Organizational Performance in Saudi Arabia Telecommunications Companies

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Table of Contents

Introduction
Economic Analysis
Industry Analysis
Company Analysis
References

Introduction

Telecommunications is one of the most rapidly developing industries in the world. On the one hand it is explained by the fact that innovative technologies are highly demanded, on the other hand, outsiders of the market may be quickly replaced by potential new entrants. Telecommunications in Saudi Arabia is the potential and promising sphere for investments, and, it is forecasted that it will have been developing extensively for the year 2011.

The aim of this paper is to analyze the investment portfolio of three telecommunication companies that are represented on Saudi Arabia share market, and provide economic, industrial and company analysis for the detailed assessment of the investment strategy. The companies, selected for the analysis are Mobile Telecommunications Company Saudi Arabia, Saudi Telecom, and Etihad Etisalat Co.

Economic Analysis

Economic forecast of Saudi Arabia for 2011 is quite favorable. In spite of the fact that economy is mainly dependent on the oil exporting, other spheres are regarded as the alternative source of economic prosperity. It should be emphasized that the forecasts for the year 2011 are based on the fact that Saudi stock market reached its highest point in January 2011 (Zeigler, 2011). Hence, the analysts are rather optimistic as for the economic situation. Additionally, Saudi Arabia managed to escape the destabilizing financial disorder that affected numerous States, so, the economic system will be subjected to essential regional and domestic challenges, nevertheless, strong economic performance is expected.

As a rule, any economic system can not be assured in 100% success, as the world financial system is mainly unpredictable, though, as Trebing (535) emphasizes:

A reflective Arab News editorial this week noted, While it has been a good year for the Kingdom and the prospects remain excellent for the year ahead, the same cannot be said for the wider region. It said many of Saudi Arabias neighbors face major challenges. Lebanon, Egypt, and Iraq are challenged by political turmoil and the situation is far worse in Yemen, Saudi Arabias southern neighbor.

In the light of this statement, it should be noted that the actual importance of 2011 development is closely linked with the values of economic development that is an integral part of the global processes. Hence, it is stated that Irans nuclear program may be a destabilizing factor for the Arab economy, and possible military strikes in Gulf will be rather challenging. However, the entire economic development will be quite effective and successful.

Industry Analysis

Telecommunications is one of the most stable spheres in Saudi economic system. It is stated that the actual importance of telecommunications is explained by the fact that this sphere is highly demanded by the whole world, however, it should be supported and developed constantly for maintaining the competitive ability of the sphere.

In accordance with 2010 reports, telecommunications trade levels were 3.95% from the total trade volumes: 772 037 trades were registered, with the total value of 1 952 622 860 shares (5.92% of the total share market).

Most companies that are represented in this sphere are founded by the UK companies. However, this fact does not diminish the importance of telecommunications for the Saudi economic system. This also involves software development, equipment manufacturing and providing, cell phone services providing, website creation and web design. Hence, the sphere in general is quite perspective and multi angled.

In accordance with the global development processes, telecommunications is the sphere that is developed regardless of the economic problems. As it is emphasized by Idris (36), particular manufacturers and developers may be hit by economic difficulties, however, the sphere itself is developing in accordance with its own development rules.

The sphere itself is divided into several sub-divisions, and each is developed half independently from the others. Hence, hardware aspect of telecommunications is conquered by iPhone and other Apple production, while other manufacturers either try to copy the idea, or develop their own prototypes. Cell phone services is the sphere with endless potential, as most services that are offered may be close to perfect from the technical perspective, while customer care needs constant and serious improvement.

Internet access and technologies are developing with the incredible speed. Moreover, it is forecasted that global network will reach its development peak in 2011. Additionally, thee speed of internet access doubles every year. Hence, Saudi Telecom has perfect chances for effective development.

Telecommunications in Saudi Arabia are forecasted to grow, however, the first half-year will be featured with slow growth and essential barriers associated with quick penetration of Android based smart phones, and reduction of internet access speed development. Industry growth will not overwhelm 4-6% growth rates. However, second half-year will show more definite and assured growth due to the planned 3G networks development and implementation. The quality of telecommunication services is planned to increase, hence, the demand will grow.

Company Analysis

Mobile Telecommunications Company Saudi Arabia

Mobile Telecommunications Company Saudi Arabia is regarded as one of the middling companies in the sphere of telecommunications. It barely reaches 8% of the market, however, it may be regarded as the most stable company. Factors that promote its business development are as follows:

The company understands the key tendencies of sphere development
Realizes the key internal and external factors that influence companys development
Aims to study competitors, as well as potential partners and suppliers
Analyzes yearly financial indicators

Nevertheless, the company lacks sufficient financial support for implementing all the planned projects associated with providing services as well as studying the market.

In accordance with profile analysis, the growth rates of the company are not satisfactory

Avargae quartely growth rate	0.35
Annual	1.4	2010	2009	2008
growth rate based on ROE*b	ROE	0.056	0.114	0.2345
		0.59	0.56	0.69
Average of three	0.086228333	0.03304	0.06384	0.161805

Cost of Capital Calculations:		Weight	interest	cost	WACC
Debt (book value)	219008	0.49802	3580	0.016346	0.008141
Minoroty interest (book value)	38965	0.088606	6890	0.176825	0.015668
Equity (market value)	285000	0.648085		0.81	0.524949
Total	542973	1.234711			0.548758

The growth rate of the company is slow enough, nevertheless, the intrinsic value is quite promising.

Saudi Telecom

The company shows much better results in comparison with the previously analyzed company in the sphere of economic indicators. The company offers high quality services, while the total share of the market is close to 15%. Actually, this may be regarded as quite successful performance, nevertheless, the financial analyses reveal slow decrease in market share volumes. This is explained by the fact that company is not aimed at improvement of the services provided, and customers prefer decreasing the amount of services used.

The company has an extensive network of partners, and the aim of the company is to create a reliable telecommunication network based on partnership, trust and professionalism. Portfolio analysis shows that the company has sufficient chances to achieve these aims.

Avargae quartely growth rate	0.80
Annual	3.19	2010	2009	2008
growth rate based on ROE*b	ROE	17	0.45	0.67
	b	0.87	0.72	0.56
Average of three	5.16	14.79	0.324	0.3752

Cost of Capital Calculations:		Weight	interest	cost	WACC
Debt (book value)	112896	0.256724	3286	0.029106	0.007472
Minoroty interest (book value)	33780	0.076815	55421	1.640645	0.126026
Equity (market value)	230670	0.52454		0.81	0.424877
Total	377346	0.858078			0.558376

The growth rate of the company is relatively high, moreover, the intrinsic value is quite promising. Nevertheless, the forecasts for the year 2011 are not very optimistic.

Etihad Etisalat Co

Average trade size of the company is 1 372 actions. The company reveals extensive growth rates, and the stock market indicators are quite promising for investing the company. On the other hand, the company is not able to guarantee high investment turn over, as the 2011 forecast shows that the company is intended to concentrate on innovative projects that will slow down companys development for at least 6 8 months.

Avargae quartely growth rate	1.53
Annual A	6.11	2010	2009	2008
growth rate based on ROE*b	ROE	0.45	0.77	0.52
	b	0.89	0.54	0.32
Average of three B	0.33	0.4005	0.4158	0.1664

Cost of Capital Calculations:		Weight	interest	cost	WACC
Debt (book value)	186654	0.424448	4561	0.024436	0.010372
Minoroty interest (book value)	33780	0.076815	6814	0.201717	0.015495
Equity (market value)	321690	0.731518		0.81	0.592529
Total	542124	1.232781			0.618396

References

Idris, Abdallah M. Cultural Barriers to Improved Organizational Performance in Saudi Arabia. SAM Advanced Management Journal 72.2 (2010): 36

Trebing, Harry M., and Maurice Estabrooks. The Globalization of Telecommunications: A Study in the Struggle to Control Markets and Technology. Journal of Economic Issues 29.2 (2011): 535

Zeigler, Lucien Why Are Economists Bullish on Saudi Arabias 2011 Economic Prospects Saudi US Relations Information Service. 2011 Web.

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