Marketing_Plan_(Digi_Telecommunication)

LIST OF FIGURES Page Figure 1.1 Digi Corporate Structure 8 Figure 1.2 DiGi Telecommunications Sdn Bhd - Coverage Map 10 Figure 2.1 Sources of value in global telecommunication, 2002-2012 20 Figure 2.2 Mobile Market Penetration Rate in Malaysia (%) 24 Figure 2.3 Mobile Penetration Asia 26 Figure 2.4 A Resource-Based Model of Sustainable Competitive Advantage 29 Figure 3.1 Summary of academic construct framework 45 Figure 4.1 Digi Customer Service Ambition 50 Figure 4.2 Porter’s 5 Forces 76 Figure 4.3 Revenue Growth Chart 82 Figure 4.4 Net Profit Margin Chart 84 Figure 4.5 Earning per Share Chart 87 LIST OF TABLES Page Table 4.1 Internal Factor Evaluation(IFE) of DiGi 48 Table 4.2 SWOT Analysis For DiGi 57 Table 4.3 Competitive SWOT Analysis 59 Table 4.4 Foreign Ownership in the Malaysian Mobile Phone Sector , 2007 62 Table 4.5 Number of broadband subscriber in Malaysia 64 Table 4.6 Penetration rate for cellular phone in Malaysia 65 Table 4.7 Population age distribution trends for 2002-2008 69 Table 4.8 2008 Electricity Consumption VS CO2 Emissions 70 Table 4.9 TOWS Matrix of Digi 72 Table 4.10 Summary of Alternatives Strategies 75 Table 4.11 Summary of Evaluation of External Forces to telecommunication Industry. 81 Table 4.12 Revenue Growth Performance for DIGI (2006 -2008) 82 Table 4.13 Net Profit Margin of Digi (year 2006-2008) 84 Table 4.14 Earnings per Share 86 Table 4.15 Comparison of Telco Performance Second Quarter 2009 89 ACKNOWLEDGEMENTS First of all, we like to express our deepest gratitude to the Almighty God who has given us the courage, patience and health to complete our research. We extend our deepest love and gratitude to our family members and closets friends for their understanding and endless love through out the duration of our studies. We are grateful and would like to express out utmost gratitude to our supervisor, Assoc. Prof Dr Rosmimah Mohd Roslin for her critical comments, discussions and constant encouragement during the course of this study, as it would not have been possible to bring out this work in its present shape with out her help. Deepest gratitude is also due to DiGi Telecommunications Sdn Bhd for providing us the opportunity to undertake this research on the business strategies. We acknowledge support from Head of Marketing Segment for providing us with relevant and useful information in completing this research. Without the information, this research would have been most difficult to achieve. Last but not the least, thanks to all lecturers and staff of the Faculty of Business Administration who have been involved either directly or indirectly in providing us their knowledge and assistance. Roslina Ali 2007144725 Nor Rizahanim Hassan 2007144693 Rohanizan Md Lazan 2007144709 TABLE OF CONTENTS TABLE OF CONTENT LIST OF FIGURES 1 LIST OF TABLES 2 ACKNOWLEDGEMENT 3 CHAPTER ONE: INTRODUCTION 1.1 PROFILE OF DIGI TELECOMMUNICATIONS SDN BHD 6 1.2 OBJECTIVE OF STUDY 12 1.3 PROBLEM STATEMENT 13 1.4 SIGNIFICANCE OF STUDY 14 1.5 SCOPE AND LIMITATION 16 1.6 METHODOLOGY 1.6.1 OVERVIEW 17 1.6.2 SECONDARY DATA 18 CHAPTER TWO: LITERATURE REVIEW 2.1 INTRODUCTION 19 2.2 GLOBAL TELECOMMUNICATION 19 2.3 MALAYSIA TELECOMMUNICATION MARKET 23 2.4 MARKETING STRATEGY AND COMPETITIVE ADVANTAGE 27 CHAPTER THREE: RESEARCH ARCHITECTURE 3.1 ACADEMIC CONSTRUCT 3.1.1 SWOT ANALYSIS 35 3.1.2 PORTER’S FIVE FORCES 38 3.1.3 FINANCIAL PERFORMANCE TOOLS 42 3.1.4 ANSOFF MATRIX 43 CHAPTER FOUR: FINDINGS AND ANALYSIS 4.1 INTRODUCTION 46 4.2 SITUATIONAL ANALYSIS (SWOT) 47 4.3 PORTER’S FIVE FORCES 76 4.4 FINANCIAL PERFORMANCE ANALYSIS 82 CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS RECOMMENDATIONS 94 REFERENCES 101 CHAPTER ONE: INTRODUCTION 1.1 PROFILE OF DIGI TELECOMMUNICATIONS SDN BHD DiGi.Com Berhad is listed on Bursa Malaysia Securities Berhad with a paid-up capital of RM77.75 million and a market capitalization of approximately RM16.8 billion. The Group's mobile service operations are undertaken by its wholly-owned subsidiary, DiGi Telecommunications Sdn Bhd. Company Overview DiGi commenced operations in May 1995 when it launched its fully digital GSM1800 services, the first digital mobile communications service in Malaysia. In the last five years, DiGi's revenue has more than doubled to approximately RM4.8 billion with a subscriber base of 7.1 million. As a leading mobile communications company, Digi provide a comprehensive range of affordable, convenient and easy-to-use wireless services to simplify and enrich the lives of its customers. Principal Activities DiGi is the newest 3G broadband provider, investing in the latest High Speed Packet Access (HSPA) technology to be the first in Malaysia to deploy a 14.4 Mbps network. Its presence as a leader in prepaid services resulted in a number of firsts that have set industry benchmarks for simplicity and innovation. These customized and flexible services are offered under the DiGi Prepaid brand name. DiGi's postpaid services under DiGi Postpaid and DiGi Business deliver quality voice as well as value-added mobile content and data services to individual and corporate customers. Management and People Led by Chief Executive Officer, Johan Dennelind, DiGi has a strong management team, who are tasked with responsibilities from day-to-day operations to the development of new innovation products and services. DiGi is proud of the team it has built, which currently stands at more than 2400 in number. It is a team that is creative and dynamic, who with their energy and enthusiasm have helped create the brand position DiGi now enjoys. Digi Corporate Structure Figure 1.1 Digi Corporate Structure Single Business Unit for DiGi.Com Digi Telecommunications Sdn Bhd  Focus on Digi Establishment, maintenance and provision of telecommunications and related services Pay By Mobile Sdn Bhd  Focus on provision of financial services related to remittance of money and provision of services and products which use electronic payment as its main mode of payment Digi Services Sdn Bhd  Focus on property holding, renting of premises and other related services Digi Services Sdn Bhd  Focus on mobile internet portal DiGi Telecommunications Sdn Bhd - Coverage Map In Malaysia In the past, DiGi has had a hard time offering better mobile coverage compared to its competitors, especially since the GSM 900 MHz frequency used by its competitors has from 2 to 3km longer range than GSM 1800Mhz used by DiGi. However, Digi Telecommunications Sdn Bhd (DiGi) has targeted 90 per cent network coverage of Malaysia populated area by end of this year. As part of its long-term commitment in East Malaysia, Digi also focus to area such as Tawau, Labuan, Sandakan and Tuaran as well as Lok Kawi and Tambunan to be covered by Enhanced Data Rates for GSM Evolution (Edge) as part of the company's plan to bring high speed data services to under-served areas. (See Figure 1.2) Coverage quality (high/variable): GSM 1800 Maps: © 2009 GSM Association, Europa Technologies Ltd.. Figure 1.2 DiGi Telecommunications Sdn Bhd - Coverage Map In Malaysia MISSION AND VISION STATEMENTS Mission  Provide customers with specific solution to meet individual needs for communications, connectivity, and access to information and security. Therefore, this statement indicate that Digi business is about to enhance customers business by providing the very highest quality product and services possible. To achieve this mission Digi shall continue to build on the foundations which have stood the test of time, excellent service, leading to life-time customers and a strong community engagement (DeepGreenProgram) Vision  Enhancing communications to improve customers’ quality of life…at home, work and play. Digi’s vision statement defines the purpose or broader goal to develop the best communication channel which is more easy, efficient and cost effective for customers’ lifestyle. This vision also creates a sense of direction and opportunity to develop effective marketing strategies in order to achieve target market revenue and fulfill customers’ needs. 1.2 OBJECTIVE OF STUDY: 1) To evaluate the strength of Digi marketing strategy in order to establish competitive edge. 2) To access the sustainability of the competitive edge. 3) To determine the extent of Digi’s capability to sustain its standing in the market. 4) To develop recommendations that will enables Digi to retain its position in the industry. 1.3 PROBLEM STATEMENT The telecom sector so far has been less affected by the global economic slowdown this recent year. However, Digi expected more challenging business environment in year 2010, and their strategies and operations will be adjusted accordingly in order to meet company goals and objectives. The operational focus in 2009 will be cost efficiency and control of capital expenditure, in order to secure cash flows. Digi is effectively structured for competitive market and manage internal weakness in operations, balance sheets, shareholders’ value and customer management strategies. Even though Digi has been operating for the past 14 years, it’s still facing challenges include regulation, market growth, maintenance of market share, cost reduction and control of capital investment. At the same time, Digi has to ensure that they are innovating in evolving technologies and invest accordingly to customer need base on the price, products and services demand. It is really difficult to sustain competitive advantage for a very long time because the rate of technological changes, changes in business strategies and customers’ loyalty can wane and affect sales living a fall in a market share. In facts, Malaysian telecommunication industry has become saturated since in 2008. Over 90% of the 27 million populations in Malaysia had a mobile telephone service. There is only 10% left for telco players to monopolize and sustain their position in the business. Therefore, this study will enable us to analyze and evaluate further about the current marketing strategies adapted by Digi Telecommunications Sdn. Bhd. and to suggest strategies on how to sustain the market. 1.4 SIGNIFICANCE OF STUDY Digi is emerging as one of the fastest growing provider of mobile communications services in Malaysian market. Digi is driving the industry by empowering its customers, by integrating a local approach with global expertise and by working closely with its stakeholders to create shared value. The significance of this study is expected to benefit the stakeholders below: a) The company The result will benefit Digi in terms of its marketing strategies by using the model of analysis that had been used. b) The country The findings of the study would expose the future potential growth to other telco industry players. c) Researchers It will also benefit the researchers by applying the related strategic tools and models in finding the result. 1.5 SCOPE AND LIMITATION During the project duration the main purpose was to collect the data and interpret it with reliability and consistency. Certain limitations might be faced which can be:- • The study is based on secondary data. • The study is based on previous performance of the players & Industry. • The rate of growth is can be influenced by unseen economic changes. • It also has limitations in terms of the Top Management involvement in collecting the data or information. 1.6 METHODOLOGY 1.6.1 OVERVIEW This project focuses the strategic marketing of Digi Telecommunication based on SWOT analysis, Porter’s Five Forces and Ansoff matrix. This study used secondary data analysis by relating the data to identified models or academic constructs. SWOT analysis was used in order to assess Digi strengths and weaknesses. In addition, SWOT allowed to determine Digi’s external position by defining its opportunities and threats. Marketing strategies of Digi can be fully analyzed by adapting this method. Porter Five Forces model can be useful to Digi as a strategic tool to analyze the attractiveness or value of Digi structure in implementing its marketing strategy to achieve it competitive edge. Ansoff matrix helps Digi to decide about the product and market diversification options. 1.6.2 SECONDARY DATA The secondary data is based on Digi past, present and future performance in order to identify any abnormal and possibilities for improvement. Among the reports used are as follows: • Business Plan Digi Telecommunication (Intranet 2009) • Article from Digi.com.my -Press Release Colum • Malaysian Communication & Multimedia Commission (MCMC) Report 2008 • Digi Telecommunication Annual Report 2006, 2007 and 2008 • Other Telcos : Maxis Annual Report 2008 and Celcom Annual Report 2008. CHAPTER TWO: LITERATURE REVIEW 2.1 Introduction The objective of this paper is to study the strength of Digi’s marketing strategies and its strategic path to sustain competitive edge. In this literature review, an insight of the global telecommunication in terms of revenue growth and market trend to telecommunication providers were highlighted. To support the study and analysis toward the subjects, it was also included the reviews about Marketing strategies, competitive advantage, SWOT Analysis, Porter’s Five Forces and Ansoff Matrix. 2.2 Global Telecommunication There is a perceptible shift in the telecom industry’s focus away from cost reduction to business model transformation and revenue growth. Only 34 percent of telecom providers singled out business model transformation as a source of value five years ago. About 69 percent now believe it will be the primary driver of value in the industry going forward (see Figure 2.1). Globally, revenue growth takes second place, with 65 percent perceive that is an important source of value. In North America and Asia Pacific, however, business model takes second place to revenue growth as a key source of value. Many more firms globally also expect to reap synergies from mergers and acquisitions over the next five years than in previous years. There seems, however, to be little expectation of further consolidation in the North American telecom market following the recent spate of mergers and acquisition: Verizon and MCI; SBC and AT&T, Bell South and Cingular; Sprint and Nextel. Synergy from consolidation is not among the top three sources of value in North America, or in Middle East and Africa. Around the globe, however, fewer companies see managing operating expenditure as a means of creating substantial additional value. (McIntosh and Nelson , 2007) Figure 2.1 Sources of value in global telecommunication, 2002-2012 On the market side, the industry has to deal with an explosion of new uses that refer to an increasing diversification and differentiation of demand (real or potential) for products and services in the global domain of information and communication. One can cite, for instance, the development of the multimedia which implies the management and end-to-end transfer of an open set of communications applications such as voice, texts, graphs, sounds, fixed images or videos; the emergence of communications between groups of users based on new patterns of infrastructures and services; the need for end-users friendliness, reliability and safety relying on high performance networks; the choice for mobility of the equipment premise, of the end-user, of the services, of the different elements within the network. The specificity here is that these new market opportunities are not captured initially by existing firms but by new entrants. New firms are then able to analyze customers’ attempts in terms of technologies and associated services generally better than what the incumbents used to do. Finally, significant decreases in price are registered in most countries. In a world business challenging environment today, the competitive environment has been transformed by global competition, rapid changes in technology and shorter product life cycles. Innovation, evolution of technology and customers has become parts of the critical element to survive in this competitive environment to the telecommunication industries including Digi Telecommunication Sdn. Bhd. The diversity of communication standards across the countries and rapid changes in the standards with the evolution of technology is exacerbating the uncertainty and complexity of new products. Successful companies have reduced the cost of innovation and risks by outsourcing. The problems of product development in a dynamic industry like, telecommunication can be explained in terms of newness of the technology, customers and trajectory of the technology development. Classical models of product development assume the process to be a linear one, although the process of technology development differs with these parameters. The role of the company changes with the novelty of the technology and novelty of the market. In cases of new technology intended for an existing market, the firm has a dominating role. Customers take an increasingly important role in situations where existing technology are modified for new applications. Moreover, the new technology intended for new customers, market and technology evolve in a symbiotic way. The mobile communication area is representative of this phenomenon. New market opportunities have been created by the continued growth of the world economy. Better access to scientists and technologists in various parts of the world has provided great opportunities for outsourcing of technology development. Governments and financial institutions are providing new incentives for inter-organizational collaboration. 2.3 Malaysian Telecommunication Market The increasingly tighter household income since late 2008 has not significantly affected the Malaysian telco industry as subscriber growth and minutes of usage are steadily growing (see Figure 2). The Malaysian mobile telco industry is the closest proxy to ‘perfect competition’ and the incumbents (Maxis, Celcom and DiGi) have prepared themselves by being on the defensive for Mobile Network Portability (MNP) which was launched in August 2008 with aggressive marketing and promotions. Figure 2.2 : Mobile Market Penetration Rate in Malaysia (%) Malaysia has developed one of the more advanced telecom environments in the developing world. Since 1990s, the country was busily promoting itself as a regional high technology hub, but in recent times it has adopted a quieter profile and has set about the task of steadily building a technologically progressive economy. While still in an expansion phase the Malaysia’s telecom sector has undergone a period of consolidation with telecom companies doing battle in an increasingly competitive and changing market. The last decade has seen healthy overall growth in the country’s telecom sector. Coming into 2008 just over 90% of the 27 million people in Malaysia had a mobile telephone service. Based on Business Wire report 2008, Malaysia stand at number six in mobile penetration in Asia and the contribution largely come from prepaid market. The 25 million mobile subscriber mile stone is set to be passed in 2008, up from only two million in 1998. Malaysia’s mobile market had made a remarkable recovery after suffering a serious setback; having reached annual growth levels in excess of 50% by the mid-1990s, growth dropped sharply coming into 1998 as the impact of the Asian economic crisis was felt. However, the market quickly recovered. Following the example set by the Philippines, Malaysia’s mobile users have also been enthusiastic in their adoption of SMS, with the regulator reporting that Malaysians sent more than 10 billion SMS during 2006. By contrast, growth of fixed-line services has been far more modest, especially in recent times. Having moved rapidly from around 2 million in 1990 to 4.7 million in 2002 (almost 20% penetration), fixed-line subscribers dipped to 4.35 million (just under 16% penetration) by the start of 2008. Figure 2.3 : Mobile Penetration Asia 2.4 MARKETING STRATEGY AND COMPETITIVE ADVANTAGE Strategic Marketing and the Resource Based View of the Firm The pursuit of Sustainable Competitive Advantage is an idea that is at the heart of much of the strategic management and marketing literature. [Porter (1985) and Williams (1992)]. Gaining a competitive advantage through the provision of greater value to customers can be expected to lead to superior performance measured in conventional terms such as market-based performance which consists of market share, customer satisfaction and also financial-based performance that consist of return on investment, shareholder wealth creation. Research done by Buzzell and Gale (1987), Jacobsen (1988) and Jacobsen and Aaker (1985) have argued that market-share and profitability are both outcomes of the efforts by firm’s secure cost and differentiation advantages. Extant marketing literature highlights a link between the delivery of value to customers and levels of customer satisfaction leading to potential market share and profitability gains (Kotler 1994). Where the advantage is sustained, superior performance can be expected to persist in a manner analogous to the notions of super-normal profit or rent in economics. An essential element of competitive advantage is value to customers. Therefore, for a resource to be a potential source of competitive advantage, it must be valuable or enable the creation of value. In the words of Barney (1991), it must permit the firm to conceive of or implement strategies that improve its efficiency and effectiveness by meeting the needs of customers. This implies that though resources may meet other conditions, if they do not enable the creation of value, they are not a potential source of advantage. Generally, the starting point of strategic marketing analysis has been to begin by assessing the firm’s strengths/weaknesses as part of a broader SWOT analysis. The resource-based view of the firm provides a conceptually grounded framework for assessing strengths and weaknesses and enables strengths or weaknesses to be examined in terms of the criteria for establishing sustainable competitive advantage. Adopting the RBV framework maintains a focus on the provision of value as well as the durability of resulting advantages. For example, such a framework forces managers to assess whether or not claimed strengths actually matter in the marketplace – that is do they provide value to customers. Figure 2.4 : A Resource-Based Model of Sustainable Competitive Advantage Firms need to think about which of its strengths possess inherent barriers to duplication by competitors via RBV framework. For example, services firms such as advertising agencies and investment banks may find that their only unique resources are certain key individuals which places them in a vulnerable position as these resources are mobile and may be lured away by competitors. Rather than the indiscriminate lists provided by SWOT analyses, resources should be categorized according to ease of duplication by competitors. The tangible assets/intangible assets/capabilities typology presented earlier gives an implicit hierarchy of resources based on barriers to duplication. Broadly speaking intangible resources and capabilities are more difficult to duplicate and provide a more meaningful basis for marketing strategy development. Segmentation or Positioning Product or brand positioning is a core strategic marketing activity (Ries and Trout 1982) and firms can seek to adopt a number of distinct positions in the marketplace. These may involve positions based on price, premium quality, superior service and innovativeness (Hooley 1998). The resource-based view of the firm focuses attention on the ability of the firm to deliver on its desired positioning strategy. For example, if the firm seeks to become a customer service leader in an industry, it needs to develop the resources that are necessary to enable it to try to attain such a position. For example, Marriott Hotel’s renowned positioning as a customer service leader in the hotel business is closely related to the resources that it has accumulated through codification and practice over time. Among its distinctive capabilities are a customer-focused organizational culture and an obsession with detail at every level of the organization (Stalk, Evans and Schulman 1992). The resource-based view of the firm enables an understanding of the resources that underpin the alternative positioning strategies that may be considered by a firm. For instance, the pursuit of a low price strategy is considered to necessitate resources such as cost control systems, TQM processes, skills in procurement and information systems (Hooley, Moller and Broderick 1998). In contrast, a positioning strategy based on superior quality is believed to require a quite different resource set including market sensing (Day 1994), quality control and assurance, brand and reputation and supply chain management (Hooley, Moller and Broderick 1998), while a positioning strategy based on rapid innovation requires skills in the areas of new product/service development, R&D, technical skills and creative skills. In short, for any positioning strategy a firm might choose to pursue in the marketplace it is possible to identify a matching resource set, which further-more allows firms to identify ‘resource gaps’ that may need to be filled. (Grant 1991) Competitive Advantage Firm must also develop a competitive advantage which will distinguish the firm’s offers from those of its competitors in the segment. In other words, the firm must decide how the business is going to compete in the marketplace. The plan is to make the offers as unique as possible to customers, so they will be less likely to switch to competitors for minor price advantages. When developing a competitive advantage, the essential factors are: • it must always be based on something of value to the customer (e.g. superior service) and not price alone; and • it must be “sustainable”. This means that the firm should exploit its ability that competitors will find hard to copy. A competitive advantage can be created out of any of the firm’s strengths or “distinctive competencies” relative to the competition. Managers of successful companies always have a crystal clear understanding of their competitive advantage, and use it as a blueprint for all marketing mix decision making. (Brooksbank, 1994) A firm’s strategy details a set of goal-directed actions that managers intend to take to improve or maintain overall firm performance. If the managers’ assumptions align closely with the competitive realities, successful strategies can be crafted and implemented, resulting in superior firm performance. Basically, a firm that outperforms its competitors has a competitive advantage. If this firm is able to dominate its competitors for prolonged periods of time, the company is said to have a sustained competitive advantage. For example, through the innovative use of IT and other strategic innovations, the world’s largest retailer Wal-Mart was able to outperform its competitors, Target and Costco, throughout the 1990s and early 2000 in terms of financial performance. Thus, we can say that Wal-Mart had a sustained competitive advantage during this time period. A firm that enjoys a competitive advantage not only is more profitable than its competitors, but also grows faster because it is able to capture more market share, either directly from competitors or from overall industry growth, due to the firm’s stronger competitiveness. (Rothaermel, 2008) Sustainability Digi's sustainability agenda as "not just about doing well by doing good. It is about doing better by doing good. It is no longer just about doing business responsibly, it is about seeing social and sustainability challenges as opportunities for innovation and business development. Far from being a cost to society and business, sustainability is emerging as a huge opportunity for both. The key to sustainability is innovation, and that in turn spells competitive advantage, which economists define as above-average profits. If crisis is the womb of creativity, then there is plenty to spur innovation. The World Economic Forum's Global Economic Risks 2008 report states, "Uncertainty about the short and medium term future is as high as it has been for a decade." The world is now confronted with an unprecedented number of global system wide challenges, from the liquidity crisis in financial markets to the threat of new diseases on a warming planet. The question we face is: Are we going to collectively wring our hands, decrying the declining state of the world, or are we going to get on with the business of constructing a better future' CHAPTER THREE: RESEARCH ARCHITECTURE 3.1 ACADEMIC CONSTRUCT To assist in the analysis of the data, an academic construct was developed where relevant models that could be used to evaluate the data was utilized. These includes: 3.1.1 SWOT ANALYSIS To create and sustain the competitive advantage, a firm must understand its internal strengths and weakness as well as it opportunities and treats that will influence the business decisions and directions. The goal of SWOT analysis is to help the firm in formulating a strategy that allows a coherent fit between the company resources, capabilities and competencies. SWOT analysis will enable a company to present a practical way of assimilating the external and internal information about the business unit, delineating short and long term priority and allowing and easy way to build the management team which can achieve the objective growth of the company as a whole. SWOT analysis is a very simple but effective means of carrying out and analysis of a company or product. It is also probably the first step in putting together a marketing plan or business plan for the product or business. Aim of a SWOT analysis: • Reveal the company competitive advantages • Analysis company prospects for sells, profitability and product development • Prepare a company for problems • Allow for the development of contingency plans SWOT will give the big picture of the most important factors that influence survival and prosperity of the firm as well as a plan to act on. Strengths The company’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Example of such strengths include patents, strong brand name, good reputation among customer, exclusive access to high great natural resources and favorable access to distribution network. Weakness Weaknesses are also considered mostly internal and are the items that the company needs to address for success of its business. It may be lack of experience in the selected industry or insufficient of qualified employees. Firm’s current business may identify additional weaknesses such as, a previous poor decision that is now impacting the business. It may also have a high turnover of employees, a lack of necessary capital for equipment, and/or a high short term debt load. These are all examples of weaknesses in an existing business. These may be the result of management decisions or influence from outside of the business, whatever the reason it need to be addressed so that the business can be successful. Opportunities Opportunities are considered mostly external. It could be an opportunities that available for the company. If the business is potential, then the idea that has not been previously tried in those areas could be the product that people are seeking to be produce by company. Potential businesses tend to be much more optimistic than existing operations. Threats Threats are also considered mostly external. These are threats from outside of business that will directly impact which company may have very little control. Unforeseen competition from local or foreign, dissolution of markets and adverse weather may also have a negative effect to the business. It will also negatively impact an existing business. Rising interest rates may have a greater impact on existing businesses than start-ups. The strengths may combat the weaknesses and the opportunities can offset the business threats according to SWOT analysis. 3.1.2 PORTER’S FIVE FORCES The Porter’s Five Forces tool is a simple but powerful tool for understanding where company’s competitive position. This is useful, because it helps to understand both the strength of current competitive position, and the strength of a position that company’s looking to move into. With a clear understanding of where power lies, the business can take fair advantages of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of a company’s business planning toolkit. Conventionally, the tool that a company can use will identify whether new products, services or businesses have the potential to be profitable. Porter’s Five Forces Analysis assumes that there are five important forces that determine competitive power in a situation. These are:- 1. Supplier Power: Company can assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over the business, the cost of switching from one to another, and so on. The fewer the supplier choices that company have, and the more it needs suppliers' help, the more powerful suppliers are. 2. Bargaining Power of Buyers: The bargaining power of buyer describes the pressure buyer can put on the seller through demanding a lower price and higher product quality. Strong buyers can reduce company’s revenues. Buyers have strong bargaining power when they purchase in large quantities and control many angles to the final consumers. 3. Competitive Rivalry: The competitive rivalry determines the competition among existing competitor in the telecommunication industry and overall industry profitability. The threat of rivalry also refers to the competitive intensity within an industry. Competitive intensity is determined by how hard company fight against competitors to gain market share from each other, or to capture a significant amount of industry growth. Competitive weapons include price discounting, products and services differentiation, and advertising spending. The stronger the competition will result the lower profitability that leads to lower prices and lower revenues. Therefore, company may prefer non-price competition and compete on advertising and innovation. 4. Threat of Substitution: The threat of substitutes concerns the questions whether any available product or services from the competitors that enables to satisfy company’s existing customer needs and preferences. If the substitute products or services successfully capture company’s customer preferences and needs, thus they will switch to other substitute product or services. This will limit the ability of company to increase prices. 5. Threat of New Entry: Threat of new entry is affected by the ability of new competitors to enter into the market. If it costs little in time or money to enter into the market and compete effectively, if there are few economies of scale in place, or if there are little protection for the business key technologies, then new competitors can quickly enter into the market and weaken company’s position. If the business is strong and durable barriers to entry, then company can preserve a favorable position and take fair advantage of it. 3.1.3 FINANCIAL PERFORMANCE TOOLS Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. (Wikipedia) Profitability Ratio Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well (investopedia.com, 2008). 3.1.4 ANSOFF MATRIX Ansoff Growth Strategy Matrix First presented in the Harvard Business Review in 1957, H.I. Ansoff's growth strategy matrix remains a popular tool for analyzing growth. The matrix presents four main strategic choices, ranging from an incremental strategy in which current products are sold to existing customers to a revolutionary strategy in which new products are sold to new customers. Market penetration In this quadrant, the company markets existing products to existing customers. The products remain unchanged and no new customer segments are pursued; instead, the company repositions the brand, launches new promotions or otherwise tries to gain market share and accordingly, increase revenue. Market development Here, the company markets existing products to one or more new customer segments. These customers could represent untapped verticals, virgin geographies or other new opportunities. Product development This quadrant involves marketing new products to existing customers. The company grows by innovating, gradually replacing old products with new ones. Diversification This quadrant entails the greatest risk; here, the company markets new products to new customers. There are two types of diversification: related and unrelated. In related diversification, the company enters a related market or industry. In unrelated diversification, the company enters a market or industry in which it has no relevant experience. Academic Construct Framework The following is summary of academic construct framework used to analyze or address the Digi’s marketing strategies and competitive advantage. Figure 3.1 : Summary of academic construct framework CHAPTER FOUR: FINDINGS AND ANALYSIS 4.1 INTRODUCTION Discussion of Chapter Four will start with the company’s profile as a case study of this research paper, Digi Telecommunication Sdn Bhd. Next it focuses on Digi financial performance review throughout the past three year 2006 to 2008 to further analyze on the potential market trend. The chapter continues to explain the importance of strategies to robust the competitive environment of the company in a challenging industry and how Michael E. Porter’s Five Forces Model of competition is being presented. Thus the external factors are divided into two groups which are threats and opportunities. Chapter Four also focuses on the strengths and weakness of Digi competitors based on the IFE Matrix. This competitor analysis assists Digi to obtain information about the importance of competitor strategies and using that information to predict competitor behavior. In addition SWOT analysis is use to assess the overall situation of the organization. 4.2 SITUATIONAL ANALYSIS (SWOT) Internal Factor Evaluation (IFE) Internal Factor Evaluation (IFE) is a tool for evaluating major strengths and weakness in functional areas of a Digi business. IFE matrix is a based for identifying and evaluating the relationship among those areas. This technique can be utilized to evaluate how Digi is performing in regards to identify internal strength and weakness of a company. The weights range from 0 to 1 to each factor. The weight assigned to a given factor indicates the relative importance of the factor to be successful in the telecommunications industry. Therefore the weights are industry based. The rating scale is range from 1 to 5, which represent 1 is a minor weakness of Digi and 5 is the major strength of Digi. The rating is based on how Digi evaluated its performance. Table 4.1 : Internal Factor Evaluation(IFE) of DiGi Strength 1: Strong customer service The success of Digi brand is the result extensive research that has be done on the customers’ habits and behaviors. Digi had come out with its own portal called Digi Service Portal that helps Digi to improve on the customer service level in terms of their preferences and needs. By using the right channel strategies and research to gauge the very latest in consumer research trends, Digi is able to understand better what customers want. Digi operates in a market that is highly competitive and ever-evolving, which mean that the customers’ needs will evolve as well. Ultimately, it is about customer-centric. By studying customer behavior and desires, only then can Digi offer them what they need. DiGi believes that it can improve every customer touch point to make it easy and a great experience, it will lead to Digi success. Therefore, Digi is well prepared to take on the challenge to embed Excellent Customer Experience (ECE) as a platform and mindset in the Company. Through ECE, Digi has made hundreds of big and small changes across it organization and there are still more to come. It is a work in progress, committed and passionate about continuous improvements. (See Figure 4.1) Digi Customer Service Department has come out with their ECE portal as below diagram. The department mission and vision is to satisfy customer needs and demand at the same time simplifying it through better quality. Figure 4.1 : Digi Customer Service Ambition Digi Customer Service Representatives are experienced and highly educated employees which come from various back ground of educations and multi-races. Hence, Digi also hired foreign workers i.e Indonesian to cater the needs of our foreign subscribers in terms of their languages. Currently Digi had hired around 400 professional employees consists of permanent and contract in Contact Centre Department. Strength 2: Technology first mover Digi is well known as pioneered in prepaid concept for the Malaysian market and today well-regarded as the most innovative mobile communications company. Digi continues to make its mark in providing customers a comprehensive range of value-driven, simple and high quality mobile voice and data products and services. Digi was also the first in Malaysia enabling high quality and fast data transfer speeds to support multimedia services beyond voice that is Digi’s High Speed Mobile Network based on Enhanced Data Rates for GSM Evolution (EDGE) technology. Prepaid services presence Digi as a strong leader that resulted as the first industry benchmarks for creativity and innovation. It offers customized and flexible services under the Digi Prepaid brand name. Besides that, Digi’s postpaid services offered under Digi Postpaid and Digi Business deliver high quality voice as well as value-added mobile content and data services to both individual and corporate customers. Digi had finally obtained its’ 3G license and on March 2009 it had launched its broadband service with a clear promise of value and quality internet to the people to set right customer experience and expectations. Currently customers can now also enjoy a fresh broadband experience with the launch of DiGi's 3G broadband services. Being the newest broadband provider, DiGi has invested in the latest HSPA technology. It is the first in Malaysia deploying a 14.4Mbps network to enable both fast downloads and uploads. DiGi also looks to invest RM300-400million annually for the next 3 years on its 3G mobile broadband roll-out. Recently in July 2009, DiGi Telecommunications Sdn Bhd (DiGi) has been recognized by Wall Street Journal Asia as Malaysia's most admired company for innovation for the third year running. The Asia 200 Most Admired Companies survey also named DiGi number three in the overall ranking of Malaysia's Top 10 companies, up a notch from last year. DiGi was listed third for the Long-term Vision category and fifth for Quality. For Digi technology innovation is about bringing meaningful differences to its customers by making mobile and internet services relevant, easy and affordable. Digi are thrilled with this recognition and will continue to push the boundaries in ensuring excellent customer experiences. Strenght 3: High brand recognition Digi has continuously implemented activities beyond social events, taking into account corporate governance and internal work place practices such as integrity week that emphasis the need for integrity in how Digi conduct the business. Digi continuously contribute to community and society as a strategic- tools to ensure that the company is viable in business environment. As a result of the involvement in the community corporate responsibility, it attracts investors to further invest in the company. Through its corporate initiative that is Deep Green, DiGi is committed to a sustainable business that is fiscally and ecologically responsible to all stakeholders. The program aims to reduce DiGi’s carbon footprint by 50% by 2011. It also became the first signatory in Malaysia to endorse the United Nation Global Compact’s Caring for Climate platform. It aims to integrate socially and environmentally responsible practices across business and organization. Digi corporate responsibility (CR) strategy addresses four pillars outlined in the Bursa Malaysia CR Framework i.e. Environment, Community, Marketplace and Workplace. The focus areas are: • Minimizing the environmental footprint • Engaging with community • Driving integrity and empowerment in Digi workplace and marketplace DiGi’s Deep Green program was launched in 2008 to address the company’s impact on climate change with the longer term vision of embedding sustainability into the business. Strength 4: Corporate Culture DiGi initiatives are not just an external affair, especially those involving the community but also an internal issue involving its staff and how it runs its business. Combining a set of values, work ethics and conducive environment, DiGi has shown the way in defining a work setting that exemplifies how employees should be treated and are expected to behave. Being one of three mobile telecommunications operators in Malaysia, DiGi is often regarded as the smallest in terms of market capitalization and subscriber base. Despite its size, DiGi has certainly made itself heard through the creative ways it has found to reinforce the brand's image and product and service offerings that constantly challenge the market share of its two bigger rivals. Its radical transformation journey started in mid-2004 introduced changes that continue today. There were internal values on how employees see the company and external values on how the company is perceived. Externally, Digi want to be seen as daring, dynamic and different in everything it does. Besides that, it also wants to be seen as providing best value, simple and innovative in service offering. Internally, the employees should be committed, open-minded and respectful. Weakness 1 : Product Life Cycle (PLC) rapidly change Due to a high degree of market saturation in the country telecommunication industry, the growth of the subscriber base has slowed in recent years. It has directly impacted Digi’s as well. The average revenue per user (ARPU) is dropping the whole telecommunication industry including Digi. The downtrend is mainly due to the competitive landscape and the highly-saturated market. The economic slowdown has also affected the ARPU as customers reduce spending due to the downturn. As a result, Digi as a telecommunication player is focusing on raising average revenue per user by introducing new composite services as well as reducing costs. In addition, brand development is becoming increasingly important for Digi to maintaining cus¬tomer loyalty and reducing churn. Digi should consider the creation of new, high-value services as their primary source of revenue growth over the next years. Digi is now more responsive to customer’s call for greater savings. Weakness 2 : Threats of substitute product Digi competitors used significantly different technology to existing products and provide substantially more customer benefit than existing products that Digi has. They also used the core technologies of existing substitutes by providing a significantly higher customer value added component. All of these factors are potential danger to Digi existing product to be more demanded by consumers and tend to make existing products or services obsolete. Moreover, services may also act as indirect substitutes for products. Standardized products may be threatened by industry trends like relationship marketing that attempt to attachment customers to the firm by customizing services, thereby raising customer switching costs. For instance, Digi Prepaid products is really demanding in the market because of the lower prices affordable by the consumers from lower to middle income. Table 4.2 : Swot Analysis For DiGi The SWOT analysis is further applied by rating the priority strength and weakness of Digi’s against the environmental changes. The key factors are found in Digi Annual Report 2008. The highest scoring used in SWOT analysis for Digi is +5 and the lowest scoring is -5. The rating is used to analyze the relationship between the environmental impact and strength and weaknesses of Digi. Based on the analysis, Digi best rating ( +5) responded towards the environmental changes derives from technology changes and convergence, changes in society life style and the environmental policies. Digi manage it well in terms of its excellent customer service and also by being number one in the technology advancement. However, rapidly change and easily matured products in its life cycle is a constraint to Digi to react towards the environmental change of the industry. Threats of substitute product from the competitors will also become barriers to the company in order to sustain its customer from switching to other telcos. Competitors SWOT Analysis Sources : Digi Annual Report 2008, Celcom Annual Report 2008 and Maxis Annual Report 2008 Table 4.3 : Competitive SWOT Analysis This above analysis is the Competitive SWOT analysis between Digi’s and it main rivals that is Celcom and Maxis. The key factors are identified based on Digi Annual Report 2008, Celcom Annual Report 2008 and Maxis Annual Report 2008. The highest scoring used in SWOT analysis for Digi is +5 and the lowest scoring is -5. The rating is used to analyze the relationship between the environmental impact and strength and weaknesses of Digi. Based on Table 4.3, Digi is rank at number 3 in comparison with its competitors in terms of SWOT analysis. However, Digi have the advantage to penetrate further on the 3G technology advancement (Digi invested RM400 million in 3G). Industry Threats & Opportunities Based on the above Competitor SWOT Analysis, it mainly focuses on the industry structure and analyzes the organizations external environment. It reveals the source of competition in an industry and external influence including the threats and opportunities of the industry that organization has to face to obtain competitive advantage. Threat # 1 : Regulatory Influences and Policy Changes Communication Regulation Framework: Malaysian Communications & Multimedia Commission (MCMC) The government in Malaysia has long had a powerful influence in all aspects of communication. Recent radical changes to the regulatory framework have streamlined and sharpened the focus of that influence while encouraging private investment and competition. This is consistent with a philosophical approach to communication as a public good and a means to social ends as much as a tool for relaying messages. Until corporatization in 1987, telecommunications was under the auspices of a government department. It was privatized in 1990 with the Government retaining a majority stake in the corporation. Although network services were liberalized after Telekom Malaysia was privatized and listed in Bursa Malaysia, the market framework that was created did not favor easy entry and exit. There were restrictions on the entry of foreign companies and government policy was targeted to protect the monopoly status of the state controlled network provider that is, Telekom Malaysia. Therefore, foreign investment in fixed line and telecommunications companies were encouraged but were capped at 30 percent. As a result, the foreign ownership of the three major operators Maxis, Celcom and Digi had come back down: Digi need to restructure its foreign ownership limit from 61% to 49% (2008) and this leads to less control over the management decision on the business operation as a whole. Table 4.4 : Foreign Ownership in the Malaysian Mobile Phone Sector , 2007 Name of Company Foreign Ownership Maxis 33 % by British Telekom Celcom 21 % by Deutsche Telekom AG Digi 30% by Telenor International AS Telekom Malaysia 5 % by Singapore Government Source : Financial Statement of Companies Opportunity #1 : Technology Changes and Convergences i) Increased Broadband penetration rate in Malaysia Recently, Malaysia has achieved 21.1 % household broadband penetration. This exceeds the country projection of 20% penetration under Malaysian’s National Broadband Implementation Plan. This plan also targets to achieve 50% household broadband market penetration in 2010. However, this target possible to achieve as there are broadband new wireless providers that have emerged recently utilizing 3G HSDPA and WIMAX technology. Currently, the 3G players are Maxis, Celcom, U Mobile and of course Digi as a new comer. Whereas, Packet 1, Redtone, YTL and Asiaspace are utilizing WIMAX technology. Wireless is generally much faster due to lack of physical cabling to each potential user. Digi offers 3G broadband connectivity with the highest speed 14.4 mbps. Moreover, based on the table 4.5, the number of broadband subscriber is increasing in the second quarter of 2009. Therefore, there is a potential business growth for Digi to explore the market. Table 4.5: Number of broadband subscriber in Malaysia Source : MCMC, 2009 ii) Increased Cellular phone penetration rate in Malaysia The table stated that the penetration rate for the cellular phone is expected to be 100% in the first quarter 2009. Moreover, the total rate for postpaid and prepaid subscription is increasing for the second quarter 2009. This data indicates that there is opportunity for Digi to expand the market further. Table 4.6 Penetration rate for cellular phone in Malaysia Source : MCMC, 2009 iii) Increased demand for technology services in SME market SMEs contributed 32% to 37% of nation’s GDP and play an important role in assisting Malaysia’s progress with the creation of new industries and employment opportunities. SMEs in Malaysia continue facing numerous challenges and increased competition in today’s business. Their main priorities are to grow and improve their business operation without having to spend amount of money. DiGi Business has always been fully aware about the challenges that Malaysian SMEs market faced. At the same, Digi perceives SMEs market as having potential to deal with. Digi’s objective is to become the best practical partner for SMEs by contributing a wide range of business solutions such as :- a) Broadband packages for SMEs business SMEs in the main market centre of the Klang Valley, Penang and Kota Kinabalu can benefit from Digi value packages under Broadband Done Right. Attractive packages are the Explore and Extreme packages which are leading in the market in terms of pricing and speed. b) Tracker Company can use a browser–based solution to track assets and staff by monitoring their operational progress and safety. c) Machine-to machine (M2M) services Digi influences the communication module within wireless credit terminals, that allows SMEs to save costs as a phone line and rental is not required. This solution is deal for them in the retail business as it is mobile and can be deployed really fast. d) SMS Blast Manager SMS Blast Manager is a simple-to use web-based interface for SMEs that requires avenue to easily send marketing campaigns or mass communication through SMS broadcast to their customer or clients. All of these relevant services that Digi offer, tend to help SMES to adopt and explore new technology to improve their business. Opportunity #2 : Changes in Society Lifestlye Increased demand for entertainment Today, nearly every aspect of telecommunication is “going digital”, and nowhere is that transaction more obvious than in the entertainment industry. The applications of that technology come from the entertainment industry, the technology itself comes from the telecommunications industry. Consequently, the evolution of digital entertainment presents tremendous opportunities for organizations in both industries to work together, pool their skill sets and ultimately strengthen their individual positions in two highly-competitive industries. DiGi Telecommunications Sdn Bhd ("DiGi") today introduced DiGi Music Unlimited's web and mobile music service, the first ever in Malaysia, in a strategic move to expand its presence in the youth segment. DiGi Music Unlimited customers will pay no data charges - browsing and downloads - when they visit the website to personalize and share playlists and tracks with friends via SMS, e-mail and social networks. In addition, they can obtain exclusive content as well as invitations to unique music experiences such as exclusive gigs and premier concerts. Mobile downloads are huge parts of the telecommunication industry. Music and youth are synonym. Therefore, Digi Music is recently entertainment related platform to better connect with youth customers. The local mobile carrier Maxis, Celcom and Digi make a lot of money. The total ring-back tones subscriber base for the three telco is 4.3 million people in year 2007. With over 50% of Malaysian population make up of youth, this segment is an important and growing market for Digi. Digi is planning to grow its current market share of 27% with an ambition to capture a third a youth segment. In summary, this market trend leads to diversion of Digi’s strategies from price focus to content focus. Table 4.7 Population age distribution trends for 2002-2008 Year < 15 Years (%) 15 - 64 Years (%) > 64 Years (%) Population (in millions) 2002 33.5 62.5 4.0 24.53 2003 33.2 62.7 4.1 25.05 2004 32.9 62.9 4.2 25.58 2005 32.6 63.1 4.3 26.13 2006 32.4 63.3 4.3 26.64 2007 32.2 63.4 4.4 27.17 2008 32.0 63.5 4.5 27.73 Source : Wikipedia, January 2009 Opportunity #3 : Environmental Policies Table 4.8 : 2008 Electricity Consumption VS CO2 Emissions Source : Digi Annual Report 2008 Digi Deep Green Program is a core part of our company’s strategic agenda. Digi has a goal to “drive and shape our industry” and “leader in sustainable and ethical business”. This is where its Deep Green ambition sits. In September 2009, Digi had launched the Challenge for Change (C4C) - its community engagement program. C4C is a competition which will see university students work to unearth and develop renewable energy and energy efficient solutions for underserved communities here in Malaysia. 6 university teams made it to the final phase of the competition and are currently working towards the finals in March under the mentorship of a number of dedicated DiGizens from across all the divisions. There will be opportunities for all our Digizens to get involved in the final judging, so stay tuned to the regular updates from the C4C team. Based on the above figure, Digi is on track to achieve its CO2 emissions cap target of 113,000 tons for 2009 mainly by ensuring that we make smarter, more energy efficient and sustainable investments for its network and also buildings. Digi is also now evaluating more actively, renewable energy for its network and coverage. Digi started its Deep Green journey 14 months ago and the result is very encouraging. With the increased focus from the Government, Digi will need to make sure the company is ahead of the curve and to maintain its leadership position in this area. Therefore, Deep Green Program can be as one of Digi’s opportunity to engage socially and environmentally and at the same time to strengthen the business in the industry. Tow Matrix Based on the threats, opportunities, weakness and strengths of Digi, the resulted TOWS matrix is as follows: TOWS Strengths 1. Strong customer service 2. Technology first mover 3. High brand recognition 4. Corporate Culture Weaknesses 1. Product life cycle (PLC) rapidly change 2. Threats of substitute product Opportunities 1. Technology changes and convergences i) Increased broadband penetration rate in Malaysia ii) Increased cellular phone penetration rate in Malaysia iii) Increased demand for technology services in SME market 2. Changes in society lifestyle 3. Environmental policies SO Strategies 1. Market penetration in business segment especially SMEs (S2, O1) 2. Engaging in social and environment activities to sustain the business and competitive advantage (S1, S3, S4, O3) WO Strategies 1. Market strategy changes from price focus to content focus (W1, O2) Threats 1. Communication regulation framework by Malaysian Communications & Multimedia Commission (MCMC) ST Strategies 1. Enhance Customer Service (S1,T1) WT Strategies 1. Signed an agreement with Time dotCom to transfer 3G license (W1, W2, T1) Table 4.9 TOWS Matrix for DiGi Based on the analysis of the situation, several strategies are available for DiGi. i. Weaknesses and Threats (WT) Digi is the last telco to receive the 3G license in March 2009. Digi obtained the license after signed up an agreement with Time dotCom . Become the last telco to receive the 3G license is a great opportunity to Digi. Digi should better understand the loop holes and weaknesses from its competitors that had received it earlier. Hence, Digi should develop a strategy to grab as many 3G customers from the competitors as it can. Digi can take an advantage to attract new customers by having the fastest downloading internet with 14.4Mbps. ii. Weaknesses and Opportunity (WO) Today, there is a high demand for entertainment in all the products and services offered to the consumers by telco industry. 50% of Malaysian population is made up of youth. Entertainment has become necessity lifestyle for young generation. Thus, Digi should penetrate the youth market by offering different type of attractive and innovative products that is more entertaining. iii. Strengths and Threats (ST) To cope with the threat in the external environment, the company may use its strengths. Digi is always concern about the customers satisfaction towards the services and products offered to its consumers. Therefore, Digi should further exploit its consumer satisfaction rating base on the existing Customer Service Portal that available online. This enable Digi to analyze and detect the latest consumer trends and demand based on their complaints. Thus, it enable Digi to come out with products that suites customers behavior and desires. iv. Strengths and Opportunities (SO) Digi needs to use its strengths to take advantage of the opportunities. With its excellent customer service, first technology mover, high brand recognition and strong corporate culture, Digi should continue penetrating in the existing consumer segment by offering more content services and bundled products. For business segment, SME there is a huge potential market in broadband penetration among SMEs. Differentiated offerings in terms of value for money products are crucial in dynamic and competitive of telecommunication industry. Table 4.10 Summary of Alternative Strategies Alternative Strategy Strategy Type SO-1 Market penetration in business segment especially SMEs Market penetration SO-2 Engaging in social and environment activities to sustain the business and competitive advantage Market penetration ST-1 Enhance Customer Service Product Development WO-1 Market strategy changes from price focus to content focus Diversification WT-1 Signed an agreement with Time dotCom to transfer 3G license Diversification 4.3 PORTER’S FIVE FORCES Porter’s 5 Forces model is an important tool in order for any business to assess the potential of profitability of the industry. By thinking through how each force impacts firms, and by identifying the strength and direction of each force, it can quickly assess the strength of the position and the firm’s ability to make a sustained profit in the industry. Figure 4.2 :Porter’s 5 Forces 1. Supplier Power. Telekom Malaysia Berhad has been designated as a sole provider for Digi in terms of its fiber optic network, leasing services on circuit and etc. Therefore, TMB have a full control on deciding and influencing the rate or pricing of the service. 2. Threats of New Entrants. It would be difficult to shake the incumbents as Malaysia is a mature mobile market with practically 100 percent penetration. Any new entrant would have to steal subscribers from existing operators and that is always a difficult thing to do. For the last few years it’s essentially been Maxis, followed by Celcom and then DiGi some way behind. Therefore, U Mobile will facing a hard time to break into the market in which since the last few years it’s essentially been Maxis, followed by Celcom and Digi in the operator market. Despite aggressive advertising and really low rates, it has not been able to make much headway. 3. Threats of Substitute Product. Currently Celcom is one of the biggest treat to Digi in terms of its product innovation and services. Celcom’s brand had become the de facto brand of choice for mobile broadband enthusiasts and for young urbanites in the mobile space, and this is due to telco’s strong focus on youth and small and medium enterprise market. Celcom’s SOX and UOX campaigns were cleverly executed to suit the mobile lifestyle of the youths with a barrage of benefits to stimulate demand. However, with the challenging market outlook, Digi stays positive by treating it as a chance to learn and improve itself. They launched its broadband service with a clear promise of value and quality internet to the people to set right customer experience and expectations. Digi challenged itself to be the initiator of change in the broadband market the same way it did in postpaid and prepaid. Their go-to-market strategies turn the tables on market norms with a fresh approach to broadband that puts customer experience as a top priority. 4. Buyer Power With more than 50 percent of Malaysian population made up of youth, Digi decided to divert it focus from price competition to content competition. Therefore, Digi takes drastic changes and launched a new service of Digi Music to cater the market needs. Digi which currently has about 27% share of the youth cellular markets, expects its new service – DiGi Music Unlimited to boost the market to 33 %. This new service should become a compelling platform, with more than 50 per cent of the Malaysian population made up of youths, this segment is an important and growing market for DiGi. Therefore, demographic changes directly impact Digi’s market segmentation from mass market to youth market. Thus, Digi is very dependent on customers’ preferences and needs. 5. Competitive Rivalry. In order to face high intensity of rivalry in the telecommunication industry, Digi continue its battle by diverting its strategy from price focus to content focus. Instead of exposing themselves to the low income segment and foreign worker segment, Digi aggressively converting their strategies into entertainment, business by collaborating with Sony Music and BMG in order to fulfill the youth market segment. In addition, Digi needs to further explore on product diversification and be more creative in its marketing initiatives and activities. Instead of just being a voice and data provider, Digi is moving forward with varieties of product offering such as Personal Insurance coverage (alliance with AIG) and Remittance of money ( Digi D’ Remit). Table 4.11: Summary of Evaluation of External Forces to telecommunication Industry. External Forces Evaluation of External Forces Threat of Substitutes Moderate Threat of New Entry Low Buyer’s Bargaining Power High Supplier’s Bargaining Power High Competitive Rivalry High In summary Table 4.11 described the evaluation of overall competitiveness of Digi towards external forces of the industry. The rating is given based on the analysis and strong arguments against the industry as a whole. Despite of intense competition in the telecommunication industry it offers potential above-average return to the market players. 4.4 FINANCIAL PERFORMANCE ANALYSIS DIGI Financial Performance Review Revenue Growth Table 4.12: Revenue Growth Performance for DIGI (2006 -2008) Year ended 2006 2007 2008 Revenue/ Sales (RM million) 3652.5 4362.6 4814.5 Current year sales – Previous year sales 768.2 710.1 451.9 Revenue Growth (%) +26.6 +19.4 +10.4 Figure 4.3 Revenue Growth Chart Revenue Growth ratio shows the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise (investopedia.com, 2008). Sales (revenue) growth is the increase in sales over a specific period of time, often but not necessarily annually (investorwords.com). Digi is performing well in 2006. The revenue grew by 27% to RM3.65 billion has shown DiGi’s commitment to change, desire to innovate and simplify has led to deliver several smart solutions to its customers. During festive seasons that year, Digi had introduced a new and simple products such as Digi One-low flat rate both to prepaid and postpaid. The marketing strategy boosted up the sales and thus in turn, has significantly contributed to DiGi’s solid financial performance that year. 2007 was a great year to Digi when financial performance had increased to RM 4.36 billion. The 19% revenue increase is attributed to the quality of Digi services and the positive customer experience that Digi is working hard to provide it. The strong growth stems from higher usage subscriber base of 6.2 million driven by innovations and attractive products offering. Digi’s revenue grew by 10% to RM4.81 billion in year 2008 with RM2.17 billion in earnings before interest, tax, depreciation and amortization (EBITDA). It can be best described as a mixed bag. Generally Digi’s satisfied with overall performance in 2008 as a result of competitive situation and challenges in the economy down turn. Net Profit Margin Net profit margin shows the profitability of a company after paying income taxes. A higher profit margin indicates a more profitable company that has a better control over its cost, whereas a low profit margin indicates a low margin of safety; higher risk that a decline in sales will take place. Profit margin is an indicator of a company’s pricing policies and its ability to control costs. Table 4.13: Net Profit Margin of Digi (year 2006-2008) Year ended 2006 2007 2008 Net profit after tax (RM million) 805.7 1062.6 1140.7 Net sales (RM million) 3652.5 4362.6 4814.5 Net profit margin (%) 22.0 24.4 23.7 Figure 4.4 : Net Profit Margin Chart Based on the graph shown, it is justified that DIGI is in a progressively healthy position whereby its net profit margin have grown from 22% in 2006 to 24.4% in 2007. However there is a slight decrease of 0.7% in 2008 due to economic crisis. Revenue growth was slowing, but still the company can increase net profit margin as it controlled costs even better. This shows that the company is both aggressive and defensive at the same time. Earnings Per Share (EPS) EPS measures the overall profit generated for each share in existence over a particular period. The term earnings per share (EPS) represents the portion of a company's earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock. Table 4.14 : Earnings per Share Year ended 2006 2007 2008 Net profit after interest and tax (RM’ million) 805.7 1062.6 1140.7 Weighted average number of ordinary shares (RM’ million) 750.0 750.0 750.0 Earnings per share (RM) 1.07 1.42 1.48 Figure 4.5 : Earning Per Share Earning per shares (EPS) has increased dramatically from RM 1.07 in year 2006 to RM 1.48 in year 2008. This would be an eye-catching and satisfaction to DIGI, shareholders and stakeholders. Eventhough the revenue growth slowed, Digi is very profitable as seen in the net profit margin ratio. This shows a tremendous ability on DIGI’s side to be defensive in keeping costs down For all the years under review, the increased EPS was mainly due to the success of its underlying fundamentals to grow on a profitable basis. Despite intense competition which will be covered later under the 5 forces analysis, DIGI chalked impressive revenue growth driven by high net subscriber additions, high usage and the ongoing commitment to innovation as seen in the report. This will be encouraging as it would attract many investors from all over.From the above analysis, it can be concluded that DIGI financial performance showing a strong and stable position throughout the three financial periods. Digi is making profit throughout the years due to its effective marketing strategies implemented through innovative and attractive products offered to the consumers. Digi’s financial resulted within expectations as a net profit grew from year to year. Growth in revenue were boosted by steady demand for mobile services and increased subscriber base reaching to 7.1 million at the end of 2008. However the trend growth rate shows a decline result due to low APRU (average revenue per user) remained firm at RM59 despite pressure on tariffs and challenging economic conditions in 2008. Moving forward, Digi expects the trends in the macro economic environment to continue and therefore highly focused on scaling it business activities accordingly. Digi is currently evaluating and implementing efficiency program across the value chain to achieve sustainable cash flow improvements. Table 4.15 :Comparison of Telco Performance Second Quarter 2009 Celcom Maxis Digi EBITDA 44.6% 50.6% 43.9% Postpaid ARPU RM94 per month RM102.9 RM82 Prepaid ARPU RM42 RM41.6 RM49 Subscriber base 9.7 million 11.42 million 7.23 million Source: The Edge Malaysia, 28th Sept 2009 Refer to the above table, it shows that Digi is competitive in terms of key factor in telecommunication industry such as EBITDA, Postpaid and Prepaid ARPU and subscriber base. Notwithstanding the size of the subscriber base, DiGi’s prepaid ARPU was at RM49 per month in 2QFY2009, ahead of Celcom’s RM42 and Maxis’ RM41.6 per month. This prove that Digi still have the ability to compete and expand the business in the future. CHAPTER 5: CONCLUSION AND RECOMMENDATIONS This chapter concluded overall research findings and identify if we manage to achieve the objectives that we have plan earlier. We also proposed recommendations for Digi action plans in order to improve the marketing strategies and sustain the business in the competitive environment. Due to limitation scope of this study, we suggested that for future marketing research need to be further analyze because market rapidly change in terms of product life cycle, technology advancement and customer preferences. The analysis which contains financial performance has evidently proved that DIGI has been doing relatively well although there was a slight glimpse of rough patches during the last 3 years. Hence, Digi has adjusted well to the economic slowdown and has succeeded in delivering strong cash flow during the past year. Digi is capable of increasing its market share with its sharper competitive market edge and increasing stock market price of RM23.50 per share as at 29 October 2009. Despite the challenging global economic scenario which will affect ARPU (average revenue per user), Digi continue to anticipate a gradual shift to more postpaid subscribers in the long term as: • Maturing subscribers. ‘Junior’ prepaid users entering the job market with generally higher disposable income will likely purchase 3G internet surfing smart phones. Hence a shift from voice revenue to non-voice revenue (data). • DiGi offering cheaper mobile broadband. DiGi will aggressively launch its 3G Mobile Broadband services in 2Q09 by seriously undercutting the current prices offered by Maxis and Celcom. Both Maxis and Celcom are offering 3.6MBps monthly unlimited data downloads for RM99 and RM98 respectively – it is not impossible to see DiGi, which has already been successful in increasing its postpaid market share, offering unlimited data broadband for lower price. If this happens, we will see a migration of postpaid and mobile broadband subscribers to DiGi, which we believe will then result in both Maxis and Celcom retaliating to avoid losing its customers. DiGi has already held a soft launch for its broadband service recently. Under its pre-launch package, a user will have to pay RM128/month for speeds of up to 7.2Mbps in limited areas in Klang Valley. The year 2009 will be an interesting year for Malaysian telcos as competition (and resulting financial earnings) will be dictated by how the companies will react and manage to 3G mobile broadband offerings and the stipulated launch of Telekom Malaysia’s High Speed Broadband (HSBB) with minimum speeds of 10Mbps in Klang Valley by 4Q09. Nevertheless, the true winner will be the public consumers who will enjoy the lower tariffs from the resulting competition. DIGI is competent and is able to expand its business by seeking alternatives for wireless broadband. DIGI’s remarkable growth in Malaysia’s mobile market over the last years cannot hide the fact that the industry had been overcrowded as mobile penetration rate of almost 100% last year. Behind the strong growth, there was been considerable activity going on with the restructuring of the companies involved which resulted the numbers of operators in Malaysia was reduced from 5 to 4. This has intensified competition yet at the same time introduced monopolistic tendencies. Budget 2010 announced by our Prime Minister recently has indicated that individual tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012. It gives an opportunity to Digi to further increase their number of subscriber base and boost it profitability generally. With the oncoming collaboration and partnerships with various potential entities such as Sony Music, BMG, Alliance Insurance Group (AIG), Huawei, Ericsson and other, it show that Digi further explore on product diversification and be more creative in its marketing initiatives and activities. RECOMMENDATIONS In the area of globalization, which has brought about unprecedented changes in the service economy, organizations of all sizes and structures are searching for strategies to improve performance without sacrificing quality. A market orientation that provides for market-focused strategic flexibility to sustain competitive advantage is a strategic solution. It is valuable because it focuses the organization on continuously collecting information about target need, customers need and competitors capabilities. Therefore, in order to capture growth, strengthen operational performance and ensure capital discipline we suggest the below recommendations. i. Maintain or improve voice market share and further develop data positions in our existing markets Mobile voice (prepaid and postpaid) represents two-thirds of Digi revenues and in order to improve their voice positions the company need to set a strategic method via churn-reducing initiatives such as attractive price plans that target customer segments more precisely, and new distribution concepts.(eg: DiGi Friends & Family Plan, Prepaid I Like, I Love Saving and etc) In addition to defending and growing the voice revenues, the focus will be on capturing the significant growth potential coming from data and Internet. Within the footprint, DiGi will increase their focus on their latest product Digi Broadband and mobile phones as access devices. Additionally, Digi will develop sustainable mobile broadband business and pricing models. Digi sees the potential for value-added services to support their core voice and data services. Digi is likely to succeed with services that leverage its key telecom network, technology skills, customer base, and distribution strengths. ii. Operational performance To enhance profitability, operational performance must be improved. This will be accomplished through its main initiatives:  Improve customer experience Digi’s vision and supporting values focus on the customer experience. To deliver and improve its customer service, DiGi needs to establish two core non-financial KPIs : These are: 1. Brand preference • Build a stronger Digi branding as competitive and different from other telecommunication industry in Malaysian. 2. Customer satisfaction • Fully utilize the ECE Portal to develop strong customer satisfaction and good relationship. iii. Focus on operational efficiency Continuous focus on operational excellence is needed to ensure increased flexibility as long as the macro-economic environment and the revenue development remain volatile. Internal operational excellence initiatives targeting Operating Expenses (OPEX) and Capital Expenses (CAPEX) have been established in all Operation Cost. All operation cost (OpCos) have already explored or will explore network sharing opportunities, and outsourcing of IS/IT is also in focus. iv. Leverage Business Environment Management and Enhances Corporate Responsibility. To succeed, Digi need to align their business objectives with the expectations of their shareholders, customers, employees and society at large. Business Environment Management (BEM) will focus on systematic stakeholder engagement, sustainable business through integrated corporate responsibility (CR), and strengthening of Digi visibility and recognition as a whole. To portray a positive development of Digi, the company needs to be visible in the industry and aim for a stronger value creation compared to peers and in order to accomplish this, they need to continue nurturing the positive and creative energy in the Group. v. Market Penetration Strategy It is also recommended that Digi should implement market penetration strategy for 3G services. This can be successfully done through the following marketing mix implementation. a) Price In terms of price, Digi should redefine its prepaid and postpaid rate continuously in order to roped business in the most cost effective call rates for individuals and the business community. Digi can propose a competitive price such as offering high speed data offered with competitive and attractive rate. b) Place Since Digi is growing successfully, they should focus on increasing number of outlet or service centre in order to deliver excellent services to the target market. Rather than focusing on urban areas they also should emphasis on sub-urban area as well. c) Product Digi can be more innovative in terms of designing its product by adding value added services. In terms of 3G service, Digi should simplify and be more creative in designing the package offered such as entertainment and leisure. d) Promotion Digi should promote 3G services through creative advertising, aggressive sales promotion, sponsor activities and programs that persuade and remind consumers about Digi products and brand equity. e) People Digi should appoint their own employees to be their ambassador to introduce any latest product invented in the market. For instance, before Digi launch 3G, they need to market the services among the employees to get the respond on the technology offered. The benefit offered than will be spread by the employees to outsider, family and friends through word of mouth. REFERENCES Article from Digi.com.my -Press Release Colum (2009). 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