Export Business Plan for Moldovan Cellular Phones

Purpose and Executive Summary

This plan has been written to guide the mobile phone export business of Moldovan Cellular Phones, Inc. Cell phones in Moldova are rapidly overtaking landlines, as many cellular phones now provide Internet access and function as pocket computers. SMS, MMS, and broadband are becoming standard features on cell phones. Nonetheless, mobile phones are expensive in Moldova and not everyone can afford them. Although Moldova has made significant progress in improving its telecommunications technology, room for improvement remains — handsets need to be upgraded to 4G, as the country currently operates predominantly at the 2G and 3G level. Moldovan Cellular Phones can find its niche by exporting refurbished, affordable mobile phones to Moldova, introducing competitive pricing policies and incentives, and providing Moldovans with quality mobile phones at prices they can afford. The potential for success is substantial.

Moldovan Cellular Phones, Inc. is a New York-based corporation that will acquire inventories of in-demand cellular phone products — including headsets, chargers, earpieces, and handsets — with the intent to distribute them to Moldovan wholesalers overseas and to establish a telecommunications network in Moldova. Cell phones in Moldova are rapidly overtaking landlines as Internet-capable devices become the norm. SMS, MMS, and broadband are becoming standard features, yet mobile phones remain expensive and inaccessible to a large portion of the population. Cellphones need to be upgraded to 4G, as they currently operate at 2G and 3G. Moldovan Cellular Phones can find its niche by exporting refurbished, affordable mobile phones, introducing competitive pricing and incentives, and providing Moldovans with quality devices at competitive prices.

Problems with doing business in Moldova include sporadic and ineffective enforcement of the law, economic and political uncertainty, and government interference. These factors tend to discourage foreign direct investment, but workable solutions can be found. Moldova is open to U.S. products and foreign business, has relaxed its rules on importing goods, and is generally encouraging toward foreign enterprises.

As regards the cellular phone industry, conditions in Moldova appear promising. Because Moldova is geographically a small country, telecommunications companies have managed to achieve good coverage in both wired and wireless communications infrastructure. Landline service is almost universally available, but most people — and especially younger generations — have shown enormous interest in mobile phones. Mobile communications infrastructure is fairly well developed and the number of mobile subscriptions is growing extremely fast, particularly compared to landline usage. High prices in the mobile sector remain a concern, and this is precisely where Moldovan Cellular Phones can export its services and undercut existing competitors.

The firm will export cellular phones to Moldova because Moldova is one of the poorest countries in Europe, struggling with technology and economic development across many sectors. Moldova is widely regarded as the poorest country in Eastern Europe — a region already known for economic hardship.

The rationale for exporting cellular phones and introducing cheaper telecommunications incentives is twofold. First, Moldova demonstrates a relatively high level of performance in telecommunications relative to its income, but service remains expensive. The fact that consumer interest in mobile products persists despite widespread poverty is encouraging — the company can profit from that interest by offering cheaper phones and more affordable plans. Second, Moldovans are actively seeking ways to improve their country's microeconomic standards, and technology is a key vehicle for doing so. Exporting computers or farm equipment was considered but deemed too complex and costly an undertaking. Cellular phones, by contrast, are attractive and essential wherever they are sold. Many Moldovans still lack reliable phone service. The cellular phone is more convenient, portable, and cost-effective than a landline, and can help Moldovans not only communicate in their personal lives but also participate more fully in their developing economic structure.

The company's intent is therefore to provide affordable cellular phones spanning a range of complexity — devices that Moldovans can use both at home and at work.

Moldova is reputed to be the poorest country in Eastern Europe. Since the collapse of the former Soviet Union, its trade has suffered a serious decline. Drought and civil conflict have exacerbated poverty, and the Russian ruble devaluation of 1998 pushed the country into further decline. Since 2000, Moldova has experienced modest growth and has made progress in economic reform since independence. The government has liberalized most prices and phased out subsidies on most basic consumer goods. A stock market opened in June 1995, and after the National Bank of Moldova increased its purchases on the foreign exchange market, the leu stabilized in November–December 2004 at 12.00–12.50 to the U.S. dollar.

The country has come a long way in developing a viable free-market economy. It recorded its fifth consecutive year of positive GDP growth in 2004, with year-end real GDP growth of 8%. This is impressive considering that, prior to 2000, Moldova had recorded only one year of positive GDP growth since independence.

Persistent challenges include clumsy government bureaucracy, corruption, and political and economic instability, all of which tend to discourage foreign direct investment. According to the Global Competitiveness Report, the biggest obstacles to conducting business in Moldova include access to financing, government corruption, and bureaucratic inefficiency. Nonetheless, Moldova is attracted to foreign business — particularly from the United States — and these problems can be surmounted.

Introduction: Why Export to Moldova

As regards the cellular phone industry, conditions in Moldova are promising. Because the country is small, telecommunications companies in Moldova have achieved good coverage in both wired and wireless infrastructure. Landline service is available in most settlements, but mobile phone usage is preferred and has grown exponentially in recent years. Prices remain high and technology lags behind Western standards, but this gap is precisely where Moldovan Cellular Phones can find its niche.

Moldovan Cellular Phones is a company that has invested time and resources into finding ways to give telecommunications systems higher capacity at lower cost. Cellular phones are among the most popular and indispensable consumer electronics in the world, with over 59 million subscribers globally.

Moldovan Cellular Phones will offer Moldovan consumers four categories of service plans:

Voice plans — the simplest and cheapest option, designed for private households and first-time cellular phone users.

International plans — suited for businesses whose owners and entrepreneurs need to stay in contact with colleagues in over 200 countries.

Data plans for business — a variety of plans for data-oriented devices such as smartphones and PC Card modems.

Situation Analysis

Plan features — Moldovan Cellular Phones will provide Moldovan businesses with the largest digital voice and data network in Moldova.

The company intends particularly to introduce these varied calling packages to arrest declining phone usage in the country, which is largely attributable to the tax burden and to residents' difficulty meeting basic daily needs. Free calling hours during parts of the day will also be offered to counteract the significant cutbacks in service that many cellular users have experienced at the start of each fiscal year. The introduction of quality yet affordable 4G-capable phones, combined with attractive incentives, will give Moldovan Cellular Phones its competitive edge.

With phones being primarily assembled in Moldova — where labor costs are low — the company can reduce production costs while enabling workers to communicate more effectively and efficiently. Costs can be further reduced by exporting refurbished cellular phones. The company will also export accessories such as headsets, adapters, batteries, and earpieces.

The company will additionally differentiate itself by offering 4G service — the fastest currently available — whereas Moldova currently operates predominantly on 3G networks. It is the goal of Moldovan Cellular Phones to become established as the leading distributor of wireless communications services in Moldova. To achieve this, the company will identify socioeconomic and political trends in Moldovan culture and integrate them into its operations, respond to technology challenges at the local level, provide high-quality services, invest in marketing and advertising, and remain ahead of Moldova's technology curve.

The mobile telephone market in Moldova is divided between two GSM carriers — Orange Moldova and Moldcell — and two CDMA carriers — Unité and Interdnestrcom. Orange Moldova became the country's first carrier, launching its network in 1998 under the Voxtel brand. Two years later, TeliaSonera introduced the Moldcell brand, followed by Moldtelecom, which became the third carrier in 2007 with the Unité brand. That same year, Eventis attempted to compete but ultimately failed and declared bankruptcy in 2010.

Following the War of Transnistria in the early 1990s, the Transnistrian government barred many companies — including most telecommunications firms — from operating in the region. The only carrier permitted was Interdnestrcom (IDC), which began operations in 1998.

Moldovan Cellular Phones therefore faces competition from Orange Moldova, Moldcell, Unité, and Interdnestrcom, each of which has its own established brand. Moldovan Cellular Phones will not compete primarily by introducing additional brands but rather by launching more affordable prices and plans, undercutting existing carriers on cost.

Market coverage: Competition is substantial and brands are diverse, but the mobile market in Moldova remains technologically limited — still operating largely at 3G with occasional service disruptions. While geographic coverage is less of an issue given the country's small territory, carriers continue to use methods that Western carriers have long since improved upon. Prices are extremely high compared to other CIS and EU countries and have, in fact, increased over the years rather than declining. The same pattern exists for mobile Internet access: high prices and low monthly data caps compared to Western markets, particularly the United States.

Despite these limitations, mobile phone subscriptions are high. The first millionth subscription was registered in September 2005, and since then the number has nearly tripled to exceed 3,715,000 — more than the estimated population of the country itself, placing mobile penetration above 100%.

Market share: In September 2009, Moldova became the first country in the world to launch high-definition voice services (HD voice) for mobile phones and the first country in Europe to launch 14.4 Mbit/s mobile broadband at a national scale, with coverage exceeding 40% of the population.

The company's mission is to develop Moldovan Cellular Phones into a profitable enterprise by sourcing in-demand, affordable cellular products for distribution to major wholesalers and retailers in Moldova, while also establishing itself as a telecommunications service provider offering improved, cost-effective services.

Short-term goals include: developing an online presence through a company website and registration with online directories; and establishing relationships with wholesalers, retailers, and distributors in Moldova while gaining familiarity with local policies, competitive dynamics, and operational challenges.

Over the next three years, Moldovan Cellular Phones plans to sell 300 cellular phones and generate $600,000 in revenue. The company expects strong growth from the outset and intends to aggressively develop a network of wholesalers and major retailers that will purchase inventories and introduce them to the Moldovan market, while simultaneously marketing itself through free, low-cost, high-quality services and products.

The following programs and resources will be approached for information about the region and guidance on market entry: the U.S. Department of Commerce; World Trade Centers; the Chamber of Commerce; the company's bank (including the National Bank of Moldova); state export assistance programs; the Small Business Administration; Small Business Development Centers at local universities; and export hotline directories.

First screening — basic need potential: Mobile phones are more popular than landlines in Moldova but suffer from outdated technology, archaic service practices, and high prices.

Second screening — financial and economic forces: Moldova is the poorest country in Eastern Europe. Drought and civil conflict have exacerbated poverty, and the 1998 Russian ruble devaluation caused significant economic damage. Since 2000, however, the country has experienced growth and made progress in economic reform. The government has liberalized most prices and phased out most consumer subsidies. GDP per capita (PPP) was approximately $3,400 in 2011, up from $3,200 in 2010 and $3,000 in 2009. The number of mobile subscriptions stood at 3,715,000 in 2011, representing a penetration level of 104.3%. Moldova had 4.285 million total subscribers in Q1 2010, representing a 106.4% penetration rate. The exchange rate stands at approximately 1 Moldovan leu = $0.08 USD. Moldova's inflation rate was recorded at 3.90% in October 2012, averaging 7.6% between 2007 and 2012, with a high of 16.9% in May 2008 and a low of -2.3% in September 2009.

Third screening — political and legal forces: There are no restrictions on importing cellular phones and related accessories, though delays and damage during transportation are possible risks. Price controls were eliminated gradually following economic liberalization initiated in January 1992, with all controls removed after May 1994. Moldova is extremely interested in purchasing American products and has continued to work with the EU toward economic integration.

Fourth screening — sociocultural forces: Many Moldovans identify culturally and linguistically as Romanian. The majority of the population — including non-ethnic Moldovans — are Orthodox Christians (approximately 98%), with small communities of Uniates, Seventh-Day Adventists, Baptists, Pentecostalists, Armenian Apostolics, Molokans, and Jews (approximately 1%). Moldova's education system is modeled on the Soviet system, with compulsory schooling from ages six to seventeen. Russian and Romanian are the primary languages of instruction. Most universities are state-owned, though some private academic institutions exist, and vocational and correspondence courses are widely available. The culture of Moldova combines Romanian and Soviet influences. The official state language is Moldovan/Romanian; Russian is also widely spoken. Ukrainian and Gagauz are recognized minority languages, and English and French are popular foreign languages taught in most schools.

Fifth screening — competitive forces: The mobile telephone market is divided between two GSM carriers (Orange Moldova and Moldcell) and two CDMA carriers (Unité and Interdnestrcom). As of 2011, market structure by number of users was: Orange Moldova at 57.3%, Moldcell at 36.6%, and Unité at 6.1%. Areas outside the capital Chișinău receive poor service. Some modernization is underway, particularly in urban centers, but new subscribers often face lengthy waits for service. Multiple private operators provide GSM mobile-cellular service. The GPRS system is being introduced, and a CDMA mobile telephone network began operations in 2007. The combined fixed-line and mobile-cellular teledensity is approximately 90 per 100 persons.

Moldovan Cellular Phones plans to conduct a field trip to Moldova in 2013 to observe market conditions, evaluate competitor strategies firsthand, and assess the best prospects for market entry. The company will also participate in Department of Commerce trade missions and trade missions organized by relevant state agencies or trade associations.