Maximizing BT Group’s Profitability Through Product Differentiation and Cost Leadership
Introduction
Product differentiation and cost leadership strategies can help a company to increase their profitability. Faced with the unprecedented competition during its lifetime and the expected new competition from the players who were yet to enter the market like cable and DTH operators, BT decided that it had no other option than to change the way it does its business. The main challenges that the company was facing in the market were related to the convergence of the conventionally distinct telecom services. Many competitors who were till then operating in one single line of business operations started to offer converged business services which has started putting unprecedented competition on BT. To over the new competition in the market, the company decided that it needed to convert itself as the world’s first truly converged firm offering a range of business services that it was not offering traditionally. But a big limitation that the company faced was regarding its limited technological knowhow and expertise in beating its competitors. The only way before BT was to get technology from outside the company from silicon valley majors and other leading telecommunications companies in the world which can help it to boost its expertise levels. It decided to enter into JVs with companies that had the knowhow and were at the forefront of the global technology.
Product Differentiation and Cost Leadership
Many senior executives of BT like its vice-president, Jean-Marc Frangos started to actively looking out for any opportunities outside the firm to enter into JVs or technology partnerships that can it borrow technology and other knowhow that are crucial for the survival of the firm in the long-term. As part of this initiative, BT entered into a JV with the leading telecommunications company in the USA, MCI Communication Corporation in the year 1994. BT acquired a 20 percent stake in the company and established a JV with a new name called Concert Communications Services. The JV was highly successful and soon emerged as the leading supplier of the telecommunications equipment to 3,000 big corporations that had a revenue of nearly US$ 1.5 billion in revenues. The success of the JV made BT to think about options to initiate talks regarding a total buyout of Concert. But, it could not complete deal as MCI got another competing offer from WorldCom. The competing offer made to stop its takeover plans for Concert. Despite the failure to acquire Concert, BT got a good opportunity to get an idea regarding the operation of the international telecommunications markets. BT had also sold off its stake in the joint venture to WorldCom for an excellent profit of US$ 2 billion in the year 1997. The stake sale in the joint venture had also netted the company a return on its investment of more than 100 percent in a span of just 3 years.
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The failure to make the joint venture with MCI Communications successful did not deter BT from pursuing further opportunities in entering into more number of joint ventures with other major players in the international markets. In the year 1998, just one year after ending its joint venture with MCI Communications, BT entered into another joint venture with the leading telecommunications company in USA, AT&T. Both the companies that have entered into the joint venture had equal share in the venture and named it as Concert. In the new joint venture, both the companies have combined all their transborder operations like international call traffic, services for international business customers, and the complete international networks of both the companies. The joint venture specialized exclusively on the international operations of the company serving the needs of the international business customers. The joint venture had also built its own sales force that serviced the needs of 270 multinational customers. Its wide distribution network made its services to reach a total of 29,000 customers worldwide. The joint venture did not limit itself to using the existing network of BT and At&T but had also invested in building its own state-of-the-art network. The joint venture with AT&T helped the company in reducing the cost of its operations as the resources of the companies were combined. The special focus on the international business services also enabled the company to offer differentiated services in the market when compared to its competitors and gain a good competitive advantage over the competitors. Many big clients chose the services of BT over the competitors due to its special emphasis on the business services. The joint venture helped in attaining the twin strategies of low cost leadership and product differentiation at one time. When the global telecommunications market was shaken up due to the financial crisis that has engulfed the global industry during the early 2000s, BT could overcome the crisis easily when compared with other leading players in the market.