Strategic Issues Impacting MTN Nigeria (Essay Sample)

Strategic Issues Impacting MTN Nigeria
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Strategic Issues Impacting MTN Nigeria
Company Profile
The telecommunication industry is one of the fastest-growing industries in the world. Nigerian government's deregulation of the telecommunication industry has attracted foreign direct investment valued at $35 billion (Hieu & Nwachukwu, 2019, p. 35). According to Hieu and Nwachukwu (2019, p. 35), mobile operators in Nigeria contribute approximately $8.3 billion to Nigerian's economy. MTN Nigeria is one of the leading companies in the telecommunication industry. Since its inception in Nigeria, the company has grown and expanded its services to at least thirty-six Nigerian states within the last sixteen years. It is the market leader in the country, accounting for 37.89% of the total market share, while its main competitor, Globacom, has a market share of about 25.78% (Hieu & Nwachukwu, 2019, p. 36). The company's product and services offerings include voice and data services, internet products, broadband, and mobile products. The company needs to be agile and innovative to meet customers' demands to achieve its vision.
Strategic Issue
Managers deal with dynamic changes in their business environment through strategic management and financial, predictive and strategic planning. Strategic management refers to the management decisions and actions directed towards building a company's capacities to deliver value to customers and stakeholders (Fuertes et al., 2020). The process starts with environmental scanning to identify positive and negative features within a business's internal and external environment. This approach explores market changes in customer demands, pricing models, technology, competition, and regulations to identify business issues.
Various techniques and tools, including PESTEL, SWOT, and Porter's five analyses can be used to evaluate, identify the internal and external issues affecting business operations. These tools can, therefore, be used to determine the potential problems affecting MTN Nigeria. Common challenges in MTN's operations include the company's regulatory incompliance, frequent internet service disruption, low customer retention capability, declining revenue growth, rising operational costs, and increased price competition (Ekekwe, 2017; Hieu & Nwachukwu, 2019). The researchers critical analyzed the company's internal and external environment to identify these issues.
Out of the six identified problems, high operational costs can be considered the most crucial strategic issue affecting MTN. Abedin et al. (2015) define a strategic issue as to any development, trend, or event that can potentially affect the current or future direction of organizational strategy. MTN's rising costs have considerably impacted its current pricing strategy. Since its inception in Nigeria, MTN has been a market leader providing quality services at low prices. A study conducted by Kadiri and Lawal (2019) showed that the organization offered the second-best billing system after Visafone in Nigeria. However, during the last fiscal year, the enterprise raised its prices to deal with its internal economic crises. Since the company had to change its price strategy to deal with rising costs, this report identifies that MTN's rising costs are a crucial strategic issue.
A second definitive feature of a strategic issue is that it needs a significant number of resources. MTN Nigeria spends a substantial amount of its revenues to manage its costs. The company expenses in 2020 increased from N776.66bn to N920.05bn, accounting for an 18.46% increase in costs (“MTN profits,” 2021, para. 2). The expenses that significantly increased the company's cost include Interconnect costs, depreciation of property and equipment cost, and network operating cost, which contributed 12.22%, 16.33%, and 33.75% to the total costs, respectively ("MTN profits," 2021, para. 6). Presumably, the organization's debts have increased significantly due to the rising expenses. The enterprise's debts increased from N412.54 billion to N521.15 billion in the last fiscal year ("MTN profits," 2021, para 8). In this light, it is logical to argue that the company's costs require a significant amount of its revenues (resources) to be effectively managed; therefore, it is strategic.
The third feature that typifies strategic issues is that they have to be future-oriented and have multifunctional consequences. This paper provides a detailed evaluation of how these aspects relate to MTN's identified strategic problem and the strategic issue's impact on the firm's competitive performance. However, it is worth mentioning that the costs can affect normal business operations. An organization's cost management framework lays the foundation for its business practices, determines its customer delivery function, and helps distinguish the support activities needed by the enterprise to deliver customer value. It involves planning the actual costs of a corporation's activities through resource planning, cost estimation, budgeting, and cost control.
Any changes in the internal and external environment will lead to changes in cost management practices. The company's management will need to change the exploitation of internal resources and capabilities to become sustainable. According to Abedin et al. (2015), strategic issues require consideration of the company's external environment. In other words, a strategic problem might emanate in response to managers' diagnosis of the external environment. This issue, as demonstrated in the next section, stems from the company's external environment. A company's costs influence how it allocates resources and respond to external opportunities. Additionally, effective cost management can increase shareholder value and help the company mitigate adverse effects by generating profits from revenues.
Source of the Strategic Issue
As indicated earlier, the substantial increase in operational costs is among the most crucial strategic issues impacting MTN. According to MTN's chief finance officer (C.E.O), Modupe Kadri, the company's goal was to cut down its debts by half during the first quarter of the 2021 fiscal year (Ohuocha, 2021). However, the enterprise managed to minimize its arrears have during the final quarter of the last fiscal year ("MTN profits," 2021). MTN Nigeria's debt-to-equity ratio reduced from 27.46% in 2019 to 26.54% in 2020 ("MTN profits," 2021, para. 3). ProShare Research attributed the reduction in the debt-to-equity ratio to the enterprise's profit and equity ("MTN profits," 2021). Generally, having a low debt-to-equity ratio is desirable because it improves creditors' favorability towards the company.
Three major strategies are used to lower a firm's debt-to-equity ratio: increase revenues, inventory management, and debt restructuring: MTN Nigeria settled on increasing revenues by adjusting prices. Increasing revenues can be achieved by reducing costs, increasing sales, or raising prices to generate revenues (Gallo, 2017). High prices improve a company's profitability by increasing sales revenues. The organization can then use the extra revenues generated from the profit margins to finance its debts.
While the company's costs were rising, its local market yields were at their historic low. This is evidenced in Proshare Research's report, which revealed that although MTN's profits were increasing, the company marketplace yields were strained ("MTN profits," 2021). This observation implies that the surge in MTN's profits did not arise from cost reductions. Although anecdotal, MTN Nigeria's price strategy has increased the company's profitability. The true motivations behind the price increase are not known. The company could have raised its prices to address its rising costs to increase its market valuation.
The company's decision to raise prices to deal with cost increases highlights the importance of the governance board in strategic management. The company's website shows its governance structure consists of several board committees that conduct internal and external auditing to determine its operations, strategic talent review, and sourcing ("MTN Group," n.d.). From its governance structure's analysis, it is clear that the board makes all strategic decisions. Unfortunately, the above-mentioned governance structure has been ascribed to most multinational companies’ unsuccessful nature. For example, Procter and Gamble (P&G) realized that its corporate structure was the primary reason behind its consistently low sale revenues despite implementing various strategies to boost sales. The organization realized that its centralized governance model and corporate structure created unnecessary complexities and bureaucracy.
Like P &G, MTN Nigeria has a centralized organizational structure, meaning that the parent company coordinates business activities and transfer resources and capabilities for their subsidiaries. The resource-based theory asserts that a company can exploit its internal resources to build a competitive advantage (Adeoti et al., 2017). The theory maintains that companies must seek cost leadership strategy in all business aspects and activities to achieve a competitive advantage. However, this approach limits the decision-making power of subsidiaries' managers and their ability to respond to the local market in real-time (Dyer et al., 2020). According to Malfait et al. (2017), the board is expected to provide direction but not manage the company. The board at MTN Group in Nigeria monitors the developments outside and inside the organization, evaluates management actions, proposals, and ac...