Strategic analysis of Omantel

Executive Summary

The following report undertakes a strategic analysis of Omantel and provides the company with recommendations on how to mitigate the effects of these challenges after assessing its internal resources and capabilities. Falling oil prices, higher interest rates, liberalization drive, and government’s Omanization policy are the factors identified to be of the most concern for the company in the immediate future. According to the SWOT analysis of the company, strong financial position, governmental patronage, and investments in telecom sector are the primary strengths of Omantel that it should aim to exploit to the maximum. However, being operational in only a limited regional market is a weakness for the company, which is compounded by the fact that the company is also not growing much even in the Omani market. According to the VRIO analysis, only the dominant market share has the characteristics to provide a sustainable competitive advantage to the company. The Omantel brand and workforce are rather easy to be imitated by the company’s competitors, and thus cannot be sources of sustainable competitive advantage. Strategic analysis of Omantel shows that the company should lower down its prices until the economic situation in the country stabilizes and should continue its developmental projects. The government can help Omantel by issuing 5G licenses, removing bureaucratic roadblocks to developmental work, and lowering the interest rates.

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Introduction

Established in 1996 by the government, Omantel is a telecommunications service providing company that operates in the Sultanate of Oman. However, the government has sold around half of the company’s shares to private investors and now holds only 51% (Omantel, 2020b). The current report aims to identify the primary challenges being faced by the company, undertake SWOT and VRIO analyses of the company to obtain a wholesome picture of the company’s internal situation. Lastly, the report will provide recommendations for the company to mitigate the effects of the identified challenges, and will also discuss how the Omani government can aid Omantel in getting out of these challenges successfully.

Challenges for the Company

Omantel operates primarily in the state of Oman, the economy of which is dominated by extraction and trade of energy products, mainly oil. Considering these factors, one threat that Omantel is facing is due to falling oil prices following COVID-19. The Omani economy may suffer, and consumers might reduce their spending on unnecessary telecommunication services (Crystal, 2020). Similarly, the financial crisis has also resulted in higher interest rates on bank loans (Crystal, 2020). This will negatively affect Omantel’s development plans as higher interest rates mean lower profit for the organization. Lastly, government initiatives of liberalization of market and Omanization will also significantly affect the organization. The liberalization drive has already eroded the monopoly of Omantel in the Omani telecommunications sector, and it now has to compete with international heavyweight organizations like Vodafone and Ooredoo. Similarly, the Omanization policy will make it harder for Omantel to retain its highly qualified foreign employees, consequently affecting the quality of Omantel’s services.

SWOT Analysis

Strengths

One of the preeminent strengths of Omantel is its strong financial position that the company has enjoyed over the years. In the first half of 2020, the company estimated its revenues to be standing at 1242m OMR (Oman Observer, 2020). Similarly, the value of company’s total current assets stood at almost 16m OMR (Omantel, 2020a). Currently, the government own 51% of the company’s shares and thus is an essential factor in company’s decision and policy-making (Omantel, 2020b). This strong financial position and governmental support have allowed Omantel to become the leading telecom provider in Oman despite the entry of strong competitors like Vodafone and Ooredoo. To sustain this market position, Omantel has also made various strategic investments across the telecom sector, especially in 5G infrastructure development and Internet of Things (Omantel, 2020b).

Weaknesses

Omantel primarily conducts its business within the state of Oman, where it has enjoyed growth and success in recent years (Omantel, 2020b). However, limiting its operations to Oman means that the company cannot strive for a global or even a regional market presence. Unlike Omantel, its competitors Vodafone and Ooredoo have their operations present on a global and regional scale respectively (Vodafone, 2020; Ooredoo, 2020), indicating that they have a greater opportunity to earn capital. The drawback of operating in a single market has already been evident in the slowed growth of the company in recent years. For instance, in 2020, the net profit of the company took a hit of around 20% as it stood at 100.5m OMR, as opposed to 126.5m OMR in 2019 (Oman Observer, 2020).

Opportunities

To further grow its market share, an effective strategy for Omantel would be to control the businesses of its direct and indirect competitors through corporate acquisitions. Oman has already pulled-off an acquisition deal with Zain group, which has led to a twentyfold increase in the number of Omantel’s customers (Brunswick Group, 2020). Furthermore, recent technological breakthroughs provide Omantel to invest in promising technological areas. Partnerships with market leaders in specific technologies like artificial intelligence, block-chain, and IoT etc. The company also has an opportunity to take the initiative in the development of 5G infrastructure, which will give Omantel an advantage over its competitors.

Threats

The threats being faced by the company have already been mentioned in the “Challenges for the Company” section.

Strengths

Strong financial position

Governmental patronage

Investments in telecom sector

Weaknesses

Limited regional market

Slow growth

Opportunities

Acquisitions

Investing in promising technological areas

Threats

Falling oil prices

Higher interest rates

Market liberalization

Omanization

Table 1: Omantel’s SWOT Analysis

VRIO Analysis

The operations and marketing strategies of Omantel indicate that the company highly values its market share, brand recognition, and its employees. Omantel currently has the biggest market share in Oman’s telecom industry, which stands at 53.8% for mobile network and 70.4% for fixed telephone services (Omantel, 2019). From the VRIO perspective, this market share is valuable for the company as it provides it with revenue and profits. It is also rare, as no other organization has such a dominant position in the Omani market. The market share is not easily imitable as the company has worked over the decades to achieve and retain it. The company has also organized itself in a way to maximize its advantages from the dominant market share.

Retention of this majority market share in Oman despite the liberalization drive is due to the successful branding of the company as a reliable, innovative, and easily affordable option in the telecommunication sector (Omantel, 2020b). This brand recognition is a valuable resource for the company. However, the brand is not as rare as other companies which provide similar services, thereby making Omantel’s brand imitable as a resource if a competitor spends resources and time. Nevertheless, the company has effectively organized itself to gain maximum advantages from its brand recognition.

Lastly, the managers and employees of Omantel also allow the company to thrive in a highly competitive market. These employees generate value for Omantel’s products and thus are a valuable resource for the company. Omantel has employed some of the best managers and engineers available in the Sultanate, which makes the Omantel workforce quite rare. However, Omantel’s competitors can offer these managers better wages and thus easily imitate the company’s workforce.

Resource Valuable Rare Inimitable Organized to Capture Value
Market Share
Brand Recognition X X
Workforce X

Table 2: Omantel VRIO Analysis

Recommendations

Keeping in view the internal resources and capabilities available to the company, Omantel should pursue a cost-leadership strategy from Porter’s generic framework (Porter, 1985). One of the main challenges that Omantel is facing is that of lowered sales because of economic turndown following the fall in oil prices (S&P Global, 2020). The best strategy for Omantel in this situation would be to reconsider its pricing strategy and lower the prices of its different services. Although this would result in reduced revenue and profit, it will allow Omantel not only to retain but also expand its market share in the Omani telecom market, the only resource providing the company with a sustainable competitive advantage.

Differentiation

Cost

Broad

Narrow

Scope

Source of Competitive Advantage

Figure 1: Selected Strategy for Omantel from Porter’s Generic Strategies

To effectively pursue the cost leadership strategy, Omantel would need to make several changes. Firstly, the company needs to hire competent managers, marketers and advertisers to effectively publicize the lowered prices, and gain a greater market share in the telecom sector (Baye, 2010). Similarly, Omantel should also train the existing and newly-hired staff to upgrade the company’s capabilities regarding research and development and marketing. To make the updated strategy a part of the corporate culture, Omantel would also have to revise its policies and procedures regarding supply chains and sales (Graham, 2013). The overall organizational structure would also need to be overhauled to lower the costs of the company, and then translate the lowered costs into reduced prices for the customers (Baye, 2010). Lastly, the company will also have to design a performance review system to assess whether the new strategy is effective (Porter, 1985).

Role of Government in Mitigating the Risks

As the initiatives of market liberalization undertaken by the Omani government are already underway, the government cannot take any step that would directly benefit Omantel at the cost of its competitors. However, as the state still owns 51% of the company’s shares, the government can spur its growth is by fast-tracking the issuance of 5G licenses to telecom companies in Oman. Furthermore, the government should make it easier for telecom companies to start the development of 5G infrastructure with a minimum of bureaucratic roadblocks (Nafziger, 2012). Lastly, the government should also strive to lower the inflated interest rates to allow Omantel and other companies to invest appropriately in the upcoming technological developments (Nafziger, 2012).

Conclusion

Keeping in view the analyses conducted in this report, strong financial position, governmental patronage, and investments in the telecom sector are the primary strengths of Omantel, which it should aim to exploit to the maximum. The company has an opportunity to invest in promising technological areas like blockchain and IoT, to attain swift growth. Similarly, it can also go for mergers and acquisitions with large organizations for an increased market share. However, being operational in only a limited regional market is a weakness for the company. The VRIO analysis suggests that only the dominant market share has the characteristics to provide a sustainable competitive advantage to the company. The Omantel brand and workforce are relatively easy to be imitated by the competitors, and thus cannot be sources of sustainable competitive advantage. Considering the internal situation of the company, Omantel should lower down its prices until the economic situation in the country stabilizes and should continue its developmental projects. The government can help Omantel by issuing 5G licenses, removing bureaucratic roadblocks to developmental work, and lowering the interest rates.

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References

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