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Softbank Japan - Technology Strategy Analysis

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Technology Strategy for the next decade for Softbank Japan. This paper is intended as an academic work only and any discrepancies or incorrect hypotheses may not be held against the author.

Technology Strategy for the next decade for Softbank Japan. This paper is intended as an academic work only and any discrepancies or incorrect hypotheses may not be held against the author.

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  • 1. Softbank Corp.Introduction In 30 years of existence Softbank Corp. has However, competition is not sitting pretty.emerged as the second largest telecommunication NTT DOCOMO has always been at the leading edge ofplayer in Japan with a market cap of $36 Billioni. The the technology innovation and adoption in the field ofcompany offers various voice, data and internet mobile communications and devices. The Japaneseconnectivity services to the mobile device users of Telecommunications market leader has a market capJapan. Additionally, it invests in telecom and internet of $ 67 Billion and is almost twice as large as its nextinfrastructure to support its services. It has historically biggest competitor, Softbank. The other significantinvested in online e-commerce portals, bidding sites, competitor, KDDI, has not been able to make much ofonline payment services and entertainment sites for a dent in the market share of either of the two leadingincreasing the touch-points with Japanese consumers. players in Japan Telecommunications. Though it has a market cap of $ 26.7 Billion it has not been able to Softbank is doing well financially as the long take away market share from the market leaders.term debts are fairly balanced by long-term fixedassets in the balance sheet. The cash position is fairly The Japanese mobile consumers are advancedcomfortable as they maintain an average $ 13.6 Billion users of internet and data services. This makes it allin operating and excess cash.ii The company’s P/E the more challenging for all the players in this highlyratio is healthy at 8.9 for last 12 months and in the 5 competitive and capital intensive industry.years since the acquisition of Vodafone KK Softbankhas almost doubled its size in terms of market cap. Fig.2 – Japanese Telecommunications Market Shareiii Fig.1 – Profitability, Revenue & Net Income of Softbank Madhuranath R
  • 2. Softbank and the road ahead market like Japan, deriving new value from existing partnerships is probably the most profitable way of Softbank’s LBO of Vodafone KK in 2006 was enhancing enterprise and shareholder value.under immense scrutiny and a lot of analysts wereapprehensive about the move with grave concerns In light of the market situation, the mostregarding the successful outcome of the acquisition. important question for Softbank in coming decade is –However, history has yet again proved that the Is Softbank doing enough to maintain its marketstrategic decision of its CEO, Masayoshi Son, has paid position and is there a possibility of beating theoff once again. Softbank has successfully cleared its mammoth market leader, NTT DOCOMO?LBO debts regularly and the recessionary times don’tseem to have impacted its earnings ratios.iv 5-Forces of Japanese Telecommunications Consumers in the Japanese telecom market are fairly advanced and the entire market as such is fairly saturated currently. The bargaining power of the consumers is fairly high as they have multiple options to choose from in terms of service providers. Suppliers of equipment and content for the telecom players are mainly based out of Japan, USA or Europe. Most of the suppliers are focused on providing the cutting edge technology to the end Fig.3 – Debt reduction in Softbank BSv consumers and the implementation of large scale network upgrades put the telecom service providers The successful acquisition of Softbank raises at the mercy of suppliers who can drive a hardnew possibilities for its future growth as well. When bargain. However, the suppliers do not drive a hardVodafone KK struggled to capitalize on its superior bargain as Japan is an advanced market which alsotechnology and novel services, Softbank was capable serves as a test market for the implementation ofof turning around the heavily debt-ridden company to advanced services elsewhere in the world. This makesa profitable player. This proves the turn-around the supplier bargaining power medium in Japan.capability of Softbank as well as its commitment tosucceed in extracting the synergies from a merger and Threat of new entrants is practically nil inacquisition prospect. In a fairly stagnant and advanced Japan as domestic companies do not enter the highly Madhuranath R
  • 3. competitive market and foreign companies cannotenter the market independently. Overall Low Cost Broad Rivalry among the top companies in the Provider Differentiationmarket is quite high as each of them tries to outdothe other in innovation and consumer experience. Best Cost Internet impact is quite high on this industry.Alliances and partnerships is the name of the game. Focused Low FocusedThe service providers have to be internet enabled andsince most of the consumers are focused on the Cost Provider Differentiationonline environment and social media, the internetadoption and enabling are critical success factors. Fig.4 – Softbank Strategy Segment Overall, the telecom industry is not appealing The strategic options available for a companyfor new entrants, but the existing market players like Softbank in the Japanese market are –have a high possibility of retaining the market share. - Innovation excellence - Technology excellence - Alliances and Partnerships - Eco-systemSoftbank Strategy Analysis & Options 1. Innovation Excellence The Softbank strategy has been to provide a Softbank aims at anticipating advancements inwide range of related services to its consumers. This the industry and trying to meet the consumerenables the company to lock-in the consumers within expectations by the time the advancements catchthe Softbank eco-system. A simple example of such on with the market. This goal has been achievedlock-in can be providing a mobile phone buyer the consistently by Softbank over last two decades.handset packaged with internet data pack. The usercan also be provided the online payment option for The Japanese consumers have a higherpaying the mobile bills regularly. The mobile phone propensity to consume data intensive internetcan be preloaded with custom apps for accessing services like anime, music, movies, shopping, etc.visocial media and common internet services. These can be leveraged to increase the per capitaAdditionally, text advertising can push e-commerce revenue over the next decade. Innovation inservices operated by Softbank. content and the content delivery mechanisms will provide an edge for Softbank over competition. Madhuranath R
  • 4. 2. Technology Excellence Tie-up with device manufacturers like Sony, NTT DoCoMo seems to have the upper hand in Apple, Samsung, etc. to complete the loop for thethis sphere. Probably this is also the unique factor modern digital consumer will increase the revenuewhich has helped it retain the market leadership. streams for Softbank which operates in a low-The increasing use of internet to make phone and margin industry in a highly saturated market.video calls from laptops and mobile devices hasreduced the per capita voice call consumption in Since most Japanese corporations encourageJapan and advanced markets across the world. the increased working hours for its employees, accessibility of work resources over the internet Naturally, new technology is the only reason will become a major issue. Like in the past,any consumer will be willing to pay a premium for Softbank can tie up with major corporations tothe services provided by a telecom provider. provide secure enterprise mobile telephony andTechnology excellence in the form of new device internet services at reasonable costs. These canlaunches, new lifestyle enhancing applications, become a major revenue stream in the long runimproved connectivity, etc. can provide Softbank for Softbank where the revenues can be forecastthe requisite edge to remain relevant in a razor- at a steady cash flow rate. Though the margins arethin margin industry. not high, the per capita volume of transactions is so high that profitability will come from numbers.3. Alliances and Partnership Softbank, like other industry players, has been 4. Eco-systemactively forming new alliances and partnerships.vii The market of Softbank is not limited toMost of the alliances and partnerships are mobile phone calls, texts and internet. It alsoprimarily aimed at providing allied services to the operates a wholesome ecosystem which keeps theconsumers of mobile and internet services. The consumer engaged in its own revenue generatingrecent tie-up with PayPal for providing trusted businesses. This ecosystem can be furtheronline payment gateway services enhances the enhanced by providing value added services,usage for the e-commerce services of Softbank. lifestyle services and next generation custom services which will entice the user to remain in the Tie-ups with partners like Bhartiviii from other same provider space. The alliances andmajor telecom markets like India will provide partnerships will further contribute to this kind ofaccess to cross-sell services of Softbank to markets an ecosystem enhancement.which are outside the reach of the currentJapanese telecommunications providers. Madhuranath R
  • 5. Softbank strategy for the next decade Alliances and partnerships in this regard are critical for sourcing high quality products at From the several strategic options available for reasonable prices. Access to newer markets outsideSoftbank the following can be considered the most Japan is possible through such alliances andimportant ones for long term sustainability. partnerships. DoCoMo entered the Indian market in partnership with Tata Telecommunication Services Innovation Excellence is a constant process for which aims to provide the lowest cost telephony withcompanies operating in tight market conditions. Only best services. By capturing the consumers in lowby creating innovative products and services or even margin telephony market, the joint venture was ableinnovative consumer experiences can the players to move them into the high margin internet andhope to keep the loyalty of the consumers. broadband services market. This up-selling of servicesConsequently, investment in the innovation is a key can lower the customer acquisition cost and alsofactor for Softbank. Companies like Apple invest ensure the customer retention in the long run.around 7% of their revenues in innovation andresearch. Though Softbank need not need invest that Thus, we can see that alliances play a majormuch in its own company, it can create partnerships role in not only achieving technology excellence andthat ties-in innovative companies to provide innovation excellence, but it is also very critical forexclusive access to their next generation products. reaching new markets and new market segments inThe cost of acquiring such partnership contracts will existing markets. Thus, the final recommendation forbe significantly lesser than investing in proprietary Softbank is – leveraging Alliances and Partnerships.research and development. Technology Excellence is the only aspect ofany product or service that will convince theconsumer to pay a premium price for the offerings. Inthe modern digital savvy world of consumers,technology innovations have a lifecycle of less than 6-months to 1-year. As such, it is more critical forSoftbank to invest heavily in the infrastructure andequipment of the next generation technology whileremaining at the leading edge of the technologyinnovation curve on a consistent basis. Madhuranath R
  • 6. REFERENCESi http://www.bloomberg.com/quote/9984:JPii http://www.bloomberg.com/quote/9984:JP/key-statisticsiii http://www.geek.com/articles/mobile/should-we-agree-with-sprints-ceo-that-att-will-be-too-big-20110325/iv http://www.bloomberg.com/quote/9984:JP/key-statisticsv http://www.bloomberg.com/quote/9437:JPvi http://www.mbaskool.com/brandguide/telecom-service-providers/2122-softbank-mobile.htmlviihttp://www.softbank.co.jp/en/news/press/2012/20120509_01/viii http://bsb.in/news/announcing_hoppr/ Madhuranath R