Impact Of Globalization On Telecommunications Industry Economics Essay

World is entering into information age which has brought a state of change in the ways the world use to run due to which a marked change is going on in societies, associations, agencies, corporations and industries. This can be perceived in the advances in computer, information and communication technology and the progress made in information science. The telecom industry is also in a state of evolution under the impact of globalisation.

Over the last two decades, there has been a remarkable change in the world economy because of a constant development and up gradation in information and communication technologies. In particular, the telecom sector has triggered a revolution in shaping up the process of global changes to capture the opportunities. Furthermore, the growth of the telecommunication industry has allowed a huge increase in the amount of cross-border information flows, reducing transaction costs and stimulating consumer demand for world-class products, services, and brands (Leff, 1984).

The telecommunications industry has made its mark in history. It has experienced a series of dramatic changes since its beginning in the 1880s.In the first development stage of the industry, mixed competition structure were present. After a flourishing start the telecommunications industry developed gradually into a public-owned industry without competition. Moreover, during the first half of the 20th century, the telecommunications industry became a comparative stable industry worldwide (Pennings et al., 2005).

Globalization

“Globalization is a process whereby worldwide interconnections in virtually every sphere of activity are growing. Some of these interconnections lead to integration/unity world-wide; others do not. Together global interconnections and the relationships they forge represents a historically unprecedented process that is rapidly reshaping the context for many activities” (Held et al., 1999).

In the last three decades, the environment in which the telecommunications industry was

Operating started to change. As globalization set the stage, the telecommunications industry became gradually a more global industry with increasing competition. In addition, new technological developments such as mobile telecommunications and digitalization have had a significant impact on the restructuring of the industry. Consequently, governments have started to privatize their state-owned telecommunications companies to open competition and to establish independent regulatory agencies.The technological breakthroughs in telecommunication alone reveal that they rapidly move information, inventions and innovations across national borders and boundaries of time and space, these rapid shifts affects almost every industry and reshape many core business technologies. Through interconnections with other global environments, they also reshape human lives (Parker, 2005.p 323).

The process of globalisation made a huge impact on telecom industry, specially the market of telecom sector.

Globalization of markets

Globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross border trade have made it easier to sell internationally. consumer products such as Coca Cola soft drinks, McDonald’s ,Starbucks coffee and IKEA furniture are frequently identified as perfect example of this trend .These firms are not just benefactors of this trend but also the facilitators of it. By offering the same taste world wide they help to create a global market (Hill, 2009, pp 6).

Two major trends characterize the international telecommunications industry: rapid technological advances and the growing understanding that liberalizing telecommunications industries is key to overall industry growth. As telecommunications markets are liberalized around the world, the role of national governments is changing from that of a direct player in the industry to that of policy maker and regulator. At the same time, the nature of international telecommunications trade is evolving from a bilateral, nation-to-nation framework to a multinational, multilateral company-to-company archetype. In 1950s, thoughts of deregulating the telecommunications industry started to develop gradually. The United States of America (USA) were the first country to deregulate the telecommunication market (Graack, 1996).The 1950s signaled a change in the governments’ perception of the proper telecommunications structure., the government of the USA wanted to allow competition in its telecommunications market. At that time, American Telephone and Telegraph (AT&T) and its Bell System Operating Companies had a monopoly position in the USA. It was created after the establishment of the Communications Act of 1934 .In 1969; the USA introduced a competitor to its monopolist AT&T. The first competitor that was allowed to enter the market was Microwave Communications International (MCI) (Chakravarthy, 1991). It was only allowed to enter the fixed-lines business between two cities. AT&T stayed the key provider of fixed-line services. Hence, the FCC had imposed regulations to the industry players in order to advance equal competition, like asymmetric price regulation and access charges (Green & Teece, 1998). During the period when a deregulated telecommunications market was created, the USA was invaded by many non-USA equipment vendors. In reaction, other countries were urged to open their markets in line with the USA model (Thimm, 1992).Technology has further stimulated the dynamics of the industry. Particularly, the mobile telecommunications development has changed the environment substantially. The mobile telephony industry in the USA was launched in 1984 and grew enormously since 1988. Wireless communications was first adapted in the professional business and later by the consumer market. (Manova et al., 1998).

Given the globalization of telecommunications industry, many serving organizations were required to develop international strategies (Oh, 1996). Through international strategies, companies were able not only to enter foreign markets, but also to seek foreign assets (both of a tangible and an intangible nature) and to build R&D, supply and production facilities abroad. External strategic options such as an acquisition or a partnership with a local company from the traditional or New Economy provide an established market position, access to existing infrastructure, and contact with local expertise. For example, KPN acquired Pantel, a Polish fixed-lines telecommunications company, the Belgian mobile operator BASE, and has a majority stake in E-Plus, a German mobile operator. Also, these strategic forms give companies access to a range of capabilities that they need to further develop both core activities and complementary activities. For example, BT acquired the U.S. network systems company Tymnet, the Spanish network services firm Banco Santander, and acquired several stakes in telecommunications companies in the Asia-Pacific region. Of course, firms could also enter foreign markets by setting up wholly owned subsidiaries. As foreign markets might be difficult to penetrate because lack of market presence and lack of information on customers’ needs, local operating conditions and government regulations, companies generally prefer partnerships and M&As. In general, the telecommunications industry has become more internationalized in the last decade. (Chacko & Mitchell, 1998; Kranenburg, Cloodt & Hagedoorn, 2001).

Products and services have been introduced in the market. To maintain their competitive position, telecommunications companies gained access to new and complementary capabilities, resources and businesses. The companies allied with companies from other industries and acquired companies in expanding and potential markets because of possible increased production, stronger market presence, greater control over industry direction and decreasing competitive pressure (Jamison, 1998). Due to new competitors from the New Economy, speed is becoming increasingly important for telecommunications companies to sustain or improve their position in the market Partnerships in the telecommunications industry are particularly suited to monitor new opportunities and markets at relatively low cost. They are a more flexible and less expensive mode to set up (Carey, 2000).

“Telecommunications networks are complex product systems, in which the ability to appropriate economic rents is determined by control. In telecommunications systems, technological control influences economic control, ie the ability of some network members to appropriate some of the economic benefits generated by others.” Keil et al, 1997 (page 305)

Difficulties for smaller corporations

Smaller corporations are at a disadvantage in the move to globalization for several reasons. The existing international telecommunications alliances have been created by some of the world’s largest carriers, and they have exhibited a preference for dealing with others of a similar nature. There is a “learning curve” when it comes to entering new markets internationally, and often the investments needed are quite large. The current international carrier alliances can be viewed as an

Benefits from telecommunication trade .

We now discuss the benefits of telecommunications trade liberalization. Freer trade in telecommunications promises to deliver at least three economic gains: new and improved

products and services, lower prices, and additional investment. Open trade in telecommunication services should result in more competition, lowering prices for most businesses and for many consumers and providing both with a choice of different service providers. Probably the clearest evidence comes from the market segment where competition is currently the most keen: in international telephone services. Those markets where direct competition is permitted have achieved higher rates of growth than in countries that have retained a monopoly.. However, for emerging markets the difference is much more striking: over the same period competitive markets grew their international traffic per subscriber by 11.7 per cent per year compared with just 5.2 per cent per year in monopoly markets. This suggests that the potential benefits of trade liberalization might actually be greater for emerging markets than for developed ones. Why should this be so? One part of the answer is because of unmet demand. Some 43 million people are on registered waiting lists for telephone connections in emerging markets and the average waiting time is more than a year. By introducing new investment in the market, waiting lists can be sharply reduced, as has been the case in developing markets that have privatized their public telecommunication operators at the start of the 1990s.

Main trend growth in telecom in 1970-2003

Conclusion

The telecommunications industry has been through some major developments in its era. It started out with a mixture of privately owned and state-owned companies throughout the world. In the first half of the 20th century, the telecommunications industry turned into a relative stable industry, which was completely government-owned. During the last decades due to the globalization and the privatization wave in the world, the telecommunications industry has rapidly changed. In the 1990s, the New Economy emerged and created new market opportunities for telecommunications firms. When competition was allowed in the industry, the trend was to first allow one vertically-integrated competitor into the market to create a player of similar strength with comparable resources as the previous monopolist had. The succeeding phase was one of more open competition. However, privatization not only turned around the outlook of the telecommunications market but also the speed and extent of technological developments. Due to innovations, the telecommunications industry, together with other industries, is rapidly transforming into a new industry, the so-called multimedia-information industry. The industry is the focal industry in the third generation of leading industries (Thimm, 1992). Deregulation, globalization, the emergence of the New Economy and introduction of new technologies such as mobile phones and broadband have forced the telecommunications companies to reconsider their strategy, their technological base and their product portfolio. In that context, companies have tried to develop and gain access to desired capabilities and resources and expanded across national boundaries to sustain their competitive advantages. Companies that lack some of the necessary new competencies used mergers, acquisitions, and partnerships with other companies to acquire the essential technological knowledge and to penetrate new markets. During the 1990s, the telecommunications companies were major acquirers of other companies and interesting partners for alliances. The overall trends demonstrated an increase in importance of inter-firm partnerships and M&As. The number of domestic inter-firm partnerships and M&As as well as the international inter-firm partnerships and cross border M&As showed an increasing pattern. Another interesting pattern was the increase in importance of other industries. In relative terms, the growth of alliances with partners outside the telecommunications industry outdated the increase in the number of alliances within the industry. M&As demonstrated the same pattern as the inter-firm partnerships. An explanation for this specific pattern can be found in the companies’ need for new capabilities and resources emerging from the New Economy, to compete in an industry that is transforming into a multimedia information industry.