Telstra Expansion into India and USA - Case Study Example

Name Course Professor Date Contents Company Background and Introduction. 4 The United States Market Environment 4 Microeconomic Environment Analysis 4 Customers 4 Suppliers 5 Competitors 5 Intermediaries 5 The Public 6 Macroeconomic Environment Analysis 6 Political Factors 7 Economic factors 7 Sociocultural factors 7 Technological factors 8 Legal factors 8 Environmental factors 9 Market Structure 9 India Market Environment Analysis 12 Macroeconomic Market Analysis 12 Customers 12 Suppliers 12 Competitors 12 Intermediaries 13 The Public 13 Microeconomic Environment Analysis. 14 Political Factors 14 Economic Factors 14 Sociocultural Factors 14 Technological Factors 15 Legal Factors 15 Environmental Factors. 16 Market Structure 16 Conclusion 18 Works Cited 19 Telstra expansion into India and USA. Company Background and Introduction. Telstra is the largest telecommunication and media company in Australia. The company was founded in 1975 and as at the year 2015, the company generated an annual revenue of $25.5 billion. Some of the main operational activities for the company include building an operation of telecommunication networks, marketing and sale of many telecommunication products including pre-paid mobile phones and subsequent services such as internet access, and marketing and sale of entertainment products and services such as pay television. This paper focuses on exploring the company's expansion into the global market including the United States of America and India. Market screening and research are important for any company that looks to grow and expands into new markets. Market analysis involves an analysis of both the macro and micro-economic factors. The United States Market Environment Microeconomic Environment Analysis Customers The telecommunication industry in the United States of America had been changing based on consumer demands and preferences as more consumers are shifting to the prepaid services and mobile phones. Prepaid phones and prepaid services are the popular choices among mobile phone users in the United States and this will be an advantage to Telstra as it tries to expand into this global market. One of the reasons behind customer preference for the prepaid smartphones and its services is the lower costs compared to the postpaid and advanced functionality of the features in the smartphones. According to (Lasinskas, n.p), in the USA telecommunication market, approximately 28 million consumers possesses an unlocked device and this is critical to Telstra, which focuses on bringing its own prepaid devices to the market. Suppliers Suppliers have strong control in the United States telecommunication industry. Therefore, the suppliers will be essential in controlling the success of Telstra in the country. The suppliers are essential as a link in ensuring that the customers get value. Telstra has its own suppliers and the close relationship between the company and its suppliers will ensure success in the USA market just like the Australian market. Telstra has both the direct and indirect suppliers. Indirect suppliers deliver the raw materials to companies such as Samsung and these suppliers then provide the mobile phones to Telstra. The company also receives supplies from the indirect suppliers as it manufactures its own prepaid phones. Competitors The 21st-century global market is highly competitive and the telecommunication industry has grown to be one of the most competitive. Despite being a major force in Australia, Telstra will face strong competition in the United States Market. Some of the major competitors the company will be competing with include AT&T, Sprint, Verizon, Virgin Mobile USA, H2O Wireless, Airlink Mobile, Boost Mobile, Airvoice Wireless, JOLT Mobile, Liberty Wireless, Great call, and T-Mobile (Seidenberg, 27). These are some of the prepaid mobile device and services companies in the United States Market. With large market shares, excellent brand image, and established customer loyalties, these companies will offer Telstra high competition. Telstra will need good strategies that consider its competitor power to establish itself as a force in the competitive USA telecommunication industry. Intermediaries Just as in any telecommunication market, intermediaries are important; however, the availability of contracts in the USA market is a disadvantage to the telecommunication companies. The USA cell phone carriers such as AT&T and Verizon offer contracts that last for two years at $200 (Everett, 23). These contracts cut out the intermediaries in the market environment and thus there is no value addition to the customer through these intermediaries. Lack of value addition becomes a disadvantage to the company. The intermediaries in USA market, therefore, have a very minimal influence on the industry. The Public The public entails all the external people or groups that have a relationship with the company or are interested in the company’s operations. Telstra will have to work or operate considering the important groups in the USA. Some of the important groups in the country include the media, financial community including banks and insurance companies, the national and local government of where the business will be established, pressure groups, and consumer groups. These groups are essential to any business and therefore it will be critical for Telstra to establish a good working relationship with them if it is to be successful in the USA. These groups differ from country to country, for example, the media in the USA is more developed and wide compared to other countries. Such a scenario will mean that good media relations can promote the company and thus ensure successful introduction and growth in the USA. Macroeconomic Environment Analysis The main tool for analyzing the macroeconomic business environment is the PESTLE Analysis, which provides an analysis of the political, economic, sociocultural, technological, legal, and environmental factors. Below is the PESTLE Analysis for Telstra as it expands its prepaid mobile phone devices and services into the USA Market. Political Factors It is essential to first carry out an analysis of the political landscape of the new country which the company wishes to expand into since the political status in the different countries is not the same. The choice of the USA gives a clear picture that Telstra looks to focus on the capitalist nature of the country. The USA also exhibits political stability since it is a developed country and this will keep the company off losses in terms of product distribution. Nevertheless, there are always government regulations that always creates a differing opinion from the consumers and the service providers, which in this case is Telstra. Economic factors The major economic factors in the USA market that will affect Telstra include interest rates, taxes, inflation and exchange rates. The factors will greatly influence the managerial decision-making process and the overall company operations. The interest rates in the United States telecommunication industry are as high as 20% and this will have a great influence on Telstra’s cost of capital (National Research Council, n.p). Exchange rates will also affect Telstra especially the changing rates in the export and import of company products and prepaid wireless services. The taxation in terms of import and export of its products and services will affect the cost of production. Moreover, the risk of inflation though not frequently witnessed in the United States telecommunication market is an important economic factor to put into consideration as the company looks to expand its mobile phone products and services into the market. Sociocultural factors Major sociocultural factors to be considered in the USA market include population growth, cultural aspects, career attitude, age and other demographic factors that will influence the distribution of Telstra’s products and services in the country. An increase in demand for the prepaid mobile phone devices and services in the USA is an advantage to Telstra. The need and importance of telecommunication in the social life of every average citizen of the United States is a clear indicator that the market presence is available and expanding. Technological factors The technological requirements and needs for telecommunication products and services are advancing. Technology and innovation have become one of the main foundations to companies gaining an advantage competitively over the competitors. The transformation from the second generation to the third generation is an important technological development in the telecommunication industry (National Research Council, n.p). Telstra, therefore, needs to focus on innovation and advancing its technologies since the competitive USA market has competitors that are technologically advanced. Such technologies should be applied in both production and marketing including e-commerce, emailing to reduce communication barriers, and the 4G LTE wireless technology (Sanjay, 113). Legal factors The legislation is often present in all industries and the United States telecommunication industry is no different. Important legislation for the telecommunication industry in the USA include the Telecommunications Act of 1934 and the Telecommunications Act of 1996 (Hindin and Shumate, n.p). The main governing bodies and agencies include the Federal Communications Commission (FCC), which is the main body with primary jurisdiction over the whole USA communication industry. Other agencies include the Public Utility Commissions (PUCs), National Telecommunications and Information Administration (NTIA), and the Federal Trade Commission (FTC) (Hindin and Shumate, n.p). All these agencies and organizations have their own jurisdictions over the telecommunication industry and thus it is essential for Telstra to meet all the rules and regulations as required first before venturing into business in the United States market. Environmental factors The main environmental factors are the regulations governing the telecommunication companies in the company concerning the environment. The green technology is an important environmental strategy that has to be undertaken in all organizations including those outside the telecommunication industry. Company’s need to focus on climate change and global warming issues since they are currently the main environmental concerns globally. One important issue in the United States is the disposal of plastics and other waste products from the mobile phones. Telstra, therefore, needs to consider all essential environmental factors in the USA market before expanding its prepaid mobile phones and services into the market. Market Structure Just like any country, the telecommunication industry in the USA is undergoing many changes. One key reason is the dynamic nature of technology. With changes in the industry, there are also changes in the market in terms of market structure, which includes market share. The USA telecom industry is growing as shown by the fact that there is 10% annual penetration of smartphones into the market with consumers looking at their telecom devices an average of approximately 9 billion times a day (Lasinskas, n.p). There is also the niche market of telecom products such as smart watches and fitness bands. The continuous growth in smartphone usage in the USA market creates opportunities for the telecom companies. The large percentage of the smartphone usage growth has been attributed to the 45-54 and over 55 demographic age group that had in the previous decade lacked behind (Lasinskas, n.p). Age, therefore, becomes an important demographic factor in the industry as many companies use it to sell their products and services to the consumers. Below are images and charts of the Industry dynamics in the USA. The market share of subscribers for the major companies in the industries is a shown on the chart below: India Market Environment Analysis The Indian telecommunication industry especially the phone market is one of the fastest growing in the world (Knowledge, 90). Mobile subscribers in the country have grown from 2 million in 2000 to over one billion subscribers in 2016. Telstra has its services in India through a joint venture known as Bangalore but the company has not expanded its prepaid mobile phone products to the Indian market. Below are a macro and micro economic environment analysis of India in terms of mobile phones. Macroeconomic Market Analysis Customers As stated earlier, the number of mobile subscribers in India is over one billion and this creates a large market potential for Telstra. The customers in the Indian telecommunication market look at getting products especially the smartphones at lower costs. The total market sales for smartphones as at January 2017 in India is over 150 million. Suppliers Suppliers form a critical part of the chain in ensuring that customers get better value for their products. Telstra has its own suppliers and the close relationship between the company and its suppliers will ensure success in the Indian market just like the Australian market. Telstra has both the direct and indirect suppliers. Indirect suppliers deliver the raw materials to companies such as Samsung and these suppliers then provide the mobile phones to Telstra. The company also receives supplies from the indirect suppliers as it manufactures its own prepaid phones. Competitors The main competition for Telstra in the Indian market will be the major players, that is Idea, Tata Teleservices, MTNL, BSNL, Reliance Communications, and Airtel. Other domestic players in the mobile product and services industry include Intex, Lava, Karbon, and Micromax. These domestic competitors will offer high-level competition since they have diversified products lines thus introducing a wide range of modes with some even costing half the price of the regular Samsung, HTC, Sony, and Telstra models (Hines, 45). This strategy has enhanced the percentage market share of the players in the Indian handset market. Intermediaries Intermediaries play a very important role in the Indian telecommunication industry in terms of value addition to the products being delivered to the customers thus ensuring consumer satisfaction. Niche marketing is common in India and thus intermediaries will help Telstra in gathering important statistical market information, customer feedback, and gaining a consumer advantage over its competitors. Intermediaries are also essential in the company’s promotional activities. The Public Just as in the United States market industry, the public is the external groups that have a relationship with the company or are interested in the company's operations. Telstra will have to partake its operations with consideration to the important groups in the USA. Some of the important groups in the country include the media, financial community including banks and insurance companies, the national and local government of where the business will be established, pressure groups, and consumer groups (Booz and Company, 64). These groups are essential to any business and therefore it will be critical for Telstra to establish a good working relationship with them if it is to be successful in the Indian market. The different nature of these groups should allow the company to formulate strategies to deal with them. For example, the Indian financial community is an important part of the Indian economy and therefore Telstra needs to establish strong relations with these financial institutions to ensure that it properly establishes itself in the country. Microeconomic Environment Analysis. Political Factors Until today, India is still an unstable country politically and this has to be put into account by Telstra as it tries to expand its prepaid mobile phone business into the country. Changes in policies come with every change in the Indian government and the business sector including the telecommunication industry is affected (Booz and Company, 87). The country has always experienced internal political conflicts and thus it can be harmful to investment as it affects the government stability, which in turn affects the business industries (Kate and Leila, n.p). However, concerning wars relating to the political scene, there is no chance at any time and thus investing in India would be good for the company. Economic Factors Taxation is a major economic issue in India as the permitted composite FDI for cellular phones and value-added services are at 74%. Besides, there is full reparability of invested capital and dividend income for the telecommunication industry in the country. Exchange rates will also affect Telstra especially the changing rates in the export and import of company products and prepaid wireless services. The exchange rates of the currencies will be a major challenge since with the unstable government, the rates are often fluctuating and this often hampers the telecom industry, which is where Telstra's operates. Sociocultural Factors The age distribution as a demographic factor is an important social factor in India as witnessed through the other telecom giants operating in the country, which sell the telecom products based on the age distribution. Social welfare initiatives will also be key for success in the Indian Market, many telecom companies take part in these initiatives and it would be important for Telstra to perform social welfare activities. Other essential social factors include the changing preferences and tastes of the consumers and this can lead to price wars between companies. Another is the changing consumer buying pattern in the Indian market. Technological Factors The technology in India is growing and is also being replaced at a fast rate. Besides, the Indian government has invested in research and development of the telecom sector and this will be of much benefit to Telstra (National Research Council, n.p). The niche market of the 3G, 4G, and broadband services will provide an opportunity for the company. In terms of technology concerning the telecom industry, India is doing good and this will not be an issue for the company. Legal Factors Until 1985, the Indian government provided the telecommunications monopoly through the Wireless Telegraph Act of 1932 and the Indian Telegraph Act of 1885. The National Telecom Policy 1994 and the New Telecom Policy 1999 are the current policies that set the rules and laws that govern the telecom industry in India. Apart from policies, several agencies and bodies are also essential in ensuring that the telecom industry players follow the rules and laws. The Ministry of Communication through the Department of Telecommunication is one of the bodies that regulate the telecom industry in India. Another is the Telecom Regulatory Authority of India (TRAI), which was established in 1997 and supports the Indian telecom legal framework (Kate and Leila, n.p). Environmental Factors. Radiation issues from cellular phones are one of the main environmental issues affecting telecom companies not only in India but also in the whole world. Radiation from the mobile phones has been discussed to cause health problems such as cancer and brain tumors (Reuters Online, n.p). Apart from radiation, issues of waste disposal especially the plastics also from environmental concerns for telecom companies as the world looks to work together to tackle climate change and global warming. Market Structure As at 2012, there were approximately 900 million mobile network connections and this ranked third in the whole world. With a growth rate of 40-50% annually, the Indian telecom industry is one of the largest and fastest growing industry in the world (Manas, 76). The basic classification of the mobile phone market in India is as shown below: The mobile phone industry in India has evolved to the use of retail channels, which is different from the traditional model of tried and tested channels (Daniel, 15). The handset and SIM card sales are still held the majority of the mobile retail sector. However, a significant increase in the use of data has created a major business opportunity for the telecom companies. The value added services have also recently increased its hold in the Indian telecom industry with the demand for applications for smartphones increasing by the day. Companies in the telecom industries have therefore expanded beyond the provision of the mobile phone devices to the provision of this value-added services, which include the creation of mobile applications. The players in the Indian telecom market use the demographic factor of age in terms of products and service distribution (Daniel, 37). Companies such as Idea, Airtel, and Vodafone are selling depending on the age distribution. The smartphones and data services are mainly designed to suit the younger generation while the adults are designed to use the other regular phones and their main advantage regarding service comes in terms of low call rates. The chart below shows the market share distribution of smartphones in the country. It is evident from the chart that Nokia and Samsung are the major market shareholders in the Indian market but the domestic companies have been making inroads into the industry. The domestic players in the mobile product and services industry include Intex, Lava, Karbon, and Micromax. These domestic competitors will offer high-level competition since they have diversified products lines thus introducing a wide range of modes with some even costing half the price of the regular Samsung, HTC, Sony, and Nokia. Conclusion In conclusion, for Telstra to expand into the Indian and USA markets it will be important to consider all the market analysis including the internal and external factors that affect these markets before venturing into them. A microeconomic environment analysis provides the factors that will affect the company concerning the suppliers, customers, the public, intermediaries, and competitors. All these factors for the USA and Indian market are analyzed. Moreover, a macro environment analysis, which is carried out using the PESTLE model, is done for both countries. These political, economic, sociocultural, legal, and environmental factors will affect the company in these markets. It is therefore essential that Telstra focuses on this market screening and research report as it looks to expand globally into the two markets, India and USA. Works Cited Booz & Company. Bringing Mass Broadband to India: Roles for Government and Industry. 2010. Daniel, P. “The Growth Debate – China & India,” B2B International. 2007. Everett, B. “The encryption conundrum,” Network Security 4 (2012): 15-18. Hindin, J. and Shumate, B. “USA: Telecoms, Media & Internet 2017,” International Comparative Legal Guide. 2016. Retrieved online on 31 May 2017 from https://iclg.com/practice-areas/telecoms-media-and-internet-laws/telecoms-media-and- internet-2017/usa. Hines, M. “Report: Pricing, Not Multimedia, Drives Wireless Uptake.” [Online]. 2006. Retrieved online on 31 May 2017 from: http://www.eweek.com/article2/0,1895,1933328,00.asp. Kate, H. and Leila, A. “License scandal rattles India's Telecom nirvana,” Reuters, 2012. Knowledge, Faber. Indian Telecom Equipment Manufacturing: Current State and Potential Future Opportunities. 2009. Lasinskas, J. “Growing Popularity of Prepaid Mobile Services Reshapes US Telecommunications Market,” Euromonitor International. 2014. Manas, B. “Telecom Sector in India: Vision 2020,” submitted to the Planning Commission of India as a part of the series - Background Papers: Vision 2020. 2001. National Research Council. “The Importance of Telecommunications and Telecommunications Research,” Renewing U.S. Telecommunications Research, Washington, DC: The National Academies Press, 2006. Sanjay, K. Business Models for Sustainable Telecoms Growth in Developing Economies, Hoboken, NJ, USA: Wiley, 2008. Seidenberg, I. “Telecommunications: Delivering innovation to our customers,” Vital Speeches of the Day, 2002, 69(1): 26-29. Reuters Online. ‘Long-term mobile phone use raises brain tumor risk: study,’ Reuters, 2006. Retrieved online on 31 May 2017 from: http://go.reuters.com/. Read More