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International business report

  1. 1. Rennes International School of Business ESC RENNES Executive Master of Business Administration EMBA COHORT 1 (2003 - 2004) International Business Conducted by: Jamie SMITHThe opportunity to invest in public payphone project With (GPTC) Libya By Magdy A. Sattar February, 2004 Cairo, Egypt
  2. 2. EXECUTEVE SUMMARY .................................................................................................................. II1- REPORT OBJECTIVE. ............................................................................................................... 12- MENATEL PROFILE.................................................................................................................. 13- CURRENT SITUATION ANALYSIS (CSA). ............................................................................ 24- MENATEL EXTERNAL FACTOR ANALYSIS SUMMARY (EFAS) .................................. 55- MENATEL INTERNAL FACTOR ANALYSIS SUMMERY (IFAS) ..................................... 66- MENATEL TOWS MATRIX ...................................................................................................... 77- PUBLIC PAYPHONE INVESTMENT IN LIBYA ................................................................... 88- CONCLUSION ........................................................................................................................... 129- RECOMMENDATION .............................................................................................................. 13EMBA CairoRennes International School of Business I
  3. 3. EXECUTEVE SUMMARYThis report is to cover the opportunity of Menatel to invest in public payphonesproject with (GPTC) Libya, demonstrating my understanding of the principles andtechniques of international business. I will start by a short presentation about Menatelprofile, environment, objectives, and goals. Analyzing the available data using theEFAS, IFAS, and TOWS matrix over Menatel to identify the opportunities, threats,strengths, and weakness, then breaking down the findings to show that Menatelstrengths can cop-up with international development strategy. Choosing Libya to beanalyzed using EFAS, and TOWS matrix to answer Yes/No, Whether Libya is theright foreign market. Driven by the analysis results a final conclusion is obtained anda recommendation plan.EMBA CairoRennes International School of Business II
  4. 4. 1- Report Objective.The purpose of this report is to allow me to demonstrate my understanding of theprinciples and techniques covered during the international business course. I willsubmit a business report that will address a proposed entry strategy for Libya,conducting both IFAS & EFAS over Menatel, and evaluating the proposed entrystrategy. By using Menatel internal data, EIU, and CIA, and Coface web site assources for the data. 2- Menatel profileLate in 1998 Menatel was born as a joint stock company, under investment lownumber 8/1997 registered in 1998 under number 314030. Menatel is granted a tenyears; renewable license, to install, operate, and manage a telecommunicationnetwork of at least 30,000 public payphone. Egyptian shares are 53 % and foreignshares are 47 %. By the end of 2003 Menatel has been operating a payphone networkwith near to 30,000 payphones in operation, and work force of more than 400employees. Thanks to our customers love, appreciation, and trust Menatel’s twocolors (green and yellow) are now a trend, they can be seen every where, not onlyMenatel payphones but also kiosks, bill-boards or sometimes even buildings arepainted in those two colors. This proves the fact that Menatel has succeeded tobecome an integral part of people’s daily life in Egypt. 2.1 Menatel VisionTo be the leaders in the field of telecommunication services, as well as the leader increating a national base of accumulated expertise of high Egyptian telecom engineers. 2.2 Menatel Goals Exceptional Customer Satisfaction. Inspired, innovative and empowered Employees. Depending on local sourcing whenever possible. Superior Financial Results.EMBA CairoRennes International School of Business 1
  5. 5. 2.3 Menatel Values Customer First. Integrity in All we do. Excellence through Total Quality. Respect for others. Respect for our environment. Growth through change. 3- Current Situation Analysis (CSA). 3.1 Market EnvironmentEgyptian telecommunication market is a promising market, despite of Telecom Egypt(TE) dominance over the market, the escalating developments of the market towardliberalization, the issuing of telecommunication law in February 2003, and the role ofTelecommunications Regularity Authority (TRA) will make TE a Dinosaur no more.The fixed lines telecom market is getting more competitive, as TE is pushing towardincreasing the penetration rate, by offering lines at 50 % discount, the ambitiousuniversal plan for TE to operate 40,000 payphone all over Egypt, the newly entrancedof the prepaid calling scratch card (two new licenses) in addition to TE Marhaba card,and Egypt Telecard.The second payphone license, our direct competitor (with two brands, Nile Telecom,and Rengo), is in a very tough situation, with lots of debts to TE that might drive themto go bankruptcy, or to turn their debt into equity for TE. In both cases we areanticipating to seize the opportunity of the gap of their absence, and the newcompetition directly with TE (unfair competition) or to compete with a new comer(not likely to happen due to the current political and economical situation).We strongly believe that the TRA will not allow us to be the sole player in the market.Thus if our direct competitor went out of market or bankrupted, they would issue acall for new payphone license or they will allow TE to go into this market to fill thegap, and avoid Menatel monopoly.EMBA CairoRennes International School of Business 2
  6. 6. The indirect competition by the two GSM companies (Vodafone and Mobinil), through their prepaid and postpaid lines, we are monitoring the two big elephant movements towards increasing the capacity of their network and subscribers. 3.2 Market Players Telecom Egypt (TE) Telecom Egypt (TE) operates more than 7 million lines in Egypt, some 80% lines installed are residential, 17% business and the remaining 3% government. The Egyptian fixed lines market is under-penetrated; at the end of 2002 wire line penetration totaled 12%, representing 7.75 million access lines in service. Expected wire line penetration in the end of 2007 is 19.6%, representing 14-million access line in service. Wire line 1998A 1999A 2000A 2001A 2002A 2003A 2004F 2005F 2006F 2007F penetration Year to JunePopulation (m) 62.7 64.0 65.0 66.0 67.00 67.8 68.7 69.5 70.2 71.5 Access line 3,972 4,686 5,530 6,530 7.75 8,830 10,130 11,430 12,730 14,00installed (000) Growth (%) - 18 18 18 19 16 15 13 11 11Additions (000) - 714 844 1,000 1,220 1,200 1,300 1,300 1,300 1,300Penetration (%) 6.3 7.3 8.5 9.9 12 13 14.7 16.5 18.1 19.6 A= actual, F = forecasted Prepaid Calling scratch Card (PCC). Two active players in the market, one is a private owned company called Egypt Telecard, and the other one is Marhaba service owned and managed by TE. In addition to the 2 million card capacity of the two TE (IN) Intelligent Network platforms in operation today, TE has ambitious plans to upgrade there system capacity (2million card “IN” platform contracted) expected to be in operation by June 2004. Egypt Telecard also made use of the long time span of the Scratch Card License bidding to upgrade their system capacity which resulted in enhancing their quality of service, and expanding their distribution channels. The marketing intelligence information we managed to gather was as follows: EMBA Cairo Rennes International School of Business 3
  7. 7. Egypt Telecard and Marhaba achieved sales of 22 million cards during the periodfrom Jan. 2002 till Dec. 2002, which is equal to approx. 250 millions LE. Taking thatthe minimum face value of “Marhaba” is LE. 15 and it has gone out of stock severaltimes. Public Payphones.Menatel is maintaining the leader position by far; we are in a dominant companyposition, far ahead our direct competitors Nile & TE. According to ministry ofcommunication and information technology (MCIT) report of February 2004 thesituation is as follow:Market coverage in Dec. 20021 Company Number of Payphones Menatel 28897 Nile & Ringo 14000 TE 4593Market coverage in Dec. 20032 Company Number of Payphones Menatel 29878 Nile & Ringo 14000 TE 4532The above shows that we are still improving our position, while Nile is blocked. Asfor TE, their plan is to upgrade and replace their old payphones, with new ones usingSmart Cards, and to go public; as we know from our sources they started to requestdigging permits in Cairo. We anticipate an aggressive competition from TE.1 Ministry of Communication & Information Technology (MCIT) report Dec. 2002.2 MCIT report Dec. 2003.EMBA CairoRennes International School of Business 4
  8. 8. 4- Menatel External Factor Analysis Summary (EFAS)Opportunities Weight Score Weighted Score Comment Telecom Market Need to be part of O1 0.150 4 0.60 Growth this growth Prepare for now End of TE O2 0.050 3 0.15 opportunities (2nd. monopoly 2005 Operator) Increased tariff of More customers O3 0.065 3 0.20 TE prefer prepaid New monetary Low interest rate O4 0.030 3 0.09 policy & investment cost Lobby to fight New Telecom law illegal competition O5 & empowering 0.130 3 0.39 & balance TE TRA power Nile Telecom Prepare to take O6 might be out of 0.060 4 0.24 their market share market Neighbor Exporting O7 Developed 0.024 3 0.072 Experience countryThreats Scratch market Due to new T1 0.090 3 0.27 growth licenses Economy Likely to continue T2 0.075 3 0.225 slowdown during 2003 Floating of Increased cards & T3 0.075 3 0.225 Egyptian pound spare parts cost. Lobby to solve TE power still T4 0.100 3 0.30 disputes to our high favor. Nile Telecom New payphone T5 might go 0.050 3 0.15 license (Unknown bankruptcy competitor) Increased number Illegal competition T6 0.075 3 0.225 of substitutes of street mobile Middle East Iraqi war and T7 0.026 2 0.052 political instability Palestine conflict. Total 1.00 3.189We believe that our performance is average we need to move faster to attack currentopportunities.Also the situation internationally is not good, we need to have deep analysis over theneighborhood countries (Sudan, Libya, Jordan), in order to find a way to sell ourexpertise.EMBA CairoRennes International School of Business 5
  9. 9. 5- Menatel Internal Factor Analysis Summery (IFAS)Strengths Weight Score Weighted Score Comment Learn from related Strong management S1 0.075 4 0.30 experiences & with FT know-how. benchmarking Established Considered one of the S2 distribution 0.050 4 0.20 best in Egypt network. Market leader & Dominant company S3 0.075 3 0.225 strong brand name position. Strong financial Cash method, no credit S4 0.080 5 0.40 position. policy. High quality of Need to be maintained, S5 0.045 4 0.18 service & coverage competitive advantage. Utilized functional & S6 Slim organization 0.035 3 0.105 matrix organization. Deep knowledge of Ability to meet new S7 Scratch business 0.060 4 0.24 challenges in the economics market. Highly trained & Ability to be export S8 0.080 5 0.40 skilled employees expertiseWeaknesses Stagnant New Depts needed, W1 organization, no 0.090 2 0.18 start with HR. clear career path. Customer service W2 function not 0.060 2 0.12 Call center is needed utilized Marketing less Market watch, market W3 structured & 0.100 3 0.30 analysis, & PR unclear strategy FT is affected by W4 0.060 3 0.18 Seek hedging tools. exchange rate. Spare parts W5 0.060 3 0.18 Strategic stock needed shortage Distributors’ Avoid out of stock W6 0.055 3 0.165 coordination. situations Maintenance Revisit cars policy & W7 vehicles operating 0.025 3 0.075 control procedures cost Premises needs Limited org. growth W8 0.050 3 0.15 expansion potentials Total 1.00 3.40We believe that we are doing slightly more than average and we can be better if wework on our weakness effectively.EMBA CairoRennes International School of Business 6
  10. 10. 6- Menatel TOWS Matrix STRENGTHS WEAKNESSES Strong management with FT Stagnant Organization, Unclear know-how. Career path. Market Leader & Strong Marketing less structured & Brand Name. Unclear Strategy. Strong financial position. Highly trained & skilled employees OPPORTUNITIES 1- New Strategic Plan aiming to Telecom Market Growth explore the expected opportunities 1-Revisit Org. Chart in Telecom market. New Telecom Law & 2-Benefit from our cash position to 2-Revisit marketing functions. Empowering TRA finance our development plans Neighbor Developed 3-Second Operator as strategic 3-Revisit Customer Service & country Target after 2005 Card Distribution. 4-Analys the possibility of exporting expertise THREATS New strategy to be adapted under Economy slow down. consideration: 1-Side effects of economic 1-Slow growth with close Floating of Egyptian Pound. recession & decreased buying monitoring to the market. power. 2-Advanced hedging & financing 2-Staff frustration and decreaseIncreasing number of substitutes techniques. of productivity and efficiency 3-Consumers attracted by lower 3-Advanced marketing & Sales priced substitutes, we might face Techniques. price wars.Following the above analysis we recommend the following strategies: First mover into the market strategy, seizing new opportunities. High entry barrier walls strategy. High quality of service standard toward customers. Highly competitive strategy (not cooperative with competition). Analysis to neighbor countries business environment is to be prepared annually.EMBA CairoRennes International School of Business 7
  11. 11. Through which an analysis of the opportunity to invest in public payphone project with General Post and Telecommunications Company (GPTC), the sole provider of basic fixed telephone services in Libya. 7- Public Payphone Investment in LIBYA We planed to perform this study through three steps:  First; data analysis provided by three main sources  Economist Intelligence Unit (EIU).  The world fact book CIA.  COFACE.  Second; a field visit & observation (inspection visit)  Third; interview with industry experts in (GPTC) Libya As planed we prepare the data required for analysis in LIBYA as follows:  Macro economic data with EFAS.  Micro economic data  Industry data  All available data regarding the risk assessment.  A TOWS matrix to identify the entry strategy for Libya. 7.1 Macro economic data (USD billions) Source 1999 2000 2001 2002 2003 2004GDP cofas Na Na Na Na Na Na EIU 30.5 34.0 27.5 16.5 18.3 NaEconomic or Real GDP growth (%) cofas 0.7 2.3 0.5 -0.2 5.6 1.8 EIU 0.7 2.6 1.1 1.5 2.7 NaInflation (%) cofas 2.6 -3 -8.8 -9.8 2.8 2.9 EIU -6.0 -3.0 -8.5 1.1 1.7 NaPublic sector balance (% GDP) cofas 5.5 9.5 -0.3 3.9 14.2 6.5 EIU Na Na Na Na Na NaExports cofas 7.2 12.1 9.0 8.3 10.1 8.6 EIU 7.2 14.2 12 11.6 13.9 Na EMBA Cairo Rennes International School of Business 8
  12. 12. Imports cofas 4.7 4.1 5.3 7.4 6.3 6.7 EIU 4.3 3.7 3.9 3.6 3.9 NaTrade balance cofas 2.5 8.0 3.6 0.9 3.8 1.9 EIU Na Na Na Na Na NaCurrent account balance (% GDP) cofas 5.4 20.5 8.6 -1.2 10.4 0.6 EIU 2.1 9.3 6.7 6.7 8.7 NaForeign debt (% GDP) cofas 5.8 5.3 5.4 5.6 5.6 5.6 EIU 5.1 4.6 4.4 4.4 4.2 NaDebt service (% GDP) cofas 3.1 7.1 9.0 6.6 8.7 10.3 EIU 3.0 6.1 6.2 6.1 5.3 NaCurrency reserves (import months) cofas 13.3 24.7 23.3 17.4 21.7 20.8 EIU 7.2 12.4 14.8 14.7 22.3 NaPopulation (m) cofas Na Na Na Na Na Na EIU 5.1 5.2 5.3 5.5 5.6 Na From the above table we can analyze the external factors (EFAS) and obtain the opportunity and threat of the Libyan business environment, as it shows below. 7.2 Libya EFAS Opportunities Weight Score Weighted Score Comment Telecom Market Need to be part of O1 0.20 3 0.60 Growth this growth Young population concentrated O2 population 0.10 4 0.40 around the costal cities High standard of O3 Currency reserves 0.20 4 0.80 living Threats Dominated by T1 Economic policy 0.15 2 0.3 hydrocarbons sector Exchange-rate T2 0.10 3 0.3 A tiered system system Relation with T3 0.15 3 0.45 Un predictable USA & Europe Middle East Iraqi war and T7 0.10 3 0.3 political instability Palestine conflict. Total 1.00 3.15 EMBA Cairo Rennes International School of Business 9
  13. 13. 7.3 Micro economic dataFor transportation Libya has a reliable network of roads, about 25,000 km. Mostmajor towns and villages are accessible by car. The local currency is Libyan Dinar(LYD), and the exchange rate LD per USD 1.2 2003.3Population distribution per city:4Tripoli 1,104,972Benghazi 596,972Misurata 314,304Marqub 305,873Tarhuna & Missallata 277,606Jefara 270,152Khums 197,117Zawiya 185,842Jebel Akhdar 182,271Gharyan 151,162 7.4 Industry data.For telecommunication sector of Libya lags behind in telecommunicationdevelopment. The domestic telephone system is microwave radio relay, coaxial cable,cellular, tropospheric scatter, and a domestic satellite system with 14 earth stations,and here are some figures5:  State-owned sole provider (GPTC) for fixed telephone line.  605,000 fixed telephone lines.  Penetration rate of just 11 %.  State-owned sole provider (Al Madar) for mobile telecom.  50,000 mobile lines in 2002.  Penetration rate of just 1 %.3 IMF international financial statistics4 National Authority for Information and Documentation (NAID)5 Libya country profile (EIU) 2003.EMBA CairoRennes International School of Business 10
  14. 14. 7.5 Other available data & risk assessmentSecurity risk, Libya has a fairly low security risk, according to EIU there have beenno reports or announcement from any multinational firm operating in Libyaconsidering this issue.Economic policy risk, considerably high, as the Libyan economy is dominated by theoil sector (41 % of GDP)6, and the policymakers respond to transfer the economy intoa market economy through liberalization and privatization is weak.Political risk, considerably high, as Libya is theoretically governed by the peoplethrough local council The General People’s Congress (GPC), but practically it’sgoverned by the Colonel, (a one- man- democracy system).Economic risk, considerably low, as Libya high earning from the oil sector, the highlevel of currency reserves, the moderate debt level, and the low number of populationprovide a high living standards to the Libyans.Telecommunication Infrastructure risk, considerably high, as the technical capabilityand the telecommunication sector management is poor.Culture risk, considerably low, though the Libyan community is characterized bybeing a tribal and closed community, but the language, the special close relation, andthe neighborhood characteristics stands as advantages to the investments their.Country rating risk, reference to coface standards and methodology of country ratingrisk, Libya have unsteady political and economic environment. That is rank C. 7.6 TOWS MatrixWe combined Libya EFAS and Menatel IFAS to propose the suitable internationaldevelopment strategy for interring Libya`s Telecommunication market.6 EIU 2003EMBA CairoRennes International School of Business 11
  15. 15. STRENGTHS WEAKNESSES Strong management with FT Stagnant Organization, Unclear know-how. Career path. Market Leader & Strong Marketing less structured & Brand Name. Unclear Strategy. Strong financial position. Highly trained & skilled employees OPPORTUNITIES Telecom Market Growth Libya Demographical Benefit from our strong management know-how and the conditions highly trained and skilled Re design organization adapting employees to implement the Country revenue & currency strategy. suitable entry strategy to explore reserves the expected opportunities in telecom market. THREATS Economic policy Exchange-rate system Benefit from our strong financial position and accounting system to It is difficult to generate strategy Relation with USA & Europe implement a low-cost effective to avoid unsteady strategy. 8- CONCLUSIONThe telecommunication market in Libya is indistinguishable; the unsteady politicaland economic environment barred us from clear country business environmentunderstanding. We see opportunity in the current economic situation by high standerliving conditions, but the unsteady economical policy and the poor exchange-ratesystem are threatens to our investment. The good relation and neighborhoodadvantages encourage us to enter this market, but the unpredictable political trendsdiscourage us to do so. Any entry strategy through GPCT, the sole provider to fixedlines service, by any way benefits us (no competition), but GPCT poor management isa highly risk. The conclusion is we can not have clear Yes/No decision for enteringLibya telecommunication market; we need further investigation to reduce the risk.EMBA CairoRennes International School of Business 12
  16. 16. 9- RECOMMENDATIONAccording to our analysis and this vague picture, we strongly suggest assigning aproject manager to go and visit Libya and meet the General Post andTelecommunication Company (GPTC) top management with one weak fieldinspection visit to come up with the following data to facilitate the process ofevaluating the project in order to give some reliable study help taking the rightdecision,  Data regarding the future plans by GPTC to improve the Telecommunication sector, expected increase in both Fixed Lines and GSM phones in the next 5 years.  Documents regarding the prepared plans to improve the infrastructure in next 5 years.  Updated F. Study Prepared by GPTC in order to give some reliable data regarding the other internal Business Aspects involved in the project.  Study prepared by GPTC to evaluate, if exist, the laws organizing the relation between Scratch Card Businesses and the Public Payphone Business.Also to find answers, with the help of GPTC, to the following questions:  Customer behavior indicators, and does the climate conditions in Libya affects the use of payphones  The market players and competitors  The cost of installation and paying or importing the necessary equipments  The custom duties and the taxes regulation  The monopoly statues and expected end  Telecommunication and information laws  The distribution channels conditions and characteristics  The monitory policy and transfer of profit in hard currency ($)  Tax privilege for foreign (Egypt) investment  Deep call analysis per destination, type, price, customer…EMBA CairoRennes International School of Business 13