Value Chain Analysis of Singtel
Discuss about the Strategic Management for SingTel Case Study.
The SingTel Group is one of the best communications groups in Asia that provides diverse communication solutions and services such as data, fixed, mobile, info, internet communications technology, pay TV, and satellite. The market capitalization confirms it is the largest company on the Singapore Exchange. Following the group’s acquisition of Optus, it has become listed on the Australian Securities Exchange. Similarly, the company has become a long-term strategic investor in India, Thailand, Bangladesh, Pakistan, Philippines, and Indonesia, where the Group is the regional mobile operator (Hill & Jones 2007). In serving the expectations of multinational corporations, the company has established a strong network throughout Asia Pacific, the US, and Europe. The SingTel group serves over 383 million customers in twenty-five countries (Zamil & Hossan 2012).
Today, the Group continues to transform the Singaporean ICT and digital media. Despite liberalization since 2000, the company has remained the leading broadband, fixed line, and mobile operator. In 2007, the Group diversified into the entertainment industry when it launched the Mio TV (Alamgir & Anand 2008). SingTel group also launched high-speed fibre services that offer a unique application focusing on convergence, entertainment, and productivity enhancement for business and home users. SingTel and its affiliates have navigated challenges thus take advantage of new opportunities in the emerging markets. The company intends to review its investment opportunities in the emerging markets in Asia and strives to remain financially disciplined to evaluate new investment (Zamil & Hossan 2012). SingTel faces competitive pressure within specialty market. Therefore, the paper analyses SingTel’s strategic management strategies based on Singaporeans environment to allow it overcome the market battle.
Value chain analysis is one of the tools many managers use in identifying the key operational activities within the company’s value chain. With this strategy, the managers can achieve the firm’s sustainable competitive advantage because performs depend on the basic activities and value chain that is better than the rival companies (Zamil & Hossan 2012). SingTel has used the value chain framework to analyse the firm’s organizational strategic planning.
SingTel seems to have identified the core drivers behind the company’s growth regarding its three business segments. Its strategic priorities aim to help SingTel create an all-rounded service so as to improve its core enterprise business and consumer to enhance consumer experience (Albaum & Duerr 2008). The financial ratios showed in the company’s report shows SingTel has reported consistent increasing net profits. However, the revenues posted by its associates, Optus seem to be uninspiring, SingTel continues to invest in improving the mobile networks and related infrastructures to increase its market share. Compared to its competitors, SingTel has reported the highest net margin of about 21.94 percent thus justifying its profitability margins (NUS Invest 2015).
Financial Analysis
SingTel has further improved its profitability through diversification across services and markets. Indeed, the firm has diversified across regional markets as about 74 percent of its revenues come from overseas businesses and associates. To this effect, the company remains unexposed to any upsets in any market. Similarly, SingTel has taken necessary steps to diversify its services, notably the recent Trustwave acquisition. The valuation of the company’s business segment in Australia and Singapore would remain stable as the cash flows show its present value to be $4.19 as the warranted price. Consequently, the company’s return on investment in the FY 15A improved to 12.1% compared to 11.6% the firm registered in the FY14A (SingTel 2014).
Based on the company’s financial report, SingTel’s ROE has maintained consistency. However, its ROE appears to be lower than other telecoms in Singapore. The result could be due to the size of the firm as it continues to generate high REO as expected of a large company. In analysing the company’s profit margin, it is evident that SingTel’s profit margin is higher than its competitors such as StarHub and M1 (SingTel 2014). The results make the firm favourable regarding the profitability strength. Conversely, the company’s asset turnover is lower than its rival companies because of the continued acquisitions it has performed. Therefore, the goodwill from its joint ventures and acquisitions remain acceptable as its reputation and branding been helping it to pursue its business model (NUS Invest 2015).
A Resource-Based View (RBV)
The internal analysis of the firm considers the company’s physical and intangible assets and related resources that are essential in determining its performance as explained by Rothaermel (2013). In a competitive environment, companies have different cultures, experience, and management policies to enhance their efficiency strategies (Al-Debei & Avison 2011). It is critical for a company to formulate the best strategy to utilize its resources including intellectual rights, financial resources, and intangible resources. Zamil and Hossan (2012) argue that RBV has proposed a structured and formalized model address an organization’s strengths.
SingTel possesses inimitable, rare, valuable, and non-substitutable resources that form the basis of strengths. In most cases, the company has used these strengths to capitalize opportunities thus neutralizing the threats. SingTel and its subsidiaries have a strong mobile subscriber base beyond 380 million (Redwing 2014). The aggregated mobile subscriber base has made SingTel one of the largest or biggest operators in the region. Indeed, most of its peers and rivals can no longer match SingTel’s subscriber base. To this effect, SingTel’s subscriber base has formed the basis of its competitive advantage. Additionally, the company also has the potential to cross-sell and create new and unique products by making joint procurement of handsets, infrastructure, or content in the process (SingTel 2014). The company can thus defray total costs by reducing per unit costs thus form the basis of its competitive advantage thus make it possible to exploit its competitors in different markets.
Core Competencies
Similarly, the SingTel subscribers have increasingly enjoyed the use of the non-voice services such as the SMS and the Internet access. Redwing (2014) reported that the company had reported about 31 percent of its revenues from the traditional sources of voice services. Despite being the highest percentage of customers in Singapore, the company continues to trend upwards. The prospects augur well for the firm as the future traffic, and usage growth is becoming significant (García-Canal & Sánchez-Lorda 2007). Besides, the company has established strength in the raw subscriber numbers. In fact, its billing relationships with clients have become a considerable source competitive edge because it offers a convenient channel to market quickly. The intimate customer knowledge is a strategic asset the firm can utilize to improve its value chain. Finally, SingTel boasts of a strong financial base that has helped it invest in its foreign network. The Singapore’s operations have acted as a cash cow as they offer a consistent source of cash. With the continued growth of dividends has helped the company to mitigate the volatile contribution (SingTel 2007).
Source: Rothaermel 2013: 5.
PESTLE Analysis
Indonesia’s economy has experienced an unprecedented growth thus making it take its rightful position in the world. The country has become the best destination for FDI (foreign direct investment). The country is the third largest wireless market in the region based on the subscribers’ population. By 2010, the country had about 235.8 million wireless subscribers. The SIM penetration also stands at 96.6 percent compared to the 44.2 percent penetration rate of 2007. PESTLE analysis approach has provided the background to understand the business environment in this country.
Political-legal
Indonesia provides the best business environment because it has gone through a political transformation. As a vibrant democracy, the country has established a strong political structure. The investors and the leading conglomerates such as SingTel have developed a strong confidence in the country’s political system and stability. The country has become the investment and business destination as defined by the current political and global environment as highlighted by different parameters that define an emerging market. The government has also started embracing privatization and liberalization policies thus attracting new investors such as SingTel (Cayanan & Suan 2014; Hill & Jones 2014).
The economic system plays a necessary role because it controls the activities and operations of any organization such as SingTel. The country enjoys a large and youthful domestic market thus making the domestic consumer market the alluring attribute for SingTel and other investors. The Indonesian’s resilience to global financial crisis confirms the merits of the country’s immense economic and population self-reliance (GBG 2016). Since 2009, Indonesia has reported a steady growth in GDP due to a strong private consumption. With the expanding consumer credit and increasing incomes or expanding middle income population, the country is opening up the scope and scale of consumer market (SingTel 2007). SingTel has maximized the consumer boom, sustained economic growth, and relatively stable inflation to expand its market share. Indeed, the country’s demographics where fifty percent of the population are below thirty years thus making it a highly adaptive economy to new technology (Yu 2014).
Social-culture
Macro Environment Scan
Cultural factors have always affected the consumption trend in any country (Akhtar & Arinto 2009). The environment entails institutions and related forces affecting the country’s basic values, behaviours, perceptions, and preferences as explained by Ferrell and Hartline (2008). Since Indonesia’s largest people are Muslims, the SingTel has to capture this interest by using the culture to define its marketing strategy (GBG 2016). in Indonesia, many people live in the cities thus provides the best market for SingTel.
Technology
Indonesia has established own transport and communication systems that have attracted investors beyond the borders (Indonesia 2015). Today, the country has different new smartphone brands. Since many Indonesians prefer cell phones and landline, SingTel would benefit by serving the targeted market share. With the internet usage growing at an unprecedented rate, SingTel will benefit by expanding into the market (SingTel 2014). The Indonesia TV networks are good for private investors.
Porter’s Five Forces Model
The competitive analysis has always helped many companies in determining their current competitive conditions through collaborative networks. With the analysis, SingTel can anticipate profit, attractiveness, and collaboration of the telecommunication industry (SingTel 2014). The model is critical in defining the level of competitiveness of any industry as determined by the five forces including bargaining power of customers, bargaining power of suppliers, competitive rivalry, and threats of new entrants and substitutes.
In the optical fibre industry, it has become difficult to determine the supplier’s bargaining power because of the limited access to the relative information and resources. However, other four forces are significant and inevitable in the Indonesian industry. For the customers’ bargaining power, the customers in the Indonesian telecom industry have shown sensitivity to the pricing strategies of the fibre products (Hussainey et al. 2011). The customers pay attention to the pricing of any new fibre networks introduced into the market. Given the strength of SingTel in the international market, the company can use penetrating pricing strategy to attract more customers.
The threats of substitute products are inevitable in the industry, particularly in Indonesia. For instance, customers can turn to other internet connection services rather than the fibre products that offered by its competitors in the Indonesian market (Siagian & Titus 2012). Nevertheless, for customers who demand ultra-internet speed would have no option but to stick to the SingTel fibre services (Chng 2015). The service lacks a direct substitute in the Indonesian market due to its high speed. The competitive rivalry and new entrants are forces that have become unattractive in the industry because the dominant players control a significant market share. However, there is an opportunity for the retail service providers that have proved their worth in upgrading the internet services. Currently, in the Indonesian market, different service providers are dealing in the fibre products. With the liberalization of the telecoms industry, it appears anticipated that more retailers will get attracted to the industry.
The Indonesia’s telecoms industry remains dominated by three big operators including EX Axiata, Indosat, and Telkomsel (Chng 2015). The three big operators share eighty percent of their market share among them. Apart from the three big players, the industry also gets influenced by local handset companies and device manufacturers that have put on a brave face in fighting with the global players. Despite stiff competition in this industry, SingTel has undertaken a dual transformation to create value in executing its primary strategic priorities. Therefore, the Porter’s five forces strategy can help the firm to remain competitive beyond the reproach.
Merger and acquisition (M&A) strategy has become a common practice for many conglomerates to venture into the new markers. The market entry strategy benefits consumers and businesses (Zekiri & Angelova 2011). Lin (2013) argues that mergers have helped many companies to expand as the companies use their greater scale of operations to achieve cost-saving goals. Studies have indicated that many economic strategists have advised businesses to acquire other players to build up efficiency and scale (Ulrich, Boyd, & Hollensen 2012) indeed, mergers and acquisitions can help an organization to engage in R&D thus share the costs regarding these operations (Baker & Hart 2008). Interestingly, R&D activities have helped many companies to achieve innovative objectives and bring new services and products for customers.
Customers have incessantly valued products and services that have achieved a critical mass user levels as evident through the social network platforms. The mergers have aided companies engaged in similar businesses to remain attractive to customers. Mergers and acquisition that appears backward or forward integrated can offer a better control of supplies, managed transaction costs, and increase market access (Zekiri & Angelova 2011). Similarly, mergers have become significant for many successful enterprises such as SingTel to realize the value of their businesses. For example, SingTel opted to acquire the HungryGoWhere that is a food website ensured SingTel got rewarded for its innovation (Lin 2013).
The foreign market entry mode remains to be an institutional framework to allow such an organization’s human skills, products, management, and technology to enter into a new market (Christopher 2007; Johnson & Tellis 2008). The market entry mode, such as merger and acquisition, is a significant method that would allow the firm to deliver a company’s technology, product, financial and human resources. Thomas (2016) confirmed that SingTel bought a stake in Bharti Telecom that is the leading Thailand’s mobile operator. Under the share purchase agreement, SingTel would spend $2.47 billion to purchase the Thailand’s biggest mobile operator. The share placement and acquisitions will allow SingTel to expand across Africa and South Asia. Thomas (2016) affirmed that the acquisitions are part of its long-term strategy that exposes the firm to high-performing associates in the region.
SingTel and Trustwave merger seems to focus on expansion goal as both companies want to address the issue of global digital security. SingTel wanted to acquire Trustwave Holdings at a value estimated to be $810 million (Airtel 2013; The Green Sheet, 2015). The Chicago-based information security organization will close after six months as part of the drafted agreement. The telecom conglomerate enjoys a strong customer base of about 500 million across 25 countries. The company has also used a similar strategy to expand in Thailand, Australia, and Philippines (Tungcab & Lacap 2014). Given the benefits of the strategy, SingTel will achieve its competitive advantage.
Conclusion
Based on the strategic analysis in this paper, it is evident that SingTel remains better positioned to handle fierce competitive pressure because the company rarely depends on the local market rather extends its expectations to the regional operations. The overseas markets and affiliates have contributed sizable revenue and profits thus give it a first-mover advantage. For many investors, strong companies are based on their operations and financial strength. The data reported by SingTel shows it is an impressive investment destination. The company has further depended on its competitive advantage to increase its market revenues and share by creating value for customers, shareholders, and owners. The discussions in this paper confirm the reasons why the firm is the largest telecommunications company.
The leading telecommunications operator in Singapore intends to use a breakthrough innovation to remain relevant to the market dynamics and expand into Indonesia to maximize the potential in this market. The firm’s international networks will benefit it by remaining competitive through the long-term strategy. With its continued expansion efforts, SingTel has opted for mergers and acquisitions strategy to become effective in its investment strategy. Indeed, its subsidies and associates have helped the firm to build flexible and diversified mechanism. The move has helped the company to become efficient in the Asia-Pacific region.
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