TeliaSonera Case Study free essay sample

In the competitive and rapidly growing telecom market, it is sometimes difficult to acquire market share and remain a lucrative, successful company. The former has not necessarily been an issue for the telecom company), TeliaSonera. Based in Stockholm, TeliaSonera is a major telecom provider, administering services throughout Eurasia. Amassing approximately 180 million customers, the company has dominated the telecom industry within the aforementioned region, garnering 105 billion SEK (16 billion US dollars) in revenues and an impressive 21. 2 SEK (3. 2 billion US dollars) in profits. The success of TeliaSonera in various telecom markets, however, is not indicative of the company’s struggles faced in global expansion. Although TeliaSonera has been successful within the telecom markets in Eurasia, the entity has experienced trouble within their European expansion due to a myriad of factors. Starting as a virtually unknown brand, TeliaSonera struggled with brand recognition, garnering market share, and overall success in the aforementioned markets. However they have been able to grow, as a company due to wise decision-making, an intrinsic understanding of the telecom industry, and a necessary will to please consumers. We will write a custom essay sample on TeliaSonera Case Study or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Whilst utilizing Porters Five Forces, SWOT analysis, and multiple types of critical analysis pertaining to markets, one can deduce what TeliaSonera is doing in order to be a prosperous, global telecom provider. 2 Introduction TeliaSonera is the fifth largest telephone operator in Europe, also operating in countries such as Azerbaijan, Belarus, Denmark, Estonia, Finland, Georgia, Kazakhstan, Latvia, Lithuania, Moldova, Nepal, Norway, Russia, Spain, Sweden, Tajikistan, Turkey, Ukraine, and Uzbekistan (Peng, 2013). Administering landline and mobile telephone services within the European region, the company operates in these countries under various brand names: Azercell, Geocell, Kcell, Moldcell, Ncell, MegaFon, Tcell, Turkcell, and Ucell, to name a few. The company initially started out as two separate entities. Telia, which was based in Sweden, was initially a state owned monopoly telephone company, which supplied customers with the very basic communication needs. This led to the lack of options for consumers, which posed a problem for the company. The telecom industry was constantly changing, and in order to keep up with the competitive market, Telia (known as Televerket at this time) began to take their organizational capabilities into consideration. New, privately owned companies were also entering the market as new investment opportunities were appearing due to the collapse of the Berlin Wall. This was a catalyst for the change to what was now a private and competitive company known as Telia AB in 1993. As the political climate changed, so did the telecom industry. After Finland gained independence, â€Å"850 private telecom companies united into a federation† (Peng, 2013). Now within Finland, there was one state owned Telecom Company and one private telecom company. The telephone operations of the company went along the commercial avenue and were introduced to the stock exchange as Sonera. Due to financial restrictions, Telia and Sonera came together in order to create fixed and mobile networks. The benefit of merging companies was apparent, due to Telia’s expertise in operating mobile companies within a varying number of countries. This experience was also instrumental in their success in an emerging economy. After the merger, operations within TeliaSonera were classified as such: 1. Mobility services 2. Broadband Services 3. Eurasia TeliaSonera, as a flourishing telecom operator, also provided services in what some may consider unorthodox regions. By supplying coverage in some mountain ranges, they have been able to differentiate themselves from other providers. However, this company was not always a pioneer in telecom industries. Through bouts of social and political change as well as technological advancements, TeliaSonera evolved in order to thrive in an ever growing, competitive market. Not only did the company acquire market share within the newly liberated Eastern Europe, TeliaSonera also focused on setting aggressive goals for its Eurasia operations. Those goals were: 1) Double-digit revenue growth 2) Defending the EBITDA margin 3) Taking a leading position in mobile data 4) Increasing ownership in core holding With these specific goals in place and a clear focus on garnering market share, TeliaSonera has been able to maintain successful and annual gains. These gains can also be attributed to the understanding TeliaSonera had of the telecom industry itself. By creating a brand visible throughout many countries, under many different brand names, TeliaSonera was able to garner brand loyalty via multiple local brands. By utilizing their business savvy and focusing on specific aspects of the market, the company was able to thrive, even through financial and political woes. As a newer company, TeliaSonera faced challenges, but continues to dominate in the telecom market due to their understanding of global business. 3 Analysis of the Eurasian Telecom Industry 3. 1 Challenges within the Telecom Industry Multinational companies have to face many challenges to succeed in foreign markets. There are some key concepts that should be taken into account when a multinational company is planning to expand into a foreign market. Among these are: Study the country’s customs and business etiquette, to get used to them before entering into their market. This means looking at their history, how they greet people, what you can or cannot do while you are in a business reunion, etc. Another fundamental factor is to study the country’s currency and its fluctuation in the past, so you can also have an idea of where it could be in the future. As currencies change daily, an operation that is discussed now but taken into action a month from now, is not going to have the same value. Furthermore, there needs to be a total understanding of the laws of the country the company is planning to expand to, as laws differ from country to country. Down the line, a critical factor is to test your product, among different demographic groups in order to see how they would respond to the product.. By doing this the company will know more or less what improvements should be done to make the product more appealing for the consumers. Last but not least, a company needs to study what its competitors have done before to enter into the market. A company needs to ask itself: †What were their advantages? What were their obstacles? What did they do right or wrong? † Starting from this point, a company will then need to figure out how its product differ from the product of its competitors and what will make its product more appealing for customers. Of particular importance for a company is also to well consider the Porter’s five forces model, which has been discussed in deep in the previous part of this paper. 3. 1. 1 Resources and Capabilities TeliaSonera has tangible and intangible resources and capabilities that drive its successful growth in the Eurasian market. The tangible ones are observable and quantifiable resources and capabilities. These can be divided into three categories: The intangible ones are those resources or capabilities that are not easily to observe or impossible to quantify. These fall into three categories: Physical: which are mobile towers and offices. Financial: cash, liquid securities (bonds, notes, and share), and credit lines. Technological: computers and phones. Human: talent and knowledge of its employees. Innovation: research and develop new products and services (edge, 3g, 4g). Reputational: their experience operating mobile companies in Asia, Africa, Latin America, and Europe. Also, they launched the first 4G network. (Peng, 2013) The value chain of TeliaSonera is composed by: Due to its technical resources, TeliaSonera has achieved a great customer understanding, facilitating areas, so they can be smoother and less problematic. With its capital, it has been able to make highly technological investments in comparison to its competitors in the region. These investments placed TeliaSonera in a leading position in most of the countries in which it operates its businesses. TeliaSonera’s success of its Eurasia expansion can be attributed to strong business and government ties developed throughout time in this region. 3. 1. 2 Market Penetration In contrast to developed countries in Europe, Eurasia market conditions gave TeliaSonera an opportunity for market penetration, since this countries are not as developed as the majority of countries in Europe, therefore, they rely more on mobile networks. Furthermore, the market penetration of the market in this region is not high, giving TeliaSonera a great potential on their network operations; and having less competitors usually results in higher margins of profit and a bigger market share. Another advantage is that Eurasian countries welcome foreign direct investment (FDI) for economic development. This is one of the main reasons why Eurasia was so appealing for TeliaSonera, driving its decision to make huge future investments. Another opportunity that TeliaSonera has taken advantage of can be referred to the demography in the Eurasian region, knowing that the population in Eurasia is a larger and younger population, which in turn is the number one consumer of technology. Being less than in developed countries, but showing an increase, data service revenues have been growing, showing a 16% increase in 2010. (Peng, 2013) 3. 1. 3 Alliances TeliaSonera was very familiar with forming alliances, since the company was formed by an alliance between Telia and Sonera. This has been a key factor for the success of TeliaSonera. Alliances and acquisitions were perfectly understood by the company and taken into action. With alliances and acquisitions in Eurasia, TeliaSonera had been able to spread throughout many countries, giving it a wider share of the market than it would have got if the company would have entered into the market without partnering with a local company. TeliaSonera understood this market perfectly, while other companies struggled to succeed in this market, TeliaSonera read the situation properly and was able to benefit from this One major threat for new entrants was the ongoing political and security crisis involving terrorists attacks and union strikes. In addition to that these underdeveloped countries were also suffering from poor telecommunication. In these particular cases,TeliaSonera’s strategy was well considered: it offered its world class telecommunication technology, also generating jobs for the local population. A perfect example is the company’s Nepal-case. When TeliaSonera came into Nepal; it increased the cell transmission towers from 300 to 1500 in three years. As a result, the people covered by TeliaSonera almost doubled from 44% to 80%. TeliaSonera created 500 solid jobs in different positions for the local people of Nepal. (Peng, 2013) In order to differentiate itself from the competition and to improve the company’s performance, TeliaSonera implemented a branding strategy to expand its services under one brand image. That gave the company a good reputation of a strong multinational company with a good service. As the CEO and president of TeliaSonera explained: â€Å"Our strength lies in the combination of two features: leading and local. We are one of Europe’s leading operators with international strength and reach. At the same time, we have strong local brands and operate very close to our customers on each market. Therefore, it is natural to keep the name of the strong local brands but adding a unifying visual brand symbol. This strategy also clearly differentiates us from our competitors. † This particular and kind of unique strategy helped the company hold its leading position in the market. Turning out to be a success, TeliaSonera applied this strategy from the Nordic and Baltic region to the Eurasia countries. 3. 2 Evaluation of the Eurasian Telecom Industry through Porter’s Five Forces Model When a company plans to expand globally into new market areas, the specific market environment should be assessed carefully. Through Porter’s five forces model a company is able to determine the competitiveness of a certain market. According to Porter, the collective strength of five major forces determines the ultimate profit potential of an industry. Whatever the collective strength of the five forces is, a company’s strategy should be formulated in such way that the company is able to defend itself against these particular forces or influence them in its own favor. (Porter, The Five Competitive Forces That Shape Strategy, 2008) Porter’s five forces are as follows: (Porter, Harvard Business Review, 2008) In order to characterize the competitive intensity and attractiveness of the telecom industry in Eurasia, the Porter’s five forces model can also be used. 3. 2. 1 Threat of New Entrants: In general, the telecom industry is a very capital-intensive industry, which means that companies that want to enter this particular industry have to face huge capital requirements. For this reason, as biggest barrier to entry access to finance can be cited. Among these, capital requirements of the telecom industry in Eurasia are, for example, liabilities in terms of infrastructure and related fix costs. TeliaSonera had not only the required capital to engage in the telecom industry in Eurasia, it also had the technical know-how to specifically invest in the infrastructure in this region. The technological knowledge and better quality network gave TeliaSonera a leading edge in Eurasia compared to local competitors, and that minimized the threat of new entrants to the market. In addition to that, in Eurasia, weak institutional settings were quite common, especially in former Soviet Union countries. Despite each country in Eurasia is in a different phase of transition to market economy, the economic, legal, and regulatory systems are still highly bureaucratic and risky. This ambiguity in the institutional frameworks can also be viewed as barrier to entry, since they bring additional risk for businesses and also increase the costs of investments. To conclude, due to high barriers to entry in the Eurasian telecom market, the threat of new entrants can be evaluated as quite low. 3. 2. 2 Power of Suppliers: TeliaSonera’s first step to expand to the Eurasian telecom market was to leverage its decades of telecom expertise developed in Nordic countries in the developing countries of Eurasia region. Moreover, the company heavily invested in the infrastructure in order to improve the quality of its network in Eurasia. Taking all the aforementioned facts into consideration, it can be concluded that TeliaSonera mostly supplies itself with the required equipment for its offered products and services. Additionally, there are a number of large equipment makers around the world. This means, that if TeliaSonera would not be able to supply itself with the necessary equipment, it could purchase it from the respective suppliers. The fact that TeliaSonera seems to supply itself and that there are a number of suppliers available dilutes the bargaining power of suppliers, and can therefore, be considered as low. 3. 2. 3 Power of Buyers: With an increasing choice of telecom products and services, the bargaining power of buyers is constantly rising. Nowadays, telephone and data services do not vary much, regardless of which company is selling them. However, TeliaSonera had a first-mover advantage in Eurasia, since it was the first big telecom company, which expanded into this region in order to exploit the opportunities of this growth market. The highly technological and better quality investments did not only provide TeliaSonera a leading edge in the region compared to local competitors, but this high investment cost turned into a larger and more satisfied customer base, upgrading TeliaSonera into the leading positions in most countries. In contrast to the European market, the intensity of rivalry was relatively low, and since TeliaSonera is at advantage over its competitors through better quality products and services, the power of buyers can be considered as relatively high – however, but not as high as in other regions, such as Europe. 3. 2. 4 Threat of Substitute Products or Services: The threat of substitutes in the telecom industry in Eurasia can be considered as low, as the market conditions in Eurasia countries present many opportunities for technology companies, such as TeliaSonera. In contrast to developed European countries, fixed networks are not as developed, which in turn makes these countries rely more on mobile services – which is one of the main services TeliaSonera is offering to its customers. Moreover, mobile penetration is lower in Eurasia than in TeliaSonera’s mature markets, offering a great deal of potential for the company’s mobile operations. Indeed, in developed countries, there are products and services from non-traditional telecom industries that pose serious substitution threats, such as satellite and cable TV operators. However, since the networks in Eurasia are much less developed than in regions, such as Europe, the threat of substitute products and services for TeliaSonera can be considered as relatively low. 3. 2. 5 Rivalry Among Existing Competitors: Compared to the European telecom market, there were fewer competitors, which enabled higher margins to be reaped. In addition to that, TeliaSonera savvily used alliances and acquisitions in order to expand to Eurasia. Through this strategy, TeliaSonera did not only bypass politically risky and institutionally ambiguous settings, it also reduced its number of competitors by acquiring or partnering with them. For this given reasons, the rivalry among existing competitors in the telecom industry in Eurasia can be considered as relatively calm. Using Porter’s five forces model to evaluate the collective strength of the five major forces that determine the ultimate profit potential of an industry, it can be concluded that TeliaSonera’s choice to use Eurasia as its growth engine was sophisticated and well considered. The company assessed the industry’s underlying structure in Eurasian region in terms of the five forces and could, therefore, effectively develop its strategy to successfully achieve its goals. To conclude, with regard to the Porter’s five forces model, the competitive intensity in Eurasia in general can be evaluated as relatively calm – especially, in comparison with TeliaSonera’s mature markets in Europe. However, not only the low level of competitive intensity but also the opportunities given by the Eurasian market make the expansion to this particular region attractive for TeliaSonera. For example, the certain market conditions of Eurasia result in a very high attractiveness, particularly for technology companies, such as TeliaSonera. Among these attractive market conditions are a larger and younger population that is the number one customer group of new technologies, because this provided a huge sales opportunity for TeliaSonera’s telecom services in the region and the fact that many Eurasia markets welcome foreign direct investments as a source of economic development. (Peng, 2013) 3. 3 TeliaSonera’s Main Challenges and Strategy 3. 3. 1 TeliaSonera’s Main Challenges Due to Institutional Frameworks In Eurasia, the institutional frameworks are either in transition from planned to market economy or relatively weak compared to Europe. Due to weak institutional settings, TeliaSonera had to face certain challenges in Eurasia countries that it had not to face in Europe. Although each country was, as mentioned, in a different phase of transition to market economy, the economic, legal, and regulatory systems were highly bureaucratic and risky, which lead to ambiguity in the institutional frameworks. This ambiguity resulted in additional risks for businesses, significantly increasing the costs of (necessary) investments companies had to make. One main challenge TeliaSonera had to face and which caused high risk to businesses in Eurasia can be attributed to the fact that regulatory systems in Eurasia were highly bureaucratic. Due to the high bureaucracy, companies could be prevented from essential business operations to be successful. For example, if a company wants to operate in a Eurasian country, it has to get permission for this, or if a company wants to build particular facilities, which it needs for its daily operations, it also needs permission – given by certain institutions. However, since the regulatory systems were highly bureaucratic it could take a very long time to get this particular permission – time in which the companies would lose profits they could gain, if they would be able to run their daily business. 3. 3. 2 TeliaSonera’s Strategy to Mitigate the Risk Caused by Institutional Frameworks In order to mitigate the risk caused by institutional frameworks of Eurasian countries, TeliaSonera developed a very successful strategy. First of all, TeliaSonera utilized its know-how specifically in infrastructure investments in the region. On the one hand, the highly technological and better quality network investments provided TeliaSonera a leading edge in the region compared to local competitors. On the other hand, the technology expertise of TeliaSonera reflected in infrastructure investments expedited the government relations and related bureaucratic issues. In other words, where other companies had to wait for government permission, TeliaSonera already got it and could successfully operate its daily businesses without suffering from delays. In addition to this, another part of TeliaSonera’s successful strategy was to utilize strong business and government ties, which means that TeliaSonera closely worked together with other important parties in the Eurasian market. (Peng, 2013) The following SWOT analysis provides the reader with a summary of all external and internal factors that influenced TeliaSonera’s expansion and successful business operations in Eurasia. Of particular importance are the company’s strengths, which it used in order to mitigate the external threats it had to face. Strengths Weaknesses Outstanding reputation High telecom expertise Excellent advertising and branding Relationships to businesses and governments Profitable company Collective power through merger of Telia and Sonera (2002) High liquidity Leading market position with around 150 million mobile customers Two successful mainstays in Europe and Eurasia, respectively Limited presence in Americas and growing economies Multiple Country government legislation impact Opportunities Threats Entry into 4G Commercial Networks Increasing demand for Mobile Broadband Strategic acquisitions and divestitures Growth in Telecommunications Services Weak industry regulations in Eurasia Rapid technological changes High bureaucracy in institutional frameworks in Eurasian countries Rapid technological changes Customer loyalty to local providers 4 Conclusions/Recommendations In conclusion, TeliaSonera is a successful global company, with the ability to venture even more so into global telecom markets. By analyzing the actions of the company using Porter’s Five Forces, it is clear that the telecom industry is very competitive, with the threat of new entrants at a steadily increasing rate. To maintain their status as one of the top providers within Eurasia, TeliaSonera should focus on new entrant possibilities. This threat of new entrants can be combated with multiple barriers to entry. By establishing barriers to entry in the telecom market in Eurasia, TeliaSonera will garner incumbent benefits, which will result in more market share for the company, while having some control of the amount of competition within said market. Even with a great deal of market share, TeliaSonera can always grow as a brand. In regards to untapped international markets, TeliaSonera will, in turn, be a new entrant, which means they must think of ways to differentiate themselves from the current incumbent companies that have acquired market share. As they have done in the past, TeliaSonera can enter various telecom markets via local brand alliances. By utilizing the brand recognition of local brands, they can establish themselves as a trustworthy company with consumers who are already dedicated to local brands. Technological advancements have also posed a great help in aiding new entrants gains in market share, whilst also moving the telecom industry forward as a whole. As mentioned before, TeliaSonera launched the first ever 4G network, which established it as one of the most reliable providers throughout Eurasia. By investing in research and development, they can make a similar impact in foreign markets. Also by keeping an ear to the public, TeliaSonera will continue to prosper if they are listening to their consumer base. The power of consumers is always an important factor to take into account when running a business. By responding to the needs of their consumers, TeliaSonera will be able to substantiate brand loyalty amongst consumers. In terms of the other aspects of Porter’s Five Forces, TeliaSonera has experienced little challenge, as the threat of substitute products within the domestic market is low. They do have several competitors, but this competition is healthy, giving them the ability to grow and change as an entity. When looking at TeliaSonera from a critical perspective, they are doing really well as they are a very new company. After the merger in 2002 the company made very wise decisions, utilizing social and political change as avenues of new market opportunities. When operating businesses in emerging economies, the unpredictability of the sometimes-unstable markets can pose a problem for new entrants. TeliaSonera navigated these problems with ease and can continue to do so if they do plan on becoming a true â€Å"global† entity.