: LOW.

At first glance, it might look like the more profitable the industry is, the more attractive it will be to new competitors; although the attractiveness of the industry is depend on other factors:

The capital required to set up this kind of industry in Africa, where the infrastructure is obsolete , is very high. The access to distribution is also another big barrier taking in consideration that getting telecom licenses is not easy. Customer loyalty in this kind of industry is quite high so, that is a factor that could motivate strong-branded companies to establish themselves in Africa. Many African governments provide subsidies to home-companies, which made even harder playing in this industry.

Threat of substitute products or services: LOW / MODERATE. Recently it has come out the threat of new substitutes: the voice over IP (VoIP), which is a way to transmit voice conversations over a data network using IP, and the Internet telephony (or peer-to-peer telephony), which allows voice calls to be made between PCs over the public Internet using IP. However, at the moment, this threat is reasonable moderate.

The quality of the sound is not as better as it could be with a regular call. Although some people that usually call over long distances can instead of picking up a phone go to a computer and call through that but it is not because it is more convenient, it is because just the high price of a long-distance call. The low costs of computer calling could potentially take over most long distance calling. The more local calls and business calls would be more secure for the mobile market, although cell phones with the ability to use the internet to make calls are being made available and will soon take a considerable market share of calls made.

Bargaining power of consumers: LOW. The threat of buyers in this industry can be considered fairly low. The individual buyer has no impact on the price of the products offered.

Africa market size is huge. While in United Stated and Europe the market has achieved their maximum and they are sutured, in Africa the market is experimented the fastest growing at the moment and it is expected to continuously increasing.

Telephone and data services do not vary much, regardless of which companies are selling them. For the most part, basic services are treated as a commodity.
Buyers are not usually tough, however, customers seeking low prices from companies that offer reliable service. The telecom industry is expected to always increase. The technology could be improved, change to new system that force companies to be constantly undated but it is not expected to be abandoned.

Bargaining power of suppliers: HIGH. The suppliers in this industry are those who provide the broadband switching equipment, fiber-optic cables, mobile handsets and billing software, but also, managers and engineers. We can say that suppliers power in some aspects of this industry is high. There are few dominant suppliers taking in consideration the limited pool of talented managers and engineers, especially those well versed in the latest technologies that place companies in a weak position in terms of hiring and salaries.

The brand of the supplier is very strong. You can think in the case of a highly-demanded fashionable phone (ex. Iphone) that is only offered by a company that have sign a contract of exclusivity with Apple. Just for that exclusive right to be the i-phone provider, the company will increased the number of customers who want to have an iphone. Their role in the quality of the service is also very strong. If a Company have a signal service that does not provide a good reception in a certain area, the customers who live there will switch for another company who provide better reception. As we saw before, in the case, for example, the phones supplier, is very easy to find a new customer, above all, when the product or service provide for the supplier is so demanded.

Competitive rivalry within an Industry: HIGH In the telecom industry, technological advances are crucial to have a competitive advantage in the market. Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits, until competitors imitate them. Rivalry will be more intense if there are equally size competitors, but in almost all African countries we find a clear market leader firm which dominated the market share. There are a few numbers of large firms worldwide that competes for the market share; this lowers the threat of rivalry. The firms that are in the business, however, fight to increase their market share and that increase the threat. The Industries that have a high fixed cost encourages competitor to manufacture at full capacity by cutting prices if needed. In this field, companies apply the vertical integration which is a strategy to reduce a business' own cost and thereby intensify pressure on its rival. Is not very hard to switch to another company, the rivalry among companies here is also high. Due to all companies which play in this industry play with huge amount of capital and pursue aggressive growth strategies, the barriers to leaving the industry are very high and competitors tend to exhibit greater rivalry. Accordingly, we can affirm that the telecom industry in Africa is very attractive.

APPENDIX 3