Running Head: CRITICAL THINKING

Contemporary Strategy Analysis

Critical Thinking

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February 4, 2021
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Module 03: Critical Thinking

Introduction

The Saudi company selected for this critical thinking is known as Saudi Telecom Company.

Saudi Telecom Company (STC) offers telecommunication services, computer networks, fintech,

entertainment, enterprise digital solutions, internet services, and landline services in Saudi

Arabia. STC is the largest company operating in telecommunication sector in Saudi Arabia.

Approximately 81% of the mobile phone users in Saudi Arabia had subscribed to STC and the

company generated almost 73% of its revenue from these subscribers by the end of 2007. The

company took advantage from its monopolistic position in the telecommunication industry that

ended when the Saudi government licensed other companies like Etihad Etisalat. The percentage

of company’s subscribers in current telecommunication industry has decreased significantly as

new companies have entered and established in the market. The company expanded extensively

after 2007 into other international markets and invested in many other countries including

Malaysia, Indonesia, and Kuwait. STC also invested in a number of other related regional

companies including Arabsat Satellite Communications Corporation. This allowed STC to enter

the world of broadcasting services. The company is offering a broad range of services in the

Saudi market including television services, internet services, and mobile network services.
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Analyzing and Predicting Industry Profitability

a. Porter’s Five Forces Analysis

Figure 1: The Structural Determinants of the Five Forces of Competition (Grant, 2019)

Competition from Substitutes

STC has an advantage in Saudi market because it has experience of operating in the Saudi

market more than any other company operating in the telecommunication industry of the

country. The Saudi government did not provide license to other companies before 2007 and the

company operated in the industry with monopolistic advantage. The company has developed

significant resources as well as products and services because of the longer time period that it has

spent in the Saudi telecommunication industry. STC emphasizes quality of its products and
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services and it has developed an ability to provide good quality services at lower price as

compared to its competitors. In addition, the company has invested a number of other related

services including landline, internet services, and digital payments. The differentiated products

have allowed STC to develop a competitive advantage over its competitors.

On the other hand, most of the companies operating in the telecommunication industry are

offering similar products and services. The substitutes offered by most of the competitors closely

resemble with each other. Most of the other telecommunication services are offering same as

well as similar services to the customers in Saudi Arabia. It is because of this fact that STC’s

subscription rate has declined after 2007 when the government provided license to other

telecommunication companies. Therefore, competition from substitute is medium for STC.

Threat of Entry

Threat of entry is based on a number of factors associated with establishing a new company in

existing industry. The most important factor is the capital requirement. The new

telecommunication company requires huge sum of capital to establish and commence operations

at national level. It is very difficult to acquire such a huge amount of capital which makes it

difficult for new companies to enter the telecommunication market. Another important factor in

this regard is regulatory requirements. The new company has to acquire a license from the

government which is very difficult to obtain. The new entrant has to meet a specific criterion and

number of regulatory requirements which make it difficult for new entrant to commence

operations at national level. Another factor associated with threat of entry is resistance from

existing companies. The companies resist the entry of new company by varying their products,

utilizing their experience, and lowering the prices which makes it very difficult to survive at
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initial stages. Analysis of telecommunication industry suggests that STC faces low level of threat

of entry (Grant, 2019).

Rivalry between Established Competitors

The number of companies operating in the telecommunication sector in Saudi Arabia is small;

however, all of the companies are large-sized corporations. Any strategic move taken by any of

the company in the telecommunication industry influences all the companies operating in this

industry. It means that internal rivalry between the established competitors is very high. In Saudi

telecommunication industry, some companies have relatively larger market share as compared to

most of the others due to which companies with smaller market share are always making

strategies to enhance their market share. In addition, the fixed cost of operations for all of the

companies operating in this industry is high which means that the companies are competing at

low profit margins. All of these factors suggest that the level of rivalry between established

competitors in the Saudi telecommunication industry is very high.

Bargaining Power of Buyers

STC is operating in an industry in which most of the companies are offering same or similar kind

of products and services to their customers. The analysis suggests that the switching cost for the

customers is very low which means customers can easily switch to other companies if they are

not satisfied with the products and services offered by one company. The companies are forced

to invest in differentiation and innovation so that they can develop a competitive advantage;

however, it is very difficult to develop a competitive advantage in this industry because the

companies are offering closely resembling products and services. Therefore, the bargaining

power of buyers is high in this industry (Singh & Sharma, 2020).

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Bargaining Power of Suppliers

In telecommunication industry, most of the services offered by the suppliers are highly

standardized and the switching cost for these services is comparatively low. The suppliers have

very little influence over the prices of services offered to the telecommunication industry

because of high standardization and low differentiation. There are no substitutes of the services

that the suppliers provide to the telecommunication companies. There is no credible threat of

forward integration in the industry; therefore, the bargaining power of the suppliers is low in the

industry in which STC operates.

b. Level of Industry Profitability

STC is operating in an industry where some forces are much stronger as compared to the others

which make it difficult to predict industry profitability. A number of factors influence this

prediction. Following is the summary of Porter’s Five Forces analysis that will help in predicting

the industry profitability:

 Competition from substitute: Medium

 Threat of entry: Low

 Rivalry between established competitors: High

 Bargaining power of buyers: High

 Bargaining power of suppliers: Low

Threat of entry and bargaining power of suppliers are low level threats and these are the forces

that predict a good profitability for the industry in which STC operates. It is very difficult for

new entrants to enter and establish in this industry which existing competitors face less threat of

sudden drop in market share. Bargaining power of suppliers is also a low level threat which
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means that the suppliers have low influence on prices of services that they offer to the

telecommunication services. Low bargaining power of suppliers is also good for industry

profitability.

Rivalry between established competitors and bargaining power of buyers are high for

telecommunication industry in Saudi Arabia. The telecommunication companies have to provide

their services at lowest possible price due to which the profit margin drops. The companies can

achieve higher profitability only through achieving economies of scale. Competition from

substitute is a medium level threat for the companies in this industry but it also results in reduced

profitability for companies in this industry.

Based on this analysis, it is justified to predict medium level industry profitability because these

factors indicate that this industry is operating near saturation level.

Key Success Factors

Figure 2: Identifying Key Success Factors (Grant, 2019)

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a. Key Customers and their Needs

Telecommunication companies are offering services that almost every adult individual needs.

STC is offering mobile phone services, internet services, landline services, and broadcasting

services to its customers. All of these have become important in current digital age. Mobile

phones and internet have become integral part of modern lives. Therefore, the target market for

companies like STC includes all the adult individuals who can use the mobile phones and

internet. The customers of telecommunication industry want that the mobile phone industries

should offer high quality services at lowest prices. Different companies are offering internet

services at competitive prices and the customers choose the companies that provide them with

best prices. In addition, the customers also need high quality telecommunication services which

have become integral component of success for these companies.

b. How STC Survives Competition

STC is operating in the Saudi market for longer than any other company operating in this

industry in the country. This longer period has provided company with enough time to

understand the market needs and develop the resources through which it can serve better as

compared to its competitors. The customers appreciate STC for superior telecommunication

services and differentiated services. The company has invested in a number of related market

segments including landline and broadcasting. The customers prefer STC for its differentiation.

Furthermore, the company has developed competitive advantage based on its product

differentiation and superior services. It means that the company has the ability to offer services at

comparatively lower prices. Although the percentage of its subscribers has declined over the

period of time since 2007 when the government provided license to many other companies;
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however, the company has survived the competition based on its product differentiation and

lower prices as compared to its competitors.

c. Changes in Key Success Factors

Some key success factors have changed for STC over time because the industry has evolved

significantly during last decade. For example, the competition has become fierce over time

because the government provided license to a number of telecommunication companies after

2007. STC operated in a monopolistic environment before 2007 but this situation has changed

now. STC has to carefully design its pricing policy now because of the fierce competition

between the rivals. With increasing competition, the customers have gained a lot of bargaining

power. It is because of this bargaining power that the company has bring innovation and

differentiation in its operations. These key success factors have evolved over time for STC (Al-

Kahtani, 2018).

Conclusion

Saudi Telecom Company is one of the largest companies operating in the telecommunication

industry in Saudi Arabia. The company is operating in a highly competitive industry and Porter’s

Five Forces analysis suggests that the industry profitability is at medium level. The company

faces low threat of entry and low bargaining power of suppliers. On the other hand, rivalry

between established competition and bargaining power of buyers is high. Threat of substitute is

at medium level. The telecommunication industry has evolved as the new players entered in the

industry. The companies offered same or similar services at competitive prices. Therefore, key

success factors have also evolved over time. STC has to realize these changes and emphasize

more on differentiation of services and innovation in its operations. The company has been
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successful in dealing with the competition and a more effective way to sustain its success is to

achieve economies of scale.

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Works Cited

Al-Kahtani, N. (2018). The impact of demographical variables on HRM practices in Saudi Telecom
Company: An empirical exploration. Management Science Letters , 8 (3), 131-138.

Grant, R. M. (2019). Contemporary Strategy Analysis (10th ed.). Hoboken, NJ: John Wiley & Sons.

Singh, A. K., & Sharma, S. D. (2020). Digital Era in the Kingdom of Saudi Arabia: Novel Strategies of the
Telecom Service Providers Companies. Webology , 17 (1), 2-12.