Penetrating International Telecommunications Market: The Case of Viettel

Thereíbre, before entering a íoreign market, an enterprise needs to make important decisions o f selecting the appropriate target market, selecting the market penetratio[r]

Penetratỉng International Teỉecommunỉcatỉons Market

The Case of Vỉettel

Dinh Van TOAN

University of Economics and Bũsiness - Vietnam National University, Ha Noi

Email: dinhvantoan@vnu edu vn

This paper clarifies the hotly debated issues about the international market

penetration o f the Viettel Global Investment Joint Stock Company (Viettel

Global) Based on the review o f íheories on market penetration and the

company's data, this paper scrutìnìĩes the company's process o f selecting and investing in the teỉecommunicaíions market during the period 2011-2017 This paper draws a number o f important lessons fo r Vietnamese enterprises, namely:

building effìcient connections, rapidly realizing new and unique ideas on each overseas market, and maintaining the determination, continuous effort and perseverance against hardships.

Keywords: International Market penetration, Telecommunication, Enterprises,

Viettel Global

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Introduction

Since 1986, Vietnamese enterprises have participated in international markets, mainly via the dừect export channel Hovvever, this is not the only way as enterprises can choose different ways to reach intemational markets such as licensing, ữanchising, setting up joint ventures or 100-percent foreign-owned companies Nevertheless, in order to penetrate international markets successíully, it is important for enterprises to select appropriate methods for theừ business objectives and strategies

In Vietnam, there has been íierce competition among telecommunication enterprises (TCEs) The telecommunications market has been dominated by large enterprises like Viettel, Mobifone, VinaPhone and FPT Therefore, in order to expand the market and increase proíĩts, TCEs should seek investment opportunities abroad and search for markets that are potential for íurther development

A prime example for a Vietnamese company, expanding its business into international markets is Viettel Global Investment Joint-stock Company (hereafter, Viettel Global) - a member o f the Viettel Group After 10 years of continuous investment, Vietteỉ Global was ranked among the world’s top 100 o f largest telecommunications brands as of December 2017 Viettel is currently investing and running businesses in 10 íòreign markets, including Laos, Cambodia, Timor-Leste, Cameroon, Haiti, Mozambique, Burundi, Peru, Tanzania and Myanmar

As of June 2018, Viettel Global was generating proíits in 8 countries and being the leading telecommunications provider in 5 countries In Laos, Cambodia and Timor-Leste, Viettel Global has recovered its initial investments and generated proíìts, which are four to íĩve times higher than its investment values (Thanh Thu, 2018) These impressive achievements o f Viettel Global are worth to learn for not only enterprises in Vietnam but also in the region

To date, studies on international market penetration íòcus mainly on international marketing Recent studies on internationalization concluded that telecommunication is crucial for the integrated economy due to its systematic/network nature and technology-reliant speed of transmission Hovvever, not many studies have been published on intemational market penetration in this industry, especially for developing countries Combining theoretical studies

on internationalization, Krishna (2013) used a theoretical model càlled “network model” to íurther examine the international market penetration o f the TCEs in Malaysia The author shovved that in order to carry out successíul intemational market penetration, market selection is the most critical íactor for an enterprise The second factor relates to the íinancial resources for physical inírastructure and marketing development The third íactor relates to regulatory compliance, and obtain licenses, spectrum or buy bandwidth from network operators on the target market Additionally, TCEs also need government support in terms o f policies while doing theừ international market penetration Furthermore, the ability o f leaders to overcome challenges

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as well as respond to the dynamic market landscape is critical to successíìilly penetrate international markets

The research by EYGM Limited (2015) showed that partnerships will play an ever more important ro le in driving innovation in the telecommunications industry Operators must consider the best way to combine different network standards to support the Internet of Things (IoT) Research by Transparency Market Research organization (2016) spotted the trend that TCEs strive for improving theừ networks and oíĩering expanded services to their customers by densifying network, developing fiber inữastructure, and enhancing spectrum efficiency Based

on geographic criteria, this organization suggested that the global telecommunications market can be segmented into Asia Paciíic, North America, Europe and the rest o f the world

In line with the theories o f intemational market penetration analyzed by Krishna (2003),

the studies by Vietnamese authors such as Nguyen Dong Phong et ai (2007), Tran Minh Dao

and Vu Tri Dzung (2010) agreed that the content o f international market penetration is based on corporate decisions such as the company's goals in the international market, selecting the appropriate target market (market segmentation) to penetrate, analyzing the competitiveness o f nations and sectors, selecting the appropriate method(s) of penetration and strategic planning marketing mix, and implementing and monitoring the market penetration process

Based on the revievv o f existing studies on market penetration and the practices o f Viettel Global, this paper provides a comprehensive analysis o f the company’s activities in international market penetration The contents analyzed in this paper focus on the major stages o f the market penetration process, namely, selecting the target market, choosing the market penetration strategy, planning the marketing policies to make services and customers closer and implementing the strategy

This paper aims to present practical insights on Viettel Global’s experiences and its achievements in penetrating the intemational market during the period o f 2011-2017 Afterward, this paper draws policy lessons leamed for Vietnamese enterprises that wish to go global eíĩiciently This paper is organized as follows Section 1 reviews key conceptual issues of market penetration for telecommunication enterprises Section 2 analyzes the experience of Viettel Global in penetration o f intemational telecommunications market Finally, Section 3 draws some lessons learned from Viettel Global for Vietnamese telecommunications enterprises

1 Key conceptual issues of market penetration for telecommunicatỉon enterprises

With the deepening globalization trend, TCEs, operating in the domestic market may find

it diffĩcult to extend theừ market share due to a limited number o f consumers and an increasing number of domestic and íòreign competitors As such, entering íòreign markets is a decisive solution for TCEs to overcome the limitations of domestic market by enabling them to find new

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customers, and enhance competitiveness to meet the market demands Successful penetration allovvs TCEs to prolong the life cycles o f theừ services, particularly services that are in mature stages in the domestic market may be able to start new life cycles in the foreign markets Penetration into new markets also helps enterprises take advantages of theừ system capacity, experiences, technologies and deploy their businesses on a larger scale, thus, reducing product cost per unit In addition, it allows TCEs to take advantages o f incentives from theừ foreign markets and lessen competition pressure, thus, mitigating theừ business risks

Generally, for an enterprise, the strategy o f penetrating into intemational markets can be considered a set o f íìindamental long-term business perspectives and objectives that can orientate husiness activities, including the means and the marketing strategies to achieve the enterprise’s objectives in products and services Telecom international market penetration is activities, targeting to extend the market share of telecom Products and services by investment, marketing policies and implementation o f strategic solutions Penetrating into a íòreign market can be considered a marketing program for the Products and services For a TCE, selecting the target market for inírastructure investment and a method for market penetrating activities is essential Decisions on investment and penetrating methods/tactics depend largely on the factors relating to the target market, the competitors and the capacity of the company itself Thereíbre, before entering a íoreign market, an enterprise needs to make important decisions o f selecting the appropriate target market, selecting the market penetration strategies, planning and implementing marketing policies to bring its Products and services to íòreign customers (see Figure 1)

Pigure 1: Decisions of a telecom company for market penetration

Licensing Franchising Joint venture Direct investment

Product policies Price policies Distribution policies Trade promotion policies Developing the marketing resources

Source: Compiled by the author.

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• Selecting the target market

The TCEs need to have an overvievv o f the global market in the telecom sector to narrovv down the foreign markets that they are interested in and able to peneưate After that, they must conduct research and detailed analysis to compare the opportunities and challenges o f each foreign market, including, but not limited to, business environment and competitive advantages Based also on the analysis o f available resources, TCEs will decide which ones are the most suitable (target market)

When analyzừig the business envừonment in target markets, the economic envừonment, cultural environment, human factor and natural conditions are extremely important The economic environment reveals the degree o f competitiveness and determines the attractiveness

o f the market Factors in the economic envừonment o f a country where business is oữen concemed about are economic growth, living standards, population structure and social hierarchy The culture and human íactors are constituted of different elements: culture, religion, beliefs, spữitual life and the attitude o f the people towards themselves, others and the community They detemiine consumer behavior, which is related to the habits and tastes o f consumers o f telecommunications services on the market In a study o f the eíĩect o f psychic distance (factors such as cultural, language and business differences) on consumer behavior, Arenius (2005) found that the psychic distance has become less signiíicant to newly technology- based enterprises in selecting a íbreign market but remains important to others Therefore, in order to build an appropriate and íeasible market penetration strategy, an enterprise needs a deep understanding o f the cultural íactors and consumer behavior by age, occupation and residential areas The cuỉtural envừonment determines the success o f the business in a íòreign market and dữectly affects the marketing policies o f the company The cultural similarities between domestic and íòreign markets will enable the company’s Products and services to be consumed without signiíicant changes Social and demographic environment include population figures, population density and population structure classified by sex, age, rate o f telecommunications services usage, family size and so on The changes in these Êictors will aíĩect the demand for services Consequently, it will determine the size o f the market, which is a very important factor

in telecom investment research The natural environment includes elements such as natural resources, land and terrain It is the system o f natural factors that affect many aspects of input resources needed for production, business and the consumption o f output o f an enterprise The deployment o f good telecommunications inữastructure depends heavily on natural conditions Thereíòre, enterprises cannot ignore the eíĩects of natural factor

• Choosing the market penetration method(s) and strategies

It is ừnportant for TCEs to choose the best method(s) to enter the selected market, based

on their determination o f the entừe intemational marketing program The method(s) to enter the chosen market must also be consistent vvith the company’s overall strategy, objectives and

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đuration o f each objective An optimal option is to harmonize costs, risks and the control factor Dừect entry (such as through a branch or subsidiary), although associated with high start-up costs, has full control over marketing activities such as promotions and sales Indừect entry poses

í low risk but the company cannot set the price of Products dừectly to consumers or provide

£fter-sales services to customers

The method(s) o f entry vvill be based on the above-analyzed factors In reality, the main ưiethods that are often used by enterprises are licensing, ữanchising, joint ventures and direct

investment.

Licensing is a form o f intellectual property licensing agreement (also known as intellectual property license) for the production and marketing o f Products in íòreign markets Ưsually, the subjects o f the license agreement are patent, copyrights, trademarks, technological processes and know-hows (Tran Minh Dao and Vu Tri Dzung, 2010) Regarding this approach, new enterprises may have the opportunity to quickly access íòreign markets and minimize risks

by saving theừ time and Capital investment As a result, small- and medium-sized enterprises (SMEs) can easily adopt this strategy to expand their international businesses and maintain their sales and profit targets Enterprises vvhich are high-technologies and knowledge based can use licensing agreements and, in retum, eam investment to promote the dissemination o f new products and technologies on íbreign markets However, there are some disadvantages to this method New enterprises do not have the right to control the licenses or the ways o f doing businesses o f theừ partners In addition, when using the form o f license transferring, providers must share the know-how with íòreigners For enterprises who decide to take licenses, they have

to calculate theừ own business scalability Therefore, there is a need for a broader selection o f methods to enter the íòreign markets One o f the options is establishment o f a joint venture with the license

Franchising is a form o f special license transfer, in which the company sells “limited rights” over its brand name to the buyer for a lump-sum payment and beneíĩt sharing However, unlike selling a license, the ữanchisee must agree to abide the strict rules o f business conduct Thus, the advantages are similar to those o f licensing In addition, the ữanchisor does not have to bear with the costs and risks o f penetrating into a íòreign market However, íranchising requừes the ửanchisee to strictly control the quality o f its Products and services in accordance with the principles and regulations o f the ữanchising agreement Selling Ễranchises can undermine the company’s ability to coordinate global strategy because franchisee often does not pay enough attention to the quality o f services they provide To overcome this problem, the ữanchisor can set

up subsidiaries in each target market or area

Joint venture with one or more íoreign partners might be considered a faster and more expensive form o f obtaining a license when entering a íòreign market Joint venture is a co-

operation with local and íòreign Capital contributors for the purpose o f building a locally-and

jointly-owned and managed telecom company Foreign investors can purchase a portion of a

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license-owned company or a license-owned company can purchase a portion o f a foreign company, or both parties can contribute to the establishment o f a new joint venture enterprise This option allows risk sharing among partners and enhances the ability to connect workflows together However, when choosing this method, the license-owned company needs to have a deep understanding o f the target market, the potential o f the joint venture, the local distribution system, and availability o f the workforce The partners may havé disagreements about basic

Capital, marketing, and other operating principles The difference in the total cost by each party makes the parties realize that the proíits are not commensurate with the costs and the risks incurred when establishing and putting the joint venture into operation In addition, they will have little control over theừ partners Same as licensing, a joint venture partner can become a potential competitor In general, joint ventures are now widely used globally as they allow enterprises to exploit theừ distribution netvvorks, combine Capital and technoỉogical strengths, develop new Products and penetrate new markets easier and with less risk

Dữect investment is One o f the most widely used forms to enter a íòreign market when an enterprise ovvns 100% o f the investment Capital through the establishment or acquisition of subsidiary companies Since a TCE has sufficient resources and experience in international trade and the volume o f its goods or services exporting to íòreign markets are large enough, this method is the most applicable The investor, in this case, has some advantages similar to those of joint venture, such as enhancing market access and avoiding tariíT barriers and quotas The establishment o f subsidiary companies vvill minimize the risk o f losing control and stealing technology In addition, it allows the company to tightly control over its activities in different markets, thus, it isable to enhance global coordination, economy o f scale, positional advantages, experience, and sustain the company’s competitiveness on different markets Compared to licensing and joint venture, dữect investment strategy helps an enterprise to expand its market faster, better control its business expansion and gain higher proíĩtability However, it is one of the costliest methods to enter íòreign markets as the parent company has to bear with the íull costs and risks o f establishing overseas subsidiaries

Selecting an appropriate market penetration method in telecommunications depends on extemal factors (culture, politics, laws, economy, market size and so on) and intemal factors (cost o f production, cost o f transportation, know-how, management, international experience and

so on) o f an enterprise Accordingly, experienced and capable telecom enterprises usually choose

to invest dừectly by establishing theữ subsidiaries or creating joint ventures vvith local enterprises

• Planning marketing policies to bring products/services on sales

The goal o f marketing policies is to ensure that the company is able to penetrate the target market, sell products/services, earn proíĩts and gain competitive advantages In order to reach

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that goal, marketing mix, also known as 4Ps - Product, Price, Promotion and Place is the most

important tool that needs to be deployed (Kotler, 2002; Nguyen Dong Phong eí a i, 2007).

Product policy There are three basic product adaptation strategies, which should be

considered for íòreign markets, namely maintenance o f the original product, adaptation by changes and the creation o f a new product Fừst, maintenance o f the original product means that the company provides telecom services to íòreign markets exactly as what it does in the domestic market Second, adaptation by changes means that company can change its products/services to adapt to the conditions or preferences o f new markets Finally, an enterprise can also create new products/services for the target market to increase market share, sales and profits New

products/services may be new to the company but not new to the target market and vice versa or

may be new to both the company and the target market

Price policy: Price is the most sensitive because it determines vvhether a product/service

is accepted by customers, and how many or how a product/service is consumed In other words, price policy dừectly affects the sales and proíit of a company Thus, an enterprise should have appropriate pricing policies suitable for each market and its own condition

Promotion policy: Promotion is alỉ the communication methods used to provide product

iníòrmation to different parties It aims at oíĩering and establishing relationships with partners and potential customers, and enhancing the competitiveness and brand o f an enterprise Thereíore promotion activities, including as advertising, public relations, sales organization and sales promotion are especially important for an enterprise when penetrating into íòreign markets

Place (distribution policy): Distribution is not limited to setting the dữection, objectives,

and preconditions o f cừculation, but also includes changing the time, space and procedures to

bring consumers the telecom Products and services Distribution involves many tasks, from

planning and controlling the product flows through distribution channels to carry the Products to reach and rationally exploit the needs o f the market Depending on the penetrating market, its business capacity, goals for market share or profitability and the characteristics o f the product, the company can choose appropriate distribution strategies It can be monopoly distribution, selective distribution or strong distribution netvvorks

In order to implement marketing policies and bring telecom services to customers, deploying marketing mix is required Thus, telecom enterprises have to develop the marketing

iníòrmation system ụ e peopỉe, equipment and procedures for collecting, analyzing, evaluating

and distributing timely accurate information to decision makers), marketing budget (i.e

identifying the source o f funding needed for the penetration based on the type and objectives o f

the business) and marketing resources ụ.e human resources and technical resources to ensure the

necessary conditions for implementation)

• Implementation and monitoríng

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Regarding foreign market penetration, researchers, managers and consultants are vừtually unanimous on the importance o f speed as a competitive advantage and a requừement to achieve more rapidly a strategic decision-making o f an enterprise (Robertson, 1993) Entering international markets is accompanied by risks and challenges posed by the markets as well as the naturaỉ, social, and cultural envừonment (extemal envừonment) Thus, the speed helps an enterprise reduce risks while penetrating into foreign markets, and creating advantages o f market share and customer base

Robertson (1993) also agreed that “rapid sales acceleration is especially needed in technology-based Products” and “speed is a management imperative, especially in the domain o f new Products” He suggested that íirms can reduce the duration o f market penetration cycle following these guidelines: (1) Reach the market fírst; (2) Pre-announce the new product before the market availability; (3) Innovate constantly; (4) Occupy the market; and (5) Track market penetration by stages o f the purchase decision process

In line with Robertson (1993), the research by Arenius (2005) concluded that the psychic distance has become less signiíìcant in respect o f íòreign market selection by technology-based new íĩrms, but retains its signifícant negative effect on the speed o f market penetration (speed means how fast the technology-based new ventures establish themselves on the íòreign markets,

1.e identiíy partners and customers and eventually obtains sales income) Technology-based new ventures with social Capital can penetrate into foreign markets at a higher speed than those

vvithout social Capital because social Capital alleviates the liabilities o f newness and íoreignness

that enable these íirms to overcome the psychic distance

Therefore, it can be concluded that successíìỉl market penetration requữes “wisdom”, or

“tticks” from enterprises Being quick at selecting and approaching the market is not enough, another important consideration is to reduce the time needed to penetrate the market and bring the products and services on sales Hovvever, the long-term supremacy o f the Products depenđs

on constant and unremitting innovation o f the company On the other hand, successíul new Products are an invitation to market entry for other competitors As product life cycles become shorter and the speed o f imitation increases, continuous innovation is the only sustainable strategy for success

2 International market penetration of Viettel Global

Viettel Global was established as a merger o f intemational investment departments with 98% o f the Capital investment coming from the Viettel Group As a subsidiary company in charge of foreign investment and businesses, Viettel Global follows the core values and business philosophy o f the Viettel Group as a pioneer in applying modem and innovative technology to create new Products and services o f high quality at reasonable prices, meet the demand, ensure the right to choose o f customers, and always care for and listen to customers for better improvement o f Products and services In 2006, Viettel Global started 2 investment projects in

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Laos and Cambodia After over 10 years, this number has increased at 10 investment prọịects in diíĩerent regions including South East Asia (Laos, Cambodia, Timor-Leste and Myanmar), Latin America (Haiti), South America (Peru) and Aírica (Cameroon, Tanzania, Burundi and Mozambique)

By the end o f 2017, nearly 40 million customers from intemational markets used Viettel’s mobile services, broadband Internet, landlines and wừeless phones As mentioned earlier, as of June 2018, Viettel attained proíit in 8 markets, of which 3 markets including Laos, Cambodia and Timor-Leste has returned the initial Capital investments To date, Viettel Global is generating proílts o f four-to-five times higher than the initial investments in these three markets (Thanh Thu, 2018) Encouragingly, Viettel was the top telecommunications provider in terms o f market share in íỉve countries, including Cambodia, Laos, Timor-Leste, Mozambique and Burundi (Viettel Global, 2017)

Viettel GlobaPs revenue from telecommunication services on íòreign markets has grown rapidly and continuously The annual growth rate was 21.5% in 2016, which was more than double that o f 2015, and increased by 2.5% at 24% in 2017 (Viettel Global, 2017) The number

o f customers in íòreign markets was 13% in 2017, which was four times higher than that o f the global average (about 3%) New African markets continue to see strong grovvth rates at 1,343% for Viettel Tanzania, 43% for Viettel Cameroon 43% and 42% for Viettel Burundi (Minh Anh, 2018) In Myanmar - the newly-penetrated market, Mytel (also known as Telecom International Myanmar Co) had more than 2 million subscribers just in over a month after the oíĩicial launch

on June 9, 2018, surpassing Viettel Global’s target o f 2 to 3 million subscribers in the vvhole

2018 (Tu An, 2018), contributing to Viettel’s business achievements on íòreign markets

According to VNDIRECT (2018), after more than 10 years o f operation, Viettel GlobaPs charter Capital increased from VND 960 billion to VND 22,400 billion with a revenue o f more than 500 times higher Its proíĩt increased by more than 300 times and the owner’s equity increased by 45 times The return on equity (ROE) reached 7% vvhile the market size expanded

to 210 million people (2.2 times o f Vietnam’s population) In 2017, Viettel Global’s total

Consolidated revenue growth rate was 24% To date, Viettel is in the world’s top 15 TCEs by

number of subscription and the world’s top 40 TCEs by revenue (Thanh Mai, 2018)

From 2009 to 2015, Viettel was honored four times at the World Communications Award for the “Best telecommunication services provider in the developing countries’ markets” for its overseas brands such as Metíòne (Cambodia), Unitel (Laos) and Telemor (Timor-Leste) This is the most prominent international event in the world’s telecommunications industry, organized annually by Terrapin Communications (Australia) since 1999 to recognize companies that have made the best use o f the íeatures o f developing countries’ markets to achieve business success and contribute to the development o f the telecommunications market

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