The Telecommmunications Industry In Zimbabwe

Published Date: 02 Nov 2017

Stan

Introduction to the study

A growing trend in the global telecommunications industry is for operators to outsource certain jobs to Managed Services Providers, where work, responsibilities and decision rights are transferred to an external expert entity that may be located within or outside the country. Although not yet prevalent in the Zimbabwe Telecommunications industry, the concept has had a great impact on the telecommunications industry value chain and competitive strategy globally. For example, British Telecom recently outsourced the support of its global customers and its own internal systems to Tech Mahindra at a cost of over $1 billion for a five-year period (Tijun, Sandel, Li and Chang, 2012). The driving force in these outsourcing initiatives is the perceived fast clockspeed in the telecommunications industry, which ultimately drives the architectural innovations of telecommunications service providers in order to gain or maintain competitive advantage. The concept of outsourcing or "outside resource using" (Arnold, 2000) can be defined as the strategic reliance on external, specialized, efficient service providers for major, non-core functions (The Outsourcing Institute, 2001).

The research looks at whether the current outsourcing approach is helping Liquid Telecom Zimbabwe to achieve competitive advantage. The primary focus of the study is to recommend good outsourcing strategy and highlight issues to consider in coming up with a workable outsourcing strategy for a telecommunications organisation in Zimbabwe.The role played by the outsourcing startegy in ensuring successful service deployment, improving the quality of work and reducing costs is also explored with the view of recommending how an organisation can assess and evaluate the strategic benefits of outsourcing.

Background to the study

Telecommmunications Industry in Zimbabwe

The Zimbabwean telecommunications industry is at the heart of development of all the industries in the economy. Although the Zimbabwean economy is largely agro-based, telecommunications is the provides the "nervous system" that integrates all the economic industries and helps focus their contribution towards economic growth.

This section gives an overview of the business environment within which Liquid Telecommunications operates focusing on Zimbabwe’s macroeconomic environment and micro-environments.

Licensed Operators

According to POTRAZ (2012) the industry has several players falling into the categories shown in table 1.1;

Table 1: Zimbabwe Licensed Telecommunications Service Providers

Market Segment

Licenced Players

Fixed telephony

TelOne and *TeleAccess (Suspended)

Mobile Telephony

Net One, Econet and Telecel

Internet Access Providers (Class A)

Ecoweb (Liquid Telecom), Powertel, Africom, Telecontract, TelOne, Aptics,Valley Technologies, Acquiva Wireless, Dandemutande, Pecus Enterprises, BlueSat Technologies, Transmedia Corporation;

Internet Access Providers (Class B)

CommIT and Net One

Public Data Network Operators

Broadlands and Qualtime Investments

Note (From Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ), (2012). Licenses and Categories)

Liquid Telecommunications (Pvt) Limited

Liquid Telecom Zimbabwe is a subsidiary of the Liquid Telecom Group of companies which in turn is owned by the Econet Wireless Global Group. The Liquid Telecom Group was founded in 2001, then as Econet Carrier Services, with the aim of providing a complete range of wholesale international carrier services to Econet and other African operators as well as cost-effectively servicing the needs of African operators wishing to establish multiple links to the rest of the world via a convenient central point in Europe. After the installation of a number of submarine cables to most of the coastal landing points in Africa, Liquid Telecom identified a gap where most landlocked countries did not have a reliable, sufficiently redudant fibre network to link them to the undersea cables. This led to the Central Africa Fibre Project (CAFP), which targeted installation of over 8500km of optic fibre cable in cental and southern Africa. The project began in Zimbabwe and has extended to Zambia, South Africa and the Democratic Republic of Congo.

The Company’s Vision, Mission and Strategic Intent

Liquid Telecommunications is unique in that it has no documented vision or mission. The company chooses to operate on what can be termed its strategic intent simply titled, "Winning the Race"

Structure/Organogram

Figure 1 Liquid Telecom Organogram. From Liquid Telecom HR report (2012).

Liquid Telecom Business Model

A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm (Osterwalder, Pigneur and Tucci, 2005). Slywotzky (1995) terms it business design and posits that it is the totality of how a company selects its customers, defines and differentiates its offerings, defines the tasks it will perform itself and those it will outsource, configures its resources, goes to market, creates utility for customers, and captures profit. A synthesis of literature shows that there are mainly nine building blocks to help describe a business model.

Value Proposition

According to Osterwalder & Pigneur (2010), value proposition is part of product innovation and describes a bundle of products and services that together form a coherent value proposition. This attribute captures the reasoning on why the firm thinks its products or services could be valuable to the customer. Liqud Telecom’s value proposition can be summarized as;

Design and Usability

Liquid’s network has been designed to make customer connectivity simple but easy to use. The use of the Multiprotocol Label Switching (MPLS) technolgy (a mechanism in high-performance telecommunication networks which directs and carries data from one network node to the next) makes it easy to create "virtual links" between customer branches. It gives customers a lot of flexibilty that they cannot get on other networks.

Reliability

The Liquid Multi-Protocol Label Switching (MPLS) network which extends from Lusaka through Harare to London, rides upon a Synchronous Digital Hierarchy (SDH) network that is robust and has full redudancy to London. If one link is disturbed, traffic is automatically rerouted to the backup link without customers noticing.

Superior Performance

Liquid is able to offer fast, low latency internet connection to various Internet exchanges and the rest of the world because it connects directly (peers) with various internet content providers at the Zimbabwe Internet Exchange (ZINX), Johannesburg Internet Exchange (JINX) as well as the London Internet Exchange (LINX). LINX is one of the top three Internet Exchanges in the world, thus giving customers fast access to international websites..

Target Customer Segments

The target customers can be divided into three groups, namely the telecom service providers, corporates and small (consumer) markets. The telecom service providers are mostly looking for reliable intercity and intracity links to connect the equipment that they use to offer service back to their control equipment in their data centres. Others like Internet Service Providers (ISPs) will mostly be focusing on getting reliable, fast internet at wholesale pricing. The corporates are mostly looking for reliable unified, interbranch communication, while the consumer market’s focus is affordable internet products.

Distribution Channels

Currently, Liquid Telecom has two branches in Zimbabwe, one in Harare and one in Bulawayo. Service is brought to the customer via a team of Account managers tasked with bringing awareness of Liquid’s products to the market. Since Liquid Telecom is selling a service, the most critical factor is to bring the cable within the customer’s reach. Of late, this has been achieved by an aggressive approach in the market where civil works are subsidised to expand the fibre footprint. Liquid also uses its website for customers to order service.

Customer Relationships

These refer to the types of relationships that the business entertains with each customer segment (Osterwalder & Pigneur (2010). For Liquid Telecom, each customer is handled by an account manager. The account manager is responsible for maintaining a relationship with the customer on behalf of the business. Wholesale accounts are managed by a senior "Key Account Manager" as they are critical to Liquid telecom’s financial performance. Liquid Telecom also offers customer support through a 24-hour Netwprk Operations Center (NOC), where customer problems are usually identified and addressed well before the customer notices. Any changes on the network that may affect the client are communicated to the client via a manintenance window application.

Core Capabilities

From the value proposition description, it is clear that Liquid’s core capabilities centre on the skills within the organization. Liquid Telecom has managed to attract most of the good engineers in Zimbabwe and has managed to retain them so far. Liquid’s global reach has also helped in ensuring that the technical team has exposure to the latest technologies and practices.

Configuration of activities (Value Chain)

The value chain is as shown in Figure 1.2 below;

Figure 1: Liquid Telecom Value Chain.

(Adapted from International Telecommunications Union (ITU) (2012).)

Partners

Liquid’s partners can be described according to the value chain shown above. In the research and design, and manufacturing, Liquid depends on the vendors who supply telecom equipment and these include Huawei, ZTE as well as Cisco. In the Network Build section, Liquid Telecom depends mostly on contractors who include Sanyathi Construction, KST construction, Huawei, Eastlight technologies as well as Amazing Ville technologies. This is the focus of this study as it has implications to the quality of the network that is produced, service deivery as well as the cost of providing service.

Also in the build section other Liquid’s patners include the local authorities (for wayleaves to trench), Generator and back up power solution providers such as Tendo and AC Controls.In the Network and field operations, the patners include Huawei, Genesis Office systems as well as Frolgate.

Revenue Streams

Liquid telecom currently offers a number of services that differentiates it from any other player in the internet access provision sector. The products/services include;

Managed MPLS Based Virtual Private Networks (VPN) which are divided into

Layer 3 VPN services

Layer 2 VPN services

Layer 2 Virtual Private LAN services (VPLS)

Fibre Based Internet Access

Retail Internet with burst capabilities

Wholesale internet (also with burst capability)

The bandwidth links are offered through a combination of an optical Synchronous Digital Hierarchy (SDH) network and last mile access networks that comprise of fibre access equipment.The revenue streams are broken down according to the products and customer segments as below;

Cost Structure

Liquid’s costs mostly comprise of the costs to build network, to maintain it and to manage the customer relationship. The pie chart below show Liqud’s cost distribution as of March 2012.

Figure 1: Liquid Telecom Cost Breakdown.

(From Management Accounts Annual Report (2011).)

Profitability

An analysis of Liquid Telecom financials shows that the company is operating profitably (see financial statements attached). The major concern though is on the cost structure of the organization as presented in the business model discussion above.

Challenges Faced by Liquid Telecommunications

Although Liquid Telecom is currently enjoying phenomenal growth, and is operating profitably as discussed above, the following challenges have started to affect the organization;

Long Customer connection turnaround time – Most customers complain that once they sign up for service with Liquid Telecom, it takes long to be finally connected.

Dwindling Average Revenue Per User (ARPU) for data products - The world over, the internet and data prices are going down, and the same pressures are evident in the Zimbabwe telecommunications industry.

Switching Costs are high – costs to lure customers captured by first movers such as Powertel and Tel One are high in a world where prices for data products are generally going down. The major challenge is to reduce operational costs and optimize capital expenditure in order to maintain or grow profits. Liquid Telecom made a late entry into the fibre based telecommunicions market, and has to win customers that had already been captured by incumbents.

Unmet Orders (Poor service delivery timelines) – Liquid Telecom currently has a backlog to connect over 400 customers who have signed up for service, some have been on the waiting list for more than three months. Customers are normally promised connection within six weeks of signing up, but this has rarely been achieved.

Stakeholder complaints on the quality of work- Complaints have been received from some of the stakeholders (such as residents, Ministry of transport and local authorities (city/town/rural councils)) on the quality of work done by Liquid Telecommunications. Cases such as when a road is trenched to lay optic fibre ducts and has had to be reinstated several times after initial works are not rare.

Environment/Situational Analysis

Macro environmental/PESTELEG analysis

Allen (1999) defines the external environment as consisting of all the outside institutions and forces that have an actual or potential interest or impact on the organisation's ability to achieve its objectives: competitive, economic, technological, political, legal, demographic, cultural, and ecosystem.

Political, Legal and Regulatory environment

The telecommunications industry in Zimbabwe is regulated by the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ). POTRAZ was established by an Act of Parliament, The Postal and Telecommunications Act (Chapter 12:05), and falls under the Ministry of Transport and Communication. The major regulations require companies to be licenced in order to operate within this industry. Licenced operators can only offer services that are specifically stipulated in their licence documents even though they might wish to offer additional services. As an example, Liquid Telecommunications cannot offer mobile voice services since they are only licenced to offer data and voice over internet protocol (VOIP) services.

POTRAZ also regulates the quality of service offered to customers and the pricing of telecommunications products. Prior to the multi-currencies era, the price regulation made it very difficult for players to operate profitably, since prices would be reviewed quarterly, yet inflation rate was changing hourly. Historically therefore, the political/legal framework has always been a critical source of risk in the telecommunications industry.

Technological environment

The technological environment refers to new technologies, which create new product and market opportunities. Global technological developments are a critical force in the ICT industry as the industry is technology driven. The ICT industry is arguably one of the fast-clockspeed industries and as such survival in the industry requires a company to always update its technology and architectural design to match the times. Of critical importance is for the company to recoup its initial investment from a given product before it becomes obsolete. As an example, all the three licenced mobile voice companies have invested in third generation (3G) technology to offer mobile data services. However, there already exists newer technology (Long Term Evolution (4G)) which offers much better download speeds and better mobility. However, the mobile operators cannot migrate to this new technology before getting returns from the investment in 3G, given the low, and dwindling Averager Revenue per User (ARPU) from data and voice services.

The fast-clockspeed in the technology industry forces many organisations in the ICT industry to quickly adapt in terms of how they develop, price, distribute, and promote their products. Failure to do this may result in a company having redundant products that no longer meet the technological requirements of the consumers. To counter this, there is a global trend towards outsourcing the research and development (R&D) portion of the value chain to specialized telecommunications vendors.

Socio-cultural environment

The need for social substitute goods such as computers and television that allow people who are alone to feel as if they are not has opened up new markets in the ICT industry in Zimbabwe. Liquid Telecommunications has tried to capitalise on this market by providing fiber to the home which will provide a digital home, where voice, video and internet will be available via one connection at affordable rates. In addition to this, the changes in the demographic environment have proved beneficial to the ICT industry in Zimbabwe. The major change of interest is the increase in the literacy rate, where Zimbabwe is ranked number one in Africa. This has led to a higher appreciation of data communication especially by urban dwellers and has resulted in Zimbabwe being ranked as the second most cloud-computing-ready country on the continent (Laverty, 2011). This has resulted in the influx of third generation (3G) mobile wireless and fibre data networks that are aimed at individual home users and small offices.

Economic factors

IThe Zimbabwean decade of economic stagnation is well documented and did not spare the telecommunications industry. The period of hyperinflation affected the capacity of telecommunications players to expand their networks as most of the equipment required for this expansion is purchased in foreign currency. This was a scarce commodity during the era. Similarly, the level of disposable income amongst customers was so low that it adversely impacted on the demand for ICT products. The situation for ICT companies was also exacerbated by the regulatory authority which reviewed the prices quarterly while the inflation rate was changing hourly.

When the multicurrency system was incepted, consumers could readily spend on ICT products and service providers could expand on their capacity. However, even after dollarization, the cost of money continues to be very expensive in Zimbabwe, limiting the amount of expansion that service providers can embark on. Currently, Zimbabwe has no control on interest rates since the reserve bank of Zimbabwe has no control on the United States dollar, which is the major currency in use. The liquidity crunch means that lending rates continue to be relatively high (10%-25%), and mostly on a short term basis. Most of the projects in the telecommunications ar long term in nature and capital intensive and cannot be funded using short term borrowing.

Telecomunications industry anaysis

The competitors in the internet access provision business are TelOne, PowerTel, Africom, Dandemutande, Telco, Aptics, Acquiva Wireless, Valley Technologies, Broadlands and Gigatel. These can be divided into two broad categories; those providing international connectivity, intercity connectivity and last mile solutions and those that only provide last mile solutions. Of Liquid’s competitors TelOne, PowerTel, Dandemutande and Africom can be classified in the first category while the rest are in the last category.

Powertel is Liquid’s biggest competitor in the fibre based products, followed by Africom. These two also have connections to international fibre links both via Mozambique. All the other players have no backbone to offer to the market but offer last mile solutions through wireless connections and copper and fibre. Of these companies Aptics, Gigatel, Valley and Africom all get their intercity bandwidth (and Internet bandwidth) from Liquid Telecom. Telco is a licenced Internet Access Provider (IAP) but does not have intercity fiber links, choosing to concentrate on metro fiber links. Other competitors are the Internet servise providers which until recently did not require licencing. However, after some disputes between IAPs and ISPs (for example ZOL and Telecontract), the regulatory body now seeks to define licencing for the ISPs (www.zimbabwesituation.com).

Business Outlook

Since the multicurrency regime, and subsequent licencing of many other players in the field, the industry has been one of the fastest growing sectors in the Zimbabwean economy. There has been significant investment into new infrastructure and technology upgrades. For example, before 2009, Powertel had the largest stretch of fibre backbone (1000km) but this has since changed after Liquid Telecom laid a total of 4500km of fibre in Zimbabwe. The issuing of new licenses, coupled with the converging technologies implies that there will be more competitive rivalry as boundaries between mobile operators for example and internet access providers becomes blurred. This has been the case as voice operators or even mobile phone operators have began offering mobile data connectivity as well as fibre based products. The average revenue per user (ARPU) continues to dwindle globally and is expected to continue in this trend as more and more players are offering more or less similar products. It is such trends that put pressure on Telecommunications companies to seek new ways of gaining competitve advantage.

PORTER’S FIVE FORCES ANALYSIS OF THE INDUSTRY

http://www.vectorstudy.com/management_theories/img/porters_five_forces.png

Figure 1 PORTER’s FIVE FORCES MODEL.

(Adapted from Porter, (1985). Competitive advantage: Creating and sustaining superior performance. The Free Press) )

Porter (1985) provided a framework that models an industry as being influenced by five forces. The five forces analysis will zero in on the internet access providers (IAP) industry within Zimbabwe and not on the telecommunications industry as a whole. According to POTRAZ, companies in this sector are licenced to "construct, operate, develop, extend, and maintain a public data and internet access network. The data and internet backbone that shall comprise of the national data and internet service, the international data and internet service, the local access data and internet service, the internet content service as well as Voice over Internet Protocol (VOIP) services". The core business of this industry is to provide local, national and international links between two points, as well as gateways to internet access. The media for providing data links to customers include optical fibre cable, copper wires, and radio systems. Optical fibre cable provides the best quality and reliable link with the highest availability time. The data communications industry is generally characterised by high competition for the large customers who constitute the bulk of business for any data services company.

Rivalry

Rivalry among existing competitors takes the familiar form of jockeying for position; using tactics like price competition, product introduction, and advertising slugfest. Data communications industry growth has been on the increase after the introduction of the multi-currency. Major buyers in the industry are the large corporate organisations and the competitors in the market jostle for these large buyers.

The four biggest competitors in this industry are Liquid, Tel One, Africom and Powertel but the customer base is equally smaller thereby intensifying rivalries between the few competitors. The fibre based products have high swithcing costs due to the substantial initial investment in the civil works to bring fibre to the client’s premises. The two biggest competitors, Liquid Telecom and Powertel have roughly similar market shares and strategic stakes are high because the existing service providers have a potential for great gains by innovatively introducing new value added services on the network. These potential gains ride on the current service provision performance and this increases the jockeying for market positions among the players.

High exit barrier exist in the industry and these place a high cost on abandoning the service. The intensity of rivalry is also manifested by the way competitors’ counter-respond to any actions by rival firms. Any advert run by a competitor is answered by a counter advert from the competitor. Market stability and changes in supply and demand affect rivalry. Demand for communications services is relatively stable (as opposed to cyclic).

Threat of New Entrants

There is no serious threat of entry in the industry due to the existing barriers to entry. Barriers to entry reduce the rate of entry of new firms, thus maintaining a level of profits for those already in the industry.These include;

Capital requirements: Telecommunications infrastructure is generally expensive to setup and any aspirant will have to invest equally or surpass them lest the entrant depend on the existing competitor thereby becoming a buyer of the service.

Product differentiation: In the business of data provisioning, the reliability and quality of data links is of uttermost importance. Most of the customers like banks are very sensitive to disruptions. A company seeking to carve a market niche will aim to differentiate its offered service by providing highly reliable data links which are way above the market values.

Government Policy: The Zimbabwean government limits entry into the telecommunications industry through the licence control requirements.

Cost disadvantage independent of size: Most of the industry players enjoy huge cost advantage stemming from the effects of the learning curve (experience curve), proprietary technology, assets purchased at pre-inflation prices and favourable locations..

Economies of scale: The most cost efficient level of production is termed minimum efficient scale (MES). This is the point at which unit cost for production are at a minimum. In the data communications industry, a certain percentage of the market (large buyers) is necessary for MES.

Power of Suppliers

Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services. Powerful suppliers can squeeze profitability out of an industry. The supplier market, which for long was dominated by two Chinese suppliers, is now flooded by would be suppliers from around the globe. The buyers (operators) are numerous, Liquid, Powertel, TelOne, Africom, Net One, Telecel and Econet. The buyers have some power over the suppliers due to the current Global Economy downturn. The bargaining power of suppliers is limited as they are desperate to make a sale, yet at the same time cannot advance longterm repayment solutions. This is where the Chinese suppliers have an edge as China continues to record surpluses and has backing of an economically sound government. The intesity of competition among equipment vendors works out to be good for the operators.

Power of Buyers

Major buyers of the service are large corporates and ISPs who purchase a sizable percentage of industry’s product. The high end buyers are by and large insensitive to price, paying more attention rather to quality. This is particularly so for customers like banks where there is zero tolerance for errors.

The new individual user market wields no power over the suppliers or operators because their service expectations can be met and there is no danger of group think. It is the large buyers mentioned above who have some degree of influence over the suppliers. In the end user market, switching costs are slowly approaching zero, and hence the bargaining powers are increasing as number of service providers targeting that market has increased. The buyers cannot integrate backwards due to the barriers to entry highlighted above which tends to dilute some of the large buyers’ power.

Substitute products

By placing a ceiling on the prices a company can charge, substitute products or services limit the potential of an industry. Substitute products that deserve the most attention strategically are those that are subject to trends improving their price-performance trade-off with the industry’s product or are produced by industries earning high profits. Substitute products include individual point to point radios and 3G mobile data access (from mobile operators) and this has become a real threat to fibre based products.

SWOT Analysis

The Liquid Telecom Strengths, Weaknesses, Opportunities and Threats are summarized in Table 1.3 below;

Table 1 : Liquid Telecom SWOT

STRENGTHS

Strong unique backbone infrastructure

Highly skilled staff

Permission to use of power line infrastructure

State of the art technology

Lean focused structure

Deep pockets

Exposure to world class practices

Major













Minor

OPPORTUNITIES

Deregulation of the telecommunication sector

Low Tele-density

Internet explosion

Increasing bandwidth requirements

Convergence in ICT industry

Rural electrification

Economic empowerment

High Literacy rate

Government shareholding

Additional licensing

High demand for telecoms services

Econet’s growing data subscriber base

Major



















Minor



THREATS

Harsh economic environment

Country risk perception

Regulatory framework

High input costs

HIV/AIDS pandemic

Brain drain

Technology changes

Major











Minor



WEAKNESSES

High input cost

Expensive last mile solution

High Turnaround time (customer connection)

Multicultural organisational clashes

Major







Minor



Strengths

One of the major strengths of Liquid Telecom is the largest stretch of fibre that has been laid in a very short time to overcome Powertel as the largest fibre network operator in Zimbabwe. Another inherent strength of the organisation is its origins from Econet which gave it a ready market for the intercity and inter-basestation bandwidth provision. Liquid’s relationship with Econet provides it with a ready market for backhaul bandwidth as well as international internet and voice traffic. The company recently struck a deal with ZESA where it will use the power utility’s infrastructure to quickly roll out a fibre backbone to areas that had not been covered. This gives the company an edge over competitors because Optical Ground Wire (OPGW) is both cheaper to string and more reliable (less prone to vandalism). Liquid’s most noticeable strength is the deep pockets. The company has proven to be highly liquid in a market that is facing liquidity and funding challenges. This has allowed the company to overtake incumbent operators in terms of fibre footprint as well as market share.

Weaknesses

One of Liquid’s weakenesses has been its relationship with the Ecoweb brand. Most customers in the market express their reservations whenever they hear of this relationship. Other weaknesses of the company include:

The lack of records or documentation. This has resulted in faults taking longer than expected and this has been slowly eating away on the company’s good reputation.

Liquid is a relatively young company, where organizational culture and processes are still being perfected. This obviously results in poor customer satisfaction in some cases and frequent restructuring exercises.

Cultural diferences in a multi-cultural, international organization is also another weakness that sometimes results in poor communication within the company, information asymmetry and some level of infighting.

Opportunities

Opportunities are many in the Zimbabwean telecommunications industry. The market is huge with high demand for telecommunications services due to low teledensity. The changes in the regulatory environment present an opportunity for Liquid to grow its product portfolio. The increasing shift towards more data, with machine to machine (m2m) communication increasing, as well as exploding internet usage in Subsaharan Africa presents an opportunity for regional business for the company. Due to high costs associated with satellite communications, terrestrial fibre will offer cheaper, reliable and huge bandwidth for interconnection. Similarly growth in cloud-computing solutions indicates growing bandwidth requirements in the future, thus presenting more opportunities. The prospect of 4G techknowledges (LTE and WIMAX) means that more and more backhaul capacity will be required by mobie communications companies, representing strong opportunities for Liquid Telecom.

Threats

The regulatory authority also presents a threat to the company as this introduces new dimensions to the competitve environment. The regulator, which came out of TelOne, and has strong links with the government owned operator has for long been accused of being partisan in its dealings. For example, although other operators were not granted authority by Ministry of Transport to trench and lay fibre to Mutare because Tel One had already done so, the same ministry did not stop Tel One from trenching to Bulawayo although two other players had aready laid fibre to Bulawayo.The unreliable power network also affects the service quality and this has worked against the good reputation built by the company.

Research Problem

Liquid Telecom made a late entry into the fibre based networks market and as such most clients had been captured by incumbent operators. The fibre based data communications products, however have high switching costs and as such, to win market share, costs have to be kept to a minimum to ensure viability. Additionally, the Average Revenue per User in the data communications industry is dwindling globally and hence the need for telecommunications organizations to relook at their strategies. As evidenced by the cost structure in the Liquid Telecom business model discussion above, the bulk of Liquid’s costs come from the network build portion of the value chain. Outsourcing and offshoring, which began as cost-cutting measures in the developed world, have been proposed as some of the ways companies can create real sustained value, by gaining capabilities that they don't have in-house, and strengthening capabilities they do have (Heric and Singh, 2012). Although outsourcing has been presented as having various benefits, it is not evident if this has been the case at Liquid Telecom. In pursuit of cost cutting through outsourcing, the organisation might actually have introduced other variables that have affected network quality, service delivery and cost of providing service. In a forward looking organization that is looking to wrest market share from existing players, it is therefore critical to analyze the benefits accrued from the current outsourcing approach (if any), assess the competitive gains that it is bringing (if any) and establish ways of improving gains obtained from the outsourcing model.

Research Objectives

The major objective is to establish the degree to which the current outsourcing approach has helped in achieving sustainable competitive advantage for Liquid Telecom Zimbabwe in the period 2009 to 2012. The research seeks to identify the role played by outsourcing in the growth that has been enjoyed by Liquid Telecom during this period (2009-2012). The research sub-objectives derived from the research topic and major objective are listed below:

To evaluate the impact of outsourcing on Liquid Telecom service delivery in the period 2009 to 2012.

To determine the level of cost reduction achieved by using contractors in Liquid Telecom.

To establish the effectiveness and/or maturity of the Liquid Telecom outsourcing appproach with the view of recommending best practices.

To establish the impact of using contractors on the quality of the Liquid Telecom Network.

Research Questions

The following research questions have been designed to complement research objectives and form the basis for the questionnaire design:

Overall research question

Has the current Liquid Telecom outsourcing approach been of strategic benefit to the organization?

Specific Reserch Questions

What has been the impact of Liquid’s outsourcing approach on service delivery timelines?

Does Liquid Telecom’s sourcing maturity level match the type of outsourcing employed by Liquid Telecom?

Has outsourcing resulted in significant cost reduction?

Has outsourcing resulted in operational efficiency?

Has the current outsourcing approach improved the quality of work in the Liquid Telecom Network?

What are the reasons behind the success or otherwise of Liquid Telecom’s outsourcing approach?

Research Hypothesis

In this research, the null hypothesis (H0) and the alternative hypothesis (H1) were formulated as follows;

H0: Liquid Telecom approach to outsourcing has resulted in sustainable competitive advantage for the organization.

H1: There is no sufficent evidence to show that Liquid’s approach to outsourcing has resulted in sustainable competitve advantage for Liquid Telecom Zimbabwe.

A Z test based on the assumption that the data is normally distributed shall be used to test the research hypothesis statistically in chapter four.

JUSTIFICATION

There are three major stakeholders in a research process namely, the academia, the researcher and the organisation(s) under investigation. This section seeks to clearly outline how these stakeholders benefit from the research process or research output practically and academically. It is in this section that the capacity of the researcher to handle the research portfolio shall be demonstrated as part of research justification.

Benefits that are directly related to academia are as follows: Results of this research are expected to assist new and future researchers by exploiting related important theoretical constructs. This would assist the academia in building new bodies of knowledge and add value to the existing corperate strategies for telecommunications organizations. The primary focus in this research is to build on existing literature on outsourcing by identifying issues specific to Zimbabwean telecommunications outsourcers and give an academic analysis of outsourcing in the telecommunicrelation industry.

Importance to the firm and the country (Zimbabwe) are as follows: The recommendations, which will be made, based on the research findings are expected to facilitate the adoption of outsourcing strategies for the 21st century by firms in the telecommunications sector in Zimbabwe. Liquid Telecom, as relatively new player on the Zimbabwean market, is aiming to grow the market share. The research will identify the outsourcing philosophy at liquid Telecom, investigate how this is being used to enhance the company’s competitiveness, investigate Liquid’s relationship with contractors as well as assess the contractors’ capabilities with the aim of providing recommendations on areas of outsourcing that might need to be addressed within the organisation as a whole. Identifying holes in the outsourcing model will enhance the efficiency and hence reduce costs in the network build, thus representing a possible downstream effect in the entire economy.

This research is important to the researcher individually in two ways: Firstly this falls in the researcher’s scope of professional work and it will enhance and fortify the researcher’s business understanding and appreciation of the business operations. Secondly it gives the researcher a sense of self worth and self contentment as a scholar.

SCOPE OF RESEARCH

The primary target for this research is the 85 employees in Liquid Telecom Zimbabwe. The population will cover both the management and non-managerial staff. The study has been limited to the period 2009 to 2012, the period in which Liquid Telecom has been fully operational. The dominant theoretical concepts applied in research are strategic management theories, supply chain management theories, telecommunications management theories as well as economic theories.

Ethical Issues

Ethical considerations integrated into this research to protect the rights of research participants are as follows:

The principle of voluntary participation was followed: This requires that in this research people are not coerced into participating. No "captive audiences" were used in this research. The covering letter accompanied each questionnaire clarifying all ethical issues.

Informed consent concept: The research participants were fully informed about the procedures, objectives, stakeholders and risks involved in the research.

Risk of harm: Closely associated to 2, care was taken not to expose the participants to harm which may be physical or psychological as a result of their participation.

Principle of privacy: This was observed in two dimensions;

Confidentiality: respondents were assured that identified information was not going to be made available to anyone not directly involved in the research.

Anonymity: All participants were assured of anonymity throughout the study.

ASSUMPTIONS OF THE STUDY

The study assumes that:

Respondents are going to be co-operative and sincere in responding to the needs and requirements of the study.

No changes will be made to the current outsourcing practices at Liquid Telecom until the end of study.

The tools and instruments used were valid and reliable.

The sample is representative of the population

Dissertation Structure

This research document comprises of five chapters whose composition is as follows:

Chapter 1: Gives an overview of the research by providing an introduction, background material and justifications for carrying out this research;

Chapter 2: Explores literature that is relevant to this study and the theoretical framework within which this study will be carried;

Chapter 3: Describes the research methodology used in the study. The philosophies used will be discussed in detail as well as the information on the data collection methods. The chapter also tackles data presentation and analysis tools used in the study;

Chapter 4: Analyses the results obtained from the study in detail and discusses their significance in relation to other research findings;

Chapter 5: Gives a conclusion on the research finding. Recommendations are given based on the finding. Areas of possible future researches are also outlined.

Chapter Summary

This chapter has introduced the study and explored the background to the problem as well as the objectives of the study.The research questions, which derive from the research objectives were also listed. The chapter discussed the problem statement, leading to the justification of the study. These discussions form the basis of the next chapter which reviews existing literature on the subject under investigation.

Literature Review

Introduction

This section seeks to demistify the pivotal technical issues in outsourcing associated with this research and present an awareness of the relevent concepts. The section explores and reviews literature on the strategic importance of outsourcing in the telecommunications industry. This entails a review of the theoretical and empirical literature that specifically underpins the study in line with the research objectives with a view to identifying any gaps in literature. The section will assess the context in which outsourcing is being discussed and identify key elements of the concept, and its linkage to an organization’s competitive advantage. An examination of the case for outsourcing in the telecommunications industry will be made. Contributions and arguments from other researchers will be explored and summarised.

The Outsourcing concept

Definitions of outsourcing

A plethora of literature on outsourcing exists, and most authors seem to agree that outsourcing is one of the most important management practices in the 21st century and that the practice is on the increase. Whereas Greaver (1999) defines outsourcing as the act of transferring some of an organization's recurring internal activities and decision rights to outside providers, as set forth in a contract, Domberger (1998) defines it as the transfer of the production of goods and services that have been carried out internally to an external provider. Of note in Domberger’s definition is that it excludes any goods and services that have not been produced internally. Brown and Wilson (2005) on the other hand define outsourcing as "the act of obtaining services from an external source." Linder (2004) provides a broader dimension of outsourcing by defining it as the purchasing of ongoing services from an outside company that a company currently provides, or most organizations normally provide, for themselves. Lei and Hitt (1995) broaden it further by stating that outsourcing is the reliance on external sources for the manufacturing of components and other value-adding activities. McIvor (2003) argues that the term outsourcing can cover many areas, including the outsourcing of manufacturing as well as services. For the purposes of this research, a combination of the last two definitions will be used to define outsourcing as the reliance on external sources for ongoing services and other value-adding activities that a company currently provides, or most organizations normally provide, for themselves. The opposite of outsourcing could be defined as vertical integration or insourcing which entails the production of goods or services within the firm.

Other terms similar to outsourcing are contracting, contracting out (Domberger, 1998) and farming out (Doig, Ritter, Speckhals and Woolson, 2001). Friedman (2006) uses the term "out-tasking" to refer to hiring an external provider on a limited basis for a particular project. In this research out-tasking is treated as another form of outsourcing. The difference between outsourcing and out-tasking is that outsourcing is long term in nature (and hence strategic), whereas out-tasking may be a one-time deal.However, when discussed in terms of outsourcing, out-tasking is simply another type of outsourcing, which is tactical in nature rather than strategic.

The Theories behind outsourcing

The conceptual basis for outsourcing can be traced from Williamson’s (1975) transaction cost analysis theory, which is essectially a combination of economic theory and management theory used to determine the optimal relationships an organization should develop in the marketplace (McIvor, 2005). The driving principle in transaction cost theory is "achieving efficiency depends on balancing the risks and benefits" (Lee, Huynh, Kwok & Pi, 2003 p.95). Williamson (1985) concludes that the organization should consider outsourcing those activities that would require excessive investment to get lower unit cost when produced internally. Modern day outsourcing can aslo be traced to the work of Porter (1985) who suggested that firms should manage their resources by optimizing transaction cost involved in outsourcing. From the evidence above, it is can be concluded that outsourcing exists to create value (Samuel, 2004)

Outsourcing can be directly linked to the Core Competence theory, Resource-based theory, Transaction cost theory, Network theory, Contractual Theory, and Contingency theory.

Core Competence theory

Hamel and Prahalad (1994, p.4) define core competencies as "the collective skills and learning inside an organization that create competitive advantage." However, there seems to be disagreement amongst many scholars as to what really constitutes a core competence. Quinn and Hilmer (1994) contend that core competencies are neither products nor those things an organization does well, but are infact those things that the company is very good at, especially those that require mental reasoning. Alvarenga and Manmiera (n.d., p.6) on the other hand observe that some executives think of their companies’ core competencies as the things we need to get right, others describe them as "the things we do best" and some executives define a core competency as "the basic skills required to compete in our industry" while, interestingly, some leaders simply ignore the concept altogether. However, other authors argue that the simple dichotomy core — non-core is weak in that there are several circumstances when outsourcing of core competencies can be very beneficial (Baden-Fuller, Targett, & Hunt, 2000). The difference between core and non-core arguably builds on a static view of the world, where "managers can place big bets about their markets, future technologies, and suppliers’ capabilities and motives with a great deal of certainty. The real world is however too turbulent, too unpredictable and complex" (Lacity & Willcocks, 1995). McIvor (2003) found it very difficult to distinguish the core in practice from the non-core.

Resource-Based Theory

This theory views organisations as a collection of productive resources and considers company resources, whether physical or not, as a source of competitive advantage. It is premised on the assumption that organisations gain competitive advantage by their internal resources. According to Barney (1991), the Resource Based View (RBV) can be seen as a substitute of Porter’s (1985) five forces model in analysing sources of competitive advantage. A company should be able to leverage on its resources to differentiate itself from competitiors. Outsourcing brings another persperctive where, if a company does not have sufficient physical and/or intangible assets, it uses outside resources for competitve advantage. Thus a firm can co-operate with partners, so that the firm’s knowledge is enriched by the partners’ knowledge and capability (Barney, 1991) to create sustained competitve advantage. As such, a firm with strategic outsourcing capability is likely to achieve success by leveraging on partners' capabilities and competencies (Khwanruedee et al., 2010).

Transaction Cost Theory

According to Williamson (1981), a transaction cost occurs "when a good or a service is transferred across a technologically separable interface". The theory is a framework for analysing the "comparative costs of planning, adapting, and monitoring task completion under alternative governance structures" (Williamson 1985, p. 2). Henisz and Williamson (1999) argue that transaction cost economics is a relative legal advancement to economic organization where the focus is on information of transaction and governance activities. According to Logan (2000) the theory helps companies to identify non-core activities that could be outsourced.

Network Theory and Agglomeration

According to the Industrial Network Theory, any market can be described as a kind of macro network (Axelsson and Easton 1992). A business network may be defined as a set of connected exchange relationships between firms (Forsgren and Johanson, 1992). The Network theory explains how firms' cooperation can be affected by viewing business as a network of relationships among communities or industry and among organizations or firms (Wilkinson and Young, 2002). The business network view seems to suggest that a company cannot develop strategic outsourcing and implement it in isolation, without a strong understanding of the embeddedness of individual relationships within wider networks (Gadde and HÃ¥kansson, 2001).Therefore, firms with strategic relationships gain competitive advantage, due to access to information and opportunities, over those firms that do not have.

Closely linked to the network theory is the concept of Spatial Agglomeration,

Spatial Agglomeration could be defined as the location of firms within a dense industrial area, increasing the probability of finding specialised suppliers (Antonietti & Cainelli, 2009) According to Quigley (2004), the concept of agglomeration, (which is not new but appeared in writings as old as 1849), is closely linked to the network theory. Hawkins (2011) notes that there are 3 main drivers of agglomeration economies;

Externalities arising from the presence of a large number of firms in the same industry in a specific location

Externalities arising from the presence of a large number of closely related industries, including suppliers and buyers, in a specific location, and

Those that arise from the presence of a large number of firms in unrelated industries in the same location.

Additionally, the sources of agglomeration economies and their relative importance differ with the degree of sophistication of the product manufactured. Adretech (2003) observe that the influence of agglomeration externalities on a firm’s profits depends on the efficiency benefits it derives from collocating and on the contributions it makes to its competitors’, suppliers’ and buyers’ production processes.

Contractual Theory

Gurbaxani (2007) defines an outsourcing arrangement as a long-term contractual arrangement in which one or more service providers are assigned the responsibility of managing all or part of a client’s infrastructure and operations.Solli-Saether and Petter (2009) observe that the outsourcing contract provides a legal framework that binds the right, roles and responsibilities of the parties in the contract and the inherent goals, policies and strategies of the arrangement. The contractual theory is the basis upon which the outsourcing relationship is based and is usually accompanied by Service Level Agreements which clearly spell out the responsibilities and benchmarks for performance measurement.

Types of outsourcing

A search of the Emerald research database with the key word outsourcing, (as at February 26, 2012) yields 6281 journals and 466 books. It is therefore clear that the topic of outsourcing is by no means a new area. As such, a number of classifications of outsourcing exist, and those that are relevent to this research will be reviewed here.

Hillary (2005) identifies three high level "flavours" of strategic outsourcing, namely;

Tactical Outsourcing

Tactical outsourcing is the practice of outsourcing a very specific problem or task which is usually applied where in-house resources cannot immediately deliver what is required. It can be mixed with in-house services creating a blend of in-house and outsourced services and is thus essentially a short-term approach.

Strategic Outsourcing

In strategic outsourcing, the overall corporate 'big picture' has to be considered, rather than individual projects or required skill-sets. As the cut-throat global competition increases, the scope of outsourcing and managed services changes from the traditional concept to strategy (Quinn & Hilmer, 1994). According to (Mazzawi, 2002) strategic outsourcing is concerned with creating value to align the business processes with the strategic goals. In this case the organization ceases to focus on whether to outsource or not and begins to consider what it does best and how. Strategic outsourcing can be an opportunity for the senior management of a company to do some serious re-engineering on the products and services offered. According to Hillary (2004), Haveckin (2012), the main reasons for choosing a strategic outsourcing solution are:

To provide access to the best resources in the business by ensuring that only leading experts work on your projects.

Internal resources can be freed from non-core activities and allowed to focus on revenue generation.

It allows the business to focus on its core competencies rather than reinventing the wheel.

It allows the company to save costs

As a response to industry competitve forces

To provide staff versatility

To introduce new technology and,

To gain competitve advantage.

Transformational Outsourcing

This goes beyond strategic considerations and works on the basis of how the business might be run if there was an opportunity to start over again. This complete business redesign would use outsourcing as a strategic tool to ensure that the benefits of strategic outsourcing are achieved as a new way of doing business is created. This is a complete corporate overhaul and has far-reaching long-term consequences.

According to Gilley, McGee, & Rasheed (2000) there are two broad types of outsourcing which are discussed below;

Substitution

This is outsourcing that arises from the substitution of internal activities by external purchases. In this case, an internal supplier is discontinued in preference of an external supplier and may be viewed as vertical disintegration.

Abstention

This type of outsourcing is not limited to activities shifted to external suppliers, but may also arise when a firm purchases goods or services not provided in-house previously. Abstention-based outsourcing differs from basic procurement because provision of the good or service outsourced is within the acquiring firm’s managerial capacity.

Gewald and Rouse (2012) on the other hand identify two major classes of outsourcing as;

Information Technology outsourcing (ITO)

IT outsourcing, is contracting for delivery of IT services and/or equipment by an external party. Closely linked to IT outsourcing is the concept of Cloud Computing.

Cloud Computing: In essence, cloud computing is a new way of delivering and using IT services "on demand" and in a manner in which the services are flexible, scalable and cost effective (Borts, 2012). It allows users to access and store information and use software functionality on remote servers owned and/or operated by third parties as and when they are needed. Some of the benefits of such an outsourced service include;

Cost saving: allows organisation to easily respond to fluctuations in demand

Capex reduced: no longer extensive expenditure on IT infrastructure (people, software, hardware)

Ease of integration and use: can access services/data/files anytime and from anywhere

Business Process outsourcing (BPO)

They define Business process outsourcing as outsourcing one or more specific business processes together with the IT that supports them, where business process is defined as a set of logically related tasks performed to achieve a defined business outcome.

Since the focus of this reasearch is competitiveness, which is strategic in nature, the classification by Hilary (2000) will be adopted. However, the classification by Gilley, et al., (2000) will also be used in order to provide the broad picture where outsourcing is not limited to activies that are transferred to external suppliers, but also include those not provided in-house previously.

Benefits of Outsourcing

Cost-cutting is often sited as the major advantage of outsourcing, though it can sometimes lead to dissapointment, since outsourcing does not always produce a cost benefit (Lankford and Parsa, 1999). They further argue that outsourcing works best when it is an outgrowth of reengineering. A much better reason is the specialized knowledge that the contractor can provide (Davies, 1995). Domberger (1998) and Hendry (1995) identified five advantages of outsourcing: namely; lower production costs, strategic focus, cost avoidance, relational rents and flexibility. Admittedly, outsourcing has a number of benefits which include enabling a company to redirect energy to its core competencies by making more efficient use of worldwide labor, capital and technology for non-core work, and allowing for the purchase of intellectual capital that would not otherwise be available. Gerwald and Rouse (2000) observe that, although there is a lot of literature that examines the benefits and risks of outsourcing, the majority of research was published on the benefits of outsourcing, and this may be due to the fact that the primary research objects – managers responsible for outsourcing – are much more focused on the benefits than the risks of outsourcing. This is turn may explain the seemingly increasing advantages of outsourcing that are being discovered in literature.The table below, summarises this trend.

Table 2 Benefits of Outsourcing

Burkholder(2006)

Outsourcing Institute (1998)

Elliot and Terke(1996)

Ciandella (1996)

Carter (1995)

Acceleration of reengineering benefits

Focus on core

Business

Focus on core

business

Focus on core

business

Focus on core

Business

Access to world-class capabilities

Access to leading

practices/

technology

Access to leading

practices/

technology

Access to leading

practices/

technology

Access to leading

practices/

technology

Cash infusion

Flexibility

Flexibility

Lack of internal

resources

Reduce costs

Freeing up resources for other purposes

Reduce costs

New skills/culture

Flexibility

Function difficult to manage or out of control

Lack of internal

Resources

Customer/supplier

orientation

Improved company focus

Free internal

Resources

Reduce costs

Reducing operating costs

Function out of

Control

Reducing risk

Access capital

Resources not available internally

Share risks

(Adapted from McDonagh and Hayward, 2000)

Disadvantages and/or risks of outsourcing

Academic work has been done to identify the drawbacks of outsourcing and the ones that stand out include hollowing out, opportunistic behavior, transaction costs, reduced learning and innovation (Domberger, 1998; Hendry, 1995). McDonagh and Hayward (2000) identify the most common problem areas reported in academic studies as

Outsourced workers less in tune with organisational needs or culture

A time-consuming bid or management process;

Failure by service providers to deliver promised service;

Slower response times;

Lack of control; and

Poor communication.

As enterprises continue to adopt varying operating models for outsourcing agreements, Pai & Basu (2007) assert that they must evaluate and weigh the importance of four key factors:

cost savings;

service quality/delivery;

level of control/governance; and

risk tolerance

These provide a key measure of the benefits outsourcing. These mesures will also be adopted in measuring the success of Liquid Telecom outsourcing.

Trends in the telecommunications industy

Unlike general outsourcing, there has not been much academic work done on outsourcing in the telecommunications industry. In fact most of the work in this field has either been done on, or by, original equipment manufacturers (OEMs) (for example, McIvor, 2000). Such studies have two limitations in relation to the focus of this research. Firstly, studies by telecommunications equipment vendo