Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

What should be the expansion strategy of Softbank?

1,668 views

Published on

What should be the expansion strategy of Softbank?. A white paper on Softbank's future roadmap

Published in: Technology
  • Be the first to comment

  • Be the first to like this

What should be the expansion strategy of Softbank?

  1. 1. What should be the expansion strategy of Softbank? White Paper By Rahul Sarkar
  2. 2. Page 2 by Rahul Sarkar Contents Introduction/Problem ..................................................................................................................3 Current Status ...............................................................................................................................4 Strategic Analysis – Porter’s Five Forces [5] ............................................................................6 Strategic Analysis – grid model.................................................................................................7 Value Chain Analysis..................................................................................................................8 Potential Strategy Alternatives..................................................................................................9 Recommended Alternatives .....................................................................................................10 References....................................................................................................................................11
  3. 3. Page 3 by Rahul Sarkar Section 1 Introduction/Problem Softbank Corp is the third largest telecom provider in Japan with revenues of ¥3.202 trillion in 2012. Established in 1981 Softbank is a VC firm having interest in various areas of which telecom is primary.[15] Mr Masayoshi Son, founder and CEO long realized that technology will integrate and converge. He looked at an ecosystem which would differentiate it from its competitors. He had also long- held ambition to become a leading mobile phone operator in Japan. From an internet based company, he made some strategic moves to move into the space of mobile telephony with acquisition – small and big. They did the biggest LBO of Japan by acquiring Vodafone K.K in 2006. Japan has always been the leading indicator of technology. They have had the fastest broadband much before the entire world. Japan also has the cheapest broadband in the world and the credit goes to Softbank to start the trend. Over the years, proliferation of technology in human lives has been substantial and new product markets appeared when companies started to look beyond stand alone services like internet or fixed line telephony or mobile telephony. Convergence and integration are the new norms and we see how companies have competed to provide bundled services. With Softbank’s internet business it was difficult to realize long term profitability. Although the broadband market was suppose to grow 20% y-o-y till 2017, it was not substantial enough for a company whose growth hunger is high. Obviously Softbank can grow organically but what about the synergy? Vodafone KK had given Softbank substantial market share making them the third in But is acquiring telcos will solve the problem for Softbank. If we look at the long term strategy of Softbank, they have to touch human lives not just by new gadgets but also by its ease of use and affordability. Vodafone KK had bad 3G infrastructure, targeting only corporate clientele. Will Softbank a specific target segment or will it grow by differentiation? The big question we will try to answer then is what should be the expansion strategy for Softbank going forward? Fig 1: Softbank network coverage (Source: gojapan.about.com/library/map/blmap-gifu.htm) Fig 2: Softbank ecosystem and investment focus (Source: www.softbank.co.jp/en/iri nfo/investor/strengths/)
  4. 4. Page 4 by Rahul Sarkar Section 2 Current Status Softbank has steadily increased its market share since entering the mobile communication market in 2006. During the last fiscal, the net increase in subscribers reached 3,430,000 lines, thus exceeding by 25.7%, the net increase of 2,730,000 lines which was achieved during the previous year. iphones, ipads, and ultra speed compatible data handsets etc developed favourably, ranking at the top in the annual net increase in subscribers for four consecutive years.[6] So essentially Softbank has been doing well after the Vodafone KK acquisition. However its competitors NTT Docomo and KDDI Corp having making inroads in convergence and integration quite substantially. Infact NTT Docomo is one of the pioneers of mobile innovation across the globe. NTT Docomo devised a coherent business strategy to meet the challenges of industry convergence by product complementarities. NTT Docomo took possible mobile internet services as a starting point for business and chose the appropriate technologies accordingly. A demand- pull approach therefore characterized its approach to exploiting technological opportunities. Unlike European network operators, KDDI Corp had retained extensive R&D capabilities that provided crucial system integration competencies and allowed the company to play an active role in the innovative process. Clearly due to these reason NTT Docomo and KDDI Corp are No 1 and 2 respectively. [3] If Softbank has to emulate the success of these two companies, they would have to innovate for new products plus achieve operational efficiency in its existing value chain. If we look at the generic strategic model of target market, we realize that Softbank is not playing in niche market. In order to be successful they have to be differentiated and that’s where strategic Fig 3: Softbank customer growth (Source: http://www.bell park.co.jp/en/ir/ pdf/19th/en_19q_ setsumeikai.pdf) Fig 4: Mobile consumer growth for top 3 telcos in Japan
  5. 5. Page 5 by Rahul Sarkar Section 2 acquisitions of mobile companies makes sense. As per Thomson Reuters ‚Softbank operating margin will fall by 2015 unless they strengthen their ecosystem.‛ Vodafone KK before acquisition was struggling to reduce cost. Softbank which relies on low pricing has to also look at spiraling cost of Vodafone KK in order to realize the full synergy. Softbank need to look at their ecosystem by leveraging their web expertise and put it in the handsets – smartphone with more customized product. They are the first company in Japan who got apple products in market. But the question is how long? "The risk is the sustainability of what they have been doing," said ISI Group analyst Brian Marshall. "They have put up a huge number and the question is can they continue to penetrate with their current existing product portfolio at these price levels?" The fear is that the number of people who can afford an iPad or an iPhone is dwindling. The competition has become immense in all areas and timing is paramount and perhaps time to concentrate in VAS. Fig 5: Income statement analysis (Source: Thomson Reuters) Fig 7: Softbank ecosystem challenges (Source: Softbank.co.jp) Fig 6: Softbank unique visitors (Source: Softbank.co.jp)
  6. 6. Page 6 by Rahul Sarkar Section 3 Strategic Analysis – Porter’s Five Forces [5] In order to understand the strategic direction that Softbank need to take going forward, it is essential to understand the competitive intensity of the industry using Porter’s 5 forces model for mobile telephony industry.  Competition: How strong is the rivalry posed by the present competition? - HIGH 1. The number of firms in the industry, there are many firms in the industry with different products. 2. All firms have economies of scale, that is they have relatively high fixed costs and low variable costs, the more they produce the lower their per unit costs become. This results in more intense rivalry between firms as they compete to gain market share; 3. Customers have majorly low switching costs, this intensifies competition as firms compete to retain their current customers and steal customers from other firms; 4. Low levels of product differentiation between firms leads to increased competition. 5. High exit barriers and hence companies stay even if they don’t want  Barriers to entry: What is the threat posed by new players entering the market? – HIGH 1. high capital costs of setting up a business in this industry 2. Industry requires highly specialized equipment, 3. Extensive scale and branding of existing competitors 4. Government regulations are predominant in this industry 5. Individual firms have economies of scale which results in lower cost and threat to new entrants  Substitutes: What is the threat posed by substitute products and services? – HIGH 1. The switching costs between the operators is low with number portability 2. Buyer propensity to substitute is high 3. Perceived level of product differentiation is low.  Supplier bargaining power: How much bargaining power do suppliers have? - LOW 1. The number of possible suppliers and the strength of competition between suppliers is pretty high 2. Suppliers produce homogenous products  Customer bargaining power: How much bargaining power do customers have? - HIGH 1. The volume of goods or services purchased is not in bulk 2. The number of customers are high 3. Brand name strength is high 4. Products differentiation is low. 5. All major operators have similar network coverage so no differentiation.
  7. 7. Page 7 by Rahul Sarkar Section 4 Strategic Analysis – grid model Market/Applications of Hardware and Software products  Business continuity plan is needed. Network failures, lesser inventory plus delays in new handsets to market have cost loss of sales and shaken confidence in service offerings.  Since Softbank also stores customer related data, it is imperative that have a very high secured facility else they will be tangled in legal disputes  Supply chain management should be planned properly and diligently. Recent issues with Japan nuclear disaster and Tsunami have put up losses in terms of network failure, supplier delays and customer reluctance. Differentiation  Softbank to continuously innovate and provide more value added services – bundled services, enterprise solutions in order to be step ahead in the increased competitive environment.  Softbank should now move to look for other products in lifestyle which are essential for consumer while maintaining the synergy with existing products.  Softbank had till now played up the catch up game. Operators like NTT Docomo and KDDI Corp are spending heavily on R&D and coming up with innovative products. Softbank needs to use the capabilities of acquired companies to the fullest before diversifying further. Fig 8: Market/application of Softbank, BCP (Source: tm.softbank.jp › ... › ULTINA (ICT Platform Service) Fig 9: Balance Sheet Analysis (Source: Thomson Reuters)
  8. 8. Page 8 by Rahul Sarkar Section 5 Value Chain Analysis [17] The value chain as both a concept and tool has been used for many years by companies to identify their strategic position. The focal of the value chain is the end product and the chain is designed around the activities required to produce it. Softbank has its own value chain.  Network Equipment and Spectrum – 77% population coverage, Running on 1800 Mhz  Infrastructure and Operations – All in-house  Billing – Own billing CRM system  Retail Distribution – Own branded and other retail chain as Bell-Park , Own distribution  Portals and Resellers – Own Portal and Bell Park Portals. Fig 10: Value chain for Mobile Operator (Source: Bharti’s presentation to mobile congress 2008) Fig 11: Value chain for VAS – Softbank future strategy (Source: google.com)
  9. 9. Page 9 by Rahul Sarkar Section 6 Potential Strategy Alternatives ALTERNATIVE 1: As Masayoshi Son, CEO and founder of Softbank said ‚‚We believe that online investing is going to be one of the highest growth business segments of the next decade‛, it is imperative Softbank will go global and form JV in new markets. In past 2 years we saw Softbank moving to India and China and European market. In India they have already set a JV with Bharti telecom & set up a 50:50 entity for mobile internet space. Similarly there are recent investments in InMobi, Visual revenue, and Kingfish labs which show how Soft bank is also moving towards mobile advertising. And finally invest on the ecosystem deploying a unique business model combining both telecom services and gaming in SE Asia similar as Tencent in China.[12] ALTERNATIVE 2: Softbank Corp has always played on the price. With the acquisition of Vodafone, it was really challenging for them to reduce cost and make it as a differentiating factor. They have to reduce operational cost by outsourcing the most costly parts of their value chain. They can outsource installation and maintenance of their network to network operators. While better customer relationship, growing revenue stream are very important but, at the same time, decreasing operational cost is essential. In order to do so, they can do the unexpected and outsource the IT and networking services while staying purely focused on marketing, sales and distribution of the value chain similar to Bharti in India. [4] ALTERNATIVE 3: Leveraging the knowledge of the crowd: Open Source Freebox Business Model Innovation. Recent patent filings like ‚Enhanced TV‛ show their interest in TV business. Although nothing concrete has happened but surely they can do something with their exceptionally good backhaul network. They can bring free internet television to the end consumer, develop own ‘freebox’ - an internet television set-top box for households. Roll out freebox based on triply play strategy connecting mobile devices, TV and internet together. This can be recognized as one of the most important innovation drivers and keep on adding new services and features. [4] Fig 12: Growth of T&M business with mobile broadband (Source: www.sharedresearch.jp/en/Anritsu)
  10. 10. Page 10 by Rahul Sarkar Section 7 Recommended Alternatives With so many great alternatives, following are the most recommended to Softbank Strategy. RECOMMENDED 1: Masayoshi Son said ‚‚Japan has the infrastructure for this kind of service, so it would be a shame not to use it.‛ MVNO will be the next big thing. Since Softbank has started moving to global locations, MVNO will help him in consolidating. Softbank can become a MVNO (mobile virtual network operator) operating in the Japan and other countries and offers cheap mobile telephony. Softbank with its stake in InMobi can entice advertisers to pay for the minutes on MVNO and align with the extensive personal profiles completed by the subscribers in advance. This will increase advertisers’ rate of convergence enormously and saves some boring ads on the mobile phones for the customers. It is a business model driven by advertisers. [4] RECOMMENDED 2: Softbank can use an innovative plan as used in Finland by Fon wherein they encourage wireless internet users to share their bandwidth for the community. Consumers who share their wifi will get access to all other wifi access points in the community all over the world. The wifi-sharing community shares in the revenues stream which is gained by the non-softbank who pay a small fee for accessing the network via mobile or laptop. Softbank can leverage on its JV in other countries and access their network to provide this service. This consolidates their ecosystem and customers can now use mobile as a wifi spot plus access other networks via their smartphone. [4] Fig 13: Convergence using backhaul network and mobile network – MVNO, hubspot (Source: www.mmc.co.jp)
  11. 11. Page 11 by Rahul Sarkar Section 8 References 1. ftp://ftp.unibocconi.it/pub/RePEc/cri/papers/WP199CorrocherZirulia.pdf 2. http://www.scribd.com/doc/2335648/Innovations-of-Mobile-Communications-Standards- and-their-applications-for-telecom-companies 3. http://itseurope.org/ITS%20CONF/berlin04/Papers/GerumSjurtsStieglitz_paper.pdf 4. http://www.shakingupthevaluechain.com/2009/01/five-inspiring-business-model- innovations-in-the-telecommunication-industry/ 5. http://www.tomspencer.com.au/2008/08/17/porters-five-forces-model-analysis- framework/#section1 6. http://www.bellpark.co.jp/en/ir/pdf/19th/en_19q_setsumeikai.pdf 7. http://www.analysysmason.com/About-Us/News/Insight/Insight-merger-acquisition- Asia-Pacific-Mar2012/ 8. http://www.reuters.com/article/2012/04/16/us-softbank-nokiasiemens- idUSBRE83F09R20120416 9. http://www.whioam.com/softbank-is-betting-on-twitter.html 10. http://www.virtual-strategy.com/2012/06/08/research-and-markets-next-generation- network-japan-market-trends-challenges-and-prospects 11. http://www.softbanktelecom.co.jp/en/news/press/2007/20070528_01/ 12. http://www.crunchbase.com/company/softbank 13. http://www.ft.com/cms/s/2/01d53e7a-ad0a-11da-9643- 0000779e2340.html#axzz1xNpF0ycE 14. http://www.japaninc.com/ww153 15. http://en.wikipedia.org/wiki/SoftBank_Mobile 16. http://en.wikipedia.org/wiki/SoftBank 17. https://dspace.lib.cranfield.ac.uk/bitstream/1826/2688/1/From%20Value%20Chain%20to% 20Value%20network%20-%202006.pdf 18. http://thinkexist.com/quotes/masayoshi_son/

×