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total 3000 words: Organisation - Telkom South Africa Questions strategy theory applicacable models 1. Undertake a resource based analysis Telkom, South African telecommunications company comment implications analysis future strategy organisation
Telkom South Africa
The telecommunications industry is the fastest growing industry at an international level. It relies on innovation and developments and it impacts all aspects of life. The telecommunications industry in the Western Hemisphere is generically assumed as the leader of the world, possessing the most impressive resources and developing the most impressive technologies. Aside from the United States however, intense telecommunications is also present in Japan, China or Russia.
In the global discussion of telecommunications, South Africa is often overlooked as a region noteworthy of attention. Nevertheless, the African continent does possess an impressive telecommunications company, which operates in 38 countries and which could easily pose competition to the more commonly known westerner companies. This is the Telkom Group Limited and the current project seeks to assess its strategic efforts and match them with the resources it possesses.
2. Company and industry information
The Telkom Group Ltd. was founded in 1991 in Johannesburg, Transvaal Province. The company currently operates in 38 countries offering products such as wireless and wireline services, data hosting, telecommunications services and devices, broadband services or managed services. The company's services are centered in the regional hubs of Nigeria and Kenya, from where they spread throughout the 38 states served (Website of the Telkcom Group Ltd., 2011).
The Telkom Group has originally been a governmental institution, but today, only 39 per cent of the company is possessed by the government, with the rest of 61 per cent having been privatized. Still, the government has high stakes in the firm and the group encounters virtually no competition. This means that it is practically a monopoly, it maintains internet costs high and it raises populous discontent. The alternative solution identified by the population was that of using smaller size and niche sources of internet. These providers are however insignificant and do not pose severe competition for Telkom.
Aside from the competition, it is noted that the demand for the telecommunication services is directly pegged to the state of the economy, in the meaning that economic downturn generates decreased demand, whereas economic growth generates an increase in the demand for telecommunication services. A constant need within the industry is that of ensuring that the changing needs of the customers are served and that infrastructures are developed to serve these needs.
Larger size economic agents, like the Telkcom Group, compete based on economy of scale advantages, whereas smaller size companies can compete by developing and delivering specific products and services, which serve specific needs. The telecommunications industry is capital intensive, meaning that it raises significant financial barriers to entry (Hoovers, 2011). Such a context explains the monopoly detained by Telkom and the lack of competition.
In a numeric presentation, the telecommunications industry in South Africa is characterized by the following:
4.32 million main telephone lines in use, making the country as such the 34th largest state in terms of main telephone lines in use. The main line telephone infrastructure is the best developed one on the African continent.
46.436 million mobile telephones, making South Africa the 26th largest state in the world by mobile telephones operated by the population.
3.751 million internet hosts, the 24th largest internet providers' population on the world, and finally
4.42 million internet users, being the world's 54th largest internet using population (Central Intelligence Agency, 2011).
3. Resource-based analysis
The Telkom Group Limited is an intriguing organization on the African continent and it is safe to assume that it maintains its strong position as it possesses increased resources that consolidate its position. It for instance enjoys the support of the government, possesses large financial resources, regional expansion and the advantages of the scale economy. These generically represent the competitive advantages at the basis of its success. But a deeper look is required and this would be ensured through the lenses of the resource-based analysis.
The resource-based analysis is an organizational tool to assessing the strength of the economic agent through the lenses of the competitive advantages it possesses. These competitive advantages are generically understood as resources and sources for future growth and success. But in order for the resource to be solid and sustainable, it has to simultaneously meet four criteria. Specifically, it has to be valuable, rare, un-imitable and non-substitutable (Tsai).
a) Governmental support
Valuable feature: The South African government owns shares of almost 40 per cent in the Telkom Group (39 per cent to be accurate). This feature presents the company with advantages and opportunities for value creation in the meaning that it allows the Telkcom Group to be more competitive. In consequence, the fact that the governmental share in the company strengthens the company's competitive position makes it valuable.
Rare feature: The South African government does not possess significant shares in any other telecommunications company and it as such does not support the competition. This means that the resource of federal support is rare as well as valuable.
In-imitable feature: The governmental support is a feature which is either possessed through a solid contract with the federal authority, or it is not possessed at all. This virtually means that it is in-imitable as it is controlled and possessed only by Telkom to increase its competitive position.
Non-substitutable feature: Similar to the previous feature, the support from the government is also non-substitutable, meaning as such that Telkom's competitors cannot create this competitive advantage from other sources, meaning subsequently that they would not pose major competitive threats.
b) Regional expansion
Valuable feature: The Telkom Group expanded its operations into 38 states of the African continent. This advantage allows it to create value by accessing wider customer markets and increasing its sales and subsequently its revenues and profits. In other words, the regional expansion is a highly valuable resource.
Rare feature: The regional expansion resource is rare in comparison to other competitions in South Africa, and even other telecommunication companies in Africa. It is not however rare at a global scale, where the majority of the leading companies expanded not only regionally, but even globally. Nevertheless, the rare feature is possessed at a regional level, where Telkom activates.
In-imitable feature: Expanding the operations to a regional level is not an in-imitable feature, but it could be perceived as such through the lenses of the investments it requires. Since Telkom's competitors do not possess the resources necessary to such an expansion, this feature is assumed as possessed by Telkom alone.
Non-substitutable feature: The regional expansion is a strategic advantage difficult to substitute. It could be -- to a limited degree however -- be replaced with a more in-depth penetration of the local market. Yet, it would be difficult for any of Telkom's competitors to create substitutes for the company's expansion into the 38 states.
c) Scale economy advantages
Valuable feature: The advantages of the scale economy present the Telkom Group with opportunities to generate more value through actions such as the offering of higher quality products at more affordable prices, the development of the infrastructure, or the attraction of customers through efficient marketing and distribution operations.
Rare feature: The scale economy is a rare feature, not encountered at the level of any other telecommunication company in South Africa.
In-imitable feature: The scale economy cannot be imitated by any other type of business model.
Non-substitutable feature: The advantages of the scale economy cannot be substituted with any other advantages. In some limited situations, competitive companies can find alternative ways of being competitive, but the totality of the advantages of the economy of scale cannot be substituted.
d) Large financial resources
Valuable feature: In order to create any type of value, the company requires financial resources. And the Telkom Group possesses these vast resources which allow it to develop new products and services, create new infrastructures, expand into other markets and other such value creating operations. In other words then, the important financial resources it possesses are strong competitive advantages and valuable resources.
Rare feature: Financial resources are not, in their traditional manner, rare resources. They are the result of strategic actions and decisions which lead to the creation of financial resources. In the context of the South African telecommunications industry however, the financial resources are a strong competitive advantage of Telkom since its competitors do not possess such impressive financial resources.
In-imitable feature: Financial resources are present everywhere within the industry and they can as such be imitated. In the current scenario however, it would be difficult for any company to imitate the resources possessed by Telkom.
Non-substitutable feature: Finally, in terms of their substitutability, it is noted that the financial resources cannot be replaced. In some special and limited circumstances, they can be replaced with barter contracts. On the long-term however, the financial resources cannot be substituted and this adds to the competitive strength of the Telkom Group.
4. Strategy analysis
The scope of…[continue]
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