Value chain analysis of telecom equipment industry - a study of co-opetitive models

Abstract

Executive Summary This report on the Telecom Equipment industry is broadly divided into two parts. The first part focuses on studying the entire value chain of telecom and analyzing the financials to ascertain how the value appropriation is happening. The second part looks at options for the telecom vendors to improve their operating margins. The study of value chain involved analyzing the various industries and constituent firms. A thorough study of each industry was done based and the operating margins of the top firms were compared. The primary point of comparison was between the vendors and the service providers. The study showed that the service providers have been enjoying significantly higher operating margins over the past few years. An extensive costing exercise was undertaken to calculate the apportioning of every 1$ of profit among the various constituents of the value chain. This yielded a U-curve, which proved that the vendors got the least chunk of the pie. The possible options for the vendors to appropriate more value were studied and various dimensions along which to consolidate were studied. However, in order to work out a long-term viable framework for alliances within the industry that would not be subject to antitrust scrutiny, it was imperative to look at the various co-opetitive models available. A framework for coopetition among firms requires a prediction of the evolutionary path that the industry will follow along the dimensions of Technology, Economic growth and Marketing. The trends in telecom along these parameters were studied and then a list of objectives that were required out of the co-opetitive models is listed out. This provides a requirements list, which can be compared with various models that were witnessed in the industry. The study of know-how based co-opetition produced three models: Business Integration through Platforms, Collaborative R&D and Standards setting. A reference framework for firms to choose between these models is worked out. The input parameters into this decision are the firm’s commitment to market creation and technology innovation respectively. An empirical study of co-opetition based on geographic clustering is reveals the presence of ecosystems or research hubs. This adds another dimension along which firms can pursue co-opetition. Finally, the paper draws a parallel between the vendor industry and the Indian software sector and moots the idea of co-opetition as an avenue for Indian firms to create more value.