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Competency of Telecommunication Companies
Historically, in the telecommunication industry, service quality has been largely determined by the monopolistic service providers. These suppliers either operated as the private companies under government regulation or consisting of government agencies themselves. Therefore, customers had minimum control over the services quality they consumed. However, the evolutionary of the telecoms technology began to transform with the simultaneous advent of telecoms liberalization in the U.S., UK and Japan in the mid-1980s. Liberalization created more flexibilities and opportunities for new entrants who would compete with the incumbents in these three countries - AT&T, British Telecom, and NTT (Fransman, 2004). ABC Country also followed the liberalization steps in the telecommunication industry, which resulted in government opened up the cellular service application by issuing licenses to commercial operators who are able to provide cellular service. The liberation causes the previous monopolistic government linked service provider needed to compete in the opened market like others. This liberalization and deregulation creates business competition and gives more choices and better service to the consumer. Traditionally, the IO approach to competitive analysis tells us that organizations should seek to create and maintain barriers that restrict potential competitors from entering the industry (Bharadwaj, Varadarajan, & Fahy, 1993; Gary Hamel & Prahalad, 1989; Lei & Slocum Jr., 2005; Porter, 1985). They should also strive to retain customers by making it less attractive for them to switch to competitors. The extent to which an organization is able to accomplish these objectives comprises its market control dimension and is a function of a number of factors, including characteristics of the industry, firm size, and stage in the organizational life cycle.
The Porter's five forces analysis of the telecommunication industry gives an overview of the competitive landscape (Barney, 1995). The entry barrier is high for new company, as license issued by government is limited and capital investment is high. The customers (subscribers) have medium to high power now because the mobile number portability (MNP) has been implemented (Buehler, Dewenter, & Haucap, 2006; Huan, Xu, & Li, 2005; Kim, Park, & Jeong, 2004). The suppliers have low power as telecommunication technologies has better inter-operability between suppliers' equipment driven by industry standardization. The competition among incumbents is fierce in terms of price and features of services. The substitution is emerging rapidly as more and more companies provide services such as low cost calling using VOIP and/or online chatting via smart phone application that is bundled with data package such as "Whatapps" and "Facebook."
In contrast the resource-based view (RBV) approach focus on identification and development of its resource, capability and competences after the thorough competitive analysis and strategy formulation of specific company to gain competitive advantage within the industry. (Bowman & Ambrosini, 2003; Coyne, 1986; Coyne, Hall, & Clifford, 1997; Fahy, 2000; Hall, 1992). Instead of looking to the external environment more, it directs the company focusing internally to define, measure, analyze, implement and control its own resources, capabilities and competences that are valuable to customers. Following this logic, Bowman and Faulkner (1997) noted the importance of value activity competitive strategies. Because buyers see price and not cost, they argued that sustainable competitive advantage is achieved by offering products or services that are perceived by customers to be: (1) better than those of the competition regardless of price; (2) equal to the competition but at a lower price; or (3) better and cheaper. Hence, Bowman and Faulkner asserted that prospective buyers do examine both price and perceived quality in making purchase decisions. As an example, Xerox's intense interest in measuring customer satisfaction sprang from a set of beliefs that we share. High quality products and associated services designed to meet customer needs will create high levels of customer satisfaction. This high level of satisfaction will lead to greatly increased customer loyalty. And increased customer loyalty is the single most important driver of long-term financial performance (Jones & Sasser, 1995).
This research project attempted to explore the competitive landscape of the cellular telecommunication industry in ABC Country. First, it set the scene by describing the vast array of literature on organizational competencies and strategies formulation in the competitive environment. Secondly, it developed a model framework and postulated several hypotheses, based on the RBV approach, specifically the service quality, network quality that drives customer satisfaction and loyalty towards a company. Then customer survey data was collected and analyzed to support the evidence. Lastly, conclusions of the model framework and corresponding hypotheses results were discussed. Despite the cutthroat competitive landscape, cellular companies firms can be benefited from the understanding of the competencies approach to develop sustainable competitive advantage.
Organizations can display three types of market control: (1) control over market access available to prospective competitors (i.e. entry barriers); (2) control over suppliers, and (3) control over customer access to competitors (i.e. switching costs) (Jones, Mothersbaugh, & Beatty, 2000, 2002; Parnell, 2006). Many airlines, for example, attach future benefits to their tickets by introducing frequent flier programs to reward customers who fly with one or a limited number of airlines. For example, some airlines' programs rewards customers who complete a given number of miles within a 12-month period, which effectively increase the switching cost to another airline. However, in the deregulated industry, these controls will be taken away from the existing operators. For example, consumers who switched providers were not able to keep their telephone numbers before the portability of phone number was introduced. Thus, consumers were reluctant to switch to other operator to avoid the hassle associated with alerting friends and business associates of the new number. With the implementation of mobile number portability between operators in ABC Country, the subscribers are not restricted to maintain the account with their current operator just because of the inconvenience attributed to changing phone number.
The customer loyalty programme can be measured through key performance index (KPI). The number of subscribers and the ARPU (average revenue per user) can define the performance KPI of cellular operator. The number of subscribers can increase through aggressive marketing using 4P; price/package, product features, place (coverage locations) and promotions. The ARPU is the monthly charge incurred by customers. Over the years unit rate of talk time has been reducing drastically due to strong competition. In addition, either due to technology advances where customer can resort to VOIP for long distance communication using their computer and smart phone or using the low cost calling card for cellular. Therefore, ARPU is reduced. Operators are constantly devising new service such as MMS, 3G video phone call and internet data plan to boost the falling ARPU. The erosion of ARPU will be more pronounce when market penetration is reaching 100%. This is the scenario facing the ABC Country operators now. The retention of existing customers would be important as MNP is being implemented. The basis of keeping the customer is when customer is totally satisfied and delighted (T. O. Jones & Sasser, 1995). Customer satisfaction alone is not sufficient to predict the customer behavior; customer loyalty is a better indicator to customer retention and therefore firm performance (Bowen & Chen, 2001; Oliver, 1999; Sivadas & Baker-Prewitt, 2000).
1.1 Competencies, Strategies and Competitive Advantages
The rise of the information age has played a vital role in the renewed interest in firm resources. As physical boundaries weakening in importance and transaction speed increased, the ability to draw clear industry and strategic group lines as a basis for strategy formulation becomes more of a challenge. Sustaining competitive advantage becomes a key concern in an environment where competitive and customer information seemed to be freely available. Hence, a focus on organizational resources that would enable a firm to establish and sustain competitive advantage in a faster, more complex environment becomes closely correlated (Parnell, 2006).
Resources and capabilities do not automatically give a business a competitive advantage (Bharadwaj, Varadarajan, & Fahy, 1993). It entails the coordinate effort in the exploitation. Capabilities are a special type of resource, in that they are firm specific and enhance the productivity of a firm's other resources. Creating capabilities is not simply a matter of assembling a team of resources: capabilities involve complex patterns of coordination between people and other resources (Grant, 1991). Competence is the ability of an organization to sustain coordinated deployments of resources and capabilities in ways that promise to help the organization to achieve its goals (Sanchez & Heene, 1997). While resources are the source of a firm's capabilities, capabilities are the main source of its competitive advantage (Grant, 1991). When the competence serves as a source of a firm's competitive advantage over its rivals, it is called the firm's core competence (Hitt, Ireland, & Hoskisson, 2005). The notion of core competences, particularly technological competences has long been part of strategic thinking. As long ago as 1957 Selznick used the term distinctive competence to denote what a particular business was uniquely good at by comparison with its close competitors. A firm can utilize its resources and capabilities to build competences that provide the competitive advantage over competitors and hence achieve above…[continue]
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