Abstract
One company called Estisalat has over a long time dominated UAE information and communication (ICT) industry. In the telecom market, Estisalat has enjoyed monopoly up to 2007 when a new corporate player Du entered the market.
With the realization of the importance of ICT in the development of other industries, the UAE government opened up the telecom market and put in place the necessary measures and infrastructure that ensures the development of the industry.
Estisalat has remained to be the major player in this industry despite the infiltration of other competing firms. This report will provide an in-depth analysis of Estisalat’s general performance especially in the current highly competitive and changing environment.
Precisely, the paper will apply the Porter’s market and industrial evaluation techniques to examine the company industrial situation and effectiveness in the market.
Introduction
Estisalat is one of the chief telecommunication firms that render its services to mobile operators, international telecommunication companies, ISPs, businesses and content providers.
It is based in the United Arab Emirates (UAE) with its center of operations situated in Abu Dhabi making it to be the leading operator in Middle East and regions in Africa1. Its market value is estimated at twenty billion US dollars with yearly revenues of roughly eight billion US dollars.
According to Fitch ranking scale, it is the second highest telecom business in the planet with highest credit ratings in telecommunications in Africa, Middle East and America.
In contrast to the S&P and Moody’s’ ratings scale, it is at fourth place worldwide with its subscribers found within mobile phone, landline voice and data services exceeding one hundred and forty million.
The Estisalat’s operations stretch to more than eighteen countries across the Middle East, Asia, and Africa reaching about two billion users.
In addition to its launch of the first commercial 4G services nation-wide, Estisalat has received several awards all over the world for its convincing mobile broadband knowledge to customers.
Historically, ever since nineteen seventy-six, Estisalat has provided telecommunication wishes of persons in the Gulf Region and United Arab Emirates. This has led to the upsurge of new telecom infrastructure and expansion of reach to the rising international markets making Estisalat a principal technology leader.
Significantly, Estisalat has mostly helped its customers to make crucial connections in their lives and businesses through their innovations since the year nineteen seventy-six. The company believes that distance or remoteness is not a restriction to reach the people around the world.
Therefore, the company visional aim was to put in place groundbreaking technologies to open up new opportunities across the world to permit supply of fresh commodities and services to the consumers2.
In other words, the firm’s undertaking was to keenly build up superior networks to enable people discover, develop and grow up.
Moreover, the company’s core ideals are based on enablement; vigor and honesty as it aims at opening opportunities to enable its subscribers accomplish their goals.
Generally, this tries to facilitate Estisalat to lengthen its reach into new-fangled services, expertise, and markets to create opportunities to their customers internationally.
The aims and objectives of this report are to establish and analyze the operations of Estisalat. In addition, the paper aims to establish the company competiveness not only within the domestic market but also globally.
Given the fact that many players have entered the industry, the main question is whether the firm will survive the stiff competition that other players are offering. This report will seek to provide an answer to how Estisalat has been generally performing especially in the current highly competitive industry.
The Industry and the company
Estisalat has dominated ICT industry in UAE and remained the sole telecom services provider in almost all UAE states over a long time. The company has monopolized the telecom market until 2007 when the government freed the market and allowed another firm Du to enter the market.
Since then, many firms offering stiff competition to the already established firms including Estisalat have penetrated the telecom market.
The current development of infrastructure and measures that has been put in place by the UAE government has boosted the growth of the industry and it is estimated that the growth will hit 23% in 20123.
Estisalat Services Holding Company deals in a variety of services in support of telecommunication as their core business.
It has prolonged its services continually to new areas not only in telephony, but also in other areas such as real estate administration, project supervision, oceanic consultancy as well as training and development.
The company mobile subscribers are estimated at six million three hundred thousand ensuing to place its market dispersion in excess of one hundred and forty percent.
Because of this huge market share, the company realizes the total yearly income of almost eight billion US dollars. In the same context, the company is rated uppermost telecommunication business in America and second utmost in Middle East and Africa according to Fitch.
Contrary to the S&P and Moody’s evaluation scale, the company is placed fourth making it one of the extremely credit rated telecommunication company in communication industry.
Even though the company faces solid opposition from other companies, its domestic customer support keeps on increasing slightly every time.
Due to ever-increasing customer base and foreign contributions to stock, the company stock liquidity will increase. This will only occur when the government allows the company to amend its status.
As a matter of fact, the company offers technical paired services to this industry such as SIM card manufacturing, technological and administrative training, voice data transfer, clearing accommodation services, expense solution and underwater and land cable services.
This makes this company a primary modernizer in innovative technologies as compared to other companies who deal in solitary products in the same industry4.
Subsequently, another major upside set off in this company that makes it differ from the others is that a half of its earnings are rewarded in royalties to the government. This has a considerable impact on its expected financials and estimation of the stock.
On the other hand, the company tends to deal in structured production units that function independently in order to reveal the type of market leadership the industry seek in all areas in which it operates.
Study Methodology
To illustrate Estisalat competitiveness and the impact of the introduction of new firms, case study analysis approach will be used. The descriptive information will accrue from the observations made.
Besides, the proposed stipulated research methods has taken into consideration the crave to pertinently acquire first hand research information in addition to other related investigated information from other sources.
This is perceived to assist in devising sound and rational study conclusions amid offering feasible recommendations for the study being done.
In order to present significant research findings, appropriate conclusions, and credible recommendations, the investigative study on competitiveness and the organization’s success will primarily depend on the analyzed company information.
In most cases, the information received is sourced from previous surveys or any other relevant secondary sources. However, the primary research information and desired data for this novel study will also be obtained through conducting in-depth interviews to the company management.
Interview schedule that have already been approved to help gather information on the organization’s competitive and success will equally be used to establish the management and employees observations on the extent at which the organization has dealt with the ensuing competition5.
To accomplish the aforementioned research objectives, analysis of data collected from various company publications and statement of operations will be conducted to determine the company competiveness in both domestic and global market as well as the state of telecommunication industry in UAE. In other words, this study will draw its data majorly from secondary sources.
The secondary research data and information will on the other hand accrue from staff records and any other documentation that have been filed by the organization.
A review of the company operating information, annual reports, industry reports, and government industrial performance reports will be done to obtain secondary information.
Such research information will facilitate the ascertainment of the organization general performance especially in the current and highly competitive environment.
In addition, the information will provide any factors or strategies that have helped spearhead the organization’s success. Because the research majorly focuses on the company competitiveness and success factors, the correlations that exist between these two factors will amicably be sought.
Analysis
To analyze the firm’s competitiveness and the success factors, the Porter’s National Diamond and five forces framework will be applied. However, the data indicate that Estisalat remain the most competitive firm in the UAE ICT and telecommunication industry.
The firm has over 95% market share leaving little room for other players in the industry. Besides, the firm still shows signs of growth with the number of mobile subscribers projected to grow by 7.5% at the end of 2012.
This means that the company business activities as well as other factors that have been put in place originating either internally or externally has enable it develop competencies that have increased its competitiveness6.
Porter’s National Diamond
The conditions of telecommunication industry in UAE and larger Middle East make companies within the industry consider putting in place strategies that will increase their competitive advantage in the global market place7. As such, Estisalat has put in place strategies that are visible within the global context.
Moreover, the company infrastructure supports the strategies that increase its competitiveness in the current highly viable market. As indicated before, Estisalat is not operating in a lone environment rather other players as well as stakeholders including customers and suppliers have an influence on the market.
For Estisalat to be globally competitive, it must take advantage of the basic factors that have been provided by the UAE government. UAE government has put in place infrastructures that generally support the corporations to build their capabilities to enable them compete in the global market.
Conditions that will enable Estisalat increase its competitiveness includes factor endowment, related and supportive industries, demand conditions, strategy as well as structure and rivalry8.
Factor endowment
The company strongly believes in the importance of attracting and retaining the best talent in all its operational areas and with human capital of dedicated employees. The company believes that engaging with creative teams brings in innovative and attractive offers to the market place.
Moreover, the greater talent and innovative employees ensures increased performance in all operative areas. The company incessantly builds its human resources to outperform its competitors constantly. The human capital is built through focused strategies as well as motivating individual performance.
Besides the human resources, Estisalat operates in already built infrastructure by the government. UAE government has in the recent years put in place ICT infrastructure that includes special free-trade zones as well as installation of a fiber-optic network.
Besides, the UAE government has put in place legal framework that free up policy initiatives stimulating flexibility in the market in order to catch the attention of international corporations.
These internal and external resources will enable Estisalat take advantage of investment opportunities expected to a rise in all the ICT services sectors.
Related and supportive industries
The presence of companies such as HCL and Cat Logistics are very critical in the development of Estisalat. Furthermore, research and development firms including the Green ICT as well as those offering fiber-optic networks provide an impetus for the growth of the company.
The current focus on e-business products and services by other industries and e-governance services by the government contributes to the demand of the company products and services.
Most importantly, the development of the ICT clusters such as the Dubai internet city, the software development maintenance and installation firms, hardware installation, support and maintenance clusters as well as the Dubai Silicon Oasis are critical to the growth and development of the company together with industry as a whole9.
Demand conditions
The expected increase in economic growth coupled with the increased number of subscribers will automatically boost the demand of the services provided by Estisalat. Since 2008, mobile subscribers have been increasing by 7% while new avenues are opening for value added services.
The increasing number of online businesses on the Middle East region increases demand for the internet services with broadband subscribers accounting for over 60% of the total internet market share in the region.
Estisalat, being a major player in the provision of internet services will probably take advantage of this demand. Even though UAE telecom market is majorly a duopoly of Estisalat and Du, the demand has been consistently increasing enabling other players to have a share in the market10.
Structure, strategy and rivalry
With the introduction of other players in the industry, the firm is phasing stiff competition. Being a major player and with the largest market share, the company will still have competitive advantage11. However, this will only last for longer if the company has put in place strategies that will enhance adoption of new technologies and structural changes that enhance its core competencies.
In this regard, the firm has recently put a lot of emphasis on research and development on the improvement of new products as well as increasing the value of the products according to the customer requirements.
Porters Five Forces
To facilitate the analysis of the industry and surroundings in which Estisalat operates, the five forces model proposed by Porter will be applied.
In other words, the Porters five forces approach will be utilized in evaluating Estisalat competitiveness in the market. The examination will result in the discovery of a range of prospects for Estisalat, together with establishing most suitable approach and related landmark for the plan.
The customers bargaining power
The demands in an industry are determined by the type and quantities of Buyers. In situations where the buyers have considerable negotiating power, the firm’s proceeds can be conveyed to clients through low prices12.
The powers of consumers are influenced by numerous aspects ranging from relative purchasing aptitude to the value of the product. In this regard, buyers are offered with scores of alternatives when deciding on which product to use in the UAE telecommunication industry.
In contrast, companies such as Estisalat have the capability of determining the type of products that will be made available in the market.
Most important are ways through which competing companies differentiate its products and how the customers find its usability. Nevertheless, there are so many companies offering similar services in the market and due to deficiency in innovations, there is little difference in products being offered.
The company products and services can easily be substituted with other services being offered by competing companies at any point in time weakening the company control.
The buyers of the Estisalat services majorly constitute subscribers that in the last few years have reduced drastically. The subscribers are the end users. Therefore, it can be concluded that the buyer’s power is quite high.
Bargaining power of suppliers
Firms within the telecommunication industry mainly deal with suppliers of equipments as well as digital components and networking supplying companies. However, these companies may integrate to form a new competing company.
It is easier for companies dealing in the telecommunication components to merge with end-user firms to form a company that have control of both supply and end-user products13.
Furthermore, firms such as Estisalat are capable of switching between supplying companies quickly and cheaply. This makes the bargaining power of suppliers rather low.
New entrants threat
Conditions that prevent other players entering the market are the threat to new entry14. In any industry, barriers to entry ranges from cost disadvantages to government policy.
Like any other parts a round the world, telecommunication industry in UAE has considerable high barriers to entry since it requires highly skilled labor and technological expertise that in most cases are quite expensive.
As a result of renewed competition, Estisalat had to go into additional cost to maintain its brand loyalty and promote new products.
However, UAE subscribers tend to be indifferent based on brand differentiation. There is an easy switch of networks among the non-loyal subscribers. This presents low product differentiation and barrier to entry.
Competitive rivalry within an industry
Telecommunication is one of the highly competitive industries in the world. In UAE for example, there are several firms offering similar product in the industry. Firms within this industry consist of both foreign based and local with international firms accounting for 46% of the domestic network providers market.
However, the number of subscriber firms has been reducing in the last two years, a trend attributed to the shrinking economy due to economic crisis. Majority of local firms find it easy to set up since they could utilize their market leadership capabilities.
However, the foreign companies such as Estisalat have technological and financial capabilities. This presents a competitive scenario where each firm tends to outperform each other in terms of services being offered15.
Regarding the market accessibility, firms are free to sell their brands to the consumers. The intense competition will lower Estisalat control particularly, the prices of its services.
Threat of substitute products
There are several similar products offered by other firms in the industry. Therefore, the threat of substitutes to the Estisalat services is quite high. Estisalat;s products demand are threatened by substitutes from other firm’s products.
The demand for its services slackened as a result of increasing demand of services being provided by other firms in the industry16. In the condition that the there is increased threat of substitute, there would be variety of alternatives. This presents disparaging situation to the company.
Worse still, there is low customer switching costs in the UAE telecommunication industry. In addition, alternative products rivaling Estisalat products are already putting more pressure on the decreasing demand.
Such companies use strong promotions in order to increase their brand loyalty and capture a considerable market share.
Findings and recommendations
An inquiry of Estisalat Corporation market operations reveals that in the year two thousand and eight, the mobile phone dispersion reached roughly one hundred and ninety percent leaving the operators with less concern to take advanced benefits of the marketplace.
Nevertheless, it has never indicated the closing stages of development as the number of mobile subscribers is estimated to increase at a CAGR of up to seven percent between the year two thousand and nine and the year twenty twelve.
Furthermore, new operators within the industry depend on value addition as a means of penetrating the market.
In line with the increasing commerce and schooling in the area, the need for internet services has also gone up in the past years. Dial-up subscriptions currently make the largest internet demand.
The predictions are that broadband subscribers will take over the internet market and will be accounting for over sixty five percent of the total internet subscribers.
The fact that the telecom market in United Arab Emirates is dominated by the duopoly of Du and Estisalat does not necessarily mean that they are the only contributors in the nation’s telecom sector.
The in-depth analysis on their operations and business activities as well as the recent developments is highly required. These developments must be inline with the country’s telecom industry requirements.
Estisalat should consider putting in place strategies that will increase its competitiveness in the global market place. That is, its strategies should be visible within the global context.
Besides, the company operations must be geared towards increasing the customer value. Its services and products must be differentiated from those of the competing firms in addition to continuous provision of quality services.
Conclusion
Estisalat has been found to be the dominating company within the ICT industry in UAE. Over a long time, the firm has remained the sole telecom services provider.
However, as the telecom market in the UAE is liberalized, other firms penetrated the market taking advantage of the untapped market share and reducing the Estisalat monopolistic power.
As a result, the company reorganized, putting in place strategies that increase its capabilities in order to remain competitive. To sum it all, Estisalat is groundbreaking in the deliverance of a convincing mobile broadband considerate to customers through highly developed networks.
Reference List
Aiginger, Karl. 2006. Competitiveness: from a dangerous obsession to a welfare creating ability with positive externalities. Journal of Industrial Trade and Competition 6: 63–66.
Davies, Howard, and Ellis Paul. 2000. Porter’s competitive advantage of nations: Time for the final judgment? Journal of Management Studies 37: 1189–1213.
Dunning, John. 1993. Internationalizing Porter’s Diamond. Management International Review 33: 5-13.
Porter, Michael. 2000. Location, competition, and economic development: Local clusters in a global economy. Economic Development Quarterly 14: 15–35.
Rashid, Sheikh. 2009. Estisalat annual report and consolidated financial statements. Abu Dhabi: Estisalat Printing Press.
Wernerfelt, Birger. 1984. A resource-based view of the firm. Strategic Management Journal 5: 171–80.
Footnotes
1 Sheikh Rashid, Estisalat annual report and consolidated financial statements (Abu Dhabi Estisalat Printing Press, 2009), 28.
2 Sheikh Rashid, Estisalat annual report and consolidated financial statements (Abu Dhabi Estisalat Printing Press, 2009), 28.
3 Sheikh Rashid, Estisalat annual report and consolidated financial statements (Abu Dhabi Estisalat Printing Press, 2009), 28.
4 Sheikh Rashid, Estisalat annual report and consolidated financial statements (Abu Dhabi Estisalat Printing Press, 2009), 28.
5 Birger Wernerfelt, “A resource-based view of the firm,” Strategic Management Journal 5 (1984): 174.
6 Sheikh Rashid, Estisalat annual report and consolidated financial statements (Abu Dhabi Estisalat Printing Press, 2009), 28.
7 Michael Porter, “Location, competition, and economic development: local clusters in a Global economy,” Economic Development Quarterly, 14 (2000): 19.
8 John Dunning, “Internationalizing Porter’s Diamond,” Management International Review 33 (1993): 7.
9 Howard Davies and Paul Ellis, “Porter’s competitive advantage of nations: time for the final judgment?” Journal of Management Studies 37 (2000): 1197.
10 Michael Porter, “Location, competition, and economic development: local clusters in a Global economy,” Economic Development Quarterly, 14 (2000): 19.
11 Birger Wernerfelt, “A resource-based view of the firm,” Strategic Management Journal 5 (1984): 174.
12 Birger Wernerfelt, “A resource-based view of the firm,” Strategic Management Journal 5 (1984): 174.
13 Karl Aiginger, “Competitiveness: from a dangerous obsession to a welfare creating Ability with positive externalities,” Journal of Industrial Trade and Competition 6 (2006): 65.
14 Michael Porter, “Location, competition, and economic development: local clusters in a Global economy,” Economic Development Quarterly, 14 (2000): 19.
15 Michael Porter, “Location, competition, and economic development: local clusters in a Global economy,” Economic Development Quarterly, 14 (2000): 19.
16 Michael Porter, “Location, competition, and economic development: local clusters in a Global economy,” Economic Development Quarterly, 14 (2000): 19.