Adams Internet - Product Description and Analysis of the Domestic Industry - Case Study Example

Name) (Course) (University) Date of presentation: Lecturer: Synthesis of Final Report Introduction and Company Background Adams Internet is an information and communication technology firm based in Australia. The company offers internet services to businesses and individuals mainly in Australia’s southern states. Having been in the industry for about three decades, it has developed the necessary capacity to expand the scope of coverage to other parts of Australia as well as foreign countries (Adam Internet, 2010). The company uses different technologies to allow customers communicate through its network. Because of its superior and efficient services, there are many benefits that the company can gain by exporting its services to foreign markets. These benefits include reduction of business risks, increased sales revenue and profitability, economies of scale and balancing of growth. The high risks inherent in the domestic market can be significantly neutralized by exporting services to foreign markets. Product Description and Analysis of the Domestic Industry The internet is a new form of telecommunication technology and is rapidly gaining popularity across countries. It is a cheap means of communication, convenient and quite flexible unlike other means of communication. The company, Adams Internet, provides its services to individuals, government agencies, households and businesses in Australia. Consumers make subscriptions for data packs, which generally retail lower than what most competitors offer. Two important trends that have impacted on the company’s product development are the increasing popularity of social websites and the increasing use of mobile technologies. In the recent years, internet usage has soared in Australia with most people using it on a daily basis. To ensure efficient service delivery, Adam’s Internet works in close collaboration with other internet service providers. Analysis of the domestic market reveals that Australia has more than 12 million internet users and the number is increasing on a daily basis. The Australian government has long recognized that a stable telecommunication infrastructure is critical to realization of the country’s economic objectives. Accordingly, the government has more than doubled its resource allocation into the development of an enabling infrastructure including internet and mobile technologies (Parham, 2002). In the recent years, Australia’s internet industry has been recognized as the most competitive and fastest growing industry contributing about 50 billion dollars to the country’s GDP. In addition, the internet industry is one of the emerging employers which have enabled the development of other businesses such as electronic commerce. An important concern for many industry players is that the internet industry is subject to constant change as market dynamics and consumer preferences change. Therefore, industry investors are making efforts to master the ever changing demands of technological and regulatory challenges in the industry while also trying to be transparent and innovative (ABS, 2007). Adams Internet’s Strategic Competencies and Resource Capabilities for Exporting Services Adams internet is a well established business and has been offering services for close to three decades. During this period, the company has developed a unique market niche and has mastered customer characteristics and market dynamics. The company’s services are reliable, efficient and relatively cheap. It has established a reputable brand name for its services and hence does not require much advertising especially in southern Australian where its services are concentrated. Another important strategic competency is that the company operates on a simple business model which allows it to give excellent services to customers without any difficulties. In addition, it has managed to minimize operation costs by relying on low-cost web servers. Adams internet has a well dedicated and talented research and development team which initiates development and implementation of new services. Because it relies on state-of-the art technologies, it offers services at significantly reduced prices. This has in turn enabled the company to expand its market scope by admitting more and more customers. Considering that internet is a fast growing industry, Adams Internet is well positioned to reach out to new market segments by creating new services. The company has opportunities to reduce adverse market competition by making acquisitions and joint ventures with rival firms. Country Analysis i. The United States of America The United States has developed one of the most stable economies in the world. Technologically, the country is highly advanced and has favorable demographic characteristics. With a population of about 350 million people and an annual growth rate of 0.2%, the United States is a major consumer of many services and products. The United States pursues the free enterprise system of economy and hence businesses are free to conduct their investments without unnecessary interference from the government. A key consideration that makes the United States a good destination for foreign investment is that the country has good political and diplomatic relations with other countries. In addition, the country enjoys favorable internal political stability (James, 2012). The United States is a founder member in various international trade agreements including NAFTA. It has developed a modernized and a very comprehensive network of telecommunication systems based on the demands of 21st century communication. Throughout much of the United States, health, transportation and energy infrastructures are well developed. The country’s legal and political constraints have been significantly relaxed making the country a favorable foreign investment destination. The government does not exercise price control on telecommunication industry (Benjamin, 2006). Despite the obvious attractiveness of the United States for foreign investment, there are some factors which make it less attractive for Adams Internet. One of these factors is that the US telecommunications industry is highly saturated with many well established domestic and foreign companies. In fact, the industry is dominated by big multinationals which have the necessary resources to pursue new markets (King & Greg, 2006). Considering that Adams Internet is a small company, it lacks the capacity to compete with these established competitors. Another factor is that because of the stiff competition in the telecommunication industry, the government imposes heavy taxes on new businesses especially foreign investors. This can be quite discouraging for a foreign company wishing to export its services to the US. Compared to other countries such as China, the US has a relatively small population and hence its market is not favorable (James, 2012). ii. China China is a very big country with one of the fastest growing economies in the world. As of 2010, China had a population of 1.3 million people. Thus, its demographic characteristics are very much favorable for foreign investors wishing to export services into the country. Over the last few years, China has developed the second largest economy in the world with a very large number of consumers. As a result, China has become the most important foreign investment destination for many multinational companies. China has greatly improved its logistic and distribution systems to encourage more and more foreign companies to invest in the country. In addition, the government has taken considerable efforts to modernize the country’s telecommunications infrastructure (Bai, Yingjuan, Zhigang & Sarah, 2002). Although China has achieved impressive economic growth, a large number of its people still live in rural areas and have no access to the country’s main infrastructural network. As a matter of fact, internet penetration in most of China’s rural areas is still very low. This is because most of the people who live in rural areas are low income earners and hence do not have the purchasing power to subscribe for internet services. This consideration together with the low cost of living in China presents a profitable market for investment in the internet sector, which Adams Internet can pursue. When China joined the WTO in 2001, it opened its domestic markets for foreign investors. The county has since then relaxed trade barriers on foreign firms and for this reason it is recommendable for Adams internet to export its services to China. In addition, China maintains good economic and political relations with its neighbors and other countries including Australia, which it considers as a major trading partner in the Asia pacific (Reynolds, 2007). iii. New Zealand New Zealand shares lots of political, cultural and economic similarities with Australia. It has developed a very stable economy because of its close associations with the economic giants of Europe and North America. Over the years, the government of New Zealand has been encouraging foreign investments in various sectors of its economy. To this end, the government has developed a highly modernized infrastructural network to support the needs for meaningful foreign investment. As an example, New Zealand’s telecommunications industry is very much modern and covers all parts of the country. This is an important opportunity which Adams Internet can easily take advantage of (Dalziel, 2002). Being a liberal democracy, New Zealand has for a long time enjoyed political stability hence there are virtually no political risks for foreign investors. However, compared with either the United States or China, New Zealand has many disadvantages which make it less attractive for Adams internet. For instance, New Zealand has a very small population; only 4.5 million people. Considering that there are already many market players in its telecommunications industry, the small population is a discouraging factor. The small population means less revenue and high operating costs, which in turn means profit risks (Rudman, 2009). It can indeed be difficult for Adams Internet to realize its profit objectives in this small market. In addition, the New Zealand government imposes heavy taxes on foreign investors to avoid oversaturation of it domestic markets. This factor can also discourage Adams Internet from investing in the country (Phil, 2006). Selection and Analysis of Target Market Compared to New Zealand and the US, China is the most profitable market where Adams internet can export its services to. Essentially, China has favorable demographics, technological and political characteristics to attract foreign investments in a various sectors of its economy. As a matter of fact, the Chinese government has committed hefty resources in the last three decades into the development of the country’s infrastructure. Another factor that makes China an attractive destination for foreign investment is the availability of capital (Cheng & Kwan, 2000). In early 2000s, China overtook the US as the largest recipient of foreign investment in the world. China’s thriving economy, bursting capital markets and a profitable business environment have created vast swaths of investable capital, which has been used to improve infrastructure in the country. This has made China the most stable emerging and developing economy in the world (Harcourt, 2005). Another reason why China remains the only viable for Adams Internet’s foreign investment ambitions is that it has a very competitive internal economic environment. Ideally, China’s attractiveness for foreign investment rests on the availability of rich resources (labor and physical), the development of infrastructure, the development of business value chain as well as improved productivity and workforce skills (Zeng, 2008). These elements have significantly matured to make China’s attractiveness for foreign investment m more impressive than other nations such as India, which is also an emerging economy. Because of these elements, transaction costs have considerably declined in the past ten years, enabling foreign investors to earn good returns on their investments. Highways, roads and other forms of physical infrastructure have been upgraded to provide sufficient and ease transportation of goods. In addition, the availability of skilled, low-cost employees who possess the necessary motivation, experience and aptitude to manufacture and provide goods and services that compete globally is another factor that contributes to China’s attractiveness (Pei, 2001). According to Bertram (2009), China has in the recent years moved to relax its regulatory environment by enacting and enforcing rules and policies that favor foreign investments. Such an environment has been influential in attracting foreign direct investments in the country. Before joining the WTO in 2001, China had excessive regulations which hindered commercial and entrepreneurial activities as investors spent more time complying with bureaucracies. Today, any investor willing to set up manufacturing facilitates in China readily enjoys low-start up costs, transparency in legal processes and less compliance items which encourages foreign investors. The Chinese government also promotes investments by providing attractive financial investments in the form of grants, tax breaks, subsidies and low-interest loans. Additionally, government sponsored inducements provide opportunities for businesses to reap hefty profits in the shortest period of time possible. The country’s judicial system favors all businesses, both domestic and foreign (Bai, Yingjuan, Zhigang & Sarah, 2002). The most glaring aspect of China’s foreign investment attractiveness is the large size of its population and ready market. As the country’s economy continues to prosper and mature, high end industries including telecommunication continue to play a fundamental role in the lives of the people. Essentially, the more the country attracts foreign investments, the more it grows economically. This consideration underscores the significance of China’s big market, which presents profitable opportunities for foreign investors in the current and prospective activities. The country’s export-friendly policies continue to play a big role in attracting foreign investments into the country. In an attempt to create a more investment-friendly environment, international and regional free trade agreements have been initiated by the government as a viable mechanism for inducing rapid economic growth (China Customs Bureau, 2009). Analysis of Entry and Distribution Strategy There are many strategies that Adams internet can pursue in an attempt to enter the Chinese market. The choice of the best strategy depends on several factors including: time frame for entering the market; a firm’s resource capabilities; commitment to entering the market; the demand for products and the perceptions of the customers. In light of these considerations, the best entry strategy for Adams Internet is joint venture. This entry strategy is largely a partnership in which parties agree to operate as a joint legal entity. This important strategy will have many benefits for Adams Internet. One such benefit is increased flexibility in asset restructuring and management and organization of the venture (Deloitte, 2012). Moreover, a joint venture will enable Adams Internet to recover registered capital throughout the life of the contract. In China, as in many other countries, joint ventures are quick to form and can be dissolved with minimal restrictions. This consideration is essential because Adams Internet is a relatively small business and will be keen in exploring risks in the Chinese market. There are well established internet providers that Adams Internet can form joint ventures with. A joint venture will allow Adams internet to avoid competition in the vast Chinese market while also developing its own market niche (Lymbersky, 2008). Conclusion The Chinese market is the most attractive foreign investment destination where Adams Internet can export its services to. In the last two decades, the Chinese economy has undergone massive expansion to become the second largest in the world. China has the largest population in the world which means a ready market for foreign investments. In addition, the government has considerably relaxed political and regal regulation son foreign investments as an incentive to lure foreign investors in to the country. The country’s internal political stability and favorable trade and diplomatic relations with other countries are other factors that make China the best foreign market for Adams internet. References Adam Internet 2010, Adam Internet, viewed 24th Sept. 2012 from http://www.adam.com.au/residential. Australian Bureau of Statistics (ABS) 2007, Household Income and Income Distribution, Australia, 2007-08, viewed 24th Sept. 2012 from http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6523.02007-08. Bai, C., Yingjuan, Zhigang, T and Sarah, T 2002, Geographic Concentration in China’s Industries: Evidence for Conventional Theories and Local Protectionism, Mimeo, University of Hong Kong. Benjamin, J 2006, The Future of Money, "the dollar is the de facto currency in Cambodia", Charles Agar, Frommer's Vietnam, 2006, ISBN 0-471-79816-9, p. 17. Bertram, G 2009, "The banks, the current account, the financial crisis and the outlook", Policy Quarterly, vol. 5, no. 1, p. 23-67. Cheng, L.K. and Kwan, Y 2000, What Are the Determinants of the Location of Foreign Direct Investment? The Chinese Experience, Journal of International Economics, vol.51, p. 379-400. China Customs Bureau 2009, Customs Bureau, viewed 23 September 2012, http://english.customs.gov.cn/default.aspx Dalziel, P 2002, "New Zealand's Economic Reforms: An assessment", Review of Political Economy, vol.14, no. 1, p. 31–45. Deloitte 2012, Switching Channels: Global Powers of Retailing 2012, STORES, January 2012, G20. Harcourt, T 2005, Closer Economic Relations, Australian Trade Commission Website. James, K 2012, Foreign Direct Investment in the United States: An Economic Analysis. 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Zeng, M 2008, "Bailout Funding Promises To Pressure Treasury Prices", The Wall Street Journal. Zittrain, J and Edelman, B 2003, Internet Filtering in China, Harvard Law School Public Law, Research Paper No. 62. Read More