Opportunities for Adam Internet to Export Services Abroad - Case Study Example

Name: Course: Institution: Tutor: Opportunities for Adam Internet to Export Services Abroad 1. Module One: Company and Product/Service Situation Analysis 1.1 Service Profile Adam internet is an Australian based information technology firm. The company provides internet services to individuals and businesses mainly in South Australia. The company has been in the industry for close to thirty years and has developed the capability to export its services to other countries. As an internet service provider, Adam Internet employs a wide range of technologies to enable consumers connect to each other through its network. Adam Internet’s business model is based on the hierarchical model of interconnection where all payments are made at one direction. This model is founded on the reasoning that internet services should be easily to stakeholders, that is the customers who use it to search information and communicate. Accordingly, the model is highly geared towards offering the best and high quality services to users (Adam Internet, n.d). There are many advantages that Adam Internet will gain by exporting its services to foreign countries. These include: increasing sales and profits; reduction of risks; balancing of growth and the economies of scale. According to Cheng and Kwan (2000), exporting is the best way of increasing sales potentials and neutralizing risks inherent in the domestic market. There are, however, a number of disadvantages for the company if it engages in export trade. One of these is that exporting services to foreign countries require a lot of capital expenditure. Secondly, the legal and political conditions in the foreign countries might not be favorable for the company’s business. Thirdly, exporting exposes the company to the risks inherent in the international market. 1.2 Current Market Profile Adam Internet provides its services to individual households, businesses and government agencies throughout much of South Australia and adjacent regions. Generally, consumers subscribe for desired data packages and therefore households and businesses from all income classes and lifestyles can be Adam Internet’s customers. There are two major trends that have impacted on Adam Internet’s current market profile. These are the increasing popularity of social websites and the increasing use of mobile technologies. According to the Australian Bureau of Statistics (2007), Australia has about 13 million internet subscribers, cutting across all age groups and income levels. These subscribers provide the major target market for Adam Internet’s products (Deloitte, 2012). Regarding frequency of product use, the internet is one of the products whose use cannot necessarily be limited to time. In general, most businesses and household subscribers use the internet almost on a daily basis. The company works in close cooperation with other internet service providers as well as other players in the telecommunication industry. The use of internet is the same in both the domestic and international markets. For this reason, Adam Internet will not be faced with the difficulty of modifying its services to suit usage in the international markets. Therefore, internet services are a booming business in Australia and the company stands to make huge profits by expanding its business to overseas markets. 1.3 Product/Service Industry Analysis The internet is an emerging and one of the fastest growing industries in Australia. By the end of 2011, Australia had 13 million internet subscribers and the number is projected to continue growing in the coming years (Harcourt, 2005). Throughout the world, countries are recognising the fact that a stable national telecommunication infrastructure is fundamental to national interest- both economically and socially. In light of this consideration, the Australian government has increased its involvement in telecommunication infrastructure. Government involvement in development of telecommunication infrastructure has been responsible for the rapid growth and adoption of the internet in Australia (Carson, 2007). In the last five years, the Australian internet industry has been among the most competitive and contributes about 50 billion dollars to the country’s GDP. It is a leading employers of choice in the country and it growth has led to the development of other businesses such as online marketing and e-banking. The internet industry in Australia is saturated with hundreds of internet service providers (both local and foreign) (Reynolds, 2007). The liberalization of Australia’s telecommunications market opened the gateway for foreign internet service providers to invest in Australia. Nevertheless, much of the market is dominated by local firms. A key trend in the industry is that it is subject to changes as market dynamics and consumer preferences change. As a result, industry operators are mastering the demands of regulatory and technological challenges while making efforts to be transparent, innovative and capable of bringing new services to the market (Benjamin, 2006). 1.4 Swot Analysis of Adam Internet Strengths i. Having been in the industry for more than 25 years, Adam Internet has established a reputable brand name, which is well trusted by it users. Its services are reliable, dependable and fast. The company requires little end-user marketing especially in South Australia as the name itself is getting enough word-of-mouth publicity. ii. Adam Internet has a simple business model and this enables it to give comprehensive services without confusing users. iii. The company has low operations costs as it relies on low-cost web servers. In addition, the company hires highly dedicated and well trained staff to help in research and development programs. iv. The company uses state-of-the-art technology to provide services to its consumers. Weaknesses i. Adam Internet is a relatively small company. The company has employed about 100 staff member and has a client base of less than 150, 000 subscribers. As such, the company’s revenue income is very low and may not allow it to compete effectively with large and well established internet service providers. ii. The company does not have personalized products by which it can charge customers with switching cost of they decide to leave its services. iii. The company’s services are only concentrated in one locality (South Australia) hence the company cannot enjoy a large customer base. Opportunity Analysis i. Because internet is a fast-growing industry, Adam Internet has immense opportunities for reaching new users or market segments and for creating new services. ii. The company can add unique services for handheld devices to capture the wider market that goes beyond the conventional internet. iii. The company can enhance it services by making acquisitions. iv. It can expand its market beyond Australia by establishing businesses in foreign countries. Threat Analysis i. Adam Internet relies on large internet service providers to purchase bundles, which it subdivides into smaller packages for final consumers. In case those contracts are terminated, the company can lose a considerable share of its income. ii. In Australia, there are no long term entry barriers in the internet industry. Many competitors can potentially merge in the coming years with similar services and can catch up with Adam Internet’s market. iii. Competition in the domestic industry is very high. Well established internet service providers with national coverage present the greatest threat to Adam Internet. iv. The company’s relatively small scale may be a liability if the company wants to come up with innovative and enhanced search techniques. v. If the company decides to merge with an already established brand, it will lose its well earned brand name. Module 2: Global Market Research There are three potential markets where Adam Internet can successfully export its services to. These are: The United States; China and New Zealand. The section that follows evaluates the attractiveness of each of these markets for Adam Internet’s products. 2.1 Attractiveness of the United States for Internet Investment The United States of America is the most economically developed country in the world. With a population of 305 million people and a population growth rate of 0.2%, the US is a major consumer of various goods and services (King & Greg, 2006). Administratively, the United States is a federal republic, consisting of 50 states with considerable degrees of political autonomy. The country’s economy is based on the free enterprise system and is coupled with an abundance of natural resources and a highly educated workforce. In 2010, the United States’ Gross Domestic Product hit the $20 trillion mark. The United States economy evolved from agriculture-based in the 19th century to a highly industrialized one during most of the 20th century. However, the last few years have witnessed the US economy increasingly become service based. In 2010, the US economy was severely affected by the global credit crunch. As a result, unemployment rate soared to 9.1% and the economic confidence rate fell significantly (James, 2012). The United States has good diplomatic, political and trade relationships and is a founder member in numerous free trade agreements such as NAFTA. The country has a comprehensive network of communication systems and a quickly growing market for wireless technologies such as the internet (Zeng, 2008). The transportation, sanitation and health services are well developed, extensive and varied. Generally, the United States legal and regulatory environment is a combination of consumer protection and open competition. The federal government retains the powers to regulate the conduct of businesses engaged in interstate transactions. For businesses that operate within a state, regulatory powers reside within the state and local government bodies. In the telecommunications industry, the US government does not exercise price or currency controls although minimum wages for employees are stipulated (Bertram, 2009). 2.2 Attractiveness of China for Internet Investment In the past two decades, China has risen to become one of the most important foreign investment markets in the world. China is the second largest economy in the world and the most populous country. With a population of about 1.4 billion people and a fast growing internet penetration, China has huge potentials for foreign investment in the internet sector (China Customs Burea, 2009). For a long time, China has enjoyed relative political stability, a factor that has ensured ongoing success of foreign trade relations with many countries. In 2001, China became a full-fledged member of the WTO. This strategic move opened China’s domestic market to foreign competitors. Moreover China is a founder member of various regional and international trade agreements, which implies absence of trade tariffs on some imported products (Bai, Yingjuan, Zhigang & Sarah, 2002). Technological capability and exchange rates are important macroeconomic factors that will greatly impact on the attractiveness of China for foreign investment. Logistics and distribution systems have been greatly improved by entry of multinational logistics companies into the country. China’s central and local governments have made considerable efforts to improve the country’s infrastructure including the transportation, water, sanitation and electricity systems. This has made it easier for consumers in rural and remote areas to gain access to a wide range of products including internet connection (Pei, 2001). Despite China’s rapid urbanization program, a great number of people still live in rural areas, some of which have poor access and connection to the country’s main infrastructural network. By international standards, China is an emerging economy and therefore most households are medium income earners. This together with the low cost of living in China presents a profitable market for investment in the internet sector (Zittrain & Edelman, 2003). The table below shows economic statistics for China. Population (millions) 1344.13 Population growth % 0.6 Interest rate (%) 6 GDP per capita US$ 2634 Balance of trade (billion US$) 26.66 Inflation rate (%) 2 Exports (billion US$) 177.97 Imports (billion US$) 151.31 GDP growth rate % 1.8 Unemployment rate % 4.1 Exchange rate 6.31 2.3 Investment Opportunities in New Zealand New Zealand is a highly developed economy with a stable political system. The government of New Zealand actively encourages foreign investment and the country has developed a state-of-the art infrastructure to support business activities in various sectors of the economy (Dalziel, 2002). New Zealand has developed a stable economy because of its close economic and political association with Western countries including the United States, Britain and Canada. In addition, New Zealand ha entered into a number of regional and international trades which allows unrestrained trade (Phil, 2006). The country’s telecommunication industry is highly modernized with internet penetration being one of the highest in the world. As such, the county provides good opportunities for foreigners to invest in the telecommunication industry (Rudman, 2009). The table below gives important economic statistics for New Zealand as at June, 2012: Economic Statistic New Zealand Population 4,433,100 Nominal GDP (NZ$ million) 202,018 Nominal GDP growth (%) 3.1 Real GDP (NZ$ million) 138,351 Real GDP growth (%) 1.7 Real GDP per capita (NZ$) 31,339 CPI inflation (%) 1.0 Unemployment rate (%) 6.8 Total merchandise exports NZ$ million 46,982 Total merchandise imports NZ$ million 47,835 Conclusion Export businesses provide opportunities for companies to increase their market share and sales revenues. The analysis above shows that there are opportunities for Adam Internet to export it services top foreign countries, particularly China, New Zealand and the United States. A major advantage with Adam’s business is that the internet is fast growing business and therefore exporting the services to foreign countries will be a major boost for the company’s investment. 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