International Strategies in Telecommunications

Anders Pehrsson

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781134752959
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book provides:
* a broad description of the telecommunications industry
* details of an in-depth study of the telecommunications group Ericsson
* a description of how the strategic states model has worked for companies

1

INTRODUCTION

This book presents and applies the strategic states model, mainly in the telecommunications industry. As it is subject to comprehensive deregulation, the industry is an interesting object for a strategy study.

The model enables us to describe the strategic development of any company or organizational unit and its current strategic state, as well as various alternatives for the future. By using the model, a company wishing to evaluate its establishment on a certain geographical market or to examine any other strategic alternatives for the future has the possibility of better understanding its position.

The strategic states model is based on the contingency perspective. This means that the characteristics of the environment and the organization have decisive influence on the available strategic alternatives in each state. Thus, in each state or position in the two-dimensional space defined by the model, there is a certain freedom of action and an optimum strategy.

Although conceptually oriented research and books applying the contingency perspective in other strategic models exist, the empirical evidence consists primarily of statistical data and superficial case studies. I have tried to contribute to the area of strategic management research by developing and applying the contingency model in the context of international business strategies of industrial companies, and by discussing a number of important choices in strategy development. Empirical examples and a longitudinal in-depth study illustrate strategy developments on international markets. Original research in terms of cross-sectional studies published in international scientific journals constitutes a major foundation for the book.

The book is divided into two parts. The first part (Chapters 2 and 3) discusses central considerations in the development of international business strategies, with examples from different companies and industries. In Chapter 2 the strategic states model is presented in detail. The model follows the contingency perspective of strategy, which means that the environment and the organization constitute the basis for dimensions in which generalized patterns of strategies can be found. Segment penetration, the degree of adaptation and performance are the dimensions used in the model. Divergence, concentration, standardization and adaptation constitute distinct strategic alternatives within the space defined by the dimensions of segment penetration and the degree of adaptation.

The model defines four extreme strategic states. The freedom of action and the most efficient business strategies for reaching high performance are totally different from one state to another, not least due to competition. The four optimum business strategies are characterized by ‘Volume customers', ‘efficient distribution', ‘long-term customer relations' and ‘order reproducibility' respectively.

An empirical study (Pehrsson 1995a) showing a linkage between strategic states and financial performance is presented in Chapter 2. This study implicitly highlights three important choices of industrial companies in the course of development of international business strategies. Chapter 2 briefly indicates these choices and discusses some normative conclusions. In Chapter 3 the three choices are more thoroughly examined.

The question of penetration of relatively few or a variety of market segments is the starting-point for Chapter 3. To assist in answering the question that may be asked by any industrial company, a theoretical review on market segmentation precedes the case concerning segmentation in Europe.

Second, the type of offer and the corresponding strategy problems are discussed. This section of the chapter is based on one of my articles (Pehrsson 1993) which compares problems experienced by industrial companies marketing mainly separate products as compared to those marketing systems of products.

A study (Pehrsson 1995b) of alternatives when it comes to standardizing or adapting an offer from one market to another is the basis for the third section of Chapter 3. This study focuses on the evaluations of Swedish industrial companies penetrating the Swedish and the German markets simultaneously. Business concentration, product adaptation, and user divergence are explicit strategies that emerge from the referred study. As a conclusion, evaluation of strategic alternatives are discussed.

The second part of the book (Chapters 4 to 6) presents the development of international business strategies in the telecommunications industry. Chapter 4 describes the industry in terms of important changes that take place (the deregulation process and the evolution of mobile telephony systems), and major actors in the industry. Here, both company examples and broad surveys provide information. Chapter 5 presents the Ericsson case. This case follows a longitudinal in-depth approach in which the development of strategies for both the group and single business areas is being described. The business areas of Public Telecommunications, Radio Communications and Business Communications are focused on, as well as the development of their strategies on the major markets such as Germany and the USA.

Finally, Chapter 6 discusses Ericsson's development with reference to the strategic states model. Ericsson's choices imply focus on telecommunications systems and accompanying customization. When it comes to these systems, customer divergence and geographic divergence are present. These strategies manifest, for example, in an effort to establish customer relations with different network operators, and the formation of strategic alliances with other companies in the industry.

Part I

CENTRAL
CONSIDERATIONS IN
THE DEVELOPMENT OF
INTERNATIONAL
BUSINESS STRATEGIES

2

THE STRATEGIC STATES MODEL AND APPLICATIONS

A company's strategic decisions belong among the most important affecting its survival abilities. In the field of strategic management most authors agree that the strategy implemented by a company shows the direction which it has been following for a long period of time in order to survive and reach its performance objectives.

A business strategy for the future is thus a direction which a company chooses with regard to its products and markets, and considering its internal resources and the environmental situation. Different types of issues are involved in the choice of a long-term direction. This applies to the composition and development of the offer and the review of customer categories and their geographical locations.

Theoretically, environmental and organizational analyses generate strategic alternatives that are evaluated and selected (for example, Ansoff 1965; Bourgeois III 1980; Chakravarthy and Lorange 1991; Steiner 1979a). However, a business strategy does not usually develop in a straight line, but through a series of complicated variations, which often appear anything but obvious to the chief actors (Brandes and Brege 1990; Chandler 1962; Mintzberg and Waters 1985; Pehrsson 1985). Considering that many years may pass between the initial idea and the achievement of a significant sales volume of a company, with investigations and judgements going on continuously, a strategy will often have to be constantly revised and developed. In retrospect, a single choice may appear to have been almost random or else to have represented the only available alternative. In either case, a choice is never an isolated act, but an accumulation of previous decisions reflecting a history of traditions and values, as well as the immediate pressures of the necessity for survival. Each decision delimits the freedom of action in strategy formulation and implementation.

Knowledge and understanding of a company's history and emergent restrictions on the strategic freedom of action enable the company to position itself today and to delineate strategic alternatives for the future. Based on my empirical strategy research and literature studies I argue that the freedom of action in business strategy formulation is defined by the structure of the state in which the organizational unit of current interest is situated. Thus, in each and every state there exists a certain freedom of action and an optimum business strategy.

In the strategic states model which I have developed (Pehrsson 1985, 1988, 1990, 1991, 1993, 1995a, b), the environment of a company is reflected in the dimension of the breadth of the market that is being penetrated. The market breadth is measured by the number of market segments that are being focused on, in which a segment is a limited and measurable part of a larger market.

The other dimension is valid for the organization and concerns the adaptation of the offer to the requirements of the customers in the market segments. The offer can be composed of physical products and services in different degrees.

The degree of the company's segment penetration and adaptation decides its sensitivity to variations in price and other competitive means, as well as the possibilities of adaptation to changes in competition or other environmental fluctuations. Hence, the freedom of action varies according to the two dimensions of the model.

In each position or strategic state in the two-dimensional space there is a certain freedom of action and an optimum business strategy. The strategic states model can therefore be seen as an application of the contingency approach to business strategy. The treatment of strategic performance is widely discussed in this perspective, but I prefer to use financial measures such as return on the capital employed or profit margin.

This model enables us to describe the strategic development of any company or organizational unit and its current strategic state, as well as the alternatives for the future. Divergence, concentration, standardization and adaptation represent pure strategic alternatives.

DIMENSIONS IN THE STRATEGIC STATES MODEL

In the strategic states model, the breadth of the market penetrated by a company or any organizational unit is specified by a number of segments that are being penetrated. If the company or unit of current interest follows a divergence strategy and penetrates a larger number of segments than it did earlier, its dependence on the single segment decreases. Concentration means here fewer segments and an increased dependence on each single segment. This is also the case when one or a few segments become dominant in the company's business activities.

A market segment is a limited and measurable part of a larger market. Scandinavia is one geographical segment of the European market, while Sweden could be regarded as one geographical segment of the Scandinavian market. Manufacturers of machines could be viewed as a segment of the manufacturing industry as a whole. In this case it is therefore appropriate to talk about a customer segment or intermarket segment that crosses geographical borders. The concept of intermarket segments is generally defined as the presence of well-defined and similar clusters of real and/or potential customers across national boundaries, showing the same characteristics and being identified by similar criteria (e.g. Levitt 1983; Douglas and Wind 1987; Jain, 1989).

An effective segmentation procedure results in parts of a market which can be identified and measured. The segments should be large enough in terms of customers' purchasing volumes and the potential profitability for the companies penetrating the segments. Equally the segments have to be accessible to penetration and defendable against competition (Pehrsson 1991).

Once the market segments have been identified, they have to be described. A segment can be described either by the demand characteristics of the customers or by the demographic characteristics of the customers in the segment. Jain (1989) extends the description procedure and discusses the general conditions applying to a market segment. He suggests the following three characteristics of market conditions: cultural characteristics, economic characteristics and customer perceptions.

In my empirical study (Pehrsson 1995b), the use and existence of intermarket segments were identified as follows. As segmentation is normally valid for product users and not intermediaries, segmentation concerning the using companies was the focal point of the study:

• demographic characteristics (location of users in terms of industries, size of using companies);

• operating characteristics (users' experience of the product, users' need for after sales services, users' business and technological competence);

• purchasing characteristics (users' buying routines);

• situational characteristics (users' need for quick and safe deliveries, certain product applications, users' normal order sizes);

• competition characteristics (number of alternative offers from which users can choose).

All the above characteristics except the one concerning competition are present in the segmentation model of Bonoma and Shapiro (1983), in which they are proposed to be used for the segmentation of industrial markets. According to the authors, demography is the most crucial segmentation base. The reason for this is that demographic information is most easily available. Demography has also been treated as a segmentation base in, for instance, the study of Sorenson and Wiechmann (1975).

However, since the company that follows segmental penetration rather than penetration of the whole market can be more efficient than its competitors, competition has to be taken into consideration in segmentation. The model of Flodhammar (1977) consists of a competition component in terms of a number of alternative offers from which a buying company can choose.

In the strategic states model an offer is described by the degree of segment adaptation. In this dimension, the development can show increasing standardization or adaptation to the requirements of customers in segments. When it comes to the offer, it can be composed of physical products and services in varying degrees.

The presence of competition may necessitate customization of the product in order to...

Table of contents

• Front Cover
• INTERNATIONAL STRATEGIES IN TELECOMMUNICATIONS
• Title Page
• Copyright
• CONTENTS
• List of Figures
• List of Tables
• Preface
• 1 INTRODUCTION
• Part I: Central considerations in the development of international business strategies
• Part II: Development of international business strategies in the telecommunications industry
• References
• Index