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    Market and non Market Environmental For AT&T Expansion into China

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    Please identify the major market and non-market environmental concerns that AT&T should (in 1993) consider as it attempts to capture a piece of the potential industry earnings (PIE) in China's telecommunications industry. In this section, you should address the following questions:

    · What demand and supply characteristics differentiate the Chinese telecommunications PIE from the U.S. telecommunications PIE?
    · Who are the buyers and what power do they have?
    · Who are the suppliers and what power do they have?
    · Who are AT&T's competitors and what power do they have?
    · How do each of these affect AT&T as it attempts to capture a piece of the PIE?

    Please use the attached materials to complete.

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    What demand and supply characteristics differentiate the Chinese telecommunications PIE from the U.S. telecommunications PIE?

    Consumer demand in China in 1993 largely revolved around basic products such as food, toiletries, and bicycles, but demand for big-ticket items such as automobiles, appliances, telephones, televisions, and personal computers was also on the rise. In the USA the demand for the basic food items have tapered. In addition there is no such rising demand for big-ticket items in the USA. By 1993, Chinese consumers had embraced a number of U.S. and Japanese brands, including McDonald's, Coca-Cola, Pepsi, KFC, and Sony. Coke and Pepsi had entered the Chinese market within a year of each other in the early 1980s and within 10 years were the market-share leaders in the Chinese soft-drink market. These companies are all USA companies and the matter of expanding in the US markets does not arise. Other global consumer packaged goods companies, such as Procter & Gamble and Unilever, entered the Chinese market in the late 1980s and were beginning to make significant inroads by 1993. Many other consumer durable goods industries were further behind, partially because of the Chinese government's desire to exercise more control over those industries and partially due to higher threshold income levels required to purchase those goods. Chinese market is growing very fast. The Chinese fixed line telecoms market grew by 38.9% in 2002 to reach a value of $26.1 billion. The compound annual growth rate of the market in the period 1998-2002 was 40.8%.The strongest growth was in 2001 when the market grew by 46.2%.
    Cost and supply considerations also presented both opportunities and challenges. The abundance of low-wage labor was attractive to multinational corporations, particularly those seeking to manufacture goods in China for export to other markets. Low-cost labor, however, was in many cases offset by low productivity, as many Chinese companies were not highly efficient and many experienced "over-employment." Most multinational corporations quickly discovered that laws restricting management's flexibility in dealing with lifetime employment expectations and the myriad company-provided social services would be slow in changing. The Chinese fixed line telecoms market grew by 18.9% in 2002 to reach a volume of 214.4 million fixed lines.

    This growth rate compared with the fact that there are few players in the market throws up several opportunities, such that are not found in the US markets. The compound annual growth rate of the market volume in the period 1998-2002 was 25.2%. The strongest growth was in 1999 when the market grew by 31.2%.

    ? Who are the buyers and what power do they have?
    ? The government plays a "gatekeeper" role in approving market entry, and it regulates activity across industries. This can be used to discourage the AT&T.
    ? Government policies promote meeting market demand with locally manufactured products; high import tariffs discourage foreign goods. AT&T can face this problem
    ? Government rules and regulations change quickly at the discretion of the Chinese Communist Party. The buyer power is often exercised through the Communist Party.
    ? Many government policies related to human rights are at odds with Western values. AT&T may be questioned for dealing with disreputed customers.
    ? Protection of intellectual and other property rights is rarely enforced due in part to the government's involvement in business.
    ? China's legal system has difficulty dealing with such things as property and contractual disputes.

    The Chinese fixed line telecoms market has experienced massive growth in recent years, gaining, on average, 2.6 million customers per month over the 1998-2002 periods. At the present time, the market's primary carriers are China Telecom, China Netcom and China Railcom, although Railcom is somewhat a minor carrier compared to the other two operators.

    China has a potential market of more than 1 billion people could not be ignored. In addition, with economic growth, purchasing power was increasing each year, making the Chinese market one of the fastest-growing markets in the world. Experts predicted that by the early 21st century, more than 250 Chinese cities would have citizens with sufficient disposable incomes (more than $800 per capita annual disposable income) to support consumerism. More than 160 of these cities were expected to have Populations exceeding 1 million people. Likewise, despite having approximately one-fourth of the world's population, China's beer consumption represented only 6 percent of total global beer demand in 1990. Many consumer durable goods companies, such as General Motors and Whirlpool, watched their growth prospects slow in more developed markets and saw China as the world's last huge growth market for their products.

    The potential buyers of AT&T and their power
    The China Telecom Group was officially established in May 2002 after the split of the former China Telecom into two groups: China Telecom (south) and China Netcom (north). The corporation is made up of 21 provincial corporations, which, between them, control approximately 70% of the national trunk-line transmission network assets owned by the former (pre-2002) China Telecom.

    The China Telecom Corporation, an affiliate of parent China Telecom Group which transferred the assets and operations from four regional divisions into the new company, was listed on both the New York and Hong Kong stock exchanges in mid-November 2002. The move, which was hoped would boost foreign investment and improve management systems, raised $1.4 billion for approximately 10% of the company's stock.

    The power the buyers wield.
    The China Telecom Corporation has recently announced that it is to acquire six provincial networks from its state-owned parent company which will expand the company's network into poorer areas of the country. When the acquisition has been completed China Telecom Corporation will serve over 520 million people, approximately 41% of the country's population.

    China Telecom's primary competitor at the current time is China Railcom, the second largest fixed telecom network operator in China. Although the name is new to the public, Railcom has been a carrier for private communications for nearly 50 years. It used to be a division of the Ministry of Railways (MOR) dealing with the Ministry's voice and data (mostly low-speed) services along rail lines and the majority of its customers are MOR affiliates and employees.

    The company became a public service operator in December 2000 and two years later reported revenues of $690 million, 36% higher than in the previous year, and approximately 2.5% of total telecom revenues in China. The company also recruited nearly 2.1 million fixed telephone customers during 2002, expanding its customer base to some 3.3 million customers. The company's operations are widespread and cover some 500 cities and 700 counties with more than 1,100 switching centers.

    At the present time, the Chinese market has a fairly well developed telecoms infrastructure. Although the market is dominated by a small number of incumbent players, there are a growing number of regional operators which should, as has been the case across much of Europe, increase competition and customer services

    ? Who are the suppliers and what power do they have?
    The supply of labor is a powerful factor. "Finding appropriate technical and managerial staffs were also a sometimes challenging issue for MNCs expanding into China. Older managers in many joint venture companies relied heavily on Cultural Revolution ideologies and were often reluctant to loosen their formerly close and influential ties with the government. AT&T may have to deal with chronic labor problems. High employee turnover was also an issue for MNCs to grapple with, as the influx of new companies lured younger, more skilled managers to their companies with promises of great opportunity"

    China ...

    Solution Summary

    The 4829 word solution is an excellent source of information for the review of the China telecommunication industry as ATT might view it.