Saudi Telecom (STC) is a Saudi Arabian telecommunications company. It was founded on April 21, 1998, and is headquartered in Riyadh, Saudi Arabia (Forbes, 2021). Saudi Telecom (STC) builds and operates telecommunications networks and markets voice, mobile, internet access, pay television, and other products and services. The company operates through its major subsidiaries in Saudi Arabia.
The group has 11 subsidiaries in 8 countries. It is the largest operator in the Middle East. It employs more than approx. 24000 around the globe. The company register revenue of $16.9B and profit of $3 billion in 2022. It has assets of $32 billion as of Year 2022 which shows Year-to-Year growing trend.
Porter’s five forces analysis is a valuable tool to assess the business and financial risk Saudi Telecom is exposed to in the global telecommunication sector.
Saudi Telecom – Competitive Rivalry in The Market
According to Porter, the degree of rivalry depends on the intensity and the basis of competition (Porter, 2008). Some of the factors are explained below. First, the number of competitors is essential as all the telecommunication firms share the same market. Second, the size of the network and coverage determines the size of market share. The size of the network and coverage determines the size of market share.
The major telecom companies in Saudi Arabia are STC, Zain, and Mobily. In its domestic market, STC has around 60 percent market share (Ericsson, 2021). STC posted a net profit of SAR 10.995 billion for 2020 (Argaam, 2021). It is an indication that the concentration in the mobile operator sector is low. Therefore, the competition level is high, but companies benefit from a lesser number of competitors.
Saudi Telecom – Threat of Substitutes
The substitute is a product offered that offers the same service as the firm’s product. The availability of better alternative products is low. The threat is increased when there is a low switching cost, and better alternatives are also widely accepted. The telecommunication industry is revolutionized in the last two decades. The industry is moving forward to 5G technology. It is the major substitute product.
Zain is the leading service provider in the whole country, while STC is providing the highest downloading speed in the Kingdom (Arab News, 2021). The company is already providing the substitute product, and it is the leading service provider in the region. The threat of substitution is low.
Saudi Telecom – Threat of New Entrants
The threat of new entrants is assessed to be low. The threat of new entrants into an industry is related to entry barriers within the industry and geographic boundaries. (E. Dobbs, 2018). The major problem is regulation and initial capital requirement. To cover the fixed operating cost and constant up-gradation of its system requires a considerable amount of cash.
The kingdom has strict regulations, which makes it difficult for private investors to compete in the market. The company has a vast clientele in Saudi Arabia, which is around 43% of the users in the kingdom. The company has over 160 M subscribers globally (Ericsson, 2021). The new entrant must come with a better product to take any share away from Telstra, which seems difficult. Considering the factors mentioned above, the threat of new players breaking into the sphere is low.
Saudi Telecom – Bargaining Power of Buyers
The bargaining power of the buyers depends upon the nature of the industry and the value it brings. The buyers of telecommunication products are individuals and corporate clients. The most influential factors in their decision-making are price sensitivity and the perceived quality of service (Kim, Ryoo, & Jung, 2011). Price sensitivity is a function of the overall buying behavior of buyers in the market.
Other factors that affect buyers’ power are buyers’ concentration, switching cost, and available substitutes. There are products available in the market and switching cost does not play any role in this case. Companies provide incentives to newcomers to attract the client. The individual buyer has a restricted purchasing power as compared to corporate buyers. The corporate client can exert its powers for a better deal. Overall, the bargaining power of buyers is low due to industry structure and its utility nowadays.
Saudi Telecom – Bargaining Power of Suppliers
If suppliers have more bargaining leverage against the firm, they are more powerful and can dictate terms (Brown, Fee, & Thomas, 2009). In the industry, suppliers have moderate to low bargaining power. There are two major suppliers in the telecommunication industry one material or equipment provider, and the other is a human resource provider.
The supplier market is saturated, Chinese companies compete with other suppliers, and their competition decreases equipment prices (Foreign Policy, 2019). It provides an edge to the industry. If the buyer’s product is better than the other group of the supplier, the company will need to hold, affecting its position. The workforce suppliers are the second element; it is affected by the availability of a qualified and experienced telecommunications sector workforce and the consolidation in the regional labor market in the telecommunications sector. Therefore, suppliers have low bargaining power.
References
Arab News. (2021). Saudi Arabia extends 5G deployment to 51 cities and provinces. Available at: https://www.arabnews.com/node/1807116/business-economy
Argaam. (2021). STC 2020 net profit up 3% to SAR 10.99 bln. Available at: https://www.argaam.com/en/financial-reports/company-report/30
Brown, D. T., Fee, C. E., & Thomas, S. E. (2009). Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts. Available at: Journal of Corporate Finance, 15(2), 196-211.
E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Available at: Competitiveness Review, 24(1), 32-45
Ericsson. (2021). Saudi Telecom, Saudi Arabia: Smarter and Stronger. Available at: https://www.ericsson.com/en/cases/2012/saudi-telecom-saudi-arabia-smarter-and-stronger
Forbes. (2021). Saudi Telecom. Available at: https://www.forbes.com/companies/saudi-telecom/?sh=34a9d6d54e32
Foreign Policy. (2019). The Improbable Rise of Huawei. Available at: https://foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/
Kim, K. K., Ryoo, S. Y., & Jung, M. D. (2011). Inter-organizational information systems visibility in buyer–supplier relationships: the case of telecommunication equipment component manufacturing industry. Available at: Omega, 39(6), 667-676.
Porter, M. E. (2008). On competition. Available at: Harvard Business Press.