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Assignment briefs about several problems which currently grasp the country’s telecommunication market

Home, - South Africa Telecommunication Industry

Introduction

Globalization in the 21st century has reached new heights with companies now open to investing in not just diversified segments, but also in diversified companies as well. The practices of ensuring that this diversification is maintained are exceptionally important from the point of view of cultural, social, political as well as economic development of all the stakeholders involved in this transaction.  

While we note the importance of this cross-border investment and venture, it is also important to note all the difficulties which may be foreseen in this process and what all possible solutions can be undertaken to ensure that this venture and investment is made keeping in mind all the factors in play and has been thoroughly analysed as well. 

In this report, we will focus on understanding the telecom sector of South Africa and how a possible investment in this sector by a European company can be of value to both the countries. Since South Africa has a mature market and consumer interaction too is high, the market is quite sophisticated. This serves as both pros and cons for the company and owing to this, the company has to be prepared in advance.

In this report, we will aim to understand the environment in which the telecom industry of South Africa flourishes using various theoretical models and practical examples. We shall also aim to establish a complete understanding of these environments, defining the market entry strategy and the contemporary management issues that may arise during this process. To make the report better and interactive in nature, it has been assumed that the entering European company has been named as ASW Telecommunication Ltd. 

About the South African Telecom Industry

The telecom industry in South Africa is considered to be one of the finest and the most refined telecom industry of the world. The services provided to the urban as well as the rural area with the internet as well as cellular services with good speed and connectivity. The telecom industry in South Africa is partly privatised and the major players are MTN South Africa, Vodaphone, Telkom and Orascom among others. These four companies hold the maximum share and presence on South Africa, often overlapping in the market as well. These companies offer various connections to its users such as total voice (VoBB), broadband, IPTV (Internet TV), VoLTE and Broadband split by access technology: DSL, cable modem, FTTH/B, BFWA and other (Koff, 2018). 

Previously, the global trends have shown that the telecommunication industry in nations often begins with a monopolistic background, which further breaks into an open market. The same has been the case with South Africa as well. Fig 1 Shows the market division of various telecommunication operators in South Africa over time.

The telecommunication feature in South Africa has grown from a single line telegraph service to a full-fledged cellular market. The companies which run in this market are extremely well functioning and provide the best support and services to the customers as well. Not just mobile and internet, but telecommunication in South Africa works via television as well as the IPTV is quite a well-functioning phenomena and works just as well. 

However, there are few constraints about the industry. For example, broadband in South Africa is more expensive than other developed African as well as the European nation (though easily procurable); owing to this, the fibre optic system in the country is flourishing to go easy on the cost for people and ensure best services on time. This cost has been attributed to the lack of spectrum availability with the service providers, hence, little can be done in this regard. To tackle this situation, various reforms have been made which include provisions like using data till the very last cent instead of simply being expired, reducing call drops and alert when balance runs out (DICEY, 2018). Also, the new legislation has ensured that no extra or hidden charges will be levied without the knowledge of the customer and the company will have to make sure that the customer is aware of the money they pay and why they pay. These legislations have been made to protect the consumers of all the unruly market competition happening in South Africa.

Also, South Africa has poor 4G services. If not poor, the current state can be best described as growing. Even though the demand for 4G is quite high, the congested network and poor spectrum availability make it quite difficult to achieve.

While these problems might seem quite limited in nature, it is to be noted that they are in themselves quite difficult to resolve and require a lot of patience and a strategic approach towards being solved. 

The strategy for entering the South African telecom industry which can be implemented by the European Company ASW Telecommunication Ltd. Is further stated in the report. 

Porter’s National Diamond Analysis

The Porter’s National Diamond Analysis or the Porter Diamond Theory of National Advantage is one of the most important tools for the analysis of the competitive advantage possessed by nations or organizations with respect to a certain possessions of thing or leverage of some added advantage over the other, and the role of government in improving the position of the country in the globally competitive economic and social environment with the help of this competitive advantage. 

This theory, unlike other theories, is given by Porter is a proactive economic theory and focuses extensively on leveraging the benefits of what is available with the country to make it huge.

According to the Porter’s Diamond Theory, a country has the ability to create and foster for itself new factor advantages such as technological growth, skilled labour and policies of the government which are essential for the economic growth of the country. These factors are considered to be the primary determinant of a country’s economic advantage (Rajasekar & Raee, 2013). 

The diamond here represents the four interrelated factors which according to Porter are of immense importance as the deciding factors of national economic advantage: firm strategy, structure and rivalry, related supporting industries, demand conditions and factor conditions. 

To expand on it further, we can understand these four factors as of immense importance. 

The firm strategy, structure and rivalry related factor refer to the competition that a business faces prompts it to find better and innovative ways to expand its market, which in turn gives rise to technological advancements in the sector.

The related and supporting industries refer to all the big and small industries which are helpful in flourishing and proper working of the industry or organization in context by providing them with all and any help such as raw material, labour, skill set and much more. The third is the demand conditions. It refers to the demand of the market or the size and nature of the customer segment that the industry is supposed to be serving in a particular market. Lastly, the factor conditions. This is the most important part of this entire diamond structure and refers to the conditions which help a country in developing their own economies, such as a pool of skilled labour, ideas, innovative think tanks and much more.

To expand on this, we can take the example of Japan. In a small time, the country has expanded its available resources and overcome a lot of tribulations to make itself an established and developed nation. This it has achieved by producing great doctors and engineers, bringing in huge waves of technological advancements and assuring growth in every sector it has ever invested time and money in; such as infrastructure (Knewton, 2018). 

According to Porter, these factors are better determiners of a country’s wealth and success than merely land and natural resources available to it. 

When seen in the context of the South African telecom industry, we can understand that this theory fits here the best.

Factor Conditions

This is the most important part of this entire diamond structure and refers to the conditions which help a country in developing their own economies, such as a pool of skilled labour, ideas, innovative think tanks and much more. Factors are further divided in basic as well as advanced (Fainshmidt, Smith, & Judge, 2016). Our interest lies in the advanced factors which deal with communications infrastructure and highly educated human capital such as engineers and scientists.

Here, South Africa has to make sure that they build exceptional and highly skilled human capitals in order to ensure the growth of their telecom industry so that it can overcome all the problem it currently faces. In such light, unless it is achieved, ASW Telecommunication Ltd. Should wait before making any heavy investment.

Demand Conditions

Demand conditions refer to the demand of the market or the size and nature of the customer segment that the industry is supposed to be serving in a particular market. Lastly, the factor conditions. South Africa has this factor well set and needs to only expand over it. 

Related and Supporting Industries

The related and supporting industries refer to all the big and small industries which are helpful in flourishing and proper working of the industry or organization in context by providing them with all and any help such as raw material, labour, skill set and much more. South Africa has these industries currently at a mediocre position, and growth is much appreciated (SASD, 2013). 

Firm Strategy, Structure and Rivalry

This factor is well in sync and in place. The firm strategy, structure and rivalry related factor refer to the competition that a business faces prompts it to find better and innovative ways to expand its market, which in turn gives rise to technological advancements in the sector. There are many names in this telecom industry fighting for position, and all of them in ways are important players in this ecosystem; irrespective of their market share and hold. These industries are there to bring a balance to this particular ecosystem and provide for anything and everything which is required for the proper functioning of the telecommunication industry within South Africa (Huang, 2011). 

Government

This factor talks about how government ensures total support to the companies who enter the south African market. The South African government is quite supportive of such industries, and especially FDIs and provide to them every possible support so that these companies thrive and deliver their best in the country. The government support is nearly half the war won and ensures the company a smooth sailing throughout (or at least in some areas). There are various ways by which this happens: encouraging by giving tax exemptions, affordable energy, relaxed labour laws etc. 

Chance

This is the luck factors on which to a lot of success depends. The chance factor ensures that all the opportunities are given to the companies which are not afraid to bring in innovation in the market. These opportunities aim to bring them at par with the existing players of the company

In all, we can understand that the Porter’s Diamond Analysis is well suited for the South African telecommunication industry and to get the best out of it, the four factors are to be grown upon in future. 

DIAMOND THEORY ANALYSIS 

FACTOR CONDITIONS • 60,000 job created by 2017

• rich capital resource 

• English speaking and highly educated professionals making the expansion easy for the comapny. 

• Has a well-developed infrastructure in important cities like Cape Town

DEMAND CONDITIONS • The mobile penetration rate of 20%

• Innovation always in demand 

• Good user involvement 

• Scope to expand and provide better services 

• Market NOT saturated 

RELATED AND SUPPORTING INDUSTRIES • Has good investment for hardware and software 

• Availability of raw material is easy 

• Experienced human capital 

• Government is supportive of FDI 

FIRM STRATEGY, STRUCTURE AND RIVALRY • The market has a lot of competitors

• Major competitor Vodaphone 

GOVERNMENT • Government is pretty supportive of everything

• Government provides good tax exemption and infrastructure support 

CHANCE EVENTS • No sources or references of such activities experienced yet 

• Too early to say on it however would be beneficial to avail it

Market Entry Strategy

It has been a clear picture that while the telecommunication market of South Africa remains unexhausted, with a lot of scopes to exploit, it still has a lot of players still present fighting for the first rank and of course, the market. In such conditions, entering the market will be a little difficult unless the company is ready to make certain compromises and adjustments in its existing policies to make the ends meet and finally find a feat in the market for long and for good. It is exceptionally important to ensure that the company remains self-sustainable and does not dwindle with the market competition (Min, 2013). 

The threat of a new entrant is always undesirable, and owing to these other companies will too try to implement certain strategies to ensure that their market is not taken away. For this reason, the market entry strategy has to be extremely cautious of how the disruption it might cause and on how it will handle all the changes that will come its way in this process as well. this can be achieved in ways structured below.

The first and probably the most suitable one will be the” beg down approach”. Under this, the company has a well-established financial background and can afford a little loss, but the companies competing with it cannot. As per this approach, the company when in the South African market, should launch very cheap prices in order to gain the customer base (Alketbi & PaulGardiner, 2014). As it will be a sudden blow to other companies when they see people switching, they shall be forced to come down to those prices. While company can absorb the blow, the other companies might not be able too. Hence, while they run in losses, the comapny has a market base to cater too and prices can be accordingly fluctuated and adjusted. 

While the above-mentioned approach has a fifty per cent chance of working, what can be assured of higher and better results can be another approach. In order to assure proper entry into the South African market, it is important to bring in some innovative disruption. Something that has not been done before (Brouthers & Hennart, 2007). This innovative disruption will not only be focussed towards solving the existing problems of poor connection and 4G in South Africa but will also ensure that people have something better to choose. While it is easy to enter and launch just any regular product, what is needed right now is to take place in the market. Hence, this.

Lastly, it is also important that the products which will be placed in the market are diversified in nature. This will be best understood when the limitations, as well as the problems of the South African market, are well understood. Extensive research has to be undertaken for this purpose.

The South African government is quite supportive of these ventures and FDIs hence, procuring certain help such as tax benefits and exemptions, infrastructure and market availability will not be an issue in the initial stages. The problem will arise later on when the market is supposed to be getting competitive and it is important that the customers get something new.

There are two specific market entry models which can however suit best in this situation:

• Joint Venture: joint ventures are strategic business arrangements and investments which aim at bringing two or more parties together to achieve a common goal. These companies enter an arrangement where they divide the task of technology sharing and production cost and subsequently the profits as well. Our company can enter in a joint venture with Telkom, the second largest player of the market and take on Vodaphone, the largest one. This will not only provide both the companies a better hold of the market but also be beneficial for the customers too. Here, the exchange can be of technology, finance, marketing ideas and service to the customers. Noe successful JV has been of Nokia and Virgin Mobiles. 

• Second, and the most suitable one can be the Foreign Direct Investment or FDI. It is a 100% success or 100% (Almfrajiab & Almsafira, 2014). In an FDI the company has complete hold over the finance, infrastructure and even the employment. Hence, owing to this, it will give the company complete autonomy to function in South Africa (Bener, 2010). There are a lot of FDIs running in South Africa, two of them are: Vodaphone and Nike. Both of them enjoy all the benefits of an FDI, however, the grass is not all that green. They have their own advantages and disadvantages as well.

Advantages Disadvantages 

Orascom • South Africa is a breeding technology and with increased awareness, there is an increase in investment from the side of the government too

• Government is giving a lot of support in terms of market space and tax • Few political parties are against the FDI and hence the risk is always there 

• Expropriation is a factor which cannot be negated in South Africa 

Vodaphone • The company is major telecom giant in South Africa and Enjoys a lot of government as well as customer support 

• The company has created a lot of jobs and got itself in the good books of the company  • The company has seen a lot of revolt because of prime job positions going to foreigners, hence, weakening its relationship with the government

• Expropriation are on cards for Vodaphone.

Contemporary Management Issues

It is now clear that the venture that the company will take in South Africa will be a Foreign Direct Investment or FDI. An FDI is a 100% success or a 100% company, with full autonomy over the finance, infrastructure and even the employment in the foreign land. Several companies often face certain management related situation when they establish a base in another country. This can happen because of several reasons such as diversity, control over people, inability to adjust to working laws of the country, partnership issues and organizational behaviour (Libanda & Marshall, 2017). 

It is extremely important to ensure that the employees under such a situation are always kept motivated in order to avoid any issues in the management machinery, which can possibly reflect in the revenues later on as well. here, the kind of leader that takes charge has an exceptionally important role to play. Such a person is not only responsible to steer the company, but can also take the challenges head-on (Lavinsky, 2013). 

The company has to take two major factors of management issues in the account before establishing work in South Africa:

• Diversity and Inclusion: South Africa is a diverse nation, a country which is culturally opposite to the European company. South Africa is a diverse nation with people of all colours, ethnicity and race working and coexisting together. A company dominated by people who prefer of thinking themselves as the superior race (by colour) will be a difficult scenario if this attitude is maintained (Babatunde, 2017). The company and the top leaders have to understand that despite being an FDI and having complete control, they will have to be sensitive towards these things, or else be ready to pack bags. In a country such as South Africa, diversity and inclusion have to be given the utmost importance without any doubt (FDA, 2015). 

• Benefits of the Company: while FDI gives complete control to the company on foreign land, it is still important to exist in harmony with the government. While the governments give a lot of support to these companies, it is still their responsibility to ensure that they do no such thing which can create trouble for themselves. The South African government is quite welcoming but equally strict if laws are defied or if they aren’t followed properly. The company in order to reap their benefits cannot put the rights and the safety of the consumers at risk. And this has to be understood from the very beginning (UNCTAD, 2015). 

It is important to ensure that all the above-mentioned points regarding entry in South Africa are well kept in mind.

Employees can be difficult to manage in such a different environment, hence, it is best suggested that as much as possible, local people are hired. This will not only create employment in the region and give the company an edge but will ensure some good support from the government as well. As an FDI, it is the responsibility of the organization to ensure that the host country to benefits out of the freedom which has been given to the company. Not only does is add to its social responsibility, but build a healthy corporate culture as well, allowing an established name and awareness about the company in the global market as a job maker and provider.  This new found reputation will help in wealth generation of the company as well.

Conclusion

With the above research and understanding, it will be right to conclude that the South African telecommunication market is still in its developmental phase, and has a lot of scope of growth despite being congested and with currently limited opportunities. There are several problems which currently grasp the country’s telecommunication market, one of the most important being the low availability of spectrum which has in a way reduced or rather limited the growth that the industry can achieve otherwise. 

The company will be entering South Africa as a probably FDI and hence, it is essential to be aware of the legal environment they will be working in and accordingly formulate their market entry strategy as well. even though as an FDI it shall have complete autonomy, in order to reduce any management issue arising because of their conduct it is ideal that the local population is hired and diversity and inclusion are supported. The leadership here will play an important role and it is ideal to find a person from the South African industry to head the segment or some part of it.

All these things together will ensure that the company not only enters the South African market but also sustains itself well for long.

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