Rivalry of Existing Australia Telecommunication Services

University Degree Business and Administrative studies

A) Executive summary

The aim of this report is to ensure that Millar Ltd has a competitive advantage to compete with the existing rivalry in Australia and also letting the managers know more about the different environments. The report conducts an analysis of the telecommunication services industry in Australia using the Porter’s Five Forces Model and Hofstede’s Cultural Dimensions.

Millar Ltd is well established Italy telecommunication services company which provides good quality of telecommunication services. In order to expand to Australia successfully, the company must consider using the adequate resource based on the research about Australia domestic telecommunication services market. In this report, it provides competitive strategy for a Millar telecommunication services to enter the industry in Australia

In first part, the report discusses Porter’s five forces model which are threat of new entrants, threat of substitutes, bargaining power of suppliers, existing rivalry and competitive strategies connect with Australian telecommunication services industry. And then, it applies Hofstede’s Cultural Dimensions and it is identified in five aspects: power distance, uncertainty avoidance, collectivism and individualism, quality and quantity of life, and time orientation which shows a big difference between the two cultures. At the end, the recommendations provide some strategies to adjust the operating in Australia.

B) Porter’s 5 Forces Model:

1.0 - Threat of New Entrants

1.1 - Economies of scale

There are many telecommunication services companies in the market. Economies of scale may exist if there are many companies in an industry. An economy of scale is a situation in which the long-run average cost curve declines as the firm increases output, (Mctaggart, Findlay and Parkin, 2007). This is the point where the company should know well about their Minimum Efficient Scale (MES). If the MES of the telecommunication service company is known, then the company can determine the amount of market share necessary for low cost entry, (Vodafone and 3 flag “economies of scale” from merger 2009).

1.2 - Capital requirements

Nowadays, there is a more attaching importance to the use of high technology in this modern society. Therefore, companies should centre on using high technology asset to produce products or provide services. Assets specificity is the extent to which the telecommunication service company’s assets can be utilized to produce a different product. High capital is required to enter into the telecommunication services industry which needs large investments on technology, distribution, service outlets and plants. The cost of setting up a telecommunication service company is higher than other industry.

1.3 - Analysis

The existence of economies of scale creates a barrier to entry. Although there are many companies in this industry, the cost such as buying raw material may not decrease. Moreover, cost of setting up a telecommunication service company is higher because the company uses high technology asset and need large investments for technology. Therefore, there is a high barrier for the new competitors entering into the telecommunication services industry.

2.0 - Threat of Substitutes

2.1 - Switching Costs

Switching costs refer to the buyer’s perceived costs of switching from the existing to a new supplier, (Heide and Weiss, 1995). Switching costs cover the entire switching process, and not only include costs incurred at the actual moment of switching, but also includes assessing information, performing the transaction, and studying and getting used to the new service provider special rights, (Fornell, 1992). Moreover, transaction costs occur when starting a new relationship with a provider and occasionally include the costs necessary to terminate a relationship, (Klemperer, 1987). Besides that, the main determinant of customers switching costs should be the result of comparison of each company such as service quality and loyalty programs, (Lee and Murphy, 2005).

2.2 - Buyer Loyalty

Nowadays, the services market is becoming ever more competitive, as price competition intensifies and the shifting of loyalty becomes an acceptable practice. Not only that, the use of customer’s loyalty as a competitive advantage and increasing service quality tends to make the customers more satisfied and loyal, (Petruzzellis, D’Uggento and Romanazzi, 2006). Satisfaction also has a significant impact on customer loyalty, (Sharma and Patterson, 2000) and as a direct antecedent, leads to commitment in business relationships, (Burnham, Fels and Mahajn, 2003). Hence, greatly influencing customer’s repurchasing intention, (Morgan and Hunt, 1994).

2.3 - Analysis

Switching costs of customers from one telecommunication services company package to another company’s package is low because the bargaining power of buyer is high and the services provided between the companies are similar. Therefore, a customer can easily switch to a different telecommunication services company. As relational switching costs represent a barrier to exit from the relationship, they can be expected to increase the relationship commitment.

3.0 - Bargaining Power of Buyers

3.1 - Number of customers in the market

Due to the development, mobile phone became a necessity rather than a ...

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2.3 - Analysis

3.0 - Bargaining Power of Buyers

3.1 - Number of customers in the market

Due to the development, mobile phone became a necessity rather than a luxury for the people today. There is a large demand of the mobile phone services as there are approximately 22.7million subscribers in Australia, (Australian telecommunications report 2009, 5). Subscribers can be separated into two segmentations, prepaid and contract. Contract constituted the larger volume of the market which was 51.7% and the remaining was prepaid, (Australia Mobile Phone Services 2008, 5). Customers who are likely to seek information are empowered customers, (Samson and daft 2009, 267). In the mobile phone service industry, (Worthington and Britton 2006, 363) stated that “easy availability of information on handset prices and network operators means that it is easy to shop around for the best deal.”

3.2 - Availability of substitutes

Instead of using mobile phone service, people might have other substitutes. For example, the use of landlines which are installed into houses or social network sites such as Facebook and My Space. However, the most common substitute for mobile phone services are instant messaging programs such as Windows Live Messenger. This is because by using instant messaging programs, people can not only chat with others, but also use audio and video calls to communicate, (, n.d).

3.3 - Analysis

The bargaining power of buyers in the telecommunications industry is likely to be high because there is a large volume of buyers. Although there are some substitutes for mobile phone services, the most convenient way to contact others immediately is still by using mobile phones. For example, if a person needs to communicate with his friend or family urgently, a mobile phone would be the first thing that he would turn to. Also the products of telecommunication industry are undifferentiated. As a result, price becomes the purchasing decision for mobile phone services.

4.0 - Bargaining Power of Suppliers

4.1 - Degree of supplier concentration

Under the Telecommunication Act 1997, a company can choose to be a mobile phone service provider. In order to be a provider in a specific country, companies must apply for the carrier license, (Carrier and service provider requirement 2009). Telstra is an example of a carrier license holder in Australia, (Australia telecommunication report 2009, 45). Besides that, the company can choose to be the carrier service provider which is a company that provides services by using the network unit of the carrier. (Carrier and service provider requirement 2009.). For example, Millar Ltd can choose to ask Telstra to provide a network for them to provide the mobile phone service to the public. Besides the network supplier, hardware sectors are also important. Hardware sectors are the suppliers that provide handsets to service providers. There are three major providers of infrastructure which are Ericsson, Nokia and Nortel (Australian mobile telecommunications industry 2005, 7).

4.2 - Availability of substitute suppliers

There are substitute supplier services that people may use instead of mobile phone services. Optus, Hutchison and Vodafone are substitutes as they provide not only mobile phone services but also internet and landline services. Customers may choose to use the substitute services instead of mobile phone service. (Australia telecommunication report 2009, 16). There are also hardware substitutes for mobile phones as there are many companies providing them such as Nokia, Samsung and Sony Ericsson, (Worthington and Britton 2006, 238).

4.3 - Analysis

The bargaining power of the suppliers in the telecommunications industry is high because there is only one major provider of network unit to maintain the network in mobile phone service industry. As a result, in order to get the network from the carrier, Millar had to pay the amount requested. The bargaining power of the hardware sector is also high because, although there are many handset providing companies, consumers will focus on the popular mobile phone brands such as Nokia, (Worthington and Britton 2006, 364).

5.0 - Existing Rivalry

The rivalry in the Australia telecommunication industry is considered intense as that there are about 31 mobile service providers currently operating, (Australian Communications and Media Authority, 2007). New technology everyday is creating more substitutes for the service and this tends to drive industry profitability down. The industry also suffers from high exit barriers. Networks and billing systems and their swift obsolescence makes liquidation difficult, (The Industry Handbook - The Telecommunications Industry, 2007)

5.1 - Industry Growth Rate

The mobile service industry in Australia can be considered as a consolidated industry because there are only a small number of large companies providing mobile service in Australia. (Australian Communications and Media Authority, 2007). In 2004-05, the Australian mobile telecommunications industry had more than 16 million subscribers, representing approximately 81 per cent of the Australian population. This mobile penetration rate is forecasted to exceed 94 per cent in 2005-06. On top of that, the mobile telecommunication industry revenue for 2004-05 was $9.9 billion and estimates suggest that it will be $11.9 billion in 2005-06. This shows that with this kind of revenue and such high penetration rate, the competition among the companies in the industry is getting stronger because the market is getting smaller. (The Allen Consulting Group, 2005)

5.2 - Demand for Product

The demand for mobile phone, entertainment and personalisation is increasing. The mobile phone penetration among Australians is high, especially with young Australians aged from 16 to 29 years old with a report estimating that only 1.3 per cent of them do not own a mobile phone, (Doherty et. al. 2007, 2). Research has also indicated that Australians aged between 14 and 24 years old are spending a lot of their savings on each type of content per month, (Doherty et. al. 2007, 3).

5.3 - Analysis

The telecommunications industry in Australia is very intense still growing with more subscribers each day. Besides that, the demand for mobile phone in Australia and the level of penetration are also very high.

6. 0 - Recommendations

Millar Ltd should adopt the cost leadership strategy. This is because all the Porter’s Five Forces are directly influenced by cost. Using cost leadership can protect the firm against the competitive forces because Millar Ltd can lower its profits until the next most efficient competitor is eliminated. Research and Development can be used to find ways to cut costs while maintaining service quality. Aggressive promotion can also be used to increase the demand of the service so that they can produce in a large scale, thus cutting costs. Lowering of costs would further encourage customers to switch to Millar Ltd. Using cost leadership may also attract many new customers which would increase the company’s income.

C) HOFSTEDE’S CULTURAL DIMENSIONS

7.1 - Power Distance

Australia is a low power distance country with a power distance index of 36 which lower than Italy which has a power distance index of 50, (Hofstede 2001, 87). Italians respects the difference in power between groups of people more than Australians. (Welcome to Italy n.d). The management in Australian companies is less hierarchical (Ian and Chris 2006, 134). As a result, lower management of a company in Australia has more power to participate in decision making than those in Italy.

7.2 - Uncertainty Avoidance

Uncertainty avoidance is the degree to which individual in a society feel threatened by situations that are unstructured, unclear, or unpredictable, (Hopkins 1997, 46). Italy has a high uncertainty avoidance index of about 75 while Australia has a low uncertainty avoidance index of about 51. (Hofstede 2001, 151).

Countries having low uncertainty avoidance like Australia have similar characteristics such as weak loyalty to their employers, preference for smaller organisations, and are scepticism towards technological solutions. On the other hand, countries with high uncertainty avoidance like Italy have strong loyalty to their employers, prefer larger organisations and have strong appeal of technological solutions, (Hofstede 2001, 169).

Not only that, the power of superiors in low uncertainty avoidance countries depends on position and relationships while in high uncertainty avoidance countries, power of superiors depends on control of uncertainties. Top managers are involved in strategy and Innovators are independent of rules in low uncertainty avoidance countries while in high uncertainty avoidance countries, top managers are involved in operations and power of superiors depends on control of uncertainties, (Hofstede 2001, 169).

7.3 - Collectivism Vs Individualism

Both Australia and Italy are high individualist countries but Australia is much more individualist compared with Italy (Ian and Chris 2006, 134). Australia has an individualism index of 90 while Italy only has an individualism index of 76, (Hofstede 2001, 215). As Australia is very individualistic, they tend to work in personal achievement and rights, (Hofstede 2001, 263). However, Italy is more collective; decision-making was made mainly by groups, (Welcome to Italy n.d). These differences between Italy and Australia will affect the stage of decision making in the company.

7.4 - Quality (Femininity) of Life Vs Quantity (Masculinity) of Life

According to Hofstede’s cultural dimension, Australia and Italy are masculinity countries with the score of 61 and 70, (Hofstede 2001, 286). Both countries focus on material success and are very competitive. In Italy, although there were more women working than in the earlier centuries, there are very few women who can be at an upper management position, (Welcome to Italy n.d). As Australia is similar to Italy in masculinity, this dimension is not much of a concern for Millar Ltd.

7.5 - Time Orientation

There are big differences in time orientation between Australia and Italy. Australia has a long-term orientation index of 31 while Italy has a long-term orientation index of 71, (Hofstede 2001, 356). As Australians focus more on short-term performance, they value more on the maintaining of personality stability and happiness and living for the present, (Robbins et al. 2006, 142). On the other hand, Italians are less strict with time schedule because they tend to focus on long-term performance for the unexpected future (Welcome to Italy n.d). These differences may cause conflict between Australian and Italian employees.

8.0 - Recommendations for Hofstede’s Cultural Dimensions

8.1 - Power Distance

It is found that Australia has a low power distance while Italy has a higher power distance compared to Australia. Therefore, to bridge the cultural gap between Australians and Italians, Millar Ltd should make sure that they lower their power distance. For example, the Italian employees from Millar Ltd should learn to treat everyone within the same chain of command similarly.

8.2 - Uncertainty Avoidance

Italy has a high uncertainty avoidance index while Australia has a lower uncertainty avoidance index. Therefore, the Italian employees from Millar Ltd, especially those in high level of command such as managers, should encourage their employees to be aware of and act on opportunities for innovation.

8.3 - Collectivism Vs Individualism

Australia is very high for individualism which is not very beneficial for the company. Therefore, Australian employees in Millar Ltd should learn to be more collectivistic. For example, Australian employees should learn to communicate with their working partners more and make more group decisions instead of individual decisions.

8.4 - Quality (Femininity) of life vs Quantity (Masculinity) of Life.

Research has shown the Italy is has a higher masculinity level compared with Australia. Hence, in order to bridge the gap, Italian employees should learn to lower their masculinity level, that is, to give more care and understanding towards their colleagues. For example, Italian employees in Australia should learn not to interrupt with most of their colleagues’ private life.

8.5 - Time Orientation.

Italian employees should adapt more to the short-term time orientation of the Australians in order to cope with the environmental working conditions. On the other hand, Australians should also learn to adapt to more long-term time orientation. This is so that Millar Ltd can create more long-term goals which are beneficial for the company.

9.0 - Conclusion

In conclusion, we suggest that Millar Ltd spend more time on resolving the problem. One way this could be done is by giving out trainings to employees that are going to Australia to allow them to further understand Australian culture and working style. Besides that, Millar Ltd should also do an extensive research on the current status of the Australian market of the industry and take precautions.

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