A study on hypercompetition the case of vms from 2005 to 2007

Sub cover page

Table of content

List of abbreviations.

List of Figures

INTRODUCTION 1

CHAPTER 1: THEORY FOUNDATION

1.1. Introduction 5

1.1.1. The definition of Hypercompetition 5

1.1.2. Competitive advantages in Hypercompetition 6

1.1.3. Levels of competition within an industry 7

1.2. Four Arenas in Hypercompetition 9

1.2.1. Cost & Quality 9

1.2.2. Timing & Know-how 11

1.2.3. Strongholds 13

1.2.4. Deep pocket 16

1.3. New 7S’s Model 18

CHAPTER 2: MOBILE SECTOR AND VMS ANALYSIS

2.1. Competition analysis on Mobile market from 2005-2007 21

2.1.1. Vietnam’s Mobile market 21

2.1.1.1. Overview 21

2.1.1.2. Mobile structure 22

2.1.1.3. Regulations 23

2.1.1.4. Operators 24

2.1.1.5. Technologies 25

2.1.1.6. Market situation 27

2.1.1.7. Forecasted growth 29

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on market trend and profit. However they still have to announce MOPT 10 days before changing prices. The Decision 03/2007/QD-BTTTT in September 4th 2007 is to control the pre-paid account o f mobile services. It is the great contribution to effective resource management in mobile sector and to sustainable development of Vietnam mobile market by safety and security in telecom activities. International: Based on Telecommunication commitments in the Vietnam-US Bilateral Trade Agreement (BTA), The tariff and non-tariff commitment for telecommunication market access allows American companies and authorized Vietnamese companies to set up joint ventures more specifically. Based on Negotiation and commitments on telecommunication services of Vietnam within ASEAN, Telecommunication is one o f seven service sectors that received the priority in ASEAN negotiation since 1996. Currently, Vietnam has made commitments on telex, telegraph, email, voice telephony and electronic data transmission services. Trade in telecommunication services within APEC. The common objective of APEC is to complete the trade liberalization process by 2020. Within APEC, Vietnam made commitments on trade in telecommunication services through International Action Plan. Now, the major commitments 23 made by Vietnam in this area include the improvement in the legal framework for trade in telecommunication service and market access, based on the current regime. 2.1.1.4 Operators Num. Brand name Operator Established Technology 1 Vinaphone GPC 1996 GSM 2 Mobiphone VMS 1993 GSM 3 S-Fone SPT July 2003 CDMA 4 Viettel Mobile Viettel October 2004 GSM 5 EVN VP telecom June 2006 CDMA 6 HT Mobile Hanoi telecom January 2007 CDMA- FIGURE 2.2 THE SUPPLIERS OF VIETNAM MOBILE M AR KET mobifone The first comer entered the mobile market with GSM technology in 1993. It is state owned company belonging to VNPT. At the beginning, It serves the mobile market in few areas: Hanoi, HCM, Bienhoa, Vungtau. Then 24 It is expanded national wide. In 1995, VMS corporate with Comvik of Sweden by 10-year BCC. It is the second and established in 1996. It also belongs to VNPT and get the big support from the mother company. It is used to be the leader in the mobile market based on its national network with 64/64 provincial post offices. But the game is changing with some new comers. The Vietnamese youth had new style in the mobile service and became the potential market o f SPT. SPT is a company with foreign investment (SK Telecom-Korea). Its strategy - low cost and advertising with famous representatives (Korea singers) made the brand name “S-fone” become the most wanted for Vietnam young generation in 2003. Hà\ nui thru <è< h cita h(in In 2004, The establishment of Viettel is the fright of all exit suppliers. Viettel become the closed friend of consumer and the symbol of cheapest price. It gets the big support from Ministry of Military. o > EVNTctaaw phone VP telecom was introduced in 2006. But it has no impact on the mobile market because its current focus is wiles telephone (e.com) or internet. 25 4 HT M O B IL E The newest - Hanoi Telecom has been opened in January 2007 in CDMA technology. Based on its corporation with Hutchison from Hong Kong and new advance technology, HT mobile is up-and-coming. 2.1.1.5 Technologies There are two technology trends: GSM and CDMA in the Vietnam mobile market. “GSM (Global System for Mobile communications) is an open, digital cellular technology used for transmitting mobile voice and data services” (GSM World’s definition). GSM differs from first generation wireless systems in that it uses digital technology and time division multiple access transmission methods. GSM is a circuit-switched system that divides each 200kHz channel into eight 25kHz time-slots. GSM operates in the 900MHz and 1.8GHz bands in Europe and the 1.9GHz and 850MHz bands in the US. The 850MHz band is also used for GSM and 3GSM in Australia, Canada and many South American countries. GSM supports data transfer speeds of up to 9.6 Kbit/s, allowing the transmission of basic data services such as SMS (Short Message Service). Another major benefit is its international roaming capability, allowing users to access the same services when traveling abroad as at home. This gives consumers seamless and same number connectivity in more than 210 countries. GSM satellite roaming has also extended service access to areas where terrestrial coverage is not available. “CDMA (Code Division Multiple Access) is a cellular technology originally known as IS-95, competes with GSM technology for dominance in the cellular world. Developed originally by Qualcomm and enhanced by 26 Ericsson, CDMA is characterized by high capacity and small cell radius, employing spread-spectrum technology and a special coding scheme. By contrast, time division multiple access divides access by time, while frequency-division multiple access divides it by frequency. CDMA is a form of "spread-spectrum" signaling, since the modulated coded signal has a much higher bandwidth than the data being communicated. 2.1.1.6 Market situation Subscriber growth of mobile market 20,000,000 18,000,000 •> 16,000,000 pm 14,000,000 § . 12,000,000 ■ . 10,000,000 & 8,000,000 . 6,000,000 1 \ 4,000,000 111 f§ ’jpj 2,000,000 o fill : Pre- Post- Sum Paid Paid pre­ paid Post- Sum Paid Pre- Paid Post- Sum Paid 2005 2006 01/2007 El Total Y ear FIGURE 2.3 THE SUBSCRIBER GROWTH OF VIETNAM M O BILE M ARKET [Source: M P T ’s report, April 2007] In 2005, many economists said that this year was the giant development step o f Vietnam’s mobile market. But, in fact, the year 2006 is booming of the mobile market in term of both subscribers and revenue. The growth rate in subscribers is 91% and in revenue is 50% It is said that this is the year of GSM. This leads to the total number of subscribers in the first quarter of 2007 at 18,548,652. It means that now the growth rate is 128% comparing with 2005. And at the first quarter o f 2007, the revenue achieved at 5,417 billion VND (35% of 2006). 27 Revenue growth of mobile market □ Total re\enue Year FIGURE 2.4 THE REVENUE GROWTH OF VIETNAM MOBILE MARKET [Source: M PT’s report, April 2007] This is the result of many marketing tools and campaigns of GSM suppliers to attract new customer. It is expressed by the high growth in the pre-paid subscribers and its revenue. FIGURE 2.5 THE MOBILE PENETRATION GROWTH [Source: M P T’s report, April 2007] At the end of 2006, the mobile penetration of Vietnam is 18,98%. It is six times o f 2003. In 2007, this figure is estimated at 28.85%. It shows a big 16,000,000 14,000,000 12,000,000 10,000,000 8 ,000,000 6 ,000,000 4.000.0002.000.000 0 2005 2006 QI/2007 28 potential market in the future based on the comparison with other Asian country*. (The comparison in ..Appendix) Mobile M arko t Share (QI/2007) □ Vina ■ Mobi □ V iettel □ SPT ■ EVNTel □ HN Tel FIGURE 2.6 THE MOBILE MARKET SHARE IN THE FIRST QUATER OF 2007 [Source: MPT's report, April 2007] In 2006, Viettel did the spectacular step come over two big supplier: Vina and Mobile. Now It becomes the market leader in term of subscribers with 30,62% market share. Then Mobifone got 30,12% and Vinaphone - the leader in the past - is pushed. In high competitive pressure, Mobifone and Vinaphone have to try their best to keep the loyalty of current customers and attract new ones. Just three months o f newest comers, the HT mobile also got 0.69% market share (equal to 3 times of EVN Tel market share). The market researchers said that if 2006 is the year o f GSM, 2007 is expected as CDMA game. We can see the historical internal game in the following deeper analysis in next part. 2.1.1.7 Forecasted Growth According to the BMI’s research in 2006, Vietnam will see an additional growth o f 16% due to the growing expand of mobile 29 EVNTel, 0.24% HN Tel, 0.69% SPT, 10.03% Vina, 28.30% V ie tte l, 30 M obi, 30.12% communications over the next four years. Similarly sized Asian countries have got these contributing factors, but none as strong and simultaneous as Vietnam. As mobile service becomes more o f a platform for rich media such as mobile TV, mobile internet, which many operators in Vietnam is in process of launching. These companies will corporate with media companies to develop more creative and aggregating content service for their subscribers. The commercial, sociological and political implications are enormous. The mobile market will be unlock individual opportunity and will help drive Vietnam’s growth. Mobile phones will lead the way of Vietnam in the future. Vietnamese Mobile Market 2006-2010 (In millions) 60 SO- 40 30 20 10 49.49% 3.63% 3.41% O-r - 70.00% - 60.00% | j | g l g m - 50.00% M.66% J \^ ■ 40.00% - 50-00% m18.98% X - 20.00% ~ H ■ I -1000% ■ , ■ ■ 1 1 ■ .. - New entries S-Fone f Viettel i Mobifone Vinaphone Penetration FY 2003 FY 2004 FY 2005 FY2006 FY 2007(E) FY 2008(E) FY 2009(E) FY 2010(E) FIGURE 2.7 THE SUBSCRIBER GROWTH OF VIETNAM MOBILE M ARKET [Source: ROA Group forecast 2006] This reports projects how the Vietnamese mobile market will change from 2006 to 2010 by utilizing prediction models with various factors as historical data and events; government impact in strategies and regulations, movements and strategies o f carriers and economic events. In addition, they 30 used basic research (primary and secondary). The total mobile subscribers of Vietnam could reach 53 million and its penetration will be 59.38% by 2010. Their compound annual growth rate from 2006 to 2010 is 34.85%. With huge FDI continuous inflow, Vietnam’s mobile technology is latest. The Next Generation Network (NGN) backbone has been developing since 2001, CDMA 2000 lxEV-DO was already exploited in 2006 and WCDMA is expected to be available in 2007. Thereby, the next few years will witness a rapid expansion of the Vietnamese mobile market not only terms of subscribers but also in technology and services. 2.1.2. Mobile market competition With the high speed of development, the competitiveness is more and more increasing. From 1993 to 2003, VNPT is the “King” in the mobile market with two suppliers: Mobifone and Vinaphone. This is the decade of VNPT. At July 2003, the establishment of newborn mobile supplier using new technology - CDMA to open the new pages o f the game. But the battle became more and more fierce since Viettel entered the market in 2004. All resources o f companies such as: human resources, marketing tools, capital., are mobilized to achieve the goal all suppliers - “the biggest and most delicious piece o f market share cake” Normally, the market share is showed as a pie chart, but in the following analysis, the column chart is used to see clearly the inside factors and the development. The two figures: 2.8 and 2.9 express the detail of the battle. 31 Market share of mobile suppliers (number of subscribers) 50.00% 45.00% 40.00% £ 35.00% ™ 30.00% z 25.00% * 20.00% ™ 15.00% s 10.00% 5.00% 0.00% r ~ i n □ Tra tru’O’c ■ Trasau □ Sum i « ’ — H i Z —f o CO * --------- J— Z —• <D C Q_ h - c Q_ > <« I— ~ ° ^ CO LU ^ ° — CO LU* ^ S a > Z ^ S a> Z co 2005 > 2006 Suppliers/year ‘ — K— Z — Q . * > « ® r CO 111 H - 2E cd > QI/2007 FIGURE 2.8 THE VIETNAM MOBILE MARKET SHARE 2005-2007 (SUBSCIBER) [Source: M P T’s report, April 2007] As you see, the battle is almost between Viettel, Vinaphone and Mobifone. After entering the market, Viettel ranked the third supplier in the mobile market by low-cost strategy. But 2006, they did many marketing campaign and price policies to push the number of their post-paid subscribers at the fist ranking as well as the big pre-paid customers. And now, they become the leader in the market in terms of subscribers because the current post-paid subscribers o f both Vinaphone and Mobilefone are leaving their networks. Meanwhile, this figure of Viettel are increasing. It means that Viettel get more and more loyalty o f customers since both giant are losing their customers. But in terms of revenue, the MobiFone still keep its leader position because o f high-end customers and their large consuming. 32 Market share of mobile supplier (revenue) 60.00% 50.00% 5 40.00% * 30.00% 1 20.00% S 10.00% 0.00% ! m O Tra tru’O’C ■ Trasau □ Sum run S ® ~ CO ¿J •— > 2005 <D , 2 ~ CO IU >S o> Z -* > 2006 Suppliers/Years > QI/2007 FIGURE 2.9 THE VIETNAM MOBILE MARKET SHARE 2005-2007(REVENUF.) [Source: MPT's report, April 2007] For the deep see, we can use the historical summary of the mobile market by the figure 2.10. ERA Cost/Quality Timing/ know-how Strongholds Deep-pockets King Mobifone (1993-1995) Mobiphone dominates quality of Vietnamese consumers GSM technology is secret In biggest provinces in VN: Hanoi, HCM, Bienhoa, Vungtau Mobifone builds profits and use deep- pockets (BCC with Comvik )to expand market More wide coverage Vinaphone Vinaphone with the quality of the nation wide Vinaphone use the same 64/64 provinces of Vietnam by Big financial support from VNPT 33 (1996-1999) coverage become the leader. technology with Mobifone corporation with provincial post office International coverage Mobifone- Vinaphone (1999) High Price /good quality International Roaming Card service Mobifone- Vinaphone (2000-2002) Payment method and small customers (Daily 2002) Full line products New style of mobile using S-fone (2003) Low Price with extra added value (non voice service)=>slightly decreasing in price (block 10s instead of 30s) CDMA (good voice quality, security, Youth in big cities Based on deep-pockets from SK Telecom=>bui Id the stylish brand name/marketin g campaign “Free Mobil phone on your hand” Hypercompetit ion Price War comes from Viettel (2004) The biggest cut down price of all suppliers without considering quality (38% average for pre­ paid, 23% for post-paid). Viettel continuous kick VNPT by block 6s Low-end customers Mass advertising activities Fierce Price War Viettel pioneer Free call, Free sim card.. Put two giants in Unpredicted and mass campaign in 34 2005 continuous following activities (free sim card, propose to cut down price..) “free call of the day” Quality orientation 2006 Viettel focus on low price Mobile is symbol of quality GSM-trial 3G High Technology 2007 Extra -value of product CMDA 2000 IX & EV- DO=>Uniq ue service: SMS talk, Internet, free songs.. Youth and modem officials GSM suppliers are on the way to application of 3G High-end customers FIGURE 2.10 HISTORY OFVIETNAM MOBILE SECTOR IN EACH OF THE FOUR ARENAS 21.2.1. Price-Quality Arena MobiFone began its life in 1993, quickly becoming the king of mobile market. Then 1996, Vinaphone was the new comer with the same technology. But there was no competition because both of them belongs to VNPT. They are not a corporation but they did parallel strategy and actions. The mobile market was warmer when CMDA fist supplier -Sfone entered. With the advantages o f foreign corporation, capital, experience and technology, Sfone made the significant signal on the market. The customers are used the lower price and more extra value such as: ring tones, game... 35 Mobile Service Price TRA TRUCJC 0 092 TRÂSAU 2005 ITY ARENAS [Source: M P T’s report, April 2007] But the battle became true battle since Viettel appeared. The continuous price war began. Viettel gave the 30s block instead o f lmunite block and free fee for new sim card and low price for pre-paid card. This leads to Vinaphone and Mobile’s following actions as using 30s block in 2004. In this year, it is the first time that the price of pre-paid reduces by more than 38% and the post-paid is also down by 23% comparing with the 10-year period since the mobile sector’s establishment. It is the biggest cutting cost in the history of Vietnam’s mobile market. And the next years, they compete by the marketing campaigns such as: advertising, PR, promotion. For example, Viettel issued the promotion program - “free fist call of day”. It made its rivalries being shocked because o f the welcome respond of customers. It attracts a huge number of subscribers using Viettel service. But it made the service quality of Viettel is reducing respectively. It leads to the stuck of network and much of complains from customers. In this situation, Vinaphone and Mobiphone were 0.250 0.200 0.150 0.300 g 0.100 0.050 0.000 0 244 2000 2001 0 244 2002 2003 2004 Years F1GURE2.11 HISTORY OFVIETNAM MOBILE SECTOR IN PRICE-QUL1 36 in hurry to propose to MPT the cutting down price program. By the official procedure, it takes a long time. So, both of these suppliers had to use the “free sim card and the longer expiration of card” instead o f lower price in short term. As nature, after price war, consumers always change their consideration to quality. So, many trails of 3G technology are taken in 2006 by GSM suppliers. It is proved for the technology and quality battle coming soon. It is not only in side the stronghold of GSM technology but also between GSM and CDMA with the appearance of HT mobile. HT mobile is considered as the most modem technology supplier with supper extra value for high-end outflanking position. This gives the signal of the fierce quality-technology battle in the future. 2.1.2.2. Timing and know how Arena At the beginning era of Vietnam’s mobile, the GSM technology of VMS was seen as the most luxury one in Vietnam. This was only for high-end customers such as government official, big businessmen.. In consistent with the development o f mobile hand set, the mobile service is becoming more and more popular. The CDMA with many advantages in non-voice massage was given out since the mature phrase of GSM life cycle. This lead to the booming in the consumers especially in the youth. New technology brings more value to customers such as ring tones, picture, games. Then the GSM suppliers researched and applied the support technology to make the similar service to customers. For ex, 2005, Mobifone gave the ring tones service and then Vinaphone did the same after. HT mobile launches its services in 2007 based on CMDA 2000 IX & EV-DO technology. By this technology, many vivid services or values are created such as internet, TV, SMS talk.., attracting customers especially the youth and business. So, in two or three previous years, GSM suppliers made 37 many the 3G trails to catch up with this trend of the market. The customers vill be served many new high tech services. 21.2.3. Strongholds Arena When Mobifone and Vinaphone dominate the market, the strongholds vas not considered as much as need and their barriers was not clearly. Sometimes, Vinaphone came to provincial zones first or Mobifone made the international roaming first. In general, they did the same time and the same things. But when Sfone cut and own the youth segmentation and Viettel keep the low-end price, this issue are taken seriously by all mobile suppliers. This is clearly seen in the battle between three GSM suppliers of pre-paid or post­ paid customers (as the above analysis). 21.2.4. Deep-pockets Arena Most o f deep-pockets are used to attract new customers and to maintain current ones by marketing campaigns. The Viettel did the “shock campaign” - ‘the free fist call o f the day” or many thing free or added. But the trend will be changed in the future to R&D activities and customer service in order to serve the best products and service to customers. 2.1.3. Conclusion on Mobile market Based on above analysis, the mobile market is accessed that have the big aggregate demand (growth rate and consuming trend) and supports from government polices. So it is big potential market for foreign inventors as well as local ones. From now to 2010, the battle is still within 6 existing suppliers (by BTA with USA). But the competition pressure is not reducing, on the contrary, it is more and more fierce especially in the quality and technology arenas. 38 2.2. Analysis o f the VMS’ competitive ability in 2005-2007 2.2.1. VMS'Overview VMS is the state owned company - subsidiary of VNPT, formed in April 1993. Its brand name is MobiFone. At the first, its GSM network run in Hanoi, HCM, Bienhoa and Vungtau. Its first capacity is 6.400 subscribers and 6 BTS. The 7BTS with 2000-subscriber capacity was issued in Hanoi. Then it expanded to the Central of Vietnam with the 3500-subscriber capacity by 10BTS. Now, it expands nationwide and its capacity is 2400 BTS and can serve more than 10 million subscribers. Beside the local network expand, VMS has open its international network with more than 150 networks of 60 nations in the world. But at the begging, VMS got the difficulties in capital ad technology. So, in 1995, VMS signed the 10-year BCC with Comvik of Sweden. This is the big support for VMS’ later development. The foreign partners bring 47% o f capital to VMS. Moreover, the technology, training on skills and management are key factors of the corporation. Now, VMS is well known with its vision “To be the leading Vietnamese mobifone service supplier with best quality service” and in order to achieve this goal, VMS leaders give out some main missions such as: “Satisfy our customers, the most modem technology and Best quality” 39 2.2.2. VMS' competitive ability 2.2.2.1. Organization s tw a u m . w jB A iu m ia n of m m m p idu jl 7SLSCDPJ SSJiV icSi r j jv & fn t PWmSlfiG üiiiscjûit n es Dj;i£crrcj;s 2ALSS AJù 1 »HaifflH fla tn & M tm n I” iUiü ajuotuo I HILL CÜLlHCnOiJ I u& M M & jr \ ....... .. yzK m u E n r ■tzxmiZAi wzitxryjm m o I ... c o u z im c n o n A tiv 1 ti&MHi&'st i litJZsiMZiir 1 ■f£Ciimi'JO(Aiiu nsrtJüM 1 Us'JilüMBHf ÜEyAMAZm 1 ÀUUlÈMMlAfiÜii 1 ..... ,.n ¡Mïüi'JB asïu E*<?v;az lizVrVJAztn toidla SHili: âiâfei iü m j g FIGURE 2.12 ORGNIZATION STRUCTURE OF VMS [www. mobifone. com. vn] Mobile Telecom Services Center I, located in Hanoi, in charge of operating and doing business in the North (Northern areas to Hatinh province). 40 Mobile Telecom Services Center II, located in HCM, in charge of operating and doing business in the South (Ninhthuan province to the Eastern areas and HCM). Mobile Telecom Services Center III, located in Danang, in charge of operating and doing business in the Central and Highlands (Quangbinh province to Khanhhoa and Daclak province). Mobile Telecom Services Center IV, located in Cantho, in charge of operating and doing business in ten South Western regions. 2.2.2.2. Business culture Thanks to the BCC foundation, VMS gets the professional way of doing business. So, it is one of state own company establishing the business culture. More than 14 years of development, VMS penetrate all staff at all levels its business culture. Mobifone tries to bring the best things to customers and partners on the principles: High quality services Gentle and Smiles Listen and cooperative Quick and Accurate Dedicated and creative f vvmv. mobifone. com, vn 1 41 2.2.2.3. Infrastructure MKMiWW - - ■ "*^ , -,r: • ■ . ; f e i - “iiAX ;v ' FIGURE 2.13 THE COVERAGE OF MOBIFONE [www. mobifone. com. vn] 42 Sim Since 14 years of development and growth, MobiFone has b< biggest ne biggest network operator in Vietnam with nearly 6 million subscrib base static base stations and 4,200 shops and agents and 15,000 retailers in ev of the coi of the country (end of March 2007). More over, its network is countries ' countries with 150 other networks in the world. 2.2.2.4. I 2.2.2.4. Human resource VM VMS’s staff is young and knowledgeable. More than 85% an got the b got the bachelor’s degree of post graduated degree. Beside, b; cooperatic cooperation, it has three training centers in Vietnam. So, annually, courses fc courses for 1655 human turns in VN and 17 courses for 66 huma foreign cc foreign countries. This is the significant figure of the state own VMS’s pc VMS’s policies to motivate its staff are accessed very well such as social insi social insurance, incentive policies, young leader program. 2.2.2.5. J 2.2.2.5. Financial VND in Bi

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