INTRODUCTION
Before embarking to this paper it is wise to show how different economics gurus have defined Managerial Economics. Webster (2003) defines Managerial Economics as the application of economic theories and quantitative methods (Mathematics and Statistics) to the managerial decision making process. According to Dwivedi ( 2008), “Managerial economics can be broadly defined as the study of economic theories, logic and tools of economic analysis that are used in the process business decision making.
Economic analysis and techniques of economic analysis are applied to analyze business problems, evaluate business options and opportunities with a view to arriving at an appropriate business decision. ” In my view I see all the definitions to contend on the common concept of directing the objective of Managerial Economics at making optimal business decisions using economics theories and statistical logics. All managers therefore have to make use of Managerial economics theories for the success of their enterprises.
ECONOMIC THEORIES EXPLAINATION
Generally, economic theories are concerned with how society answers the basic economic questions of what goods and services should be produced, and in what amounts, how these gods and services should be produced (i. e. , the choice of appropriate production technology), and for whom these goods and services should be produced. Over the past two decades, Tanzania has been transformed from a centrally planned/command economy to a market oriented system through successful implementation of trade liberalization measures.
The Government has taken deliberate steps to encourage private sector led growth through restoration of market forces and less interference in commercial activities. These measures including privatization of state owned companies, reduction of tariff and non-tariff barriers and fiscal/monetary reforms have opened doors for expansion of private sector operations in all spheres of business triggering Foreign Direct Investments (FDI). Hence, Zain Tanzania (an FDI operation) as in the case of all profit-maximizing firms produce only the goods and services her customers demand. Why? Webster (2003) warns that profit maximization implies cost minimization in competitive markets since firms that do not combine productive inputs in the most efficient (least costly) manner possibly will quickly be driven out of business.
THEORIES TO BE DISCUSSED
For the purpose of this discussion the following microeconomic theories (as laid down by Dwivedi (2008)) shall be used to explain how problems faced by managers in the work places particularly Zain Tanzania are dealt with:
Theory of Demand. This answers questions as: How do consumers decide whether or not to buy a commodity? How do they decide on the quantity of a commodity to be purchased? When do they stop consuming a commodity? How do the consumers behave when the price of the commodity, their income and tastes and fashions change? At what level of demand, does changing price become inconsequential in terms of total revenue? The knowledge of demand theory can, therefore, be helpful in making the choice of commodities, finding the optimum level of production and in determining the price of the product.
Theory of Production. Production theory explains relationship between inputs and output. It also explains under what conditions cost increase or decrease; how total output behaves when units of one factor (input) are increased keeping other factors constant. How can output be maximized from a given quantity of resources; and how can the optimum size be determined? Production theory, thus, helps in determining the size of the total output and the amount of capital and labor to be employed, given the objective of the firm.
Pricing Theory. This explains how price is determined under different kinds of market conditions. It can be helpful in determining the price policy of the firm.
Profit Analysis and Profit Management. Profit making is the most common objective of all business undertakings. This is not always since organizations operate under the environment of risks and uncertainties. Profit theory guides firms in the measurements and management of profit, in making allowances for the risk premium, in calculating the pure return on capital and pure profit and also for future profit planning.
Theory of Capital and Investment Decision. Capital is the foundation of business. Its efficient allocation and management is one of the most important tasks of the managers and a determinant of the success level of the firm. The major issues related to capital are: choice of investment project, assessing the efficiency of capital and most efficient allocation of capital. Knowledge of capital theory can contribute a great deal in investment-decision making, choice of projects, maintaining the capital, capital budgeting etc.
ZAIN TANZANIA HISTORY AND BACKGROUND
Zain Tanzania (then Celtel Tanzania) was launched in October 2001 and is part of Zain Group. Celtel Tanzania a Multinational Enterprise as Foreign Direct Investment came into existence in the country as a result of partial privatization of Tanzania Telecommunication Company Limited (TTCL). Zain Group comprises of 22 countries’ operations; 5 in the Middle East and 17 in Africa.
These are: Burkina Faso, Chad, Congo Brazzaville, Democratic Republic of Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Saudi Arabia, Sierra Leone, Sudan, Tanzania, Uganda, Zambia, Bahrain, Iraq, Jordan, Kuwait and Lebanon. The government of Tanzania has 40% ownership shares in Zain Tanzania.
Zain Tanzania is the most innovative mobile phone operator and has introduced many “firsts” in the telecommunication sector in Tanzania. Above all, Zain Tanzania is the Cellular operator with the widest network coverage as compared to other operators: Vodacom, Tigo, Zantel, Sasatel, TTCL Mobile, and BOL. Zain Tanzania has its executive headquarter in Zain House at Kijitonyama, A. H. Mwinyi road, Dar es salaam. In August 1, 2008 Zain group rebranded its Africa operations from “ Celtel ” to “ Zain “ in line with its objectives of operating under one brand in all the 22 countries.
Zain Mission, Vision and Values: Mission “To cement Zain as a leading global mobile operator that provides professional, world -class mobile and data services to all . our customers, wherever they are, worldwide. And Zain aims to achieve this by exceeding its customers’ expectations, rewarding its employees, and providing returns beyond reasonable expectations for its shareholders”. •Vision “Zain will become a global wireless operator by 2011 through a 3 x 3 x 3 profitable expansion”.
It is through this ambitious Vision of progressive growth that moved Zain from a single operator in Kuwait at the beginning of 2003 to a company with a commercial presence in 22 countries by March 2009. The 3 x 3 x 3 is the strategy that will make Zain a global player in three stages regional, international and global, with each stage completed in three years, with an aim of reaching a customer base of 150 million. In essence, with this plan, Zain aims to achieve in nine years what other companies have taken more than 27 years to achieve.
Values “At Zain we become one international family, building on the outstanding progress we have made over the past five years, and adopting core values that remain constant irrespective of the different national cultures and identities that we share. These Values are: Radiance, Heart and Belonging. Radiance is about leading the way with imagination and vision, bringing joy, color, and richness to our business environment. Heart represents living our lives with courage and resolve, engaging our spirit and touching emotions. Belonging means exactly what it says … being part of the fellowship and community spirit that knows no territorial boundaries”.
ZAIN MARKET SHARE AND THE STATUS OF TELECOMMUNICATION SECTOR
Out of approximately 40 million people in Tanzania, a teledensity (penetration) of 36% as of June 2009 has been reached and this is viewed as possessing prospects in the telecoms sector. According to Tanzania Communication Regulatory Authority (TCRA) prior to 2005 the teledensity was below 10%. Statistics show Tanzania’s telecom sector grew by 20. 1 per cent in 2007, and 19. per cent in 2006 obviously due to the continual FDI conducive environment created by TCRA policies on telecom sector liberalization. Zain is ranking second with a market share of 30% while Vodacom is still leading the market with more subscriptions (40%).
CHALLENGING MANAGERIAL DECISION AREAS IN ZAIN TANZANIA-REAL CASES
CHOICE OF A PRODUCT
Zain Tanzania believes that customers have the right not only to extensive coverage and quality services but also to affordable tariffs. This concept makes the company to come with various products for instance one among them being PAMOJA 10 which enables the Zain subscribers to make voice calls to 10 selected favorite numbers at a call rate of 1/sec. Pamoja 10 is a direct response to Zain customers request and will conveniently enable people to make more calls for less. Since Zain is committed to live to her promise of creating a wonderful world to her customers.
Hence here we see that the economic question of what product and services to be produced being answered. More acquisition of subscribers was obtained and retention rate accelerated as a result of Pamoja 10 launch. This situation conforms to the demand theory. Following an extensive research done by Zain in Tanzania ,it was revealed that banking services and paying methods of various services is absolutely very inconvenient thus in February 2009 Zain Tanzania launched its brand new M-Banking service Zap for which 1,400 customers were signed only in 10 days period. Zap allows Zain customers to use their mobile phones as mobile wallet. Services payments via Zap include: LUKU power purchase, DAWASCO water bill payment, mobile banking using NMB and Postal bank.
DETERMINING THE PRICE OF A PRODUCT
According to Kottler and Keller, (2009) firms pass through a six-step procedure in setting the price and these include: selecting the pricing objective, determining demand, estimating costs, analyzing competitors’ costs, prices, and offers, selecting a pricing method and selecting the final prices.
Currently the mobile communication industry in Tanzania is of oligopoly nature and is facing price wars among its players i. e. , Zain, Tigo, Voda and Zantel. Price wars involve a state of intense competitive rivalry accompanied by multi-lateral series of price reduction. Tigo with its pricing objective being survival is always a prices leader in lowering tariffs. Zain Tanzania pursues a product-quality leadership pricing objective.
For instance, in December 2008 TIGO officially launched their Longa Longa 3 tariff for their cellular subscribers to a reduced rate of 1 sh. er second being a 65% tariff slash, for 24 hours throughout the country. When Tigo launched EXTREME sooner had it done so Zain and Voda followed by announcing their JIRUSHE and CHIZIKA respectively. Tigo EXTREME could enable an acquisition of a reasonable number of subs to shake the giants Zain and Vodacom.
CHOICE OF TECHNOLOGY
Cateora, Graham and Salwan, (2008) explain how demand is affected by technology in the global business-to-business markets by pinpointing that, “ Not only is technology the key to economic growth, but for many products it is also the competitive edge in today’s global markets.
The ability to develop the latest information technology and to benefit from its application is a critical factor in the international competitive of managers,, countries and companies. The competition to meet this global demand will be stiff; the companies with the competitive edge will be those whose products are technologically advanced, of the highest quality, and accompanied by world-class service. Zain Tanzania a MNE is very keen on availing the new technologies.
It was the first cellular operator to introduce the first GPRS/EDGE Service in Tanzania in September 2006 that enables data connections significantly faster than dial up and traditional GSM. Since technology is an important and expensive factor input the concept of production theory was much adhered to.
HOW TO PROMOTE SALES
Despite the profit maximization objective Zain Tanzania also has a number of other objectives including maximization of sales revenue. Thus the company does its best effort in promoting sales. Major decisions to revamp sales were done in May 2008 on the size of the sales force where the number of regional sales representatives was doubled. Concurrently, a 1,000-man freelance sales team was formed countrywide. Again, the theory of production was seriously checked since this includes labor as the factor input.
HOW TO MANAGE INVENTORY
Learning to manage inventory efficiently and correctly will allow a company to stock a sufficient quantity of product to meet customer needs. Not enough inventory causes delays and is bad for business. Excessive inventory costs money. It is crucial to manage inventory so that profit are maximized and costs are minimized. When Zain (then Celtel) commenced business in Tanzania in November 2001 only four shops were established; one in each zone that is, in Dar es salaam , Arusha, Iringa, and Mwanza which represented the respective zones of Coastal, North, South and Lake.
In 2005 the company decided to relocate the Iringa shop to Mbeya after learning that Iringa was not a representative potential strategically point for the Southern zone regions. However, the Iringa shop was not closed entirely but was given to a third party to run. As the number of subscribers grew a number of shops have since been opened including Unguja, Dodoma, Mororogro, and Mtwara.
CHOICE OF BUSINESS AND NATURE OF PRODUCT
In optimizing cost, many companies are coming up with an idea of outsourcing when it comes to the choice of business and nature of product. According to Wheelen and Hunger, (2008) outsourcing is purchasing from someone else a product or service that had been previously provided internally.
Outsourcing is becoming an increasingly important part of Strategic decision making and an important way to increase efficiency and often quality. Zain has recently (November 2009) decided to outsource its network operations to Nokia Siemens. The objective being delivery of improved quality of service and enhanced coverage for Zain. Many decisions of such nature had been done by Zain in the past for instance the outsourcing of distribution tasks to National Dealers, Min Distribution Centre (MDC), and Min Regional Distribution Centers (MRDC) .
IMPACT OF THE DECISIONS IN THE SHORT RUN AND LONG RUN
In my point of view I see that all managerial decisions have impacts whether positive or negative and that can happen in either short run or long run or both. Companies decision making activities are done under the conditions of risks and uncertainties arising due to various forces : political-legal, social- cultural, economical, technological as well industrial forces for example: the customers, creditors, suppliers, communities, special interest groups, employees/labor unions, shareholders, competitors, trade associations etc..
Further all the decisions are made on the basis of selecting the best out of available options with the objective of maximizing gains from the given scarce resources. In understanding the impact of decisions made in the course of daily operations in Zain Tanzania; let’s revisit the areas of managerial decisions as mentioned above:
IMPACT ON PRODUCT CHOICE
On launching Pamoja10 Zain Tanzania could attract a number of new acquisitions and hence increased its subscriber base but the product in the long run killed the existing Zain product of Pay phone service i. . , a public call service. Product cannibalization. Likewise, when Zain launched Jirushe, a product which allows customers to make call for the whole day for only T. Shs. 1,500 the impact was in a short run felt. Some of the corporate clients (companies customers with contractual billing systems/post paid) began requesting to be deactivated and return back to the traditional prepaid plan so that they could enjoy Jirushe tariff.
IMPACT ON PRICE SETTING
Due to the tense competition that Zain Tanzania is facing especially on the ngoing price wars in the industry Zain is becoming more of reactive than being proactive. Lowering prices with cost remaining the same; means cutting profits. This is logically done from mathematical expression that total profit equals total revenue minus total cost. Profit = Total Revenue – Total Cost Profit = PQ – C where P= Price, Q = Number of customer and C= Cost Scenario 1: When P is lowered while Q and C remaining the same, Profit will be less Scenario 2: When P is lowered and Q is raised with C remaining the same, Profit will be higher.
Hence, the lowering of price makes rational sense if and only if it is concomitantly with rising in customer number and where elasticity of demand is applicable. In this case profit maximization theory will be appreciated.
IMPACT ON THE CHOICE OF TECHNOLOGY
Certainly Zain Tanzania is the leader in technology here in Tanzania in the Telecommunication Industry inter alia. With the introduction of Zap, One Network, 3G. From the theory of production, Technology, T as an input variable is put in the Capital, K category because technology remains constant over a period of time.
The product function Qarpu = f (K, L) Where: Qarpu = Quantity measured in average revenue per user K = Capital as Technology L = Labor The production function above implies that the quantity of average revenue per user depends on the quantity of Technology/Capital input (K) and Labor (L) employed to promote the products. At Zain decisions to acquire new technology and use it is done in long run period whereby the supply of capital is elastic. The introduction of 3G technology for example, had to imply making a complete overhaul of its network Back bone and Base Transmission Stations (BTS).
IMPACT ON THE DECISIONS MADE TO PROMOTE SALES
By increasing the Sales work force last year, Zain’s new connections rate grew from an average of 7,000 new subscribers per day to an average of 12,000 subscribers per day that being an increase of 71%. Although, the doubling of the sales force created higher costs in terms of salaries, incentives and training needs but the company could enjoy the economies of scale particularly economies in production where always division of labor improves productivity of labor per unit of cost and time.
IMPACT FROM THE MANAGEMENT OF INVENTORY
Inventory control is a very important subject and its role cannot be ignored. My experience shows me that improper management of inventory always results in lost sales, and customer dissatisfaction. Zain Tanzania’s strategically establishment of shops, points of sales, dealer shops and customer care points countrywide shows its commitment towards serving its customers in marketing oriented manner and thus enjoying economies in transport and technology. According to Kotler and Keller (2009), inventory levels represent a major cost.
Inventory level increases at an accelerating rate as the customer-service level approaches 100%. They further argue that management needs to know how much sales and profits would increase as a result of carrying larger inventories and promising faster order fulfillment times, and then make a decision.
IMPACT ASSOCIATED WITH THE CHOICE OF BUSINESS AND NATURE OF PRODUCT
Perhaps the decision made by Zain Tanzania recently to outsource its network operations to Nokia Siemens is among the major decision done since its business commencement. One of the first incidences is the transfer of Zain Tanzania employees belonging to the network operations department Nokia Siemens.
The announcement of the decision ignited reactions and questioning their gratuity and terminal benefits entitlements. The company has possibly overlooked personnel issues in the outsourcing decision; this may lead to employee (labor- a factor input) loosing commitment to the firm and hence affecting productivity negatively. The significant advantages of this outsourcing are that Nokia Siemens Networks is a market leader in managing outsourced networks. Moreover, Zain will be in a stronger position to dedicate resources and assets to its core business operations, continue to improve customer support, developing and launching new products, services.
CONCLUSION AND RECOMMENDATIONS
According to Wheelen and Hunger (2008), as organizations grow larger and more complex, with more uncertain environments, decisions becuome increasingly complicated and difficult to make. Most of the decisions made by Zain as illustrated above are more reactive in nature than proactive.
The two authors suggest the use of Mintzberg’s Modes of Strategic Decision Making which has four typical approaches: Entrepreneurial mode, Adaptive mode, Planning mode, and Logical incrementalism. From the perspective of Zain Tanzania’s provision of various products and services, it is hereby suggested that the company to keep on innovating new products and this can be achieved by investing in Research and Development (R & D). Certainly, managerial decisions can make rise to various impacts as explained above; it is therefore the responsibility of decision makers to bear in mind the interests of all stakeholders.
The example of misunderstanding between Zain Management and operations department staff who will be transferred to Nokia Siemens. Despite the global financial crisis the telecommunication sector in Tanzania is continuing to grow as shown in appendix iii and iv. Unfortunately, the data to show sectoral contribution in the development of Tanzania economy was not able to be obtained. But, definitely the data available in the appendix iii and iv shows a prosperous future in the sector and Zain has an opportunity of achieving its objective of being among the top ten global wireless operators by 2011.
