Southern Cross Telco Companies: Analysis of Opportunities for Exporting Services to Foreign Markets - Case Study Example

Export Report for Southern Cross Telco Companies: Analysis of Opportunities for Exporting Services to Foreign Markets Name: Course: Institution: Tutor: Export Report for Southern Cross Telco Companies: Analysis of Opportunities for Exporting Services to Foreign Markets Introduction The report tat follows presents a critical evaluation of the possibility of Southern Cross Telco exporting its services to foreign countries. The report has evaluated the attractiveness of three foreign markets: the United States, New Zealand and India and includes the dominant economic characteristics of each market and the potentials for industry growth. 1. Company and Service Situation Analysis 1.1 Product Profile Southern Cross Telco is an Australian telecommunication company that offers internet, mobile phone and landline service. The company’s corporate headquarters are in Tasmania but it has a nationwide presence. Although Southern Cross Telco offers internet and landline telephone services in addition to mobile phone services, the latter is the most important component of its business (Sothern Cross Telco). Like the internet, the mobile phone market is increasing at a very high rate with today’s ever-increasing technology. Essentially, the Australian mobile phone industry has shown the potential to grow because of the major improvements in the country’s telecommunication infrastructure. Generally, Southern Cross Telco’s biggest business changes have been necessitated by changes in personal communications, particularly with the use of mobile phones. Today, mobile phones have gained massive coverage in Australia and the rest of the world and are used by large percentages of the population for business and personal communications. By investing in mobile phone services, Southern Cross Telco sought to increase its market share. The company’s mobile phone services are available countrywide and are fast, simple and realizable. In addition, the company sells mobile phones from selected manufacturers, which adds to its core business potentials. 1.2 Target Market Profile Mobile phone services have attractive market targets that transcend all demographic, social and economic divides. In Australia, there are about 14 million mobile phone subscribers (The Australian Bureau of Statistics, 2010). With the list of services and applications that can be done through mobile phones ever increasing, mobile phones have become not only a luxury but also a necessity. As such, individuals, families, businesses and government agencies are potential target markets for the company’s servicers. Because of the intense competition in Australia’s mobile phone service industry, Southern Cross Telco has developed unique products to target special market segments. These unique products include special off-peak call rates targeted at consumers with low household income and special call rates on certain days such as holidays. This targeting strategy has given the company a competitive edge in the domestic market and is one of the factors that have enabled the company to cut a countrywide presence (Parham, 2002). In addition, Southern Cross Telco also targets special mobile user groups such as those communities living in remote parts of the country. For this target markets, the company offers affordable call rates and this has proved a good strategy for increasing market share. Essentially, the need to attract, leverage and retain customers remains a primary concerns for Southern Cross Telco’s aggressive and strategic market targeting strategies. In addition, revenue growth through customer acquisition and retention is an important consideration in the company’s strategic targeting. Customers especially in Australia count on the speed and reliability of service delivery as a major reason for doing business with a company (Deloitte, 2012). They also want consistent and easy to use services. These considerations are the major factors behind Southern Cross Telco’s marketing strategy. 1.3 Industry Analysis Australian consumers are recognized as rapid adopters of technology and their preference for mobile technology has been no exception. Currently Australia has more than 14 million mobile phone subscribers. This big number of subscribers (more than half the country’s population) indicates that mobile phone services make a critical contribution to Australia’s economy (Harcourt, 2005). The industry’s growth is the fastest as investors continue to commit more capital investments to support new networks and expansion programs. Regarding market competition, Australia’s mobile telephone service industry is dominated by three major companies: Telstra; Optus and Virgin Mobile Australia. Telstra is the leading mobile service provider and offers the largest fully integrated IP networks in the country. Optus and Virgin Mobile Australia are the second and third largest mobile phone operators respectively. There are however, numerous other small mobile phone operators which account for a small but substantial market share. In 2010, the industry contributed over AU$11billion and this is expected to show substantial increase into the future. Following the introduction of lower network termination rates and decreasing costs of monthly mobile subscription to consumers, the number of mobile phone subscribers is expected to grow and hence the attractiveness of this industry will also grow significantly. 1.4 Company SWOT Analysis Strengths i. Strong reputation of excellent coverage throughout Australia. ii. Robust network and fast growing subscriber base. iii. Strong financial performance with leading customer base. iv. Diversified business (internet, landline telephone and handset retailing). v. Keeping up with high technological advancements. vi. Southern Cross Telco has a strategic vision of integrated communication solution to customers at any place where they are any time. Weakness i. Currently, the company’s network is only restricted within Australia although it does not cover every part of the country. ii. The company has high price voice plans in comparison with some of its competitors. iii. No true unlimited subscription. iv. Lack of bandwidth expandability. v. Not a major player in the industry vi. Less number of customer care centers compared to its competitors. Opportunities i. Chances for further consolidation in the industry ii. Increasing demand for mobile telephone and wireless broadband applications. iii. Opportunities for a acquisition of smaller regional operators and further consolidation in the industry. iv. The company has opportunities to expand into new markets especially international markets. v. Increase the number of cell towers to have fewer drop calls. Threat i. The domestic and global mobile telephone market is oversaturated and this presents challenges for the company’s expansion programs. ii. Rapid technological changes mean that some of the company’s services may become obsolete. iii. Unfavorable regulatory frameworks in some territories present further obstacles for the company’s business planning. iv. VoIP has emerged as a new technology that competes directly with wireless businesses. v. Mobile malware and safety concerns are also a major threat facing the company. 2. Global Market Research: Analysis of Potential Country Attractiveness i. New Zealand Owing to its closeness and strong political, economic and cultural ties with Australia, New Zealand presents a lucrative international market where Southern Cross Telco can export its services to. Economically, New Zealand is a highly developed economy. It is politically stable and encourages foreign investment (Dalziel, 2002). There are a number of important economic indicators which make New Zealand stand out as a foreign investment destination of choice. The country has 4.5 million people with an annual growth rate of 0.3%. As of 2011, the country’s nominal GDP stood at NZ$200,000 million with an annul growth rate of 3.1%. Real GDP was NZ$140000 and an annual growth arte of 1.7%. This makes its real GDP per capita to be NZ$ 32000. During this period, inflation rate was 1% and unemployment 6.8% (Phil, 2006). In addition to the above statistics, the government of New Zealand has made substantial investments in the country’s basic infrastructure to make the country suitable for foreign investment (Rudman, 2009). Essentially, the transportation, electricity and water and sanitation networks have been significantly modernized. Moreover, the government has cultivated strong economic ties with leading economic giants regionally and internationally. Regarding telecommunication infrastructure, New Zealand has developed a profitable and fast-growing telecommunication industry. Currently, mobile phone and internet penetration in New Zealand is the highest regionally (Zeng, 2008). ii. India India is an emerging economic giant and is fast gaining world-wide recognition as a foreign investment destination. Over the past one decade, global investors have retained their confidence in the resilient Indian economy even during the hardest of economic times. As a result, India enjoys high foreign investments and is projected to score higher in the coming years (Balasubramanyam & Sapsford, 2007). India is the second most populous country in the world. In 2011, India had 1.21 billion people, with an annual growth rate of 1.7%. The government is however taking various measures to cap further population growth (Basu, Nayak & Archana, 2007). India is ranked as the ninth largest economy, and in 2011 its nominal GDP was US$1.67 trillion with an annual growth rate of 5.5%. Inflation stood at 10% and unemployment 9.8%. Except for occasional tensions with Pakistan, India is politically stable and encourages religious and racial tolerance despite its huge population of Hindu followers. Technologically, India is a fast developing country (Chandan & Nunnenkamp, 2006). In spite of its high population and low per capita income, India has remarkably improved its logistics and distribution systems to encourage diversified investments in the country’s economy. The most interesting thing about India’s telecommunication industry (particularly the mobile phone service market) is that it is one sector in the country’s integrated economy. The past few years have seen the government relax regulatory and legal constraints on the industry to enable it develop into world class standards (Dunning, 2004). This has served to provide an ideal investment environment with minimum legal and political challenges. In addition, the government has taken numerous proactive steps to facilitate the rapid growth of the telecommunication industry. The booming domestic market for mobile phone services continues to attract huge amounts of investments and this will accelerate with the entry of new investors and the launch of new services (Gazioglou & McCausland, 2001). iii. The United States The United States is a large country with unmatched levels of economic development. The country has more than 300 million people, majority of whom are in the middle class of the economy. Therefore, most of the United States population has the purchasing power to consume mobile phone services (Benjamin, 2006). The United States has developed good trade and political relations with most countries and is founder member of numerous regional and international trade agreements. In the past few years, the government has developed a modernized network of telecommunication systems including internet and mobile phone technologies. In addition, the country’s transportation, telecommunication and health services are highly developed (Bertram, 2009). Over the years, the United States has maintained its status as the world’s largest economy and a leader in technological innovations. For this reason, most businesses operate at reduced costs in the United States than in many other countries. Because of its close economic cooperation with other countries, the US government encourages foreign investment in various sectors of its economy (King & Greg, 2006). The country’s political stability and absence of government control of prices is a good incentive for foreign companies to export services to this economic giant. Although there are many companies offering mobile phone services in the United States, Southern Cross Telco can export its services to the country and fit into the competition by offering unique and strategically positioned services (James, 2012). Recommendation and Conclusion Of the three markets above, India is the best markets for Southern Cross Telco to import its services. India’s telecommunications market is fast growing and registers about 5 million new subscribers every month. India has favorable demographics to guarantee successful foreign investment in its telecommunication industries. The wireless telephone subscriber base was 545 million in 2010 with a monthly growth arte of 3.79%. Currently, India’s wireless tele-density stands at 65%. This is in fact the second highest in the world after China. Major players in the telecom sector include Bharti Airtel, Vodafone, Tata, Idea and BPL. The high level of competition in the industry has resulted in the provision of prompt services to the subscribers. Because of India’s low tariff environment and relatively low rural penetration rates, the demand for mobile phone services in India will continue to remain high, at least in the foreseeable future. The industry’s improved competitive scenario as well as the commodization of telecom services has led to reduced bargaining power of the for telecom service providers. In view of these considerations, Southern Cross Telco stands to make substantial profits if it exports its services to India. References Balasubramanyam, V & Sapsford, D 2007, “Does India need a lot moreFDI”, Economic and Political Weekly, pp.1549-1555. Basu, P., Nayak, N & Archana, H 2007, “Foreign Direct Investment in India: Emerging Horizon”, Indian Economic Review, Vol. XXXXII. No.2, pp. 255-266. Benjamin, J 2006, The Future of Money," the dollar is the de facto currency in Cambodia", Charles Agar, Frommer's Vietnam, 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. 45-78. 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