Industry Analysis:Emirates Telecommunications Corporation

Industry Analysis:Emirates Telecommunications Corporation

Emirates Telecommunications Corporation (Etisalat), a company in the Middle East, is analyzed in this assignment. It is a multinational corporation based in Abu Dhabi, United Arab Emirates (UAE), and that has subsidiaries in Asia, Middle East countries, and Africa. The company’s core objective is the provision of telecommunication services to its customers, and hence, it operates in the telecommunications industry. The purpose of this paper is to analyze the industry mentioned above in which Etisalat operates. The analysis focuses on industry profitability, industry boundaries, suitable strategies to succeed in the specific industry in which Etisalat operates and the key success factors for the company.

Industry profitability

Etisalat operates in the telecommunications industry in the Middle East and Africa (MEA). Over the past decade, the industry has experienced tremendous growth due to technology explosion and favorable demographics. According to Abou-Zahr et al. (2016), the industry in the Middle East and Africa has enjoyed an average of 3% growth per annum over the past decade. The growth percentage in the region is significantly high compared to the global 0.3% per annum in the telecommunications industry. It is a factor that has seen telecommunications companies in the Middle East and Africa enjoy significant profitability over the years.

Research done by Abou-Zahr et al. (2016) reveals that the telecommunications industry in MEA has over the past decade recorded profitability levels that are higher than the global level of 11%. The high profitability of the telecommunications industry in MEA is attributable to capital expenditures in the region that have been expanding over the years. Data connectivity and device penetration have been key factors in the profitability of the industry in MEA. Demographics in the region have also played a key role in the maximized profitability of the telecommunications industry in MEA. For instance, between 1990 and 2008, the population in the Middle East rose by 44%. Middle East has recorded a 35% increase in smartphone penetration between the years 2014 and 2020 (Abou-Zahr et al., 2016). Africa is known for its youthful population who utilize online services mainly through smartphones. The described demographics have played a primary role in enhancing the profitability of the telecommunications industry over the years.

Though the telecommunications industry is still highly profitable in the region within which Etisalat operates, some factors may stagnate the growth rate in the region. Notably, the factors may only stagnate the growth of profitability. Hence, it is expected that the region’s telecommunication industry will continue to be profitable even when the profitability is not growing. For instance, the high-income countries in the Middle East are considered to be mature markets in relation to the telecommunications business. The mature markets have limited opportunities for telecommunications companies to expand their profitability. Research shows that there is a decreased enthusiasm for telecommunications assets by equity markets in the Middle East and Africa (Abou-Zahr et al., 2016). It is a trend that may threaten the objective of maximizing profitability for the telecommunications industry in the region.

Michael Porter identified five forces that shape the competitiveness of a market/industry. The threat of new entrants is one of the five forces identified by Michael Porter. The threat of new entry into any market is determined by the ease of entry into the market (Porter, 2008). Factors determining the ease of entry include, among others, the legal requirements, the cost of entry, and the prevailing economic conditions of the market. In the case of the telecommunications industry in MEA, the threat of entry is reduced by the high capital investments required. As earlier noted, there is a decreased enthusiasm for investments in the telecommunications industry in the region under review by equity markets. It is an indication that the lack of access to capital serves as a barrier to entry into the telecommunications industry. Supplier power is limited in the telecommunications industry, as there are multiple suppliers. Market information is readily available in the region’s telecommunications industry, a factor that reduces suppliers’ power to influence competition in the market.

The power of buyers is determined by their perceived quality of services/products as well as their sensitivity to prices. Porter (2008) notes that the power of buyers shapes competition in a given market if the market is price elastic. Though the telecommunications industry is price elastic, it is not perfectly elastic, and as a result, the power of buyers is limited. Also, information about the products and services available in the market is available to the consumers. Consumers’ buying behavior in the industry is shaped by their purchasing power rather than the perceived quality and monetary value of the services/products available in the market. It is a factor that further limits the power of buyers in the telecommunications industry. Competitor rivalry is arguably the most critical of the five forces. The telecommunications industry in the Middle East is defined by fierce competition. Etisalat faces stiff competition from other major corporations such as MTN, Telkom, Sri Lanka Telecom, and Vodacom et al. Etisalat is compelled to undertake suitable differentiation strategies to beat the competition in the market.

Industry Boundaries

Etisalat is a Middle East company. However, it has expanded its operations into the Asian and African markets. Its entry into the global market is deemed as a strategy to beat the competition in the domestic market within which it operates. However, it worth noting that the company faces stiff competition even in the overseas market within which it operates a factor that has prompted it to undertake suitable strategies to outpace the competitors.

Strategy

Organizations operate in an environment, known as a business environment, that impact on their operations, and hence, their performance in their respective industries (Kennerly & Neely, 2003). One of the external environments within which organizations operate is a technological environment. It is the most dynamic business environment factor in this information era. As a result, organizations whose core business is directly impacted by technological changes need to be very flexible to adjust to the changing technology. The telecommunications industry is amongst the most dynamic industries across the globe, owing to its dependence on the industry. Notably, the high profitability of the telecommunications industry is attributable to the technology explosion. Technological changes continue to occur, thereby necessitating the need for both the industry and individual corporations such as Etisalat to undertake suitable strategies to reduce the pressure mounted by the changing technology.

According to Abou-Zahr et al. (2016), the future of the telecommunications industry will be data-centric, and it is expected that consumers who are digital savvy will dominate the market. Organizations operating the telecommunications industry are expected to embrace suitable strategies to ease the pressure that is likely to come with the anticipated changes. Since the future of the telecommunications industry is expected to be data-centric, advanced analytics will be a suitable strategy for companies like Etisalat to ease the competitive pressure in the industry. Advanced analytics will help in embracing strategic management that will help ensure continued consumer satisfaction and hence enhanced competitiveness in the market. According to Hill et al. (2014), strategic management entails continuous scanning of the environment within which an organization operates and undertaking suitable strategies in response to the changes noticed in the business environment. Advanced analytics can serve as a way to analyze the changing consumer patterns, and hence, predict the behavior of consumers. Etisalat’s capital expenditure must be informed by the results of the advanced data analytics to enhance its competitiveness in the market.

Consumers are rational, and their consumption patterns are shaped by the desire to get more for less (Solomon et al., 2012). As a result, it is essential to derive and embrace a strategy that will cut costs without negatively affecting the quality of services delivered. It is a strategy that will enable the corporation to sell its services at relatively lower prices while maintaining a high level of quality, and this is expected to influence demand positively. Hence, it is recommendable that Etisalat and other corporations in the telecommunications industry in the Middle East adopt new operating models that enhance cost efficiency without adversely affecting the quality of services delivered. Abou-Zahr et al. (2016) recommend value-focused, cross-border scale, and partnership web models to improve cost efficiency.

Digitization is also a strategy that Etisalat and the telecommunications industry may utilize to ease the pressure that may come in the data-centric era. Individual corporations in the telecommunications industry will benefit from digitization in two main ways. First, digitization is likely to enhance customer satisfaction. It will serve as a differentiation strategy. According to Armstrong et al. (2014), differentiation enhances the competitiveness of an organization in that the services of the individual corporation are be positioned in the minds of the consumers as being preferable to the services being offered by the competitors. Second, digitization will help to enhance the cost efficiency of the corporation. In Cost-Volume-Profit analysis, reduced operational costs maximize return, ceteris paribus. Hence, through digitization, the corporation will be able to sell its services/products at lower prices and maintain the same margin of safety. Consequently, the corporation will enhance its competitiveness in the market through increased demand for its services/products.

Key Success Factors

Etisalat has various key success factors. Using operating companies as strongholds is one of the key success factors for the corporation. The parent company provides strategic and operational support to the subsidiaries in a bid to ensure that they defend their core business and also enhance the Group’s digital capabilities in every market in which it operates. Using operating companies as strongholds has helped the company beat competition in its domestic market. For instance, through the strategic and operational support offered by the parent company, it is acquiring significant market share in the African market. Market segmentation allows a company to focus on the specific needs of the target consumers, and hence, maximum consumer utility (McDonald et al., 2003). Etisalat, through the use of operating companies as strongholds, has been able to offer support that meets the needs of the various markets in which it is operating. It is a strategy that has given the company stronghold status in almost every market within which it is operating.

Expansion of portfolio in the Middle East and Africa is another key success factor for Etisalat. Portfolio management is beneficial to the corporation in that it enhances the effectiveness of its risk diversification strategy (Lockett et al., 2005). Some of the markets in which Etisalat operates, especially those in the high-income Middle East countries, are mature markets, and hence, provide few opportunities for expansion. However, through portfolio management, the corporation is able to tap the available opportunities in the growing African market.

Etisalat is utilizing B2B as a key success factor. Information published on the corporation’s website shows that it has established a platform called Etisalat Digital that enables enterprises as well as governments to become digital. The strategy has contributed significantly to the company’s revenues and hence its profitability. The corporation intends to utilize the ‘digital across footprint’ strategy to seize other available opportunities in the Middle East and Africa. It is a strategy that is highly likely to maximize its profitability through increased revenues.

Organizational culture aligns human resources to the goals and objectives of an organization, thereby enhancing their motivation to contribute towards the shared goals and objectives (Schein, 2010). Etisalat is utilizing strong organizational culture as a key success factor. The organization’s management is working on a strategy that will raise the capabilities and develop talent that is digitally aligned. The above-described culture is expected to enhance collaboration between the corporation’s subsidiaries and initiate measures that will enable it to acquire and retain new talent that will meet the ever-changing needs of the digital world. The last key success factor for Etisalat is the utilization of innovation and digitization as a strategy to enhance revenue generation. The strategy mentioned above will see the Group improve customer experience, efficiency, and expand its portfolio for increased profitability. Etisalat is committed to strategic management that will be achieved through innovation and digitization, i.e., a culture of innovation and digitization will help it foresee important changes in the market and undertake suitable strategies to address any challenges that may be posed by the changes as well as seize opportunities that may be availed.

 

 

References

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Armstrong, G., Adam, S., Denize, S., & Kotler, P. (2014). Principles of marketing. Pearson Australia.

De Reyck, B., Grushka-Cockayne, Y., Lockett, M., Calderini, S. R., Moura, M., & Sloper, A. (2005). The impact of project portfolio management on information technology projects. International Journal of Project Management, 23(7), 524-537.

Etisalat (2019). Strategy. Retrieved on 6^th February 2020 from https://www.etisalat.com/en/ir/corporateinfo/etisalat-strategy.jsp

Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: Theory & cases: An integrated approach. Cengage Learning.

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McDonald, M., Christopher, M., & Bass, M. (2003). Market segmentation. In Marketing (pp. 41-65). Palgrave, London.

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.

Schein, E. H. (2010). Organizational culture and leadership (Vol. 2). John Wiley & Sons.

Solomon, M., Russell-Bennett, R., & Previte, J. (2012). Consumer behaviour. Pearson Higher Education AU.