International Business - Southern Cross Telco - Case Study Example

IB Report Name: Course: Institution: Tutor: Final Synthesis of the International Business Report Selection of Target Market Of the three potential markets that were identified in parts 1 and 2, India stands out as the most profitable for Southern Cross Telco to export its services. There are a number of characteristics which make India an attractive destination for not only Southern Cross Telco but also any other foreign company that wishes to export its services abroad. First, India is a vey large country with a large population. Over the last three decades, India has been modernizing its economy and is now among the top ten largest economies in the world. The infrastructural network has been modernized through series of economic reforms which the government initiated in early 1990s (Datt & Sundharam, 2009). Secondly, India has stable political and legal systems which provide the necessary climate for foreign investment. It has more than 1.1 million people, making it the second most populous country in the world. This means that India has a large number of consumers, which is an essential condition for foreign investment. Unlike either the US or New Zealand, India is a developing economy; a large number of its people are low income earners and still live in rural areas. Much of India’s rural areas are poorly connected to the country’s main infrastructural network. There are thus potentials for more investments to be made in rural areas to create regional balance (Roy, 2006). Since gaining independence from the British in 1947, India has maintained good diplomatic and trade relations with virtually every country. This explains the large number of foreign direct investments inflows that the country gets. Most importantly, the Indian economy is developing at a very high rate and hence millions of people are likely to transit into the middle and upper income brackets. This implies that more and more people will have the purchasing power to consumer products and services that were hitherto considered luxury (Raychaudhuri and Habib, 2004). Analysis of the Structure and Competitiveness of India’s Telecommunications Market The basic telecommunications market in India is dominated by 4 main companies. In certain segments of the market, there are only two suppliers. In this kind of market, entry and threat of entry are crucial to the profitability of existing firms. It is a highly regulated industry and services are generally non-tradable. Any foreign company that wants to enter the Indian telecommunications market can only do so by foreign direct investment. According to the current Indian FDI regulations and laws, foreign investors who want to enter the telecom market must form a joint venture with domestic companies. In addition, majority foreign ownership is forbidden. Therefore, Southern Cross Telco has no option but to enter the Indian market through a joint venture with a local firm (Balasubramanyam & Sapsford, 2007). Nevertheless, India has to open its markets to foreign competition according to its WTO commitments. That notwithstanding, India will not allow foreign competitors to have more than 49% ownership in any joint venture. This restriction ensures that foreign companies are both partners and competitors of the domestic firms in the market. Generally India allows foreign firms to invest in certain areas although geographic restrictions have been removed. A good thing is that foreign investors are allowed to provide all sorts of telecoms services including paging, internet and mobile and fixed-line services. While pure foreign entry is not likely to be guaranteed in the near future, domestic entry is easy. In general, there are not many barriers to entering the Indian telecoms market. Any foreign company that wants to invest in the market must obtain a license from the government. Government services have been streamlined and it is relatively easy to obtain the license and other documentation. Target Market Potentials The telecommunication market in India is vey attractive with over 600 million active subscribers. The number is increasing steadily at a growth of about 10% per month. With the list of services and applications that can be done through mobile phones ever increasing, telecommunication technologies have become not only a luxury but also a necessity (Sachs, 2002). As such, individuals, families, businesses and government agencies are potential target markets for the company’s servicers. Because of the intense competition in India’s telecommunications industry, Southern Cross Telco will have to develop 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 will give 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 (Panagariya, 2008). In addition, Southern Cross Telco will have to target special mobile user groups such as those communities living in remote parts of the country. For this target markets, the company will have to offer affordable call rates, which will be 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 India count on the speed and reliability of service delivery as a major reason for doing business with a company. They also want consistent and easy to use services. These considerations are the major factors behind Southern Cross Telco’s marketing strategy as it enters the Indian market (Deloitte, 2012). Strategies for Entering the Indian Telecoms Market By all standards, India’s telecommunications market is very competitive although it is still attracting more and more investors. There are four important strategies that will impact greatly on Southern Cross’s Telco’s successful entry into the Indian market. These strategies are related to distribution, exchange rate, marketing, cultural integration and corporate social responsibility. Designing the right distribution strategy is critical to the success of any foreign investment. A distribution strategy not only provides the vehicle for getting the products or services to the customers but also influences how the products or services are promoted to the potential customers (Basu, Nayak & Archana, 2007). While there are numerous distribution strategies that Southern Cross can employ in order to effectively penetrate the Indian telecommunications market, it is imperative for the company to make decisions about the cost implications and efficiency of alternative strategies. Considering the situation in India the best strategy that the company can use to distribute its services in the Indian market is joint venture. A major advantage of a joint venture as an entry strategy is that it provides excellent opportunities for rapid expansion without enormous capital outlay. This form of distribution strategy can enable Southern Cross Telco to achieve rapid market penetration in India. In addition to the entry strategy, it is important for Southern Cross Telco to protect its businesses against currency and exchange rate risks. Exchange rate risk refers to the risks arising from changes in the value of one currency against the other. This risk should be mitigated in order for a foreign investment to realise its short term and long term profit objectives. In order to avoid the adverse impacts of the exchange rate risks, it is advisable for Southern Cross Telco to set its prices in the Indian currency (rupee) if it exports its services to India. This means that it will charge its customers in the local denomination. A major benefit of this strategy is that the company’s revenues will not be affected adversely as a result of changes in the value of the local currency (Bertram, 2009). Besides securing exchange rate risks, there are other important financial tools that the company can use to mitigate the risks of exchange rates. These include currency options and spot foreign exchange. Currency options refer to the right to sell a certain amount of currency at a specific exchange rate before a specified future time. On the other hand, spot foreign exchange refers to an obligation to sell specified amount of currency at current market rate to be settled in few days. These tools can help Southern Cross Telco circumvent the risks of currency exchange inherent in the Indian market (Benjamin, 2006). There are various ethical responsibility issues related to successful investment in India. One of these issues relates to honesty and quality of services and products. As Southern Cross Telco sets out for the Indian market, the company should ensure that it offers services that are honest, of high quality and capable of meeting the needs of its potential customers. Secondly, the services should be affordable and should reflect general prices in the industry. In India, it is a crime for businesses to charge their customers exorbitantly. Another important ethical issue that the company will be faced with is the need to contribute to charity organizations and other worthy social causes. This is not a statutory requirement but is a good strategy for reaching out to the society and hence potential customers (Dunning, 2004). Because of the stiff competition in the Indian telecoms industry, a good marketing strategy is necessary for effective market penetration (Chandan & Nunnenkamp, 2006). This means that Southern Cross must select the best market mix to enable its businesses take roots and be adopted in India. The first step that the company should take in developing a marketing strategy for its business is to create a solid brand name. This will entail creating brand messages and campaigns that can stick with potential customers long after they hear the marketing messages. The company’s brand messages can be communicated to the market through radio, TV and print adverts as well as numerous guerrilla marketing tactics. Some of these tactics include road side shows and demonstrations and online marketing on various social media platforms (Joshi, 2005). Developing a sound cultural strategy will be a critical aspect of Southern Cross Telco’s marketing decisions. This is because of the apparent cultural differences between India and Australia. As a matter of fact, Australia is largely a highly westernized society where European and American lifestyles have become the rule. On the other hand, India is a conservative society that maintains a strong hold on its traditional cultural values and national identity. It is imperative that Southern Cross Telco takes these considerations into account before rolling its services in India. The starting point is for the company to be sensitive on its use of language. Certain barriers such as stereotypes and prejudices can be easily overcome by understanding and offering services that are sensitive to the negotiating characteristics of the Indian people (Gazioglou & McCausland, 2001). 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, Princeton University Press Bertram, G 2009, "The banks, the current account, the financial crisis and the outlook", Policy Quarterly, vol. 5, no. 1, p. 45-78. Chandan, C & Nunnenkamp, P 2006, Economic Reforms, FDI and its Economic Effects in India, viewed 25th Sept. 2012 from www.iipmthinktank.com/publications/archieve Chen, K et al 2005, “The impact of exchange rate movements on Foreign Direct Investment: Market – Oriented versus Cost – Oriented”, The Developing Economies, XLIV-3, pp. 269-87. Datt, R. and Sundharam, K., 2009. Indian Economy. New Delhi: S. Chand Group Deloitte 2012, Switching Channels: Global Powers of Retailing 2012, STORES, January 2012, G20. Dunning, J 2004, “Institutional Reform, FDI and European Transition Economies”, International Business and Governments in the 21st Century. Cambridge University Press, viewed 25th Sept. 2012 from www.reading.ac.uk. Gazioglou, S and McCausland, W 2001, “An International Economic Analysis of FDI and International Indebtedness”, The Indian Economic Journal, Vol. 48, No. 4, pp. 82-91. Joshi, R 2005, International Marketing, Oxford University Press, New Delhi. Panagariya, A., 2008. India: The Emerging Giant. Oxford University Press Raychaudhuri, T. and Habib, I., 2004. The Cambridge Economic History of India, Volume I : c. 1200 – c. 1750. New Delhi: Orient Longman. Roy, T., 2006. The Economic History of India 1857–1947. Oxford University Press. Sachs, D., 2002. "Understanding Regional Economic Growth in India. Working paper 88. Harvard University. Read More