Assessment of Global Environment in the Telecommunications Industry - Research Paper Example

?Assessment of Global Business Environment Table of Contents Introduction 3 Changes in telecommunications industry due to globalization 4 Deregulation of the telecommunications sector 4 Creation of a new industry 5 Benefits of trade liberalization 6 Global factors affecting telecommunication industry 7 Impact of new technology on telecommunication industry 7 Market liberalization 10 Policy and regulation issues 10 Strategic choices for the global expansions 10 Conclusions and recommendations 12 Reference List 14 Introduction Globalization is a phenomenon that can be felt at the economic, social, political, cultural and personal levels. It might be described as an ‘umbrella term’ to illustrate its importance at the international, national, state and the local level. Under the process of globalization the world is viewed as a single global community. Due to such a vast structural change in the world economy, communication channels are bound to face a major change. The ways in which individuals and companies interact with one another have been altered significantly. One of the most noteworthy changes is in the aspect of speed with which people can interact with one another in the modern world. Communication methods have improved vastly over the last century and this has forced business organizations to reframe their means and purposes of communication with their employees, customers and other stakeholders. Advancement in technology has allowed the companies to reduce gaps in communication with their overseas markets. In the present business platform, companies are making efforts to move ahead of their services offered domestically and are striving to enter into new markets, particularly in the developing countries. High rate of technological development has helped participants in the global market to access these technological knowhow at a cheaper rate. Information flows across the geographical boundaries with greater speed and accuracy and reaches a larger population within a short period of time. Telecommunication technology plays an important role in this context. Globalization has cast a significant impact on the telecommunications industry and is in turn driving further improvements in the telecommunications technology. Changes in telecommunications industry due to globalization The telecommunications industry is changing rapidly under the influence of globalization. New state-of-the art technology and modern innovations have brought significant changes in the international as well as the domestic market of the United Kingdom. These radical changes in the global telecommunications industry are critical to the success of the firm. Several technological and political developments are currently occurring in this industry. The most distinctly recognizable changes are: Figure 1: Impacts of globalization (Source: Author’s creation) Deregulation of the telecommunications sector The telecommunications industry has a long history of its journey since 1884. With the ground breaking invention of telephone by Alexander Graham Bell in 1884, the telephone came into existence. However, it has come into common use several decades after this invention. The telecommunications industry gained a worldwide importance in the first three decades of the twentieth century. By the 1930s, this industry became stable and the telecommunication service providers became an important aspect for the international trade and commerce as well as for the defence sector. During this period the telecommunication sector was under the regulation of the national governments. However, as a result of globalization, liberalization policies were sweeping across the nations and its impact also touched the telecommunication industry (Bartle, 2005). In the mid 1950s, the United States of America (USA) first deregulated its telecommunications market. This set the example for the other countries to follow this path. Following the USA, countries in the Europe also began to deregulate the telecommunications markets in their country. Creation of a new industry The telecommunications industry has experienced major policy changes over the last four decades; the latest wave of privatization that engulfed almost all the developed and significant number of developing countries in the world, has turned the telecommunications industry into a dynamic and rapidly growing sector. Research studies show that these new developments have played a crucial role in creating new opportunities for the telecommunications companies around the world. With globalization, there has been considerable relaxation of the regulations that were previously exercised by the national government on the telecommunications companies. Such actions, in the late 1990s, have enthused different distinct industries operating globally, like telecommunications industry, entertainment industry, information technology industry, consumer electronics industry and the different mass media channels, to collaborate with one another. They converged to develop into an innovative industry, named, the ‘multimedia information industry’ (Chan-Olmsted and Jamison, 2001). This development has facilitated the telecommunications industry to widen its target customer base. At present every business firm operating in the open economies are clients to some telecommunication service provider. The government sector is also a major client for these companies. Nonetheless, the common population in almost all developed as well as developing countries are users of telecommunication service. The telecommunication service market has received a boost in the beginning of the twenty first century, with the rapidly increasing popularity of social media channels and mobile phones. There have been huge technological advances that allowed the telecommunication service providers to enter into contracts with the major players in the consumer electronics industry. This gave rise to the creation of high technology communication devices, such as the smart phones, tablets and other mobile personal assistance devices. Popularity of these devices is increasing rapidly with advances in their features and functionalities and reduction in their prices. However, it is also admitted by researchers that new threats have been generated as a result of these privatization policies on telecommunications service operators. These are threats of new entrants and lowering of price level in the industry. Benefits of trade liberalization With globalization, liberalization policies have been introduced into the telecommunications industry worldwide. Reduction of barriers in international trade leads to freer trade in the telecommunications sector, which in turn promises the delivery of a number of economic gains. Low barriers to trade implies higher investment in this sector, which would lead to the development of new products and improved product features, betterment of communication services and lower prices and additional investment. Recent research shows that free trade in telecommunication market has created a competitive business environment. As a result of higher competition, prices level has been lowered in the industry. Companies face customers that access their service for business purposes as well as personal usage. Increasing number of companies is entering into the telecommunication market, which is allowing customers to choose the service packages from a number of service providers. It provides customers with better choices as well as lower priced products. One of the most significant benefits is reduced price of international telecommunication services. In the international market for telephone services competition has increased significantly. Data on the last two decades shows that the economies that have allowed direct competition in their markets have achieved higher growth than the countries that maintain a monopoly business structure in their telecommunication sector. Differences in rates of growth owing to the pattern of market structure are visible more distinctly in the developing countries than in the developed countries (Braunstein, Jussawalla and Morris, n.d.). Global factors affecting telecommunication industry Impact of new technology on telecommunication industry Technological innovation is one of the most important factors that are affecting the telecommunication industry in the current decade. Development of high end technology has allowed higher access to this technological knowhow by the companies. It has influenced the way in which mobile networks are developing. Use of advanced technology in the globalized market is making connections wider and is helping the development of deeper networks. This is offering new opportunities to service providers to capture new markets. They can spread out their business geographically and expand their target customer segment in the existing market by bringing the customers of diverse demographic characteristics within the target group. Higher business opportunities are offered to manufacturers equipments, such as, handsets and other mobile devices. Technological advancements in other industries, such as, the consumer electronics, have influenced the growth of the global telecommunication industry. Figure 2: Technological developments (Source: Author’s creation) In the recent years, telecommunications have moved ahead of fixed lines telephones to mobile telephone devices. It has become highly integrated with the information technology (IT) industry. Therefore, it can be inferred that advances in information technology proportionately affect the telecommunication industry (Bourreau and Dogan, 2001). In particular, digitalization is one of the ground-breaking innovations in mobile telecommunications technology. It has changed the telecommunications landscape substantially. New methods of communication have been developed; the most popular means of communication are analog or digital services, cellular phone services, cordless telephones, faxing and paging services (Bourreau and Dogan, 2001). Use of cellular phone services has increased dramatically since the last decade of the twentieth century. Mobile phone subscribers are showing an increasing trend over this period. According to data published by the International Telecommunication Union (ITU), total number of subscribers of mobile phones in the globe increased from almost 145 million in 1996 to 1405 million in 2003 (ITU, 2002a). Data has also been collected to compare the pattern of fixed line use by the population of the world. The total number of subscribers of fixed line increased in this period from 738 million in 1996 to 1143 million in 2003 (ITU, 2002b). This comparison shows that the total number of mobile services subscribers increased by a proportion than the total number of fixed telephone subscribers. Digitalization of the telecommunications industry has cast another most important impact on the global performance of this industry. The process of digitalization allows the telecommunication service providers to overcome the barrier of geographical boundaries. Several companies are venturing out into the emerging economies and capturing these markets profitably (Pennings, Kranenburg and Hagedoorn, 2005). With the development of digital technological, a growing rate of convergence is being observed between the information technology industry and telecommunications industry. The later has become greatly dependent on the information technology industry for its technological developments and increased consumer service. The act of convergence of these industries is also known as, “digitalization of the telecommunications industry” (Pennings, Kranenburg and Hagedoorn, 2005). This process is an outcome of interplay of the following four areas: customers’ device, networking, network device and software used as a medium of communication (Chan-Olmsted and Jamison, 2001). In the era of globalization use of internet has almost become ubiquitous. The process of digitalization was kick-started as a direct influence of the internet in all spheres of the economy, such as, in the educational, political, commercial, entertainment and social. With higher use of internet, communication is facilitated. Various methods have been developed in which the internet is used for telecommunication purposes. The social media channels have become one of the most prevalent means of communication in the modern world (Barfield, Heiduk and Welfens, 2003). Market liberalization In the era of globalization, the national governments of many countries have allowed liberalization of their telecommunications industries. This provides wide opportunity to the global companies to engage in trade with these countries. Liberalization is often found to be followed by privatization. Higher privatization of the telecommunications sector in countries such as India and China indicates that a company based in a developed country, such as the United Kingdom, finds it inviting to enter into these foreign markets (Venkatram and Zhu, 2012). Policy and regulation issues Globalization has led to changes in the industrial policies of the telecommunications sector and brought about changes in the regulatory measures of the government bodies. It has affected every aspect of the open economies and there have been huge investment in the key areas, such as infrastructure, transportation, and communication. Good infrastructural facilities encourage entry of foreign companies into the developing economies. Cheap labour in these countries is available in abundant quantities and therefore, it increases comparative advantage of the companies that invest in these markets over the companies that only cater to the markets of developed economies (Venkatram and Zhu, 2012). Strategic choices for the global expansions With globalization, the international market for telecommunications has undergone turbulent changes in its structure. The companies in this industry are making broad changes in their operations and management with the aim of adapting to these changes. Firms are making changes in their strategic decision making to sustain competitive advantage and to improve their competitive positioning. Both short term and long term strategies are adopted by these companies. For the purpose of international expansion, the telecommunications company might adopt a “simple non-equity agreement or a partial or even full equity transaction” (Pennings, Kranenburg and Hagedoorn, 2005, p. 16). The non equity agreement refers to a short term contractual agreement signed between two companies. Joint venture or acquisition and merger refer to a longer term strategy that creates a new entity between the business partners. In the globalised world, partnerships are the most common method used by companies for international expansion. Partnerships are effective in entering into the new market since, on one hand, the foreign company would be able to receive the guidance of the local company while operating in the local market of the new economy, and on the other hand, the technological advancement and financial position of the foreign investor would be able help in improving the relative positioning of the firm in the foreign market (Campbell, 2011). A number of strategies are available for expansion of the UK based telecommunications company to a new foreign market. These are export orientation, global integration, export partnering, foreign subcontracting, licensing and franchising and business transfer. Figure 3: International expansion cube (Source: Panhans and Kaufmann, 2005) Conclusions and recommendations The telecommunications industry is passing through the phase of modernization and development since the mid twentieth century. Some of the major developments in this industry that has taken place currently are digitalization of telecommunication, introduction of mobile means of communication and the use of internet for communication purposes. There is a gradual trend of movement from a more regulated government owned sector to a more liberal privatized sector. At present the international market for telecommunication comprises of more privatized companies operating globally. In the twentieth century, the telecommunications industry has undergone a dramatic change. These changes have created several significant opportunities for the global companies and the degree of adaptations by the companies to these changes determines the extent of success that the company might achieve in the long run. Many countries are following liberalization policies with the aim of fully privatizing their telecommunications sector. This offers huge prospect of expansion and to the foreign companies. With these changes and advancements in the telecommunications industry along with the information technology industry, there is increased entry by new firms in the industry, leading to higher competition. Therefore, existing companies should make their decisions strategically with the aim of long term sustainable development. While new methods are developed for communication, companies offering these services to customers should take care of certain issues. Privacy of customers has to be guaranteed and the data transferred by the customers in the process of communication should be safely guarded (Dodd, 2012). Cloud computing and monetizing of data are two worthy opportunities that might be utilized by the telecommunication companies in the near future (Deloitte, 2013; Jaatun, Zhao and Rong, 2009). Along with advancements, the outlook of the market is also changing. Research shows the development of new industry, by the name of multimedia information industry. This industry is fusion of the IT industry and the telecommunications industry. It is considered the third generation industry that is expected to lead all other industries in the near future. Reference List Barfield, C. E., Heiduk, G. S. and Welfens, P. J. J., 2003. Internet, economic growth and globalization: Perspectives on the New Economy in Europe, Japan and the USA. Berlin: Springer. Bartle, I., 2005. Globalisation and EU Policy-making: The neo-liberal transformation of telecommunications and electricity. Manchester: Manchester University Press. Bourreau, M. and Dogan, P., 2001. Regulation and innovation in the telecommunications industry. Telecommunications Policy, 25, pp. 167-184. Braunstein, Y. M., Jussawalla, M. and Morris, S., n.d. Comparative Analysis of Telecommunications Globalization. [online] Available at: < http://www.usfca.edu/fac-staff/morriss/PTC.html > [Accessed 22 August 2013]. Campbell, D., 2011. Mergers and acquisitions in North America, Latin America, Asia and the Pacific. Netherlands: Kluwer Law International. Chan-Olmsted, S. and Jamison, M., 2001. Rivalry through alliances: Competitive strategy in the global telecommunications market. European Management Journal, 19 (3), pp. 317-331. Deloitte, 2013. 2013 Outlook on Telecommunications. [online] Available at: < http://www.deloitte.com/view/en_US/us/Industries/industry-outlook/839e85e47142b310VgnVCM2000003356f70aRCRD.htm > [Accessed 22 August 2013]. Dodd, A. Z., 2012. The essential guide to telecommunications. New Jersey: Prentice Hall. ITU, 2002a. ITU Free Statistics. [online] Available at: < http://www.itu.int/ITU-D/ict/statistics/at_glance/_page.print > [Accessed 22 August 2013]. ITU, 2002b. World Telecommunication Development Conference (WTDC–02). [online] Available at: [Accessed 22 August 2013]. Jaatun, M. G., Zhao, G. and Rong, C., 2009. Cloud computing: First international conference, CloudCom 2009, Beijing, China, December 1-4, 2009. Berlin: Springer. Panhans, D. and Kaufmann, L., 2005. International Expansion Strategies: A Research Efficient Framework and Its Application to the 10 EU Accession Countries. [pdf] Available at: < http://www.econbiz.de/archiv/myk/whumyk/controlling/expansion_strategies_framework.pdf > [Accessed 22 August 2013]. Pennings, J., Kranenburg, H. and Hagedoorn, J., 2005. Past, Present and Future of the Telecommunications Industry. [online] Available at: < http://arno.unimaas.nl/show.cgi?fid=3204 > [Accessed 22 August 2013]. Venkatram, R. and Zhu, X., 2012. An Analysis of Factors Influencing the Telecommunication Industry Growth: A Case Study of China and India. [pdf] Available at: < http://www.bth.se/fou/cuppsats.nsf/all/5bffd72081787744c1257a2c00516208/$file/BTH2012Venkatram.pdf > [Accessed 22 August 2013]. Read More