Strategic Management
Cutting Costs Strategically
February 12, 2025
Introduction
China Mobile operates in a monopoly like market in the domestic Chinese telecom sector and hence, the application of the five forces model reveals that it need not yet worry about the external environment, which is protected and heavily regulated.
Having said that, as the succeeding discussion makes it clear, it cannot take its current comfort zone for granted, and as the recent strategic moves made by it reveal, it indeed taking steps to ensure that it continues to thrive and prosper even when the Chinese Telecom market is thrown open to foreign competition.
However, its status as a SOE or a State Owned Enterprise guarantees it a lead over competitors even in this scenario, as the Chinese government is known to handhold its SOEs even in the face of competition.
Industry Rivalry
As China Mobile operates in a heavily regulated market where the government limits competition, the power of this element is not high.
Indeed, it can be said that this element exerts the lowest force, as there are very few domestic or international competitors for China Mobile. Further, the fact that China Mobile is a monopoly player coupled with the large market share it has means that it faces little or no competition from existing or as we shall discuss, new players.
Finally, the large industry size with a sizzling growth rate in the volumes of subscribers means that China Mobile does not have to worry too much about Industry Rivalry. However, this is set to change in the future because of the gradual opening up of the Chinese market to foreign firms even in telephony, which is enough for China Mobile to take it seriously.
As has been mentioned elsewhere, many of the future trends point to China Mobile having to discard its legacy business model and indeed, current evidence suggests that it is in the process of doing so.
Entry and Exit Barriers
The Telecom sector anywhere in the world has high sunk costs, which means that prospective firms seeking to enter the market have to invest a lot of capital. This is further exacerbated in the Chinese market where the need of a strong distribution network given the size of the country coupled with the lack of advanced technology available to newer players means that this force is medium to low in its strength.
Apart from this, the Chinese market as mentioned earlier is tightly regulated with a maze of rules and regulations that govern the market making it difficult for smaller and lesser-known players to enter the market. Therefore, China Mobile has very few reasons to worry about the threat of new players though this seems likely to change in the future with the government deciding to open up the Chinese telecom sector to international competition.
Power of Suppliers
The power of suppliers is virtually nonexistent as there is a single technology standard and given the lack of technological sophistication of the Chinese telecom market, suppliers cannot exert the power of technology on China Mobile.
Moreover, as the market is tightly regulated, the suppliers (many of them government owned SOEs or State Owned Enterprises) have no choice but to do business with China Mobile. Of course, this works the other around as well since China Mobile has to rely on the few suppliers for its needs though the government plays the mediating role to ensure that neither side holds the other to ransom.
Power of Buyers
As with the other forces, the power of buyers is limited because of the presence of very few players in the Chinese Telecom sector.
Coupled with the fact that there is low price sensitivity and low dependency on customization, China Mobile has a near stranglehold on the market as can be seen from the way it has acquired a large customer base within the span of a decade. This large customer base also gives China Mobile the power to set prices though the government intervenes now and then.
Further, because of the premium that the Chinese place on owning a mobile handset and a connection, they are willing to endure the waiting period and the necessary adjustments, which mean that China Mobile has the free run of the market.
Threat of Substitutes
Given the fact that China is still a primarily agrarian country where the hinterland continues to languish though the cities are world class, the substitutes to mobile telephony are very few.
With China being like other emerging markets where the transition from postal communication to telephony did not go through the landline phase and instead, leapfrogged into the mobile phase, China Mobile need not bother about landline substitution though the gradual adoption of the internet has made it wary of potential substitutes from internet telephony.
Apart from this, China Mobile is also actively expanding into the internet based communications so that it retains its market share in the online realm as well.
Conclusion
The preceding analysis has revealed the theme that China Mobile needs to start preparing for the future as soon as possible because of the trends like allowing competition, upgrading technology, opening up to foreign firms, and most importantly, the advent of internet telephony that threatens the cozy market leadership, which China Mobile has.
In conclusion, the future seems to be arriving faster than expected for China Mobile and hence, it is the case that it needs to prepare for the future as though it has arrived yesterday.