After nine years of bailing out of India market the Australian media and telecommunication operator giant Telstra, is planning re-entry in the consumer telecom market of this region, shipping with it more than 400 landline billing jobs creation in this region. Telstra (ASX: TLS, NZX: TLS) also known as Telstra Corporation Limited (Telstra Corp) is an Australian media and telecommunication private company. However, this organization was a government owned corporation before privatization late in the 1990s. This is the largest provider of both telecommunication services in Australia such as overseas telephone services, dialup, wireless, cable access internet, mobile services and DSL services in this region as noted by Siddiqui (2007).
After nine years of premature bail out as being among the first founders of the mobile operator services provision. Telstra has asked the Indian government to allow allocation and increase of stakes in JV Telstra Telecommunication from 49% to 74%. The Foreign Investment Promotion Board (FIPB) of India does not allow foreign corporation to won up to 74% of the Indians telcos. JV Telstra Telecommunication currently is owned by Microland Investment about 51% of the stakes, under the intended proposal this organization will still own up about 26% of the stakes. Telstra also intends to acquire ILD, ISP and NLD licenses which are under the docket regulated by DoT (Martin, 2008).
In the early 1990s Telstra was among the few foreign telcos corporation that won and were allotted licenses in India. Telstra in partnership with B K Modi Group formed Modi Telstra, this was launched in the year 1995 in Calcutta. Later, early in 2000 Telstra packed up and sold off to Modi, and later Modi also sold off to Indian telecommunication giant Bharti Airtel the following year 2001 for a whooping $90 million. Although, Telstra has made the bid to FIPB they have not speculated if they will be involved in the 3G bid auction in this region. The subsidiary company which manages Telstra services in India, Telstra international presence is already behind corporate customers in India as echoed by Duvall (2008). This Essay is going to explore Telstra re-entry on the Indian Telcos market, the market challenges and market opportunities present fro this corporation in this foreign market.
Introduction & Background
Telstra corporation formulation was accorded in 1901; this was still under the umbrella of Postmaster General Department (PMG) which controlled over all Australian telecommunication services. Later on July 1975, when Australia formed a separate commission through the stature which oversaw PMG replacement Telecom Australia was born. Some of the postal services were channeled to Australian Posta Commission and domestic telecommunication to Australian Telecommunication Commission (ATC) which at that moment was trading under Telecom Australia (Stuart, 2008).
Later in the year 1989 ATC would then be reconstituted in the implementation of adding quality and value to the services rendered as Australia Telecommunication Corporation. Later the following year still under ATC, this organization entered the Indian telecommunication industry being the first foreign organization to offer these services in this region. However, this venture was short lived and because of the high tariff and regulation by the government of India ATC packed and signed out of this market as detailed by Roberts (2005). However, this corporation still held stakes with several other industries in this market segment.
Following early exit from the Indian market ATC, as formerly known in the year 1993 was renamed and started trading under the brand name Telstra Corporation Limited. And this corporation has been through privatization phrases from 1997 and 2006. This corporation has undergone through three phrases of privatization. The first phrase occurred in the year 1997 and was named T1 where the state sold off about one third of the shares for $14 billion and the corporation was listed in Australian Stock Exchange as a public entrant. The second phrase known as the T2 which transpired in the year 1999, more of 16% of the stakes at Telstra were again sold to the public and the third phrase in 2006 the T3 saw the government remains only with 10.9% ownership. The remaining stakes owned by the states were placed under the Australia’s Future Fund which is intended for the provision of pensions and superannuation for the civil servants of this state. However, this 10.9% is after 2009 sale of stakes worth $2.4 billion by the future fund (Siddiqui, 2007).
However, domestically this corporation traded under the brand name Telstra International and Telecom Australia which was later re-introduced even domestically and the branding of Telstra in the 1995 ensued. The 1990s was brutal to Telstra as stiff competition from rival second largest communication giant corporation Optus and other smaller providers. The organization started to dwindle and then regulation were set for the smaller fix line services providers to be under Telstra, the only organization exempted from this was Optus to encourage competition and reduce price fixing by Telstra.
Ross (2009) exemplifies that Telstra mostly outsources some of the mobile services that they offer in terms of both the coverage and subscription from ABB communication and Siemens Thiess Communications Joint Venture (STCJV). Majority of the public phones in Australia are managed by Telstra, they also operates the largest 3G UMTS and GSM. Telstra mobile services serve more that 10 million subscribers and offer both post and prepaid services. Through these ventures Telstra own 54% of the 3GIS Ltd 2100 MHz UMTS which is shared with Hutchison.
This corporation is the first to introduce digital mobile network through Telstra GSM network launched in 1993 which frequency was 900 MHz band, later upgrade improved this bands to 1800MHz to accommodate the high capacity handle and GPRS packet data capabilities transmission (Martin, 2008). Telstra also provides internet services through several subsidiaries such as Telstra Internet Direct internet subscription which deals with business customers only, Telstra BigPond providing internet subscription to residential customers, and Telstra Wholesale which concerns with resell and leases of telecommunication products to other communication corporations. The main headquarters of Telstra Corporation is located in TelstraCorporateCenter in MelbourneAustralia.
Telstra in its major strategic re-entry to India has first sourced for allocation of 74% of the stakes in JV Telstra Telecommunication. This initiation has been initiated through the proposal to which they appealed from Foreign Investment Promotion Board (FIPB) and DoT of India for licenses as well as the elevation of stakes. They have formulated several combination f strategies to combat the stiff competition which they are expected to find in this region to achieve market dominance as they have in their home ground. These strategies include offers on low rates to some routes and at certain periods during the day (Stuart, 2008). These rates are designed to encourage subscribers to switch to this network and also for retention purposes after the subscriber has enrolled to achieve customer satisfaction.
Internet access, Hosting, National (NLD) and International Long Distance (ILD) are among the few major concerns which Telstra attempts to pursue majorly and dominate in India. This is deemed to impact on the local Indian PSTN voice and private data business which is not much exploited and the corporation in this industry are not advanced in technology as Telstra Corporation. Telstra PTT gained a strong grip against major industries in Australia both local and international and the management in Telstra is confidence that it will assist them to dominate the Indians market as noted by Duvall (2008).
The entry method that Telstra advocates for is the incorporation of company which they already have as they are not ne in this market, this is having been here and exited in the year 2000. Through the Indian Company Act 1956 which allowed them to joint venture with MicroLand Investment an IT infrastructure services provider which forms JV Telstra Telecommunication (Martin, 2008). They have also applied for long distance ILD, ISP and NLD licenses to facilitate some of the telecommunication services which are not provided by the local providers.
When Telstra would be launching their services in India as a foreign market they would adapt or standardize the market mix in this region. However, being in the market for more than three times they have an upper hand and being in venture with Microland which has already generated a base for Telstra under the name JV Telstra Communication, Telstra only need to adapt a market mix formulated by this organization in this region to understand the customer’s needs. This will be complimented by the fact that Telstra has already undertaken several changes in marketing practices so that they can better meet the customers demand and needs (Ross, 2009).
According to Roberts (2005) the target market aimed here will make the market mix to be projected toward be standardize and also adapt products and services for Telstra to achieve their desired goals. Some of the consideration which this organization should consider while commencing in this region is culture. This will involve customers cultural background, buying trends and personal disposable level of income, this will ensue that Telstra is able to deliver a tailored marketing mix programs that would meet the customers needs of this region. India being a gradually advancing nation would require standardize adaptation of product and services as those offered in Australia. This adaptation considering Indian cultural background would help Telstra achieve their objective and dominate the market.
Doing Business in India
Because this is a foreign market with already existing providers of internet connection and telecommunication services, Telstra would be faced with an uphill task of challenges to dominate as they are already established in this region through joint venture with Microland industry. Through adapting standardization of the services and products being served by this industry, the promotional strategy would now be engaging the customer to accept the new intervention brought abut by the new market entrant (Roberts, 2005).
The language barriers and cultural backgrounds are a few draw back which would be major challenges to this organization while trading in this region. This is because the current message being used in Australia as advertisement slogan may be offensive to the Indians culture. Some of the other challenges are governmental sanction concerning television and advertisement. Through media development and advancement of technology and some of the regulation which are instilled for foreign corporation, this may prove to be a major stall for advertisement as they would have to formulate new intervention for this region, this would cost money and resources as echoed by Ross (2009). However, for Telstra to fully mitigate this they will have to adapt advertisement from their joint venture corporationMicroland to fully meet the needs of the customers from this region. This also helps in familiarizing the products with the locals.
The government of India has instilled sanction which required that all foreign corporations meet the set regulations. Duvall (2008) notes that the Indian domestic business families are the force behind this venture and before the government must approve foreign investor to invest in this region. RBI usually approves foreign corporation like Telstra automatically, however, other new entrants are required to apply to be approved. FIPB usually grants special appeals like the extension of 74% of the stakes which Telstra want to extend in the market of ownership in JV Telstra Communication. This grant is possible because Telstra has been in the market dating back in the 1990s.
According to Stuart (2008) the political stability and continuity is considered one of the advancing and strong and will soon join the league of China and other developing nations. There are little scandals in the government and there is strict concern in business by the government. Through regulation and keen monitoring of the market, the government of India has provided foreigners with secure ground for competition, and many organizations are outsourcing in this region. The government has invested also highly on education to provide the foreign investors with proper qualified task force and this is the fact that even Telstra are shipping more than 400 jobs to this region.
The only restriction that many foreign investors usually cry foul on is the FIPB regulation which does not allow foreign organization to own no more than 74% of the stakes in a joint venture corporation as echoed by Siddiqui (2007). These tariffs have been highly criticized and cited to be trade restrictions on the national level. These attitudes have been argued to be dictation to foreign organization trading in this region. However, the government of India has reassured the foreign investors that they can be rest assured that the only interest is based on customer protection.
It has been noted that no organization can go international and succeed if it does not abide by the laws of the hosting country. Before investing or for the firm to re-enter the Indian market, there is need for it to consider legal aspects such as taxation, repatriation, employment as well as codes of laws. Other issues to be addressed include tariffs levels, quotas, regulations and guidelines on documentation and importation, protection and patents of trademarks, preferential treaties as well as local standards, practices and other non-tariff barriers. All these have proved to be a big challenge to the firm (Tirthankar, 2000).
Being aware of employment regulations, the issue to do with work permits, engagement and dismissal, wages and benefits, occupational health and safety, employment of foreigners, pensions, working hours as well workers rights and remunerations need to be adequately addressed by Telstra because this do affect the running of any kind of business.
There are also laws that limit the stake of foreign investors, this can be seen in the case where Indian government rejected the company’s desire to raise it stake to 74% from 49%, this is attributed to the fact that there is a limit set by the government. This is a big challenge to the firm as it cannot be in a position to increase it stake in the Indian market (Global Telecoms Business 2010).
Another challenge is the regulation that has emerged in the internet media environment. Considering the fact that the firm deals with products that use internet; laws regulating the same in the name of preserving Indian cultures might pose a great problem.
The high rates of taxation made to foreign investors by the Indian government, biased kind of tariffs in favor of home investors, poor laws and regulation concerning protection and patent of firms trademark pose a threat to the firms (Tirthankar, 2000). The laws and regulation that are in place meant to boost exports jeopardize the efforts of importation, this thus is one of the greatest challenge facing Telstra because it will pay huge taxes and they will counter it by transferring the cost to end user.
For instance foreign trade is subjected to import tariffs as well as export taxes and quantitative restrictions. Foreign direct investment is limited by what is termed as upper-limit equity participation, limitations on technology transfer, export obligations and government approvals. The government approval is set in a way that over 50% of new foreign direct investment is mandatory.
Evaluating whether a country’s infrastructure is adequate to ensure that one’s business runs smoothly and meets demands of end users is of paramount importance. Examples of infrastructure that are very essential in running business activities include availability of transportation, presence of port facilities, good roads, and railway lines as well good communication systems for instance internet, telephone among others (Tirthankar, R. 2000).
Although some literature paints India to having the best infrastructure the truth is that the country’s infrastructure is characterized with crumbling roads, jammed airports as well as powers shortages-blackouts. All this hinders communications as well as transportation of products.
For instance getting to Electronic city via the primary route is nothing but a night mere. All kinds of automobiles, bicycles together with animals jostle for a space in the existing road. The consequences brought about by poor infrastructure as well as connection are high costs in transporting workers, delays in delivery of products and services, losing customers as well as high costs in product and service delivery.
The 90km coastline in India could be providing the best services but the problem with it is poor management leading to congestion hence slow movement of products. Additionally, the 63,000km of rail length with 13,000km of each being electrified is not sufficient to serve the populous nation; this is attributed to growth in traffic by 15% per year. The only infrastructure that can be of help but still characterized with slight hitches is the air travel. Electricity is also another problem as slightly above a half a billion people do not have access to it (Bloomberg Businessweek, 2007). Additionally, internet development and growth is taking place at a very slow rate.
Before venturing it no any kind of business it would be sound and rational if a firm such as Telstra evaluates market opportunities that it can exploit to her advantage. It is paramount to have in mind that the general economies of the target population, the demographic characteristic that can be linked to marketing as well as the culture of Indian provide the form with very good opportunities to penetrate and become a giant in telecommunication industry.
Another factor that must be scrutinized properly is the economic environment of the country-India. This is looked at from various perspectives. For instance, the rate of growth/development, economic growth, inflation rates, balance of payments, per capita income and distribution, disposal income and expenditure, issues related to exchange rates, Gross Net Product, currency as well as the role of foreign trade in Indian economy.
The economic growth of India stood at 6% in early 2001 a tremendous increase from the last decade. This was stimulated by the economic reforms brought forth in 1990 (Tirthankar, 2000). In 2010, the economy has grown by 6.8% this is attributed to market-based economy. Service industry, industrial and agricultural is among the contributors to the economy. The income per capita for Indian is $1,030. In terms of currency, India’s Rupee is the legal tender that is accepted. The exchange rate as at March 23 2010 was 45.40 to USD, 61.45 to a Euro and 68.19 to Great Britain Pound.
According to Tirthankar, 2000 despite the fact that in the last decade the country had a negative balance of payment, the economic reforms have seen to it that the country’s exports has risen in a stable manner covering 80% of its imports in the financial year 2002-2003. Although India largely rely on internal market, the external trade constitute to 20% of the country Gross Domestic Product.
In terms of income and consumption, 86% of the population lives on less than $2.5 in a day, this is down from 93%in 1981, 76% live on less than $2, 24% earn less than $1 in a day this is down compared to 42% in 1981 and only 42% live below the current international poverty line.
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Generally speaking, the economic trend of the country is deemed to increase four fold on the basis of the current increased growth, more inflows in FDI, but it is a bit sad that India will still remain a low income nation for a bit longer (Tirthankar, 2000).
Another factor that will boost the firm’s telecommunication firms is the fact that India is the second most populous country in the world with a total population of 1,027,015,247 as at 2001. Males were 531,277,080 while female were 495,738,170. It was estimated that by 2007 the population could clock 1.2 billion persons (Dyson, et al., 2004). This kind of size coupled with the fact that literacy rate is estimated to be 65.4%; there are chances for Telstra to do good business in the country as more of those literate would like to adopt innovations in communication. Considering the fact that females like stylish and new things, the ratios in gender provides the company with a greater opportunity to meet the demands of the market hence increasing revenue generation.
According to Dyson, et al., 2004 about 50% are below 25 years old; more than 65% are below 35 years. The average year is 29. This characteristic provides the company with the opportunity of meeting the demands of younger generation that yearn for innovation in telecommunication. About 70% of the population leaves in the various close to 600,000 villages. As this is associated with lower economic power, an understanding of this will help the firm develop cheaper and affordable products. The rest of the population lives in urban areas.
In terms of religion, the country is very diverse. The population constitute of Muslim (13.4%), Hindus (80.5%), Christians (2.3%), Sikhs (1.9%), Buddhists (0.8%), others religions and persuasions (0.6%), Jains (0.4%) and 0.1%do not belong to any region (Dyson, et al., 2004).
In terms of language, it is important to note that India has 216 languages each having above 10,000 native speakers. Factoring this in, it will help the company when carrying out advertisement so as the campaigns about its products is intensive and extensive.
Additionally, social stratification in India is very distinct. The Indian community is very diverse; the stratification has been categorized into educated professional elites, mercantile groups, white collar middle class and the majority uneducated laborers.
Culture has been defined as beliefs, assumptions, values, rules, norms, skills and art and customs held by certain group of person. India does have a very diverse culture held by one billion populations within the country (Adler & Gundersen, 2008). The existing differences in all these aspects of culture stemming from the diverse languages, social stratification, educational background, religion among other when well incorporated in the business strategy of Telstra will provide it with the best opportunity to become a giant in India.
Varied products and services will be developed to meet demands of these varied categories of human population within a given set of geographic location (Dyson, et al., 2004).
Conclusion & Recommendation
From the review, it is very significant for any organization to critically analyze various things when planning to enter into a new market and more so an international one. Issues to deal with the manner with which Telstra will enter the new market in India, the market challenges such as political environments, infrastructure, legal aspects in India that pertains to licensure, tariffs, patents and protection of trademarks, restriction on imports as well as approval of FDI and laws in employments together with wages and employees benefit pose great threat to the firm. There are also market opportunities for the firm in India. These include the diverse culture, the growing economy as well as the dynamic demographic characteristic of Indian population.
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