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Essay: EE/telecoms market entry to New Zealand (PESTEL, Porter’s)

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  • Tags: PESTEL analysis examples Porter's Five Forces Analysis Examples
  • EE/telecoms market entry to New Zealand (PESTEL, Porter's)
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Introduction

Globalisation and the ease in trade have led to the expansion of many new businesses across the globe and therefore understanding the business environment in a global scale has been an important aspect of studying in order to understand the organisational behaviors. In the following report, I have conducted a comprehensive study regarding the UK telecommunication giant A&T and its market intervention plan in New Zealand. EE, Inc. is a leading holding company in UK which engages in serving telecommunications and digital entertainment services. It offers various products like consumer mobility, entertainment group and International calling all across the globe. Services like Virtual Private Network and Software Defined Networking are popular among Business sectors and bestsellers for EE (EE, 2018). The company has its headquarters in Hatfield UK with almost 252K employees around the Globe. The firm is spread across the globe with its presence in Europe, Middle East, and 25 countries in Africa. Therefore, while conducting the Market entry strategy of the company in New Zealand, a study of the Lands Political, Economic and Technological Factors have been analysed using PESTEL Analysis. The main competition in the New Zealand’s Market has been analysed using Porters 5 forces, and the Threats and Opportunities has been identified. New Zealand is considered to be a wealthy Pacific nation which is dominated by two different cultural group which are the New Zealand people of the European origin and the Maoris. The country plays an important role in the Pacific affairs and therefore the country has constitutional ties with the Pacific territories.

PESTEL Analysis:

It is an important factor for EE to consider some of the major external factors which might affect the operation in New Zealand.

Political:

New Zealand has a stable government which is ideal for a new company such as EE to penetrate the telecom market. The Government laws and policies changes for every 3 years with the change in government. The labor law is strictly maintained in the land and therefore the labor force is expensive. The leading rates are high so the companies pay up extra taxes and therefore it might affect the profitability of the company.

Economical:

New Zealand enjoys a mixed economy which operates on free market forms and principles. It is well equipped with manufacturing and service sector accompanied with complementing a highly efficient agricultural sector. Exports of goods and services are accounting for 1/3rd of real expenditure GDP. The country’s economy has made a healthy rate of expansion next year The GDP per capita for the country is $41604 with an economic growth percentage rate of 2%. The country has a much higher rate of import than country export therefore it might be a drawback from the country as it will trigger the export cost for the company.

Social:

The population growth rate is 3.179% with an increased rate of urbanisation in the country at 17%. This could be an opportunity for the company to provide more advanced telecommunication service to a huge market (BBC, 2017). The literacy rate of almost 99% will help the company to find skilled labour for the operations and maintenance of high-end devices. It has a unique and dynamic culture therefore the company has to strategically target the cultural groups with marketing techniques.

Technological:

New Zealand is technologically advanced to that extent where it can provide a sound environment to incubate industrial development concerned with technology. It is therefore seen to be a country which is technologically advanced. The Tech sector of the country employees over 60% of the workforce and therefore it contributes to 8% of the GDP growth for the country. Thus for EE from a technical perspective, it is seen to be an advantage and the firm does not need to depend on export and import of both human capital and technological services from other countries.

Environmental:

Most of New Zealand’s economy is based on its natural environment – ranging from agriculture to forestry, electricity generation and tourism. Therefore, it has been observed to have a commendable improvement in the environmental sector of the country, and through proper sustainability management, the company can expect smooth operation in New Zealand. The company should abide by certain laws set out by the Environment court of New Zealand which states the conservation practices and the sustainability maintenance required by companies (Newzealandnow, 2018).

Legal:

The legal structure is well organised in the country which secures interest of both the labourers and the industries. The crime rate is low and the government has successfully curbed corruption from the country. The country’s legal framework also specifies the working hours and has a separate provision for it in its constitution. Therefore, the legal infrastructure of the country will have a mixed impact on the companies operation. Although the acts like Employment Contracts Act 1991 of termination of employment, and Minimum Wage Act 1983 specifying the Wages will help the firm to specify its regulation, it might invite legal action in some exceptional cases like overtime and payment issues.

Porters Five Forces:

To analyses, the market competition which EE might face in New Zealand has been analyzed using the porter’s theory which categories and analyses the threats in five different segments which are:

Threat of New entry:

The telecom industry in New Zealand used to follow a monopoly market with the existence of a single centre owned telecom network which is Telecom New Zealand. But due to hike in service demand and high cost of single existence the telecom department has opened up gates for new firms to invest in the telecom sector. With almost 4,078,993 internet subscribers and even more mobile users, there seems to be a spurring competition among local and international companies. Therefore it is seen that threat of New Entry is high although the effect from it is going to have a negligible impact on the Firm as it will have the liberty to keep price and cost at cut edge lower than any new competitors like them.

Threat of Substitute:

The only threat which EE might face as a substitute to their company is potentially Telecom New Zealand. But EE being an MNC with a net worth of £12.5 billion can easily counter the switch and reduce the substitution effect with offering better service than the Telecom New Zealands who stands in the competition with a net worth of just 250 million USD, at a much lower price (EE, 2018). Moreover, due to inexistence of other global giants with same economic structure as Virgin, and Vodafone it makes the threat to substitute negligible. Therefore we can say that the company has a threat to substitute, but the impact from it is seen to be low (Isbusinessnewspaper, 2018).

Buyer Power:

With a per capita income of 39560 PPP dollars and existence of fewer service providers, it is seen that the Buyer Power towards the firm is moderate. The buyers will be unable to shift to any new firm offering better service or lower price. Therefore EE is seen to be having a competitive advantage over other firms (Mfat, 2018). This also means that the pricing of the firm should be in accordance with the income level of the consumers. The firm must take in strategic measures like penetration pricing and cost-based pricing in order to maintain competitiveness with the existing and new firms.

Supplier Power:

The main suppliers of EE are Amdocs, Communication Systems, MasTec etc. who provides different products and supplier services to the company like software solution, raw materials etc. Due to the inexistence of advanced telecom technological infrastructure the firm has to depend on its regular suppliers and have to import the services, therefore, the power of the supplier is seen to be high in this case.

Competitive Rivalry:

Due to the past monopoly telecom market in New Zealand the country has eliminated the probability of having any potential competition. Demolishing the trade barrier in tech sector the country now invites new companies to invest in the tech and telecom sector (unanz, 2018). Therefore the firm is seen to have a high competitive rivalry among other global giants like Vodafone and Sky which will be gradually growing with time. The New Zealand’s own 2degree telecom and call plus groups are expected to add on to the competitive structure.

Opportunities and Threats:

Therefore from the above analysis, it is seen that EE is likely to have certain benefits by expanding their operation In New Zealand. The pacific financial service sector has flourished over the years and has played an important role in shaping the country’s economy. Therefore the company can easily get financial assistance if it requires any time. From the PESTEL analysis, it has been seen that the rise in population is also seen to be a primary opportunity for the firm as this will increase the market size and give a boost to the overall product line (BBC, 2017). The Government has seen to roll back the money it had spent on optic fibres and cables by letting other companies take up the opportunity to trade. The rise in consumer demand for internet and telephone is also a major opportunity for the company. As per as the political factors discussed above it can be seen that a lot of New Zealand people have migrated from the country to other parts of Europe. This has created an urge in public to find ways to communicate with their dear ones. Therefore this is another major opportunity for the company to make the market out of the demand. The current telecom penetration In New Zealand hovers between 80 and 90 per cent and internet penetration is mere 86.2% due to high price and poor infrastructure (Futurefive, 2018). Therefore EE should bring in advanced and more cost-efficient technology services which would facilitate the company’s growth and boost up the demand among people. Other opportunities which are seen to be important in deciding the growth of the organization are its Legal and stable political factors. The existence of a sound and stable political situation in the country is ideal for any organization targeting a market intervention, and therefore EE can operate without much trade resistance.

But despite these opportunities, the organization also has some potential threats from the current economic condition in New Zealand. The availability of labor is going to be high along with acquisition cost of human capital and machineries. The FDI rates of the country has almost doubled from $55 million to $100 million in 2015. Most of the FDI comes in from Australia therefore a rise in potential competition with Australian firms are predicted. The standard of living and rise in unemployment rates are balanced therefore the company will find it hard to attain skilled labor at cheaper price. It was seen that the purchasing power per capita is lower than the OECD parameter of $30563 a year therefore might lead to unaffordability. From porter’s analysis, it has been seen that the threat of new entrants in the telecom sector is also seen to add on to the competitive threat for the organization. Therefore the organization must take in competitive pricing policy in order to compete with future rivals.

Market entry strategy:

After analyzing the organizational infrastructure of EE and the external factors affecting the operation of the firm in New Zealand it has been seen that the company should adopt strategic market entry for their expansion in New Zealand. The favourable market entry strategy for EE has been identified to be Greenfield investments and Partnering.

Greenfield investments: These particular type of market entry strategy requires large funds and efforts. Here the organization buys land obtains all kinds of permits and builds facilities for trade and continue operation as an ongoing concern. This particular market entry strategy is advantageous for EE as it will give liberty to the organization to operate in its own way by maintaining their infrastructure. New Zealand has been seen to facilitate industry, and the land permits are easily available. Thus the company will have no problem to introduce direct selling through the Greenfield investment EE of market entry strategy. Also, the firm will require competitively less investment due to the low expense rates (Mfat, 2018). Availability of skilled labour and other necessary factors like legal infrastructure will affect the Greenfield direct investment in the country will help in better operation of the organization.

Partnering: Alternatively the company can get an advantage by adopting Partnering with the existing monopoly in the New Zealand state. EE can go for partnership with Telecom New Zealand. The main problem with the operation of Telecom New Zealand Telecom in its domestic land has been seen to be high price and lack of advantage (Nzte, 2018). By partnering with Telecom New Zealand, the organization will not only get a commendable market share of existing customers but a high amount of goodwill in the market. Telecom New Zealand’s undertakes almost 5562 employees working for them in the New Zealand state, therefore, partnering with them will enhance the operation function in the existing infrastructure (sparknz, 2018). Moreover, both, the government and the organization will be having an advantage from it in eliminating competition, gaining more market, improving the existing infrastructure and offering a lower price and advanced technology to the customers.

Conclusion:

Therefore from the above study, we can conclude that the company EE has certain factors which may support their market penetration plan in the land of long white cloud, New Zealand. The population factor is seen to be contributing towards the opportunity for the country with 4.37 million people (Statista, 2018). Moreover, the company has been in a top grossing company in the British land. The thick population and the demand for technology are seen to be one of the most advantageous opportunity and will be a potential market for the company’s service and products. But as a threat of the same, the low disposable income rate and low per capita income will prevent the company from raising the price in the initial states and get a price advantage. The economic factors of the country like obdurate low unemployment rate and poverty rates have been identified to provide skilled labour supply to the company. This will help the company to reduce the investment on skill development and therefore reduce the selling price of their services. Therefore creating a scope of affordability for the people. The stable political situation of the country has been seen to be ideal for EE’s investment in the land. The rigid laws however were observed to have a mixed impact in the company policy. From the competitive analysis, it has been seen that the company lacks any potential threat of new entrant due to the existence of monopoly up till the recent years. Other factors like bargaining power of the buyers and threat to substitutes has been observed to be low as well. However, bargaining power of the supplier and the competitive rivalry in the future has been analyzed to be higher and might cause a threat to the company. Therefore undertaking all the factors, EE has been suggested to adopt a Greenfield investment strategy for better operation.

13.12.2018

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