Introduction The ever-changing telecommunication industry is shaped by many factors in which if any players of the market is slow to react to consumer wants and needs, it will find itself soon out of business. Being a monopoly of Singapore telecommunication market, Singtel was previously able to earn large profits even if they were slow and inflexible to consumer demands. However such a regulatory advantage was removed in 1997 and in fact, they have lost a substantial market share to their new competitor within three weeks of entry.
Furthermore, as Singapore telecommunication market is reaching saturation, Singtel would find it less profitable to invest heavily in state-of- the art technology in its home country since the demand may be too small. Moreover the revolution of companies doing business globally shows that there are ample opportunities for Singtel to move from a single domestic market producer to doing business in multiple countries. This will be an opportunity to secure corporate clients who will require an integrated telecommunication service across several geographical regions in the world.
In addition, telecommunications provider could bundle a package of services that includes corporate lines as well as consumer lines as their marketing tactic, therefore Singtel faces the possibility of losing consumer business if they fail to capture the market for corporate lines. Looking at the telecommunications growth in other foreign countries (Exhibit 4), we see that many countries have increased their number of lines from year 1990 to 2000. For countries that have low growth rates, it could well indicate a high demand for basic telecommunication services in the coming years.
Thus if Singtel were to bring along its technological competencies and efficient production capabilities into such market, they could possibly capture the foreign market shares. As for the relatively affluent countries which already have the basic telecommunications services, Singtel could still introduce new telecommunications-related value added-services. Therefore with the large cash reserves and liberalization in many countries, the question is “How well can Singtel handle its global expansion plans? ”
Analysis- Overseas ventures One reason why Singtel went into the European telecom market was due to the high level of returns earned on capital due to a much bigger European market. Liberalization, being the other reason has allowed firms to be the second service providers for telecommunication services. This has led to Singtel being impetuous when it captured half the stake of Cambridge Cable (CC) and Yorkshire Cable Group (YCG) when it does not have sufficient knowledge and understanding of the European cable industry.
This was a wrong move at that time since the UK cable industry has reached its consolidation phrase and it will be difficult for Singtel to earn long-term profits to recoup its large investments in the two firms. Furthermore, we should consider if it is easy to integrate Singtel’s current capabilities with these cable firms. By acquiring half the stakes of the two large cable firms, it will be a challenge to coordinate and create synergies between Singtel and its subsidiaries.
While the reason for having strategic alliance with cable companies was justifiable on the ground that Singtel was able to gain access to their expertise on cable technology, Singtel should have kept the alliance with only one major cable firm. Since the cable industry is not growing much, a gain in revenue of CC may mean a loss in market share of YCG. In that case, it will be meaningless to put substantial investments into the two rival firms. Although eventually Singtel had a combine $128. million of capital gains for these two firms, initial resources channelled for these investments could be put to better use by building upon its current capabilities in areas of systems development, integration and maintenance. The investment in high-technology is important for its home country as Singapore telecommunications market have a higher demand for value-added services like Internet access and on-line multimedia services. The short lifespan of its investments in these two firms may erode investor’s confidence in Singtel as the latter may deem to be short-sighted and lack of a clear vision.
Singtel was attracted to Belgacom due to its similarity of geographical condition-a regional centre for international traffic on which the management team believes that would give Singtel a lot of learning exposure to deliver better services in its domestic market. However, as Europe is relatively more affluent than Asia, the level of services demanded by Asian firms may well be very different from Europe. Thus the transferable knowledge and skills adapted from the European market may be of limited use to the Asian market.
In addition, Singtel was hoping to learn from Belgacom to deal with competition at the time when Belgacom was still protected by the government. Despite the strong demand for telecommunication services in Europe, Belgacom was burdened by its poor management of staff that resulted in $2. 5 billion worth of unfunded pension liabilities. As a result, there were more problems than opportunities for Belgacom to focus on developing its telecommunication technology in order to compete with its rival firms. Thus, Singtel ended up pumping more resources to save Belgacom than to acquire new area of expertise.
This highlights the fact that Singtel should evaluate its investment thoroughly to understand the extent to which the investments will be able to complement Singtel’s current capability. Proposal for Strategy By year 2000, there exists a huge disparity for telecommunication needs in term of household and businesses amongst countries all over the world. For example, while UK may be looking for an integrated telephone and cable service, countries like China is only experiencing a growth in its telephone lines(Exhibit 4).
As such, the telecommunication markets vary and the choice of having a multi-domestic strategy best compliment this fact. As Singtel ventures into the different market, it should do so with a decentralize structure and emphasis on the local factors of influence. Such factors may be the threat of new entrants, bargaining power of buyers and suppliers threat of substitute products and rivalry among competing firms as adopted by Porter’s Five Forces. Moreover, to be responsive to the changes of the local needs and preference, its operating decisions should be made at the local level.
One of the drawback of employing this strategy will be having a weak corporate headquarter. This can be dangerous as competencies like good management of staff and effective use of logistical management techniques will only be localised and not flowing among its various investments. Even though Singtel has sufficient slack resources to develop their own technology infrastructure in other countries, it was a right move to carry out its ambitious ventures in Europe via acquisition and gaining strategic alliances with foreign firms.
Firstly, due to the liability of foreignness which revolves around the political, legal and social differences, it will be too risky for Singtel to fully commit their resources. In addition, by having strategic alliance as seen in the case of Belgacom, Singtel was able to gain access to resources and was able to combine expertise with six other partners[1]. This will improve Singtel’s learning curve and contribute to developing newer capabilities to enhance its competiveness in the local and foreign landscapes.
More importantly, it ensures a quick access to these foreign markets shaped by an ever-changing telecommunication industry. On the other hand, I would recommend Singtel to develop its wholly owned subsidiary for its ventures in Asia. Since Singtel is a Singapore-based company and Singapore is a regional hub for many economic and trade activities, it would not be difficult for Singapore to gain access to information of other Asian telecommunication market.
Moreover Singapore has better knowledge of Asian market as compared to the Western economies and this is evident as we see that most firms in Singapore will choose to enter the Asian market before venturing to the European region. Thus the concept of liability of foreignness will play a smaller role in its Asia ventures. In addition, Singtel has achieved high level of efficiency in its operations in Singapore and this competency is highly valuable in Asia markets like China and Indonesia which has lower purchasing power parity.
This means that in order to gain a foothold in such markets, Singtel has to employ a cost leadership strategy which it is capable of due to its operational efficiency. Thus with Singtel ability of offering world-class standard of service and low prices, it will ensure a high chance of success in these markets. As oppose to the case of Singtel’s strategic alliance in Belgacom where the former has limited role in management, Singtel will have a full control over its Asia operations.
Singtel will be able to set a strategic direction for these subsidiaries to align with headquarter as well as the ease of transferring competencies. This will then create a higher level of synergy between Singtel and its investments which is currently lacking as seen by the failed acquisitions. Although this mode of entry is the slowest, it will not impair the success of these investments has Asia economies are only beginning to open up and there is still a substantial demand for the basic phone lines.
Singtel could have achieved better results by being highly selective in its diversification strategy. There is no doubt that diversification helps to reduce fluctuations in revenue streams. For instance, when the entrance of its competitor in 1997 took away 30% of the mobile phone market sales, Singtel could look towards its foreign revenues for buffer. This will reduce shock on Singtel stakeholders and polish Singtel image as a mature firm with stable earnings. However with excessive diversification, it leads to coordination difficulty and the inability to really achieve economies of scale.
Furthermore, when Singtel has such extensive investments over a short period of time, it faces the possibility of not being able to pump in more resources when one or more of its investments undergo a rough time. Lastly, instead of embarking on a series of overly ambitious foreign ventures which majority of it did not succeed, perhaps Singtel should identify quality foreign ventures while channelling more of its resources for developing new technology. ———————– [1] Credit Communal, KBC/CBC Group, Sofina to form Belgian Financial Partners as well as Ameriteh, TeleDenmark and State of Belgium to form Belgacom
