An Overview of Key Success Factors in Entering a Foreign Market Nicos M. Timotheou CEO, CYTA 21 st  September, 2006
Content <ul><li>The Incumbent Challenges & Options </li></ul><ul><li>Start-ups and the Entrepreneurial Cycle </li></ul><ul...
The Incumbent’s Environment <ul><li>Future growth uncertainty due to </li></ul><ul><ul><li>Accelerating technological inno...
The Strategic Options <ul><li>Operators are seeking scale and growth </li></ul><ul><li>Incumbents are re-integrating fixed...
The Entrepreneurial Cycle Must first Identify a Market Opportunity Assess Resources & Strategy Required in order  to enter...
Identifying a Market Opportunity <ul><li>Need to evaluate the macro environment </li></ul><ul><ul><li>Is the political, le...
Correlation between EBITDA Margin and Revenue Market Share Reference: Dr. M. Reif, T-Mobile International, M&A in the Comm...
Do I have the Resources and Strategy in place to Explore the Market Opportunity? <ul><li>What physical, financial and huma...
Can I create Unique Resources Combinations so that to achieve Sustainable Competitive Advantage? <ul><li>Local distributio...
Developing Markets Characteristics <ul><li>Large population (millions) </li></ul><ul><li>High economic growth rates (>5%) ...
Developing Markets Characteristics <ul><li>Developing markets offer opportunities to grow </li></ul><ul><li>But also in mo...
Micro environment <ul><li>Supportive industry for collaboration and outsourcing non core tasks </li></ul><ul><ul><li>Clust...
Macro environment <ul><li>Political Issues </li></ul><ul><li>Legal Issues </li></ul><ul><li>Regulatory Issues </li></ul><u...
Political, Legal & Regulatory <ul><li>Political stability and democracy assists in: </li></ul><ul><ul><li>Transparency of ...
Economic <ul><li>Willingness to Pay is determined by: </li></ul><ul><ul><li>Unmet needs of consumer </li></ul></ul><ul><ul...
Economic <ul><li>Key Economic Policies affecting investment risk and viability of business </li></ul><ul><ul><li>Tax incen...
Societal Green Behavior <ul><li>Increasing green societal behavior leads to:  </li></ul><ul><ul><li>Fear by the public of ...
Technology <ul><li>Disruptive Technology </li></ul><ul><ul><li>Convergence of fixed/mobile/internet  </li></ul></ul><ul><u...
Non Organic Growth by M&A <ul><li>Why M&A for an incumbent? </li></ul><ul><ul><li>Gain competitiveness in new business are...
Non Organic Growth by M&A <ul><li>What synergies? </li></ul><ul><ul><li>Merging overlapping functions, networks, premises ...
Non Organic Growth by M&A <ul><li>Key Success Factors in M&A </li></ul><ul><ul><li>Must have an M&A function within the co...
Non Organic Growth by M&A <ul><li>Key Success Factors in M&A </li></ul><ul><ul><li>Scale and Scope </li></ul></ul><ul><ul>...
Market Entry Key Success Factors for Actel Communications, Hungary <ul><li>Large addressable market size </li></ul><ul><li...
Market Entry Key Success Factors for Actel Communications, Hungary <ul><li>Possible to capture a good market share before ...
Thank you for your attendance For more information please contact  [email_address] See also CYTA’s website at www.cyta.com...
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2006. Nicos M. Timotheou. An Overview of Key Success Factors in Entering a Foreign Market. CEE-Wirtschaftsforum 2006. Forum Velden.

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2006. Nicos M. Timotheou. An Overview of Key Success Factors in Entering a Foreign Market. CEE-Wirtschaftsforum 2006. Forum Velden.

  1. 1. An Overview of Key Success Factors in Entering a Foreign Market Nicos M. Timotheou CEO, CYTA 21 st September, 2006
  2. 2. Content <ul><li>The Incumbent Challenges & Options </li></ul><ul><li>Start-ups and the Entrepreneurial Cycle </li></ul><ul><li>Developing Markets Characteristics </li></ul><ul><li>Micro Environment </li></ul><ul><li>Macro Environment </li></ul><ul><li>Non Organic Growth by M&A </li></ul><ul><li>Market Entry Key Success Factors for Actel Communications, Hungary </li></ul>
  3. 3. The Incumbent’s Environment <ul><li>Future growth uncertainty due to </li></ul><ul><ul><li>Accelerating technological innovation (disruptive technology v.s. legacy systems) </li></ul></ul><ul><ul><li>Regulation of the sector aiming to increasing market competition and price reduction </li></ul></ul><ul><ul><li>Empowered and knowledged consumers </li></ul></ul><ul><li>Underestimating the above challenges leads to: </li></ul><ul><ul><li>Non flexible and old fashion services </li></ul></ul><ul><ul><li>Decreased profit margins </li></ul></ul><ul><ul><li>Increased customer churn and hence shrinking market share </li></ul></ul><ul><ul><li>Increased corporate risk </li></ul></ul>
  4. 4. The Strategic Options <ul><li>Operators are seeking scale and growth </li></ul><ul><li>Incumbents are re-integrating fixed, mobile, internet divisions/subsidiaries and are seeking costs synergies </li></ul><ul><li>Organic Growth in Home Market by </li></ul><ul><ul><li>Investing in disruptive technology: deploying new infrastructure and letting go the legacy systems </li></ul></ul><ul><ul><li>Increasing brand value and developing customer retention schemes </li></ul></ul><ul><ul><li>Investing in the development of local and relevant content </li></ul></ul><ul><li>Non Organic Growth in Foreign Markets </li></ul><ul><ul><li>Investment in start-ups </li></ul></ul><ul><ul><li>Acquisitive growth by M&A </li></ul></ul>
  5. 5. The Entrepreneurial Cycle Must first Identify a Market Opportunity Assess Resources & Strategy Required in order to enter the market & exploit the opportunity Keep up with Market Dynamics Avoid x-innefficiencies Generate Unique Resources Combinations so that to achieve Sustainable Competitive Advantage
  6. 6. Identifying a Market Opportunity <ul><li>Need to evaluate the macro environment </li></ul><ul><ul><li>Is the political, legal, regulatory, economic, societal, technological environment going to be supportive, neutral, non-friendly? </li></ul></ul><ul><li>But also need to assess the micro environment </li></ul><ul><ul><li>Is there too much competition and can we foresee market shakeouts? </li></ul></ul><ul><ul><li>Is there substantial market size and opportunity to growth? </li></ul></ul><ul><ul><li>Are the incumbent’s prices high? </li></ul></ul><ul><ul><li>Is there a high chance to capture a high market share? </li></ul></ul><ul><ul><ul><li>Evidence of correlation of EBITDA Margins with Revenue Market Share. The highest the revenue market share the highest is the EBITDA margin </li></ul></ul></ul>
  7. 7. Correlation between EBITDA Margin and Revenue Market Share Reference: Dr. M. Reif, T-Mobile International, M&A in the Communications Industry Conference, Prague, May 2006
  8. 8. Do I have the Resources and Strategy in place to Explore the Market Opportunity? <ul><li>What physical, financial and human resources are required to be combined? </li></ul><ul><li>Are there any synergies with current operations? </li></ul><ul><li>Can we develop a comprehensive marketing strategy to address the market gap: </li></ul><ul><ul><li>Product, price, promotion, distribution, processes </li></ul></ul><ul><li>What is the fit between existing resources and synergies with those required to exploit the market gap? </li></ul>
  9. 9. Can I create Unique Resources Combinations so that to achieve Sustainable Competitive Advantage? <ul><li>Local distribution network and sales channels </li></ul><ul><ul><li>Collaboration </li></ul></ul><ul><ul><li>Internet </li></ul></ul><ul><li>Local partners knowledgeable of </li></ul><ul><ul><li>Country specific market conditions </li></ul></ul><ul><ul><li>Regulatory framework </li></ul></ul><ul><ul><li>Legal environment </li></ul></ul><ul><ul><li>Local personnel recruitment </li></ul></ul><ul><ul><li>Language, Cultural and Corporate Governance Fit </li></ul></ul><ul><li>Own expertise in engineering, procurement, finance </li></ul><ul><li>Usage of other synergies </li></ul><ul><ul><li>International Points of Presence – the building of an IP/MPLS international network by CYTA Hellas, UK, USA. </li></ul></ul>
  10. 10. Developing Markets Characteristics <ul><li>Large population (millions) </li></ul><ul><li>High economic growth rates (>5%) </li></ul><ul><ul><li>Leads to increasing disposable income </li></ul></ul><ul><li>Low to medium mobile penetration (<80%) </li></ul><ul><li>Low broadband internet penetration (<5%) </li></ul><ul><li>Relatively low competitive intensity (<3 players) </li></ul><ul><ul><li>Leads to high revenue market share and hence high profitability </li></ul></ul><ul><li>Experienced management and personnel </li></ul><ul><li>Economies of scale in procurement, marketing, branding </li></ul><ul><li>Sharing of R&D in services </li></ul>
  11. 11. Developing Markets Characteristics <ul><li>Developing markets offer opportunities to grow </li></ul><ul><li>But also in most developing markets there are challenges to overcome </li></ul><ul><ul><li>Unstable and non transparent legal systems </li></ul></ul><ul><ul><li>Lower standard of regulatory regime </li></ul></ul><ul><ul><li>Weaker corporate governance </li></ul></ul><ul><ul><li>Fuzzy corporate tax regime </li></ul></ul><ul><li>CEE countries have already aligned their legislation and regulation with EU, thus minimising the above risk. </li></ul>
  12. 12. Micro environment <ul><li>Supportive industry for collaboration and outsourcing non core tasks </li></ul><ul><ul><li>Clustering of related industry firms such as marketing & advertising, network deployment engineering firms </li></ul></ul><ul><li>Existing number of competitors and danger of eminent or future shakeouts </li></ul><ul><li>Strengths and weaknesses of competitors </li></ul><ul><li>Prospective new competitors and new entrants barriers </li></ul><ul><li>Alternative products and substitutes </li></ul><ul><li>Consumer unmet needs </li></ul><ul><ul><li>market research is a must </li></ul></ul><ul><li>Absolute addressable market size </li></ul><ul><li>Market growth stage </li></ul><ul><li>Minimum efficient scale and determination of the long run number of competitors </li></ul>
  13. 13. Macro environment <ul><li>Political Issues </li></ul><ul><li>Legal Issues </li></ul><ul><li>Regulatory Issues </li></ul><ul><li>Economic Issues </li></ul><ul><li>Societal and Environmental Issues </li></ul><ul><li>Technology Issues </li></ul><ul><li>Being able to efficiently collect accurate information for the above issues is a key success factor in evaluating a prospective investment </li></ul>
  14. 14. Political, Legal & Regulatory <ul><li>Political stability and democracy assists in: </li></ul><ul><ul><li>Transparency of decision mechanisms </li></ul></ul><ul><ul><li>Fairness of political decisions </li></ul></ul><ul><li>An EU aligned Legal Framework helps in: </li></ul><ul><ul><li>Protecting foreign investors and dividends </li></ul></ul><ul><ul><li>Intellectual Property Rights </li></ul></ul><ul><ul><li>Tangible property protection </li></ul></ul><ul><li>The Regulatory Regime sets: </li></ul><ul><ul><li>The intensity of Competition </li></ul></ul><ul><ul><li>The incumbent’s role in the market </li></ul></ul>
  15. 15. Economic <ul><li>Willingness to Pay is determined by: </li></ul><ul><ul><li>Unmet needs of consumer </li></ul></ul><ul><ul><li>Quality of product/ service offerings </li></ul></ul><ul><ul><li>Disposable income for electronic communications expenditure </li></ul></ul><ul><li>Spending power is a function of: </li></ul><ul><ul><li>GDP per capita purchasing power parity </li></ul></ul><ul><ul><li>Unemployment rate </li></ul></ul><ul><ul><li>Inflation index </li></ul></ul><ul><ul><li>Country’s roadmap towards joining the Eurozone </li></ul></ul>
  16. 16. Economic <ul><li>Key Economic Policies affecting investment risk and viability of business </li></ul><ul><ul><li>Tax incentives for foreign direct investment </li></ul></ul><ul><ul><li>Double tax treaties </li></ul></ul><ul><ul><li>Dividends exporting restrictions </li></ul></ul><ul><li>Existence of Local Financial Markets </li></ul><ul><ul><li>Expansion capital source </li></ul></ul><ul><ul><li>Exit opportunity for initial investors </li></ul></ul>
  17. 17. Societal Green Behavior <ul><li>Increasing green societal behavior leads to: </li></ul><ul><ul><li>Fear by the public of being exposed to electromagnetic waves </li></ul></ul><ul><ul><li>Resistance in building antenna towers </li></ul></ul><ul><ul><li>Delays in radio network deployment </li></ul></ul><ul><li>Bureaucracy leads also to delays: </li></ul><ul><ul><li>License to build antenna towers from municipalities </li></ul></ul><ul><ul><li>Electricity provision to sites </li></ul></ul>
  18. 18. Technology <ul><li>Disruptive Technology </li></ul><ul><ul><li>Convergence of fixed/mobile/internet </li></ul></ul><ul><ul><li>Community networking based services </li></ul></ul><ul><ul><li>Increasing network externality effects in place </li></ul></ul><ul><li>Examples of today’s disruptive technologies: </li></ul><ul><ul><li>Voice over the Internet Protocol (VoIP) </li></ul></ul><ul><ul><li>See Skype and community based applications </li></ul></ul><ul><ul><li>WiMax wireless access technology will initially complement wireline xDSL technology but eventually rigorously compete it. </li></ul></ul>
  19. 19. Non Organic Growth by M&A <ul><li>Why M&A for an incumbent? </li></ul><ul><ul><li>Gain competitiveness in new business areas rather than developing them internally </li></ul></ul><ul><ul><li>Support existing business operations </li></ul></ul><ul><ul><li>Expand scope of business to related sectors so that to leverage operational and financial synergies </li></ul></ul><ul><ul><li>Horizontal and vertical integration to achieve operational gains </li></ul></ul><ul><ul><li>Enhance the asset </li></ul></ul><ul><ul><li>Enhance the product portfolio </li></ul></ul>
  20. 20. Non Organic Growth by M&A <ul><li>What synergies? </li></ul><ul><ul><li>Merging overlapping functions, networks, premises </li></ul></ul><ul><ul><li>Scale effects by common procurement and one brand marketing </li></ul></ul><ul><ul><li>Revenue complimentarity </li></ul></ul><ul><ul><li>Centralisation of supportive functions </li></ul></ul><ul><ul><li>Tax benefits </li></ul></ul>
  21. 21. Non Organic Growth by M&A <ul><li>Key Success Factors in M&A </li></ul><ul><ul><li>Must have an M&A function within the corporate division being able to cooperate with all other business line units of the organisation, the general management and the board of directors </li></ul></ul><ul><ul><li>M&A function must be small and flexible: 1 head and 5-8 professionals actively seeking business opportunities and monitoring specific targets </li></ul></ul><ul><ul><li>Must focus on Post Acquisition Integration in order to realize synergies </li></ul></ul>
  22. 22. Non Organic Growth by M&A <ul><li>Key Success Factors in M&A </li></ul><ul><ul><li>Scale and Scope </li></ul></ul><ul><ul><li>One brand, one services generation platform, common processes </li></ul></ul><ul><ul><li>Successful combination and integration of networks </li></ul></ul><ul><ul><li>Realisation of synergies </li></ul></ul>
  23. 23. Market Entry Key Success Factors for Actel Communications, Hungary <ul><li>Large addressable market size </li></ul><ul><li>Low broadband penetration hence opportunity to grow </li></ul><ul><li>High incumbent prices </li></ul><ul><li>Available local content </li></ul><ul><ul><li>Collaboration prospective with small Cable TV companies unable to offer triple play </li></ul></ul><ul><li>Triple play (voice, data and multimedia) a new offering in the market </li></ul><ul><li>Transfer of CYTA’s IPTV knowledge </li></ul>
  24. 24. Market Entry Key Success Factors for Actel Communications, Hungary <ul><li>Possible to capture a good market share before the incumbent reacts. </li></ul><ul><li>In place supportive regulatory regime </li></ul><ul><ul><li>Local loop unbundling enforced </li></ul></ul><ul><ul><li>Co-location enforced </li></ul></ul><ul><ul><li>Interconnection rules in place </li></ul></ul><ul><ul><li>Transparency of information regarding costs and tariffs </li></ul></ul><ul><li>Having a local top management team </li></ul><ul><ul><li>Knowledge of market specifics </li></ul></ul><ul><ul><li>Incentives to achieve targets </li></ul></ul><ul><ul><li>Inter-cultural HRM </li></ul></ul><ul><li>Local financial markets allow further expansion </li></ul>
  25. 25. Thank you for your attendance For more information please contact [email_address] See also CYTA’s website at www.cyta.com.cy

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