SK Telecom Global Business Essay Example

ongoing investments for service differentiation and advanced technology requirements. Government regulations on spectrum licenses and protection of local industries create obstacles as well. Furthermore, networks require high initial and maintenance costs along with expensive marketing expenses.

The text discusses the importance of investing gross revenues to increase brand awareness and consumer preference within the telecommunications industry.
Despite facing barriers to entry and a low threat of product substitutions, the telecommunications industry remains attractive due to its growth opportunities in enterprise and broadband markets. The industry provides essential services that fulfill the basic human need for communication. This text includes a rival analysis for Vodafone, the second largest global telecommunications company with 300 million subscribers. Vodafone's history began in 1984 when it was incorporated under English law as Racal Strategic Radio Limited before changing its name to Vodafone Group Plc. In 1999, Vodafone AirTouch plc merged with AirTouch Communications, expanding the group's presence in 27 countries. They have partnerships with Korean mobile phone makers Samsung and LG. To achieve overseas expansion, Vodafone focuses on pursuing economic growth through investments abroad while also expanding nationally in Europe with support from the EU. NTT DOCOMO is another major player in mobile communications, serving over 55 million customers in Japan as well as being Japan's leading provider of voice, data, and multimedia services.In 2001, they gained global recognition for introducing the world's first 3G commercial mobile service based on W-CDMA technology. Their strategies for expanding overseas involve investing with ample capital, maintaining their unique DOCOMO model, and entering developing countries like Vietnam and Cambodia. The analysis of an ideal international business strategy includes examining global integration pressure and pressure for local

responsiveness. Globalization of markets is driven by customers' basic needs being similar worldwide. The convergence of customer demands for mobile phone products and the wireless mobile service industry contributes to companies expanding globally. This is supported by the standardization of wireless mobile communication techniques driving globalization of production. However, there is a high level of diversity between customers and countries due to factors such as economic conditions, infrastructure systems for wireless networks, country size, geographical features, attitudes, and usage patterns of wireless communication. Additionally, host government policies play a crucial role in shaping international business strategies since they are sensitive towards foreign companies operating in critical industries like wireless communication.Both the pressures for global integration and local responsiveness are high, so it is crucial to adopt a multinational strategy when analyzing an international business strategy (Site Selection Issue for SKT).

The main factors that SKT needs to consider when selecting a site include the contents and definition of cubic decimeter. SKT's reason for globalizing is to expand into the global market and maximize profit by establishing all aspects of their value chain in foreign countries, such as R, marketing, production (initial CAPEX investment), A/S, etc.

Factors related to government should be thoroughly investigated and considered when selecting a site. These include unseen factors like red tape, limitations, expropriation, economic stability, and currency stability. The mobile business is directly linked to a country's infrastructure system and requires a large initial investment.

Input-oriented factors play a crucial role in site selection. Infrastructure has two significant impacts: firstly, significant investment is required in this industry and resource availability affects feasibility and duration of investment; secondly, if well-established infrastructure systems for providing

the service already exist, it would be easier for SKT to enter the market. However, there may be cases where the country does not support SKT's investment or strong competitors or entry barriers exist.

Factors related to output:

When selecting a site, key factors to consider are the current market size, potential growth, and profitability. If the market is mature with high competition and limited excess net income opportunities, SKT may have limited possibilities. In order to achieve growth and success, the company should focus on ARPU (Average Revenue Per User), which is primarily influenced by economic position, culture, and attitude within a country. Geographical factors such as market structure and agglomeration also play a role in decision-making regarding network configuration. The company should take into account geographical distance and the cluster effect. Furthermore, countries that are closely located may share similarities in culture and geographic conditions which can aid in effectively executing plans. There are several options available for entry mode choices including ownership, exporting/importing, or collaborative schemes (ownership). Greenfield investing in ownership allows for potentially high profits if there is significant potential and growth expected in the target country but carries a high level of risk and may face restrictions from the target company. Exporting/importing through mergers & acquisitions offers an easier way to enter the target market but could be challenging to find an equivalent target in developing countries while facing potential legal restrictions. This strategy is not suitable for SKT's business.In collaborative schemes such as joint ventures (JVs), SKT has the option to form partnerships with Korean or local companies in the target country. This approach allows for a practical means of

entering the target country while considering industry characteristics. Depending on the specific contract, there is a possibility that SKT may lose control over the joint venture (JV) and still bear most of the financial investment burden. However, licensing is not considered a suitable strategy for SKT's business due to regulations, entry barriers, and industry characteristics. Taking these factors into account, SKT prefers to invest in JV types of investments.

The information below mainly derives from SKT's global strategy report and highlights their actions. Beginning in 1995, SKT made the decision to expand its business abroad for various reasons. One factor was strong demand to develop new markets and create demand since they already had high penetration in the local telecommunication market and faced intense domestic competition. Additionally, SKT possessed advanced mobile engineering capabilities that were competitive on a global scale. As a result, this led to positive indirect consequences on the IT industry by entering foreign states with industries related to mobility such as contents and services.

During their initial phase of internationalization from 1994-1998, SKT initiated their expansion efforts by establishing a joint venture in India in 1995.
During the initial phase, SKT's site choices were primarily determined by future market potential of candidate states without considering systemic governmental factors and various input & output-related factors due to their lack of internationalization experience. This led to unexpected challenges such as stricter than expected governmental control, exchange rate fluctuations, and economic crisis. Consequently, SKT withdrew from Thailand and Brazil consecutively thereafter, suffering financial loss.

In the expansion phase (1999-Present), SKT adopted a more systematic approach to internationalization. They set strategic objectives, made decisions about sites, and chose entry modes

based on lessons learned from previous failures in India and other states. As a result, they expanded into several countries including Vietnam, China, US, Taiwan, Israel, and Malaysia. In terms of strategic goals and site selection diversity compared to its initial stage, SKT's international expansion became more diverse during this period.This involved generating new demands in emerging markets such as Vietnam and China, establishing a loyal customer base in established markets like the US, and promoting the adoption of services and content business after successfully entering the mobile communication industry.

( Detailed information by main country )

Vietnam

A. Objectives of Internationalization

- To create fresh demand by entering a market with high growth potential
- Vietnam serves as an ideal entry point before expanding to other Southeast Asian countries

B. Considerations for Choosing a Location

- Economic: Consistent 7-8% annual economic growth, expected to accelerate post-WTO membership
- Social/Political: Communist nation with inadequate social infrastructure
- Telecommunication Industry: Currently low mobile communication usage rate at 46%, but displaying evident growth trend. Call quality is affected due to lack of 3G technology.The government of Vietnam has implemented regulations that restrict foreign companies from establishing direct subsidiaries and joint ventures. This has caused issues in business continuity under the 'Social Collaboration Agreement' system. As a result, it is recommended that foreign companies withdraw from Vietnam and return their installations and stocks to the authorities once the agreement expires.

In terms of entry mode and strategy, SKT, LG electronics, and Dong-A Elecom have decided to establish a joint venture. SKT worked closely with the authorities to adopt CDMA technology for mobile telecommunication services. In

2001, after receiving approval from the Vietnamese authorities (due to restrictions on foreign company establishment), SKT's business proposal was put into action.

Collaborating with LG Electronics and DongA Elecom, SKT initiated the SLD pool. They introduced their initial trade name, 'S-Fone', in 2003. S-Fone provided CDMA 1x EV-DO service in major cities such as Hochimin, Hanoi, and Danang in Vietnam.

During an interim evaluation conducted in 2008, it was discovered that S-Fone had acquired five million users. However, the net income per user was lower than Korea's average net income.

Despite applying for a 3G infrastructure project, SKT was not chosen due to the government's preference for local companies despite their advanced technology. The implementation of 3G was expected to expand the mobile communication market; however, it remained uncertain whether SKT would benefit significantly from it.The objective of internationalization is to expand business in China's largest market, which has high growth potential, by providing content and services related to the mobile communication industry. When selecting a site, economic factors such as continuous double-digit growth and an increase in middle-high income consumers are taken into account. Social factors, including an open policy and similarities to Korea in terms of society, culture, and geography, also play a role. The telecom industry is the largest mobile communication market with over 500 million users. Rapid growth in new users at a rate of over 7 million per month is observed; however, this growth is accompanied by government regulations, particularly in the telecommunications sector where national companies have majority stakes held by the government.

As for entry mode and strategy, SKT has established a joint venture with China-Unicom - the second largest telecommunications company

in China - while also signing a memorandum of understanding on CDMA technology. In order to understand local regulations and business environment better, SKT formed its own portal company (Viatech) and a wireless internet joint venture (UNISK). Another joint venture was formed with China-Unicom in 2004 which now boasts 150 million users. Unfortunately, due to limited information available on SKT's performance within the mobile communication industry currently prevents us from evaluating their outcome accurately.In addition, SKT expanded its business in China during 2007-2008 by including SNS (Cyworld), Entertainment (Beijing SidusHQ), Music (TR Music), and Game (Magicgrid). Their goal was to establish a stable user base with established clients while focusing on new engineering and convergence concerns. Site selection considerations included economic factors, such as a mature and saturated market, as well as social and political factors like a stable political position and advanced societal infrastructure. The presence of 3G in the telecom industry allowed for MVNO, along with low levels of government regulation compared to developing countries.

Instead of creating their own MNO (Mobile Network Operator) due to cost issues, SKT decided to form a joint-venture with Earthlink, an ISP (Internet Service Provider). They entered agreements in 2004 with Verizon Wireless, SiRF, and Magnolia to globally develop EV-DO service through co-marketing efforts. In 2008, SKT partnered with Virgin Mobile USA to launch Helio.Furthermore, in collaboration with Citi, SKT introduced mobile banking services through Mobile Money Ventures. However, this investment venture proved to be highly unsuccessful for SKT, resulting in a massive loss of 90% from their initial $400 million investment.

When evaluating their foreign investments, it becomes evident that most of SKT's ventures were not successful. Their

audit report indicates an investment value of approximately KRW 2 trillion but only managed to retain KRW 500 billion. Additionally, they faced termination of their contract signing for investments in China.

The lack of transparency regarding SKT's global business information caused internal processes related to global operations to come to a halt. The transfer of core competency from domestic operations to the global market was ineffective and failed to generate value for SKT on the global stage, particularly in the USA. Insufficient preparation and experience hindered their efforts to expand globally.

SKT attempted economies of scale by targeting entire geographic regions in the USA; however, this approach resulted in varying performance across different countries. While western countries saw significant success, southern countries had no users and eastern countries had limited users.

Furthermore, SKT struggled with accurately predicting profitability in local markets. Their average revenue per user was insufficient to compensate for the initial investment made in these markets.In light of the challenges mentioned, it is crucial for SKT to reconsider the benefits of entering the global market. They should reflect on their initial motivations and determine if it is a choice or a long-term survival obligation. Evaluating whether global expansion can maximize value and profitability becomes crucial at this stage. It is important to assess if SKT possesses the key success factors in the global industry market and if there is a profitable global market for them. The wireless mobile industry is rapidly growing, and investments should be made during the "introduction" and early "growth" phases of its life cycle. Timing plays a critical role as opportunities may not come again. Additionally, becoming a service provider in a

specific country requires investing and spending 1-2 years in advance, which SKT has already done without success potentially missing out on high potential growth opportunities. The attractiveness and profitability of potential sites may not be as good now due to changes in the global market situation, thus investment strategies need to adapt accordingly. Suggestions for SKT include recognizing the past profitability and growth rates that necessitate global expansion despite previous failures, as well as anticipating an increase in pressure to expand globally soon.Our team believes that due to various stakeholders and pressures for constant growth and new business models/plans, Globalization is not the sole optimal approach for the Company. Therefore, a strategic change in international business type within the company is necessary. This change should involve dividing it into two main types:
1- Timing: Since SKT faced failure in its initial target country and missed out on investment timing, finding another equally suitable target country may be challenging.
- Potential Target Countries: Based on information representing the "user of wireless service in main area" (see exhibit No 2), potential target countries could include Africa, Middle East, Latin America, and Asia/Pacific.
- Execution: The timing and method of execution will vary depending on each country's environment.
- Strategic option B: This entails global investment for countries in mid/late growth phase or maturity phase in their wireless industry cycle.
- Where and When to Compete: The decision regarding where and when to compete will depend on the specific environment of each country.

Considering SKT's failure in its initial target country and loss of investment timing, finding an equal target country seems unlikely. However, based on data concerning the "user of wireless service

in chief area" (refer to exhibit No 2), potential target countries could include Africa, Middle East, Latin America, and Asia/Pacific.The importance of conducting research and making decisions promptly in order to invest at the right time cannot be overstated. The strategies for execution and competition will differ based on the specific environment of each country. However, it is important to acknowledge that this type of investment carries a high level of risk, despite its reputation for generating higher net income. Therefore, achieving success remains uncertain.

Alternatively, strategic option B involves engaging in mergers and acquisitions (M) as well as forming strategic partnerships. If SKT deems the initial investment too risky or misses out on it, they can consider investing at a later stage. This approach allows SKT to acquire an existing company or form a partnership with a well-established mobile service industry company in another country. Although this type of investment may result in lower profitability levels, it helps mitigate risk and saves time.

The primary focus would be on Western/Eastern Europe and North America as target countries for M or strategic partnerships. Additionally, potential targets could include countries experiencing growth in the mobile industry like China or developed Asian countries such as Japan. The timing of implementation will depend on factors such as market conditions, competition, regulations, etc.

While SKT may surpass the initial investment cost through acquisition, this approach enables them to avoid significant risk and immediately acquire a proven company.If it is not possible, SKT can use existing infrastructure through partnerships or joint ventures. One of their main strengths is their expertise and various service plans that provide added value. With these assets, SKT would

transition from a wireless service provider to a content service provider.

List of Mentions

- O
- O
- O
- O SK Telecom website, www.sktelecom.com/eng/
- O SK Telecom Sustainability Report 2008
- O Vodafone website, www.vodafone.com
- O Vodafone Annual Study 2009
- O China Mobile Limited Annual Report 2008
- O SourceOECD Emerging Economies, Volume 2009, Number 18, August 2009, pp.58-83 (26)

Exhibits

1) SKT's global investment position.

Total: KRW hundred million Company Name

Site
Acquisition cost
Share (%)
Offering book sum
Buy/Sell
Profit/Loss
Ending book sum
SKT Vietnam
Vietnam
1,913
73
1,122
0
-859
263 Virgin Mobile
USA
0
17
621
-506< br/>< br/>< br/>< br/>< div > -115< / div >< div >0< / div >
SKT Americas Inc.

< div>-230< div >261< / div >
SK TELECOM (CHINA) HOLDING CO., Ltd.China has a retention rate of 296, 100, 308, and 63. CYWORLD China Retentions for China are at 103, 54, 21, and 0. SKT China has a retention rate of 73, 100,72 ,0 ,23 ,94 . U-Land in China is noted as C hina with no specific retention rates given. SK USA is mentioned but there are no specific numbers provided. CYWORLD INC in the USA has a retention rate of 103,30,and -27 .SKY Property Mgmt. Ltd in China has a retention rate of2 ,834,a60,a2,874 ,0 ,-226a
2,the648.C-Mall in China has a retention rate of71,a91,a71,a45,-92,and24.SK Industrial Development Company in China has a retention rate of237 and -57.SKT Europe has a retention rate of13 ,100,and0.S KT HOLDINGS AMERICA in the USA has no specific numbers provided.Helio Inc in the USA shows that it had1a11-10.S K China Company's data

is represented as62/3037/a33/39.China Unicom retains1,330/713,a576/-13,and57600.DashUSA retains7540754-11742.Entire20450/19619/-12,/984-/17314,,899/h3>2) planetary endorsers position.

(Beginning: S K ?????????( ???????10??2?/ ?????,
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3) Industry characteristic analysis

1.Menace
of New Entrants e Low

In telecommunication industry,it
is hard to place new rivals,because the nomadic phone operators must vie for spectrum licences.

2.Barriers to Entry in the telecommunication industry can be categorized as follows:-Economies of Scale:The potential benefits of economies of scale allow for lower costs and reduce the threat of new entrants.- Product Differentiation: The absence
of advanced technology and service makes it challenging to distinguish between products.- The high capital demands, particularly related to acquiring spectrum licenses through auctions, serve as a significant barrier to entry in the telecommunications industry.
- Switching costs are expected to be minimal due to low product differentiation.
- Limited access to distribution channels is imposed by regulations governed by spectrum licenses and protectionist measures for local companies.
- There are no substantial cost advantages that cannot be replicated by new players in the telecommunications industry.
- Entry into the market is controlled by government policies such as spectrum licenses and protective measures for local companies, effectively deterring new entrants.
- Intense competition exists among competitors within markets with numerous participants. As a result, mobile phone manufacturers and telecommunication companies continuously strive to offer superior quality, improved service, and lower prices compared to their rivals.
- Customers have the ability to easily switch providers since products and services offered across the industry are similar in nature.The industry faces a strong competition among rivals, as there are many evenly matched competitors. However, substitutes such as fixed-line phones and radio internet are not a significant threat because their quality and performance are inferior to wireless telecommunication services.