Executive Summary

The purpose of this paper is to analyze the current state of BT plc or the BT Group. The first section provides a brief overview of the company in terms of its mission statement which identifies the company as dedicated to helping its customers, its objectives which range from becoming the wholesaler of choice to driving broadband based consumer services and how it is achieving them in the United Kingdom, and a brief history of the company. The next section, which carries out an industry analysis, determines that the telecommunication industry has the capacity and the ability to grow further, and that due to the lack of bargaining power by the many companies within the industry, a perfect or pure competition is in place. The following section looks at the competitive environment using Porters five forces model. This section establishes that the threat of new competition is low (due to huge financing costs), the threat of substitutes is high (due to advent of the internet), the bargaining power of customers is high (due to lots of competitors), the bargaining power of suppliers is low (presence of many vendors), and the competition is fierce within the industry In terms of growth strategies, two strategies were identified a Market Penetration strategy is used for existing markets, while a Diversification strategy is favored for new markets. Finally, Yips model of internationalization is used to determine the globalization drivers. It was determined that market drivers included customers favoring globalization and the need to cater to an MNCs branches, cost drivers included potential to achieve economies of scale and weak currencies as reasons to expand, government drivers included a regulatory environment, technical standards, and lack of entry restrictions, and competition drivers include the presence of global competitors.

Table of Contents
Executive Summary....................................................................................................................................... 1 1.0 1.1 1.2 1.3 2.0 3.0 3.1 3.2 3.3 3.4 3.5 4.0 5.0 5.1 5.2 5.3 5.4 6.0 Introduction ...................................................................................................................................... 3 Mission .......................................................................................................................................... 3 Objectives...................................................................................................................................... 3 History ........................................................................................................................................... 4 Industry Analysis ............................................................................................................................... 5 Competitive environment ................................................................................................................. 6 The threat of new competition ..................................................................................................... 6 The threat of substitute products or services ............................................................................... 6 The bargaining power of customers ............................................................................................. 7 The bargaining power of suppliers ............................................................................................... 7 The intensity of the competition .................................................................................................. 7 Growth strategy ................................................................................................................................ 9 Internationalization drivers............................................................................................................. 10 Market Globalization Driver........................................................................................................ 10 Cost Globalization Driver ............................................................................................................ 11 Government Globalization Driver ............................................................................................... 11 Competitive Globalization Driver ................................................................................................ 12 Conclusion ....................................................................................................................................... 13

References .................................................................................................................................................. 14

1.0

Introduction

The BT Group is a telecommunications company which has its base in the United Kingdom. Its local competitors include giants like Orange, O2, Vodafone and T-Mobile, while its international competitors include companies like Bharti Airtel, Verizon and AT&T.

Its current range of offerings include providing fixed-line services, broadband services, mobile subscriptions and products, TV subscriptions and products, and networked IT services.

1.1

Mission

The BT Groups mission statement is as follows: We are dedicated to helping customers thrive in a changing world (BT Group, 2012)

This statement shows that the BT Group has acknowledged the fact that the world is constantly changing and reconfiguring itself, and that it wants to help its customers to understand this changing landscape and seamlessly integrate into it with their technology.

1.2

Objectives

The BT Group has 6 main objectives (BT Group, 2012), and these are as follows: Driving broadband-based consumer services Being the Brand for Business for UK small and medium enterprises Transforming BT Global Services into a global leader

Being the Wholesaler of Choice Being the best network provider Being a responsible and sustainable business leader

In order to achieve these objectives, the BT Group has invested substantially in the markets where it currently has a foothold. This has paid off as the company has made significant inroads in the United Kingdom broadband market; in the last quarter of 2011, the BT Group won a majority share of all new r=broadband subscribers in the United Kingdom (Garside, 2012). Furthermore, it is rolling out new services as well as upgrades to older ones such as doubling the speed of its standard broadband products in the quest to become the best network provider (Garside, 2012).

1.3

History

The BT Group has a rich history. Claiming itself as the worlds oldest telecommunications company by showing that it is a descendant of The Electric Telegraph Company (the worlds first national telecommunications endeavor) the BT Group has made huge strides to reach its current position as a multinational operating in more than 50 countries around the world. Previously known as the Post Office Telecommunication company, the official name change took place in 1980 when the new company was branded British Telecom (or BT in short). It started as a public company, with full ownership controlled by the British government. However, after realizing its potential to grow as a private entity, the British government decided to privatize it. From that time, BT has grown exponentially. It has not only expanded across the breadth of the globe, but also acquired ailing competitors and partners in the process such as Albacom from Italy and Radianz from Reuters.

2.0

Industry Analysis

Despite the fact that The BT Group operates on both a national and an international platform, only the latter will be considered in this section.

An analysis of the industry has uncovered that the overall telecommunication industry is not saturated and have the capacity to grow further, indicating its potential to become a high profit-generating industry (EconomyWatch, 2010). This potential also indicates that this industry could become a source of high employment levels.

In terms of competition and competitor statuses, it is discovered that there are no major monopolies in the industry. A majority of the companies within this industry are privatized, and hence, the government has no say in them. Hence, the type of competition currently operating within the telecommunications industry is that of a perfect competition. This has been determined by the similarity of goods and services offered by all the players within the telecommunications industry, the ability of the consumer to command the price (due to the availability of a large number of competitors) and the lack of availability for any one company or organization to dictate the price of a product to the consumer.

3.0

Competitive environment

The competitive environment in which the BT Group operates will be analyzed using Porters five forces the threat of new competition, the threat of substitute products or services, the bargaining power of customers, the bargaining power of suppliers, and the intensity of the competition which exists.

3.1

The threat of new competition

The threat of new competition is quite low. While there are several factors which might indicate the opposite such as the lack of barriers of entry in most of the country where the BT Group operates as it has been granted access (despite being based in the United Kingdom and Ireland), the continued profitability of the global telecommunications industry, the control of greater brand equity by other established players (such as Verizon and AT&T), and the access to huge reserves when capital requirements are assesses by other established players, the one major hindrance is the access to finance for new companies (Investopedia, 2012). Substantial investment in licenses, regulatory approvals and production must be made to become a fully-fledged telecom company, and this is clearly not accessible for most companies.

3.2

The threat of substitute products or services

The threat of substitute products or services is high due to the rising prominence of VOIP (Voice-Over internet Protocol) applications like Skype which can be used over the internet for communication purposes, as well as Cable TV and satellite operators (Investopedia, 2012). This is a huge threat, and it

will continue to get bigger over the years unless the telecommunications industry finds a solution for this problem.

3.3

The bargaining power of customers

Due to the presence of other global telecommuncications players, there exists a high degree of competition. This competition, leads to higher levels of quality and service, and lower price levels as customers can choose between any of the players, including the BT Group. Hence, the bargaining power of customers is quite high (Investopedia, 2012). The only areas where the bargaining power may vary is when switching costs are considered; average consumers have low switching costs, while big companies may have large switching costs, thereby diluting their bargaining power (Investopedia, 2012).

3.4

The bargaining power of suppliers

Due to the presence of a large number of equipment makers around the world which provide the entire spectrum of products from fiber-optic cables to billing software the bargaining power of suppliers is low as the BT Group can negotiate with several vendors at the same time and then choose the vendor with the most attractive pricing (Investopedia, 2012).

3.5

The intensity of the competition

The state of the current competition is quite intense within the telecommunications industry and is growing everyday (Investopedia, 2012). With all established players enjoying huge chunks of equity allowing them to pour in investments wherever they deem fit (Vadlamani, 2009), the competition has

become fierce as each organization tries to grab a bigger share of the market through the offering of new services and expansion into different markets.

4.0

Growth strategy

The strategy for growth is one of the most crucial elements in the BT Groups expansion plans. For the BT Group, there are two strategies in place one for existing markets and one for new markets.

For existing markets such as the United Kingdom the organization has executed the strategy of Market Penetration. The best example of this is the rise in broadband subscribers that the BT Group enjoyed in 2011 (Garside, 2012). By continuing to invest in broadband through the placement of bigger networks of fiber cables the BT Group has sought to achieve growth through the sale of one of its existing products to the currently existing market segments; the new subscribers are part of the old segments (they are not from any new segment).

For new markets (where the BT Group wishes to expand), the organization has implemented the strategy of Diversification. The best example of this is the Asia Pacific region a new market for the BT Group where it rolled out 15 new products to cater to the new market there (Chong, 2011). This diversification ensures that the company is branching out to new segments via new products, thereby reducing its dependency on any one product.

5.0

Internationalization drivers

The internationalization of any company refers to its efforts in expanding across the globe from its home base. For the BT Group, it has already undergone the process of internationalization from its humble base in the United Kingdom and Ireland. Currently, it boasts of more than 35,000 employees spread out across 50 countries, and offering services in more than 170 countries around the globe. Its portfolio of clients includes industry heavyweights such as Honeywell and Wyeth in North America, Manpower and Visa in Africa, AstraZeneca and Johnson & Johnson in Asia, and Unilever in South America.

In order to understand this expansion, one needs to determine drivers propelling the company towards other countries. The best established framework to comprehend BT Groups process of internationalization is Yips model of internationalization. This model consists of four drivers market globalization drivers, cost globalization drivers, government globalization drivers and competitive globalization drivers. Each driver is examined in details through BT Groups lens.

5.1

Market Globalization Driver

Telecommunications is a commodity required by every global citizen. Hence, the telecommunication industrys average customer prefers globalization. Taking this cue, the BT Group has expanded across the globe and positioned itself in every unsaturated market. Furthermore, by catering to multinationals spanning the globe, the BT Group has had to spread out to the countries where branches of the MNC exist so as to cater to those customers.

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5.2

Cost Globalization Driver

The low cost attributed to setting up base in other countries has been an important driver for the BT Group. From lower land leasing spaces to set up its operations to lower transportation costs worldwide, the BT Group has expanded across the globe due to its perception of the potential to achieve economies of scale in different countries. Additionally, the strength of the currency in countries that it has decided to set up in has been much lower than the strength of the British pound sterling. For example, the BT Group decided to set up in India due to its cheap labor costs (workers are paid in Indian rupees rather than the pound sterling a fraction of the costs incurred due to labor expenses in the United Kingdom), the cheap land available, and the low value of the rupee compared to the British pound sterling. This move has been extremely beneficial for the company as it had predicted revenues of us $250 million in India by 2009. Furthermore, the low casts had allowed it to expand further within the country; instead of having just one base, the BT Group has established its presence in several key regions within the country, such as Bangalore, Bombay, New Delhi, Chennai and Calcutta, thereby allowing it to reach a greater number of potential customers.

5.3

Government Globalization Driver

The government of any country plays an important role in determining its attractiveness for companies looking to invest and expand within it. For example, the BT Group has not hesitated to expand with the United States of America (U.S.) due to two main reasons: the participation of the U.S. in the World Trade Organization (WTO) and its technological advancement. By being a member of the WTO along with the United Kingdom, free trade can take place between both countries, thereby allowing the BT Group to reach out directly to potential customers in the North American region. Furthermore, its status as a

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technologically-astute country indicates the presence of regulations governing the telecommunications industry and the established technical standards. Both of these aspects were favorable for the BT Group as it did not need to modify its standards to meet the needs of American consumers, and a regulating environment would ensure a fair competitive environment within the telecommunications industry. Corrupt governments and lack of free trade agreements often serve as deterrents for organizations looking to expand abroad.

5.4

Competitive Globalization Driver

The presence of several global competitors such as Verizon, AT&T, Vodafone, Telecom Italia and Orange (Vadlamani, 2009) indicates the ripeness of the global industry for globalization. By looking at the examples of other established organizations and their forays into the international arena, the BT Group can learn from their successes and mistakes, and try and utilize this knowledge when it expands further. This is show by the creation of partnerships and alliances in new host countries such as the partnerships with Infosys and Wipro in India.

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6.0

Conclusion

This report has shown the current condition of the BT Group. The industry analysis showed the potential of the telecommunication industry to expand further and its current status of a perfect competition due to the fact that there were many competitors, the customer bargain with the price, and no one company could dictate the market price. In terms of its competitive environment, the threat of new competition is low, the threat of substitutes is high, the bargaining power of customers is high, the bargaining power of suppliers is low, and the competition is fierce within the industry. Growth strategies were double pronged market penetration was favored for existing markets, while diversification was favored for new markets. In terms of internationalization drivers, it was determined market drivers included customers favoring globalization and the need to cater to an MNCs branches, cost drivers included potential to achieve economies of scale and weak currencies as reasons to expand, government drivers included a regulatory environment, technical standards, and lack of entry restrictions, and competition drivers include the presence of global competitors.

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References

BT Group. (2012) India. Available at: http://www.btplc.com/Thegroup/BTUKandWorldwide/BTaroundtheworld/India/index.htm

Byles, C. (2006) Vodafone Air Touch: The Acquisition of Mannesmann. Available at: http://www.cybozone.com/vcu/Vodafone_Air_Touch_-_The_Acquisition_of_Mannesmann.pdf

Ching, K. (2011) BTs Asia expansion: 15 new products, 600 staff. Available at: http://www.blog.bt.com/asia-network-perspectives/2011/03/bt%E2%80%99s-asia-expansion-15-newproducts-600-staff/

EconomyWatch. (2010) Telecom Industry Analysis. Available at: http://www.economywatch.com/worldindustries/telecommunications/telecom-industry-analysis.html

Garside, J. (2012) BT profits on broadband growth. Available at: http://www.guardian.co.uk/business/2012/feb/03/bt-profits-broadband-growth

Investopedia. (2012) The Telecommunications Industry. Available at: http://www.investopedia.com/features/industryhandbook/telecom.asp#axzz1pno7pcGS

Vadlamani, S. (2009) Top 25 Telecom companies in the world (based on brand value). Available at: http://asiancorrespondent.com/515/top-25-telecom-companies-in-the-world-based-on-brand-value/

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