Singtel Business-level StrategyFitness Gear & Equipment
Based on competing in the Singapore market, Singapore Telecom should focus on how to maintain its exceptional record of profitability and retain (and regain) as much market share. As Singapore Telecom serves a broad customer (market) base (i.e. residential, small and medium enterprises, and large enterprises), integrated cost leadership/differentiation strategy should be used.
By implementing a cost leadership/differentiation strategy , Singapore Telecom would efficiently produce products/services with differentiated (unique-value) attributes, while being able to maintain cost at the same time. The company would be able to provide new streams of revenue to meet maturing customer demands, and allow its products and services to be perceived differently from those of competitors (M1 and StarHub), an opportunity to gain loyalty from customers. In addition, cost leadership/differentiation strategy would permit the company to sell its products and services either at average industry prices to earn a higher profit than competitors (rivals), or below the industry prices to gain market share. M1 and Starhub do not yet have the wide range of products and services that Singtel offers to the market.
Once a monopolistic and protectionist environment, the barriers of entry were lowered when the Singapore government started to encourage (more) competition. Although capital requirements are high, the convergence of technology has also made it easier for (cash/technology-endowed) competitors (in other industries) to enter into the telecommunications industry. In addition to the current competitors (M1 and StarHub), the Singapore government issued 2 more licenses (one for mobile phone services and one for fixed phone services) in 1998. Thus, the threat of new entrants is high and rivalry amongst competitors is intense: Singapore Telecom (counter-response) was forced to cut its rates twice in one day, by a total of 18% in 1999; resulting in price wars.
Competition (i.e. substitutes) will increase as the telecommunications industry structure (gradually) changes through convergence with other technologies (e.g. computers, television, movies & publishing). Thus, the threat of substitutes is high (e.g. Internet telephony charges are cheaper than those of telecommunications companies), and restrains the ability of telecommunications companies such as Singapore Telecom to raise prices.
As substitutes impact telecommunications companies through price competition, cost leadership/differentiation strategy can be used to counter the threat of new entrants and substitutes; giving it a competitive advantage. For instance, in order to adapt quickly to the rapid technological advancements (external environment), Singapore Telecom (with its large cash-reserves) can make significant investments in its (IT) products and services. This will result in flexibility to lower prices to retain customers: in the advent of price wars, Singapore Telecom can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices start to decline, the company that can offer cheaper rates (cost leader) with innovative (value-added) products/services (differentiation), enabling it to remain profitable for a longer period of time.
As technology improves, competitors may be able to lower their costs as well. Thus, Singapore Telecom would be able to offer unique attributes that are valued by customers, perceived as being better than or different from competitors, with cost leadership/differentiation strategy. Cost leadership/differentiation strategy would be in line with Singapore Telecom’s diversified portfolio, which has a focus on growth areas (i.e. e-commerce, systems integration, multi-media and Internet-based services) domestically and overseas. It may be difficult to imitate continuous improving levels of efficiency and cost reduction, serving as a significant entry barrier to potential competitors. Some aspects of its business could be cost focused while others can be focused on differentiation.
For instance, its Corporate Business unit can use the large cash-reserves to invest in diversification (cost-leadership) via alliances with business communication applications service providers to provide corporate customers with affordable integrated communications solutions that can easily customized (differentiation); catering to their communications needs (e.g. telephony, IP telephony and call centre services). This is further differentiated (value-added) when enterprises do not have to incur high upfront and maintenance costs.
Being able to offer lower prices to enterprises (powerful customers), Singapore Telecom will be able it to defend against substitutes and deter competitors. There is also the possibility that the company can use (share) its acquired technology and knowledge with the other business units (i.e. Customer and Global Business units).
Therefore, in conclusion, integrated cost leadership/differentiation strategy would enable Singapore Telecom to acquire cost advantages (by improving process efficiencies), and have a competitive advantage with differentiation in it products/services (i.e. cheaper rates with packages containing innovative products/services), gaining the loyalty and satisfaction of customers in the process. When customers are satisfied with Singapore Telecom’s products/services, loyalty will increase and price sensitivity will decrease: presenting Singapore Telecom with the opportunity to charge a premium for certain (new) services/products (in the future), with customers willing to purchase such (unique and hard to imitate) services/products.
The integrated approach is something which Singtel can embark upon. The differentiated approach can be applied to corporate and SME customers while the cost leadership approach to the retail sector. This gives it the leeway to apply different strategies in their regional expansion.
- Ireland, R D, Hoskission, R E & Hitt, MA 2009, The management of strategy concepts, 8th edn, South-Western Cengage Learning, USA
- Singh, K, Pangarkar, N & Heracleous, L 2010, Business strategy in Asia a case book, 3rd edn, Cengage Learning Asia, Singapore