2006. Nicos M. Timotheou. An Overview of Key Success Factors in Entering a Foreign Market. CEE-Wirtschaftsforum 2006. Forum Velden

Austrian CEE Economic Forum 2006Austrian CEE Economic Forum 2006 11

An Overview ofAn Overview ofKey Success Factors in Key Success Factors in

Entering a Foreign MarketEntering a Foreign Market

Nicos M. TimotheouNicos M. TimotheouCEO, CYTACEO, CYTA

2121stst September, 2006 September, 2006


ContentContent

The Incumbent Challenges & OptionsThe Incumbent Challenges & Options Start-ups and the Entrepreneurial CycleStart-ups and the Entrepreneurial Cycle Developing Markets CharacteristicsDeveloping Markets Characteristics Micro EnvironmentMicro Environment Macro EnvironmentMacro Environment Non Organic Growth by M&ANon Organic Growth by M&A Market Entry Key Success Factors for Market Entry Key Success Factors for

Actel Communications, HungaryActel Communications, Hungary


The Incumbent’s EnvironmentThe Incumbent’s Environment

Future growth uncertainty due toFuture growth uncertainty due to Accelerating technological innovation (disruptive technology v.s. Accelerating technological innovation (disruptive technology v.s.

legacy systems)legacy systems) Regulation of the sector aiming to increasing market competition Regulation of the sector aiming to increasing market competition

and price reductionand price reduction Empowered and knowledged consumersEmpowered and knowledged consumers

Underestimating the above challenges leads to:Underestimating the above challenges leads to: Non flexible and old fashion servicesNon flexible and old fashion services Decreased profit marginsDecreased profit margins Increased customer churn and hence shrinking market shareIncreased customer churn and hence shrinking market share Increased corporate riskIncreased corporate risk


The Strategic OptionsThe Strategic Options Operators are seeking scale and growthOperators are seeking scale and growth Incumbents are re-integrating fixed, mobile, internet Incumbents are re-integrating fixed, mobile, internet

divisions/subsidiaries and are seeking costs synergiesdivisions/subsidiaries and are seeking costs synergies

Organic Growth in Home Market byOrganic Growth in Home Market by Investing in disruptive technology: deploying new infrastructure Investing in disruptive technology: deploying new infrastructure

and letting go the legacy systemsand letting go the legacy systems Increasing brand value and developing customer retention Increasing brand value and developing customer retention

schemesschemes Investing in the development of local and relevant content Investing in the development of local and relevant content

Non Organic Growth in Foreign MarketsNon Organic Growth in Foreign Markets Investment in start-upsInvestment in start-ups Acquisitive growth by M&AAcquisitive growth by M&A


The Entrepreneurial CycleThe Entrepreneurial Cycle

Must firstIdentify a Market

Opportunity

Assess Resources& Strategy Required

in order to enter the market& exploit the opportunity

Keep up with Market Dynamics

Avoid x-innefficiencies

Generate Unique ResourcesCombinations so that to achieve

Sustainable Competitive Advantage


Identifying a Market OpportunityIdentifying a Market Opportunity

Need to evaluate the macro environmentNeed to evaluate the macro environment Is the political, legal, regulatory, economic, societal, Is the political, legal, regulatory, economic, societal,

technological environment going to be supportive, neutral, non-technological environment going to be supportive, neutral, non-friendly?friendly?

But also need to assess the micro environmentBut also need to assess the micro environment Is there too much competition and can we foresee market Is there too much competition and can we foresee market

shakeouts?shakeouts? Is there substantial market size and opportunity to growth?Is there substantial market size and opportunity to growth? Are the incumbent’s prices high?Are the incumbent’s prices high? Is there a high chance to capture a high market share?Is there a high chance to capture a high market share?

• Evidence of correlation of EBITDA Margins with Revenue Market Evidence of correlation of EBITDA Margins with Revenue Market Share. The highest the revenue market share the highest is the Share. The highest the revenue market share the highest is the EBITDA marginEBITDA margin


Correlation between EBITDA Correlation between EBITDA Margin and Revenue Market ShareMargin and Revenue Market Share

Reference: Dr. M. Reif, T-Mobile International, M&A in the Communications Industry Conference, Prague, May 2006


Do I have the Resources and Strategy in Do I have the Resources and Strategy in place to Explore the Market Opportunity?place to Explore the Market Opportunity?

What physical, financial and human resources What physical, financial and human resources are required to be combined?are required to be combined?

Are there any synergies with current operations?Are there any synergies with current operations? Can we develop a comprehensive marketing Can we develop a comprehensive marketing

strategy to address the market gap:strategy to address the market gap: Product, price, promotion, distribution, processes Product, price, promotion, distribution, processes

What is the fit between existing resources and What is the fit between existing resources and synergies with those required to exploit the synergies with those required to exploit the market gap?market gap?


Can I create Unique Resources Can I create Unique Resources Combinations so that to achieve Sustainable Combinations so that to achieve Sustainable

Competitive Advantage?Competitive Advantage? Local distribution network and sales channelsLocal distribution network and sales channels

CollaborationCollaboration InternetInternet

Local partners knowledgeable ofLocal partners knowledgeable of Country specific market conditionsCountry specific market conditions Regulatory frameworkRegulatory framework Legal environmentLegal environment Local personnel recruitment Local personnel recruitment Language, Cultural and Corporate Governance FitLanguage, Cultural and Corporate Governance Fit

Own expertise in engineering, procurement, finance Own expertise in engineering, procurement, finance Usage of other synergiesUsage of other synergies

International Points of Presence – the building of an IP/MPLS International Points of Presence – the building of an IP/MPLS international network by CYTA Hellas, UK, USA.international network by CYTA Hellas, UK, USA.


Developing Markets CharacteristicsDeveloping Markets Characteristics Large population (millions)Large population (millions) High economic growth rates (>5%)High economic growth rates (>5%)

Leads to increasing disposable incomeLeads to increasing disposable income Low to medium mobile penetration (<80%)Low to medium mobile penetration (<80%) Low broadband internet penetration (<5%)Low broadband internet penetration (<5%) Relatively low competitive intensity (<3 players)Relatively low competitive intensity (<3 players)

Leads to high revenue market share and hence high Leads to high revenue market share and hence high profitabilityprofitability

Experienced management and personnelExperienced management and personnel Economies of scale in procurement, marketing, Economies of scale in procurement, marketing,

brandingbranding Sharing of R&D in servicesSharing of R&D in services


Developing Markets CharacteristicsDeveloping Markets Characteristics

Developing markets offer opportunities to growDeveloping markets offer opportunities to grow But also in most developing markets there are But also in most developing markets there are

challenges to overcomechallenges to overcome Unstable and non transparent legal systemsUnstable and non transparent legal systems Lower standard of regulatory regimeLower standard of regulatory regime Weaker corporate governanceWeaker corporate governance Fuzzy corporate tax regimeFuzzy corporate tax regime

CEE countries have already aligned their CEE countries have already aligned their legislation and regulation with EU, thus legislation and regulation with EU, thus minimising the above risk. minimising the above risk.


Micro environmentMicro environment Supportive industry for collaboration and outsourcing non Supportive industry for collaboration and outsourcing non

core taskscore tasks Clustering of related industry firms such as marketing & Clustering of related industry firms such as marketing &

advertising, network deployment engineering firmsadvertising, network deployment engineering firms Existing number of competitors and danger of eminent or Existing number of competitors and danger of eminent or

future shakeoutsfuture shakeouts Strengths and weaknesses of competitorsStrengths and weaknesses of competitors Prospective new competitors and new entrants barriers Prospective new competitors and new entrants barriers Alternative products and substitutesAlternative products and substitutes Consumer unmet needsConsumer unmet needs

market research is a mustmarket research is a must Absolute addressable market sizeAbsolute addressable market size Market growth stageMarket growth stage Minimum efficient scale and determination of the long Minimum efficient scale and determination of the long

run number of competitorsrun number of competitors


Macro environmentMacro environment Political IssuesPolitical Issues Legal IssuesLegal Issues Regulatory IssuesRegulatory Issues Economic IssuesEconomic Issues Societal and Environmental IssuesSocietal and Environmental Issues Technology IssuesTechnology Issues

Being able to efficiently collect accurate Being able to efficiently collect accurate information for the above issues is a key information for the above issues is a key success factor in evaluating a prospective success factor in evaluating a prospective investmentinvestment


Political, Legal & RegulatoryPolitical, Legal & Regulatory

Political stability and democracy assists in:Political stability and democracy assists in: Transparency of decision mechanismsTransparency of decision mechanisms Fairness of political decisionsFairness of political decisions

An EU aligned Legal Framework helps in:An EU aligned Legal Framework helps in: Protecting foreign investors and dividendsProtecting foreign investors and dividends Intellectual Property RightsIntellectual Property Rights Tangible property protection Tangible property protection

The Regulatory Regime sets:The Regulatory Regime sets: The intensity of CompetitionThe intensity of Competition The incumbent’s role in the marketThe incumbent’s role in the market


EconomicEconomic

Willingness to Pay is determined by:Willingness to Pay is determined by: Unmet needs of consumerUnmet needs of consumer Quality of product/ service offeringsQuality of product/ service offerings Disposable income for electronic communications Disposable income for electronic communications

expenditureexpenditure

Spending power is a function of:Spending power is a function of: GDP per capita purchasing power parityGDP per capita purchasing power parity Unemployment rateUnemployment rate Inflation indexInflation index Country’s roadmap towards joining the EurozoneCountry’s roadmap towards joining the Eurozone


EconomicEconomic

Key Economic Policies affecting Key Economic Policies affecting investment risk and viability of businessinvestment risk and viability of business Tax incentives for foreign direct investmentTax incentives for foreign direct investment Double tax treatiesDouble tax treaties Dividends exporting restrictionsDividends exporting restrictions

Existence of Local Financial MarketsExistence of Local Financial Markets Expansion capital sourceExpansion capital source Exit opportunity for initial investorsExit opportunity for initial investors


Societal Green BehaviorSocietal Green Behavior

Increasing green societal behavior leads to: Increasing green societal behavior leads to: Fear by the public of being exposed to electromagnetic Fear by the public of being exposed to electromagnetic

waveswaves Resistance in building antenna towersResistance in building antenna towers Delays in radio network deploymentDelays in radio network deployment

Bureaucracy leads also to delays:Bureaucracy leads also to delays: License to build antenna towers from municipalitiesLicense to build antenna towers from municipalities Electricity provision to sitesElectricity provision to sites


TechnologyTechnology

Disruptive TechnologyDisruptive Technology Convergence of fixed/mobile/internet Convergence of fixed/mobile/internet Community networking based servicesCommunity networking based services Increasing network externality effects in place Increasing network externality effects in place

Examples of today’s disruptive technologies:Examples of today’s disruptive technologies: Voice over the Internet Protocol (VoIP)Voice over the Internet Protocol (VoIP) See Skype and community based applicationsSee Skype and community based applications WiMax wireless access technology will initially WiMax wireless access technology will initially

complement wireline xDSL technology but eventually complement wireline xDSL technology but eventually rigorously compete it.rigorously compete it.


Non Organic Growth by M&ANon Organic Growth by M&A

Why M&A for an incumbent?Why M&A for an incumbent? Gain competitiveness in new business areas rather Gain competitiveness in new business areas rather

than developing them internallythan developing them internally Support existing business operationsSupport existing business operations Expand scope of business to related sectors so that Expand scope of business to related sectors so that

to leverage operational and financial synergiesto leverage operational and financial synergies Horizontal and vertical integration to achieve Horizontal and vertical integration to achieve

operational gainsoperational gains Enhance the assetEnhance the asset Enhance the product portfolioEnhance the product portfolio



What synergies?What synergies? Merging overlapping functions, networks, Merging overlapping functions, networks,

premisespremises Scale effects by common procurement and Scale effects by common procurement and

one brand marketingone brand marketing Revenue complimentarityRevenue complimentarity Centralisation of supportive functionsCentralisation of supportive functions Tax benefitsTax benefits


Non Organic Growth by M&ANon Organic Growth by M&A Key Success Factors in M&AKey Success Factors in M&A

Must have an M&A function within the Must have an M&A function within the corporate division being able to cooperate corporate division being able to cooperate with all other business line units of the with all other business line units of the organisation, the general management and organisation, the general management and the board of directorsthe board of directors

M&A function must be small and flexible: 1 M&A function must be small and flexible: 1 head and 5-8 professionals actively seeking head and 5-8 professionals actively seeking business opportunities and monitoring specific business opportunities and monitoring specific targetstargets

Must focus on Post Acquisition Integration in Must focus on Post Acquisition Integration in order to realize synergiesorder to realize synergies



Key Success Factors in M&AKey Success Factors in M&A Scale and ScopeScale and Scope One brand, one services generation platform, One brand, one services generation platform,

common processescommon processes Successful combination and integration of Successful combination and integration of

networksnetworks Realisation of synergiesRealisation of synergies


Market Entry Key Success Factors Market Entry Key Success Factors for Actel Communications, Hungaryfor Actel Communications, Hungary Large addressable market sizeLarge addressable market size Low broadband penetration hence opportunity to Low broadband penetration hence opportunity to

growgrow High incumbent pricesHigh incumbent prices Available local contentAvailable local content

Collaboration prospective with small Cable TV Collaboration prospective with small Cable TV companies unable to offer triple playcompanies unable to offer triple play

Triple play (voice, data and multimedia) a new Triple play (voice, data and multimedia) a new offering in the marketoffering in the market

Transfer of CYTA’s IPTV knowledge Transfer of CYTA’s IPTV knowledge


Market Entry Key Success Factors Market Entry Key Success Factors for Actel Communications, Hungaryfor Actel Communications, Hungary Possible to capture a good market share before the Possible to capture a good market share before the

incumbent reacts.incumbent reacts. In place supportive regulatory regimeIn place supportive regulatory regime

Local loop unbundling enforcedLocal loop unbundling enforced Co-location enforcedCo-location enforced Interconnection rules in placeInterconnection rules in place Transparency of information regarding costs and tariffsTransparency of information regarding costs and tariffs

Having a local top management teamHaving a local top management team Knowledge of market specificsKnowledge of market specifics Incentives to achieve targetsIncentives to achieve targets Inter-cultural HRMInter-cultural HRM

Local financial markets allow further expansionLocal financial markets allow further expansion


Thank you for your Thank you for your attendanceattendance

For more information please contact [email protected]

See also CYTA’s website at www.cyta.com.cy

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2006. Nicos M. Timotheou. An Overview of Key Success Factors in Entering a Foreign Market. CEE-Wirtschaftsforum 2006. Forum Velden