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Du Company’s Internal and External Success Factors Case Study

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Updated: Aug 10th, 2020

Natural Environment

The UAE has to reach petroleum and natural gas resources 90 percent of which are located in the emirate of Abu Dhabi (Chronicle 2016). Due to extremely limited freshwater resources, the country has to extract it with the help of desalination plants. The UAE increasingly relies on the generation of solar energy which can be evident in the new “environmentally friendly city of Masdar” (Chronicle 2016, para. 3), which is being constructed in Abu Dhabi.

According to Chronicle (2016), the total surface area of the country is 83, 600 square kilometers. The UAE has the largest sand desert in the world—Empty Quarter. The country’s climate is characterized by “scare and unpredictable rainfall, high temperatures and humidifies and prolonged periods of sunshine” (Chronicle 2016, para. 8). The average rainfall in the UAE is only 100 millimeters per year (Chronicle 2016). Sometimes, the country experiences hazardous sand and dust storms.

Several major environmental concerns are troubling the UAE. Even though a lack of freshwater is compensated by distillation projects, it is an issue that has to be addressed. Desertification is another major environmental concern for the country that is being dealt with through afforestation and greening efforts.

Macroenvironment

The UAE’s legal framework for conducting business is characterized by its supportive attitude towards foreign investors. After several key legislations were passed in 1971, the country has made significant progress in the development of a positive investment climate (Hassan Elhais 2016). A recent report titled “The World Bank’s Ease of Doing Business” reveals that Dubai is “the easiest place to do business” (U.A.E. Trade n.d., para. 3). To receive a license for opening a limited liability in the city, it is necessary to get the approval of The Economic Department and register a legal entity at the Dubai Chamber of Commerce. The country has an extremely open attitude toward foreign companies and allows the creation of five types of business entities: permanent establishment, a branch office, a free zone entity, a civil company, and a commercial agency agreement (U.A.E. Trade n.d.). According to the requirements of the UAE Commercial Companies Law, a foreign business establishment should have at least one UAE national partner owning 51 percent or more of an entity’s capital (U.A.E. Trade n.d.). However, companies operating in one of the country’s free zones, as well as firms in the oil and gas industry, are exempt from the requirement (U.A.E. Trade n.d.).

Du’s operations are being governed by the Telecommunications Regulatory Authority (TRA). The government body issues licenses and approvals according to the Federal Telecommunications Law by Decree No. 3 issued in 2003 that regulates the “organization of telecommunications and its amendments” (TRA 2015, para. 1).

Operating Environment

Du is one of the two major telecommunications operators located in the United Arab Emirates. The company started its operations in 2006 and now provides fixed telephony, the Internet, mobile, and IPTV services across the county (Du 2015a). Du also specializes in the delivery of carrier services, data hubs, “internet exchange facilities, and satellite services for broadcasters” (Du 2015a, p. 7). The company employs more than 2, 000 professionals from 60 countries (Du 2015a). To better understand the operating environment of the company, it is necessary to analyze it using the framework of five forces: the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, the threat of substitution, and intensity of competition in the industry.

The threat of New Entrants

The telecommunications industry in the UAE is characterized by a low level of threat emanating from new players. The country has only two fixed networks and mobile providers: Etisalat and du. The competition between the two operators has led to the termination of geographical separation caused by Etisalat’s unwillingness to implement network sharing agreements. The two companies manage HSPA+ and LTE networks that provide services to almost 90 percent of the population of the country (Du 2015b). Moreover, Etisalat and du are interested in developing 5G networks. Therefore, it can be concluded that substantial capital requirements, absolute cost advantages of existing companies, as well as economies of scope and scale, serve as significant barriers to entry that can be hardly overcome by new entrants. However, it should be mentioned that all customers of Etisalat and du can easily switch between the companies with the help of Mobile Number Portability (MNP). More than 9, 000 subscribers use the service each month (Cherrayil 2015).

Power of Suppliers

The telecommunication industry in the UAE is associated with a substantial level of mobile, fixed network, and broadband penetration. Therefore, the incumbent players in the industry are bound by the necessity to own expensive telecommunication equipment that includes, but is not limited to, optical fiber, multiplexers, and broad-base transceiver stations (Cherrayil 2015). However, du is not vulnerable to the bargaining power of suppliers. It has to do with the fact that at least five major manufacturers of telecommunication equipment are selling their products in the UAE. They include Huawei Technologies, Cisco Systems, Nokia Networks, ZTE Corporation, and Ericsson (Cherrayil 2015).

Bargaining Power of Buyers

Because there are only two telecommunications operators in the UAE, customers do not wield significant bargaining power. Moreover, there is no substantial difference between the services provided by Etisalat and du; therefore, buyers do not have too much choice. Furthermore, in the modern age, telecommunications services are not different from a public utility in consumers’ minds. Therefore, even though MNP allows for low switching costs, subscribers to telecommunications services are not interested in exerting their bargaining power.

Threat of Substitutes

It can be argued that the telecommunication industry in the UAE is open to a high level of the threat of substitutes. It has to do with the fact that non-conventional telecommunications operators providing Cable TV and satellite services are offering their subscribers access to broadband Internet through direct lines that are already located in their customers’ homes. There is also a substitution threat emanating from utility companies that create high-capacity networks “alongside their track and pipeline assets” (Investopedia n.d., papa. 7).

Intensity of Competition

The industry is not characterized by a high level of competitive rivalry because it is presented by only the two players (Cherrayil 2015).

Summary of Key External Industry Success Factors

The key success factors influencing the company within the telecommunication industry can be divided into threats and opportunities. The most important opportunity that has to be explored by du is the provision of new services. It will help the company to expand its service package, thereby providing it with a competitive edge. The first domain that has to be developed by du is the provision of 5G Internet. Another key success factor is the possibility of exploration of new markets. As for threats, the company is open to user privacy lawsuits. Du is also under threat of an economic downturn.

Reference List

Cherrayil, N 2015, , Web.

Chronicle 2016, , Web.

Du 2015, Sustainability report 2015, Web.

Du 2015, , Web.

Hassan Elhais 2016, Business laws and regulations in Dubai, UAE, Web.

Investopedia, n.d., , Web.

TRA 2015, Services & Activities, Web.

U.A.E. Trade & Commercial Office, (n.d.). Doing business in the UAE, Web.

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