Impact of GDP rate on telecom industry growth, Malaysia - Celcom Company

This paper discusses the impact of GDP rate on the telecom industry in Malaysia, with a focus on Celcom Company. It explains how GDP rate affects consumer spending, employment, stock market, and infrastructure of the country. The paper uses qualitative secondary data to support its findings.

Impact of GDP rate on telecom industry growth, Malaysia
2/5/2019
Celcom Company

Managerial Economics 1
Contents
Introduction....................................................................................................................................2
About the company.......................................................................................................................3
Malaysia GDP rate and telecom growth....................................................................................3
Impact of GDP rate on telecom industry (Celcom Company)................................................4
GDP rate affects the Consumer spending............................................................................5
GDP rate fluctuations create the impact on companies......................................................5
GDP rate affects employment.................................................................................................6
GDP rate creates an impact on stock market.......................................................................7
Companies use the GDP to predict business growth..........................................................7
GDP rate affects the infrastructure of the country...............................................................8
Conclusion......................................................................................................................................9
References...................................................................................................................................10

Managerial Economics 2
Introduction
This paper is based on understanding the concept of managerial economics that can
directly create an impact on the working of the companies present within different
industries. There are different economic factors that create an impact which include
demand and supply, GDP of the country, consumption of products, national income and
many others. The focus is done on the GDP, which is clear with the topic that helps in
understanding the Impact of GDP rate on telecom industry growth majorly for the
Celcom Company present in Malaysia. This has been found that GDP is considered as
the comprehensive quantitative amount of the nation’s entire financial activity. The
concept of the GDP reflects the financial value of goods and services which is
manufactured within the national boundaries of the company. Every country maintains
their GDP rate, which can create an impact on the operations of the companies. This
has been explained with the help of Celcom Company that is considered as an
example.
In addition, the data for the paper has been collected with the use of the qualitative
approach as a secondary data method. In which the data and information have been
collected with the effective use of books, journal, company’s website, government
website and many other websites.

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About the company
Celcom Axiata Berhad, DBA Celcom is considered as one of the oldest mobile
telecommunication providers in the market of Malaysia. The company is a member of
the Axiata group of the companies. The company began with the operations as the STM
cellular communications in the year 1988 with the fleet group and Telekom Malaysia as
the shareholders. Currently, the company is considered as one of the premier mobile
telecommunications company and it offers the post-paid mobile and the digital services
with the motive to close it to the 11 million subscribers. The company has the widest
network in Malaysia with the population coverage of approx. 95% majorly for the 2G,
90% for the 3G and for 4G/LTE networks. Malaysia country is putting efforts to become
the high-income nation by the year 2020 (Axiata, 2018). In the year 2016, the country’s
economy expanded by 4.2% which is mainly driven by the demand and government
which led to the improvement in the projects that are present under the National
transformation program.
Malaysia GDP rate and telecom growth
The economy of Malaysia has expanded by 4.4% year-on-year in the 3rd quarter of the
year 2018 that is subsequent a 4.5% increase in the preceding three-month duration
and lowers than the market consensus of approx. 4.6% (Trading Economics, 2018).
This has been found that presently the GDP rate in Malaysia is 5.9% (Ying, 2018). This
helps GDP rate of the country helps in understanding the impact on the company which
can be positive and negative. Telecommunication revenue in Malaysia was reported at
approx. 4.59% in the year 2014 as per the World Bank Collection of the growth pointers
that are accumulated from known sources (Trading Economics, 2018). This has been
found that the rise in the GDP rate will lead to the increase in the companies involved in
the telecom industry which majorly focuses on Celcom Company.
In the Malaysian market, this has been found that telecommunication companies
provide basic facilities and features that support people to express with one another and
to make use of the different types of content. This has been found that Malaysia

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telecommunication industry is continuously growing which shows that the demand
levels of the Malaysian customer are high (Hirschey, 2016). Numerous of the
investments are supported by the administration with the single work prospects that are
altering the way persons love and labour within the country. This has been found that
more than 32% of the population make use to the mobile phones or network within the
country as the year 2016.
The above-given image shows the value added by the telecommunication service
industry in Malaysia from the year 2010 to 2015. The major companies that are present
in the telecommunication industry include TM Berhad, Celcom, Maxis, DiGi
telecommunication and many others. The growth of the industry is possible because
Malaysia is able to maintain the effective GDP rate in the country due to which the
industry has registered the growth. Along with this, numerous companies who are able
to earn the profit in the market (Cuñat & Zymek, 2017).
Impact of GDP rate on telecom industry (Celcom Company)
The below given are some of the factors that are included in the GDP rate which
creates an impact on the business operations.

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GDP rate affects the Consumer spending
Consumer spending is one of the major components of the GDP rate as this has been
found that the increase in the GDP of the company offers a high purchasing power to
the customers presents in the market (Amadeo, 2019). The high consumer spending
occurs due to the GDP rate which creates a positive impact on Telecom Company. The
increase in customer spending will bring rise in the need for the goods and services
offered by the Celcom Company in the market. This is the way through which the
company will be able to increase sales and can earn the profit from the customers in
Malaysia. Though, on the other hand, the decrease in the GDP rate will reduce the
spending of the customers in the market which creates the negative impact on the
company as the demand will reduce and sales of the company decrease which
ultimately leads to a reduction in revenue (Froeb, McCann & Ward, 2015).
GDP rate fluctuations create an impact on companies
GDP rate fluctuations take place because of the business cycle. The business
contributes in increasing the GDP of the country which is evident from the Celcom
company contribution to GDP (Datta, 2017). This is explained with the help of an image
which is given below: -
(Source: Axiata, 2018)

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Celcom’s Gross Value Added (GVA) in the year 2016 which was predicted at the USD
1,646 million which contains a direct contribution of approx. USD 770 million from the
operations. In addition, the indirect contribution by the company was USD 733 million
with the capital investment of approx. USD 142 million that is presented in the image
given above. Further, this has been found that Celcom company total operations
contribute approx. USD 990 million with the capex of USD 321 million that means that
every USD 1 is spent by the company in Malaysia because of its operations and the
investment in the capital that has added to the USD 1.4 to the economy of the country
(Axiata, 2018).
Thus, this has been found that this contribution by the Celcom and other companies in
the telecom industry in the GDP brings the rise in the economy. In addition GDP of the
company is rising and lead to the point when the pressure for the inflation increases.
This reflects in the increasing interest rates in the market which happens because of the
GDP rate fluctuations in the market. This makes the companies and consumers cut
back their spending and also slow down the economy (Viswanath, 2017). In addition,
the slow demand makes the Celcom Company pay off employees that might affect the
confidence of consumer with the demand. In addition, to break this vicious circle, the
central bank of Malaysia ensures that they ease the monetary policy to stimulate the
employment and economic growth till the time the economy of the country boom
(Picardo, 2016). This directly creates the negative impact on the profit of the company
due to which they won’t be able to contribute the effective amount in the GVA due to
which it decreases and lead to the normal situation again.
GDP rate affects employment
GDP rate of Malaysia creates an issue for Celcom Company in terms of employment.
The economic production and growth create a large impact on everyone present within
the economy (Divanbeigi & Ramalho, 2015). The economy of Malaysia is generally
healthy due to which there will be low unemployment in the market of Malaysia. This
creates an impact on the increase in wages as the businesses demand labour to meet
their growing economy. This means that high GDP creates low unemployment due to
which Celcom company need to pay the extra amount to the employees for hiring them.

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Thus, the situation will appear in which the company will find the tough labour market
because they are supposed to pay the high amount to the employees to whom they
provide the employment (Bridge & Dodds, 2018).
GDP rate creates an impact on the stock market
This has been found that a significant change in the GDP that can be up or down
creates a major impact on the stock market. The stock market is essential to be
considered by the companies because their operations remained linked with the stock
market. The bad economy which means decreased in the GDP rate leads to the lower
earnings for the companies due to numerous factors which include; unemployment,
changing demand and supply of products, interest rate and many others (Devine,
Tyson, Lee & Jones, 2018). This lower earning of the company reduces the lower stock
prices of the company which affects the investors that the company is going to receive
for their company. Generally, this has been found that the investors often pay the
attention to the negative and positive GDP growth when they evaluate an idea of
investment or coming up with a strategy to makes the investment in Celcom Company.
It becomes risky for the investors to take the decisions for investing the amount in the
company due to which they consider the GDP rate. Moreover, the investors of the
company generally invest in the company when they find that GDP is growing because
the chances of the high returns can easily be expected by the investors from the
Celcom Company (Loveland, 2018).
Companies use the GDP to predict business growth
GDP includes two types of GDPs which are majorly used by the economists with the
motive to measure the economy of the country. This includes the nominal GDP which it
refers to as the country's economic output without an adjustment of the inflation.
Further, another GDP is real GDP which is equal to the output of the economy that is
adjusted with the effect of the inflations (Kramer, 2018). GDP of the company indicates
the Malaysia economy and its performance. The companies like Celcom make use of
the GDP rate with the motive to find that their business is expected to grow in the
market or not. In case the GDP of Malaysia falls then the company Celcom prefer to
save the extra cash as their backup which means they generally adopt the layoffs and

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cost-cutting measures. In addition, if the GDP of the country is booming, a business
decision to expand their business operations, For instance; the companies open new
branches, open new departments, conduct the promotion of the products effectively
(Iacoviello, 2015).
GDP rate affects the infrastructure of the country
GDP rate of Malaysia creates an impact on the development of the country in terms of
the infrastructure and many other elements. All these elements then affect the
company’s operations and their working in the market. The GDP rate increases helps
the government of the country to accumulate the maximum funds which is further utilize
by them with the motive to bring the improvement in the operations of the company
because the improved infrastructure will help the company in bringing the improvement
in the way through which they offer the services (Wynarczyk, Watson, Storey, Short &
Keasey, 2016). Thus, this has been found that the rise in the GDP rate of the Malaysia
country will contribute effectively in increasing the sales of Celcom Company.

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Conclusion
In the end, this can be concluded that the GDP rates create an impact on the telecom
industry of Malaysia that is explained with the help of the example of Celcom Company.
The findings of the report reflect the Malaysia GDP rate and its impact on the growth of
the telecom industry. Further, this has been explained with the help of the real world
company example that is Celcom Company who is operating their business operations
in the market of Malaysia. Further, the company found the impact of the GDP rate in the
positive as well as in a negative manner to the operations of the company. The major
factors that impact the operations include consumer spending, fluctuation in the rate,
availability of the employees in the labour market, the growth of the business, the
infrastructure of the company. All these factors are discussed with their impact on the
working of the Celcom Company in the market of Malaysia.

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References
Amadeo, K. (2019). Gross Domestic Product and How It Affects You. Retrieved from:
https://www.thebalance.com/what-is-gdp-definition-of-gross-domestic-product-
3306038
Axiata. (2018). Celcom. Retrieved from:
https://www.axiata.com/media/upload/investors_relations/axiata-2016/sr/national-
contribution/celcom.php
Bridge, J., & Dodds, J. C. (2018). Managerial decision making. New York: Routledge.
Cuñat, A., & Zymek, R. (2017). Specialization Patterns, GDP Correlations, and External
Balances. CESifo Economic Studies, 63(2), 141-161.
Datta, D. (2017). Managerial Economics. UK: PHI Learning Pvt. Ltd.
Devine, P. J., Tyson, W. J., Lee, N., & Jones, R. M. (2018). An introduction to industrial
economics. New York: Routledge.
Divanbeigi, R., & Ramalho, R. (2015). Business regulations and growth. The World
Bank.
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Cengage Learning.
Hirschey, M. (2016). Managerial economics. Boston: Cengage Learning.
Iacoviello, M. (2015). Financial business cycles. Review of Economic Dynamics, 18(1),
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Kramer, L. (2018). What is GDP and why is it so important to economists and
investors?. Retrieved from: https://www.investopedia.com/ask/answers/what-is-
gdp-why-its-important-to-economists-investors/
Loveland, M. (2018). The GDP's Effect on Business. Retrieved from:
https://bizfluent.com/info-8552885-gdps-effect-business.html

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Picardo, E. (2016). The GDP and its Importance. Retrieved from:
https://www.investopedia.com/articles/investing/121213/gdp-and-its-
importance.asp
Trading Economics. (2018). Malaysia - Telecommunications revenue (% GDP).
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fastest-region