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Strategic Crossroads at Matav: Hungary's Telecommunications Powerhouse Case Solution

Solution Id Length Case Author Case Publisher
944 1721 Words (9 Pages) Michael Rouse, Jordan Mitchell Ivey Publishing : 905M33
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Matav became a relatively strong market player by the year 2000 after the domination of Telecom market by 80 percent. However, the government of Hungary made constitutional amendments in order to increase competition resulting in the need for a policy change in the road map of Matav. Two main strategies have suggested which can take Matav out of the current state of crossroads i.e. market development and product development. Market development can be highly effective for the company in the present time, which can be implemented according to the time period required for the implementation. Short term implementation includes acquisition of Montenegro Telecom while long term implementation plan includes expansion of the company into the market of Bulgaria and Serbia. 

Following questions are answered in this case study solution

  1. Executive Summary

  2. Key Issue/Decision Point

  3. Strengths

  4. Weaknesses

  5. Opportunities

  6. Threats

  7. Strategic Alternative 1 – Market Development

  8. Strategic Alternative 2 – Product Development

  9. ​Recommendations

  10. Implementation Plan

Case Analysis for Strategic Crossroads at Matav: Hungary's Telecommunications Powerhouse

Key Issue/Decision Point

Matav initially State owned organization in Hungary, privatized in 1993 by the government; with 30% of its stake sold to Deutsche Telecom and Ameritech International, followed by the sale of entire stake by the government. In a very short span of time culture of company transformed as Customer Oriented Company. The services provided by Matav include four business categories i.e. business with 61% market share, residential with 81%, internet with 44%, mobile services with 47%, and in 2000, the company moved towards the international market in Macedonia by having 51% stake in MakTel.

The major issues of Matav resulting to crossroads were;

  • Declining trend in Fixed Line Customers.

  • Declining Average Revenue per User (ARPU).

  • Fierce Industry Competition

There is a strong need for the company to expand and grow to compete with the increasing market players in the industry. Examination of the company’s midterm strategy was for the sole purpose of expanding within the borders and internationally. Matav has to expand regionally, and it has to expand in Hungary to future sustainability. Growth in the product lines, organically, is the third option present for the company in this situation.

Strengths

Deutsche Telekom is the largest telecom provider in Europe’s market. It is the parent company of Matav, providing it with a significant competitive advantage over the other players in the market. The size of the company can be measured by the size of its revenue and operating income, i.e. 55.9 billion Euros and 3.4 billion Euros. A vast experience with companies such as Slovakia Telecom and Croatia Telecom strengthens the position of the company.

Weaknesses

Separation of particular business units may have a negative impact on the synergy created by the company over time. The main business of the company i.e. fixed line business unit, is lagging behind the required performance evaluation criteria, and fixed line per employee is less than that of European average. The price of shares has been stagnant as new investors are seeking out for higher profitability in the telecom sector.

Opportunities

Hungary’s broadband market has a vast number of opportunities related to the growth of companies as there are only 2 percent of the people who have access to the internet. Stimulation of broadband growth by the government and the expectation of future subsidy on computers can result in the growth of the company. Balkans is an unsaturated market for the telecom industry, and there is only one competitor to deal. Telecom network can be easily established due to close geographical conditions.

Threats

Telecom industry is facing a decline in the fixed line trend, and mobile services have become more common than fixed line services. Mobile service providers charge a low premium as compared to fixed line providers increasing the level of competition and substitution in the market. Constitutional amendment of 2001 discourages the monopolization of the telecom industry resulting in an increase in the competitive market players.

Strategic Alternative 1 – Market Development

Matav can expand the total market for the range of its products by searching new avenues for the company. Company can target different segments of telecom market and try to convert the non user community towards user community. It can deploy a marketing strategy particularly focused on the increase in the usage of Matav’s products and services per user.

Market development will allow the company to maintain a level of dynamic growth in order to compete with the increasing number of market players in the industry. Matav can opt to acquire the companies in the areas where the company is not currently operating. The experience of Maktel acquisition can assist the company in future acquisitions and market development. Although, competition is increasing at a fast rate, but international markets are not yet saturated with competition in Telecom industry.

Market development may seem to be an optimum option for the company, provided that some aspects are kept under consideration. This strategy will require high cost of infrastructure development, if Matav enters into a new market. Acquisition also requires high cost in order to train the employees accordingly. Government owned companies can prove to be a great hurdle for the company due to the factor of monopolization in the industry.

Strategic Alternative 2 – Product Development

Product development refers to the process of introducing a new range of products with different and appealing characteristics to attract the customers through the additional features of the products. Matav can introduce a new product or modify the existing range of products and services in order to provide a fresh perspective in the market. Presentation of the available products can be modified according to the needs of new customers.

Matav can expand by attracting a number of new customers through the process of product development. It could introduce Broadband and ADSL in order to increase its market share in the Telecom industry. Hungary’s low broadband penetration rate is an additional benefit for the company, which can be used for expansion and future growth. A low value of 2% of the population has access to broadband making it easier for Matav to penetrate in the Broadband industry of Hungary.

Product development may cause a rise in the prices of improved, modified or new products due to the additional research and development cost incurred in the production process. Hungary can prove to be market with strong competition, and Matav has to foresee competitors move in order to sustain in the market. This strategy would help the company to grow, but it will only grow from the current regions of operations. Hungarian market is to be properly assessed before the entrance as the affordability of the citizens is lower as compared to that of other countries.

Recommendations

There are two options for Matav in order to sustain and grow in the Telecom industry i.e. market development and product development. Both the strategies have advantages as well as disadvantages; thus, it is essential for the company to chose for the optimum policy with due consideration.

It is a recommendation for Matav to opt for market development strategy in order to pursue expansion and growth in the future. It includes the expansion of Matav in Telecom industry and market research on the possibilities of new avenues and segments in the market available for exploitation. Market development can be initiated through the process of acquisitions in the areas where the company is nonexistent. It will result in a dynamic and forceful growth of the company while keeping the company as ‘one unit’. Success in acquisitions can be guaranteed through the current performance of Matav in the markets. Balkans is the region where Telecom sector is unsaturated and the companies operating as broadband, fixed line and mobile operators can be acquired and modified to capture the extensive market of the region. Resource development and training have already been provided to the personnel dealing with acquisitions in the international market. The experience gained from the successful acquisition of Maktel is valuable for the firm and it would be able to apply the same principles on acquired companies in the future.

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