Corporate Environment: Bharti Airtel

Corporate Environment: Bharti Airtel The report looks at analyzing the corporate environment and the market forces that influence the functioning of Bharti Airtel in Indian telecomm industry. It has been observed that the political scenario of the country primarily affects the telecomm sector. Also, economic factors like the unemployment rate and foreign direct investments play a crucial role here. Though Airtel faces a cut-throat competition, it mains its competitive edge on its rivals by the adoption of better customer management, new technologies and focusing on its corporate social responsibilities. It has also been deduced from research that the power of supplier of Airtel is Moderate, whereas the buyers posses a stronger hold as compared to Airtel. Furthermore, it is observed that the company faces negligible threat of new entrants into the oligopolistic market as the entry barriers are significantly high. The threat of substitutes is also quite low since Airtel has adopted the latest technologies available and exhibits this trend thereby eliminating the risk of customer shifting their focus to other kinds of products. The report finally draws a conclusion based on the above mentioned factors. Introduction Background Bharti Airtel Limited, a leading global telecommunications company spans its operations in 19 countries across Asia and Africa. It offers mobile voice data services, fixed line, high speed broadband, IPTV, DTH, turnkey telecomm solutions for enterprises and national international long distance services to carriers. Ranked as the sixth best performing Technology Company in the world, Bharti Airtel has 200 million customers across its operations. (www.businessweek.com) Since its establishment in 1985, Bharti Airtel has been an establishing force in the telecomm sector with many innovations to its credit, which range from being the first mobile service in Delhi, first private basic telephone service provider in the country, first Indian company to provide comprehensive telecomm services outside India in Seychelles and first private sector service provider to launch National Long Distance Services in India. Bharti Tele-Ventures Limited was integrated on July 7, 1995 for the purpose of promoting investments in telecommunications services. Its subsidiaries are operating telecomm services across India. Bharti Airtels operations are mainly handled by two companies: the Mobility group, handling the mobile services in 16 circles out of a total 22 circles across the country; and the Infotel group, handling the NLD,ILD, fixed line, broadband, data, and satellite-based services. In mobile service industry, Bhartis footprint ranges across 15 circles. The strat egic objective of Bharti Tele-Ventures is to capitalize on the growth opportunities which the company believes are available in the Indian telecommunications market and strengthen its position to be the foremost integrated telecomm services provider in the Indian key markets, with a prime focus on providing mobile services(www.airtel.in). Macro-Economic forces- PEST Analysis: Political and Legal Government of India exercises its control over the telecomm market through its authoritarian bodies one Called as TRAI (Telephone Regulatory Authority of India) founded in 1997, and DOT (Department of Telecommunications) founded in 1989. As on May 1994 NTP(New Telecomm Policy) announced its intention to open basic telecomm services to the private sector so they form these authorities and issue licenses for six circles for basic telecomm services.(Demand for telephone usage in India , Information Economics and Policy, Volume 11, Issue 2, July 1999, Pages 177-194 Pinaki Das, P. V. Srinivasan http://www.trai.gov.in/Default.asp). One of the main objectives of TRAI is to provide a fair and transparent policy environment which promotes a level playing field and facilitates fair competition. The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the Authority. (http://www.trai.gov.in/aboutus.asp) TRAI also plays a major role in the allocation and auctions of spectrum given to the service providers. (Spectrum auctions in India: lessons from experience, Telecommunications Policy, Volume 25, Issues 10-11, October-November2001, Pages 671-688 R. S. Jain). Although, spectrum is the most important resource for the company yet, it is important for the authorities to check and ensure the following targets ensuring efficient use of it and promoting competition in services (Falch Tadayoni, 2004) The Telecomm Commission and the Department of Telecommunications are responsible for policy formulation, licensing, wireless spectrum management, administrative monitoring of PSUs, research and development and standardization/validation of equipment etc. (http://www.dot.gov.in/profile.htm) Political scenario of country has a strong effect on company. Moreover, total Indian telecomm industry is based on the rules and regulations of authorities governed by political ministers. So in case of a political overturn, the aftermath would reflect in the companys stability and could work in favor or against it. . Economic Airtel -Boon to Indian economy India now has the third largest telecommunications network in the world (Telecomm Regulatory Authority of India, 2005b) Bharti Airtel spent more than INR122.9546 billion in acquiring the pan India license. The company is Indias largest network service provider. Earlier, the inflation rates of Airtel were very high but now in the present scenario Bharti Airtel registered a growth of 21% to Indian Economy. (Annual Report 2008, 09, 10) http://www.tradingeconomics.com Unemployment High unemployment rate (From 4.3% in 2000-02 it has jumped to 5% in 2004-06) leads to poorer consumer spending, due to which users are not able to spend on mobile services and that leads to low revenue for company. http://www.tradingeconomics.com Investment Opportunity Bharti Airtel provides the best investment opportunities to the investors. The company recorded the highest growth rate of 37.2% in urban and 62% in rural areas amongst operators in 2009-10. Bharti Airtel posted a growth of 4.25% in 2009-10 fiscal with revenues of INR418295 million (Annual Report, 2009). Airtel provides the BRAND in Relation within the market so it is a good decision to invest in Airtel. Airtel always comes up with new schemes ideas and launches new products in the market. http://www.tradingeconomics.com Foreign Direct Investment and Domestic Investment Investment from foreign companies increases the quality of infrastructure and services provided by the company and that affect the decision scenario of customers. Hence telecomm industry not only effected by domestic but also from foreign investment of FII (Foreign Institutional Investors). SingTel, Warburg Pincus is amongst the key investors of Bharti Airtel. In Basic, Cellular Mobile, Paging and Value Added Service, and Global Mobile Personal Communications by Satellite, Composite FDI permitted is 74% (49% under automatic route) subject to grant of license from Department of Telecommunications subject to security and license conditions. (para 5.38.1 to 5.38.4 of consolidate FDI Policy circular 1/2010 of DIPP http://www.dot.gov.in/osp/Brochure/Brochure.htm). Moreover, Company attracts equity investments from National Telecomm Projects of about US$ 460 million. This investment in company shows a strong confidence of Indian government http://www.tradingeconomics.com Foreign Exchange Reserves Bharti, Indias biggest mobile phone company had an agreement to buy the African assets of the Kuwait-based mobile-phone company Zain, will be signed within days, Zain said in a statement today. The purchase would be the largest overseas acquisition by an Indian company since 2007. (Businessweek, news, mar10) [http://www.businessweek.com/news/2010-03-25/india-s-stocks-advance-bharti-airtel-gains-on-zain-agreement.html] http://www.tradingeconomics.com Social Environment Responsibilities Indias language, religions, and customs differ from place to place within the country, but nevertheless possess a commonality. The culture of India is an amalgamation of these diverse sub-cultures spread all over the Indian subcontinent and traditions that are several millennia old. Indian culture is defined by relatively strict social hierarchy. Airtel is extremely proud to support a range of local places in line with our commitment to our Corporate Social Responsibilities. Environment Airtel is committed in managing business in an environmentally responsible manner reducing our carbon footprint and protecting the natural environment are high on our CSR agenda. This is a relatively new area of social awareness. Community Airtel recognizes the importance of supporting and educating members of the community in order to help them to experience life to the fullest, and is committed to providing opportunities for learning and development. The company actively promotes initiatives which it believes to be of benefit to our society, and in the future, aims to continue to build upon these. Considering Local community in mind the company has introduced courses at GTA and Highlands universities.(www.airtel.in/annualreport ) Socio Responsibilities Company took some decent steps as a loyal citizen of India. For any country; its growth depends upon the education percentage of country and Indian literacy rate is a bit low. Considering this, Airtel is providing quality education to poor and underprivileged children. Moreover, it set a target to educate 100,000 children in due course of time. Currently, the company is educating 30,000 students with the help of its employees and 1,200 private teachers in 236 schools. (Annual Report, 2010) Technological Companys infrastructure is always equipped with latest telecomm technologies. It has been the trend of the company to be in top position among its competitors regarding technologies, as Indian market shows a rapid growth that can only be paired with latest technology. Based on the writers common knowledge, Airtel is the first company to launch roaming and value added services in country. Company is having the best E-commerce portal in industry. Moreover, except government firm (BSNL) length of its optical fiber network is the largest. Apart from all of the above mentioned technological benefits, the company is also involved in new generation fields like Broadband and long distance call services. It can be easily understood by analyzing the number of customers of company that in todays world the customer is more concerned about service and technology and Airtel is no.1 in terms of users. (as shown in below Graph) Airtel-Porter Five Forces According to Michael E. Porter in his article The Five Competitive Forces that Shape Strategy In essence, the job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among todays direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industrys structure and shapes the nature of competitive interaction within an industry. (Harvard Business Review, January, 2008, p.25.) 1. Threat of New Entrants Low While fact suggests companies normally find it hard to recognize the new emerging competitors in their market but that is not the case in the mobile operator industry. Since the mobile phone operators had to compete for spectrum licenses, and in India all spectrum licenses are provided by a government organization TRAI. So, Companies can easily identify their rivals in the individual markets. Moreover, it is very costly to enter the market for new players. The arrangement requisite to launch a network operator is complex in terms of resources and infrastructure .To start with, an network operator is required to have the sufficient Tools (in the form of different softwares), mobile base stations, switching centers and the most important license for bandwidth. A heavy amount of money needs to be spent on promotions advertising as well as on manpower, security and transportation. As Airtel is providing the best services in its market so any new competitor has to pay out a decent amount to compete with similar services and network quality. However, India still need to invest 12.5% of GDP till 2015 more in infrastructure to reach international level as of china.( World Bank, 2006 ) http://www.tradingeconomics.com The threat of new entrants bringing additional production capacity should be downplayed in this industry, because technology should assumed to be similar and thus new entrants do not necessarily bring additional production capacity, nor does their entry hold consumer cost down. The fixed-line operators and VOIP do however present a risk to mobile phone operators, because they will certainly provide extra production capacity and lower the consumer costs as a result of this competition. In spite of all the above stated problems, a risk of sharing your market space with a new rival is always there. India became a lucrative market in telecomm after global slowdown; many of the foreign companies are approaching here to setup their business in this industry. Also some mobile phone manufacturers (recently Videocon) expanding their business to become network operators. Also a new entry can cause price war between companies as reduction of price is only option to sustain on top because in India call duration and distance both are combined to produce a unit call.( Munoz, 1996 Demand for telephone usage in India Information Economics and Policy, Volume 11, Issue 2, July 1999, Pages 177-194 Pinaki Das, P. V. Srinivasan). 2. Bargaining Power of Suppliers Moderate As long as Airtel is considered it is a service based company. According to Indian Telecomm market conditions, requirement of input source is high but the number of suppliers is also high so considering current situation supplier power is not that lofty. Mobile phone manufacturers are the primary supplier to the company. There are number of mobile phone manufacturers like Nokia, Ericsson, Samsung, LG, HTC and Motorola in the market. Airtel has collaboration with some big manufacturing giants (Blackberry and Nokia) to reduce suppliers hold in the company. Moreover, some big firms like Reliance and Tata even have their own manufacturing units of mobile phones. That constitutes the low supplier power. However, network operators are not a major customers for the supplier group since the suppliers have direct approach to consumers and they work in far more international level markets than the mobile phone operators. Also, Mobile phone manufacturers could combine into the industry and may start their own services. Moreover, in India the mobile manufacturing brands are more valuable to customers than the network operators as mobile phone characterize their status. That constitutes High bargaining power of suppliers. The other major suppliers for company are NSN and Ericsson for mobile services and network equipment e.g. BTS, jumper cables and antennas again NSN, Cisco and Alcatel for Telemedia services. IT service is provided by IBM who also outsource in call centre services with Hinduja. As table-1 Shows Company is not relying on a single supplier and had multiple supplier firms for single task either it is hardware software equipments or out sourcing, that all conclude MODERATE supplier power. SERVICES Network Equipment Mobile Services Telemedia and long Distance Services Information Technology Call Centre Operations Equity Partner {Strategic} 3. Threat of Substitute Products Low Substitutes Products are basically divided into two categories namely: Old Communication Technologies New Communication Technologies In India telecomm sector provide various services with different technologies like fixed wire phone, Pagers, GSM phones, CDMA phones, dial up internet, broadband, Wimax, VSAT and VOIP. Out of which some are no longer in peoples choice these days as they are bulky and have less features in comparison to new ones and on other hand some may become in high interest due to latest technology and smart features. Airtel is providing almost every service in both old and new segments. However still some services are there which are not given by the company such as VOIP calls and VSAT but these substitute products price are not cheaper, and their quality and performance capabilities are approximately same compared to mobile phone products. Moreover, Switching costs are too high as for these services consumer has to buy special devices which cost extra so the advantage goes to the mobile phone service provider industry as there are less chances of switching to these services from mobile phones. There are no major substitutes in the market till a new better technology with cheap price is introduced. 4. Intensity of Rivalry among Competitors High Airtel is facing too many competitors in domestic as well as international market and many of them are almost equal in market share such as Vodafone, Idea BSNL in domestic market whereas O2, Three and Vodafone are competitors in international markets. Rivalry among competitors in telecomm depends upon several factors like: (a)Numerous or Equally Balanced Competitors High Many competitors in this industry are equally balanced in services and quality, and due to this balanced nature this industry has strong rivalries. Some of these companies have slight edge on each other e.g. Vodafone has a marginal advantage in 3g services on Airtel as Vodafone already has 3g services in other countries. (b) High Fixed Costs or High Storage Costs High Companies in this industry have high permanent costs, as they have to spend heavy amount on establishing wireless infrastructure (such as BTS, Towers and cables) and to obtain spectrum licensing which may be the costliest asset for the company as the cost of these license depend upon the space available in bandwidth of spectrum (Hills Yeh, 1999). Moreover the main aim of any company is to maximize its profit, due to which operator try to increase its capacity and productivity and that leads to intense rivalry. (c) Lack of Differentiation or Low Switching Costs High This fact actually depends upon the suppliers. Primary supplier for Airtel is mobile phone manufacturing industry; and rivalry within mobile phone industry is too high that affects service providers. For the reason that customers in the mobile phone industry believe that mobile phone service is a commodity. Also Switching cost for mobile phone user is also low, so by offering cheap price with decent service competitors can easily catch the attention of users. (d) High Strategic Stakes or Share High This strategy belongs to the geographic conditions as just about all operators in the industry consider India as their primary market, so competitive rivalry is extreme. India is a lucrative market for telecomm operators, so competitors want to maximize their market share as much as possible. (e) Rapid Industry Growth High As the telecomm Industry is rapidly growing in country, so there is extra pressure on company to take customers from rivals. (f) High Exit Barriers Low Already discussed company spends a lot on specialized assets such as spectrum licenses but they also have a high resale value. Predetermined costs of exit, tactical interrelationships, emotional obstacles, government regulations and social rules all constitute negligible impact. http://www.coai.com/statistics.php 5. Bargaining Power of Buyers High Airtel caters to mass market as its product can be used by any consumer who owns a mobile phone. A large variety of options are available to customers as there is very little differentiation in the service provided by mobile phone operators, and also the switching cost is too low. Moreover, the companies have to compete for better network quality, higher level of service and low tariff rates than their rivals, to account for the users profit. The complete segment of the network operators industry output is acquired by Mobile phone users. Annual revenue of the company depends upon the sales of mobile service. In this cut throat competition company cannot expect any loyalty from consumer as they can switch to other operator on slight profit. Concluding above facts states the High bargaining Power of Buyers. Conclusion After having analyzed all of the above environmental forces and also taking into consideration the PESTEL analysis, it can be concluded that Bharti Airtel has played an imperative role in the growth of the Indian Telecomm sector. The political scenario of the country plays a crucial role in the companys growth, which is also supplemented by the economic factors like the foreign direct investments and the unemployment rate of India. Though Airtel has been the market leader since the past ten years and has been a lucrative investment option for investors all throughout, it still faces some threat from its competitors and to counter that it has adopted several measures like better pricing strategy, latest technology and best quality service. The company has also indulged in co-branding with several subsidiaries to increase its market share and gain a competitive advantage over its rivals. Moreover, according to the Indian market condition, it is recommended that the best option for Airtel is to work on new technologies as it would enhance revenue as well as customer satisfaction and eventually help the company to retain its stature. Appendices Appendix 1 Explanation of Terms TRAI Telephone Regulatory Authority of India Government Authority for Telecomm Sector DOT Department of Telecomm Government Authority for Telecomm Sector COAI Cellular Operators Association of India Government Authority for Telecomm Sector IPTV Internet Protocol Television New Technology of TV DTH Direct to Home Television New Technology of TV GDP Gross Domestic Product VOIP Voice over Internet Protocol BTS Base Transreceiver system Instrument used for transmitting radio waves. NSN Nokia Siemens Networks GSM Global System for Mobile Communication Cellular Technology CDMA Code Division Multiple Excess Cellular Technology VSAT Very Small Aperture Terminal A Satellite Communication system BSNL Bharat Sanchar Nigam Ltd. Government Authority for Telecomm Sector NTP New Telecomm Policy Rules Regulations for Telecomm industry