The ever-changing telecommunication industry is shaped by many factors in which if any players of the market is slow to react to consumer wants and needs, it will find itself soon out of business. Being a monopoly of Singapore telecommunication market, Singtel was previously able to earn large profits even if they were slow and inflexible to consumer demands. However such a regulatory advantage was removed in 1997 and in fact, they have lost a substantial market share to their new competitor within three weeks of entry. Furthermore, as Singapore telecommunication market is reaching saturation, Singtel would find it less profitable to invest heavily in state-of- the art technology in its home country since the demand may be too small.
Moreover the revolution of companies doing business globally shows that there are ample opportunities for Singtel to move from a single domestic market producer to doing business in multiple countries. This will be an opportunity to secure corporate clients who will require an integrated telecommunication service across several geographical regions in the world. In addition, telecommunications provider could bundle a package of services that includes corporate lines as well as consumer lines as their marketing tactic, therefore Singtel faces the possibility of losing consumer business if they fail to capture the market for corporate lines.
Looking at the telecommunications growth in other foreign countries (Exhibit 4), we see that many countries have increased their number of lines from year 1990 to 2000.For countries that have low growth rates, it could well indicate a high demand for basic telecommunication services in the coming years. Thus if Singtel were to bring along its technological competencies and efficient production capabilities into such market, they could possibly capture the foreign market shares. As for the relatively affluent countries which already have the basic telecommunications services, Singtel could still introduce new telecommunications-related value added-services. Therefore with the large cash reserves and liberalization in many countries, the question is “How well can Singtel handle its global expansion plans?”
Analysis- Overseas ventures
One reason why Singtel went into the European telecom market was due to the high level of returns earned on capital due to a much bigger European market. Liberalization, being the other reason has allowed firms to be the second service providers for telecommunication services. This has led to Singtel being impetuous when it captured half the stake of Cambridge Cable (CC) and Yorkshire Cable Group (YCG) when it does not have sufficient knowledge and understanding of the European cable industry. This was a wrong move at that time since the UK cable industry has reached its consolidation phrase and it will be difficult for Singtel to earn long-term profits to recoup its large investments in the two firms. Furthermore, we should consider if it is easy to integrate Singtel’s current capabilities with these cable firms. By acquiring half the stakes of the two large cable firms, it will be a challenge to coordinate and create synergies between Singtel and its subsidiaries.
While the reason for having strategic alliance with cable companies was justifiable on the ground that Singtel was able to gain access to their expertise on cable technology, Singtel should have kept the alliance with only one major cable firm. Since the cable industry is not growing much, a gain in revenue of CC may mean a loss in market share of YCG. In that case, it will be meaningless to put substantial investments into the two rival firms. Although eventually Singtel had a combine $128.2 million of capital gains for these two firms, initial resources channelled for these investments could be put to better use by building upon its current capabilities in areas of systems development, integration and maintenance. The investment in...
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