Discuss about the Etisalat Strategic Analysis.
Historically, Etisalat or Emirates Telecommunication Corporation was founded as a joint-stock between a British company, International Aeradio Limited and local partners in 1976. Later, the company’s ownership structure changed when the United Arab Emirates acquired 60% ownership and the remaining percentage traded to the public. The corporation’s privileges to offer wireless and wired services across UAE region was granted by central government through the Federal law No. 1 in 1991. The Law also allowed the company to issue licenses for importing, owning, and operating or manufacturing telecommunication equipment making it a telecom giant in the region (ETISALAT, 2016). The law which was aimed at facilitating country’s economic growth provided a platform for telecommunication progress across UAE region. As a result, the corporation’s network progress and intensification improved trade lines in the region from 36,000 to 737,000 1976 to 1998.
Etisalat’s growth is evident in January 2001 when it extended its operations to the global market. Under brand name Ufone, Etisalat entered markets outside Islamabad offering mobile services. By 2011 the company was ranked 140th among the Top 500 Global Corporations by Financial Times regarding market capitalization (ETISALAT, 2016). Furthermore, it was ranked the sixth largest company by Middle East Magazine regarding revenue and capitalization. Additionally, the corporation was considered the major provider of growth programs in the United Arab Emirates besides oil sector.
The Corporation has played an important role as a major business hub in UAE for more than forty years. It is also among the pioneers of the international telecommunication trade supporting the region into new top innovations especially in the technology sector. For instance, the company made UAE appear among the first five five countries to own 3D television service in the globe (ETISALAT, 2016). The corporation has also become the pacesetters of the next generation networks for both fiber optic cables and wireless services. Etisalat is also in the process of launching 4G LTE network in UAE and Saudi Arabia. Apparently, the company owns the fastest broadband and fixed-line network at a speed of 30mbps in the Middle East. Its broadband services are also considered one of the most efficient and fastest globally with speeds of about 300Mbps.
Etisalat has high and effective technological expertise which has enabled it to capture substantial market share extending across UAE. It also has a huge presence in Egypt and Saudi Arabia where it has acquired more markets due to markets dynamics resulting from the introduction of broadband services and internet access and mobile television. In addition to its wide market, the company has been recognized as the best wholesale provider four times in a row and the best operator in the region since 2006 (ETISALAT, 2016). Due to its remarkable performance, Etisalat has won numerous accolades for best brand and the best customer service among others in the region.
Porters Five Forces Analysis
Threats of New Entrants
It is safe to argue that the biggest barrier to entry in the capital-intensive telecom industry is access to finance. Serious contenders usually require a large amount of capital to cover the high fixed cost. However, if capital markets including the banks are generous, the threat resulting from competition posed by new entrant’s increases. Nonetheless, the rate of entry into the industry is relatively low when there are less financial opportunities for potential investors (LUFTMAN, 1993). Meanwhile, owning a telecom license especially in the region can bar new entrants. For example, in countries like Pakistan, there is a small amount of good radio spectrum lending itself to data applications and mobile voice. Moreover, there is scarce solid management experience and operating skills which may make entry more difficult.
Power of Suppliers
Considerably, suppliers of telecom equipment have substantial bargaining power over operators. This is because operators would not be able to transmit data and voice without switching equipment, mobile handset, fiber-optic cables and billing software. However, there are numerous equipment makers or supplier around the globe including Cisco, Nortel, Lucent, Alcatel, Nokia, Tellabs and Ericsson among others. Additionally, there are enough vendors in the business to dilute bargaining power thus giving operators an upper hand. Nonetheless, the industry is faced with the limited number or talented engineers and managers well versed in new technologies, and this minimizes the companies’ ability to hire and offer competitive salaries (LUFTMAN, 1993). In a nutshell, Supplier power is controlled by the fact that there are many manufacturers around the world, therefore, giving telecom operators many options to choose from.
Power of Buyers
There is increased the choice of telecom products and services hence increased bargaining power for buyers. The emergence of competitors in the UAE region offer disparate data and telephone services presenting buyers with various options (ANONYMOUS, 2010). Nevertheless, the variance of data and telephone services from one company to another is not much. This is because most telecom companies treat the basic services as a commodity. Therefore, most customers tend to go for low price services rather than reliable services. However, the power of a buyer can also vary based on different market segments. For example, residential telecom customers have low switching cost whereas they can be higher for the enterprise of large business customers such as those relying on customized services and products.
Availability of Substitutes
There has been the emergence of numerous non-traditional telecom industries which pose substitution threat. Satellite operators and Cable TV are now competing for buyers. Cable TVs have direct lines to people’s homes providing broadband internet services. Moreover, satellite links offer high-speed internet access suitable for large enterprises hence may substitute the traditional telecom industry. New players in the market also include energy utility companies and railways who have laid miles of large telecom networks along the tracks as well as the pipeline assets. As a result creation of high-speed Internet poses significant substitute to telecom operators as it is being used for cut-rate voice calls. Internet telephone which is being offered by the new industries could snatch buyers from the traditional telecom companies thus limiting revenue.
Similarly, the introduction of internet-based messaging services like whatsApp has also eaten up a portion of revenue earned by the traditional telecom companies (UAE, 2011). Such like application which relies on the internet to ensure instant messaging have reduced the use of traditional expensive messaging. However, it can also be argued that the traditional telecom companies have a stake in internet provision and hence for such applications. Nonetheless, that does not guarantee a hundred percent revenue realization since non-traditional satellite operators and Cable TV have a share in internet provision.
Competition, especially in the UAE region, is a cut throat. This is attributed to the receptive capital market in the region as well the industrial deregulation that occurred during the late 2000s (UAE, 2011).It gave way for new entrants to rush in and occupy part of the market which was initially controlled by the giant Etisalat. Additionally, the emergence of new technologies has also led to the development of substitute services which rival those provided by Etisalat. Currently, almost everybody in the region pays for phone services; it is thus upon the providers to attract customers through quality services and low prices. As a result, price wars lead to the decline in industry profitability. Alongside reduced profits, the industry has high exit barriers because of its specialized equipment. The broadcasting and switching equipment are not easy to transfer from one location to another making it difficult exit a particular market for another.
Etisalat Telecommunications enjoys a healthy position. The company has significant strengths that balance out its weaknesses. There is fast growing the need for internet and services in the region presenting great market opportunities. On the other hand, the company also faces an immense competitive threat as new competitors are joining the market whereas key competitors are scrambling for new opportunities.
The first strength of Etisalat telecommunications is its control for almost all aspects of telecommunication services. It thus limits both local and foreign investment in Internet gateways as well as telecommunications. Being the main service provider in UAE gives Etisalat the monopoly advantage where it controls various major resources in telecommunication thus barring potential entrants. Secondly, UAE consists of small population and country which makes it easy for deploying latest telecommunication infrastructure. Installation of telecommunication infrastructure on a smaller region is also cost effective due to reduced coverage area. It is easier to serve a small concentrated population compared to scattered one since network signal broadcasting would be utilized effectively. Third, Etisalat has received overwhelming support from the governed through heavy investments in the industry infrastructure. Furthermore, the government has set up policies aimed at allowing foreign technology firms into UAE’s free trade zones like Jebel Ali and Dubai Internet City free trade zones (AL ANSARI, 2009). This will enable the region to diversify further in by adopting new telecommunication technologies hence boosting Etisalat services. Access to new technology infrastructures would also help the company gain a competitive advantage against its substitutes aiming to rely on superior technology to oust them.
The company does provide customer training services which may escalate its expenses further. However, the introduction of Internet services has made some operations complicated forcing the company to formulate ways of making it customer friendly. Such plans could help train its users on the usage of Internet services without having to incur further lose on direct customer training. Furthermore, providing user-friendly systems would give the company a competitive edge against its close competitors. This is because it would improve the quality of service provision above its competitors which is preferred by most customers.
Etisalat telecommunications is capable of attracting and retain highly qualified and competent sales, technical, financial, marketing and management personnel to satisfy its growth challenges (ETISALAT, 2016). The company has gained an effective reputation in the region and is thus able to attract and train potential personnel to catapult its growth. Additionally, it also has a reputation for effective compensation programs which may enable it to attract the best technical team in the industry both in the region and globally.
The company has an efficient product roadmap to facilitate its development and growth through the creation of new functionalities (ETISALAT, 2016). Etisalat’s comprehensive product roadmap can also enable it to improve the existing system modules to satisfy customer expectations. For instance, the company’s investment on broadband internet services such as the introduction of 4G can enable it to stay afloat in the industry. High-speed internet through 4G will help the company compete with others in the provision of internet telephone an area that is being explored by most ISP companies in the region. Furthermore, the company is planning on investing in cloud storage as well as web hosting. This would enable it to attract large enterprises looking to invest in cloud storage. Hosting services are widely used by both individuals and firms looking to host their content online like websites. This would enable the company to attract or grab more customers from the existing companies offering the same services. Such lucrative product roadmap would enable the company increase its profitability and expand further to other countries.
Etisalat is suffering from modernization or under development in the UAE region. For some areas such as Ajman, Al-Khaimah, Umm al Qaywayn and Al Fujairah internet access is still considered expensive and unaffordable to many (AL ANSARI, 2009). However, other modernized administrative emirate such Dubai, Sharjah, and Abu Dhabi can afford modern technologies and form a substantial portion of its customers. Nonetheless, unless the modernization gap is filled, the company would not be able to realize the maximum benefit and profitability. Additionally, there is stiff competition in the modernized areas where international companies have joined to offer substitute products and services thus limiting its customer base.
Etisalat telecommunications enjoys a sound reputation for its service efficiency and high technology both locally and internationally. It, therefore, has an upper hand regarding oversea investment. Additionally, the company has received generous financial support from financial institutions and banks. The banks are ready to finance its strategies on international expansion hence increasing its opportunities to explore the global market.
Apparently, there is strong growing competition in the industry in UAE. Other companies have invested in more comprehensive customer care services to boost their service quality, and this is expected to increase even more in the coming future. Alongside stiff competition from independent service providers, it also competes with system integrators as well as the internal billing departments serving various telecommunication carriers (LUFTMAN, 1993). System integrators have been able to improve Etisalat’s services beyond the traditional ones thus attracting more buyers.
The telecommunication industry expects increased competition due to continued growth creating opportunities for new potential entrants. As the telecommunication industry grows most, investors are expected to join the market with more competitive products and services. The three developed regions such as Abu Dhabi, Sharjah and Dubai have attracted international market with many people flowing from different parts of the world for business (UAE, 2011). Therefore, the region is experiencing an increase in general population which converts to market. De-regulation of the trade policies in the region has also contributed to increasing flow of businesses in the industry thus creating cut throat competition.
There has been an increase in third party relationships consisting of numerous system integrators and consulting firms to improve marketing, customer support and sales. However, such relationship is beneficial to the company through lead generation and handling of joint sales and marketing efforts to create new business opportunities. Therefore, failure to create such relationships would hinder the company’s ability to meet target sales growth. Total excoriation of the market also poses a threat to the growth of the industry due to scattered population as compared to investment in infrastructure.
Telecommunications has become a significant part of economic, social, and political factors of the world. The main advances witnessed in technology have enhanced the range of services offered by network substantially. The introduction of technologies such as satellites, optical cable links, microwave radio, transmission and digital switching have boosted network quality as well as extending access to remote places (LUFTMAN, 1993). This has made the world a fully integrated information network allowing the flow of information from one point another. Moreover, there is an increase in the rate of technological change with increasing magnitude of local and global demand. In the future, creativity will have to adapt to increased demand for more than just superior technology. Customers will demand the need to have full control over their lives and access to easily affordable information. Additionally, alongside seeking for technologies that would enable them to stay competitive and productive, businesses will also demand technologies that would give them a return on investment.
Being among the world’s best telecommunication industries, Etisalat is well-placed to satisfy these needs and meet the challenges (ETISALAT, 2016). According to the 2004 public relation press, the company promised to continue contributing to providing assistance, guiding and creating cost-effective services to satisfy varied needs of both domestic and international customers. The company is currently introducing new services tailored to meet customer’s dynamic need as they upgrade the existing ones regularly. Such improvements and much more are aimed at enabling their customers improve and streamline their communication needs, compete globally and stay productive. The company is also working on compensating the loss of local market by expanding the international market.
This analysis examines the company’s political, economic, social, technological, environmental and legal factors.
It is important to consider legal or political factors in strategy formulation for the success of a company. It is evident that Etisalat since its initiation stage has observed business ethics and headed to legal issues in all its actions. The company makes sure that their services are useful regarding their social responsibilities. Politically, the company has been helpful to the society by supporting numerous technological and science advancements in the region (ETISALAT, 2016).
Etisalat exudes continuous economic growth rate every year. The company has established economic stability through innovation of its services to continue serving individuals and corporate sectors both locally and globally.
Culture has played an important role in dictating market features and is thus crucial in understanding an industry. This is because a company needs a general set of believing on the influence of culture on its failure or success to operate effectively. Etisalat thus ensures that the opinions of its employees are considered regardless of their nationality. As an international expansion strategy, the company has employees from different cultures which help in decision making (ETISALAT, 2016). Moreover, the company’s international managers have developed a positive relationship with the local managers to help in decision making as well as business operations.
Technology has been a crucial factor in achieving business success through enhanced effectiveness, efficiency, competitiveness as well as the development of innovative applications. Historically, Etisalat has invested in high-quality technology to meet customers’ demands in communications (ANONYMOUS, 2010). The company also carries out regular monitoring of its physical resources to maintain efficiency and hence improve its position in the industry.
Challenges and Recommendations
Etisalat faces numerous challenges that require proper formulation and implementation of strategies. One of the major challenges facing the company is its contrasting response process to changes. There have been numerous industrial changes which have created opportunities to be taken by new companies. For example, the shift to internet telephone through audio and video calls has greatly changed the industry with increasing demand for high-speed internet connection (UAE, 2011). The demand for high-speed internet connection has grown from individual to corporate use creating a market void. Quick integration to the provision of the fast internet has been a challenge to the company especially due to strong competition from other contenders.
One solution to such challenges would be the development of strategic alliances with both local and global suppliers to enhance the integration process. Acquiring state-of-the-art technologies especially in internet provision would enable the company to adapt to the increasing demand. Secondly, to explore international market, the company should alter its strategic direction with the aim of including changes in new management approaches. This will enable it to profile different target markets regarding demands and preferences. Besides, it should develop a human resource management strategy that will enable it to enhance communication, efficiency, team building and productivity.
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