SM0269: Analyzing South Africa's Mobile Telecom Industry Using Porter

This report provides a comprehensive analysis of the South African mobile telecom industry, employing Porter's National Diamond framework to assess its competitiveness and investment attractiveness for a European company. The analysis delves into factor conditions such as the availability of cheap and qualified human resources and tax incentives, firm strategy and rivalry highlighting high competition and technology imitation risks, demand conditions differentiating between lower demand in urban areas and higher demand in rural regions, and related supporting industries focusing on networking and BPO sectors. The report also considers the role of the government and potential market entry strategies, weighing the advantages and limitations of Foreign Direct Investment (FDI) and offering recommendations for successful market penetration, while addressing contemporary management issues relevant to the South African context.

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Table of Contents
Part 1: Porter’s National Diamond Analysis......................................................................2
1. Introduction....................................................................................................................2
2. Evaluation of the Porter’s Diamond model....................................................................2
2.1 Factor conditions......................................................................................................3
2.2 Firm strategy, structure and rivalry..........................................................................4
2.3 Demand conditions..................................................................................................5
2.4 Related supporting industries..................................................................................6
2.5 Government.............................................................................................................8
2.6 Chances...................................................................................................................8
Part 2: Market Entry Strategy............................................................................................9
1. Advantages and limitations of using Foreign Direct Investment (FDI)......................9
1.1 Advantages of Foreign Direct Investment (FDI)...................................................9
1.2 Limitations of Foreign Direct Investment (FDI)..................................................10
2. Evaluation of a relevant market entry mode............................................................11
3. Recommendations...................................................................................................11
Part 3: Contemporary Management Issues.....................................................................12
References.......................................................................................................................14
Appendix..........................................................................................................................17

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Part 1: Porter’s National Diamond Analysis
1. Introduction
The Mobile telecom industry is an emerging business in South African markets.
The different technological innovations that are undertaken by the organizations have
helped the same in maintaining the efficacy of the operations as per the needs of the
business. The identification of the different trends in the industry will be helping
overseas organizations in undertaking smooth business operations as per the needs of
sustenance and growth.
The discussion will undertake an evaluation of the South African telecomm
industry, which will be helping an overseas organization in understanding the
opportunities and threats that might be encountered while making foreign investments in
the market. In this connection, the discussion will facilitate a detailed assessment of the
South African Mobile telecom industry through the utilization of the Porter’s Diamond
model.
2. Evaluation of the Porter’s Diamond model
The Porter’s Diamond model will help in delineating the market structure of
Mobile telecom industry in South Africa through an assessment of the different threats
and opportunities held by the same. Cotula (2013) stated that the Porter’s Diamond
model helps in identifying the capabilities and competencies of an overseas
organization while making an market entry. The relationship between the different
factors in the model helps in maintaining the efficacy of the operations that are designed
by organizations adhering to the sustenance needs. The section will be focusing on
critically discussing the different factors in the model relating to the South African Mobile
telecom industry.

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Figure: Porter’s diamond model
(Source: E. Dobbs, 2014)
2.1 Factor conditions
Huge amount of cheap and qualified human resource and anti- discrimination
The availability of cheap and qualified human resource in the nation will be
helping the organization in undertaking smooth operations. As per a report, the rate of
unemployment in the nation is 25.1% computed in the year 2017 (Anwar et al., 2014). It
will be helping the organization in facilitating the operations through the recruitment of
skilled workforce in a cheaper rate. On the other hand, the recruitment of cheap labor
force will be helping the European organization in minimizing the rate of labour
expenses. Stork, Calandro and Gillwald (2013) stated that the smooth functioning of
the business processes are dependent on the efficient functioning of the workforce. In
this relation, the European organization will undertake smooth functioning of the
processes through the enhanced supply of skilled workforce in a cheaper rate. The

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enhanced supply of cheap labor force in the South African markets and the higher rate
of unemployment will be providing the organization with a scope of attracting most of
the people to the different job roles. On the other hand, the regulations imposed by the
South African government relating to prohibition of discrimination will also assist the
organization in adhering to the EEO (Equal Employment Opportunity) and minimizing
discrimination in the workforce (Chavula, 2013). Diversity in the workforce will support
innovative culture and positive working environment in the processes for enabling the
smooth functioning of the systems.
Tax and tariff reductions for supporting foreign investments in the telecom sector
South African government holds an Economic Partnership Agreement (EPA)
with the European Union (Luo & Bu, 2016). It will be helping the European organization
in maintaining the business operations in reduced taxations and tariffs. The reduced
taxation and trade tariffs will be helping the business in reducing the operating
expenses of the same. Goldstuck (2012) stated in a report that the reduction in the tariff
rates from a simple average of more than 20% to an average of 5.8% will help in
supporting the smooth functioning of the systems. The reduction in the trade tariffs will
be helping the organization in facilitating aggressive expansion in the South African
economy. On the other hand, the diminishing rate of technological advancements
relating to mobile telecomm industry in South African market has forced the government
in reducing the taxation and trade tariffs for maximizing foreign investments in the
sector. Therefore, the reduction in taxation and trade tariffs will help the organization in
undertaking wide expansion in the markets.
2.2 Firm strategy, structure and rivalry
High competition in the local markets
The higher competition in the local markets of South Africa is subjected to the
involvement of different multinational organizations aiming to provide excellent cellular
telecomm services to the urban regions. In a research Fosu (2013) stated that the
South Africa holds the position of the 4th most advanced mobile telecommunications
network in the world. The higher competition in the telecomm sector might challenge the

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competitive strength of the European organization while making an expansion in the
South African markets. High competition in the markets might challenge the smooth
functioning of the European organization. On the other hand, the higher competition in
the market has maximized the expectations of the consumers in the South African
market. It would also contribute to the challenges in the organizational context. Snijders
(2012) stated that the rigid regulations imposed by the governments affect the smooth
functioning of the systems as per the objectives of the business. The regulations that
are framed by the government agencies in controlling the competition and the new
entrants in the market might result to significant barriers that might be faced by the
organization.
Imitation of technology
Barth and Heimeshoff (2014) stated that the imitation of technology by the other
existing firms in the South African markets might affect the brand name of the business.
In this relation, the European organization faces a high risk of technology imitation acts
by the other existing firms. It has been reported that around 27% of the firms
encountered risks of imitation while making an expansion in the telecomm sector
(Murphy, Carmody & Surborg, 2014). The enhanced risk of imitation might restrict
collaborative functioning of the European organization in the South African cellular
telecomm markets. On the other hand, the imitation of the technology might also affect
the trust and loyalty of the customers in the South African telecomm industry. As per a
report, 150 network providers are active in the South African economy, which supports
the cellular telecom industry (Sutherland, 2012). The availability of substitutes in the
South African markets offering lower priced services will be affecting the organizational
efficacy of adhering to the increased needs of the customers.
2.3 Demand conditions
Lower demand in the urban markets
The organization will be encountering lower demand in the urban markets of
South Africa. As per the reports, 76% of the urban consumers depend on the existing
telecom service providing organizations (Murray-Evans, 2015). Stocchetti (2013) stated

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that the customer loyalty towards the existing firms, in a market, restricts the smooth
functioning of the new entrants in the market. The existing service providers in the
South African market have taken every possible step for retaining the loyalty of the
customers. It has helped the same in sustaining in the home grounds irrespective of the
attractive propositions made by the new entrants. On the other hand, the European
organization might face significant issues in attracting the attention of the customers
towards the service offerings. Sanders (2015) stated that the competencies of the
organization in attracting the attention of the customers affect the rate of productivity
and profitability in an international market situation. Therefore, it might be stated that the
European organization will be facing huge challenges in attracting the attention of the
urban customers to their product offerings in the context of the South African Cellular
Telecom sector.
Higher demand in the rural markets
The European organization might face a huge demand in the rural regions of
South Africa due to the lower availability of cellular telecom services. Siroën (2013)
stated that the limited access of the telecomm services and the higher cost of the
services have affected the affordability of the South African customers. Higher rates of
unemployment, illiteracy, income inequality and the public debts in the rural regions
have affected the rate of potential customers. On the other hand, the remote rural areas
are often left disconnected from the major urban regions of South Africa, which has
affected the technological advancement related needs of the same. However, the
conditions provide a favorable market for the European organization as the lower priced
proposition will be helping the venture in maximizing the customer base in the rural
regions. Hurt (2016) stated that the price regulations and the attractive propositions by
the overseas organization helps in enhancing the customer base as per the needs of
the business propositions. The higher demand faced by the organization in this
connection will be helping the same in attracting the attention of most of the customers
in the rural South African markets.
2.4 Related supporting industries
Might find isolated supportive firms for Networking and BPO

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The organization might find different isolated supportive firms in the networking
and the BPO sectors. De Melo and Regolo (2014) stated that the collaborative
functioning of an organization and outsourcing the critical activities helps a venture in
reducing the level of risk that might be encountered by the same. As per the case, the
European organization might face different supportive firms for collaboration, which
would assist the same in upholding the efficacy of the operations as per the objectives
of the business. On the other hand, Murray-Evans (2015) opined that the collaboration
with the supportive firms will be helping the organization in maintaining the smooth
functioning of the operations through minimal capital investments. The European
organization might collaborate with the isolated networking and BPO organizations for
undertaking promotions and developing activities in order to cope with the demand. The
collaboration with the existing supportive organizations will also help the same in
identifying the market dynamics as per the objectives of the business.
Services and machinery are imported
The South African technology is not advanced in the fields of IT and networking
and thereby machinery and services are to be imported by the organizations. The key
requirements in the organizational operations are dependent on the smooth functioning
of the systems through the supply of advanced technologies. Makhaya and Roberts
(2014) stated in a research that around 56% of the networking companies in the nation
imported the machinery and outsourced different services for the smooth functioning of
the business units. In this relation, the European organization might take steps to import
the machinery and services in order to facilitate the smooth functioning of the processes
as per the objectives. Murphy, Carmody and Surborg (2014) stated that outsourcing the
services will be helping the organization in making a reduction of the different risks that
might be en countered by the same. Importing the services and the machinery might be
a challenging activity for the European organization as it lacks suitable networks and
contacts with the other supportive organizations in the South African telecomm markets.
Therefore, the organization might take steps to collaborate with the supportive
organizations from the European Union and import machinery and services, which will
be increasing the cost of operations of the business.

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2.5 Government
The stable political situation in the South African market will be helping the
European organization in maintaining the smooth functioning of the processes. The
ANC (African National Congress) dominated the political scenario since the year 1990,
which has helped in minimizing the conflicts between different political parties
(Sutherland, 2012). The reduced conflicts between the political parties in the nation will
be helping the same in upholding the efficacy of the operations as per the needs of the
business. On the other hand, the European Union holds an agreement with the African
government, which will be helping the organization in operating in the South African
markets through minimized taxation and tariffs (Kholilul Rohman, 2012). The Economic
Partnership Agreement (EPA) will be helping the organization in maintaining the
efficacy of the operations as per the objectives of the business. Hawthorne (2015)
stated that the agreement between the South African government and the European
Union is aimed at mutual profitability. The agreement will be helping the organizations
from the European Union in making a proficient market entry in South Africa. On the
other hand, the enhanced rate of foreign investments will bring forth developments in
the GDP of the South African economy. The current GDP of the economy is reported to
be $323.809 billion, which is rising by 0.7% annually (Chetty, Naidoo & Seetharam,
2015). The growth of the GDP is dependent on the contribution of the foreign
investments that are made by the different organization while bringing forth
developments in the South African markets.
2.6 Chances
The supply of cheap labor force and the support of the government will be
helping the concerned European organization in facilitating the smooth functioning of
the processes in the South African economy. The opportunities of growth are also
dependent on the lower availability of the telecomm services in the rural areas of the
nation. On the other hand, the lower rates of taxation and tariffs through the delineation
and implementation of the EPA (Economic Partnership Agreement) will be helping
the organization in facilitating the smooth functioning of the business processes (Barth
& Heimeshoff, 2014). The growth of the supportive industries like BPO and IT in the
nation will be helping the concerned business in upholding the efficacy of the operations

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as per the objectives of continuous growth in the business. Calandro and Moyo (2012)
stated that the collaborative functioning of the organization with the different existing
institutions in a particular economy helps the same in reducing risks and establish the
foundation through minimal CAPEX (Capital Expenditure). Therefore, it might be stated
that the expansion in the south African market is a proficient choice made by the
organization in order to support the sustenance as per the needs of the customers.
Part 2: Market Entry Strategy
1. Advantages and limitations of using Foreign Direct Investment (FDI)
1.1 Advantages of Foreign Direct Investment (FDI)
Employment and economic boost to the host nation
The European organization might take FDI as a market entry mode as it will be
helping the venture in utilizing the cheap labor force in the South African markets. The
creation of employment opportunities in the South African economy will be helping the
organization in attracting the attention of the chief stakeholders for undertaking a
collaborative approach. Anwar et al. (2014) stated that the collaborative functioning of
the stakeholders in the different sectors helps an organization in maintaining the
efficacy of the operations as per the needs of the business. As per a report, the rate of
unemployment in South Africa is 25.1%, which has affected the livelihood of the people
in the nation (Luiz & Stephan, 2012). Therefore, the concerned European organization
might undertake FDI in order to boost the economic rate through creation of
employment opportunities.
Reduction in taxation
The tax incentives and reductions will be helping the concerned organization in
maintaining the efficacy of the operations in the South African economy. The exposition
of the EPA between the European Union and the South African government has
considerably reduced the taxation and tariffs in the economy, which will allow the
concerned business in upholding the functions through the support of South African
government and other supportive agencies. The FDI mode helps an organization in

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involving the interests of the government relating to the economic boosts, which will be
helping the organization in maintaining the efficacy of the operations as per the needs of
the business.
Increased productivity
Snijders (2012) stated that the increased productivity of the organization is
dependent on the availability of cheap and skilled labour force in the respective
markets. In this relation, the concerned European Union organization might take steps
to create employment in the South African markets for supporting the productivity of the
business as per the needs of the same. The delineation of the different productivity
measures will be helping the organization in maintaining the efficacy of the operations
as per the needs of the business while operating in diverse international markets.
1.2 Limitations of Foreign Direct Investment (FDI)
Risk from subtle political changes
The stable political situation in the South African economy will be helping the
organization in establishing the foundation of the business in the markets. However,
subtle changes in the political relations between the European Union and the South
African government might affect the agreement (EPA) resulting to maximization of tax
and tariff rates (Rogerson, 2013). On the other hand, the change political condition
within South Africa might also affect the smooth functioning of the venture while
undertaking FDI. The change in the regulations might affect the structure and
functioning of the business venture. Cotula (2013) stated that the subtle political
changes in the host country adversely affect the recruitment, supply and manufacturing
activities of an entrant. In this relation, the change in the legislation might affect the
smooth functioning of the business in the South African telecomm industry resulting to
loss.
Higher costs incurred by the organization
Fosu (2013) stated that FDI demands different costs that might be incurred by an
entrant while developing business in the host country. The concerned European

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organization might encounter costs relating to import of machinery and recruitment of
human workforce for supporting the business related activities of the same. The
maximization of the direct and indirect costs that might be incurred by the European
organization might affect the capabilities of the same while expanding in South African
markets (Gillwald, Moyo & Christoph Stork, 2012). The South African telecom service
providers utilize outdated machinery, as the nation lacked IT service and networking
facilities. Therefore, the entrant organization might take steps to import relevant
technologies and services from the supportive industries, which will maximize the costs
of the organization.
2. Evaluation of a relevant market entry mode
The organization might also undertake acquisition of a business firm, which will
be helping the business in reducing the CAPEX and risks related to different processes.
On the other hand, acquisition will be helping the organization in finding loyal customers
in the South African telecomm market. Acquisition of an existing organization in the
South African telecomm industry will be helping the organization in establishing the
foundation of the business without extensive market research. It will assist the
concerned European organization in minimizing the risks of process failures while
adhering to the needs of the customers. The acquisition of an existing organization will
also provide the same with machinery and human resource thereby minimizing the
costs that might be incurred by the business while making business in the South African
telecomm industry.
3. Recommendations
The organization must undertake an acquisition, which will be helping the same
in minimizing the operational costs and thereby develop the existing processes in order
to gain a competitive edge while operating in the South African telecom industry.