Strategic Alliances in the Telecommunication Sector in Germany

Which Type of Strategic Orientation is Most Likely Entering Strategic Alliances?


Seminar Paper, 2020

23 Pages, Grade: 1,3


Excerpt

Contents

List of Tables

List of Figures

List of Abbreviations

1 Introduction

2 Theoretical Basics
2.1 Cooperation Types with Focus on Strategic Alliances
2.2 Strategic Alliances in the Telecommunication Industry
2.3 Competition Requirements in the Telecommunication Sector
2.4 Strategic Orientations by Miles and Snow (1987)

3 The Telecommunication Sector in Germany
3.1 Presenting the selected Companies
3.2 Analysis of their Strategic Orientations
3.3 Analysis of the selected Companies based on Competition Requirements
3.3.1 Deutsche Telekom
3.3.2 Vodafone
3.3.3 United Internet
3.3.4 Freenet
3.3.5 Telefonica

4 Discussion

5 Conclusion

References

List of Tables

1 Overview of the Selected Telecommunication Companies (Update: 2018, Source: own illustration)

2 Strategic Orientation Types of the Selected Companies (Source: own illustration)

List of Figures

1 Forms of Cooperation (Source: Hungenberg, 2014: 512)

2 Overview of the selected Strategic Alliances (Source: own illustration)

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

In view of the trend towards globalization and the increasingly fierce competition in most in­dustries, strategic alliances are in many cases considered mandatory in order to be able to suc­cessfully survive global competition (Fuller & Porter, 1986; Burgers, Hill & Kim, 1993: 315 ff., 420 f.). Especially in the telecommunication sector companies face rapidly changing envi­ronment because of the need for technological progress (Graack, 1996; Buganza, Dell’Era & Verganti, 2009: 341, 309 f.). This can be observed in the German market, in order to survive in competition, many telecommunication firms are entering strategic alliances.

There is an enormous number of studies examining the effects of strategic alliances on the economic results (Todeva & Knoke, 2005; Yu, Xu & Dong, 2019). Factors that favor them, such as trust and commitment, are mentioned in many works (Sklavounos, Rotsios & Hajidim- itriou, 2015; Tang & Hsu, 2018; Jha, Kim & Gutierrez-Wirsching, 2019). There are studies that report the high failure of strategic alliances, but there is not much research about what orga­nizational strategies companies have when they form them (Park & Ungson, 2001; Lorange & Roos, 1991).

This thesis deals with the question ’’Which type of organizational strategies (according to the theory of Raymond Miles and Charles Snow) is most likely entering strategic alliances?” based on the telecommunications market in Germany. Joshi, Kashlak & Sherman (1998) conduct similar research in their work. They analyze strategic alliances within the telecommunication industry in the U.S. based on the strategic orientation framework of Miles, Snow, Meyer & Coleman Jr (1978) . They found that a certain strategic orientation of companies is more likely to enter into a strategic alliance than others.

The methodology used in this work is literature research. In order to find out which strategic orientation is most likely to form alliances, a qualitative analysis of the companies was carried out using an analysis of the press releases, official statements and reports.

In the first part, strategic alliances from other forms of cooperation are highlighted and ex­plained. Strategic alliances in the telecommunications market are then discussed in more detail and competitive requirements in this area are presented. Finally, in the theoretical part, the tool of the strategic orientations of Charles Snow and Raymond Miles is presented, which will later be used to classify the companies in the respective categories. The third chapter deals with the analysis of companies. First, the companies with their most important key figures are intro­duced. After their strategic orientation has been examined and assigned on the basis of product and service range and motivation to innovate, their strategic alliances are presented. After read­ing this work one can get an overview of the companies and their strategic orientation and the types are highlighted, which are most likely to enter strategic alliances.

2 Theoretical Basics

2.1 Cooperation Types with Focus on Strategic Alliances

Cooperation is characterized by the fact that two or more companies combine parts of their activities in order to work together on a specific business area (Hungenberg, 2014: 509). Co­operative strategy is not a complete new phenomenon, it has always been there. Like the plan of work together and the achievement of an agreement (Tallman, 2005: 7). There are four basic types of cooperation existing: contractless cooperation1, contractual cooperation2, capital in­vestments3 and Joint Ventures4. But Strategic alliance is a special phenomenon of cooperation that gained importance in the last two decades (Hungenberg, 2014: 511).

There are two main types, industry scope (horizontal vs. vertical) and size scope (symmetric vs. asymmetric), of cooperation. The difference in symmetric and asymmetric cooperation lies in the different kind of resources that are being exchanged. Companies which enter a symmetric cooperation exchange the same resources and in contrast asymmetric cooperation exchange dif­ferent kind of resources (Yu, Xu & Dong, 2019: 3). In this work the industry scope is expanded with a third component: conglomeration (see Figure 1). The industry scope of strategic al­liances can take three different forms. First, the vertical cooperation is about companies whose value creation as supplier or buyer of a certain service is directly related. The basic idea is to optimize the interfaces between upstream and downstream stages of the value chain. Horizontal cooperation can be defined as two or more companies work together that are active at the same value creation level. The participants are in competition, and they try to use the cooperation to join forces for competition in their industry. Conglomerate cooperation can be understood as a cooperation of companies that are neither related to one another in value creation, nor that compete directly with one another. Such cooperation are formed when the companies offer products that are complementary from the perspective of their customers, so that joint market- ing is profitable. Strategic alliances fall into the horizontal cooperation category (Hungenberg, 2014: 512).

Abbildung in dieser Leseprobe nicht enthalten

Figure 1. Forms of Cooperation (Source: Hungenberg, 2014: 512)

Strategic alliances are usually formed because companies often do not have the capacity to produce new products or technologies. The merger leads to the exchange of skills and resources that favor and accelerate the product development cycles (Gnyawali & Park, 2009: 316). This is extremely relevant in the telecommunication industry due to the rapid convergence of technologies. This risks and uncertainties can be reduced by working together with a competitor in possession of complementary resources. Palmberg & Mar- tikainen (2006: 79) show that because the information and communication technologies are converging, companies in this sector most likely enter R&D alliances with companies which have complementary resources.

2.2 Strategic Alliances in the Telecommunication Industry

The telecommunication sector5 is one of the fastest growing industries in the world and is rapidly changing, too (Graack, 1996: 341). Strategic alliances are seen as a hallmark for the phase of the market opening that should make room for other forms of organization in the medium to long term. Especially in the last years the competitors in national and interna­tional regions tried to improve their competitive position by collaboration with other compa­nies. (Hungenberg, 1998: 480). This implies that strategic alliances in the telecommunication industry form a horizontal cooperation. Thus, competitors are forced to adopt new rules of engagement . A telecommunication company has two clear choices to conduct growth as well as to increase its ability-base in an environment with increasing deregulation. The firm can ei­ther build its product/service offerings with its own resources, or it can enter into a collaboration with other companies. A strategic alliance is a positive option in an industry environment where time and speed are critical. Also, it can be risky for a firm to pursuit resource commitments in particular markets or technologies by itself (Joshi et al., 1998; Palmberg & Martikainen, 2006: 542,79).

New alliances are most noticeable in Great Britain, which has a very liberal telecommunication market and also in Germany where one of the world‘s most attractive and profitable telecoms markets exist (Graack, 1996: 342). In this work the German telecommunication market regard­ing strategic alliances is examined in more detail.

In the telecoms industry there are different groups of competitors: international telecommunica­tions (British Telekom), mobile phone-/CN(corporate network)-operators (CNI, Mannesmann), utilities (RWE, Deutsche Bahn), media companies (Bertelsmann), IT companies (IBM, Mi­crosoft) and telecommunications equipment suppliers (Siemens, Alcatel) (Hungenberg, 1998: 486 ff.). In this work the groups international telecommunications, mobile phone-/ CN-operators and media companies stand in the foreground.

Hungenberg (1998: 495) found out that by creating a strategic alliance one can discover a typi­cal pattern. Thus, the individual alliances in the German market recruit their partners from two different groups: on the one hand international telecommunications, national utilities and on the other hand mobile phone-/corporate-network-operators.

But one has to mention that strategic alliances in the telecoms sector are not a guarantee for success. Fuller & Porter (1986) conducted a study of large U.S. cooperations from 1950 till 1986 which showed a failure rate over 50%. In 1999 Global One's6 plan to become a Global Player failed. Deutsche Telekom then selled their shares to France Telekom (Preissner, 1999). Success in strategic alliances is said to be an exception rather than a rule (Park & Ungson, 2001: 51). It is relevant today to find out which strategic behavior types regarding Miles et al. (1978) are suitable for the company and further which types are most likely to enter a strategic alliance.

2.3 Competition Requirements in the Telecommunication Sector

Traditionally, telecommunications was seen as a natural monopoly - in other words, as an eco­nomic sector in which the services are performed efficiently for the overall economy if they are only provided by one provider (Schneider & Werle, 1991: 100 f.). But this changed over 20 years ago and nowadays with the deregulation and liberalization, telecoms firms have to face the same competitive conditions as regular companies. It is therefore important to an­alyze the market and competitive conditions of the respective industry and to check whether cooperation is in principle suitable. This is the only way to secure competitive advantages. The qualitative aspects that companies in this branch have to deal with are internationalization, technological progress and customer change. In this work, selected companies are analyzed on the basis of these qualitative aspects. In quantitative terms, one examines at the market growth in all market segments of telecommunications. On the demand side, it is primarily the large customers who, as their own business internationalizes, expect telecommunications com­panies to be able to provide telecommunications services and networks worldwide from a single source. Only technologically leading providers can use the freedom of action in competition. The growing importance of telecommunication services for companies and private individuals, but also the emergence of options, increases the demands of customers regarding quality and cost-effectiveness of the telecommunication offer. The buyers demand technological innovation with falling prices (Hungenberg, 1998: 484 f.).

2.4 Strategic Orientations by Miles and Snow (1987)

In order to categorize the telecommunication companies in Germany this chapter presents four different types of strategic orientation. Miles et al. (1978) suggest that business level strategies generally fall into one of this categories: the Defender, the Reactor, the Analyzer, and the Prospector.

- Defenders are organizations which have limited product-market domains. They are satis­fied with their current place in the market, and they defend it as the years go by. Instead of investing time and money into trying to develop new products, this kind of an organization is going to lean back and reap the rewards of what they have already created.
- Prospectors are organizations that search uninterruptedly for new market opportunities. Thus, those companies are the creators of change and uncertainty to which their competi­tors must respond. Because of their main focus on product and market innovation, these organization usually are not completely efficient.
- Analyzers follow a mixed strategy. They operate in two types of product-market domains, one relatively stable, the other changing. On the one hand, these organizations focus on routine and efficiency, while at the same time observe closely and adapt to the competi­tion.
- Reactors do not have a clear strategy pattern. They are organizations in which top man­agers frequently perceive change and uncertainty but are unable to respond effectively. This means that they are simply trying to catch up with the markets as things change over time.

The first three strategy alternatives mentioned are superior to those of the Reactor (Miles et al., 1978: 29). It is obvious that prospectors who seek for new opportunities and innovation are the first who would enter a strategic alliance. This was confirmed by Joshi et al. (1998) in their study about the telecommunication sector in the US. They also found out that Prospectors enter more strategic alliances than Analyzers and Defenders. Those companies are open for international alliances (Joshi et al., 1998: 545).

3 The Telecommunication Sector in Germany

3.1 Presenting the selected Companies

In the following chapter the selected telecommunications companies are being presented. The order is based on sales, starting with the highest sales. Table 1 illustrates key characteristics of the five telecommunication companies under study7.

Abbildung in dieser Leseprobe nicht enthalten

3.2 Analysis of their Strategic Orientations

Table 2 allocates the selected companies to their strategic orientation.

Table 2. Strategic Orientation Types of the Selected Companies (Source: own illustration)

Abbildung in dieser Leseprobe nicht enthalten

[...]


1 Simplest form of cooperation, contractless agreements, least stable form of cooperation.

2 Cooperation / license agreements, example Lufthansa and car rental company Sixt.

3 Sum of money provided to a company to further its business objectives.

4 Association of companies for the purpose of joint implementation of projects.

5 The telecommunication sector consists of companies that make communication possible on a global scale, whether it is through the phone or the Internet, through airwaves or cables, through wires or wireless. These companies created the infrastructure that allows data in words, voice, audio or video to be sent anywhere in the world. The largest companies in the sector are telephone (both wired and wireless) operators, satellite companies, cable companies, and internet service providers.

6 Alliance between Deutsche Telekom, France Telecom and US provider Sprint

7 An Internet provider is a provider of services and technical services that are necessary for the use or operation of content and services on the Internet. The provision of internet access, e.g. Internet and telephone flat rate, hosting, i.e. registering and offering Internet domains, web hosting, i.e. the placement of websites on a web server, server hosting, i.e. operation, maintenance and data backup of servers, mail hosting, i.e. the provision of e-mail services.

Excerpt out of 23 pages

Details

Title
Strategic Alliances in the Telecommunication Sector in Germany
Subtitle
Which Type of Strategic Orientation is Most Likely Entering Strategic Alliances?
College
University of Hannover  (Unternehmensführung und Organisation)
Course
Social Network Theory
Grade
1,3
Author
Year
2020
Pages
23
Catalog Number
V888808
ISBN (eBook)
9783346333278
ISBN (Book)
9783346333285
Language
English
Tags
strategic, alliances, telecommunication, sector, germany, which, type, orientation, most, likely, entering
Quote paper
Ngoc Anh Nguyen (Author), 2020, Strategic Alliances in the Telecommunication Sector in Germany, Munich, GRIN Verlag, https://www.grin.com/document/888808

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