International Level of Strategic Decision of Etisalat - Case Study Example

 International Level of Strategic Decision of Etisalat Introduction Research scholars such as Daft and Weick (1984), Hofer and Schendel (1978), Daft et al (1988) have stated that the key purpose of management of any organization is to collect and analyze information from macro environment in order to take pertinent decisions for fulfilling strategic, operational and human resource objectives. These scholars have also suggested that, management needs to understand the macro environment in terms of global perspective in order to ensure sustainability of strategic, operational and human resource objectives of the organization. Research scholars such as Sapienza et al. (2006), Luo et al (2005) have revealed that economic globalization has forced companies with an objective of future growth to rethink about the implication of globalization in their management activities. Bianchi and Ostale (2006) have done an empirical study on relational matrix between globalization and management performance of various organizations; they found that, “success in the home countries does not guarantee success internationally.” Various research scholars such as Cort et al. (2007), Christophe and Lee (2005), Mariotti and Piscitello (2001) have pointed out that, firms need to rethink about their strategic, operational and human resource objectives while they are planning to go for internationalization of business. Pla-Barber and Escriba-Esteve (2006) have argued that, implication of globalization for management of an organization differs in accordance with economic development of a particular country. According to them, technologically advanced companies of developed economies can manipulate the opportunity lies in internationalising the process more efficiently in comparison to firms of developed economies. It is evident from the literature review that, understanding the implication of globalization for management is a pertinent issue for organizations; hence, the researcher has selected the topic: “What are the implications of globalization for the management of your organisation?” in order to write the essay. The researcher has selected Etisalat Nigeria as the Subject Company for accomplishing the assignment, analyzing implication of globalization on strategic, operational and human resource activities of Etisalat Nigeria will be the key objectives of this essay. Next section of the essay will deal with brief discussion of Etisalat Nigeria. Etisalat is a renowned multinational telecommunication organization which is headquartered at Abu Dhabi, United Arab Emirates. The company was established in the year 1976 (Etisalat, 2013). Etisalat has expanded their operations in 18 countries of Africa, Middle East and Asia in the last thirty-seven years. Etisalat entered in Nigeria by establishing strategic partnership with Mubadala Development Company and together they formed the telecommunication company named Emerging Markets Telecommunication Services (EMTS). Etisalat started their commercial operations in Nigeria in the year 2008. Etisalat acquired the Unified Access License from government of Nigeria in the year 2007; Unified Access License has helped Etisalat to provide 900 MHz and GSM 1800 internet band spectrum to customers of Nigeria. Recently, Etisalat has acquired 40% stake in Emerging Markets Telecommunication Services in order to increase their penetration in Nigerian market (Etisalat, 2013). Etisalat offers services like 3.75G HSPA, internet networks, telecommunication connections to Nigerian people. Etisalat emphasizes on acquisition of local talents of Nigeria in order to decrease the cost of outsourcing and enhance sustainability of business operation in the country. Etisalat was awarded as “Nigeria’s best network based on quality of service indices” by Nigerian Communications Commission (NCC) (Etisalat, 2013). Next portion of the study will analyze implication of globalization on strategic orientation of Etisalat Nigeria; the study will include theories like market based view and resource based view, such as core competencies, VRIO framework and value chain. 1.0 Strategic Perspective Porter (1980, 1985) has suggested that companies need to use market based views such as “five force frameworks”, in order to understand business dynamics of a particular market. Porter (1991) has also argued that firms need to develop their capabilities in order to fight against internal and external forces of a particular market in order to achieve sustainable competitive advantage. Etisalat has used different aspects of international strategic management such as scope of operations; distinctive competence and resource deployment, in order manipulate business opportunities in Nigeria. 1.1 Scope of Operation Etisalat has the scope of operation in particular service category of HSPA internet network solution, mobile connection service in Nigeria. Etisalat has used their domain expertise in providing high internet based telecommunication services in order to enhance their penetration in Nigerian market. 1.2 Distinctive competence Etisalat has the expertise in the field of providing quality network; integrating technological innovation in services and negotiation with the local government on issues like accessing spectrum license, network capacity increment etc. Etisalat has used all these skills in order to enter the Nigerian telecommunication scenario. Integrating latest technology in network service has helped Etisalat to deploy 3.75G HSPA internet access to Nigerian customers. 1.3 Resource deployment Etisalat emphasizes more on their UAE based operations; hence, they have deployed almost 50% of their capital resources in their UAE based operations and rest of the capital resources in international operations. In Nigeria, Etisalat has divided their financial investment on various service mixes in the following manner. Service Mix Percentage of capital investment Mobile Connection 51% Telephone Connection 8% Internet 10% Data services 12% Interconnect 10% Others 9% (Source: Etisalat, 2010) Internationalization strategy of Etisalat is driven by both international level drivers and business level drivers. International drivers can be analyzed by doing PEST analysis of Nigeria and business level drivers can be analyzed by doing five force analysis of the industry. 2.0 International Level of Strategic Decision of Etisalat 2.1 PEST analysis of Nigeria Political Government of Nigeria has reformed the banking sector in the country in order to enhance the scope for economic development of the country. Consolidation of banking system has improved financial condition of the country which has also increased purchasing power parity of Nigerian customers. Baah and Jauch (2009) have pointed out that Nigerian government has designed various incentive schemes for foreign companies in order to increase flow of foreign direct investment (FDI) in the country. Nigeria Investment Promotion Council helps foreign investors to invest in industries like real estate, telecommunication etc. Nigerian government also provides non-fiscal incentives to foreign telecommunication companies planning to invest in the country. Economic Central Intelligence Agency (2009) has reported that economic condition of Nigeria is unstable, which causes concern for foreign investors is planning to invest in Nigeria. GDP growth rate of for telecommunication industry in the country is more than 7% and the government of the country is also pushing the telecommunication sector by various incentive schemes to foreign investors. Deregulation policy of government has helped telecommunication industries in Nigeria to grow at a sustainable manner. Rise in FDI inflow in the first half of 2000’s can be explained in the following manner. (Source: United Nations Conference on Trade and Development, 2008) Social Central Intelligence Agency (2009) has reported that a major section of the population belong to the age group of 20 to 40 years; the young population shows great interest towards accessing high speed internet, by using mobile services. Foreign investors have the opportunity to target this young segment of the populations, who are keen to use telecommunication services as an integrated part of their daily life. Technological By 2001, privatization and liberalization of telecommunication industry in Nigeria has been done. In 2003, the country launched NigeriaSAT-1 satellite in order to improve the telecommunication scenario in the country. British Broadcasting Corporation (BBC) (2008) has reported that, Nigeria has launched NIGCOMSAT-1 which is a communication satellite in order to enhance the scope for broadband internet services, and telecommunication services in the country. Positive result of PEST analysis had given the confidence to Etisalat to invest in Nigerian telecommunication industry. Strategic risk analysis model can be used in order to understand investment decision of Etisalat for Nigerian telecommunication industry. Levels of Risk Opportunity Risk Level Potential Risk Potential Opportunity Macro-government Nigerian government provides various benefits such as non-fiscal incentives to foreign investors in order to increase FDI flow in the country. Etisalat had the opportunity to use government incentive schemes to proliferate their business in Nigeria. Micro- government Government has established Nigeria Investment Promotion Council in order to decrease the scope trade discrimination practices. Etisalat had the opportunity to expand their business in Nigeria by taking help from Investment Promotion Council. Macro & Micro societal Social stability of the country has decreased risk for riots, boycotts for foreign investors planning to invest in the country. Etisalat had the opportunity to use the talented human resource pool of Nigeria in order to expand their business in the country. 2.2 Industry Level of Strategic Decision of Etisalat The study will use Porter five force frameworks in order to understand the dynamics of telecommunication industry in Nigeria. Buyer Power Abundance of telecommunication service providers has decreased the switching cost for buyers; and the low switching cost has increased buyer power significantly in Nigeria. Undifferentiated nature of telecommunication service has also increased the scope for buyers to switch to new service providers without incurring much cost. In such a situation, Etisalat has emphasized on service differentiation in order to decrease the bargaining power of buyers. Supplier Power Mobile phone manufacturers and technological industries are two major suppliers for telecommunication companies. Availability of mobile phone manufacturers such as Apple, Samsung, Nokia, Research in Motion, HTC etc. has decreased supplier power significantly. Etisalat has used the benefit of low supplier power of the industry and established strategic alliances with renowned mobile manufacturers for providing telecommunication service to customers. Threat of New Entrant Establishing telecommunication business in Nigeria requires huge capital investment which has decreased the threat of new entrant significantly. The Government has established high start up mark for foreign investors who are planning to enter into Nigerian telecommunication scenario with the help of foreign direct investment or joint venture; high start up cost requirement has discouraged resource constrained players to enter into Nigerian telecommunication market. Etisalat established joint venture with Mubadala Development Company in order to meet the start up cost limit to enter Nigerian telecom market. Threat of Substitute As of now, very few substitutes are there for telecommunication services. Skype (internet telephone) can be a valid substitute for telecommunication services. Requirement of PC system has reduced the mobility factor of Skype; hence overall threat of substitute for the industry is low. Competitive Rivalry High entry and exit costs have decreased attractiveness of telecommunication industry of Nigeria. Consolidated nature of the market has decreased competitive threat for the industry. Companies like EMTS, M-TEL, Telenor and MTN are the major players in the market. Etisalat emphasized on improving quality of services in order to achieve competitive advantage over companies like M-TEL, Telenor and MTN. Research scholars such as Dierickx & Cool (1989), Grant (1991), Rumelt (1986), Barney (1986, 1991), Pfeffer (1994) have pointed out that, and companies need to use their internal resources in order to achieve competitive advantage in international market. According to these research scholars, industry level strategy of any organization should be backed by their tangible and intangible resources. Ma (2000) has argued that organizations should identify their resources as valuable, rare, inimitable and exploited in order to understand sustainability of their industry level strategy. Above mentioned resource based view can be used in order to understand value chain for Etisalat in Nigeria. 2.3 Value Chain Globalization has forced Etisalat to change the levels involved in value chain in order to decrease its cost of operations. The company has deconstructed its value chain in the following manner in order to increase average revenue per user (ARPU) and decrease churn rate. (Source: Li and Whalley, 2002) Etisalat has established myriad of network relationship with local partners in order to decrease overall value chain cost. The company has formed value network instead of value chain in order to achieve penetration in Nigerian market. Upstream activities of the value network of Etisalat include activities like: synchronizing Equipment & Software Layer, Connectivity Layer, Network Layer, Navigation Layer and Applications Layer in order to increase speed of the internet service; and downstream activities such as retailing the services to end users. Position of the partners in the value network of Etisalat can be explained in the following manner. (Source: Li and Whalley, 2002) It is evident from the value network of Etisalat that the company emphasizes on synchronizing activities of their equipment and infrastructural partners with activities of the intermediaries to provide high quality service to end users. Sustainability of Etisalat industry level strategy for Nigerian telecommunication market can be explained by using VRIO frame work. Valuable Rare Costly to Imitate Exploited Competitive Advantage Synchronization between intermediate layer(s) and external layers Yes Yes Yes Yes Sustainable Strong financial position Yes Yes Yes Yes Sustainable Strong network relationship with partners Yes Yes No No Temporary Etisalat uses polycentric disposition by tailoring strategic decision in accordance with cultural aspect of Nigeria. Etisalat has tailored the service offering as data-centric and higher value in accordance with the demand of Nigerian customers. Strategic approach of Etisalat can be explained on the grounds of political imperative, economic imperative, quality imperative and administration coordination. Political Imperative Etisalat cannot use one standardised strategy for Nigerian market because political circumstances and socio-cultural context of Nigeria differs from the other African countries. Economic Imperative Premium pricing policy for services might not help Etisalat to attract price sensitive Nigerian population. Quality Imperative Etisalat needs to ensure high quality for mobile internet services in order to attract Nigerian customers. Administrative Coordination Decentralized distribution of services might not help Etisalat to increase penetration in Nigerian market. 2.4 Generic Strategies Etisalat emphasizes on delivering world class telecommunication services to Nigerian customers by increasing skill inventory of customer-facing employees. The company uses “cost leadership strategy” as a part of generic strategies in order to increase customer intimacy level. The company has developed cost leadership strategy by emphasizing on redressing customer complaints, operational efficiency and decreasing cost of goods sold (COGS) (Etisalat, 2010).Etisalat has created a portal for routing the customer registration information in a simplified and streamlined manner, the portal is also capable of offering services such as SMS, voice mixing etc. in accordance with the preference of customers in a cost effective manner. 3.0 Operational Perspective Etisalat Nigeria uses mix of vertical and horizontal differentiation in order to develop its organizational structure in order to decrease scope of communication distortion between management personnel. Globalization has forced Etisalat to open a strategic business unit in Nigeria and the telecommunication giant has recruited local employees to run their Nigerian operation. Steven Evans (CEO of Etisalat Nigeria) has clarified the operation structure of the company to “Win Win” magazine, in an interview during the year 2011. According to the CEO of the company, Etisalat is a new entrant in Nigerian market in comparison to players who are operating in the country since many years. Emerging Markets Telecommunication Services followed the organizational structure of parent company in the UAE in order to avoid complexity. Steven Evans has stated that Emerging Markets Telecommunication Services faces various operational challenges in Nigeria, such as 1- lack of transport and power infrastructure in telecommunication industry, 2- lack of understanding about Nigerian culture, and 3- counterfeiting activities of third party vendors. Etisalat has centralised their operations in Nigeria in order to achieve better control over its operation in the country. According to Steven Evans, distribution of diesel engines to every single cell and security system of every cell are controlled centrally by managers of the company in order to decrease operational cost. According to the CEO of Etisalat Nigeria, the company focuses on increasing degree of formalization in business operations in order to decrease scope for role ambiguity among employees. According to Steven Evans, it is difficult to find local talents who have work experience of 20-25yrs in telecommunication due to two reasons: 1- Nigerian telecommunication industry has started operations just 10 years back; hence, companies need to recruit those Nigerians who’ve been working in foreign countries for many years and 2- hiring foreign expatriates for handling business operations in Nigeria will increase direct and indirect cost associated with business operations in the country. Emerging Markets Telecommunication Services has established strategic partnership with Huawei in order to use hybrid powers to solve energy storage problems. The CEO of Etisalat Nigeria has noted that operational efficiency of the company is dependents on its ability to incorporate product innovation in the service mix. For example, “home zone” application of Etisalat Nigeria helps customers to make calls at cheaper rate from any network zone. Positive response for “home zone” application in different part of the globe has forced Etisalat to launch the application in Nigerian market. Etisalat conducted rigorous market research on cultural context of Nigeria and purchasing behaviour of young generation of Nigeria, before launching “reverse charge calling” for Nigerian people. “Reverse charge calling” provides opportunity to customers to make call to home while no credit is available on their mobile phone. Low purchasing power parity of Nigerian customers has forced Etisalat to launch “reverse charge calling” in order to give them an opportunity to make calls at a lower price. The CEO of the company has pointed out that, emphasizing on equalization of on-net and off-net pricing has helped Etisalat to achieve significant amount of penetration in Nigerian telecommunication market. In Nigeria, Etisalat has changed their operational structure slightly by emphasizing heavily on data services. Data service occupies more than 50% of the service portfolio of Etisalat Nigeria. Mobile broadband is the only access path for using internet for Nigerian people due to non availability of fixed network in the country; such a situation has encouraged Etisalat to emphasize heavily on data services in Nigeria. According to the CEO of Etisalat Nigeria, the median age of Nigerian population is 19, which shows that the country is very young from the viewpoint of a marketer. Centralization of operational structure has helped Etisalat to offer their data services through a unified distribution channel. According to Cellular-News (2011), Etisalat has established strategic partnership with Alcatel-Lucent in order to manage mobile network in different cities of Nigeria. 4.0 Human Resource Perspective Morgan (1986) has pointed out that international human resource management (IHRM) is different from traditional human resource management model. The scholar has also pointed out that IHRM deals with countries of operation, cultural aspect of countries and characteristics of employees. Etisalat Nigeria needs to address three aspects of international human resource management, such as recruitment & selection, training & development and performance management. The company recruits candidates with more than 15 years of work experience from various countries of the globe for handling top level managerial responsibilities. Etisalat recruits local talents for handling job responsibilities which require low level of specialized skills, such as sales and distribution, customer support service etc (Etisalat, 2010). Etisalat started their operation in Nigeria by relocating sixty personnel from different units of the company while within last four years; the company has recruited more than five hundred Nigerian personnel in order to handle operational activities in the country. The UAE based company focuses on developing local talents in order to enhance scope for ethnocentrism. Etisalat Nigeria has designed a well structured training and development program for local employees in order to help them to understand cultural value of Etisalat, operational responsibilities, performance criteria etc. Mr. Saoud Al Shamsi (CEO of Etisalat) has stated that, Etisalat emphasizes on providing equal career growth opportunity to employees irrespective of their culture, gender and race (Etisalat, 2008). Etisalat conducts periodic knowledge session for their Nigerian employees in order to help them to remain up-to-date with the latest development in telecommunication industry. According to Al Shamsi, Etisalat offers quality training to Nigerian employees in order to empower them to fulfil multidimensional customer needs and handle issues related to fluctuating nature of Nigerian telecommunication industry. In Etisalat Nigeria, induction program for employees include multitude of topics, such as administration issues, customer care, contract procurement, regulatory affairs, finance, service mix, security etc. Cross sectional training of the company has helped employees to handle different types of job responsibilities during contingency period. Etisalat Nigeria tries to incorporate human resource management in a global perspective manner in order to encourage employees to offer high quality telecom services to Nigerian customers. In 2010, Etisalat took corporate initiatives to synergise individual effort of employees with performance reward. In the first phase, Etisalat has identified high-potential employees in Nigeria and then designed cross-regional and cross-functional training program for these high-potential employees. Etisalat Nigeria has also designed off-the-job development programs for employees in order to encourage them to share knowledge with other employees. Etisalat Nigeria has applied balance scorecard technique in order to measure performance of their human capital. Sustainability of a telecommunication company is dependent on its ability to satisfy customer demand; hence, Etisalat focuses on customer perspective of balance scorecard. Etisalat Nigeria measures performance gap for employees in terms of customer retention rate, customer satisfaction level, customer profitability, churn rate etc. Adopting balance scorecard techniques has helped Etisalat Nigeria to measure performance of employees in quantifiable manner. The Following value proposition framework can be used in order to understand the relationship between employee performance and value proposition of Etisalat. (Source: Kaplan and Norton, 1996) Measuring performance of employees on the basis of their capability to enhance different value quotients, such as brand image, service quality and relationship with customers helps Etisalat Nigeria to design suitable performance rewards for them. Etisalat Nigeria offers both financial and non-financial benefits such as recognition, career growth opportunity, and learning opportunity to employees on the basis of their annual performance. Conclusion It is evident from the above discussion that globalization has played an important role in encouraging Etisalat to enter Nigerian telecommunication industry. Etisalat has entered in Nigerian telecommunication in order to enhance their global business portfolio. Business opportunities in data service segment of Nigerian telecommunication industry have also played a vital role in encouraging Etisalat to enter in that country. Etisalat has redesigned their value chain structure and generic strategies in accordance with the situational demand in Nigeria. Etisalat has adopted international human resource management (IHRM) policy in order to develop human resource capital in Nigeria. Globalization has forced Etisalat to adopt centralized operational structure in Nigeria in order to decrease operational cost. Reference Baah, A. Y. and Jauch, H., 2009. Chinese Investment in Africa: A labour perspective. [online] Available at: [Accessed 25 January 2013]. Barney, J. B., 1986. 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