Strategic Analysis: Inmarsat's International Business in China

This report examines Inmarsat's potential international business opportunities in China, focusing on establishing additional production and warehouse operations. It begins with an overview of Inmarsat's history, growth through acquisitions, and the impact on its supply chain. The analysis incorporates frameworks like the Firm Specific Resources and Capabilities Model, Porter’s Diamond, VRIO, CAGE, FSA-CSA matrix, and OLI to evaluate Inmarsat's internal and external environments. The report identifies that while China offers cost-efficient manufacturing and distribution advantages, challenges such as cultural, administrative, geographical, and economic distances need to be considered. The analysis suggests that a partnership approach may be a less risky entry mode compared to establishing a fully owned manufacturing plant. Ultimately, establishing a presence in China can support Inmarsat's long-term efficiency goals and global value chain strategy, although complete outsourcing may also be a viable future option.

28.09.2021
International Business
Opera
ting in
China

Word count: 5388

Contents
1Executive Summary...................................................................................................................................3
2Introduction...............................................................................................................................................4
2.1About Inmarsat...................................................................................................................................4
2.2About my role.....................................................................................................................................5
3Analysis and Evaluation.............................................................................................................................7
3.1Growth history & Acquisitions ...........................................................................................................7
3.2Inmarsat’s External Environment........................................................................................................8
3.3Internal Firm Environment and Internalisation Analysis...................................................................10
3.4Integrated summary and solution options........................................................................................20
3.5Recommendation and implications..................................................................................................22
4References...............................................................................................................................................23
5Appendix..................................................................................................................................................26

1 Executive Summary
Option A: Focusing on a current International Business opportunity in China to create
additional production and warehouse operations. The corporate strategy of company states that
Inmarsat needs an effective operating model to enable Inmarsat in order to create sustainable
advantages in markets and increase cost efficiency. This document uses the following
frameworks and concepts to understand the internalisation process in detail.
 Firm Specific Resources and Capabilities Model,
 The Porter’s Diamond model,
 VRIOT Framework,
 The Cage Model,
 The FSA-CSA matrix,
 The OLI Framework.
The three-layered structure by Collinson et al. (2017), shown in Figure 1, helps to
understand how to make international business decisions. This document uses a similar approach
to perform the analysis and to make recommendations. The analysis starts with the history of
Inmarsat, its growth by acquisitions & the impact on company’s operations specifically on the
supply chain. Then the analysis of the external environment, which include industry related
developments and the market opportunities for growth. The section, internal firm environment
analyses the FSAs and CSAs for the host country, China.
Figure 1 The multiple interacting levels and lenses of international business studies

This internal analysis data presents the current stock holding levels. It also keeping in-
house operations comes with cost & risk, which became apparent during the global pandemic. It
is analysed that in last 5 years, the value of inventory was increased by 33%, compared to an
increase of revenue by only 13%. It is also found that in next 5 years, expected capacity will be
circa 13 times more than today, on the basis of long-term business plan.
A new production and warehousing location needs to reduce risk of cultural, economic,
and technological consequences of a volatile market and fast pace is considered. China has the
advantage of being one of the cost efficient countries to have a manufacturing plant and with
their good infrastructure distribute all around the world easily. However, there are challenges
opening a manufacturing plant in China. The Cage framework identifies the cultural,
administrative, geographical and economical distances. Inmarsat has the advantage of being
familiar with the culture and geographical dimensions through the existing Singapore plant.
However, there are other risks operating in China, especially the Chinese government program to
be more independent country to foreign investments might be a concern. The mode of entry can
be used as risk mitigation. Acquisitions are very familiar in Inmarsat history. Partnership is less
risky compare to opening and owning a manufacturing plant or acquiring company. It is
important to note that completely outsourcing might be the future strategy for Inmarsat and
introduce global value chain. Having presence in China can support the long-term efficiency
seeking goals and plans.
2 Introduction
2.1 About Inmarsat
It is found that Inmarsat is the world leading mobile satellite company. They are
operating as a public company for 15 years till 5th of December 2019. it is found that they are
took over for $3.4 billion UD dollars. Inmarsat is found in 1979 that provide satellite
communications at sea in International Maritime Organisation. At initial time, they are aiming to
protect lives at sea. But after sometime, they are expanded connectivity in many areas. It is found
that their customers involves airlines, the military, shipping fleet operators, mining, aid agencies,
agricultural technology and logistics (Inmarsat Corporate Website, 2021). Inmarsat provides
services many location in over all the world. For example, a customer wants to be online. For
that purpose they need to give signal through their terminal satellites which is 35000 km from
earth. It is found that signal goes down in ground station for processing and then delivered with

the help of data centre. The whole journey is expected to be less than one second (Inmarsat
Corporate Website, 2021).
Inmarsat employs over 1800 employees which are based in 39 offices around the world.
55 Nationalities are represented in the workforce. The main offices are in Canada , UK, The
Netherlands, Norway and Singapore. It aims to launch 7 more satellites by 2023 that supports
5G. This will assists in increasing connectivity by high-speed broadband, and also enhancing
global safety in all over the world (Inmarsat Corporate Website, 2021). It is the Multinational
Enterprise and their HQ is situated in London, UK. Inmarsat is involved in international trading
since 1979. Currently, it can trade is commercial services and goods globally. They has 63
entities around globe (Appendix A) (Inmarsat Annual Report, 2020).
They operates in Satellite Telecommunication sector. It usually has small profit margins
& relies heavily on high value fixed-asset investments such as satellites. They made a loss in last
two years. One reason is the Covid-19 pandemic impacted on Aviation sector negatively. Also,
investments in technologies and new satellites were required and also found that the market is
becoming more competitive. As a result, one of the strategic priorities of Inmarsat is to transform
the operating environment for the purpose of making a profitable business. It is including the
supply chain operations, IT support systems, aligning global locations with their growth potential
and delivering best-in-class service delivery and support. They moved in in-house IT support
operations to a managed partner situated in India. Now they are focusing on assessment that
which areas are appropriate for outsourcing purpose which could be beneficial for Inmarsat
(Inmarsat Annual Report, 2020).
2.2 About my role
My role is delivering system solutions to the internal customers using our ERP
(Enterprise Resource Planning) system, SAP. The nature of my role is gathering business
requirements, analysing them and designing the best possible solutions. I work closely with the
key stakeholders and it is important to understand their future business goals. My area of
expertise is procuring to pay and supply chain value chains. I work closely together with the
Supply Chain work stream. I have received various complaints in the last year from the supply
chain business process owners that the processes and systems are not providing the best fit and as
a result there is a high level of inefficiency. Improving the processes and systems is one answer
to increase the efficiencies but the overall company strategy wants to look at the operating
models and make a strategic decision what the best fit will be for the company.

In this assignment, the focus will be analysing the existing supply chain and production
operations and the opportunity to extending operations to China. The following section will
analyse this option using the aforementioned International Business module framework and
concepts.
3 Analysis and Evaluation
3.1 Growth history & Acquisitions
It is important to understand why Inmarsat have come to a point where the supply chain
operations have become an issue and it requires a strategic solution. Inmarsat provides global
services all around the world. The main business areas are Maritime, Aviation, Government and
Enterprise. Below table shows that circa 40% of the total revenue is generated in Maritime and
Government. The Aviation business unit was severely affected by the Covid-19 pandemic and
the revenue decreased by 39.4% in 2020. The operating cost ratio is 46% of the revenue,
compared to 54% depreciation and amortisation. Although the operating cost ratio is not so high,
the high investment on capital (new satellites and technologies) affects the company’s
profitability negatively (Inmarsat Annual Report, 2020).
The nature of the sector requires continues investments in new assets and technologies. A
better operating model and operations may decrease the operating cost ratio. However, focusing
purely finding a better operating model might not be enough. It is important to question other
areas, for example, how can we decrease the capital investment? Can the internal research and
development teams focus on innovation and new technology in-house? What are the firm-
specific advantages that can be utilised more and that can turn into a competitive advantage?
Over the last two decades, Inmarsat’s growth has been fuelled by acquisitions in different
regions in the world. Through those acquisitions, not only Inmarsat’s revenue increased, but also
the number of employees and locations. The acquisitions have helped Inmarsat to grow quickly
in terms of operations and capabilities, however, they also were a cause of operations not being
the best fit for the company in terms of processes and people. To create competitive advantages
at a company level, Inmarsat must use a strategy of simplifying the processes and creating
efficient operations (Based on the interview with Senior Director Market Access).
When we look at the company’s performance in Table 2, it shows that Inmarsat increased
its revenue and created new market areas and a larger customer network. The acquired
companies were selected in different regions of the world to enable a wide operation network.
Henley Business School notes (2021) explains that companies look for either efficiency-
enhancing internalisation or resource seeking internalisation. There is no evidence on how
Inmarsat has decided the four main acquisitions. However, today the inefficiencies in its

operations indicates that the aim of the acquisitions might increase its resource advantages. The
increase in customers, employees, warehouses and diversity in resources had provided
international advantages for Inmarsat.
Table 1 Regional Revenue & Acquisitions by year
3.2 Inmarsat’s External Environment
Collinson et al. (2017) explain that MNEs (Multinational Enterprises) makes decisions
based on three factors: the internal firm environment advantages (FSAs), the external industry
environment and the external macro environment. Before looking into the FSAs, we will look at
the external industry and external macro environment first. This will help us to understand why
some of the strategic decisions have been made and why Inmarsat is seeking for efficiency
increases in its operations. When we look at the outside environment of the company, Inmarsat
operates in a market where the growth opportunity is significant. Below is the (expected) overall
market value in 5 years and Inmarsat’s position in 2020. Figure 1 indicates that the market will
grow by 55% in 5 years. This means for Inmarsat to remain competitive, the operations capacity
needs to increase with at least 55%. The market growth is one of the external forces to seek
efficiency increases.
Figure 2 Mobile Satellite Telecommunications market size
Other external factors are country based taxation and security regulations in the
telecommunication sector. This has great impact on the internalisation process. The company has
to open circa 60 holding companies in these locations to be able to provide services.

Another factor to further understand the external industry environment is knowing
Inmarsat’s competitors. Globally, technological advancements enabled companies to invest in
niche markets like the satellite sector. An example is the company Starlink, which is owned by
Elon Musk (Crist, 2021). The new competitors entered the market in the last two decades and
some of the biggest investors have seen the market opportunity in this sector.
The new players can become existential threat for company. An example is Leo (low
earth orbit) satellite investment by Starlink. It is found that Interactive Satellite Today (2021)
expresses strategic alignment discussions with Geo (Geostationary earth orbit) and Leo satellite
providers. It also highlights risk of Leo constellations replacing Geo. It is identified that Leo uses
low earth orbit satellites. The advantage is that these are cheaper and smaller in order to produce
compared to Geo satellites. However, it was stated in Interactive Satellite Today (2021), Geo
satellites have 60 years of experience and stability. Whereas Leo satellites are a new
development in the last years. The market is volatile.
After looking at the external environment, we will next look into the internal resources
and capabilities and their advantages for the company. To stay in competition and to get a bigger
pie in the growth chart, Inmarsat needs to find ways of efficiency enhancing in the internalisation
processes. The following section will provide deeper analysis by using IB frameworks, models
and concepts to understand the internationalisation opportunity in China for Inmarsat’s
operations.
3.3 Internal Firm Environment and Internalisation Analysis
Collinson et al. (2017) suggests that in order to make a valuable international business
decision, the managers have to be aware of the company’s specific advantages in the
environment that they operate in. To identify the FSAs (Firm Specific Advantages) I will explore
Inmarsat’s resources and capabilities based on the interview with Director of Market Access and
Supplier Relationship Management. The VRIO(T) framework will then help to analyse how the
identified resources and capabilities are sustainable for the company.
Figure 3 Inmarsat Resources and Capabilities
Resources
Tangible 14 Geo satellites and ground stations
Circa 2000 employee all around the world. 55 different nationalities,
high diversity

Intangible Well-known in the sector with its expertise and branding
Good customer and supplier relationship due to its good and long
reputation
Invest in people through create a high performance culture programs and
initiatives
Capabilities
R&D and
innovation
Continuous investment in R&D and innovation activities
Introduced new product ‘Orchestra’ to get advantage in the new
completion with Leo and 5G
Operational In some areas Six Sigma is used to create efficiency
IT support operations outsourced to gain cost efficiency
Supply Chain operations are in the scope of process improvements and
simplifications
Marketing New marketing team joined and branding activities prioritised
Sales and
distribution
Good established sales team
Continuously improve based on customer satisfaction surveys
Distributions model is efficient but with the growth strategy how
sustainable, it will be
Corporate
Management
Recently a new Chief Strategy Officer appointed to make the strategy
one of the focus areas
Diverse leadership style
Dynamic Improves the ability of adjustment with the internal and external
changes
Figure 3 identifies resources and capabilities for Inmarsat and arguably, Inmarsat has a
diverse culture and value in R&D activities. Having operated many years in a niche market
creates the advantage of a good reputation. In recent years, like all areas of technology, satellite
technology has evolved. The market changes, new competitors and technology advancements
push Inmarsat to be more agile and efficient in all capabilities. However, on what basis Inmarsat
can choose it is strategic resources and capabilities? As Collinson et al. (2017) emphasise that
not all resources and capabilities have the same strategic importance. To be able to identify
which resource and capability has a competitive advantage for Inmarsat, the VRIO(T)
framework is used (Figure 4).

The VRIO(T) analysis shows that Inmarsat’s R&D and innovation & market access
capabilities are sustained advantages. Due to the long term period in this sector, it is found that
Inmarsat has the advantage of highly skilful people, wider market access capabilities and
innovation capabilities. The recent example to this is new product innovation that known as
‘Orchestra’. The product aims to integrate Inmarsat products and the competitor’s product.
Creativeness, innovation and R&D investments will create the higher advantage as compare to
its competitors. (Inmarsat Corporate Website, 2021). This is the reason that Market Access and
R&D/Innovation are clearly ‘Sustained advantage’ and ‘critical’ for Inmarsat in the international
business arena.
Figure 4 Inmarsat VRIO(T) framework analysis
Criterion Technical
skills
Organisationa
l Culture
R&D and
innovation
Market
Capabilitie
s
Operational
capabilities
Value creating Yes Yes Yes Yes Yes/
Partially
Rare Yes No Yes Yes No
Inimitable No No Yes Yes No/Partially
Organisation Yes Partially Yes Yes Yes/
Partially
    
Competitive
implications
Temporary
advantage
Parity Sustained
advantage
Sustained
advantage
Temporary
advantage
Transferable
(location / non-
location bound)
Yes-NLB Partially-LB Yes-NLB - Yes-LB
   
IB implication Important Useful Critical Critical Useful
It is found that company's resources and capabilities are found to be transferable on a
non-location bound basis. It is related to the multiple offices in different regions. They can
transfer capabilities and skills without location boundaries. When it comes to operation
capabilities they has temporary advantage based on the result of VRIO(T) framework. To assess
Inmarsat’s efficiency-enhancing internalisation process, it is also important to look at the country

specific advantages for China. Porter’s diamond model based on the four country related
determinants and two external variables (Collinson et al.,2017). Figure 5 shows these factors for
China.
Figure 5 Porter's determinants and competitiveness
Country –specific
determinants
Local factor
conditions
 Aging population
 Increase in labour cost
 The knowledge relies on importing key
technological advancements
Home or regional
demand
 Economic growth is on the rise
(Coface,2021).
World Investment Report, 2021 the
foreign direct investment, FDI growth
increased by 5.7% in 2019-2020.
 Good infrastructure for transportation
Related and
supporting industries
 Increase in becoming global value chains
Firm strategy,
industry structure
and firm rivalry
 China is competing in the space sector
and investing in this sector
External variables The role of chance  Covid related outbreak
 US-China relations
The role of
government
 Complex regulations and legislations
The Porter diamond helps to look at country specific advantages from multiple angles.
All these factors are relatively dynamic and one decision or a chance factor can have greater
impact on others. For example, the Covid-19 outbreak has started in China but the whole world
economy was affected by it. China has some advantages to offer for Inmarsat. For example,
using their existing infrastructure for supply chain operations, as China is already providing
services and products in the satellite industry. Also, relatively weak on external variables and
local factor conditions. In order to get overall view of the company’s competitiveness the FSA-
CSA matrix is used, Figure 6.