Strategy

Tesco is one of the organizations who have good corporate level strategy to analyze and deal with potential risk. In the case study of Tesco, they tend to expand their Asian market through alliances with the local retailers. The managements believe that this strategy can lead a good development in current resources and competence. The type of goods, services and environment demanded by consumers indicate the culture of the country and it can predict their consequent attitudes and beliefs.

By entering into joint ventures, Tesco can know more about the local knowledge from their partners and improve their supply chain, product development and stores operations skills to deliver a better shopping experiences and environment to customers. Social culture play an important role in business growth rate, the managements of realize it and develop strategy to cope with it. Tesco also mentioned that the success of partnerships can depend on three main factors, which are sustainability, acceptability and feasibility.

Sustainability can refer as whether the strategy addresses the situation under the operating of company. The acceptability is related to the expected outcomes, level of risk and the reaction of stakeholder. Feasibility is focus on the abilities and resources that are needed when carry out the strategy. Another corporate strategy that implemented by Tesco is diversification. According to Johnson and Scholes (2003), they believe that when the business environment change, it is necessary for an organization to create new products and services in order to consolidate their market (as cited in Ivory Research, 2009).

The top managements of Tesco have to take this strategy seriously, because changing not only can strengthen their competence but also can make thing worst. Diversification need to implement in the right way and right time. For the case of Tesco, they are trying to design different store formats from other hypermarket. This will be the uniqueness of Tesco in that country because it will fulfill the needs of customer that cannot get from other hypermarket. Besides that, the management of technological innovation is highly involved in strategic decision making. Tesco have to minimize their internal weaknesses and strengthen internal superiority.

2. Explain the links between HR strategy/policy and national/organizational culture. Recent research suggests that the management of human resources has become increasingly important for business success. Employees are said to be one of the most valuable assets to an organization; as a result the effective management of these employees is essential. Management literature has had a tendency to associate human resource management (HRM) with firm performance. It is this link which has been the underlying cause for the abundance of research regarding HRM practices and their effects on a firm.

However, there is a substantial debate within the literature that argues that HRM practices do not directly impact organizational performance (Boxall & Purcell, 2000), with claims that there is a missing link between the two. In regards to this ‘black box’ the concept of organizational culture has emerged. It is said that organizational culture is manifested in the behavior of its employees (Ngo & Loi, 2008), and is entrenched in the everyday working lives of cultural members (Martin, 2004).

Culture is claimed to affect employee’s job attitudes, efficiency and productivity (Mahal, 2009), and can impact the ability to carry out an organizations plans and meet strategic goals (Chan, Shaffer & Snape, 2004). With these assertions, organizational culture could in fact influence a firm’s productivity and their overall performance. This paper examines the relationship between HRM, organizational culture and firm performance. The next section of this paper defines and explains the organizational culture concept.

I then investigate the relationship between HRM and organizational culture by exploring the overarching themes which emerge from the literature regarding this link. Finally, I explore the relationship between HRM, organizational culture and firm performance. The Link between HRM and Organizational Culture Previous literature has identified and focused around two common sources of organizational culture: (1) founders of the organization, and (2) national culture. Barney (1986) claimed that firms are historically bound. In line with Schein (2004) he argued that a firm’s culture reflects the unique personality of its founders.

Along with these unique personalities a number of scholars have alleged that culture originates in the values and assumptions articulated by top management, which in turn, play an important role in shaping cultural views and employee’s behaviours (Chew & Sharma, 2005; Mahal, 2009). These values are then reinforced in a number of ways. Smircich (1983) articulated that top managers mould organizational cultures, and thus the values and beliefs held by employees, to suit their strategic ends; in turn the corporate culture should reflect the vision of the firm (Ngo & Loi, 2008).

Values are also reiterated in hiring employees with similar priorities to top management as well as thoroughly socializing new employees to elicit those desired behaviours (Martin, 2004). Furthermore, national culture plays a prevailing role in shaping organizational culture. National culture refers to the culture specific to a national group (Chew & Sharma, 2005), and is entrenched deeply within individual’s everyday lives. These ingrained values will subconsciously affect how management practices are both carried out and received in an organization, and therefore how employee’s will behave within the firm (Chew & Sharma, 2005).

Consequently, acompany’s culture is said to be linked to the founders of the organization and the values which they demonstrate, as well as the National culture in which the organization was first founded. A third relationship has begun to emerge out of management literature. There have been claims by a number of scholars (Bowen & Ostroff, 2004; Cabrera & Bonache, 1999; Lau & Ngo, 2004; Wilkins,1984) that organizational culture is related to HRM and the human resource practices which are implemented by the organization.

HRM has become an increasingly important activity within an organization. Its function is to attract, develop, motivate and retain employee’s who ensure the effective functioning of the organization (Jackson & Schuler, 1995). Relatively little is known about the link between organizational culture and HRM, as few empirical studies testing this relationship have been conducted (Platonova, 2005). However, a few overarching themes emerge from the literature regarding this HRM-culture relationship. HRM Practices Influence Organizational Culture

Within the HRM-organizational culture link lays a belief that firm’s HRM practices will motivate employees to adopt certain attitudes and behaviours, and will therefore elicit a certain corporate culture (Bowen & Ostroff, 2004; Cabrera & Bonache, 1999; Chow & Liu, 2009; Lau & Ngo, 2004; Ngo & Loi, 2008; Wilkins, 1984). One of the earliest views on this HRM-organizational culture link was from Peters (1978), who suggested that management systems (e. g. HRM systems) could be thought of as mechanisms to transmit values and beliefs of the organization which, as a result, help to shape its character.

With organizational culture comprising a range of social phenomena there are certain situations in which organizational norms are not the result of shared values among employees; rather, they are determined by the rules and practices an organization implements (Cabrera & Bonache, 1999). Tichy (1983) thought that the way in which HRM systems are designed can communicate important and useful information about the organizations culture to employees. Schwartz & Davis (1981) also argued that HR practices provide information to employees.

They convey standardized information to employees about expected patterns of activity and acceptable behaviours which allow the firm to achieve its objective. Lewicki (1981) argues that HRM practices answer three questions for employees, providing information to staff about the acceptable behaviours: (1) what does the organization expect from its employees? (2) What kind of behaviour does the organization reward? And (3) what are the dos and don’ts of proper social conduct within the system? (p. 8). Ulrich (1984) iterates this view using an example of socialization programs.

Her belief is that socialization and induction programs play a significant role in transmitting corporate culture to individuals entering into the organization. They ensure that acceptable behaviours and cultural norms are passed down to new employees, thus keeping organizational culture consistent. It is through this shared information as well as the experiences of employees that behavioural norms are established, thus becoming the means through which culture is created and sustained within the firm.

Building on the HRM-organizational culture link, Ulrich (1984) advocates that procedures and practices implemented by HR executives become rituals within the company. Ulrich deems rituals to be customary and repeated actions within a firm. They take on a meaning within the organization. As we identified earlier, rituals are a symbolic tool in which values are manifested. These rituals, which include evaluation and reward procedures, help guide the behaviour of employee’s as they establish boundaries and behavioural norms within the firm.

Wilkins (1984) asserts a different view; that HR systems can create career paths for employees as well as groupings of people who remain in the firm for a long enough time for a company culture to form. This outlook suggests that firms can implement HR practices that foster job security and internal career development in order to keep turnover low, and maintain those social phenomena that comprise organizational culture (values, beliefs, norms, assumptions) within the organization, and therefore forming a strong organizational culture.

While a number of scholars claim that HRM practices lead to organizational culture, few studies have been conducted on the relationship. Lau and Ngo (2004) studied 332 firms HR and organizational development practices in Hong Kong. The board purpose of this study was to explore the link between culture, HR systems and outcomes. The research found that HR practices which emphasize training, performance based reward as well as team development help to create an organizational culture that promotes innovation.

Organizational culture was said to play a mediation role between the HR system and the firm’s outcomes. That is, the HR practices implemented by the firm had an effect on the organizational culture, which in turn had a direct impact on employee’s behaviours and outcomes. This study demonstrated that a company’s culture was significant in affecting employee’s outcomes; regardless, the culture needs to be supported by an HR system that elicits those behaviours needed to achieve the desired outcomes.

High Commitment Management Practices Influence Organizational Cultures Following on from the view that human resource practices can influence employee’s behaviour is an argument that only certain practices will be beneficial to an organization’s culture. Corporate culture will only be an advantage when it is seen as appropriate in order to achieve a certain objective or organizational goal (Chow & Liu, 2009); not all practices will elicit an appropriate culture.

High Commitment Management (HCM), or best practice, is a theory that has outlined a number of HRM practices which are believed to help a firm achieve competitive success from its workforce (Pfeffer, 1995). It is a common held belief within the literature that “systems of high commitment HR practices increase organizational effectiveness by creating conditions where employees become highly involved in the organization and work hard to accomplish the organization’s goals (Whitener, 2001, p. 516).

Pfeffer (1998), the founder of best practice, believed that there were seven core practices which characterized the most successful organizations: employment security; selective hiring of new personnel; self managed teams; high compensation contingent on organizational performance; extensive training; reduced status distinction and barriers; and extensive sharing of information throughout the organization. When implemented these practices would lead to high levels of job satisfaction, retention and motivation of employee’s, which in turn influence a firm’s effectiveness and performance.

It is thought that these HCM practices shape work force attitudes and values by framing employee’s perceptions of what the organization is like and help to influence their relationship with the organization. Employee behaviours and attitudes are said to reflect their perceptions and expectations about the organization; their behaviours respond to the treatment they receive from the firm (Whitener, 2001). Accordingly, HCM practices are said to act as a culture embedding mechanism (Hartog & Verburg, 2004), playing an important role in reinforcing certain behaviours within employees and therefore shaping corporate culture.

Kerr & Slocum (1987) demonstrate this relationship. They state that some organizations have cultures emphasizing the value of teamwork and security. These values foster loyalty to the organization and give employees a long term commitment. They iterate that other organizations consist of cultures which emphasize personal initiative and individual rewards. These values reinforce norms where organizational members do not promise loyalty and where the company does not provide job security. These authors point out that the practices, specifically HCM practices implemented by an organization, bring out certain behaviours from employees.

For that reason, a firm can manipulate its culture by implementing practices which foster the behaviours they want to achieve from employees, and those behaviours that will help the company achieve their strategic goals. A small number of studies have been conducted exploring the relationship between certain best practices and organizational culture. In her study of 170 individuals views on compensation systems, Kuhn (2009) found that a bonus being rewarded on the basis of individual outcomes, compared to team or organizational performance led to the organizational culture being regarded as relatively more individualistic.

Sheridan’s (1992) longitudinal study of 904 college graduates hired in six public accounting firms found that the firm’s organizational culture had a significant effect of the retention rates of these employees. Those firms that had a culture fostering the interpersonal relationship values of teams and respect for people stayed 14 months longer than those hired in firms whose culture emphasized the work task values of detail and stability. These two examples, in which both show the implementation of HCM or best practice, illustrate that organizational culture is contingent upon the HRM practices implemented.

Practices will elicit different behaviours from employees. In addition claims are made that these behaviours will facilitate or hinder performance and efficiency within a company. Strategy Shapes HRM Practices which in turn Shape Organizational Culture In accordance with the view that HRM/HCM practices influence organizational culture, employee’s behaviours are said to be indirectly affected through a company’s strategy (Bowen & Ostroff, 2004; Chow & Liu, 2009).

The term Strategic Human Resource Management (SHRM) has emerged within recent management literature to cover the relationship between a firm’s strategy and their HRM system. This perspective of HRM is commonly seen as comprising integrated functions which are linked to organizational strategy (Macky, 2008). The guiding logic behind this view is that a firm’s human resource practices must, “develop employees’ skills, knowledge and motivation such that employees behave in ways that are instrumental to the implementation of a particular strategy” (Bowen & Ostroff, 2004, p. 05). Given a certain strategic goal, a set of HRM practices should be implemented to help the organization attain these goals. Different business strategies will therefore require the implementation of a varied set of HRM practices in order to elicit certain behaviours from employees’. Attention should be paid to designing an HR system that is best able to link the desired culture and business strategy. For innovation-oriented firms, HR must implement innovation-enhancing practices to obtain the desired behaviours associated with innovation (Lau & Ngo, 2004).

With strategy affecting HRM practices, culture is indirectly affected. This culture will be an asset for an organization if it encourages the behaviours that support the organizations intended strategy (Cabrera & Bonache, 1999). Organizational Cultures Influence HRM Practices There is a belief, held by a small number of scholars, which challenges the previous, more widely accepted view that HRM practices (and HCM practices) influence organizational culture. While this view appears within some industrial psychology literature, it is a less common perspective among management scholars.

These scholars find that prominent core values within an organizational culture have a strong influence on management practices and in shaping HRM systems (Ferris et al. , 1998; Aycan, Kanungo, & Sinha, 1999). This view asserts that firstly values and other social phenomena form within the organization, while HRM practices occur because of the organizational culture already entrenched within the firm. The social context model, developed by Ferris et al. (1998) claims that the attitudes, beliefs, and values which make up the corporate culture drive the development of HRM policies, practices, and systems.

These scholars profess that a well-defined culture within a firm should drive the development of consistent HRM policies, as employees values are reflected in the formation of these policies. Furthermore, these policies should drive the design of a set of mutually supporting and integrated HRM practices which form a cooperative system. Bowen and Ostroff (2004) expand on this view. They allege that organizational assumptions and values shape HRM practices, which, in turn reinforce cultural norms and routines which shape individuals performance. Aycan et al. (1999) as well as Aycan et al. (2000) advocate the model of culture fit.

This model contends that managers implement HRM practices based of their assumption about the nature and behaviour of employees. There needs to be a rationale behind the practices which HR implements; they do not evolve within a vacuum. For this reason HR practices are there to reinforce the values, behaviours and assumptions which already exist within the organization, and to further develop these social phenomena. The Link between HRM, Organizational Culture and Performance Scholars have long asserted that the way in which an organization manages its employees can influence its performance (Delaney & Huselid, 1996).

HRM is therefore an organizational issue which firms cannot afford to ignore. Much of previous HRM and organizational culture literature is based on this assertion that human resource practices and corporate culture are linked to organizational performance (Platonova, 2005). The underlying assumption of the link between HRM, organizational culture and performance is that HRM practices lead to employee knowledge, skills, and abilities, which in turn are said to influence firm performance at the collective level (Bowen & Ostroff, 2004).

While a small number of empirical studies have tested the relationship between HRM and organizational culture a copious amount of research exists on the HRM-firm performance link. In addition, a number of empirical studies have also focused on the organizational culture-performance relationship. The relationship between comprehensive sets of HR practices and firm performance has been frequently demonstrated within the literature. Becker and Gerhart (1996) explain that HR decisions can influence organizational performance through increased efficiency or revenue growth.

Barney (1986) notes that increased firm performance is often attributed to higher profitability, while Bowen and Ostroff (2004) argue that increased motivation from employees leads to higher firm performance. A large number of empirical studies have been conducted on the relationship between HRM practices and firm profitability. Pfeffer (1995) identified a certain set of best practices which companies can implement to manage their employees. He argues that these practices are universal in nature, and will have a positive effect on organizational performance.

The implementation of HRM practices can contribute to firm performance by motivating employees to adopt desired attitudes and behaviours. They tend to unify people around shared goals which will shape and guide employee behaviour. In addition HCM practices are said to create an internal atmosphere where employees become highly involved in the organization and work hard to accomplish goals the firm sets. In his study of steel minimills, Arthur (1994) found that reward systems provided considerable motivation for employees, which in turn contributed to an increase in productivity.

His study also found that higher rewards contribute to a decrease in turnover among staff. Merit or incentive pay systems provide rewards for meeting specific goals; in turn employees will be motivated to achieve these goals (Delaney & Huselid, 1996). Koch and McGrath (1996) found that investment in recruitment and selection procedures was positively related to labour productivity. Their findings suggest that labour productivity is related to those proactive firms, those firms who plan for their future labour needs, and those that make investments in getting the ‘right’ people for the job.

In addition a number of claims have been made alleging that HRM practices can influence performance by impacting employees’ knowledge, skills and abilities. Practices fostering extensive training can be considered a source of competitive advantage, as they involve keeping employee’s skills and knowledge up to date. Training is said to have a positive impact on performance (Delaney & Huselid, 1996) by impacting dimensions such as product quality. In their study of 590 firms, Delaney and Huselid (1996) found positive associations between practices such as training and firm performance measures.

Pfeffer (1998) also conveys a link between training of employee’s and profits. Some scholars assert that HRM practices will lead to increased performance when there is a high level of fit between the practices and the organization’s strategy. This is commonly known as the configurational perspective of SHRM. This perspective maintains that an organization should implement HRM practices that are congruent with the firm’s strategy, and are consistent with one another. Two practices can work together to enhance each other’s effectiveness; consequently a powerful connection is formed (Delery, 1998).

The implementation of firm specific training programs combined with highly selective staffing practices can work together to generate a talented pool of employees with high productivity. It is therefore thought that HR practices which complement each other and the firm’s strategy will have a positive effect on organizational performance (Lengnick- Hall, Lengnick-Hall, Andrade, & Drake, 2009). Overall, there is a strong view in the literature that certain HRM practices lead to increased organizational performance.

However, studies on this relationship often differ as to the extent a practice is likely to be positively or negatively related to performance (Becker & Gerhart, 1996). Some scholars also express concern regarding the causality between this relationship; do empirical studies actually prove that HRM practices cause increased performance? It has been said that HRM practices are not the only factor which could affect a firm’s performance; many other organizational and environment factors could in fact be attributed to performance (Boxall & Purcell, 2000).

Barney (1986) developed the Resource Based View of the firm (RBV). He argued that certain organizational resources and capabilities can lead to a sustainable competitive advantage for the firm, and therefore can increase organizational performance through superior financial performance. Barney (1986) affirmed that a firm’s organizational culture can in fact be one of these resources. However, he asserts that not just any culture will lead to a competitive advantage; corporate culture must be valuable, rare, imperfectly imitable, and be of value to the entire organization.

If a company’s organizational culture meets these four criteria it has a better opportunity to be a source of sustained competitive advantage. In addition an appropriate HRM system can create and develop organizational capabilities which themselves become sources of competitive advantage (Lau & Ngo, 2004). For example, one of America’s most successful retailers, Nordstrom, attributes their success to its culture of customer service. This culture is seen as a unique, valuable and hard to imitate resource and has become a source of competitive advantage for the company (Carmeli & Tishler, 2004).

Since organizational cultures and HRM systems can be a valuable resource for companies they have a key role to play in the firm performance link. Conclusion This paper has focused around the concept of organizational culture. It has primarily explored the relationship and different views between HRM and culture. While a number of challenging views exist in regards to the HRM- culture link, it is commonly found that HRM practices influence organizational culture, by providing information to employee’s that impacts their assumptions, values and attitudes.

In addition, certain HCM practices are said to shape work force attitudes by framing employee’s perceptions about the organization; in turn leading to higher levels of job satisfaction, retention and motivation; all of which influence a firm’s performance. Furthermore, an organization’s strategy has been alleged to influence corporate culture indirectly through the implementation of HRM practices that help the organization attain their goals. Organizational culture has been considered a valuable resource for companies and could in fact lead to a competitive advantage for the firm.

While HRM has been argued to affect organizational culture, and in turn lead to firm performance we need to be wary of arguing that current evidence proves this relationship. There could, and probably are, a number of other organizational elements that provide a link between HRM and firm performance. More studies regarding the organizational culture and performance link need to be conducted before we can deduce this causality relationship. In saying this, organizational culture has been shown to be an important aspect of a firm, as it can, and does affect employee’s behaviours, motivation and value.

1. What have been the goals of the strategic planning exercise at RACC over the years? What are the advantages and disadvantages of the RACC approach? Previously all the strategic planning exercises involved a wide management participation coupled with bottom-up approach. The aim was the development of a multi-product and multi-channel strategy. In 2000-02 the emphasis of the strategic plan was focused on geographical expansion.

Which were formed by participative process by including 21 senior managers from level 1 and 2 who carried out and external analysis, followed by an internal feasibility analysis. As a result, five corporate strategic priorities were identified, with expansion to the rest of Spain as the highest priority. In 2003-06 the focus of the strategic exercise was to tackle the issue of how to capitalize on the successful expansion. The middle level was given more importance in terms of participation.

Significant changes in the market had occurred in 2005 and 2006 along with diversification of RACC’s core business had initiated a change in the approach to strategic planning process to bring the business back to its shape. From a broader participative approach, RACC started practicing a top-down approach. The goal went to being the development of a multi-product and multi-channel strategy while ensuring compatibility with the ongoing and revised strategy that had already begun to be implemented.

The objective of the change was to increase the profitability and secure the survival of RACC in the insurance business keeping the multi-product and multi-channel strategy as the key strategy in order to increase cross-selling opportunities and to increase the sales revenue and market share. In 2005, unexpected stagnation of the insurance businesses proved difficult for RACC to function as a result the top management had to abandon the bottom-up approach in order to quickly react to the disturbance in the core business of RACC. 007-08, the senior management deemed it necessary to trigger an update of strategic planning exercise of RACC to incorporate the impact and needs of these ongoing projects and to identify additional initiatives. This was taken into consideration to establish overall strategic coherence and help revamp projects that would ensure future financial stability. The 2008-13 exercise was to be carried out by external consultants since they would have a more objective approach along with a team of 10 top managers. The exercise reinforced the concept of service to the car driver and established ambitious growth targets for RACC in the car insurance.

With more emphasis on multi-product and multi-channel strategy to expand the services for car drivers and were designed with ambitious targets. Bottom-up approach/ broader participative approach * Advantages Commitment of the RACC people towards the strategy was formed which resulted in impressive growth in terms of profit, number of members and geographical growth within Spain. * Disadvantages This approach could not foresee the market. The symptoms of stagnation could not be detected which led to an negative impact. Top-down approach * Advantages

The strategy allowed it to operate its different business in different ways whilst producing synergies between them. The strategy also provided better customer service and fostered cross-sales as it encouraged better relationships between the businesses. * Disadvantages The current cross-selling activities needed to be improved which proved as a significant challenge as it required updating the current customer information, analysis of competitors and market trends channel mix, geographical expansion, organizational restructuring, definition of commercial supervision redistribution systems and probably many other issues that could arise. . Should RACC go through a more conventional top down approach given that a participative approach did not seem to foresee the changes in the market? Given that the previous participative and bottom-up approach could not foresee the changes in the market, the top-down approach proved more beneficial since it was more sensible to work with external consultants because of their objective approach.

The symptoms of stagnation were unpredicted and to react to such unforeseen circumstances it was required lay emphasis on the top level managers because of their exclusivity towards the strategy and the lack of time to resolve the occurrence. However, the broad participation approach had proved beneficial for a significant time as well, since it involved the organization participation as a whole, which encouraged implementation due to the involvement. But due to the urgency to take remedial action it would not be feasible to initiate bottom-up approach. . Having faced market changes and having updated the corporate level strategy, should RACC go back to broader participation for the multi-channel strategy? In terms of reacting proactively and effectively to a sudden crisis, it is best for the strategic planning decisions to be carried on by the top level along for a more professional, objective and realistic approach. Regarding the implementation of the strategy, the top level can set directions and supervise the lower levels.

However, to maintain a balance and motivate the lower levels a bottom-up approach can be considered once RACC obtains a more stable position. To facilitate multi-channel strategy the integration of broader participation can enhance cross-selling with the supervision of the top level managers. Core decisions should be in the authority of the higher levels. 4. Can a participative strategy making process increase the chances of future stable profits for RACC? Yes, as long as the core strategic decisions are under the authority of the CEO and top level.

A broader participative approach can be initiated once again when RACC stabilizes itself in the market since this method had been adopted from prior times and had in fact double profits previously because of the commitment of RACC people towards the strategy. Although this can only be opted for enhancing multi-channel strategy, since RACC has diversified itself from a broker to having its own insurance products and services and it is difficult for the lower level to comprehend the wide array of multi-products being implemented. Concentration on cross-selling can prove more viable to sustain growth.

Google’s corporate strategy can be divided into four segments: Product and Marketing strategy, Competition strategy, Growth strategy, and Financial strategy. Google has a strategic orientation of immediate policy focus, for example, the company’s concern for competition associated matters. In other words, Google is more inclined to find the need to beat rivals rather than being held up with a strategic policy. Therefore, product orientation strategy has an immense predisposition to identify faults and space of rivals and getting in there to diminish the competition.

They are also highly focused on which segments of the mass market are neglected and would afford their products. This includes whether to expand in a certain region or pull out of an area due to failure to achieve set goals. The marketing strategy is influenced by the approach of product placement. Google would like to make the glasses accessible to everyone. It is a device that can be used by the mass market and Google has the background and tools to market successfully to those targets. They want to make it usable for all groups and that means making the device simple and easy to use.

Google’s growth is immensely mounting and is directly associated with the managing of customer relations. Google’s made a great choice to grow through their customers because their technological capabilities such as detection of bad practices, customer feedback, information management and result analysis have improved greatly through staying connected to a loyal customer base. Through the eyes of the customer, Google has matured through new products and services such as Google Calendar, Groups, Gmail, Docs, Mobile, Maps, Blogger, and more that have all successfully given the customers their satisfaction.

Their growth ties in with their devotion to focus on the user and having all else follow. Google knows that they are a Search Company first. This means that Google recognizes what they are best at, and to do that one thing, which is to solve search problems, to the best of their ability and focus mainly on that. Secondly, they try to improve in the areas that they are somewhat weak in. But this doesn’t mean they lose focus of their strategy of putting their strengths first and improving them to such a degree to create an everlasting competitive advantage. Google’s distribution objective is to increase exposure to the business markets.

We will be exclusively dealing because it encourages marketing support. We will be able to work with another company in getting the product out there and making it known while Google doesn’t have to bear the whole burden. It also allows Google to be a step ahead of its competitors in having a big retailer to sell through and having them only committed to Google. This gives Google a great advantage over their competitors and separates Google from their competitors. There are three main goals for distribution. First, Google will have functioning marketing channels within 1 year after launch.

This will allow them to transport and store goods as well as gather information and market research in order to plan and assist in exchange. Second, Google will gain market share in the consumer cell phone market within 2 years. From this, Google then poses a challenge towards its competitors by offering a better performance through introducing an innovative new product and gaining a competitive edge. The last goal is that Google Glasses becomes the dominant business communication tool within 3 years. It’s a one of a kind product as or right now and getting a head start allows Google to achieve this objective.

Their strategy for differentiation is to gain direct access to business clients to support distribution goals. With goals come key issues that affect the attainment thereof. Google has to create relationships with its channel members. They need to have cooperation and collaboration to create synergy. Along with this, proper training and execution of sales force to target business market needs to be implemented. Creating such a motivating channel member force will only bring positive rewards towards making this product a success and accomplishing our goal to get it in the hands of those that Google is pursuing.

MTN NIGERIA COMMUNICATIONS LIMITED Prior to 1999, which heralded the return of democracy to the Federal Republic of Nigeria, 30 companies had the Digital Mobile License (DML). None of these companies were fully operational as the lacked the technical and financial capability to operate the DML. Aside from the digital mobile licensee, the only active player who was more or less a monopoly was Nitel.

The advent of democracy resulted in the appointment of a new regulator for the telecommunications industry. One of the mandates given to the regulator was to deregulate the telecommunications sector and to drive it to become an enabler of the Nigerian economy. The regulator’s first move was to revoke all DML licenses, free up the spectrums associated with the licenses and then open up the licenses to all that is interested.

After a due diligence, going thru technical and financial bids, six players were invited to bid for three of the four spectrums put up for sale (the fourth was reserved for Nitel, the government owned company). After a very competitive, free and fair bidding process, MTN Nigeria Limited emerged as one of the winning bids, paying $285m for the license. As part of the terms to retaining the license, each operator of the DML license was to use the GSM technology. They were all given roll out targets, and targets on subscriber base. ROLL OUT STRATEGY

At a strategy management meeting, MTN identified that aside from ensuring that the roll out and subscriber base targets are met, they also have to ensure what ever strategy that is implemented will ensure that investment in the cost of the license and building of the network is recoverable and sustainable. Two roll out strategies were identified: Width strategy and Depth strategy or a combination of both. Whichever strategy was chosen, the marketing team were to ensure that the necessary marketing strategy, slogan and drive support it

16/10/2012 Saxion University of Applied Science Module International Business Plan – Mr. J. Oude Rengerink IBMS Project 6 – Gr. C1 Analysis International Strategy; Part 1 – Second Version Tim Herbers (153139) Angelika Kuhn (147613) Sebastiaan Prins (112381) Luc Zijlmans (149689) Saxion University of Applied Science Module International Business Plan – Mr. J. Oude Rengerink IBMS Project 6 – Gr. C1 Analysis International Strategy; Part 1 – Second Version Tim Herbers (153139) Angelika Kuhn (147613) Sebastiaan Prins (112381) Luc Zijlmans (149689) | Coca Cola & Pepsi| Analysis International Strategy|

Coca Cola & Pepsi| Analysis International Strategy| Index 1. Analysis International Strategy3 2. The Coca-Cola Company & PepsiCo4 3. Marketing5 3. 1 Marketing mix of Coca Cola5 3. 2 Marketing mix of Pepsi7 3. 3 Brand differentiation8 3. 4 Coca-Cola & Pepsi Worldwide8 4. Management9 4. 1 Management Coca-Cola9 4. 2 Management PepsiCo11 4. 3 Management compared12 5. Financial Position12 5. 1 Profitability13 5. 2 Liquidity14 5. 3 Solvency15 6. Production16 6. 1 Comparison Production17 7. Research and Development18 7. 1 Research and Development & Sustainability20 8. In Overall21 9. Coca-Cola Company or PepsiCo21 0. References22 1. Analysis International Strategy Before it could be determined whether the Coca-Cola Company or PepsiCo is most suitable for entering a new market, a thorough examination and evaluation of their current (internal) strategy has be performed. Several variables will be researched upon, including Human Resource Management, sustainability and ethics, management aspects (financial part of the business plan), and strategic international marketing position. During this first part we will be answering the question ‘What are the strengths and weaknesses of the companies Coca-Cola and PepsiCo? . 2. The Coca-Cola Company & PepsiCo The Coca-Cola Company Coca-Cola is a carbonated soft drink that is sold in stores, restaurants, and vending machines available in more than 200 countries throughout the world. Nowadays it is rather difficult to think of a country where it is not available. With a portfolio of more than 3,500 beverages, from diet and regular sparkling beverages to still beverages such as 100 per cent fruit juices and fruit drinks, waters, sports and energy drinks, teas and coffees, and milk-and soy-based beverages, their variety ps the globe.

The company has 146,200 employees around the world and operates its business for 126 years respectively. Its headquarters is located in Atlanta, USA. In financial circles, Coca-Cola has been one of the strongest and most reliable trading stocks, showing a steady return in all of its years of existence but one. However, Coca Colas market share has slipped, but still dominates in much of Europe and South America. PepsiCo The carbonated soft drink producer sells its products in nearly 200 countries throughout the world. Their product assortment includes 22 brands that each generate more than $1 billion each in annual retail sales.

The company employs 297,000 people around the globe and is twice as much as that of Coca Cola and sells its products under the name of Pepsi Cola since 1898. Its headquarters is located in Purchase, USA. Pepsi mostly dominates in Asian markets as compared to Coca Cola. In financial circles, Pepsi is known to provide a steady growth when it comes to sales revenue as well as profit. Their sales revenue in 2011 is one third higher than that of 2008 and a disruption in that trend is not expected by sales forecasts. 3. Marketing 3. 1 Marketing mix of Coca Cola Product

The Coca-Cola Company’s products consist of beverage concentrates and syrups, with the main product being the finished beverages and can be seen as both business and consumer products. The type of consumer product the Coca-Cola Company creates is convenience product. Convenience products normally require a wide distribution in order to sell sufficient quantities to meet profit goals In addition, the Coca-Cola Company often pays a certain amount to retail stores to resell their product. Therefore the Coca-Cola Company products can be considered a business product.

The Coca-Cola Company has a fairly large product mix which contains about 400 brands, including diet and light beverages, waters, juice and juice drinks, teas, coffees, energy, and sports drinks. Since 1960 they have increased their product mix continuously. Place Coca Cola is sold in stores, restaurants, and vending machines in more than 200 countries. The headquarter is located in Atlanta, Georgia. Promotion Advertising According to Gary Armstrong and Philip Kotler, “Advertising is any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. Coca-Cola has used advertising to build an image for its company. Here are some of the types of advertising that Coca-Cola uses: * Television commercial; gain good marketing coverage by appealing to consumer’s senses. * Magazines; geographically and demographically select consumers that it wants to target. * Outdoor advertising; strategic placements achieve high repeat exposure. * Internet; allows customers to become interactive through various games, contests, shopping. Public Relations Coca-Cola handles public relations by including a press centre on its website.

This section of the website allows consumers to view press releases, executive speeches, and statements made by the company regarding current information. In the statements, Coca-Cola can address law suits, rumours, stories, new products, and activities. Personal Selling Coca-Cola has many salespeople, who are individuals representing the company to communicate, sell, service, and build relationships with customers. These individuals form close relationships with the customers and visit them not unusual many times per week. Sales promotion

Coca-Cola often runs sales with stores to quickly increase sales. Coke gives its product to the retailer for a lower price, and in-turn the retailer sells the product on sale. To advertise for these sales, the retailer generally runs an ad in their store sales circular at attract consumers. Direct Marketing Coca-Cola uses direct marketing in many ways. First, the company partners with various restaurants, movie theatres, etc. to carry its product. This way, when a customer orders a drink, the only brand they are offered is Coca-Cola, which forces them to buy a drink from that brand.

By doing this, Coke forces out other competition, and keeps the restaurants, or other businesses, purchasing their product over and over again. Price Average price in the capitals for one can 350ml (2011): Greece, Spain, Belgium: $1. 74 Switzerland:$1. 72 United Kingdom:$1. 54 United States:$0. 79 Russia:$1. 07 India:$0. 36 China:$0. 26 3. 2 Marketing mix of Pepsi Product The Pepsi-Cola drink contains basic ingredients found in most other similar drinks including carbonated water, high fructose corn syrup, sugar, colourings, phosphoric acid, caffeine, citric acid and natural flavours.

The caffeine free Pepsi-Cola contains the same ingredients but no caffeine. Pepsi’s most popular product range include Diet Pepsi, Gatorade, Mountain Dew, Thirst Quencher, Tropicana, Aquafina Bottled Water, Sierra Mist, Fritos Corn chips, Cheetos, Ruffles Potato Chips, Lays Potato Chips, Tostitos, Doritos. Place Pepsi is sold in stores, restaurants, and vending machines in nearly 200 countries. The headquarter is located in Purchase, New York. Promotion Advertising Likewise Pepsi has used advertising to build an image for its company. * Television commercial; gain good marketing coverage by appealing to consumer’s senses. Magazines; geographically and demographically select consumers that it wants to target. * Outdoor advertising; strategic placements achieve high repeat exposure. * Internet; allows customers to become interactive through various games, contests, shopping. Public Relations Pepsi gets involved in Public Relations via social networks like Facebook. Community services as well as social campaigns are addressed on the company’s internet page. Personal Selling In order to keep up with the core competition, Pepsi’s salespeople are inevitable building similar relationships with customers like Coca Cola.

Sales promotion Sales promotion is similar to that of Coca Cola. Direct Marketing The direct marketing strategy is equally to that of Coca Cola. Price Average price in the capitals for one can 350ml (2011): United Kingdom:$0. 38 United States:$0. 79 Canada:$1. 02 Egypt:$0. 66 India:$0. 12 China:$0. 10 3. 3 Brand differentiation Brand differentiation takes place after understanding what the customers wants and therefore meeting the core need. Pepsi and Coca-Cola are popular black soft drinks and mostly contain sugar and water with a slightly difference in taste.

Although the ad campaigns run by both companies would have people think otherwise, the soft drink similarities are striking. A study found that 80 per cent of people cannot differentiate a sample of Coca-Cola (NYSE: KO) from a sample of Pepsi. In essence, it does not matter how the DNA of the product looks like, but how it is presented. On the one hand there is Coca-Cola, the secret inventor of cola, the original product since the establishment on the market. Pepsi, on the other hand, was born a few years after Coke and stands for something new. It markets its product being committed for a new generation.

Pepsi does have a slight advantage over Coke in diversification. Pepsi has snack food brands such as Frito-Lay and Quaker. They also own the brands that make beverages such as Gatorade, Tropicana and Naked Juices. While Coke hasn’t tapped the snack food market, they do have some beverage diversification. Dasani bottled water, PowerAde and Minute Maid juices are all part of Coca-Cola. 3. 4 Coca-Cola & Pepsi Worldwide The Coca-Cola Company and PepsiCo both have very successful drinks. Although Coca-Cola is greater than PepsiCo as a company as well as the amount of brands/drinks, their drinks are quite similar and therefore comparable.

They also have a wide range of promotional activities. They use practically all communication mediums there are and invest huge amounts in building customer relationships. Coca Cola and Pepsi are sold in around the 200 countries worldwide. Both headquarters are located in the United Stated. The price of Coca Cola is more expensive than Pepsi in most countries. Since most people cannot taste the difference between the two, the difference in price lies with that Coca Cola is more known and wins from Pepsi on image. It is seen as a slightly ‘better’ brand. . Management 4. 1 Management Coca-Cola Management Every company needs a strategy, to ensure that everything goes well within the firm. Strategic management affirms the company being well organized and no detail being left out. It is essential to make sure that the company is doing well internally. Business start up Coca-Cola was first introduced by John Smyth Pemberton. The distribution took place by carrying the product in a jig down the street to Jacob’s Pharmacy, where people were buying the drink for five cents at the soda foundation. Strategy

Nowadays, the Coca-Cola Company operates in more than 200 countries and markets more than 500 brands. Hereunder, four of the world’s top five soft drinks brands, which explains the enormous success and makes them to the world’s largest beverage company. The unique brand is consistently offering products of the highest quality and delivers creative and innovative marketing programs worldwide. The global availability and ongoing innovation, continually provides its consumers with new product offerings, with each country having its own unique needs and requirements.

Mission * To refresh the world… * To inspire moments of optimism and happiness… * To create value and make a difference. | Vision * People: Be a great place to work where people are inspired to be the best they can be. * Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people’s desires and needs. * Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value. * Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities. Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities. * Productivity: Be a highly effective, lean and fast-moving organization. | Values * Leadership: The courage to shape a better future * Collaboration: Leverage collective genius * Integrity: Be real * Accountability: If it is to be, it’s up to me * Passion: Committed in heart and mind * Diversity: As inclusive as our brands * Quality: What we do, we do well Structure The Coca-Cola’s primary business consists of manufacturing and selling beverages.

The company sells their concentrates and syrups to bottling partners, which have the authorization of manufacturing, distribution and selling branded products to consumers around the globe with supreme quality and service. The relationship with its bottlers worldwide is a key source of strength and is referring to ‘the Coca-Cola system’. Culture The organizational culture describes the way a business does things, including patterns of behaviour and relationships. Therefore, the employees of the Coca-Cola Company are the most important asset, highlighting teamwork and empowerment.

Not only employees, but also customers and bottling partners feel valued in this friendly, trustful and innovative culture and their motivation provides the engine that drives the Company’s growth. Based on relationships, The Coca-Cola Company provides a number of open communication channels as monthly leadership team meetings and employee team briefing sessions and surveys to monitor employee views and feelings. 4. 2 Management PepsiCo Business start up Pepsi was first introduced as ‘Brad’s Drink’ by Caleb Bradham in 1893. The drink was produced and sold in his drugstore. Strategy

The company operates in more than 200 countries. PepsiCo has competitive advantage in the beverage industry because of big brands, proven innovation and differentiated products. Their strong brand, socially responsible employees and corporate beliefs continues its stance as one of the most powerful companies in the world. Mission Our mission is to be the world’s premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate.

And in everything we do, we strive for honesty, fairness and integrity. Vision “PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate – environment, social, economic – creating a better tomorrow than today. ” Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company. Goals and Values Ensure high levels of associate engagement and satisfaction compared with other Fortune 500 companies * Foster diversity and inclusion by developing a workforce that reflects local communities * Encourage our associates to lead healthier lives by offering workplace wellness programs globally * Ensure a safe workplace by continuing to reduce lost time injury rates, while striving to improve other occupational health and safety metrics through best practices * Support ethical and legal compliance through annual training in our code of conduct, which outlines PepsiCo’s unwavering commitment to its human rights policy, including treating every associate with dignity and respect Structure This adaptive organization is continuously seeking for improvement and keeping new ideas in the marketplace. PepsiCo has a decentralized organizational structure. Operational decisions are being made within the separate business units while being governed by policies at the corporate level. Culture PepsiCo offers a culture that encourages initiative, risk taking and access to decision makers.

Employees have superior opportunities to pursue their goals. The company considers their culture as fairly uniform. “Extremely competitive and very focused”. Trust, respect, fairness and teamwork are being valued. Managers must be able to attract, retain and develop talents in order to achieve efficient and effective results, which are significant for PepsiCo’s expectations. Benefits as bountiful retirement packages, tuition reimbursement and legal assistance programs are being praised by their employees. 4. 3 Management compared Each company tries to outdo each other and tries to produce the best product. The battle of the two companies gives life to the industry.

Both companies have a long history and have been tried and tested. The two are showing social responsibility in the community and have invested heavily in recycling programs. However, The Coca Cola Company is the market leader. It has built internal and external structures to support the delivery of its business goals. It has the best structure of supporting growth, allowing attention to local requirements and building on a clear strategic direction from the centre at the same time. To build its growth on, the company has a firm foundation of relationships and open communication channels. 5. Financial Position What is the financial position of PepsiCo?

The last year’s PepsiCo has been a very financially healthy company. But like many companies also PepsiCo suffered a bit from the financial crisis. If we first look at the income statement of PepsiCo we can see that PepsiCo is now recovering from the blow they took from the financial crisis and are increasing their revenue and profits. They are recovering by spending more money on their marketing in their home market and also doing more investments then the years before. In 2009 investments were only 2. 1 billion and in 2011 their 3. 4 billion. This strategy is helping them to get back on track. We can see this strategy back in their cash flow statement and in their balance sheet.

What is the financial position of Coca-Cola Company? The Coca-Cola Company has always been market leader with their coke and has always been a very strong company, not just financially but also their brand name is very strong. Even though they have a very strong brand name they took a blow in 2008 with the economic crisis and had to cut their costs and investments substantially. In 2011 their managed to get their revenue up by 11 billion but their profit stayed the same as in 2010. This was because they started to invest more; this is something that the competitor PepsiCo did as well. So both companies are recovering and doing well. 5. 1 Profitability PepsiCo Inc. , profitability ratios  | Dec 31, 2011| Dec 25, 2010| Dec 26, 2009| Dec 27, 2008| Dec 29, 2007|  | Return on Sales| | Gross profit margin| 52. 49%| 54. 05%| 53. 51%| 52. 95%| 54. 30%| | Operating profit margin| 14. 48%| 14. 41%| 18. 61%| 16. 09%| 18. 19%| | Net profit margin| 9. 69%| 10. 93%| 13. 75%| 11. 89%| 14. 33%|  | Return on Investment| | Return on equity (ROE)| 31. 29%| 29. 86%| 35. 38%| 42. 47%| 32. 83%| | Return on assets| 8. 84%| 9. 27%| 14. 92%| 14. 29%| 16. 34%| Coca-Cola Co. , profitability ratios |  | Dec 31, 2011| Dec 31, 2010| Dec 31, 2009| Dec 31, 2008| Dec 31, 2007|  | Return on Sales| | Gross profit margin| 60. 86%| 63. 86%| 64. 22%| 64. 39%| 63. 4%| | Operating profit margin| 21. 82%| 24. 06%| 26. 56%| 26. 44%| 25. 13%| | Net profit margin| 18. 42%| 33. 63%| 22. 02%| 18. 18%| 20. 73%|  | Return on Investment| | Return on equity (ROE)| 27. 10%| 38. 09%| 27. 52%| 28. 37%| 27. 51%| | Return on assets (ROA)| 10. 72%| 16. 19%| 14. 02%| 14. 33%| 13. 82%| In the table’s you can see the most important profitability ratios for PepsiCo and Coca-Cola Company. The gross profit margin indicates the percentage of revenue that is used to cover operating and other expenses. For the last years Coca-Cola always had the better profit margin ratio because they do not have such a diverse product range as PepsiCo does.

PepsiCo also works in other markets like cereal and potato chips where the gross profit margins are usually lower. This accounts for all of the return on sales ratios. The return on investments are not very different for both companies but PepsiCo did some major investments in equity the last few years and they still managed a very high return on equity which a good result. Both companies have good returns on their investments. We can clearly see that Coca-Cola has a higher profitability; a big difference is the net profit margin where they score much better then PepsiCo. But both companies are doing very well profitability wise. 5. 2 Liquidity PepsiCo Inc. , liquidity ratios  | Dec 31, 2011| Dec 25, 2010| Dec 26, 2009| Dec 27, 2008| Dec 29, 2007| | Current ratio| 0. 96| 1. 11| 1. 44| 1. 23| 1. 31| | Quick ratio| 0. 62| 0. 80| 1. 00| 0. 79| 0. 89| | Cash ratio| 0. 24| 0. 40| 0. 47| 0. 26| 0. 32| Coca-Cola Co. , liquidity ratios |  | Dec 31, 2011| Dec 31, 2010| Dec 31, 2009| Dec 31, 2008| Dec 31, 2007| | Current ratio| 1. 05| 1. 17| 1. 28| 0. 94| 0. 92| | Quick ratio| 0. 78| 0. 85| 0. 95| 0. 62| 0. 58| | Cash ratio| 0. 58| 0. 61| 0. 67| 0. 38| 0. 33| The current ratio of PepsiCo is a shock because looking at this number they have serious liquidity problem. It took a major blow from the economic crisis looking at numbers from 2007 and 2008 when the current ratios were at a much more healthy level.

Also Coca-Cola’s current ratio’s is much lower than it used to be but when we look at the current ratio in 2008 and 2007 the ratio was lower than it is now so it might be that this is not an unusual position to be in for Coca-Cola . The quick ratio shows if a company can currently pay back their current liabilities. Both companies are not able to do this but for big companies like Coca-Cola and PepsiCo this is a normal quick ratio and they do not have something to worry about. The Cash ratio of PepsiCo is much lower than Coca-Cola this might also be the cause for their low current ratio they do not have a lot of cash on their bank but they use it mostly for investments. Overall the liquidity position of Coca-Cola is better and Pepsi might need to reconsider to improve their liquidity position. 5. 3 Solvency

PepsiCo Inc. , debt and solvency ratios |  | Dec 31, 2011| Dec 25, 2010| Dec 26, 2009| Dec 27, 2008| Dec 29, 2007| | Debt to equity| 1. 30| 1. 18| 0. 47| 0. 68| 0. 24| | Debt to capital| 0. 57| 0. 54| 0. 32| 0. 40| 0. 20| | Interest coverage| 11. 32| 10. 12| 21. 35| 22. 41| 35. 12| Coca-Cola Co. , debt and solvency ratios |  | Dec 31, 2011| Dec 31, 2010| Dec 31, 2009| Dec 31, 2008| Dec 31, 2007| | Debt to equity| 0. 90| 0. 76| 0. 48| 0. 45| 0. 43| | Debt to capital| 0. 47| 0. 43| 0. 32| 0. 31| 0. 30| | Interest coverage| 28. 43| 20. 43| 26. 20| 18. 14| 18. 37| PepsiCo finances their company more with equity and capital than Coca-Cola Company does.

You can see this when you look at the debt to equity and debt to capital ratio which are much higher in the case of PepsiCo especially the debt to equity this is because of the big investments in equity that PepsiCo did this year and last year. Even though the Coca-Cola Company is financed more by loans, this is not a problem for Coca-Cola because their interest coverage ratio is very high and their profits have been an in stable growth as where PepsiCo has a much lower interest coverage ratio which is declining every year since the start of the economic crisis. 6. Production Intangible resources Coca-Cola is the absolute leader in the carbonated soft-drink market and is recognised as the most valuable brand worldwide. The company? greatest strengths are in its intangible resources. Because of the great reputation and image, they differentiate themselves from competitors like Pepsi. Coca-Cola can be bought in almost every country worldwide and is available in practically all snack shops, supermarkets, train stations, and so on. This success exists because the huge investments in marketing and Coca-Cola’s distribution systems. Customers of Coca-Cola are generally very loyal, more loyal than the Pepsi customers. Coca-Cola also gains competitive advantage by excelling in their brand image (strategy). They invest a lot in marketing and brand awareness, (Coca-Cola is a lifestyle”).

Another competitive advantage is the 400 licenses and patents on different formulas (ingredients Coca-Cola) and other drinks and brands which fall under the Coca-Cola Company. PepsiCo is also operating on a global basis. The competition between the two is heavy and just like Coca-Cola, Pepsi drinks are available in almost every nation, in almost every food and drink store. Although fulfilling a similar position as Coca-Cola in their market, PepsiCo has a rough opponent with Coca-Cola. The past several years, PepsiCo is not as profitable as before and has more and more trouble with competing with Coca-Cola, also because of the high investments of Coca-Cola in marketing. Therefore, their brand equity is developing negatively. Also PepsiCo’s intellectual property is great.

Coca-Cola is more seen as a phenomena than a brand, and this is a competitive advantage for PepsiCo as well. Many establishments over the world offer Cola, and provide customers with PepsiCo mainly because this is less expensive. As already mentioned earlier, most people cannot distinguish Coca-Cola from PepsiCo, therefore gains PepsiCo competitive advantage at the expense of Coca-Cola. Human Capital The whole Coca-Cola Company has over 140,000 employees worldwide. Remarkable is that PepsiCo around the 30% greater workforce has, although their market share is considerably smaller. Unless the efficiency rate per employee of PepsiCo is much higher than that of Coca-Cola, this causes the company to have very large expenses in labour terms.

To safeguard future long-term objectives, the companies both choose to keep a diverse workforce. Employees get relatively much responsibility (empowerment) and are encouraged, inspired and challenged to learn, be innovative, be original, and to promote themselves within the company. This creates extra value for both companies because employees are more loyal. Physical capital The physical capital of Coca-Cola is huge. The Company owns over many facilities in more than 200 countries worldwide where the bottling, canning, syrup manufacturing, and administrative aspects are being dealt with. Only the bottlers where the products are manufactured and distributed mounts up to 275 facilities over the world.

All those facilities are brought under five geographic operating segments (North America, Africa, Asia, Eurasia and the Middle East, and Latin America) and one corporate segment. The bottling partners are local companies, totally integrated and operating in line with their local markets. Also PepsiCo’s distribution system covers a wide range of certified bottlers, selling products in over 200 countries on six continents to businesses and institutions, including retail chains, supermarkets, restaurants, small neighbourhood grocers, sports and entertainment venues, schools and colleges, etc. 6. 1 Comparison Production These good resources ensure overall quality, flexibility and responsiveness in respect to local markets.

They are integrated in their market worldwide with continuous supply. Brand image and human capital are aspects which safeguards profitable future prospects with a sustainable competitive advantage. Both Coca-Cola and Pepsi have a massive amount of employees working for the company worldwide. This is also necessary because the employees contribute for a large part to business successes. Remarkable is the 30% greater workforce of PepsiCo. This is an alarming situation because the expenses of labour is large. Because they are both very successful and such immense companies, brand image, presence in geographical markets, distribution systems are all well-organised and difficult to compare.

The end results of Coca-Cola in financial-, as well as non-financial aspect are better than those of PepsiCo on almost every terrain. 7. Research and Development How sustainable is PepsiCo? (Continuous improvement/New flavours) PepsiCo is a company with a wide variety of products and in all their market segments they are an A brand. When it comes to research and development you can see that PepsiCo is one of the best. They have multiple research and development facilities especially in the United States with many highly skilled scientists working there every day trying out new flavours and new products. The company even has its own university to train their staff.

At this university which was opened in 2011 the scientist of PepsiCo receive training about 8 main items which are: packaging, Nutrition, Food Safety and Regulatory, Ingredient Application Science, Human Research and Science, Experience Design, Product Development and Process Engineering. They create new flavours every day and they launch a new flavour a couple times a year. They carefully create their flavours for specific markets so they meet the exact needs of the customers in that country. Another thing that PepsiCo strives to do is continuously improve their existing product and their existing processes. They do this for instance by giving training to their employees and giving their mangers goals to make sure they improve every year. How sustainable is the Coca-Cola Company? Continuous improvement/New flavours) Coca-Cola might not have as many R;D facilities as PepsiCo but their output of new products and new flavours is bigger than PepsiCo. This mostly caused by the fact that the Brand Coca-Cola is much more than just a brand. They also sell T-shirts and other product of their brand that they develop. Things like vending machines and packaging are things that Coca-Cola focuses on with their R;D while PepsiCo is more focussed on their product range. Coca-Cola is so settled as a brand that the most of their R;D is almost marketing. Like new cloth lines and new packaging for their products and off course new vending machines which will not only benefits the customers but also carries a message.

Of course Coca-Cola Company also develops new flavours and new product they do this the same way as PepsiCo they look at the specific needs of the inhabitants of a country and create a new flavour or product based on those needs. Coca-Cola also PepsiCo strives to do is continuously improve their existing product and their existing processes. They do this for instance by giving training to their employees and giving their mangers goals to make sure they improve every year. Does PepsiCo have a green vision? PepsiCo is fully committed to protecting the earth’s natural resources through innovation and the efficient use of land, energy, water and packaging in all our operations.

As a global business, they rely on the earth’s natural resources. And as they grow, they strive to use only methods and tools that are, socially responsible and economically sound. PepsiCo has multiple categories where they are becoming more and more sustainable, the first category in which they have goals for improvement is water usage. PepsiCo’s goal to improve water-use efficiency by 20 per cent per unit of production by 2015 . PepsiCo has already improved water-use efficiency by 18. 7 per cent for foods manufacturing, and 17. 8 per cent for beverage manufacturing. These conservation efforts translate to a water savings of nearly 13. 8 billion litres.

Also waste management is very important for them. In 2010, PepsiCo generated an estimated 1. 25 million metric tons of solid waste from the manufacturing facilities. Of that total, only 15. 4 per cent was discarded to a landfill, and 84. 6 per cent of waste generated was sent off-site for beneficial use, such as recycling. In the future they are still looking to improve those numbers. Also they keep a close eye on their carbon emission. They have multiple on-going projects in many different countries that will help them decrease their Co2 emission and their effect on the global climate change. They have set 4 worldwide goals for their company. * Reduce carbon intensity in our operations Invest in carbon reduction technologies, including renewable fuel technology and clean development mechanisms * Reduce fugitive emissions * Work with supply-chain partners to reduce their emissions You can see that PepsiCo is company that has very sustainable supply chain and is still trying to improve their sustainability and decrease their emissions. Does the Coca-Cola Company have a green vision? Coca-Cola company is the largest beverage producer in the world and because of that they feel that they have responsibility to make the world a little bit better. They invest a huge amount of money in project on sustainability all over the world.

Every year they also create a sustainability report about all they project and what they have achieved that year, also they describe their new project and they set goals for the coming year. In the figure to the right can be seen that they have created a visual concept of the Coca-Cola lifecycle which perfectly shows the way they work on their sustainability. 7. 1 Research and Development & Sustainability Both companies are constantly working on a better position in the market, improve the production and distribution processes, become more sustainable through innovation and participation onto the market. As it comes to sustainability PepsiCo is far behind on Coca-Cola even tough PepsiCo is already a very sustainable company Coca-Cola is really trying to make the world a better place.

In total we can see that Coca-Cola is a more sustainable company than PepsiCo, and gives more back to the community. This is also one point why Coca-Cola is a brand which more people adore. 8. In Overall Although the Coca-Cola Company and PepsiCo seem to be quite similar in operating, distributing, production, marketing, and naturally the drinks themselves, they differ from each other on several aspects. Below, a table which gives an overview of important differences between the two competitors. | Strength| Weakness| Coca-Cola| 1. Over 500 brands in product line2. Strong global presence3. Excellent brand recognition4. Industry leader in market| 1. Negative publicity2. Supply is restricted3.

Low profits in strong areas4. Decline in cash flow| Pepsi| 1. Company Image2. Quality Conscious3. Market Share4. Sponsorships| 1. Decline in taste2. Short term approach3. Weak distribution4. Low consumer knowledge| 9. Coca-Cola Company or PepsiCo We have seen all the strong and the weak points of both companies in all the analyses in this project. We have decided to go on with the Coca-Cola Company. This is mainly because of better financial position that Coca-Cola Company has over PepsiCo. Especially profitability and liquidity wise they have a much better position than PepsiCo does and we think this will be an advantage when we are going to write a business plan.

PepsiCo also has a more diverse product mix than Coca-Cola because PepsiCo also has brands in markets like breakfast cereal and potato chips whereas Coco-Cola is only active in markets like soft drinks and sports drink where they have a lot of experience. We think that experience that they have because the specialized in drink markets only will be a huge advantage over PepsiCo when they are going to enter a new market. These are the two main differences between the very similar companies that made us decide that Coca-Cola Company is the better option to attack a new market. 10. References http://www. thecoca-colacompany. com/ourcompany/mission_vision_values. html http://www. pepsico. com/annual11/downloads/PEP_AR11_2011_Annual_Report. pdf http://www. ehow. com/about_5089164_business-resources-definition. html http://premiumwritingservice. om/attachments/article/491/CocaColaInternalAnalysis. pdf http://www. thecoca-colacompany. com/ourcompany/pdf/COBC_English. pdf http://www. scribd. com/doc/28092994/Comparative-Analysis-of-Pepsi-and-Coke http://www. pepsi. com/ http://www. thecoca-colacompany. com/ourcompany/mission_vision_values. html ——————————————– [ 1 ]. http://www. pepsico. com/annual11/downloads/pep_ar11_2011_annual_report. pdf [ 2 ]. http://www. stock-analysis-on. net/ [ 3 ]. http://www. stock-analysis-on. net/ [ 4 ]. http://www. thecoca-colacompany. com/ourcompany/innovation_marketplace. html [ 5 ]. http://www. pepsico. com/Purpose/Environmental-Sustainability/Climate-Change. html

Competitive Strategy 1 Competitive Strategy for Dialog Mobile Competitive Strategy 2 ABSTRACT The study aims at devising a competitive strategy for Dialog Mobile, the provider of mobile telephony services which is the core business of Dialog Telekom PLC. Dialog which currently has customer base of over 5 Million and a revenue share of over 60% is the market leader in Sri Lanka’s mobile industry.

However due to aggressive competitor price wars, the entrance of multinational giants such as Bharthi Airtel, global and domestic economic downturn, fluctuating inflation and high cost of energy combined with a bullish expansion strategy, Dialog had to face a loss of Rs. 2. 88 Billion in 2008 from a profit of 8. 91 Billion in 2007. This forms the background for Dialog’s . Since the industry has an Oligopolistic structure, constant price wars are putting the industry at risk.

In order to be sustainable in such an environment it is crucial that Dialog focuses on customer retention and acquisition via customer centric policies, processes and a culture of relentless pursuit towards exceptional customer service. This would have to be backed by lean processes, prudent investments and rigorous project management. Dialog should also consider the feasibility of following an outsourced model by handing over high cost activities such as network infrastructure management and IT to selected vendors. Competitive Strategy 3

Table of Contents ABSTRACT ……………………………………………………………………………………………………………. 2 Introduction …………………………………………………………………………………………………………….. 6 Preliminary Business Analysis …………………………………………………………………………………… 7 Value Creation ……………………………………………………………………………………………………… Micro Economic Analysis ……………………………………………………………………………………….. 10 Cost Structure …………………………………………………………………………………………………….. 10 Five Forces Analysis……………………………………………………………………………………………. 12 Existing Rivalry Amongst Competitors ……………………………………………………………….. 13 Threat Of New Entrants ……………………………………………………………………………………. 3 The Power Of Suppliers ……………………………………………………………………………………. 14 The Power Of Buyers ……………………………………………………………………………………….. 15 SWOT Analysis …………………………………………………………………………………………………… 15 Strengths…………………………………………………………………………………………………………. 15 Weaknesses……………………………………………………………………………………………………… 6 Opportunities ………………………………………………………………………………………………….. 17 Threats ………………………………………………………………….. ………………………………………. 17 Market Structure & Customer Behavior…………………………………………………………………. 18 Dialog Telekom PLC Performance Review for 2008 ……………………………………………….. 19 Macro Economic Analysis ………………………………………………………………………………………. 3 Economic Forecast ……………………………………………………………………………………………… 25 Driving Forces ……………………………………………………………………………………………………….. 27 Competitive Strategy 4 Driving Forces in the Local Industry …………………………………………………………………….. 27 Changes In Long Term Industry Growth Rate ……………………………………………………… 7 Entry Of Major Multinational Firms ………………………………………………………………….. 28 Innovative Business Models ………………………………………………………………………………. 28 Exponential Growth In Network Bandwith ………………………………………………………….. 28 Regulatory Changes …………………………………………………………………………………………. 28 Reduced Consumer Spending…………………………………………………………………………….. 9 Unemployment ………………………………………………………………………………………………… 29 Increased Taxes……………………………………………………………… ……………………………….. 29 Driving Forces In The Global Industry ………………………………………………………………….. 30 The Internet And Digitization Of Content ……………………………………………………………. 30 Strategic Plan For Dialog Mobile ……………………………………………………………………………… 0 Short Term …………………………………………………………………………………………………………. 30 Enhanced Cost Management …………………………………………………………………………….. 30 Increased Focus On Customer Retention ……………………………………………………………. 31 Process Optimization To Support Customer Centric Objectives …………………………….. 31 Stringent Project Management With Emphasis On Significant Value Addition ………… 2 Long Term Plan (2-4 Years) …………………………………………………………………………………. 32 Cost Leadership ………………………………………………………………………………………………. 32 Outsourced Business Model ………………………………………………………………………………. 32 Increased Emphasis On Data ……………………………………………………………………………. 33 Increased Emphasis On Green Technologies ……………………………………………………… 3 REFERENCES ………………………………………………………………………………………………………. 34 Competitive Strategy 5 Table of Figures TABLE 1 DIRECT COSTS ………………………………………………………………………………………………………. 11 TABLE 2 OPERATIONAL COSTS …………………………………………………………………………………………….. 11 TABLE 3 DTL SUBSCRIBER GROWTH ……………………………………………………………………………………. 9 TABLE 4 DTL REVENUE GROWTH …………………………………………………………………………………………. 19 TABLE 5 DTL DIRECT COST COMPARISON …………………………………………………………………………….. 20 TABLE 6 DTL OPERATIONAL COST COMPARISON …………………………………………………………………… 20 TABLE 7 DTL FINANCIAL PERFORMANCE SNAP SHOT ……………………………………………………………… 22 FIGURE 1 VALUE CREATION ……………………………………………………………………………………….. FIGURE 2 DTL COST STRUCTURE……………………………………………………………………………….. 10 FIGURE 3 VALUE CHAIN …………………………………………………………………………………………… 11 FIGURE 4 FIVE FORCES ANALYSIS ………………………………………………………………………………. 12 FIGURE 5 DTL REVENUE GROWTH – INVESTOR FORUM 2008 ………………………………………….. 20 FIGURE 6 DTL QUARTERLY REVENUE GROWTH …………………………………………………………… 1 FIGURE 7 DTL SUBSCRIBER GROWTH ………………………………………………………………………… 21 FIGURE 8 BUSINESS CYCLE ……………………………………………………………………………………….. 23 FIGURE 9 SRI LANKA GDP ANALYSIS ………………………………………………………………………… 25 FIGURE 10 SRI LANKA INFLATION TREND ………………………………………………………………….. .. 26 FIGURE 11 SRI LANKA MOBILE TAXES ………………………………………………………………………… 7 Competitive Strategy 6 Economic Strategy for Dialog Mobile Introduction Dialog Telekom PLC, Sri Lanka’s leading telecommunications company, operates Dialog GSM, the country’s largest mobile phone network. Dialog GSM has spearheaded the mobile industry in Sri Lanka propelling it to a level of technology in line with the best in the world. The company operates 2. 5G and 3G networks, with the distinction of being the first 3G operator in South Asia. The Company also provides International Roaming facilities in over 190 countries.

Dialog GSM is the country’s largest cellular network providing services to over 5 million customers across the island (Dialog, 2009) In addition to its core business of mobile telephony, Dialog Telekom operates Dialog TV, a direct-to-home satellite television service, Dialog Broadband which offers fixed-line services and broadband internet and Dialog Global which provides a wide range of international telecommunication services. The scope of this study is limited to the formulation of a ‘Competitive Strategic Plan’ for Dialog Mobile – which is the largest revenue contributor.

The total mobile subscriber base as at 31st December, 2008 was 5. 51 Million, out of which12% consists of post paid customers. The ARPU for post paid was Rs. 1404, while Prepaid was Rs. 319 as at 31st December 2008 (Dialog, 2009). Competitive Strategy 7 Preliminary Business Analysis Value Creation Dialog Telekom PLC’s Vision and Mission provide insight into the ways in which the company strives to create value to its customers. Vision: “To be the undisputed leader in the provision of multi sensory connectivity resulting always in the empowerment and enrichment of Lankan lives and enterprises” (Dialog, 2009).

Mission: “To lead in the provision of technology enabled connectivity touching multiple human senses and faculties, through committed adherence to customer driven, responsive and flexible business processes and through the delivery of quality service and leading edge technology unparalleled by any other spurred by an empowered set of dedicated individuals who are driven by an irrepressible desire to work as one towards a common goal in the truest sense of the team spirit (Dialog, 2009). Competitive Strategy 8 Figure 1 Value Creation Customers’ perceived benefit CS =PB – MP Value Created PF = MP – PC Organizational cost

Being a mobile telecom service provider in a nutshell the company provides value to society by enabling people to be accessible at any time from any place at an affordable price. With regard to the ‘reason for the company’s existence’ it would be prudent to initially take into account the following requirements/characteristics of mobile telecommunication; • The existence of significant entry barriers due to the need for approval from TRC (Telecommunication Regulatory Commission) for commencement of operations Competitive Strategy 9 • Extremely high capital and operational expenditure requirements for nfrastructure (base stations, towers, contact center and service outlets, systems) and maintenance • The requirement for specialized knowledge regarding every aspect of Mobile communication • The need for a significant workforce in order to start operations and maintain status quo post commencement • An extended payback period resulting in the need for revenue generation in order to be sustainable (consumption of the service sans significant profit generation is not financially viable) All aspects mentioned above make it impossible for a single or small group of individuals to replicate the production of mobile telecommunication.

This is in line with the reflections of Coase (1937) who stated that firms are more efficient at coordinating activities in comparison to markets. Dialog Telekom would have the benefit of economies of scale & economies of team production, thus drastically reducing cost of production. The other significant advantage is the common ownership of productive resources such as engineering, legal, IT, accounting, charging etc. Competitive Strategy 10 Micro Economic Analysis Cost Structure

Dialog Telekom being a mobile network operator has to collaborate with many suppliers and stakeholders in the value chain in order to run the operations and provide sufficient value to the customer and thereby earn profits. Figure 2 DTL cost structure Banks, Finance companies Suppliers of support services such as dealers & franchisees Government taxes Network equipment suppliers Dialog Telekom Other suppliers of capital items – PCs, headsets etc Hand set dealers & retailers Direct costs – Airtime and SIM card retailers

Customers Competitive Strategy 11 The above diagram shows a ‘helicopter’ view of the various stakeholders and the way in which cash flows in and out of the company. The key source of revenue is the Corporate and retail consumer base. Table 1 Direct costs Table 2 Operational costs Figure 3 Value chain Network related costs formed a major portion of direct costs, while selling expenses formed a major portion of operational costs (Dialog, 2009). Competitive Strategy 12 Five Forces Analysis Figure 4 Five forces analysis

Threat of new entrants Threat posed is relatively high not withstanding significant entry barriers ICT company ‘Maxis’ is poised to launch operations to become the 6th mobile operator – Supplier power Many suppliers Suppliers currently wield relatively low power – Existing rivalry amongst competitors 04 fixed line operators 05 Mobile operators 29 ISPs Intense rivalry amongst competitors – Buyer power Buyer power is relatively high Switching costs are low Many mobile operators to choose from Threat of substitution VOIP and CDMA can be considered substitutes However, hreat posed is minimal – Competitive Strategy 13 Existing Rivalry Amongst Competitors There are currently 04 mobile operators that could be considered direct competitors to Dialog, namely Mobitel, TIGO, Hutch & Bharthi Airtel. The biggest competitor currently is Mobitel, with a market share of approximately 18% in comparison to Dialog’s 53% (Bartleet Mallory stockbrokers, 2008). Mobitel follows an extremely reactive strategy, where it mirrors every action undertaken by Dialog. For example, Mobitel launched 3G service soon after it was launched by Dialog.

Mobitel also follows predatory pricing techniques by constantly undercutting the prices set by Dialog in a bid to lure customers away. Bharathi Airtel, the latest player in the industry is a market giant in India, with over 100 Million subscribers and a market share of over 25% (Report Buyer, 2009). Airtel’s strategy has always been providing affordable mobile services to customers. TIGO, which was formally known as Celltel concentrates more on the Prepaid market. TIGO was the first player to provide ‘per second billing’ facilities to customers.

Hutch while being a dominant player in India is more of a fringe player in Sri Lanka that also emphasizes on the Prepaid segment. Threat Of New Entrants While barriers to entry into the market are relatively high, there are quite a few players that have either entered or are in the process of entering the market. One such player is Maxis, a Malaysian company which already has operations in India and Indonesia. Maxis also owns 44% of shares at SLT (Bartleet Mallory stockbrokers, 2008). While Maxis would Competitive Strategy 14 further erode Dialog’s market share its strategy might be less predatory in comparison to some players.

Other players with plans to enter the Sri Lankan market are Reliance Mobile and MTNL, both Indian companies. Reliance Mobile, like Airtel is also a giant in the Indian market constantly at war with the latter for the number 01 position. The Power Of Suppliers There are many suppliers of mobile infrastructure components in the industry. These suppliers supply products such as base station components, cell switching components and services such as base station assembly, tower assembly and switching optimization. Vendors include Huawei, Sun, Ericsson etc.

Dialog Telekom being an industry giant and the fact that there are numerous vendors means that the influence of the vendors is less in comparison to the power wielded by Dialog. Furthermore mobile service providers purchase products in large quantities over a long period of time. This would also include the purchase of services such as assembly and maintenance. Securing such contracts are extremely important from the supplier’s perspective. Vendors such as Dialog due to its enormous influence in the local industry will also influence the research and development process of the vendors and the type of technology that is developed.

For example, the adoption of 3G technology would have dictated the priorities of the vendors in terms of the type of technology that should be introduced to the market. Vendors in general have high fixed costs such as R and low incremental costs thus making it extremely important that they secure profitable contracts with mobile operators. Competitive Strategy 15 The Power Of Buyers In stark contrast to the vendors, the power of consumers is high. This is due to the low switching costs. A new SIM only costs approximately Rs. 00; hence customers do not have to spend a great deal if they want to switch operators. This power wielded by the consumer is only compounded by the presence of many mobile operators in the industry. The fact that these operators also include giants such as Bhrarthi Airtel only result in providing the buyers more bargaining power with their current operator. SWOT Analysis Strengths The main strengths of Dialog are threefold, one its brand name, two its vast infra structure and three the financial backing from its parent company Axiata.

According to Perera (2008) from the Asian Tribune, the company was voted the number 1 brand for two consecutive years with a brand value of Rs. 12. 324 million in 2006 and Rs. 12. 401 million in 2007. The company was also voted number 1 amongst the top ten companies in April 2008. Innovation has always been one of Dialog’s strengths; the company was the first to launch SMS, MMS, Song catcher, mobile commerce, mobile e mail, information on demand etc in the region. Dialog was presented ‘the most innovative brand of the year’ award in recognition of this fact at the SLIM brand excellence awards.

Competitive Strategy 16 In terms of infra structure and reach Dialog Telekom has over 1200 base stations pning all provinces and has over 100 customer service centers, which is more than any other company in the country. Dialog operates 2. 5G and 3G networks. It is also linked to over 200 global destinations via international roaming (Dialog, 2009). Axiata group Berhad is the emerging leader in Asian mobile communications. It has controlling interest in Dialog Telekom along with many other subsidiaries in the South East Asian region.

The continuous financial support provided by Axiata for Dialog Telekom is one of its key strengths and has had a great impact on the development and expansion of the company. Dialog in return has been a significant contributor of profits for Axiata. Weaknesses One of the key weaknesses of Dialog Telekom is its increasingly high costs. A feature of many conglomerates that experience rapid growth is the inefficiencies that ‘silently creep in’. Total costs increased by 40% as at December 2008, with costs of finance increasing by 233% and depreciation by 81% (Dialog, 2009).

Dialog also has a 3500 strong workforce which has resulted in overlapping scope of work across many divisions and units. The increasing size of the company has also lead to inefficient processes and unnecessary beurocracy. As a result it would be more and more challenging for the company to make swift changes in its strategic direction. Bigger companies also have the added danger of being further distanced from the end consumer of their products and services. This danger is also a reality due to many personnel being unaware of VOC (Voice Competitive Strategy 17 f the customer), thus resulting in policies that aren’t necessarily customer centric in nature. Other weaknesses include its legacy systems. Most of its systems require upgrades or changes due to the strain imposed by the rapidly growing customer base and advances in technology over the years. However such changes cannot be made within a short timeframe and huge amount of financial resources and time are required to successfully implement changes. Opportunities Current mobile penetration in Sri Lanka is estimated to be around 50% with room for a further 20% in the short term (Lanka Business Online, 2009).

At the end of 2008 there were 11. 087 million subscribers with an annual growth rate of 39% which is a drop from 48% in 2007 and 61% in 2006. Provinces such as North West, North Central, Sabaragamuwa, East and north have a fixed line distribution of below 10% and therefore provide ample opportunity for increased mobile penetration. Threats The main threats associated with the mobile industry are the increasing number of competitors and the global economic impact on customer spending patterns. The increasing competition has lead to huge price wars which has in turn negatively affected all the players in the industry.

This trend could have a long term impact on research and development and the investment into new technologies. Therefore even though companies Competitive Strategy 18 might feel that they are able to remain competitive in the short term it could result in long term reduction in the value provided to consumers. Dialog is not immune to this problem, but rather it is has reacted to the price wars by drastically reducing the tariffs and by providing customers with packages that include 1000 minutes outgoing free call charges. Furthermore the rate of penetration is also on a reducing trend.

Market Structure & Customer Behavior The telecommunication industry in Sri Lanka consists of a few key players. As mentioned prior, the industry consists of 05 mobile operators and 04 fixed line operators. 100% of the mobile communication market share is owned by these 05 players. There are also significant barriers to entry. A firm would require very large financial resources to start operations. Existing dominant companies would also have influence over the suppliers and essential resources such as a qualified and skilled workforce, network infrastructure and dealer network.

New comers would have to negotiate terms with the same vendors who would have more leverage due to their existing contracts with the incumbent players. New entrants would also face barriers such as requiring approval and licensing from the Telecommunications Regulatory Commission for the commencement of operations. The success of any startup company in the industry would also depend on its own brand recognition (from operations in other countries), since it would have to compete with companies that have a loyal customer base with significant brand recognition locally.

The type of VAS (Value Added services) provided by the players in the industry are to a large Competitive Strategy 19 extent homogenous in nature. All these factors are indicative of an Oligopolistic market structure. The telecommunication industry is also a reducing cost industry. This is due to the fact that as the number of players in the industry increases the suppliers of network infrastructure would experience economies of scale. This would result in lower input costs for the mobile operators who also purchase items in bulk quantities.

With respect to customer behavior patterns, customers are generally price elastic; thus as a rule when prices are increased by a given percentage, usage reduces by a larger percentage. However, this behavior pattern cannot be taken for granted since there are various other factors that have an impact on the usage patterns of customers. Dialog Telekom PLC Performance Review for 2008 The customer base grew to 5. 51 Million at the end of 2008 recording a 29% growth in comparison to 2007 (Dialog, 2009) Table 3 DTL subscriber growth Table 4 DTL revenue growth Competitive Strategy 20

Figure 5 DTL revenue growth – Investor forum 2008 Average revenue per user had dropped by 23% for Prepaid and 17% for Postpaid respectively. This was due to aggressive price wars by the competitors which resulted in Dialog significantly reducing its tariffs. However, the reduction in prices did not significantly increase the amount of usage due to reduced elasticity of demand, while the 29% increase in customer share was conservative at best. Prepaid revenue contribution was 48%, while postpaid revenue contribution was 29%. VAS account for almost 10% of the total revenue (Dialog, 2009) Table 5 DTL Direct cost comparison

Table 6 DTL Operational cost comparison Competitive Strategy 21 As captioned there was a 48% increase in direct costs and a 36% increase in operational costs YoY (year on year). This was due to an increase in International telecommunication levy & frequency fees, increased telco depreciation, an increase in network costs (driven by increased energy costs) and an increase in customer related costs. Increases in operational costs were due to increased operations (increased number of base stations), increased maintenance costs and inflationary pressure. Figure 6 DTL Quarterly revenue growth

Figure 7 DTL Subscriber growth Competitive Strategy 22 There was a noticeable reduction in the subscriber and revenue growth between the second and fourth quarters of 2008. However, quarterly growth was 10. 7% as at Q4 which the highest since Q2 2006. Table 7 DTL Financial performance snap shot Profit after tax was a negative Rs. 1. 5 Billion. This was due to many factors such as: – Rising energy and transport costs – Local and global Macro economic downturn – Reduced elasticity levels – Inflation – Predatory price wars and marketing tactics of competitors Competitive Strategy 23

Macro Economic Analysis Figure 8 Business cycle Peak Peak Trough Recession Expansion One business cycle time The global economic crisis which started in mid 2007 and worsened in 2008 inevitably had an impact on the Sri Lankan economy which also had to contend with a civil war for the last three decades. The global economy is currently facing a recession, largely due to mishandling of debts in the U. S which eventually had an impact on the global economy. Some analysts are hopeful that the ‘worst is over’ and that the real GDP has passed the ‘trough’ stage and that the economy might be on the rebound.

The 30 year long war has lead to immense war related spending by the government with less attention given to development. In a bid to retrieve the money government taxes Competitive Strategy 24 have been regularly increased, thus having a negative impact on customer’s disposable income and resulting spending patterns. The global economic crisis only added ‘fuel to the fire’ with millions of workers losing their jobs worldwide. This in turn had a ripple effect on the country’s expatriates who are a great source of foreign income.

Foreign remittances are used to take care of 70% of the country’s trade deficit (Pushparanjan, 2008). These expatriates were amongst the first to be retrenched and forced to return to Sri Lanka. This situation was compounded by reduced demand for goods and services produced locally, thus resulting in widening balance of payments and closure of companies that rely on exports. Garment companies for example account for 3 Million dollars in foreign income annually, of which 50% is reinvested in fabrics and machinery (Samath, 2009).

The resulting loss of jobs for thousands of people in the local industry has a direct impact on their overall spending on goods and services. This domino effect has indirectly resulted in low mobile usage and adoption of new services resulting in a reduction of net profits. However, the end to the military conflict in Sri Lanka after 26 years has resulted in a positive outlook for the country’s economy. The all share price index rose to a 7 month high and the central bank of Sri Lanka has shifted its forecast from 2. 5% growth to 4. 5 to 5% growth by the end of the year (Shiyin, 2009).

The government has already laid out plans for massive development initiatives in the North of the country. This augurs well for the economy as a whole and the mobile industry in particular since it would result in increased Competitive Strategy 25 employment opportunities which would in turn hopefully translate to increased mobile usage. Economic Forecast The rate of inflation is expected to be around 7% in 2010 and an average of 6. 5% in 2009. GDP growth rate is expected to improve from 2. 5% to 4. 5 – 5% by end 2009 due to the end of military operations ( Figure 9 Sri Lanka GDP analysis

As shown the projected trade deficit for Sri Lanka is 9% of GDP for 2009. The trade deficit has been increasing YoY (Colombo Page, 2009) Competitive Strategy 26 Figure 10 Sri Lanka inflation trend Projected inflation rates are single digit figures; i. e. approximately 9%. This is a reduction from 14% in the previous year. To support growth, Sri Lanka in December unveiled a 16 billion rupees ($140 million) stimulus package and reduced the interest rates to 16. 5% from 17% (Thomas, 2009). Taxes imposed on mobile users in 2007 were 7. % Mobile Subscriber Levy and a ‘usage insensitive’ 5o rupee tax on subscriptions. The 50 rupee tax was later dropped and the MSL was increased to 10% in 2009. VAT was reduced to 12% in 2009 from 15% in the previous year Competitive Strategy 27 Figure 11 Sri Lanka mobile taxes This amended levy of 10% is beneficial to consumers who spend less than Rs. 2000 per month. However, overall this tax will have a negative impact on total consumer usage (Samarajiva, 2007) Driving Forces Driving Forces in the Local Industry Changes In Long Term Industry Growth Rate As at end 2008 there were 11. 87mn mobile subscribers in the market, a penetration rate of 54%, and annual growth of 39%. However, this rate of increase is slower than in previous years -48% in 2007 and 61% in 2006 (Sri Lanka communications report, 2008). With increased competition and predatory tactics it would become harder for any given company to experience substantial growth in the coming years. Competitive Strategy 28 Entry Of Major Multinational Firms With the entry of firms such as Bharthi Airtel and Reliance mobile in the pipeline existing firms would have to become more and more competitive in order to survive.

Innovative Business Models Many of the firms are developing innovative business models in the foreign markets. Companies have yet to implement extremely innovative models in the local industry. However Bharthi Airtel has initiated this trend with its ‘simple plans’ theory, where unlike the rest of the players in the market it has distanced itself from the concept of multiple rates during different hours to different networks (off peak, peak, weekend etc) Exponential Growth In Network Bandwith The bandwith provided by broadband internet providers has significantly increased over the years.

In the past 512 kbps was considered ‘fast’ and was the norm, now however, most operators provide speeds of over 2GB. This has changed the usage patterns and reasons for use by consumers. Regulatory Changes Certain players such as Bharthi Airtel were vying for the implementation of ‘number portability’, but this was not implemented by the government citing security concerns. The government also recently requested all mobile operators to ensure that both postpaid and prepaid customers are registered with their rightful owners. This has had a negative impact on the sale of prepaid connections.

Competitive Strategy 29 Reduced Consumer Spending Consumer spending has significantly reduced and has had an impact on the bottom line of most players in the market. Elasticity levels which were around 1 – 1. 5 in 2006, reduced to 0. 7 in 2008 (Dialog, 2009). This has forced companies to drastically reduce spending and in certain instances even retrench employees to reduce costs. The cost cutting measures will have an impact on training and development and R, which in turn would have an impact on the long term. Unemployment The unemployment rate which was steadily reducing over the years (6% in 2007, 5. % in 2008) is bound to face a reversal in 2009, due to the global recession. The central bank of Sri Lanka has requested the government firms to put recruitment on hold (Lanka Business Online) till the economy improves. This would have a direct impact on plans for expansion any organization. Increased Taxes Government taxes on mobile users has been in a constant state of flux and a reason for much concern amongst the mobile operators and consumers alike. This volatility of the government’s policies with regard to taxes will have a negative impact on the growth of the industry. Competitive Strategy 0 Driving Forces In The Global Industry The Internet And Digitization Of Content Internet usage in the country is still in its early stages. However one of the threats the internet poses with the increased bandwith provided by ISPs is the widespread adoption of VOIP, since this service would be provided FOC. This could become a direct threat to the telecommunication industry in the future. Strategic Plan For Dialog Mobile Short Term Enhanced Cost Management Cost optimization is crucial for an organization to remain competitive. As companies expand inefficiencies result as a byproduct.

Dialog is no exception, a bullish strategy for expansion resulted in reduced retained profits and a ‘bloated middle management’. A loss of Rs. 2. 88 Billion in 2008, compared to a profit of Rs. 8. 91 billion in 2007 is ample reason for rigorous attention to the prevention of revenue leakage and prudent investments with an eye on the long term. Competitive Strategy 31 Increased Focus On Customer Retention Often companies can get swept away by ‘concepts’, especially ones that give you a false sense of safety such as Customer Relationship Management, Customer Experience Management, Customer Lifecycle Management etc.

Most companies pay ‘lip service’ to these practices and they often believe that they ‘do’ practice it. However there is often a huge gap between actual customer satisfaction levels and the satisfaction levels perceived by the company. Rather than romanticizing these concepts, companies should actually practice it religiously. In the case of Dialog, it would mean ensuring that all customer facing staff have the right qualities for the job. Skills can be taught, but attitude is harder to change.

The true essence of customer service should be instilled and practiced constantly. This should be backed by the right policies and coordination amongst all stakeholder divisions in order to ensure that the customer’s needs are continuously met beyond expectation. Process Optimization To Support Customer Centric Objectives All processes as far as possible would have to be tailored with the customer in mind. However, most business processes tend to be ‘inward looking’, There is a constant ‘tug of war’ between various stakeholders who seldom work in synergy.

This is due to conflicting interests and lack of ‘customer visibility’. For example Finance and Credit departments create their processes with the sole aim of managing finances and credit collection, which tends to focus on the short term profit, rather than long term customer retention. The challenge then is for the process management team to ensure that all cross functional customer related processes are driven by customer centric objectives. This would also Competitive Strategy 32 include the removal of all non value adding processes and continuous review