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STRATEGY
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Completed By
Woo Gim Chuan Marcus (J0704245)
BUS 488 Strategy - T01
Question 1
Question 2
It is important that SingTel know its strengths, weaknesses and core competencies
as they enable the company to make appropriate strategic decisions and provide the basis
for developing strategic alternatives. To identify the possible core competencies that
SingTel might possess, the four criteria of sustainable competitive advantage (i.e.
valuable, rare, costly to imitate and non-substitutable) and value chain analysis
methodology were applied on the company’s resources and organisational capabilities as
follows:
a) Finance Resources
The 1998 financial report shows that SingTel, the largest
telecommunications company in Singapore, has a huge reserve (cash and bank
deposits) of S$4.44 billion. This is the company’s strength as not many companies
have such large reserves. The debt-to-equity ratio1 in the last 3 years was also very
low. In fact in 1997, it was just 0.05 as opposed to in 1998 and 1999 when it was
merely 0.06. With such a huge reserve and low debt-to-equity ratio, SingTel is
thus capable to generate internal funds as well as afford high demand of debt and
equity to finance any expansion. For instance, the 1999 annual report shows
SingTel was able to seize opportunities and invest substantially in overseas
ventures (S$2.3 billion in 55 investments) during the 1990s. This goes to show
that the combination of financial resources and its managerial capabilities had
served as a source of competitive advantage for the firm over its rivals. The ability
to invest substantially at any point of time is indeed valuable, rare, difficult to
imitate and non-substitutable. As such, it is a core competence of SingTel.
Although SingTel has remained the profitable, we must also be cognisant
with the fact that the company faced tough challenges in the recent years. Based
on the financial performance of 1996-1999, the return on shareholders’ funds and
total assets as well as the operating return on turnover and net fixed assets had
1
Debt-to-Equity = Total debt / Total shareholders’ equity
actually declined. This indicates that the net return of the firm (or shareholders’
investments) and the effectiveness of SingTel in employing/utilising its inventory
and total assets are no longer as good. The inability to effectively use its
equity/assets is a possible weakness of SingTel.
b) Organisational Resources
In order to ensure continual growth and success, SingTel’s corporate
structure was reorganised in March 1999 so as to cater to greater levels of
diversification. The SingTel’s corporate structure resembles a multidivisional (M-
form) structure which allows the company to focus more intensely on areas like
marketing, services and customers.
SingTel’s subsidiaries are capable of providing the main
telecommunications services such as fixed-line, mobile, Internet and satellite
services. However, it is through its wholly-owned subsidiary, National Computer
Systems, that the company is able to integrate the various businesses to create
synergy and capability to deliver the full spectrum of telecommunications
business. As the capability is valuable, rare, costly to imitate and non-
substitutable, it is thus a possible core competence.
c) Physical Resources
Despite an already extensive domestic and international infrastructure,
SingTel still continues to invest heavily in infrastructures so that the company has
sufficient capacity to meet the growing needs and demands of their customers. For
example, it was updated by SingTel Chairman that SingTel Mobile had recently
conducted a wideband Code Division Multiple Access trial.
As for the corporate customers, SingTel assured that it would continue to
invest in international network and cable systems on top of an investment in
digital submarine cable networks that cost more than US$500 million. Being a
company that is endowed with a large reserve, it has the necessary financial
resources to build an extensive international infrastructure that provides its
multinational customers with the redundancy and diversity that are required. This
is probably a strategic competitive advantage that any new entrants to the market
cannot offer. On this note, it can be deduced that the physical resources that
SingTel possesses are likely to generate value-creating competitive advantage
which is the company’s strength.
d) Technological Resources
One of the main elements of SingTel’s strategy is to achieve high
investment in proven technologies. To acquire these necessary technological
skills, SingTel has engaged in strategic alliances in several countries.
Unfortunately, this approach of acquiring technologies is unlikely to provide any
long-term competitive advantage as all the other competitors may eventually gain
access to the same technologies due to lack of patents, trademarks, copyrights or
an effective enforcement of proprietary rights. The reliance on joint ventures to
acquire technological know-how is an on-going concern and thus constitutes a
possible weakness of SingTel.
e) Human Resources
Being in the telecommunications services for 120 years, SingTel has
certainly accumulated several invaluable experiences and expertise that put them
in good stead. During the height of the economic crisis in 1998, although SingTel
implemented cost-control measures such as wage cuts, there were no reports of
any uproar from the staff or union. This indeed is a testimonial of a good
relationship between the management and staff, as well as ‘management and
union’. In addition, the leaders of the company also led by example such as
reducing the salaries of senior managers by 10% and management fly economy
instead of business class during that period of time. This not only helped to build
trust, it further strengthened relationships. In short, human resource management,
particularly strong leadership that leads by example, is certainly SingTel's
strength.
f) Innovation Resources
SingTel's preference to achieve high investment in proven technologies
and “adopt tried-and-tested technologies to minimize the risk of implementation”
can be seen as a lack of management emphasis in innovation. In addition, it is also
probably a sign that the firm lack the necessary scientific capabilities as well as
capacity to innovate. As such, the absence of innovation resources can possibly be
a weakness that SingTel should try to strengthen.
g) Reputational Resources
In 1999, SingTel’s telecommunications infrastructure was ranked first in
the Asia-Pacific Telecommunications Index. Although it was ranked 7 th in a 1999
Data Communications survey, the company was still perform better than many
other telecommunications providers, especially in terms of value, quality,
reliability and general responsiveness for frame delay and leased-line services.
SingTel has also been a brand name that every household is familiar with since
the company has a long history of providing telecommunications services in
Singapore. In short, brand name and positive perceptions of SingTel’s reputation
are certainly the company's strengths.
The possible strengths and weaknesses are appended in the table below. From the
internal analysis, we conclude that SingTel possibly possess two core competencies, i.e.
the capability to invest readily using its large reserve as well as the capability to deliver a
full spectrum of telecommunications business. In order to ensure that the company
continues to enjoy similar or higher level of profitability in future, SingTel must dutifully
and consciously continue to update the current core competencies and if possible
establish new ones as soon as possible.
Strengths Weaknesses
• SingTel is the largest telecommunications • The inability to effectively use the equity/assets.
company in Singapore • The reliance on joint ventures to acquire
• The large reserve (S$4.44 billion) that SingTel has technologies and technical know-how.
accumulated and can be used readily. • The absence of the necessary innovation resources.
• The value-creating physical resources that SingTel
possesses.
• Human resource management, particularly strong
leadership that leads by example.
• Good reputation and brand name (SingTel) is well
known.
• Product quality, durability, and reliability are well
received.
Question 3
The PESTL Analysis and the Porter Model provide an analysis of the operating
environment that SingTel competes in. The analysis on telecommunications industry
shows the industry is so concentrated that intense competition is inevitable. However,
amidst the challenges, there are still opportunities for SingTel to explore as well as
exploit. The prognosis of the operating environment as well as possible opportunities and
threats are detailed as follows:
business consultation services and retail. Inarguably, the growth in the various
business sectors presents SingTel the opportunity to increase its business locally.
Nonetheless, the telecommunications businesses are closely linked to economic
activities in Singapore and the region. As such, SingTel needs to be cognisant
with the business cycle so that it can be better prepared to take full advantage of
the effects such as changes in discretionary income and consumer spending
pattern.
b) Political/ Legal
Singapore is a politically stable and enterprise country. The Ministry of
Trade and Industry2 and the Ministry of Finance3 are predominantly in charge of
growing the economy, fostering pro-enterprise environment as well as
collaboration with industry experts to ensure that Singapore continues to remain
as a world-class financial and business hub. The Singapore government has also
opened up and deregulated several markets and that includes the
telecommunications industry. The additional telecommunications companies thus
far such as M1 and StarHub are the results of these actions. This means that
SingTel will have to operate in a challenging environment with intense
competitions.
Singapore's tax policies, although providing the main source of funding
for the government, seek to enhance its economic competitiveness and attract
foreign investments. More foreign investments mean more business opportunities
for SingTel.
c) Social-Cultural
Singapore is an eastern country who still strongly believes in preserving
traditional family values although some of the younger generation has started to
adapt to western culture and values. As a result, many young Singaporeans have
started to have the mindset of “kia-su” which means “afraid of losing out to
2
http://app.mti.gov.sg
3
http://app.mof.gov.sg
others”. With this mindset, many Singaporeans thus work very hard to retain or
fulfil their materialism desires. To some extent this has positively increased the
nation productivities as well as the business sectors since they can expect a higher
purchasing power from the consumers. This presents an opportunity for
telecommunications companies to increase sales too.
Increasingly, Singaporeans are also becoming more sophisticated and so
they will demand even higher standards of quality and service especially when
there are more choices of telecommunications providers. This presents an
opportunity for all the 3 telecommunications providers to increase their revenues
by offering new and customised products and services.
d) Demographic
By 1998, the population figure stands at about 3.7 million. Singapore has
an astonishing demographic dividend where more than 35% of its population is
below the age of 25 and more than 55% hovers below the age of 35. It is expected
that, in 2005, the average age of a Singaporean will be 29 years. This indirectly
means that an increasing large population of the middle age people equates a
larger working age population and thus the likelihood of families being formed.
The disposable income and demand for telecommunications services (such as
internet and mobile lines) also slowly increases as more homes are set up by
newly-wed couples. This by itself presents yet another opportunity.
e) Technological
New services such as Internet Telephony and the increase in the use of
telecommunications services such as wireless communications provide all 3
telecommunications companies with the opportunity to invest developing new
technologies, products and services. While it is projected that the demand for
fixed line may be moderated, e-commence and internet-based activities are some
areas where there the telecommunications companies can expect significant
b) Power of Buyers
Due to the increase availability of varieties of communications and the
low switching costs, the buyers’ power is high. For example, customers can
choose to use Internet telephony over fixed-line services in making overseas call.
The former provides a viable and affordable alternative for some consumers. The
power of buyers thus is further strengthened as the younger generation deem
fixed-line services as less viable and convenient to them.
c) Power of Suppliers
On one hand there is a lack of suppliers due to their specific ability to
supply complex, reliable and geographically extensive networks. One the other
hand switching costs incumbent with the telecommunications market are often
high as terminating long term supply contracts can be difficult. Given this balance
of power between suppliers and telecommunications companies, the power of
suppliers is moderate.
e) Intensity of Rivalry
The high capital investments as well as low mobility of fixed assets and
infrastructure make it difficult for the existing telecommunications companies to
exit. This, coupled with fairly low switching costs for end-users and diminishing
market performance, has actually led to intense rivalry in the Singapore
telecommunications market. M1 being the main competitor is made up of large
companies that have huge resources and strong power. As such, it posts threats to
SingTel in areas such as brand name, technological knowledge and capabilities.
In a nutshell, the possible opportunities and threats are appended in the table
below. From the analysis of this firm, it can be deduced that the operating environment of
SingTel is very competitive and filled with uncertainties which means that the company
can expect that the environment to be the same or harsher in the future. However, amidst
the challenges, there are still opportunities for SingTel to explore as well as exploit so as
to maintain its status as the leading and most profitable telecommunications company in
Singapore.
Opportunities Threats
• Globalization presents opportunity for companies • Globalization intensifies competition.
to internationalize and enlarge their markets. • Existing technologies, products and services may
• Low penetration rates of fixed and cellular lines in become obsolete or the demand for the may
Asia suggest high potential for growth. decrease due to technological advancements.
• Continual growth in Singapore business sectors • Aggressive competitions from strong rivals.
due to stable political and enterprise friendly
policies/environments.
• Higher consumers' purchasing power.
• Larger working age population; more disposable
income.
• More families formed; more businesses.
• Employ cheaper foreign workers to lower
operations cost.
• Offer new products and services due to
technological advancements.
Question 4
down their prices. This inevitably helps SingTel in its defence against aggressive
competitions when it comes to price war from strong rivals.
As cost leadership strategy does not eliminate any of the five forces of
competition, SingTel thus need to either deal with them or offset the power of these
forces so that is remains profitable. It is therefore important that SingTel is cognisant with
the fact that among the 3 generic business level strategies, none is inherently better than
the others. As a matter of fact, successful firms embodied each of them and thus the
primary issue of concern for performance is therefore not lie on which strategy the firm
has taken, but how well the firm has aligned its resources and capabilities on that
strategy.
Question 5
To remain profitable, firms have to identify the key threats they face (or likely to
face) so that they can carry out appropriate strategic actions to overcome them. The
threats that SingTel faces are:
To overcome these threats, the following strategic actions are recommended to the
Board of Directors of SingTel:
a) Concentrations
Although the ability to continuously improve the levels of efficiency and
cost reduction can be hard to achieve (or imitate), it does help serve as a
significant entry barrier to potential competitors and thus greatly help to
overcome any increased competition. This augurs well for SingTel and thus the
question now is what should the company do? In my analysis, one way to achieve
the levels of efficiency and cost reduction is through concentration - a strategic
action where SingTel needs to eliminate the autonomy of its subsidiaries by
grouping the businesses under a single economic administration (notably by
integrating capital and management). In short, it entails changing the structure of
the subsidiaries - even to the extent of merging some of them to eliminate the least
viable and least efficient businesses.
Concentration is an effective strategic action as the market (extended by
economic integration) calls for larger businesses. Through the improvement of
structures, rationalisation of operations and securing of internal economies,
concentrations can in the long run reduce production, distribution and service
costs to the advantage of the consumer as well as the company. If SingTel is able
to execute the strategic action properly, it can achieve its status as the lowest cost
telecommunications services provider. This allows the company to mitigate
increased competitions and fend off aggressive competitors.
c) Drive Innovation
As the saying goes “Innovation is a key ingredient to success”. As such, it
is of vital that SingTel adopt this strategic action. SingTel may need to continue to
collaborate with agencies such as leading innovators, government agencies, R&D
organisations and equity providers around the region to promote more
innovations. It can also perhaps work closely with these partners to identify and
4
http://www.ernharth.com/commentary/eating-the-seed-corn
explore new ideas and technologies or fund and support promising companies.
For instance, SingTel may wan to work with its partners to explore and identify
how new services such as Internet Telephony can be further exploited and
integrated into its existing telecommunications services so that it can counteract
against technological advances at this moment of time.
In order to create opportunities for the company to gain early access to
new technologies and enhance its customer proposition into new markets or
segments, SingTel can probably allow developers and innovators to uncover the
uniqueness of different markets that it operates in so as to allow them create better
solutions for mass deployment. Thus early access to new technologies also allows
SingTel to sustain its technological advances and thus consequently maintain its
competitive advantages. Overtime it also helps alleviate the pressure caused by
aggressive competitors.
With all the strengths, resources and capabilities of SingTel, it can well poise to
undertake the above strategic actions to overcome the threats mentioned earlier. To
continue yielding the same or better performance, it is thus important that SingTel uses
the value chain framework to constantly check and evaluate if the company’s resources
and strategic actions are aligned to its presumed business level strategy. Hopefully by
2005, SingTel should be able to transform itself from a traditional telecommunications
provider to become a leading multimedia and Information Communication and
Technology solutions provider provided it continues to stay relevant to the customers'
needs as well as capture any growth opportunities in the near future.
References: